A Canadian dollar coin, commonly known as the loonie, is pictured in this January 23, 2015, file photo.MARK BLINCH/Reuters
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
I talk with domestic brokers all the time and there is anecdotal evidence of foreign investors – who are already beat up by previous weakness in the loonie and resource stocks – selling Canadian assets ahead of the election, in fear of new tax and other non-business friendly policies. Still, I'm not buying the election as a major driver of Canadian dollar weakness. The cratering loonie can still be explained by the usual factors – relative bond yields and commodity prices – and so far there's no hint of currency volatility following polls. Admittedly, this could change as we approach election day.
"Currency-trader jitters as Canadian election standoff looms" – Report on Business
"Here's the loonie's best leading indicator (and it's not oil)" – Barlow, Report on Business
"Chart of the day" – Babad, Report on Business
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Merrill Lynch warned of an approaching "train wreck" in the U.S. corporate bond market and a subsequent report from Goldman Sachs implies that retail investors will be the ones hurt most:
"At 24 per cent of the corporate bond market, open-end mutual funds are today a larger-than-ever fraction of the ownership base. Many investors worry this has increased the risk of sustained liquidity demands on the market to meet retail outflows."
Reaching for yield, while understandable in a market where income is hard to find, has always been a dangerous proposition for investors and unfortunately the practise is more popular than ever.
"Top of Mind: A look at liquidity" – Goldman Sachs (publicly available)
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Skip York, principal energy analyst at consultancy Wood Mackenzie, provided some excellent long-term perspective on oil prices in a video interview with Bloomberg. Leaving aside the historical reliability of grown men named Skip, Mr. Mackenzie discussed why he believes crude prices will be flat in the near term, and rise to approach $90 (U.S.) in the coming decade.
"Floors, Ceilings and the Terminal Value of Oil" – Bloomberg (video)
In related energy news, Energy Voice highlights one reason why U.S. crude production remains stubbornly high despite excess supply,
" 'I can't control the price of the commodity,' [Murphy Oil Corp. engineer Brad] Pennington said in a recent interview. "The only thing we can do is get better and faster and cheaper. There's a general correlation that more sand equates to a better well.' "
Shale producers, under pressure by a falling oil price, are becoming more and more efficient rather than lowering production.
"America's oil output refuses to collapse. Here's one reason why." – Energy Voice
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Global manufacturing data has flooded in over the last few days. Much of it has been surprising, and not in a good way. For one, the U.S. manufacturing renassiance appears to have stalled:
"All [seven] regional surveys pointed to shrinking manufacturing sectors, with some prints coming in at their worst levels since the Great Recession ... This softness in the sector came amid another upward move for the Fed's U.S. trade-weighted broad dollar index, which hit its highest level since 2003 during the month. A loftier dollar makes American manufactured goods less attractive to foreign buyers."
"America's Manufacturers Got Crushed in September" – Bloomberg
"US Manufacturing Sector Signal or Noise?" – TD Securities
The data from Asia was, if anything, worse:
"[China's] Manufacturing PMI came in at the lowest levels since March, 2009, posting 47.2 in September, compared to 47.3 in August, and marking 7th consecutive month of sub-50 readings… Per Markit release, things were even worse than the headline Manufacturing index suggested: 'Total new work fell at the quickest rate in over three years, partly driven by a steeper fall in new export business. As a result, companies cut output at the sharpest rate in six-and-a-half years, while staff numbers fell at the quickest pace since the start of 2009.' "
Taken together, the reports strongly suggest that domestic investors should hold off on new investments in cyclical market sectors like commodities.
"China PMIs: Signalling Deeper Problems Ahead" – True Economics
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Tweet of the Day: "@WMALHittle New EIA monthly data shows US oil output rose in July from June, by 114 kbd. Gains were in GoM, up almost 150 kbd. L48 onshore fell 60kbd" – Twitter
Diversion : "Why The Nazis Believed They Could Win the Battle of Britain" – io9
Scott Barlow