Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
Trade sanctions are the one policy initiative where the president-elect has been consistent.
The details are still vague, but the proposals being floated involve border taxes on goods entering the United States, combined with a subsidy for U.S. exporters. This is, of course, terrible news for a Canadian economy where a weaker currency is expected to generate export growth.
JP Morgan has attempted to quantify the effects of this potential policy, and FT Alphaville has the summary. One reproduced chart shows that "Revenue exposure to the U.S. for companies listed in major equity markets" is 82 per cent for Canada and our exports to the U.S. as a percentage of GDP is second highest in the world (to Mexico) at 19 per cent.
Citi strategists also discussed the border tax's potential effects on the Canadian economy. There are charts showing Canada's high percentage of total U.S. imports and also the industries – auto parts, chemicals and machinery – that are most exposed to the tax.
Citi also presents a chart of "Economic and stock market exposure to the U.S." and inexplicably did not include Canada in the results. This annoyed me no end, and is a worrisome sign that in some quarters we are considered a political "also ran" in discussions, according to global investors.
"Pricing in a Trump border tax" – FT Alphaville (free access with registration)
"@SBarlow_ROB Citi; U.S. imports by country, industry " – (2 charts) Twitter
"@SBarlow_ROB Oh, for real Citi? You don't put Canada on a chart of U.S. trade partners? Levkovich is Canadian! " – (research excerpt) Twitter
"Trump trade faces test from economic and financial disruptions" – Financial Times
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A Merrill Lynch research report presents a bullish outlook for the global economy,
"The Global Wave jumped significantly this month as all seven components improved. This eighth consecutive monthly improvement is confirmation global macro data continues to trend positively, suggesting investors position for a sustained upturn in equities and cyclical regions, countries, sectors, and styles. All components of the Global Wave improved meaningfully last month. Since the trough signal eight months ago, the largest contributions to the Global Wave have been the Global Earnings Revision Ratio, Global Credit Spreads, and Global Producer Prices. Earnings improve when global cycle improves History shows global earnings improve when the Global Wave is rising, and this is true in every region. In fact, the EPS forecast of the world has a 75% correlation with the Global Wave over the last 28 years, and the correlation is more than 50% in each region of the world. Earnings improve when the Global Wave is rising."
"@SBarlow_ROB ML see global economic and EPS upsurge. "Almost vertical" ' – (research excerpt) Twitter
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The International Energy Agency predicts extreme volatility levels in global crude markets for 2017,
"[IEA executive director] Birol said although the OPEC agreement could signal higher oil prices, it would also encourage more production from the United States and elsewhere. Higher prices could also weaken global demand for oil, he added. "I expect the U.S. shale oil will go back to increasing production this year," Birol said.
"He added that a recent trend of declining Chinese oil production due to low prices could be reversed if the market strengthened."
"Oil prices will be much more volatile in 2017: IEA" – Reuters
"China's crude oil juggernaut to roll on, but more slowly: Russell" – Reuters
"Oil prices slip on doubts over output cuts" – Reuters
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Tweet of the Day: "@business Donald Trump lists the reasons why he thinks NATO is "obsolete" bloom.bg/2jfI57W " – Twitter
Diversion: "How many famous people will die in 2017?" – M.I.T. Media Lab
Scott Barlow