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Beware the bouncing ruble, as oil drops below $55

Your financial and economic news for December 16


 

MORNING-PLAYBOOK-STORY
Oil continues its calamitous slide this morning, causing drama in the North American markets and a wildly swinging ruble that must have Russian central bankers throwing their hands up in despair. Plus a recap of the news for Canadians: you’re richer – and also more indebted – than ever before.

The day ahead

Oil drops below $55. Oil continues its massive slide, with the U.S. benchmark – West Texas Intermediate – already falling below $55 this morning. Just before 4 a.m. Toronto time, it was at USD$54.69, while Brent, the global benchmark, had slipped below $60 to $59.71. Falling oil prices yesterday were weighing heavily on global markets yesterday – and it will be the same today.

North American markets dropped yesterday – with the S&P/TSX Composite Index losing 25.91 points by the end of the day (0.19 per cent), and continuing a sharp drop so far this month. Markets in New York also closed the day down – including the worst day in six weeks for the S&P 500 – after only partially recovering from steep midday drops.
Markets in Asia and the Pacific also opened lower today – with the exception of the jumpy Shanghai Composite. In addition to the price of oil, markets are also waiting for signs of a change in U.S. interest rates tomorrow during the Fed’s quarterly briefing.

The loonie fell below 86 cents, dropping almost an entire cent on Monday to close at 85.79 cents.

The bouncing ruble is even lower today, as the price of oil weighs against an emergency central bank rate hike. After dropping more than 10 per cent yesterday – beating a recent record for the biggest drop since the 1998 Russian financial crisis – the Russian currency recovered by more than nine per cent this morning on an emergency rate hike of 17 per cent, before proceeding to drop yet again – even lower than yesterday.

U.S. housing numbers out today, plus, speculation over interest rates. Housing starts and housing permits for November will be out today, while tomorrow will bring the US PMI and current account deficit numbers. But the real draw is speculation over whether Fed Chair Janet Yellen will give any signs of an increase in interest rates next year in her quarterly speech tomorrow. While an immediate change in interest rates isn’t expected, strong job numbers are good signs that the American economy has perked up enough for a rate hike, and speculation will fuel global markets today and tomorrow.

 

What you missed

Canadians have record levels of debt, according to Statistics Canada. That was the takeaway message from yesterday’s National Balance Sheet and Financial Flow Accounts from Statistics Canada. The report said Canadian household debt is at 162.6 per cent of income, a record-breaker in light of changes to previous records, and a red flag from the Bank of Canada, who warned last week that debt levels were a risk for the coming year, especially as the vast majority of Canadian debt is in mortgages. But there were other good signs: Canadian incomes were also at record levels, making us richer per capita than ever before, and measures of the ability to pay interest on those mortgages was also at record rates.

Three U.K. banks failed stress tests. The tests were intended to test capital for the country’s eight largest lenders against a slew of adverse conditions. Two of the banks, Lloyd’s and Royal Bank of Scotland, have since come up with sufficient plans to address their shortfall, the Bank of England said, but a third, the Co-operative Bank, well and truly failed.
The national accountants group will also release proposals this week for auditing banks’ capital levels, as well as how those capital levels are assessed, a move that will bring the U.K. in line with several other European countries. The push was prompted by concern that banks underestimate their risks and overestimate their capital – fears that have been borne out in the past by both Royal Bank of Scotland and Bank of America.

Eurozone manufacturing index numbers are slightly better than expected. Amidst signs of slow growth and deflation, few of these numbers were expected to be good, but it appears the Eurozone is clinging to growth. November’s PMI score was 50.8 – the 50 separates growth from contraction when measuring manufacturing output – up from the previous month’s 50.1. Numbers are also out from several European countries so far, including Germany, with a lower than expected PMI, while France’s rate is actually been higher than expected – but still below 50.

Industrial capacity numbers from the U.S. rose the most in nine months in November, even more than expected, according to numbers released yesterday. This rating shows how well the economy is operating relative to its potential. The boost comes a little over a week after strong jobs report from the U.S. More numbers are expected this week – with housing starts and permits out today, and tomorrow, in addition to a speech by Yellen, numbers on the current account deficit and inflation rates.

 


 
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