Decoupling Of Oil Markets And The Loonie
For the past few years, there has been a very strong correlation between the price of oil and the strength of the Canadian dollar. In the last few weeks, this correlation has been weakening, as oil price fluctuations seem to affect the Loonie more when oil goes down, but not as much when the price of crude recovers. This is further proof about general economic weakness in Canada, which was hardly hit by the 2014 oil price plunge and has not been able to shift its export base to recover.
The Canadian dollar has only recovered by 0.5% after an oil price recovery of about 8% in August. This situation shows that Canada, having – in theory – all the instruments necessary to recover from the downturn in oil markets, has not been able to turn its situation around. Economic theory points towards proximity, common language, economic size and economic compatibility as factors that could boost one nation’s exports to another’s. Canada has all these factors working for it vis-à-vis the US, but has failed to capitalize. read more…
Sun Sets On Solar Panel Industry
Solar panel maker stocks got hit across the board last week. The downturn in the industry follows lower than expected revenue, and in some cases losses instead of the profits that were previously projected. This follows the bankruptcy of SunEdison Inc. Although many executives in the industry are pointing towards cyclical issues, the rise of competition within the industry, the flood of assets from SunEdison, and the lack of proper tax incentives for the downturn, there are other factors that cannot be ignored.
Chief among them is the low price of energy that seems to be here to stay. The world is awash with cheap oil and its derivatives, which has also had an impact on natural gas markets. Natural gas is a direct competitor for the solar panel industry in terms of power plant generation capacity. This energy source also has much more installed infrastructure running now, especially after the shale revolution, but on the other hand the downturn in natural gas prices, will keep on facing supply and demand side pressures. read more…
Gauging The Consequences Of Brexit
Measuring the effects of Brexit has become one of the most popular sports on earth. Every pundit, analyst and investor out there, and every government official that has anything to do with the economic affairs of their respective countries, are scrutinizing every little piece of information coming out of Britain since the vote took place. In the process, the analysts are mostly losing sight of the context within which the information they analyze is found.
The truth is that we live in a world of stagnant economies, sluggish growth and weak prospects, propped up by cheap money. Within that context, and given the fact that the Brexit vote took place a little over two months ago, it is safe to say that there is absolutely no conclusive evidence about how Brexit is affecting Britain or the world economy. This is essentially due to the fact that Brexit has not taken place yet. There is no one out there who knows how Britain and the EU will shape their divorce agreement. read more…
Canadian Economy Heads Down
It seems that recovering from Dutch Disease is harder than previously thought. An economy that is highly dependent on its oil revenue to grow and balance its external payments, has to display much more flexibility in order to weather the bear markets that took over crude 2 years ago. Canada is the most recent example of how hard this might be, and although it can partially blame the price of oil for its woes, experts and industry leaders as well as policy makers in the Great White North have to consider a drastic change in how they perceive the economy.
The first indicator of the need for change, comes from manufacturing outputs. Canada’s biggest client is the US, which has been displaying sustained, albeit fragile, economic growth for 7 years now. The overwhelming assumption when oil prices plummeted was that the Canadian Dollar will weaken, incentivizing US purchases of Canadian goods. The numbers show that although US consumers are spending more, and the economy south of the border is still growing, the weakness in the Loonie is not bringing in more US orders. In fact, manufacturing in Canada fell by 1% in May, which is a dismal result for all the experts and policy makers who were counting on a sharp currency depreciation – a depreciation of more than 30% from where it was 2 years ago – to become a magic fix for falling oil revenue. read more…
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Financial Markets – Preview for Week Starting 10th July 2016
Major Events of Last Week
A pivotal event of this month occurred last Friday when the US Department of Labor released its eagerly awaited employment report for June. The results definitely surprised to the upside by disclosing that job growth rallied strongly last month following a dismal showing in May. US Employers created an impressive 287,000 new posts during June compared to analysts’ expectations of 150,000 clearly demonstrating that the US economy was regaining traction after enduring a slump during the first quarter of 2016. However, insipid wage growth could still convince the US Federal Reserve to adopt caution by not implementing any further rate hikes until next year. The primary US indices surged last Friday exemplified by the Dow Jones Industrial Average soaring 235 points higher; the S&P500 rising by 29 points and the NASDAQ climbing by 73 points. read more…
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