Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Causality is always a sticky issue but there's no doubt that the U.S. dollar exchange rate is now at the fulcrum of global market activity. The consensus outlook at the beginning of 2015 (including me) was that the U.S. would regain the leadership position in the global economy, the Fed would raise rates, commodity prices and emerging markets would fade, and the greenback would soar.
Recent events, however, have cast considerable doubt on these themes. U.S. gross domestic product growth for the first quarter was extremely weak and, as Bloomberg reports, the dollar had endured its longest losing streak in four years:
"The greenback weakened for a seventh straight day Thursday, the longest losing streak since April, 2011, after Federal Reserve policy makers indicated they're in no rush to raise interest rates amid slowing growth… The drop has surprised speculators who were the most bullish on the dollar in at least six years, leading investors to question the $5.3-trillion currency market's biggest one-way trade."
"The Dollar Is on Its Longest Losing Streak Since 2011" – Bloomberg
"The mystery of U.S. bond yields and the greenback" – Barlow, Inside the Market
"All 16 major currencies gain v $ in April... http://t.co/ycnHIeFzJt" – Twitter
I don't usually mention individual company results in top links, but Suncor's profit report includes an important myriad of broad trends including currency fluctuations and the fact that oil producers are increasing output despite the ongoing supply glut:
"Suncor attributed the swing, in part, to a $940-million foreign exchange loss on the value of its U.S. dollar-denominated debt. Overall production climbed to 602,400 barrels of oil equivalent a day, the company said, up about 10 per cent from the same period last year. Operating earnings rang in at $175-million versus $1.7-billion a year ago."
"Suncor swings to loss as record output fails to offset weak oil prices" – Lewis, Report on Business
"Canada's Top Oil Producer Suncor Posts Net Loss, Boosts Crude Output" – Wall Street Journal
FT Alphaville's Matthew Klein puts a positive spin on Wednesday's disappointing U.S. GDP report, but I have questions:
"First off, investment spending, excluding inventory accumulation, knocked off about 0.4 per cent from total GDP growth last quarter – the worst performance since the recession ended… a close look at table 5.3.2 of the NIPAs shows that more than all of that decline can be attributed to the subcategory of "business fixed investment in structures: mining exploration, shafts, and wells".. Meanwhile, private investment outside of the oil and gas industry hummed along nicely. A particularly encouraging sign is the sharp increase in investment in computer software and research and development, which boosted growth more than at any time in the past 60 years after the late 1990s."
These are interesting points, no doubt. But just because oil and gas investment was expected to decline, that doesn't mean it doesn't matter for the U.S. economy. In addition, consumer spending was led by the non-discretionary categories of medical care and utilities so those numbers are weaker than they appear.
"Another winter of discontent?" – Klein, FT Alphaville
The Pragmatic capitalism blog notes that the business model for the brokerage industry is still largely broken. The business was organized for a pre-Internet period when, if investors wanted to know a price-to-earnings ratio, they had to call their broker. This information advantage no longer exists and the members of the industry, on both sides of the border, continue their identity crisis as they attempt to figure out how to add value without leveraging investors' worst gambling impulses:
"We've realized that index funds are all the rage so we've transitioned our fee structuring. Instead of charging you a 1 per cent management fee PLUS a 1 per cent underlying mutual fund fee we'll use low fee index funds and only charge you the 1 per cent management fee. See what we did there? We kept the costs high, but we changed the message to make it sound like we're now low fee. You probably won't even notice!"
"The New Narrative Fails of the Investment Industry" – Roche, Pragmatic Capitalism
Tweet of the Day: "@andrew_leach .@cenovus investor deck cenovus.com/invest/docs/co… Spoiler: They don't tell you that their investments here are barely viable."
Diversion: With so much depressing news around – ISIS, Baltimore, Boko Haram, Canada's Aboriginal communities – I like to remind myself that really smart people are doing really important things at the same time:
"IBM Shows Off a Quantum Computing Chip" – M.I.T. Technology Review
Scott Barlow