Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The 10 per cent jump in West Texas Intermediate Crude prices Thursday is an unequivocally positive development for the beleaguered energy sector. However, investors should view sentiment in the oil market as "less negative" rather than completely bullish for the next few days.
The size and speed of the rally in WTI yesterday had all the hallmarks of a short covering rally. Speculative investors and traders – primarily in the futures markets – got caught being too greedy with their short positions on oil and had to cover the positions (by buying them back) all at once. Again, the end result is positive for energy investments but the future course of prices in the sector is still in question. Not positive, not negative, in question.
"Investors, don't get too complacent after this dramatic rally" – Dowty, Inside the Market
"Canadian oil producers brace for wave of reserve writedowns" – Financial Post
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The Economist made an attempt to explain why the Canadian manufacturing exporters remain in hibernation despite the weak domestic currency. The foreign perspective is useful in my opinion, because it is less determined by domestic politics – a rare commodity in Canada during an election year:
"In 2000, manufacturing accounted for 18 per cent of GDP, not much lower than the share in Germany; by 2013 that had dropped to 10 per cent, about the level in Britain and the United States. Factory employment has fallen by about 500,000 since 2005, to 1.7 million. In the decade to 2012, some 20,000 factories shut down.
One big problem is that Canada mostly makes components, not final products. That leaves manufacturers vulnerable when their customers move. Car-parts makers used to be well-placed for deliveries to carmakers in Michigan, but many of their customers have moved south."
"The new rustbelt: The puzzling weakness of [Canadian] manufacturing" – The Economist
Related: "Canada's economy: 5 reasons not to panic" – CBC
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A Merrrill Lynch research report quantifies the major investor capitulation – the "GET ME OUT AT ANY PRICE" investor panic that often signals a market bottom – that occurred this week. I can't link to the report, but a series of tweets and a Bloomberg report (also a paywalled Financial Times post) put the amazing charts in the public realm. Among the facts – investment assets were pulled out of global markets at the fastest pace since the demise of Lehman Brothers.
"Money Pours Out of Emerging Markets at Rate Unseen Since Lehman" – Bloomberg
"Investors in 'total risk surrender' says BAML" – Fast FT
"@ReutersJamie A record $29.5B – more than Asian or 2008 crises – pulled out of global equity funds this week. $19B in one day-BAML – Twitter
"@FGoria BofA-ML: Cross asset capitulation – Worst since taper tantrum http://t.co/mEsUfI0y0l " – Twitter
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The Across the Curve blog highlighted a Financial Times story highlighting the mounting energy-related losses at Canadian banks. The tone, for me at least, was far too dire. The story noted that:
"TD Bank said oil and gas impairments in the third quarter to the end of July rose by about two-thirds from the second quarter to $35-million (Canadian), while CIBC said they rose by a third to $34-million."
For individuals, that's a lot of money. For Canadian banks that make over a billion dollars in profit per quarter, $35-million is just a regular afternoon's worth of profit.
"From the Oh Canada Department" – Across the Curve
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Tweet of the Day: "@James_v_S Don't let the door hit you on your arse on your way out Mr & Mrs Yield Tourists... pic.twitter.com/bFQSD9NNRV – Twitter
Diversion: The Atlantic covers the troubling state of (bad, politically motivated) research in academia.
"How Reliable Are Psychology Studies?" – The Atlantic
Scott Barlow