People walk down Bay Street in Toronto's Financial District in January of 2015.Mark Blinch/The Globe and Mail
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Economists are being uncharacteristically blunt about the outlook for the Canadian economy. University of Western Ontario economics professor Mike Moffatt, interviewed by Vice (of all publications), didn't hedge,
"'Are we in trouble? The short answer is yes,' [Mr. Moffatt] says … Moffatt points out that a Bank of Canada survey of Canadian business, the results of which were published Monday morning, found that industry remained largely pessimistic about the year ahead and that most employers were bearish on hiring new staff … Moffatt points out that when the survey was conducted, North American oil prices were nearly $10 higher than they are today."
In the world of research, Merrill Lynch economist Emanuella Enanajor wrote a report arguing that the domestic economy has deteriorated to the point where a Bank of Canada interest rate cut is likely on Jan. 20,
"Sinking energy prices, economic weakness, and factory-sector stagnation suggest the BoC's forecasts are too optimistic. Come January 20th, we expect the BoC to cut the overnight rate by 25 [basis points], in response to a struggling economy."
"The Loonie Is Plunging, and Oil Is Dirt Cheap in Canada" – Moffatt, Vice
"Well, this is blunt BAML: " Come January 20th, we expect the BoC to cut the overnight rate by 25bp" (includes research excerpt) – Twitter
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The U.S. economy was supposed to lead the world in 2016, and while recent indications of consumption are healthy, there are signs of a sharp slowdown in manufacturing activity,
"'We believe rail data may be signaling a warning for the broader economy,' the recent note from Bank of America says. 'Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week's -10.1 percent decline, has not occurred since 2009.'"
"Rail Traffic Is Saying Something Worrying About the U.S. Economy" – Bloomberg
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Speculative investors are betting that, as bad as things are for oil, they're going to get worse,
"Prices are down around 15 per cent since the start of the year, dragged lower by a glut, China's weakening economy and stock market turmoil, as well as the strong dollar, which makes it more expensive for those using other currencies to buy oil.
"Every time you hit new lows there's the potential for profit taking, and as people try to pick the bottom of the market," said Richard Mallinson, geopolitical analyst at Energy Aspects.
"Trading data showed that managed short positions in WTI crude contracts, which would profit from a further fall in prices, are at a record high, indicating that many traders expect further falls."
The increase in short positions on crude after such a dramatic decline is, in my mind, a positive short term indicator. Oil bears are getting too greedy and the extent of short positions implies a sharp rally as they are forced to cover. This has nothing to do with the weak fundamental outlook for oil, however, just a potential tradeable rally.
"Oil steadies below $32 as investors book profits" – Reuters
Related: "Commodity Crash Redux as 2016 Starts Out Worse Than Last Year" – Bloomberg
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An in-depth report on U.S. energy stocks from the Wall Street Journal highlighted predictions of mass bankruptcies,
"As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low.
"More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.
"Morgan Stanley issued a report this week describing an environment 'worse than 1986' for energy prices and producers, referring to the last big oil bust that lasted for years. The current downturn is now deeper and longer than each of the five oil price crashes since 1970, said Martijn Rats, an analyst at the bank."
"Oil Plunge Sparks Bankruptcy Concerns" – Wall Street Journal
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Tweet of the Day: "@markets Hong Kong's yuan interbank rates rise to record highs -- overnight rate at 66.82% bloom.bg/1OMnjaP pic.twitter.com/U8xJr3CGDH " – Twitter
Diversion: "Inspired by Motorcycles, This Watch Tells Time With a Working Chain Drive" – Gizmodo