These are stories Report on Business is following Friday, May 10, 2013.
Whither the loonie
It’s becoming increasingly difficult to handicap the Canadian dollar.
Depending on who among the reputable sources you listen to, the loonie could be headed to parity and beyond, or poised for a mighty fall of about 10 cents.
As The Globe and Mail’s Barrie McKenna reports, Toronto-Dominion Bank forecasts that the loonie, as the dollar coin is known in Canada, will fall to 90 cents (U.S.) by early 2014, before regaining about 3 cents of that by the end of the year.
“This is a function of several factors, chief among them being concerns regarding Canada’s medium-term economic fortunes, a downward revision to our expectation for commodity prices and a strengthening U.S. dollar outlook,” TD said.
Bank of Montreal has also projected a sizeable drop, though over five years. In the nearer term, BMO sees the currency overshooting the greenback by a couple of pennies.
Bank of Nova Scotia, in turn, sees the Canadian dollar hovering around parity, give or take a few cents, through to the end of next year.
The differences in projections highlight the troubles of Canadian exporters and importers in planning ahead, particularly if the drop were to be at steep as a dime.
It also comes amid dramatic moves in the currency markets.
Yesterday, the U.S. dollar topped the ¥100 mark, a first in four years. This came a day after the Reserve Bank of New Zealand disclosed that it had taken the rare step of intervening in markets, and after interest rate cuts over the course of several days in Europe, Australia and South Korea.
"There is a frenzy of carry-seeking behaviour globally," said Sébastien Galy of Société Générale.
"This is a symptom of ultra-loose monetary policies, which are far from bottoming yet," he said in a research note.
"We recently had the [European Central Bank] cutting rates. But the ultra-loose policies have also prompted defensive measures on the part of countries with robust domestic economic conditions but overly strong currencies. A few days ago the Reserve Bank of New Zealand stated that it had intervened in the [foreign exchange] market to try to blunt the [New Zealand dollar's] appreciation. This is an escalation of the currency wars."
- Kevin Carmichael in Economy Lab: Loonie's strength will be Stephen Poloz's first dilemma
- Canadian dollar to sink to 90 cents by early 2014: TD
- Yen slumps past psychological milestone
- 10 reasons we're not losers (despite what 'short-Canada' crowd says)
- Meet the man who’s selling Canada short
- Sean Silcoff in ROB Insight (for subscribers): A bet against Canada is not so far-fetched
- Speculative bets against Canadian dollar mount
G7 meets amid currency concerns
Finance ministers and central bankers of the Group of Seven nations meet near London today amid increasing fears – justified or otherwise – of a currency war.
It’s certain to be a topic at the table, and one that’s already making waves.
U.S. Treasury Secretary Jack Lew, for example, warned today that Japan, the focus of the fears, must not deliberately manipulate its currency in a bid to spur its exports.
“Japan has growth issues for a long period of time that we have encouraged Japan to address,” he told CNBC.
“So as long as they stay within those bounds of those international agreements I think growth is an important priority. I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that.”
The yen has tumbled in the wake of a new government and central bank stimulus, breaching a milestone mark yesterday as the U.S. dollar rose.
The U.S. dollar to the yen surged “violently” through the ¥100 mark, and this continues today, with the Japanese currency down 0.9 per cent, noted chief currency strategist Camilla Sutton of Bank of Nova Scotia.
“For medium-term traders, we hold a year-end forecast of 105, which would equate to a year-over-year rise of 17 per cent,” she said of the level of the U.S. currency.
“Also today, the impact of [Bank of Japan] policy and a weak [yen] shone through in the [Japanese finance ministry’s] securities investment data, with Japanese investors increasing their purchases of both foreign bonds and stocks, and foreigners decreasing their allocation to stocks and cutting their purchases of Japanese bonds in half.”
Japan says it did what it did to spark its economy and end a long bout of deflation, rather than drive down its currency.
But some observers still see this as a currency battle that involves more than just Japan.
“There is a frenzy of carry-seeking behaviour globally,” said Sébastien Galy of Société Générale.
“This is a symptom of ultra-loose monetary policies, which are far from bottoming yet,” he said in a research note.
“We recently had the [European Central Bank] cutting rates. But the ultra-loose policies have also prompted defensive measures on the part of countries with robust domestic economic conditions but overly strong currencies. A few days ago the Reserve Bank of New Zealand stated that it had intervened in the [foreign exchange] market to try to blunt the [New Zealand dollar’s appreciation. This is an escalation of the currency wars.”
