A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The loonie fell hard Monday after U.S. President Donald Trump announced a 20 per cent tariff on Canadian softwood lumber and also suggested that dairy exports could be taxed next.
Personally, I'm not that concerned. The extent of the loonie sell-off was, in large part ,caused by fears of more wide-reaching trade sanctions which may not occur – the new president does seem to have a short attention span. However, U.K.-based foreign exchange trader Ken Veksler has a far less sanguine view where the Canadian dollar is concerned, writing that the imposition of lumber taxes,
"dDoes however look to confirm my priors that should Trump get any momentum behind his trade war intentions, Canada will ultimately and invariably end up taking it in the neck. A note out of BAML this morning seeks to confirm this thesis and goes one step further looking for a return to an overtly dovish BoC …. I'm not sure I'd be drawing a similarly long bow, but then again BAML and their internal team is (and has been) axed this way for quite some time, so for them this is simply confirmation of their own priors."
"@SBarlow_ROB Veksler on CAD " – (research excerpt) Twitter
"Loonie dives below 74¢ as U.S. slaps softwood duties on Canada" – Report on Business
"Trump Slaps Duty on Canadian Lumber, Intensifying Trade Fight" – Bloomberg
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Maclean's coverage of the domestic real estate market has been excellent of late, and Tuesday they published an argument as to why recent measures to cool Ontario's housing bubble won't be enough,
"'Ultimately at the end of the day, you probably end up in a situation where the market absorbs the tax and keeps pushing higher,' said BMO economist Robert Kavcic. Benjamin Tal, deputy chief economist with CIBC, said the measures are likely to cool the market over the next six months as many buyers will move to the sidelines to assess the fallout stemming from the changes. 'That's exactly what we've seen in Vancouver,' said Tal. 'The slowdown in Vancouver was not entirely due to the tax — it was domestic buyers who were basically sitting on their hands waiting to see the impact of the tax.'"
"Impact of Ontario's housing measures likely to be short-lived, say experts" – Maclean's
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I've noted my fear that Canadian investors are under-estimating the importance of Chinese credit growth on their portfolio performance, particularly in commodity stocks. A Bloomberg report highlights that investment in the country is slowing rapidly, and this could have negative effects on S&P/TSX Composite performance,
"A $1.7 trillion source of inflows into Chinese markets has suddenly switched into reverse, roiling the nation's money management industry and sending local bonds and stocks to their biggest losses of the year… bank withdrawals helped erase $315 billion of stock market value over the past six days and sent bond yields to the highest level in nearly two years, highlighting the challenge for Chinese authorities as they try to rein in shadow banking activity without destabilizing financial markets. While the government has plenty of firepower to prop up asset prices if it wants to, forecasters at Australia & New Zealand Banking Group Ltd. predict the selloff will deepen this year."
"China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds" – Bloomberg
"China's Hidden Debt Stirs Investor Angst as Defaults Rise" – Bloomberg
|"Why Chinese Firms Need More Controls" – (Video) Bloomberg
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I'll end with some good news that might be lost amongst the tumult,
"The global economy is projected to have its best growth rate in six years" – Quartz (interactive)
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Tweet of the Day: "@Ed_Crooks Falling costs for renewables mean they are the lowest-priced option for new power generation in many markets: on.ft.com/2pfcXKq " – (chart) Twitter
Diversion: This is mindboggling, "The Case Against Reality" – The Atlantic
Scott Barlow