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Moody's eyes downgrades

Moody’s Investors Service is eyeing a sweeping downgrade of a sizable chunk of corporate Canada.

The move by the ratings agency is part of a much bigger look at energy and mining companies across the globe amid the rout in commodities.

Moody’s also scaled back its projections for oil prices.

The announcement late yesterday takes in some of the country’s biggest miners and many oil patch companies. Moody’s put several of Canada’s bigger oil players under review last month.

The move came as the agency cut its outlook for crude “in light of continuing oversupply in the global oil markets and demand growth that remains tepid,” it said in a statement.

“Iran is poised to add more than 500,000 barrels per day to global supply while OPEC and many non-OPEC producers continue to produce without restraint as they battle for market share,” Moody’s said, adding production now eclipses demand by about 2 million barrels a day.

“Lower oil prices will further weaken cash flows for E&P companies and the upstream portion of integrated oil and gas companies,” it added.

“This will cause further deterioration in financial ratios, including deeper negative free cash flow. Most companies are unable to internally fund sustaining levels of capital spending at currency market prices.”

In the oil patch, Moody’s put the ratings of 19 Canadian exploration and production and services companies under review for a potential downgrade.

Among them were Bellatrix Exploration Ltd., Canbriam Energy Inc., Jupiter Resources Inc., MEG Energy Corp., Northern Blizzard Resources Inc., Osum Production Corp., Paramount Resources Ltd., Seven Generations Energy Ltd., Teine Energy Ltd., Archrock Partners, Calfrac Holdings, CHC Group and CHC Helicopter, Helmerich & Payne International Drilling, North American Energy Partners, Precision Drilling Corp., Trinidad Drilling Ltd., Newalta Corp. and Western Energy Services Corp.

Several global giants were also listed, including Royal Dutch Shell PLC, Total SA, Schlumberger Ltd., Chesapeake Energy Corp. and Statoil ASA.

Moody’s also trimmed its 2016 forecasts for West Texas Intermediate and Brent crude, to just $33 (U.S.) a barrel, a cut of $7 for the former and $10 for the latter. It said it sees both rising by an average $5 next year and in 2018.

Along with all that, a dozen Canadian miners were also put on review for downgrades.

“Slowing growth in China, which consumes and produces at least half of base metals, and is a material player in the precious metals, iron ore and metallurgical coal markets is weakening demand for these commodities and driving prices to multiyear lows,” Moody’s senior analyst Jamie Koutsoukis said in a statement.

This came, by the way, just hours after Barrick Gold Corp. said it expects to be hit by goodwill impairment charges of about $1.8-billion and asset impairment charges of up to $1.2-billion largely related to two big projects.

Barrick is among the companies caught up in the Moody’s review.

Others include Alamos Gold Inc., various Barrick units, Eldorado Gold Corp., Goldcorp Inc., HudBay Minerals Inc., Iamgold Corp., Kinross Gold Corp., Lundin Mining Corp., New Gold Inc., Teck Resources Ltd. and Yamana Gold Inc.

About that food bill

Read this morning’s inflation report from Statistics Canada if you want to see the broader numbers behind the spike in your grocery bill.

And other goods, for that matter.

Costs of imports have been rising as the Canadian dollar has plunged, and that shows up loud and clear in the December inflation report.

Food costs climbed 3.7 per cent from a year earlier, with store products up 4.1 per cent and restaurant meals up 2.8 per cent.

In particular, Statistics Canada said, the jump was largely because of fresh vegetables and fruit.

“The last time the currency fell this sharply (in 2008), grocery store prices jumped about 10 per cent (driven also by rising U.S. food costs,” BMO Nesbitt Burns senior economist Sal Guatieri said in a research note before the report was released..

“They rose ‘only’ 3.7 per cent in November, which we can look back on as the good old days. Consequently, Canadian households have cut back on food purchases."

It’s true that the loonie has been dragged down by the fall in oil prices, saving money at the gas pump, but the math shows consumers are still losing out.

According to Mr. Guatieri’s earlier calculations, prices at the pump have declined more than food costs have climbed, but we spend about four times more on the latter.

Over all, annual inflation ticked up in Canada to 1.6 per cent in December, from 1.4 per cent a month earlier.

Only in Canada, eh? Pity (for you guys)

New York Times

Quote of the day

“Draghi may well go down in history as the central banker with the most influence and indeed credibility.”
Ipek Ozkardeskaya, London Capital Group

Markets on rise

Investors are capping a volatile week with a sharp rally.

Global markets are climbing across the board, with New York poised for a stronger open.

Tokyo’s Nikkei surged 5.9 per cent, Hong Kong’s Hang Seng 2.9 per cent, and the Shanghai composite 1.3 per cent.

In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 2.2 per cent and 3.1 per cent. North American stocks also climbed.

This comes amid the rally in oil prices, and hints from European Central Bank chief Mario Draghi that the ECB is poised for further stimulus.

“Super Mario helped to underpin risk sentiment yesterday with some dovish jawboning,” said London Capital Group’s Ms. Ozkardeskaya.

“Expectations are now rampant that further stimulus will arrive in March so we’re witnessing some front running amongst risk assets this morning.”

Video: Is a no-boss office a dream or a nightmare?

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