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Canadian dollar hits 6-day low

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Canadian dollar

The Canadian dollar weakened against its U.S. counterpart on Monday, as oil prices fell and investors turned attention to economic data later in the week that could guide expectations for the Federal Reserve’s interest rate outlook.

The loonie was trading 0.3% lower at 1.2333 to the greenback, or 81.08 U.S. cents, after touching its weakest intraday level since last Tuesday at 1.2347.

Canadian GDP data for April is due on Wednesday and the U.S. employment report is due on Friday.

The U.S. data could “unveil important clues as to how much more aggressive the Fed might be in adjusting its stance,” said Michael Goshko, corporate risk manager at Western Union Business Solutions.

The Canadian dollar has pulled back from a six-year high near 1.2000 per U.S. dollar earlier this month, pressured by the Fed’s surprise move to project interest rate hikes starting in 2023 rather than 2024.

Speculators have cut their bullish bets on the Canadian dollar for a third week, data from the U.S. Commodity Futures Trading Commission showed on Friday.

The price of oil, one of Canada’s major exports, settled 1.5% lower at $72.01 a barrel as a spike in COVID-19 cases in Asia and Europe put a brake on the rally before this week’s OPEC+ meeting.

Canadian government bond yields were lower across a flatter curve, tracking the move in U.S. Treasuries. The 10-year eased 4.8 basis points to 1.411%. Earlier this month, it touched its lowest since March at 1.364%.

(Reporting by Fergal Smith; Editing by Kirsten Donovan and Richard Chang)

Economy

Russia ministry says economic slump less severe than feared – Al Jazeera English

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Economy ministry says gross domestic product to shrink 4.2 percent this year amid sanctions over the war in Ukraine.

Russia’s economy will contract less than expected and inflation will not be as high as projected three months ago, economy ministry forecasts showed, suggesting the economy is dealing with sanctions better than initially feared.

The economy is plunging into recession after Moscow sent its armed forces into Ukraine on February 24, triggering sweeping Western curbs on its energy and financial sectors, including a freeze of Russian reserves held abroad, and prompting scores of Western companies to leave.

Yet nearly six months since Russia started what it calls a “special military operation”, the downturn is proving to be less severe than the economy ministry predicted in mid-May.

The Russian gross domestic product (GDP) will shrink 4.2 percent this year, and real disposable incomes will fall 2.8 percent compared with 7.8 percent and 6.8 percent declines, respectively, seen three months ago.

At one point, the ministry warned the economy was on track to shrink by more than 12 percent, in what would be the most significant drop in economic output since the fall of the Soviet Union and a resulting crisis in the mid-1990s.

The ministry now sees 2022 year-end inflation at 13.4 percent and unemployment of 4.8 percent compared with earlier forecasts of 17.5 percent and 6.7 percent, respectively.

GDP forecasts for 2023 are more pessimistic, though, with a 2.7 percent contraction compared with the previous estimate of 0.7 percent. This is in line with the central bank’s view that the economic downturn will continue for longer than previously thought.

The economy ministry left out forecasts for prices for oil, Russia’s key export, in the August data set and offered no reasons for the revision of its forecasts.

The forecasts are due to be reviewed by the government’s budget committee and then by the government itself.

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China’s premier urges pro-growth policies as economy sputters – Al Jazeera English

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Li Keqiang calls on provinces to bolster growth after consumption and output fall short of expectations.

China’s Premier Li Keqiang asked local officials from six key provinces that account for about 40% of the country’s economy to bolster pro-growth measures after data for July showed consumption and output grew slower than expectations due to Covid lockdowns and the ongoing property slump.

Li told officials at a meeting to take the lead in helping boost consumption and offer more fiscal support via government bond issuance for investments, state television CCTV reported Tuesday evening. He also vowed to “reasonably” step up policy support to stabilize employment, prices and ensure economic growth.

“Only when the main entities of the market are stable can the economy and employment be stable,” Li was cited as saying at the meeting in a front-page report carried in the People’s Daily, the flagship newspaper of the Communist Party.

The meeting came after Monday’s surprise interest-rate cut did little to allay concern over the property and Covid Zero-led slowdown. Economists have warned of even weaker growth and have called for additional stimulus, such as further cuts in policy rates and bank reserve ratios and more fiscal spending.

Li acknowledged the greater-than-expected downward pressure from Covid lockdowns in the second quarter and asked the local officials to strike a balance between Covid control measures and the need to lift the economy. “Only by development shall we solve all problems,” Li said, according to the broadcaster.

Indicating China may resort to more local debt issuance to pump-prime the economy, Li said “the balance of local special bonds has not reached the debt limit” and the country should “activate the debt limit space according to law,” according to the People’s Daily report.

