Skip to main content
business briefing

These are stories Report on Business is following Wednesday, Jan. 28, 2015.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Loonie sinks
The Canadian dollar tumbled below the 80-cent mark today as oil plumbed new depths.

The loonie, as the country's dollar coin is known, hit a low point of 79.80 cents U.S., its lowest point over the past year, having been as high as 80.71 cents earlier in the day.

It sat at just above that low mark by late afternoon.

That came after oil prices resumed their slide, falling to the lowest mark in almost six years, after a U.S. oil inventory report showed the country awash in crude.

According to the U.S. Energy Information Administration, those inventories climbed last week by almost 9 million barrels to mark the highest on record.

West Texas Intermediate, the U.S. crude benchmark, fell as low as $44.52 a barrel.

The Canadian dollar has tumbled along with oil since prices began to fall, and observers expect it will go lower still.

"I think it very much depends on oil prices," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

"If oil is moving lower, it's still a very negative story for the Canadian dollar," she added.

Two years ago, noted chief economist Douglas Porter of BMO Nesbitt Burns, the loonie was almost at parity with the U.S. dollar.

"Given Wednesday's spillage, the currency has promptly shed 19 per cent in that two-year span," he said in a research note.

"That is the largest two-year decline in the Canadian dollar ever, which last I checked is a long period of time," he added.

"It's even larger than the deep drop in the late 70s when Canadian inflation was running especially hot, and there were very real fiscal concerns, as well as an impending referendum in Quebec."

How low the loonie goes is an open question.

But Goldman Sachs Group Inc., for example, believes the currency will sink to just 71 cents by 2017.

Others expect to see it at about the 75-cent mark sooner.

Toronto-Dominion Bank, for one, forecasts the loonie will touch that mark early next year, through rebound to 85 cents by the end of 2016.

TD's chief economist, Craig Alexander, and economist Leslie Preston also believe the Bank of Canada, which sparked a plunge in the loonie last week via a surprise interest rate cut, will cut yet again this year.

That would play into the loonie's fortunes along with oil prices, particularly as the Federal Reserve moves closer to a rate hike.

"Combine a greater degree of economic underperformance versus the U.S. economy, and a weaker oil price outlook, and the prospects for the Canadian dollar have … dimmed," they said in a recent report.

Love is always patient and kind. It is never jealous. (But maybe the ECB is)
The Federal Reserve is signalling it won't hike interest rates until June at the earliest, though it's ready to act on whatever happens.

The U.S. central bank repeated today that its policy-setting panel, the Federal Open Market Committee, believes "it can be patient in beginning to normalize the stance of monetary policy."

What that suggests is that there won't be a hike in its benchmark rate, now effectively zero, during the next two meetings in March and April.

But June is a possibility at this point.

"However, if incoming information indicates faster progress toward the committee's employment and inflation objectives than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated," the central bank said.

Of course, it could also delay if "progress proves slower than expected," it added.

The Fed also said the economy has been expanding at a "solid pace," job gains have been strong, and the unemployment rate lower.

It expects "moderate" activity going forward, and expects inflation to ease further.

'Dangerous situation'
Stocks are plunging and bond yields surging. Just another day in Athens.

Investors continue to fret over the "dangerous situation" in Greece, and the expected battle between the new government of Prime Minister Alexis Tsipras and his European neighbours.

"The market has gotten over the initial jump caused by the anti-austerity party holding power in Athens, but it is the next move that frightens traders," said market analyst David Madden as bank stocks were crushed.

"The Greek stock market has been sent into a tailspin since the election and there is a sense of contagion," he added.

"For now the rest of Europe is excluded from the Greek tragedy, but if Greece looks to burn its bridges with Brussels the entire continent will be plunged into a selloff."

Pledging a "radical" shift in Greek policy, Mr. Tsipras is moving fast, shutting down the proposed sale of a stake in a public utility and calling off the sale of a port, among other things.

Greek bond yields surged, and stocks were crushed.