Others don’t necessarily see it that way.
“This year’s anticipated currency wars have so far failed to materialize, though with the yen continuing to weaken and five countries along with the ECB cutting interest rates already this month, things appear to be heating up in the currency markets,” said market analyst Alastair McCaig of IG in London.
“Today is also the start of the latest G7 conference and traders will be waiting to see which politician breaks rank first to issue the most dubious and quotable comment.”
Whatever happens, Scotiabank’s Ms. Sutton does not anticipate any “harsh criticism” of Japan today because it is adhering to a G7 pledge in February “that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.”
Jobless rate holds at 7.2 per cent
Canada’s jobs market rebounded somewhat in April, but is still struggling.
Canadian employers added 12,500 positions last month, but that was nowhere near what was needed to compensate for a loss in March of 54,500 jobs.
Canada’s unemployment rate still stands at 7.2 per cent, with almost 1.4 million people out of work, The Globe and Mail’s Tavia Grant reports.
Over the course of 12 months, employment has now increased by 163,000 positions, or just shy of 1 per cent. While unemployment remains high, the labour market picture is still far better than that in other countries, notably the troubled regions of Europe.
In an interesting note, the public sector, which is in austerity mode, created 34,000 jobs, while the private sector went nowhere.
Public sector employment is now up by 94,000, or 2.6 per cent, from a year ago, with little change among private companies, Statistics Canada said.
The ranks of the self-employed have also increased, by 2.2 per cent or 59,000 people, though most of that has been this year.
Canada’s young people continue to suffer, losing 19,000 jobs last month and struggling with an unemployment rate of 14.5 per cent.
- Canadian hiring rebounds modestly but jobless rate static
- Scott Barlow in ROB Insight (for subscribers): Jobs figures point towards weakening Canadian economy
Magna profit jumps
Auto parts giant Magna International Inc. today posted gains in first-quarter profit and revenue, noting the 9-per-cent jump in the latter came in a period when auto production inched up 1 per cent in North America and slumped 9 per cent in Europe.
Magna profit climbed to $369-million (U.S.) or $1.57 a share from $343-million or $1.46 a year earlier, The Globe and Mail’s Greg Keenan reports.
Sales rose to $8.4-billion from $7.7-billion.
Sales of complete autos jumped by 33 per cent to $798-million from $599-million, while volumes increased by 25 per cent to 37,000 units.
Magna also forecast sales for its full year will hit between $32.6-billion and $34-billion, up from an earlier projection.
If Gatsby were alive today, it’s the costs that would be great
It’s Friday, the end of a very long week. So take a break from the markets for a minute and consider this fun, if useless, tidbit: If Jay Gatsby were alive today, he’d be buried in debt.
As F. Scott Fitzgerald’s The Great Gatsby gets another round of Hollywood treatment, starting today, GoBankingRates.com takes a look at what the “cars, parties, mansions and the like” would cost in 2013,
and how “we can all learn a profound lesson from a story of excess that leads to tragedy, misery and downfall for its lead character.”
Paul Sisolak, a contributor to the website of the rate-tracking group, breaks it down like this:
- The yellow Rolls Royce Phantom today would cost $470,000 (U.S.).
- The fictional “West Egg” mansion on Long Island would be somewhere between $1.3-million and $2.4-million, depending on where on the real North Shore we’re talking about.
- A room at the Plaza: $608 at the low end, though the Fitzgerald Suite would run at about $2,800.
- All-night parties: I seem to remember from my youth that night-long parties didn’t cost all that much, basically the cost of a bottle of wine or a case of beer. But, in Gatsby’s case, the website puts it at $20-million. That appears based on reports of retail king Sir Philip Green’s parties, his big 6-0 with Stevie Wonder in Mexico. It was a four-day beach event that reportedly meant renting out the Rosewood Mayakoba resort, and bringing 155 of his staff from Britain. In attendance were Naomi Campbell, Kate Hudson, Ronnie Wood and Leonardo DiCaprio, who coincidentally plays the title role in the new film.
So, the bulk of the $22.9-million in expenses would actually be because of one heck of a party if it really happened.
Streetwise (for subscribers)
ROB Insight (for subscribers)
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|MG-T Magna International||82.57||
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|USDJPY-FX U.S. Dollar/Japanese Yen||103.544||
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|CADUSD-FX Canadian Dollar/U.S. Dollar||0.938||
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