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Markets fear higher oil prices Brent crude topped $101 (U.S.) a barrel today as the uprising in Egypt gathered force, sparking fears of shipping disruptions in the crucial Suez Canal.
The canal, and an adjacent pipeline, continued to operate normally, but speculation mounted nonetheless, also pushing up the price of West Texas Intermediate oil, the U.S. benchmark.
"The political tension in the Middle East is far from over, and as such the market for oil will be particularly sensitive and subject to upside surges," said Scotia Capital currency strategist Sacha Tihanyi.
The Suez Canal runs for almost 200 kilometres, and is estimated to have brought Egypt almost $5-billion in revenue last year, according to Reuters. A shutdown of the canal would mean about an extra 10 days for Mideast oil to get to the United States, and 18 days to northern Europe, The Wall Street Journal says.
Millions of barrels of crude a day pass through the canal, representing an estimated 3 per cent of global output.
"If the uncertainty continues we could well see levels above $100 a barrel very quickly," said CMC Markets analyst Michael Hewson.
There are also fears the unrest could spread to other countries.
The secretary-general of OPEC, Abdalla el-Badri, said today in London that the group would boost production if supplies suffer disruption, though it's not at that point.
Separately today, Moody's Investor Service cut Egypt's debt rating, saying "there is a strong possibility that fiscal policy will be loosened as part of the government's efforts to contain discontent.
And several multinationals operating in Egypt - Coca-Cola, Heineken, General Motors and Lafarge, to name a few - are pulling back or suspending operations as the week-old uprising gathers force.
Why stakes are high It's not just the Suez Canal. While this has yet to play out, "the risks of a more chaotic outcome remain high," said Said Hirsh, the Middle East economist at Capital Economics.
Uncertainty could be the order of the day for years, he said in a research note, which could affect Egypt's currency and the government books.
"The Egyptian pound has fallen to its lowest level against the dollar since early 2005, Mr. Hirsh said.
"... Egypt's foreign reserves should be sufficient to prevent a complete collapse in the currency, but it will become increasingly difficult and expensive to manage rising inflation. The risks to the public finances are also growing. Egypt's large budget deficit will increase further this year as the cost of borrowing rises and the government tries to spend its way out of trouble.
"Moody's has already downgraded Egypt to Ba2 and kept it on negative watch. Locals will also be more likely to take their capital out of the country and overseas workers will be less willing to send money back if the political uncertainty drags on. These remittances have been vital in allowing Egypt to finance a widening deficit in goods and services ... What's more, the banking sector will be increasingly vulnerable to defaults if business leaders continue to flee and collateral values drop further."
Scotia Capital economist Derek Holt also cited fears of unrest spreading through the region.
"Clearly, if it were just about Egypt, then the worries would be much more contained," he said.
"But markets love to stamp cookie-cutter themes across other markets with even remote similarities. The dominant fear remains that of Egyptian style protests spreading through the Middle East," Mr. Holt said in a research note.
"But what caused the crisis could also be what cures it. I doubt the immediate catalyst was that people suddenly woke up after decades of rule by often ruthless and oppressive dictatorships and suddenly demanded freedom. Spikes in food and gasoline prices created significant malcontent, and a sudden focus on efforts to contain such prices could be what quells contagion risk."
- Oil prices rise on Egypt unrest
- Slideshow: Economic fallout for Egypt
- Egypt's credit rating cut by Moody's
- OPEC worried about Egypt, but not acting
- Read our complete coverage of the crisis in Egypt
GDP expands 0.4 per cent Canada's energy industry helped boost the economy in November, making up for a fall in construction and manufacturing, The Globe and Mail's Tavia Grant reports today.
The economy expanded by 0.4 per cent November, Statistics Canada said, gaining on October's 0.2-per-cent growth in gross domestic product. November's showing was the fastest in eight months.
The services sector also boosted the economy.
"The goods sector should continue to benefit from strong global demand for Canadian resources, such oil and gas," said Toronto-Dominion bank economist Diana Petramala.
"But excluding the resource sector, manufacturing will continue to face significant challenges, particularly in the wake of a strong Canadian dollar, and increased competition from low-cost global players. All said, the Canadian economy will face both international and domestic challenges in 2011 that are expected to hold real GDP growth in a moderate range of 2.5 per cent to 3 per cent,"
Euro zone inflation climbs The European Central Bank heads into a policy meeting this week amid both economic turmoil and rising inflation.
The central bank, which meets Thursday, is already grappling with how to manage a one-size-fits-all monetary policy for 17 individual economies that are moving at far different speeds after the recession.
Now, inflation is also becoming a concern. Consumer prices increased 2.4 per cent in January from a year earlier, following a 2.2-per-cent rise in December.
- Euro zone January inflation jumps
- Expectation of inflation on the upswing
- Inflation starts to make unwelcome entrance in world economies
Chrysler loss narrows Chrysler Group LLC appears to be on the rebound, reporting a $199-million (U.S.) loss in the fourth quarter of last year but projecting a profit of between $200-million to $500-million this year.
The fourth-quarter loss was heftier than that of the third quarter and far narrower than the $2.69-billion shortfall a year earlier, though that contained a huge charge.
The auto maker, which, along with competitor General Motors Co., was rescued by governments at the height of the crisis, said it boosted its U.S. market share to 9.2 per cent last year from 8.8 per cent, and its Canadian market share to 13 per cent from 11 per cent.
Separately today, Honda posted a drop in quarterly profit of almost 40 per cent.
Exxon, Imperial profits surge Exxon Mobil Corp. today posted a fourth-quarter profit of $9.25-billion (U.S.) or $1.86 a share, a jump of more than 50 per cent from $6.01-billion or $1.27 a year earlier.
Revenue climbed to $105.2-billion from $89.8-billion.
Calgary's Imperial Oil Ltd. also posted sharply higher foruth-quarter profits today, earnings $799-million or 95 cents a share, up from $534-million or 63 cents a year earlier.
Revenue surged to $6.9-billion from $5.9-billion.
Boyd Erman's Morning Meeting Goldman Sachs partner Abby Joseph Cohen, who became famous for market predictions in the bull run of the 1990s, gets a tough ride from Deborah Solomon of the New York Times today, Streetwise columnist Boyd Erman reports.
In Personal Finance today
It's now easier to catch people who go over their contribution limit, so know when and how much you can invest.
The Canada Revenue Agency offers a few tips to avoid identity theft.
The best deals are found by those who know their prices, where to shop and how to make the most of flyers and coupons.
From today's Report on Business