Brexit hits pound
So-called Brexit fears are rippling through currency markets today.
The British pound is taking it on the chin, tumbling over the latest developments in the debate over Brexit, which refers to the possibility of the U.K. leaving the European Union.
Prime Minister David Cameron struck a deal with his EU counterparts last week, reforms that would keep Britain in the EU.
But on the weekend, London Mayor Boris Johnson said he’ll campaign for Britain to leave the EU.
“There is no doubt that the Brexit referendum is rapidly becoming one of the biggest risk events of 2016 for financial markets,” said IG analyst Joshua Mahony.
“Boris Johnson’s decision to bolster the ‘out’ campaign with his support not only serves to undermine the fruits of David Cameron’s labour in Brussels, but clearly damages U.K. economic confidence, with sterling pounded across the board today. With the referendum set to take place in June, when the migrant crisis will be back into full flow, anxiety and fear will certainly push some voters towards a more isolationist stance.”
Here’s what other observers are saying today:
“The old ‘uncertainty breeds contempt’ axiom is an apt one to describe the likely reaction of British assets to the Brexit question in the coming months ... The more discordant the debates are, the more likely that British assets will be impacted negatively. The reason for this is that Britain is one of the largest net debtors among developed nations in the world as negative investment income has driven its wide current account deficit. Put simply, foreigners have earned more from U.K. assets than what U.K. investors have earned from foreign assets.” Bipan Rai, CIBC World Markets
“While the news that Boris Johnson is backing a vote for “Brexit” is undoubtedly a coup for the so called ‘outers,’ it really shouldn’t really be that much of a surprise given his reputation as a bit of maverick, and the fact that the deal reached by Prime Minister David Cameron contained so few significant reforms. There is also the small matter that the vote remains four months away, and while the wait is likely to create some uncertainty about the U.K. economy, it is one of many factors troubling investors right now, including China’s economy, the effect on emerging markets, as well as the current negative interest rate policy of the ECB and Bank of Japan, not to mention the problems surrounding Europe’s banking system.” Michael Hewson, CMC Markets
“For the next four months we get to enjoy this great debate on whether Britain should remain in a reformed EU or simply go it alone. When it comes to certainty, the status quo is always seen as the safer option, in the ‘better the devil you know’ way. U.K. gilts seem unperturbed for the time being but it will take very little to bring about a change to present yields. Market moves will be at the mercy of the various Brexit polls for the coming months and despite the fact that we should have learned by now that they’re fairly useless, the markets won’t necessarily adopt that logic.” Brenda Kelly, London Capital Group
“The EU ‘Brexit' referendum is going to dominate media debate over the next 124 days. Opinon polls show a small lead for the ‘out' camp, but a large body of ‘undecideds' will decide the eventual outcome. Bookmakers still favour the U.K. remaining in the EU. The level of debate is appalling, in my view and the suggestion this morning that being in the EU somehow makes the U.K. more vulnerable to terrorist attack may have been the silliest argument I've heard so far. When asked, my opinion is that leaving the EU may make some people happier, but it is definitely a drag on growth.” Kit Juckes, Société Générale
A scene I'd love to see ...
“Oh, we’re going to build the wall, alright. And we’re gonna keep Canadians off Jeopardy.”
Deficit to swell
Finance Minister Bill Morneau says Ottawa is on track to run an $18.4-billion deficit next year, even before adding the billions in new spending promised by the Liberals during the election campaign.
Mr. Morneau also announced that the budget will be released on Tuesday, March 22, The Globe and Mail’s Bill Curry reports.
The Liberals campaigned on a plan to run deficits of $10-billion a year to fund new spending, which means that, roughly estimated, delivering on those promises would push the size of the projected deficit to nearly $30-billion.
“Our starting point is much further back than we thought,” Mr. Morneau said.
Overtaking the Swiss
Time has not been kind to the famed Swiss watch industry. Or, more accurately, the march of wrist technology has not been kind.
Smartwatches have overtaken Swiss watches for the first time, according to Strategy Analytics, chalking up global shipments of 8.1 million units in the fourth quarter.
Swiss watches weren’t that far behind, with shipments of 7.9 million, but dropped in the quarter while smartwatch shipments surged, the research group’s findings showed.
“The Swiss watch industry has been very slow to react to the development of smartwatches,” Strategy Analytics executive director Neil Mawston said in a report.
“The Swiss watch industry has been sticking its head in the sand and hoping smartwatches will go away.”
Traditional Swiss brands represented just 1 per cent of smartwatches in the quarter, he noted, and are a “long way” behind the Apples and Samsungs of the world.
In fact, Apple and Samsung together represent eight in 10 of all shipments, Strategy Analytics director Cliff Raskind added.
The fast-growing markets for smartwatches include North America, Western Europe and Asia, he said.
In its latest report, the Swiss industry cited the decline in January exports of 7.9 per cent from a year earlier.
“An unfavourable environment continues to hold back results in the sector,” the Federation of the Swiss Watch Industry said.
The two biggest markets, Hong Kong and the United States, drove the overall decline measured in currency rather than volume, while shipments to Japan, Germany and Britain rose.
Exports to Hong Kong, the biggest market at 13.5 per cent of the total, plunged by about 33 per cent, with January marking the 12th month in a row of “steep decline,” according to the group.
For the United States, it was the fifth month of decline.
Having said that, exports to Japan surged almost 36 per cent, though that country accounts for just 6.6 per cent of exports.
The Cauliflower Panic (Part 2)
It’s suddenly a lot more expensive to be a vegetarian, even moreso if you live in certain parts of Canada.
The reason, of course, is that this is a key time of year for imported fruits and vegetables, which cost more because of the low Canadian dollar.
But the surge in costs is particularly harsh in some provinces, notably British Columbia, according to the latest report from Statistics Canada.
As The Globe and Mail’s David Parkinson writes, the annual inflation rate jumped in January to 2 per cent, driven up partly by a 4-per-cent rise in food prices.
But that last number masks the surge in some products, particularly fresh vegetables, which soared 18.2 per cent from a year earlier.
One part of the measure, which takes in cauliflower, broccoli and celery, rose almost 23 per cent.
(The cost of canned veggies fell 1 per cent, but obviously they simply won’t do.)
“Prices of fruits and vegetables, imported for the most part at this time of the year, soared for a fourth consecutive month in January, reflecting the 9-per-cent cumulative depreciation observed in the Canadian dollar since October,” said economist Dominique Lapointe of Laurentian Bank Securities.
“For example, the 4.8-per-cent month-over-month increase in fruit prices is the second-largest monthly gain in more than 15 years.
Vegetarians in British Columbia and Saskatchewan should be particularly concerned, given the surge of more than 26 per cent and 31 per cent, respectively, in fresh vegetable prices, marking the steepest rise in the country.
Those in Newfoundland and Labrador had it much easier, at a 4.7-per-cent increase, for the lowest in Canada.