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Is commodity run ending? Scotia Capital asks this question today as prices for several commodities continue to suffer: Is commodity inflation topping?
Economists Karen Cordes Woods and Derek Holt note the recent flattening of several commodities, such as silver and copper , though others such as oil and natural gas remain elevated.
"They all have their different stories, but they have one thing in common: They've clearly lost momentum from frothy levels," the economists said in a research note.
"Silver is getting much of the attention, but wheat, hogs, cotton, and sugar are all significantly off their peaks while soybeans, copper, nickel, and zinc have been flat-lining. Key prices not exhibiting weakness as yet include natural gas, crude oil, corn, and aluminum. Indeed, natural gas is about 88 per cent higher since its early 2009 lows such that home heating bills bottomed some time ago."
They ask whether the commodity surge has "lost its shine" because of tighter monetary policy, or whether the pullback is temporary.
"Time will tell, but I think the pace of the run-up was overblown particularly as global growth faces downside risks," said Mr. Holt.
"Of note is that those who think commodities are the inverse of the [U.S. dollar's]fortune will be disappointed to see that all of these commodities exhibiting tops started to do so well before the [U.S. dollar's]renewed strength over the past two trading sessions. Indeed, these commodities softened up starting as early as February and yet since then the [U.S. dollar]has depreciated by about 6 per cent on a DXY trade-weighted basis. The implications could well include topping inflationary pressures consistent with guidance provided by several major central banks, and some lost momentum for the commodity [foreign exchange]crosses should the pattern continue."
CMC Markets analyst Michael Hewson noted the decline in gold and silver despite continued weakness in the U.S. dollar, and less optimistic economic numbers.
"Other commodity prices have also started to slide back on fears of further sharp tightening measures in China with cotton in particular slipping back after hawkish rhetoric from People's Bank of China officials about inflation being its top priority," Mr. Hewson said. "Cotton prices are now 30 per cent down on their March peaks, while on the flip side of that rice prices are 25 per cent up from their March lows."
Looking at last month, Julian Jessop and Ross Strachan of Capital Economics noted in a new report today that commodities outpaced stocks last month, led by precious metals, while some agricultural commodities "struggled" to keep their gains.
Magna profit jumps Magna International Inc. posted a jump in first-quarter profit to $322-million (U.S.), or $1.30 a share, from $224-million a year earlier or 99 cents, as as vehicle production continued to recover from the crisis levels of 2008-2009, Globe and Mail auto writer Greg Keenan reports. Revenue climbed 34 per cent to $7.2-billion from $5.35-billion.
The auto parts giant also boosted its outlook for sales to between $27.1-billion and $28.5-billion. The high end of an earlier forecast was $26.3-billion
At its annual meeting today, shareholders elected a new board with no opposition despite reports last month by proxy advisory firms urging them to vote against Mike Harris and other directors.
Domtar hikes dividend Domtar Corp. today boosted its quarterly dividend to 35 cents (U.S.) and unveiled a hefty incease in its share buyback program to $600-million from $150-million.
"Our capital allocation policy provides our shareholders with attractive returns," said John Williams, chief executive officer of the Montreal-based paper maker.
"Over the last twelve months, Domtar has returned over $146-million to shareholders through a combination of share repurchases and quarterly dividends and our stock has outperformed the broader U.S. market."
Glencore prices IPO Glencore International AG priced its hotly awaited initial public offering today, valuing the commodities trader at about $61-billion (U.S.).
Glencore set the range at 480 pence to 580 pence a share, for proceeds of up to $11-billion.
ONGC eyes oil sands India's Oil & Natural Gas Corp. (not the most exciting name, but it gets right to the point) is in talks to buy reserves in the oil sands, Bloomberg News reports today.
There were no details from A.K. Hazarika, chairman of India's largest energy exploration company, but he told the news agency that "discussions are going on at a good speed" as it joins many others attracted to Canada's oil patch.
"Domestically we are not able to cope, and oil demand is rising," he said. "Easy oil is not available and we have to move to unconventional areas ... To offset this burden, we are looking for equity oil outside the country."
Loblaw profit increases Loblaw Cos. Ltd. enjoyed strong profit growth in its first quarter but grappled with declining sales, Globe and Mail retail writer Marina Strauss reports today.
In the 12 weeks ended March 26, Loblaw's profit rose 22.7 per cent to $162-million or 58 cents a share, while sales slipped 0.6 per cent to $6.87-billion. Same-store sales, a key measure in retailing, were about steady in the quarter, down 0.1 per cent.
"The company continues to progress with its renewal plan while it begins to turn its focus on new opportunities for growth," said executive chairman Galen G. Weston.
Agrium rebounds Agrium Inc. rebounded in the first quarter to a profit of $171-million (U.S.) or $1.09 a share, diluted, from a year-earlier loss of $1-million or a penny a share.
The agricultural giant also projected earnings per share from continuing operations of $4.40 to $4.90 for the first half of this year.
"The fundamental agricultural outlook remains very positive; however, the first quarter saw volatility in commodity prices stemming primarily from political unrest in the Middle East/North Africa and the tsunami in Japan," the company said in a statement.
