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Gas prices will depend on Delta variant's effect on economy: analyst – BNN

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A gas price analyst says prices at the pump will largely depend on how the Delta variant of COVID-19 plays out in the North American economy.

Dan McTeague, president of Canadians for Affordable Energy, says the variant has caused concern around demand as it slows down the economic reopening.

The price of crude oil peaked this year in early July, when it went above US$75 per barrel and sent gas prices in cities like Vancouver to highs of $1.74 per litre.

The price of crude oil was US$68.63 per barrel as of Tuesday afternoon, but the price Canadians pay at the pump has consistently risen in recent weeks.

McTeague says that’s because the value of the Canadian dollar also dropped when the price of crude dropped.

Looking ahead, McTeague says Canadians can base their expectations on fuel costs around whether COVID-19 cases plateau or not.

The average price of gas in Canada currently sits around the $1.39 per litre mark, according to data from Gasbuddy.com.

If cases continue to rise, McTeague said people can expect prices to hover at that current level. But when cases drop, he expects more sharp increases.

“There continues to be this reality that the world is playing catch up when it comes to demand, and supply is just not adequately meeting demand,” said McTeague.

“It’ll obviously be a very real problem once we get past this particular COVID variant.”

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India's Record Run in Stocks Is Raising Risks for Economy – BNN

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(Bloomberg) — A pick-up in consumer demand, record-low interest rates and improving prospects for the manufacturing sector will probably fuel the rally in Indian stocks, even as the dizzying pace of gains increases risks for the economy. 

These are the conclusions of new research from Bloomberg Intelligence and Bloomberg Economics after the NSE Nifty 50 Index climbed 130% to a record from lows touched in March 2020, supported by the central bank’s liquidity injections, millions of new retail investors, and the regulatory crackdown in China. The rally has added roughly 1 percentage point to GDP growth each quarter since October-December.

“The case for India’s equities remains structurally positive, we believe, amid resurgent consumer demand, manufacturing in a ‘China Plus One’ world, regulatory overhaul and the trajectory of monetary and fiscal policy,” Gaurav Patankar and Nitin Chanduka, analysts with Bloomberg Intelligence, wrote in a note. 

However, the sharp run-up in gains has increased the economy’s vulnerability to a market setback. The Nifty is now trading at 22.2 times estimated 12-month earnings, well above its five-year average of 18.5. By comparison, the MSCI Emerging Markets Index is trading at a multiple of 12.7. 

A retreat for the Nifty, trading at about 35% above its historical trend level, would reduce GDP by 1.4% in the same quarter of the shock and by 3.8% over the following year, Ankur Shukla, an economist with Bloomberg Economics, wrote in a separate note. 

“The higher stocks climb, the greater the risks to the economy if they correct — an important consideration at a time when the Federal Reserve is weighing the timing of tapering stimulus,” Shukla said.

©2021 Bloomberg L.P.

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Is China already the world's most dominant economy? – The Economist

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IN 2010, WHEN President Barack Obama welcomed his Chinese counterpart to a summit in Washington, DC, he greeted him with a handshake and a swift, shallow dip of the head. The image of America’s president bowing before China made an arresting cover photo for the book “Eclipse”, published the following year. The book, written by Arvind Subramanian of the Peterson Institute for International Economics, a Washington-based think-tank, predicted that China would soon come to dominate the world economy and that America could do precious little about it. Your correspondent once included the cover image in a presentation at the Central Party School in Beijing. It caused quite a frisson.

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To gauge a country’s economic “dominance” Mr Subramanian combined its share of world trade, net capital exports and global GDP (measured at both market exchange rates and purchasing-power parities, which try to correct for international differences in the price of similar goods). He gave each attribute a weight loosely based on the IMF’s formula for allocating votes to its members. His index, he argued, successfully captured Britain’s economic hegemony in 1870, its rivalry with Germany in 1913 and its eclipse by America in the subsequent decade.

According to this measure, Mr Subramanian predicted, China would become the world’s most dominant economy by 2020. In the ten years since that forecast, China has faced a trade war with America, its growth has slowed and its currency has suffered bouts of volatility, obliging it to tighten controls on capital outflows. Yet Mr Subramanian’s central prediction has come true. Based on the book’s original formula, China became the world’s most dominant economy last year (see chart). Its growth slowdown has been no worse (so far) than Mr Subramanian expected and the covid-19 pandemic has helped increase its share of global trade.

Mr Subramanian successfully predicted how his own index would evolve. But does his index successfully capture economic dominance? Other authors have included wealth, GDP per person and other proxies for economic sophistication, as well as scale. (Our favourite index of a country’s global influence, put together by Francesc Pujol of the University of Navarra, counts the number of times a country appears in the charts of The Economist.) These measures give America a bigger edge.

For the sake of tractability, Mr Subramanian’s measure gives every dollar of exports equal weight. But some of America’s high-tech exports appear to give it an economic “chokehold” over China that is worth more than their market value. Mr Subramanian thought that China’s growing share of GDP and trade could soon elevate its currency into a rival to the dollar. But China’s yuan has made little headway. That is partly because China has tightened capital controls, a possibility that Mr Subramanian acknowledged. But he thought that if China clung to such controls it would be to keep the yuan cheap (by preventing capital inflows) not to prop the yuan up (by deterring capital outflows). Still, given the sorry record of most economic predictions, the book’s author deserves a handshake and a bow.

For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.

This article appeared in the Finance & economics section of the print edition under the headline “The Thales of economics”

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Canadian dollar falls as Canadian data shows economic momentum easing

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Canadian dollar

The Canadian dollar weakened against its U.S. counterpart on Thursday as the greenback notched broad-based gains and investors weighed domestic data showing some weakening in activity.

The loonie was trading 0.3% lower at 1.2675 to the greenback, or 78.90 U.S. cents, after moving in a range of 1.2616 to 1.2698.

Canadian wholesale trade fell by 2.1% in July from June, the biggest decline since April last year, and housing starts were down 3.9% in August compared with the previous month.

“Momentum (in housing starts) has been moderating after unprecedented strength earlier in the year,” Shelly Kaushik, an economist at BMO Capital Markets, said in a note.

Foreign investors are growing more worried that Canada‘s federal election on Monday could result in a deadlock that hampers Ottawa’s response to the COVID-19 pandemic and further slows the economic recovery from the crisis.

The U.S. dollar climbed to a near 3-week high against a basket of currencies after data showing U.S. retail sales unexpectedly increased in August.

The data could ease some concerns about a sharp slowdown in the U.S. economy, ahead of a Federal Reserve policy meeting next week.

U.S. crude prices were unchanged at $72.61 a barrel as the threat to U.S. Gulf production from Hurricane Nicholas receded. Oil is one of Canada‘s major exports.

Canadian government bond yields were higher across the curve. The 10-year touched its highest since Aug. 12 at 1.272% before pulling back to 1.231%, up 1.2 basis points on the day.

 

(Reporting by Fergal Smith; Editing by Bernadette Baum)

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