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Markets fear higher oil prices Global markets have calmed somewhat today, but there are fears the uprising in Egypt could hit oil supplies and push the cost of crude above $100 a barrel U.S.
"Economic data and central bank meetings could well play second fiddle this week if tensions continue to escalate throughout North Africa with gold, the U.S. dollar and Swiss franc the most likely beneficiaries of a capital flight away from riskier assets," said CMC Markets analyst Michael Hewson.
"Oil prices also surged on fears that the turmoil in Egypt could well spill over to the Suez Canal and disrupt one of the major supply routes between the Middle East and Europe. If the uncertainty continues we could well see levels above $100 a barrel very quickly. With the U.S. having to play a canny political game given Egypt's unique geopolitical location the outcome of the events playing out over the next few days could well resonate for months to come."
Despite a seventh day of demonstrations in Egypt, the Suez Canal was operating normally today. The fear, though, is that that will change, and the impact on the markets could be harsh given that millions of barrels a day, pass through the canal or a nearby pipeline daily. Almost 3 million barrels a day, or about 3 per cent of world output, went through the canal and pipeline in 2009, according to estimates.
Other measures suggest the flow of oil through the Suez Canal is less than that, but the impact would largely be the same, and something the global economy can ill afford as it struggles back from the recession.
"Crude oil is trading lower today, however this obscures the massive 4.3 per cent gain on Friday as tensions in Egypt (the Suez in particular) put a good degree of fear into the oil market," said Scotia Capital currency strategist Sacha Tihanyi.
"Even today, oil spiked to nearly $91 before coming off. The political tension in the Middle East is far from over, and as such the market for oil will be particularly sensitive and subject to upside surges."
The Suez Canal runs for almost 200 kilometres, and is estimated to have brought Egypt almost $5-billion in revenues last year, according to Reuters. A shutdown of the canal would mean about an extra 10 days for Mideast oil to get to the United States, and 18 days to northern Europe, The Wall Street Journal says.
Mr. Tihanyi's colleague at Scotia Capital, economist Derek Holt, added there are fears of unrest spreading through the region.
"Clearly, if it were just about Egypt, then the worries would be much more contained," he said.
"But markets love to stamp cookie-cutter themes across other markets with even remote similarities. The dominant fear remains that of Egyptian style protests spreading through the Middle East," Mr. Holt said in a research note.
"But what caused the crisis could also be what cures it. I doubt the immediate catalyst was that people suddenly woke up after decades of rule by often ruthless and oppressive dictatorships and suddenly demanded freedom. Spikes in food and gasoline prices created significant malcontent, and a sudden focus on efforts to contain such prices could be what quells contagion risk."
Several multinationals were also suspending production in Egypt today.
Separately today, Moody's Investor Service cut Egypt's debt rating, saying "there is a strong possibility that fiscal policy will be loosened as part of the government's efforts to contain discontent.
"A background of rising inflationary pressures further complicates fiscal policy by threatening to increase the high level of budgetary expenditure on wages and subsidies."
GDP expands 0.4 per cent Canada's energy industry helped boost the economy in November, making up for a fall in construction and manufacturing, The Globe and Mail's Tavia Grant reports today.
The economy expanded by 0.4 per cent November, Statistics Canada said, gaining on October's 0.2-per-cent growth in gross domestic product. November's showing was the fastest in eight months.
The services sector also boosted the economy.
"The goods sector should continue to benefit from strong global demand for Canadian resources, such oil and gas," said Toronto-Dominion bank economist Diana Petramala.
"But excluding the resource sector, manufacturing will continue to face significant challenges, particularly in the wake of a strong Canadian dollar, and increased competition from low-cost global players. All said, the Canadian economy will face both international and domestic challenges in 2011 that are expected to hold real GDP growth in a moderate range of 2.5 per cent to 3 per cent,"
Euro zone inflation climbs The European Central Bank heads into a policy meeting this week amid both economic turmoil and rising inflation.
The central bank, which meets Thursday, is already grappling with how to manage a one-size-fits-all monetary policy for 17 individual economies that are moving at far different speeds after the recession.
Now, inflation is also becoming a concern. Consumer prices increased 2.4 per cent in January from a year earlier, following a 2.2-per-cent rise in December.
- Euro zone January inflation jumps
- Expectation of inflation on the upswing
- Inflation starts to make unwelcome entrance in world economies
Chrysler loss narrows Chrysler Group LLC appears to be on the rebound, reporting a $199-million (U.S.) loss in the fourth quarter of last year but projecting a profit of between $200-million to $500-million this year.
The fourth-quarter loss was heftier than that of the third quarter and far narrower than the $2.69-billion shortfall a year earlier, though that contained a huge charge.
The auto maker, which, along with competitor General Motors Co., was rescued by governments at the height of the crisis, said it boosted its U.S. market share to 9.2 per cent last year from 8.8 per cent, and its Canadian market share to 13 per cent from 11 per cent.
Separately today, Honda posted a drop in quarterly profit of almost 40 per cent.
Exxon profit surges Exxon Mobil Corp. today posted a fourth-quarter profit of $9.25-billion (U.S.) or $1.86 a share, a jump of more than 50 per cent from $6.01-billion or $1.27 a year earlier.
Revenue climbed to $105.2-billion from $89.8-billion.
Boyd Erman's Morning Meeting Goldman Sachs partner Abby Joseph Cohen, who became famous for market predictions in the bull run of the 1990s, gets a tough ride from Deborah Solomon of the New York Times today, Streetwise columnist Boyd Erman reports.
In Personal Finance today
It's now easier to catch people who go over their contribution limit, so know when and how much you can invest.
The Canada Revenue Agency offers a few tips to avoid identity theft.
The best deals are found by those who know their prices, where to shop and how to make the most of flyers and coupons.
From today's Report on Business
- Voting problems dog Corporate Canada
- Corporate tax cut dispute bit of a yawn for U.S. businesses
- At The Top: Epcor's Don Lowry
- Taking Stock: Viewing quality stocks in a new light