"Many global crop prices are trading at historically high levels. This is expected to lead to increased planted area and more intensive growing practices on a global scale, which is expected to support demand for crop nutrients, crop protection and seed markets throughout 2011."
Talisman swings to loss Talisman Energy Inc. swung to a loss in the first quarter, though operating earnings rose, prompting a sharp drop in its shares.
Higher prices, the energy company said, were offset by higher taxes, and production averaged 444,000 barrels of oil equivalent a day, up from 435,000 a year earlier.
Talisman lost $326-million (U.S.) or 32 cents in the quarter, compared to a profit of $371-million or 36 cents a year earlier. Operating earnings inched up to $157-million or 15 cents from $155-million, also 15 cents.
"We have a great deal of activity in the portfolio this year in order to drive our growth," said chief executive officer John Manzoni. "Our main priority during 2011 is to execute these projects in a world class way," Our focus is on safe execution as we end the period of portfolio transition, and enter one of growing the business."
Talisman took a hit of $320-million on oil price hedging, and a further hit of $250-million from Britain's increased tax on North Sea operations.
"The U.K. tax change, of course, has an influence on future projects. We're in the process of reviewing our development plans carefully right now, and I believe we may reconsider some of them," Mr. Manzoni said.
Can Portugal be rescued? Portugal has now reached a bailout deal with the EU, International Monetary Fund and European Central Bank believed to include €78-billion in loans, some €12-billion of which would prop up the country's banks.
Chief economist Carl Weinberg of High Frequency Economics takes a dim view today:
"Not that we call this a loan package, and that we refuse to use the terms 'rescue package' or 'bailout,'" Mr. Weinberg wrote in a research report.
"Nothing about this deal rescues Portugal in any way, save for avoiding the near-term inconvenience of defaulting on a June 15 bond redemption. That is important, but lending Portugal money that it cannot borrow from the markets at an affordable rate is not doing it any favours: It will lead to an ever bigger default when the government has to repay this new lending on top of its prior obligations."
Jonathan Lynes and Emilie Gay of Capital Economics said the deal should give markets some reassurance that Portugal can meet its pending redemptions, but added that "it won't put an end to speculation that - along with Greece and perhaps others - it will sooner or later need to undertake some form of debt restructuring."
Why job creation should be priority Stephen Harper's Conservatives head into the next Parliament basking in the glow of a strong mandate and a healthy economic and fiscal outlook. Indeed, Mr. Harper is doubtless the envy of many world leaders, given not only this outlook but also because of how well Canada rebounded from the recession, reclaiming ground lost to the slump in terms of output and employment.
But there's still a blight, and Mr. Harper should make it his priority.
Statistics Canada will report on Friday that the country's jobless rate, despite having regained the jobs killed in the downturn, remains high at about 7.6 per cent or 7.7 per cent. And only last night, Bank of Nova Scotia economists projected in a new outlook that unemployment will remain at about 7.5 per cent through next year.
Economists expect the Statistics Canada report to show job gains of between 15,000 and 25,000 for April, following an actual slight decline in March. While that would represent a new high for employment, we still shouldn't tolerate such a high jobless rate, and that poses a challenge for the surging Conservatives.
"Looking through the monthly volatility, we expect that the three-month pace of job creation will decelerate sharply to 13,000 jobs, as the outsized 69,000 job explosion in January falls out of the calculation," Toronto-Dominion Bank economists said in their projection for Friday's report.
"This pace is broadly consistent with a labour market that has already recovered the jobs lost during the recession and is now facing the greater challenge of delivering the next wave of job growth set against a slower pace of economic growth."
Consider, too, that among young people aged 15 to 24, unemployment is at an ugly 14.4 per cent, meaning many of Canada's youth can't take advantage of the economic rebound.
- Tories to tackle wishlist
- With majority, oil patch wants elbow room
- Read our complete election coverage
In Economy Lab today
The 2011 census package is landing in 15 million Canadian mailboxes this week, and Twitter is abuzz over how and whether to fill it out. Tavia Grant reports.
In Personal Finance today
If you are considering buying a home as a couple, make sure you know what changes if you and your partner aren't married.
In this week's Cash Clash, a jobless MBA and stay-at-home mom are returning to Canada with deep debt. Financial expert Kelley Keehn weighs in on what they should do.
When you're going to a frugal wedding, should you give a smaller gift? Preet Banerjee says don't penalize the couple for being more financially responsible.
From today's Report on Business
- Demand for small cars rising
- Neil Reynolds: Government can now move on eradicating trade barriers
- Law: Case tests reach of Canadian courts
- Silver Front Month Futures$16.720.00(0.00%)
- Copper High Grade Front Month Futures$2.67-0.01(-0.22%)
- Crude Oil Front Month Futures$52.48+0.11(+0.21%)
- Henry Hub Natural Gas Front Month Futures$3.49+0.07(+2.05%)
- Magna International Inc$56.98-1.84(-3.13%)
- Loblaw Companies Ltd$69.84+0.04(+0.06%)
- Agrium Inc$137.34-1.01(-0.73%)
- Updated January 10 7:01 PM CDT. Delayed by at least 15 minutes.