Top of the Morning

A welcome dose of perspective from the Globe and Mail’s Tim Kiladze amidst the carnage we’re seeing in the markets: relax, for there are better days ahead.

Here’s some logical advice for everyone who’s panicked: We’ve been here before; we got through it then; we’ll get through it now.

Remember the summer of 2011, when the United States had its debt downgraded and the S&P 500 tumbled 17 per cent in two weeks? How about July, 2012, when Spain’s 10-year bond yields skyrocketed to 7.6 per cent amid fears that countries on the euro zone’s periphery couldn’t control their spending? In every case, investors freaked out.

Yet somehow we survived.

Above all else, that’s the most important story of this rocky recovery. Our progress can be frustrating, because it often feels like two steps forward, one step back. But we manage to improve.

On the Homefront

Is the rout finally over? The TSX was down more than 300 points on Wednesday morning, along with similar-sized losses in U.S. equities, before reversing course to close down by 167 points. Was yesterday morning the capitulation we’ve been looking for, the last wave of selling that marks a trough in this corrective phase? That’s the question on every investor’s mind this morning. And judging by the futures, the answer to that is ‘no.’

 

Market volatility clearly reigned supreme, and it wasn’t limited to equities. After sinking below 88 cents against the greenback yesterday, the loonie proceeded to spike a full cent – primarily attributable to weakness in the U.S. half of the pair. The pair is making a move lower this morning to trade below 0.882.

 

Oil breaks below $80. Black gold found a modicum of stability on Wednesday, with WTI crude futures falling far less than they did the previous day. Nonetheless, the TSX Energy sub-group finished just in the red on the day, its 11 consecutive session in negative territory. That’s the segment’s longest losing streak since 1997. One encouraging sign: Suncor (SU), the biggest name in the space, managed to post a decent gain. Unfortunately, things aren’t getting better for the commodity this morning, as WTI crude dipped below $80 per barrel for the first time since June 2012.

 

…and this may cause the government to rethink tax cuts. Andy Blatchford of The Canadian Press writes that falling oil prices may put a dent in federal revenues, and cites economists who question whether Ottawa will be able to enact all the tax relief it desires in light of the drop-off in commodity prices.

 

Will manufacturing sales hit a fresh record high? At 8:30am (EDT), August’s reading of manufacturing sales is slated to be released. In July, sales rose at their fastest pace in three years to set a record high of $53.7 billion. However, in real terms, manufacturing shipments still have a lot of recovering left to do. Economists think sales will take a step back after the previous month’s massive gain, with the consensus estimate calling for a decrease of 2 percent month-over-month. “The details of the merchandise trade report suggested that manufactured exports were down by around 1.5 percent in August, with particular weakness in refined petroleum products and autos – two areas of former strength,” writes CIBC economist Nick Exarhos.

UPDATE: Canadian manufacturing sales suffered their worst one-month decline in more than five years.

 

Former SNC-Lavalin executive extradited to Canada. Riadh Ben Aissa, former head of construction at SNC-Lavalin (SNC), returned to Canada from Switzerland on Wednesday and was promptly detained by the Quebec provincial police, according to CBC. He faces 16 charges for allegedly committing fraud in order to win a contract in Montreal after being sentenced to time already served in Switzerland. The black cloud from this scandal has largely been lifted from SNC, but these negative headlines surely aren’t helpful – especially at a time in which everything’s selling off. Earlier this month, CEO Richard Blackwell made the case that the company was essentially too big to prosecute; that any attempts to charge the firm would impair its ability to do business (especially with the government) and could force a change in ownership that would leave SNC’s Canadian employees in danger of losing their livelihoods.

Daily Dispatches

Concerns about a hard landing in China continue to fade. Foreign direct investment into the world’s second-largest economy rose from August to September its first increase since June, while new loans totalled $857 billion, more than economists had anticipated. “[The pick-up in new loans] shows officials are taking some steps to turn things around,” writes IG market strategist Stan Shamu.

 

Yield spreads on European sovereign debt continue to widen. The yield on a ten-year German government bond hit a record low below 0.72 percent this morning, while Greek debt of the same maturity yields more than 8 percent. In 2012, Mario Draghi asserted that the European Central Bank would do “whatever it takes” to save the currency union, which led to a narrowing of yield spreads between core and periphery nations. To help solve what currently ails Europe has taken considerably more than just words and likely requires additional action, both from monetary and, more importantly, fiscal policymakers.

 

Euro area inflation ticked down to a paltry 0.3 percent in September. A number of countries – including Greece, Italy, and Spain – are experiencing outright deflation.