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Euro set for biggest monthly drop since mid-2019 on economy fears – TheChronicleHerald.ca

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By Saikat Chatterjee

LONDON (Reuters) – The euro languished below $1.18 on Monday as the prospect of tougher coronavirus curbs in France and Germany weighed on the short-term outlook for the European economy.

The euro slipped 0.2% in London trading at $1.1774, nearing last week’s four-and-a-half-month trough of $1.1762. On a monthly basis, it is down 2.3%, its biggest drop since July 2019.

Compounding the single’s currency woes have been the widening interest rate differentials between German and U.S. yields. The spread for 10-year debt widened to 200 basis points from 150 bps at the start of the year, boosting the dollar.

“In a nutshell, the U.S. economy is much stronger and miles ahead in the immunization game compared to Europe’s and Japan’s, and this ultimately translates into the Fed normalizing policy years before the ECB or the BoJ,” said Marios Hadjikyriacos, a strategist at brokerage XM.

The euro’s woes have worsened as Europe’s faltering vaccination programme runs into a wave of new infections, even as positioning data showed investors remain heavily long euros, a bearish sign for investors. and

“Much focus will remain on the virus situation in Europe and whether lockdowns can slow rising case numbers and also whether the slow pace of vaccinations can finally reach exit speed,” ING economists said in a daily note.

The dollar held firm against other currencies as a slight risk-off sentiment rippled through global markets, with U.S. stock futures in negative territory in quiet quarter-end rebalancing flows.

YEN SHORTS GROW

Against a basket of currencies, the dollar steadied at 92.810, just below a November 2020 high of 92.92 hit last week.

Weekly positioning data showed the broad trend of growing dollar bullishness remained in play. Hedge funds cut their overall short dollar bets to their lowest levels since June 2020 while ramping up their bearish bets on the yen.

Short yen positions have grown in recent weeks with hedge funds building their net short bets to 33% of open interest, according to ING data.

Steadying stock markets offered some support for the yen, but falling bond yields and expectations of a global economic rebound have rekindled short bets. The yen is among the worst- performing currencies so far this quarter, down 6% loss the dollar.

Virus-driven caution also helped the dollar higher against the Australian and New Zealand dollars and sterling, and it rose against oil-linked currencies as the re-floating of the ship blocking the Suez Canal pushed crude prices down by about 1.5%.

The Aussie was last down 0.3% at $0.7621 on Monday and the New Zealand dollar had dropped 0.3% to $0.6978. Sterling slipped 0.2% to $1.3767.

Graphic: Yen positions https://fingfx.thomsonreuters.com/gfx/mkt/qzjvqllkapx/Yen%20positions.JPG

(Reporting by Saikat Chatterjee; editing by Nick Macfie, Larry King)

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Global Climate Policy Acceleration Means Sink-or-Swim Decade for Canada's Economy: Report – Canada NewsWire

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OTTAWA, ON, Oct. 21, 2021 /CNW Telbec/ – Canada’s economy faces a “sink-or-swim” decade, according to the first study to assess Canada’s economic prospects in the face of accelerating global market shifts responding to climate change.

Sink or Swim: Transforming Canada’s economy for a global low-carbon future is a major new report from the Canadian Institute for Climate Choices, Canada’s independent climate policy research institute. The report assesses Canada’s economic prospects in response to the global low-carbon transition and offers recommendations for successfully navigating that transition.

Countries responsible for over 70 per cent of global GDP and over 70 per cent of global oil demand have committed to reaching net zero emissions by mid-century. Trillions of dollars in global investment will move away from high-carbon sectors. The impact of these global shifts will be profound, shifting trade patterns, reshaping demand, and upending businesses that are too slow to adapt.

To better understand the risks and opportunities of this transition for Canada, Sink or Swim stress tests publicly traded companies under different scenarios. Without major investment, the report finds, many exporters and multinationals will see significant profit loss in the coming decades. The stakes are high for Canada, with almost 70 per cent of goods exports and over 800,000 jobs in transition-vulnerable sectors, including oil and gas, mining, heavy industry, and auto manufacturing.

To succeed in this global transition, the report concludes, Canada must use climate policy, company disclosure, and targeted public investment to mobilize private finance and improve the resilience of Canada’s workforce and impacted communities.

QUOTES

“Our analysis shows that global policy and market changes will have a profound impact on Canada’s economy and workforce. To stay competitive, Canada needs to rapidly scale up new, transition-consistent sources of growth—and successfully transform existing ones. Moving too slowly is now a greater competitive risk than moving too quickly.”

—Rachel Samson, Clean Growth Research Director, Climate Choices

“The global transition means Canada must transform its economy in the face of new market realities. With smart, certain policy and innovation across the private sector, there is a path to strong economic growth, gains in well-being, and lower emissions.”

