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The Economy, Oil Demand And Prices – Forbes

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Given data lags and uncertainty, it is often said that the Fed guidance of the economy is like someone driving through a tunnel with the windshield painted black, relying on the rearview mirrors and bouncing off the walls. Given current divergent views amongst the political tribes, I would add as a corollary that there’s a child in the backseat hitting the driver with a pillow, screaming slow down they’re scared, while another child does the same, except screaming they need a bathroom and the car should speed up.

Current debt levels now prevailing in most of the world’s governments are outside of historical experience, so far as I know, and could have a significant impact on future growth and interest rates. Continued stimuli to promote economic recovery could mean low interest rates and rapid growth, which would certainly fuel stronger oil demand. Or it could result in inflation and thus high interest rates, leading to a new recession. Similarly, attempting to pay down the debt could slow economic growth and depress oil prices.

Aside from growth levels, interest rates have an impact on energy investment and could influence future fuel mixes. For example, low interest rates theoretically favor capital-intensive types of energy, including nuclear and renewables, along with long-term projects like deepwater oil and gas fields. (High interest rates favor shale oil and gas, because of their shorter payoff period.) It is possible that the recent surge in solar and wind power investment reflects recent low interest rates, although mandates and subsidies are probably more influential.

The heavy debt levels could, on the other hand, reduce subsidies for renewables including electric vehicles. Although it has become a cliché to claim that solar and wind are cheaper even than coal power, this is very misleading: at the least, new investment would be required to replace fossil fuels with renewables. The International Energy Agency, in its latest World Energy Outlook, projects investment needed in its scenarios, and the difference between the Stated Policies Scenario and the Sustainable Development Scenario would be $340 billion a year in the 2020s and reaches $1 trillion per year in the 2030s. (I’ve railed against the injustice of giving well-to-do citizens large grants to buy electric vehicles, which are one of the most expensive ways of reducing GHG that is given serios consideration.)

And where some talk about a new commodity supercycle, I worry that there is a good chance that instead there will be a collapse in asset values, with markets possibly entering bubble territory. One famous, possibly apocryphal story, is that Joe Kennedy (patriarch of the political dynasty) sold off his stock holdings just before the crash of 1929 after hearing a shoeshine boy give a stock tip: that convinced him the market was overbought. Similarly, it would seem that the roaring bull market for certain stocks such as Gamestop

GME
and Tesla

TSLA
might not be the result of fundamentals but rather the current expansionist monetary policy, which cannot last forever.

And the growing use of SPACs and the surging value of Bitcoin also reminds me of the late Charles Kindleberger’s book, Manias, Panics and Crashes which describes how the invention of new forms of credit led to an expansion of the monetary supply, which caused asset bubbles followed by crashes. This could lead to a reversion to value stocks, such as oil and gas producers as well as utilities, ESG notwithstanding.

To be honest, though, I feel kind of like I’m in the passenger seat of the Fed’s car shouting, “Go left! No, Right! No, Stop!” Perhaps the next killer app will be a GPS for monetary policy.

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Economy

CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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Canadian dollar rebounds from one-week low ahead of jobs data

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.

The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.

“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”

Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.

The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.

Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.

On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.

(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)

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