A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The weaker Canadian dollar will provide a major tailwind for the domestic exporters on which the economy now depends. But the speed at which global research houses are slashing estimates for the loonie is still alarming.
Goldman Sachs Group Inc. cut its three month forecast on the Canadian dollar Monday to 78 cents from 84 cents (U.S.) and the 12-month outlook to 76 cents from 82 cents.
Goldman cites oil prices as the primary reasons for the currency weakness, according to Bloomberg (available only on Bloomberg terminal, unfortunately), "Drop in oil prices negative for Canada, not yet fully reflected in the BOC's latest forecasts; governor Poloz left another rate cut on the table at last week's press conference."
Oh, by the way, Goldman expects a 71-cent loonie in 2017.
The next report on the domestic capital account – which measures foreign currency flows in and out of the country – is likely to include some unpleasantness. U.S. investors in particular are getting killed on Canadian assets.
In the energy space, the commodity price is falling Monday morning on signs that Saudi Arabia will continue with current production levels despite the change in leadership. Bloomberg reports, "King Salman, who took the Saudi throne on Jan. 23, pledged to maintain the policies of his predecessor."
The Organization of Petroleum Exporting Countries' secretary General Abdalla El-Badri, however, put a slightly more positive spin on the mid-term outlook. Mr. El-Badri notes that the oil market is currently oversupplied by about 1.5 million barrels per day, but also states that, "If you don't invest in oil and gas, you will see more than $200 [oil]."
"Oil slides to near 6-year low; Saudi Arabia holds firm despite supply glut " – Bloomberg
"OPEC's El-Badri sees $200 oil possible with lack of investment" – Bloomberg
The extreme volatility in U.S. energy stocks might have investors thinking the sector is cheap, but they would be wrong. Factset reports that based on forward earnings expectations, the S&P 500 Energy sector is trading at the most expensive price to earnings levels in over a decade,
"Current forward 12-month P/E ratio of 16.6 is now well above the three most recent historical averages: 5-year (13.6), 10-year (14.1), and 15-year (16.1). In fact, this week marked the first time the forward 12-month P/E has been equal to (or above) 16.6 since March 14, 2005. On that date, the closing price of the S&P 500 was 1206.83 and the forward 12-month EPS estimate was $72.65."
"Highest P/E ratio for S&P 500 energy sector since 2002" – Factset Insights
U.K.-based Sky News is reporting that IBM is planning to cut 110,000 jobs, more than a quarter of its work force. There are, as yet, no corroborating reports so let's hope there's been some kind of highly pessimistic misunderstanding. There are already more than 10,000 announced layoffs in the energy sector by companies like Schlumberger Ltd., and the employment trade-off between a strengthening U.S. economy and weakening global outlook will look considerably less promising if the IBM news is confirmed.
"IBM to cut more than 110,000 jobs, report says" – Sky News
"Oil boomtown: 'We could see 20,000 layoffs by June' – CNN
On a far more optimistic note, one of the world's premier venture capital firms highlighted what they believe are the fastest growing business segments in technology. Andreesen Horowitz predicts 16 major trends in the industry including virtual reality, online video, digital health and network security that are most likely to be lucrative for investors. I was particularly struck by this observation about health-related software,
"To understand your personal diagnostic data, you might soon depend more upon an iPhone app developed in a garage than on your local MD."
"Andreessen Horowitz reveals the 16 trends it's closely watching" – Quartz
Tweet of the Day: "@auaurelija it's China, stupid" http://t.co/xKsCuxZFGR
Diversion: The Atlantic's Derek Thompson has done some terrific analysis of the economics of media in recent years. Over the weekend, he turned his attention to the terrible state of the music industry.
"The death of music sales" – the Atlantic
Follow Scott Barlow on Twitter @SBarlow_ROB
Scott Barlow