—Don Drummond, Stauffer-Dunning Fellow and Adjunct Professor at the School of Policy Studies at Queen’s University and fellow-in-residence at the C.D. Howe Institute

“Major Canadian investors understand the pressures our economy will be facing as a result of accelerating global market shifts, and we’re issuing a strong call for increased climate accountability and transparency in the corporate sector.”
—Dustyn Lanz, CEO, Responsible Investment Association

“The Aluminum Association of Canada supports a holistic view of Canada’s trajectory towards net zero emissions. A multifaceted approach with room for everyone will support a transition to a prosperous and sustainable economy.”
—Jean Simard, President and Chief Executive Officer of the Aluminium Association of Canada

“Canadian businesses and investors need clarity on which economic activities are consistent with the transition to a low-carbon future. Without that clarity, there is a risk that finance will flow in the wrong directions and miss areas of great opportunity. The analysis in this report will support the development of practical taxonomies that can be used for transition-consistent investment decisions and financial products.”
—Barbara Zvan, CEO & President, University Pension Plan and member of Canada’s former Expert Panel on Sustainable Finance. UPP is a participating organization of the Sustainable Finance Action Council

RESOURCES

ABOUT CLIMATE CHOICES

The Canadian Institute for Climate Choices is Canada’s independent climate policy research institute, providing evidence-based policy analysis and advice to decision makers across the country.

SOURCE Canadian Institute for Climate Choices

For further information: Catharine Tunnacliffe, Director of Communications, (226) 212-9883

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Fed survey finds economy facing supply chain, other drags – GuelphMercury.com

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Fed survey finds economy facing supply chain, other drags  GuelphMercury.com



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The revenge of the old economy – Financial Times

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The writer is global head of commodities research at Goldman Sachs

It is tempting to blame today’s shortages in the “old economy” — everything from energy to other basic materials, and even agriculture — on a series of temporary disruptions driven largely by the Covid-19 pandemic.

But outside of a few labour issues, these bottlenecks have little to do with Covid. Instead, the roots of today’s commodity crunch can be traced back to the aftermath of the financial crisis and the following decade of falling returns and chronic under-investment in the old economy.

As infrastructure aged and investment waned, so did the old economy’s ability to supply and deliver the commodities underpinning many finished goods. After years of neglect, today’s rising gas prices, copper supply shortfalls and China’s struggles with power generation are the “old economy’s revenge”.

In the economic stagnation following 2008, policymakers focused recovery efforts via central bank quantitative easing programmes to support markets. Lower-income households faced sluggish real wage growth, economic insecurity, tighter credit limits and increasingly unaffordable assets. Higher-income households, on the other hand, benefited from the financial asset inflation caused by QE.

This disparity in outcomes hit the old economy hard. In the old economy, price appreciation results when the volume of demand outstrips the volume of supply. Higher-income households may control the dollars, but lower-income households control the volume of commodity demand given their greater number and propensity to consume physical goods over services.

As the volume of demand for commodities waned, so did the returns for old economy sectors. Lower returns led to less long-cycle old economy capital expenditure — which traditionally requires a five to 10-year horizon of sufficient demand — in favour of short-cycle “new economy” in investment in areas such as technology.

Line chart of Global equity return indices, Q1 2002 = 100 showing 'Old economy' stock underperformance has damped capital expenditure

By 2013, this weakness backed up into China. As the world’s manufacturing engine slowed and commodities began their historic slide, the old economy’s capital flight intensified.

Indeed, the old economy was overbuilt, debt-laden and over-polluted. While the old economy only represents about 35 per cent of global gross domestic product, it generated at least 2 times the corporate losses, had about 90 per cent of the non-financial debt and created 80 per cent of the emissions. It is no wonder why investors preferred Big Tech to oil and copper.

After the oil price collapsed in 2015, markets were fed up with wealth destruction, nearly halting deal flows across the old economy. China stopped aggressively stimulating lossmaking enterprises such as coal mines. And as climate change became top of mind, investors put greater weight on environmental, social and governance issues, further restricting capital.

The resulting decline in investment prevented capacity growth in commodities. This has been particularly the case in hydrocarbons where divestiture by investors for ESG reasons compounded an already growing under-investment problem.

Column chart of US households' commodity demand, by income decile (commodities as a % of total consumption) showing Lower-income households have most influence on commodity demand

The severity of these supply constraints has been underlined as countries have moved into recovery mode from the pandemic, exposing just how stretched the old economy has become.

The pandemic also had a further effect, placing social needs more at the centre of policymakers’ agendas. Such inclusive growth has only accentuated the demand for physical commodities.

Shocks to one part of the system are now creating ripple effects elsewhere. Reduced coal output in China hit aluminium smelting capacity, creating shortages in aluminium. Reduced gas availability forced gas-to-oil substitution, generating shortages in oil. The rolling impact of smaller, frequent shocks on a stretched system generates the emergent phenomenon in which transitory shocks lead to persistent physical price inflation — the start of which we are seeing today.

This is where the revenge of the old economy will leave its mark. Periods of commodity price pressure will reoccur as broad-based demand meets inadequate infrastructure.

If policymakers’ goals of broad-based prosperity and a massive buildout in green infrastructure are to be met, commodity prices will need to significantly overshoot to the upside to provide the incentive for investment. This is needed to compensate for the growing risks involved in long-cycle capex projects and the inherent complexities surrounding the green energy transition. As we argued a year ago, a new commodity supercycle is upon us.

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