These are stories Report on Business is following Friday, Nov. 28, 2014.
‘A new era dawns’
OPEC’s decision to draw a line in the sand is roiled oil, currency and stock markets again today.
More importantly, it marks a dramatic shift in crude politics and pricing.
“It would suggest that the politics of oil are changing,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia.
To recap, as The Globe and Mail’s Shawn McCarthy and Eric Reguly report, the OPEC nations decided yesterday to hold their production ceiling at 30 million barrels a day despite the recent collapse in prices.
With nothing to bolster the market, crude prices slumped, hitting oil-linked currencies like the Canadian dollar, Norway’s krone and the Russian ruble, and the stocks of energy companies.
That continued today, with oil prices under pressure, having slipped yet again before perking up somewhat, and the currencies of Canada, Norway and Russia sinking further.
The loonie, as Canada’s dollar coin is known, hit a low today of 87.41 cents U.S., while West Texas Intermediate, the U.S. benchmark, tumbled to as low as $66.15 a barrel. Compare that to yesterday’s high point for the currency at just shy of 89 cents.
And analysts expect the erosion to continue.
The krone, in turn, is now at levels not seen since early 2009, while the ruble is at fresh lows.
The Canadian, Norwegian and Russian currencies are being hit because of the outlook for trade, economic growth and fiscal balances given the oil price collapse.
The U.S. dollar is being supported because lower oil prices put more money in the pockets of consumers, and thus there’s a boost to the economy, Ms. Sutton said.
She also believes lower oil prices are “quite negative” for the euro and the yen because the European and Japanese central banks are now so concerned with very low levels of inflation.
The biggie here is, as Ms. Sutton and others suggested, is the change in OPEC’s mindset.
Traditionally, she said, markets would have expected OPEC to try to boost prices by cutting output. Yesterday’s decision highlights a shift, that “part of the burden” of lower prices and profits must now be borne by others, as well, including the United States.
“A new era dawns for oil markets,” Michael Wittner of Société Générale added in a report. “Price itself will balance supply.”
Shares of energy companies are also under pressure again this morning. Remember, U.S. markets were closed yesterday and, thus, had no chance for an immediate reaction.
“The template for equity markets today has been clear from the beginning,” analyst Alastair McCaig of IG said of the London market.
“Oil and energy manufacturers are down, while those companies that are oil consumers are up. Airlines are flying with the biggest cost now dropping into the $60-a-barrel region - a 40-per-cent fall in the last five months.”
Here’s what some other analysts are saying:
“Some have argued that OPEC's inaction speaks to the fact that it is losing its credibility but it's more a case of OPEC losing its relevance in an era where shale oil has changed the supply and demand dynamics of global oil production. Now that OEPC only accounts for about a third of oil production, a production cut would merely have ceded market share to their sector peers in Russia and the U.S., with no apparent improvement in price.” Michael Hewson, CMC Markets
“Black Friday sees consumers all over the world spend the money they have saved (or will save) thanks to cheaper oil prices, on gifts for others (or themselves?). Walking through the dealing room this morning I got the impression that cheaper oil means more handbags, but maybe the sample isn't big enough. Cheaper oil is obviously bad for big oil exporters and is a positive for GDP in countries which are big net oil importers, as well as for consumers everywhere. The big 'winners' on that basis include China, Japan, India, Germany and France.” Kit Juckes, Société Générale
“The establishment of a new lower norm for oil prices comes at a very opportunistic moment, as monetary policy for many is beginning to dry up. However, whilst people protest about the 1 per cent getting richer and how previous stimulus effects fail to adequately trickle down to many, it is hard to think of a more wide-reaching and effective stimulus measure than to lower the cost of gas at the pump for everyone globally. For this reason, we are effectively entering the era of QE4, with motorists able to allocate more of their money towards luxury items, while firms are now able to lower costs of production thus impacting the bottom line and raising profits.” Joshua Mahony, Alpari
“It’s not surprising that the price of oil and the value of the loonie are both hovering near five-year lows. Crude oil accounts for about 15 per cent of total Canadian exports. Should oil prices stay low, we could see the loonie test 85 cents U.S. well before next fall … Suffice it to say, the loonie will get no help from the Bank of Canada, as lower oil prices will only underscore its guarded outlook for growth and sanguine view on inflation.” Sal Guatieri, BMO Nesbitt Burns
- Video: Why oil prices are set to slide even further
- Shawn McCarthy and Eric Reguly: Oil price tumbles as OPEC refuses to cut output
- Jeffrey Jones, Jeff Lewis and Carrie Tait: Alberta energy firms face harsh new reality as oil’s slide steepens
- Nathan VanderKlippe: Why the collapse in oil prices is such a huge win for China
- David Berman: Energy stocks are battered. Is it time to buy?