Based on the government budget, local authorities may be able to issue an estimated 1.5 trillion yuan ($221 billion) of extra debt and bonds this year to support infrastructure spending, after top leaders urged better use of the existing debt ceiling limit in a key July Politburo meeting. The arrangement could be approved in August, according to some analysts.

China’s 10-year government yield rose for the first time this week, up one basis point to 2.64% from the lowest in more than two years.

Li urged local governments to accelerate the construction of projects with sound fundamentals in the third quarter to drive investment, the report said, and also asked officials to expand domestic consumption of big-ticket items such as automobiles and support housing demand.

He also stressed the importance of opening up the domestic market to foreign investors, noting that the six major provinces — Guangdong, Jiangsu, Zhejiang, Henan, Sichuan and Shandong — account for nearly 60% of the country’s total foreign trade and foreign investment.

“Opening up is the only way to make full use of the two markets and resources and improve international competitiveness,” Li was cited as saying.

Li’s appearance suggests state leaders have completed their annual two-week policy retreat in resort area of Beidaihe.

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German recession fears deepen as economy is hit by 'perfect storm' – Financial Times

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Investors are now more pessimistic about the German economy than they have been at any time since the eurozone debt crisis more than a decade ago, worrying that a sharp fall in Russian natural gas supplies and soaring energy prices will plunge the country into recession.

The ZEW Institute’s gauge of investor expectations about Europe’s largest economy has sunk to its lowest level since 2011, dropping from minus 53.8 to minus 55.3, underlining the deepening gloom about the economic fallout from Russia’s invasion of Ukraine.

The think-tank’s survey of financial market participants provides an early indicator of economic sentiment after Russia reopened the Nord Stream 1 pipeline following a maintenance break last month, but kept the main conduit for delivery of gas to Europe operating at only a fifth of capacity.

Economists have slashed their estimates for growth in Germany and the wider eurozone this year, while raising their inflation forecasts and warning that an end to Russian energy supplies would force Berlin to ration gas supplies for heavy industrial users.

On Tuesday, German baseload power for delivery next year, the benchmark European price, rose over 5 per cent to a record €502 per megawatt hour, according to the European Energy Exchange. This is six times higher than the price a year ago — driven upwards by the sharply higher cost of gas used to generate electricity and the prolonged European heatwave that has disrupted generating capacity.

The surging price of energy has driven up the cost of imports for Germany and other eurozone countries, sending the bloc’s trade deficit up to €24.6bn in June, compared with a surplus of €17.2bn for the same month a year earlier, according to data from Eurostat, the European Commission’s statistics bureau. The value of exports from the bloc rose 20.1 per cent in June from a year ago, but imports were up 43.5 per cent.

Line chart of Visible trade balance (€bn) showing Energy costs have moved the eurozone's trade balance from surplus into deficit

“The still high increase in consumer prices and the expected additional costs for heating and electricity are currently having a particularly negative impact on the prospects for the consumer-related sectors of the economy,” said Michael Schröder, a researcher at the ZEW.

He said investor sentiment also worsened due to an expected tightening of financing conditions after the European Central Bank raised its deposit rate by 0.5 percentage points to zero in response to record levels of eurozone inflation.

Carsten Brzeski, head of macro research at Dutch bank ING, said the German economy was “quickly approaching a perfect storm” caused by “high inflation, possible energy supply disruptions, and ongoing supply frictions”. 

A heatwave and dry spell has reduced water levels on the Rhine below the level at which barges can be loaded fully, restricting important supplies for factories, which Brzeski estimated was likely to knock as much as 0.5 percentage points off German growth this year.

Adding to the gloom, German households will have to pay hundreds of euros more in fuel bills this winter after the government unveiled an extra gas levy of 2.419 cents per KWH from October. This is expected to push up the cost for a family of four by €240 in the final three months of the year.

Germany’s top network regulator told the Financial Times this month that the country must cut its gas use by a fifth to avoid a crippling shortage this winter. The economy ministry has also ordered all companies and local authorities to reduce the minimum room temperature in their workspaces to 19C over the winter.

The country has achieved its target of filling gas storage facilities to three-quarters of capacity two weeks ahead of schedule, after high prices and fuel saving measures led to reduced use. But there are worries its objective to lift gas storage to a 95 per cent target of capacity by November will be more challenging if Russia keeps throttling supplies.

The German economy stagnated in the second quarter, the weakest performance of the major eurozone countries. Last month, the IMF slashed its forecast for German growth next year by 1.9 percentage points to 0.8 per cent, the biggest downgrade of any country.

Additional reporting by Harry Dempsey

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