These are stories Report on Business is following Monday, Sept. 29, 2014.
A 'poisonous combination'
Six years after the onset of the financial crisis, a major new report warns of the threat of another as global debt levels balloon.
Citing a "poisonous combination" of slow economic growth and low inflation, the study released today also warns that "deleveraging and slower nominal growth are in many cases interacting in a vicious loop" that puts the world at risk.
The 16th annual Geneva Report, released by the International Center for Monetary and Banking Studies and the Centre for Economic Policy Research, urges "caution" on hiking interest rates.
Today's report, authored by four economic heavyweights, is a key document as the Federal Reserve pulls back from its stimulus measures and the European Central Bank, under pressure to do more to pull the continent out of its fund, meets this week.
It also comes as G20 finance ministers and central bankers prepare to meet in Washington next week.
"There is still a lot of work to do for policy makers," warns the study authored by Luigi Buttiglione of Brevan of Howard Investment Products, Professor Philip Lane of Dublin's Trinity College, Professor Lucrezia Reichlin of the London Business School and Vincent Reinhart of Morgan Stanley.
"The legacy of the crisis is still a major issue for a number of developed economies – especially in the euro periphery – which remain extremely vulnerable, and ahead of the financial crisis, with early signs already visible this time around in some emerging economies and especially in China."
(Mr. Buttiglione, Ms. Reichlin and Mr. Reinhart are former central bankers.)
The lengthy study looks at several issues, notably the "global debt dynamics" of the past 10 years.
"Indeed, the ongoing vicious circle of leverage and policy attempts to deleverage, on the one hand, and slower nominal growth on the other, set the basis for either a slow, painful process of deleveraging or for another crisis, possibly this time originating in emerging economies (with China posing the highest risk)," says the report.
"In our view, this makes the world still vulnerable to a further round in the sequence of financial crises that have occurred over the past two decades."
The authors calculate that the ratio of global total debt excluding financials over gross domestic product has swelled since the crisis at "an unabated pace," surging 38 percentage points to 212 per cent.
The developed world led the debt binge until 2008, though the threat now lies with emerging nations, particularly China and a group deemed the "fragile eight" that includes Argentina, Brazil, Chile, India, Indonesia, Russia, South Africa and Turkey.
Those countries "could host the next leg of the global leverage crisis," the report warns.
"Contrary to widely held beliefs, the world has not yet begun to de-lever and the global debt-t-o-GDP is still growing, breaking new highs," the authors say.
"At the same time, in a poisonous combination, world growth and inflation are also lower than previously expected, also – though not only – as a legacy of the past crisis," they add.
"Deleveraging and slower nominal growth are in many cases interacting in a vicious loop, with the latter making the deleveraging process harder and the former exacerbating the economic slowdown."
Encana strikes deal for Athlon
Encana Corp. is trumpeting a "transformative" deal to buy Athlon Energy Inc. for almost $6-billion (U.S.).
The Canadian energy giant announced today it is offering $58.50 a share for the Texas-based company, which would give Encana some 140,000 acres "focused solely in the heart of the oil-rich Midland Basin."
"It's a pretty exciting deal," said Morningstar analyst David Meats, The Globe and Mail's Bertrand Marotte and Carrie Tait report.
"It's a very high quality asset they bought and a perfect strategic fit, concentrated in liquids."
The deal, the company said, also marks its seventh growth area.
"This transformative acquisition further accelerates our strategy and provides us with a prime position in what is widely acknowledged as one of North America's top oil plays," chief executive officer Doug Suttles said in a statement, adding that the deal should add 30,000 barrels of oil equivalent of a day to current.
"Encana sees the potential for approximately 5,000 horizontal well locations with potential recoverable resource of approximately 3 billion barrels of oil equivalent," the company added in its statement.
"In 2015, Encana intends to invest at least $1-billion of capital in the play and ramp up from three to at least seven horizontal rigs by year-end 2015."
- Carrie Tait and Bertrand Marotte: Encana acquires Texas-based Athlon in $6-billion deal
- Boyd Erman in Streetwise (for subscribers): Encana's Suttles picks his target, strikes fast
CRTC hits back
Canada's broadcast regulator struck back today in a dispute with Netflix Inc. and Google Inc. over access to corporate information, promising to cut their submissions from the public record of a major hearing on television and decide the outcome without them.
Over the past 10 days, the Canadian Radio-television and Telecommunications Commission had become locked in a standoff with the two U.S.-based companies. Both appeared at a hearing exploring the future of television in Canada earlier this month, then refused the CRTC's orders that they provide broad information about their Canadian viewership, questioning the regulator's authority over them.
In separate but similar letters issued to Netflix and Google today, CRTC secretary genera, John Traversy reasserted the agency's authority, noting it has "the powers of a superior court of record to enforce its orders" under the country's Broadcasting Act, The Globe and Mail's James Bradshaw reports.
He said both the interventions and supporting documentation that Netflix and Google presented as part of the hearing, dubbed Let's Talk TV, "will be removed from the public record of this proceeding on October 2, 2014." That includes their oral arguments.
The markets have started off a key week in gloomy fashion, though they pulled back from earlier losses.
Major markets were mixed today, with angst the name of the game in Europe and North America, amid a raft of worries.
"Massive protests in Hong Kong and the greenback continuing its ascent (the USD index is at its highest level since the summer of 2010) are what markets are focusing on today," said senior economist Jennifer Lee of BMO Nesbitt Burns.
Tokyo's Nikkei gained 0.5 per cent, though Hong Kong's Hang Seng sank 1.9 per cent.
In Europe, London's FTSE 100 dipped marginally, while Germany's DAX and the Paris CAC 40 fell by between 0.7 per cent and 0.8 per cent.
The S&P 500, Dow Jones industrial average and Toronto's S&P/TSX composite also dipped.
Currency markets also moved, with the U.S. dollar up again and a decision by New Zealand's central bank to intervene to push down its dollar, which is dubbed the kiwi among traders.
"Rising concerns on global growth, driven by the Geneva Report … combined with the [Reserve Bank of New Zealand's] confirmation that they have intervened in [foreign exchange] markets leading into an important week has markets off to a negative start," said senior currency strategist Camilla Sutton of Bank of Nova Scotia.
This comes in a week that will see a European Central Bank meeting and some key economic releases, notably the U.S. jobs report on Friday.
"U.S. markets look set to run into further downside today following a disappointing start to the week in Asia and Europe," said research analyst Joshua Mahony of Alpari in London.
"With the busiest week of the month ahead of us, today marks a rather slow start, where many will begin positioning themselves ahead of the potential volatility due later on in the week."
- Follow our Inside the Market blog (for subscribers)
- Loonie at six-month low while greenback strengthens
Quebeckers, it seems, are an unhappy lot when it comes to the economy.
The Conference Board of Canada said today its consumer confidence index dipped 0.4 of a percentage point this month, a marginal decline but one that's part of a trend.
"Although the drop was small, it does mark the fourth decline in five months, indicating a growing frustration with Canada's stagnant job market in recent months," the group said.
"On a national basis, consumers were slightly less optimistic about their future financial situations and were also less likely to make a major purchase, compared with last month," it added.
"The decline, however, was due entirely to a huge drop in confidence in Quebec. Substantial gains in Atlantic Canada and the Prairies helped to offset most of this decline."
Streetwise (for subscribers)
ROB Insight (for subscribers)