"The catalyst is the concern that an acrimonious negotiation between the new government and its creditors, which include the [European Central Bank], could cause the ECB's emergency lending facility to dry up for Greek banks that are heavily dependent on funding whose ultimate source is the central bank of Europe," Scotiabank's Derek Holt, Frances Donald and Dov Zigler said in a research note today.

"It's a dangerous situation to say the least as depositors flee the Greek financial system and short-term funding becomes harder to access for Greek banks," they added.

"Recent headlines out of Greece include a plan by the government to raise the minimum wage, halt the privatization of a part of a port, and reverse some public sector layoffs. A showdown over the bailout plan is almost inevitable if Greece breaks so immediately and aggressively with its structural adjustment program - and therefore European funding could be drawn into question."

While we're at it, take a look at the exceptionally low yields in Canada.

"The government of Canada can now borrow your money for 30 years for less than 2 per cent," noted chief economist Douglas Porter of BMO Nesbitt Burns.

"They can borrow it for seven years for less than 1 per cent," he added.

"Even with a late-day back-up on Tuesday, we have not seen these lows for Canadian yields in the postwar era."

Cenovus slashes spending
The blows just keep on coming in Canada's oil patch.

As The Globe and Mail's Bertrand Marotte reports, Cenovus Energy Inc. is slashing its planned capital spending this year by a further $700-million amid the oil price slump.

"I believe crude oil prices will rebound, but the timing is uncertain," said chief executive officer Brian Ferguson.

"We're taking the actions we deem prudent to help protect the financial resilience of Cenovus without compromising our future."

If you're happy and you know it ...
It may be an odd measurement, but Canada scores relatively high as the 20th "least miserable" country in a new global ranking.

Venezuela is the most miserable in the Cato Institute's latest World Misery Index, because of surging consumer prices, while Brunei is the least so of the 108 countries ranked.

For the sake of comparison, Venezuela stands at 106.03 on the scale, and Brunei at just 4.94.

Canada came in at 10.62 in the recently released study by the think tank, largely because of unemployment.

The most miserable also include countries such as Argentina, Ukraine, Syria, Iran, Brazil, Armenia and, as you'd expect given their crippling levels of unemployment, Greece and Spain.

The least miserable also take in Switzerland, China, Japan, Norway, Germany, Thailand and Sweden, among others and in no particular order.

According to the index, folks in the Netherlands, Bahrain, the United States and Hong Kong also aren't as miserable as we are.

The index looks at measures such as unemployment, inflation, interest rates and gross domestic product, and was built by Steve Hanke of The Johns Hopkins University in Baltimore.

"Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on 'misery,'" the economist writes.

(Mr. Hanke is a professor of applied economics, among other positions, and also director of the Cato Institute's "Troubled Currencies Project," which makes me wonder what he thinks about the Canadian dollar.)

Given that we're talking about misery, there's a separate study worth mentioning here.

Think money can buy you happiness? Think again.

According to a recent study by researchers at the University of British Columbia and Michigan State University, more money doesn't bring you more daily cheer, but it can mean "less daily sadness."

"Using data from a diverse cross section of the U.S. population … we show that higher income is associated with experiencing less daily sadness, but has no bearing on daily happiness," said the study by UBC PhD candidate Kostadin Kushlev, UBC associate professor Elizabeth Dunn and MSU prof Richard Lucas.

"This pattern of findings could not be explained by relevant demographics, stress, and people's daily time use. Although causality cannot be inferred from this correlational data set, the present findings point to the possibility that money may be a more effective tool for reducing sadness than enhancing happiness."

Jobless rate inches up with revision
Canada's jobless rate actually stands at 6.7 per cent, rather than the 6.6 per cent originally reported.

That's because Statistics Canada revised its numbers today, back almost 15 years, to take fresh census data into account.

As The Globe and Mail's Tavia Grant reports, what it all means is that job growth in Canada last year was the weakest since 2009.

Employment gains came to 121,000, down from the originally estimate 186,000.

Streetwise (for subscribers)

ROB Insight (for subscribers)

Business ticker