Euro inflation falls further
Just to prove Ms. Sutton’s point, annual inflation in the troubled euro zone is now running at just 0.3 per cent.
That estimate today from the Eurostat agency marks a further dip in November from October’s 0.4 per cent.
“This won’t do much to calm the fear of deflation, but market dynamics overnight seem more centered on falling oil prices than the economic data,” said economists at Bank of Nova Scotia.
Eurostat also report fresh employment numbers today, again showing no easing for the millions of jobless across the region.
Unemployment held steady in October at 11.5 per cent, with 18.4 million people out of work.
Economic growth dips
Economic growth in Canada slipped in the third quarter of the year, but still fared much better than analysts had expected.
Exporters and consumers helped drive gross domestic product higher by 2.8 per cent, annualized, a better pace than the 2.1 per cent forecast by economists, according to Statistics Canada numbers today.
While better than expected, it’s still below the hefty 3.6-per-cent jump in the second quarter, The Globe and Mail’s David Parkinson reports.
“While the headline real GDP number is very robust on the surface, the details of the report are still mixed,” said assistant chief economist Sébastien Lavoie of Laurentian Bank.
“The situation is clearly unsatisfying for the BoC even though the 2.8 per cent figure is above the [monetary policy report] projection of 2.3 per cent,” he added.
“The sources of economic growth remain overly uneven. Put simply, the cake is not lifting equally. Furthermore, with the recent drop in oil prices expected to dampen nominal GDP and headline inflation in the months ahead, the BoC is likely to stay very cautious in its statement next Wednesday.”
BCE to buy Glentel
BCE Inc. has struck a deal for the company that distributes its mobile products, and those of other carriers.
The Canadian telecom giant said today it’s offering shareholders of Glentel Inc. either $26.50 in cash or 0.4974 of one BCE share, for a total of about $594-million.
Including debt and other issues, the deal values Glentel at $670-million, BCE said.
Glentel operates in Canada, the United States, Australia and the Philippines, The Globe and Mail's Christine Dobby reports.
"There are clear growth opportunities ahead in Canadian wireless,” Wade Oosterman, the chief of BCE’s Bell Mobility operations.
“This includes the significantly increased number of mobile customers with two- or three-year service contracts who will be eligible to renew their plans and change carriers over the next two years, a result of the federal wireless code of conduct implemented in 2013. Bell is ready to compete for their business.”
(BCE owns part of The Globe and Mail.)
Not so far from the madding crowd
Black Friday got to Britain, fights and all, even before the United States woke up.
But the annual shopping frenzy soon got up and running in the U.S. as the holiday shopping season kicked off the day after American Thanksgiving.
“America will be doing its best to burn off the excess calories from yesterday’s Thanksgiving turkey stuffing, by embarking on the biggest day of shopping in the calendar,” said analyst Alastair McCaig of IG.
“Although not a bank holiday today, U.S. markets will be running reduced trading hours and equity volumes historically struggle to raise too much of an interest.”
- Video: Black Friday: A 'cracker' season but, oh, the noise noise NOISE
- Black Friday: 'Disorder and disputes' on frenzied shopping day
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