A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Canaccord Genuity Group Inc announced Sunday that they intend to lay off four per cent of its capital markets staff with cuts focused in the U.K. and the United States. Independent broker dealers have been suffering from volatile markets and a lack of resource-based investment banking activity, but today's news may turn out a bit ironic – there are signs of a recovery in the commodity space.
Oil prices started lower overnight but reversed course and surged one per cent higher. The gains follow a sharp crude rally Friday after a report on active U.S. rigs from Baker Hughes showed a sharp decline. Commodity investors took the West Texas Intermediate benchmark price higher by eight per cent in the aftermath, on hopes that the smaller active rig count will lead to lower U.S. production and end the North American supply glut.
The Financial Times also reports that U.S. gasoline consumption is climbing as prices fall, which will also help alleviate excess supply.
"Canaccord cutting staff on global economic weakness" – Report on Business
"Could record slide in crude oil price be ending?" – Financial Times (subscription may be required)
See also: "Rig counts and how to interpret them" – Philip Dunham
Greece's new finance minister Yanis Varoufakis provided one the most insightful economic policy interviews I've ever seen. Speaking with the BBC, Mr. Varoufakis wonderfully clarified his country's position regarding membership in the European Monetary Union while also slapping aside a number of misconceptions about the Greek economy. The key quote comes early in the interview when Mr. Varoufakis bluntly points out that where Greece is concerned, the EU is attempting to fix a solvency issue with liquidity, and it won't work.
Greece's economy is small in the grand scheme of things, but the ongoing policy debate between the country and its larger European partners remains important for all investors. The solution to Greece's struggles will have vital implications for the larger, struggling economies of Spain and Italy.
"Yanis Varoufakis Newsnight interview" – BBC
An in-depth look at China's wobbly credit situation by Financial Times Alphaville's Matthew Klein contains a wealth of information about the future of the Chinese economy. Mr. Klein notes that, "Since 2008, debts owed by China's non-financial sector have soared by more than 90 percentage points relative to GDP … Chinese corporations are now among the most indebted in the world. For perspective, Japanese non-financial businesses took ten years to increase their indebtedness by 30 percentage points of GDP in the 1980."
Perhaps more importantly, Mr. Klein notes that a lot of the investment that resulted from the credit explosion may turn out to be wasted.
"Speaking of which, most of the additional debt has been incurred by state-owned enterprises that benefit from preferential access to credit, rather than productive borrowers in the private sector. This artificially cheap capital – provided by household deposits – subsidises inefficient businesses and creates excess capacity."
"Digging into China's debts" – Klein, FT Alphaville
"Weak data in China" – Across the Curve
So, if I were desperate for reader attention I would have put this "nightmarish" outlook for global bond markets at the top of the post but, the thing is, I don't believe it. The Financial Times reports that Jan Dehn, head of research at Ashmore Investment Management, believes that U.S. interest rates are about to explode higher and approach 20 per cent,
"'Systemically important' U.S. fixed income funds could be compelled to buy long-duration US government debt. And when this obligation is lifted, the long-end of the Treasury bond curve will spike to the sort of double-digit yields last seen in the early 1980s."
"Nightmarish bond blowout predicted" – Financial Times (subscription may be required)
Tweet of the Day: @georgepearkes "And finally: U.S. equity guidance turns sharply bearish. Companies raising versus lowering. (Bespoke) pic.twitter.com/MdXAZsepoH "
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Scott Barlow