Top of the morning

Matt Busigin, portfolio manager at New River Investments, asks an out-of-box question in his latest blog at Macrofugue: does Japan even need to bother with economic growth?

Instead of viewing economic growth as the objective, we should rather view growth as progress towards our real objectives…

We can formulate a hierarchy of needs, like Maslow’s, except for economies. Developing economies are at the bottom, where they require growth just to reliably feed their people. Above them are the emerging markets, which require growth to push their majorities out of poverty. In the middle, you have the United States, which requires it to sustain its middle-class living standard through population growth. At the top, you have Japan. With outstanding living standards, virtually no inflation and high income, have they not, in Maslow’s terms, satisfied the predicates for self-actualization? Have their baser needs not been met, and allowed them the freedom to explore and accomplish the whims of the soul, heart and mind?

On the homefront

Crude oil is in free-fall. The near contract for WTI crude slumped to a two-and-a-half year low on Monday afternoon, putting immense pressure on Canada’s benchmark index. Here’s Adrian Miller, director of fixed income strategy at GMP Securities, with the skinny on what caused this move. “Indeed, not long after Saudi Arabia announced they would increase the price of crude to Asia, Saudi Arabian Oil Co. announced a cut in prices for all grades to the U.S,” he writes. “With the Saudis seemingly looking to preserve market share the price of WTI futures fell -2.9 percent to $78.23 per barrel.” Black gold continued to slump this morning, with WTI briefly dipping below $76 per barrel to a three-year low before recovering. TSX 60 futures are lower ahead of the open.

 

Canada’s petrocurrency is also tumbling, with the loonie sinking to a fresh five-year low of 0.8777 relative to the U.S. dollar.

 

Big bank makes big job cuts. Scotiabank (BNS) is laying off 1,500 employees and closing 120 branches outside Canada. The bank taking a massive $451-million charge related to this restructuring, a writedown on its investment in Venezuela, and an increase in loan losses in the Caribbean, writes The Globe and Mail’s Tim Kiladze. The bank’s payrolls in Canada will be reduced by roughly 1,000.

 

A check-up on trade. At 8:30am (EST), Statistics Canada will release trade figures for September. In its previous reading, the nation’s trade balance tipped back into deficit on the heels of July’s massive surplus. The consensus estimate is for a monthly trade deficit of about $400 million this time around, with auto exports retreating. Economists at CIBC have pointed out that data from the National Energy Board suggests that August’s crude exports will be revised higher.

UPDATE: Auto exports rebounded, sending the nation’s trade balance back into surplus in September.

 

Governor Poloz and Senior Deputy Governor Wilkins head down the street to Parliament Hill to testify before the House of Commons Standing Committee on Finance this morning. Yesterday, the governor delivered a speech in Toronto on the lessons learned from since the financial crisis, as well as what remains unknown. In addition, he fielded questions from the press for the first time since the release of the Monetary Policy Report on October 22. Look for lawmakers to ask Canada’s top monetary policymakers about how the decline in the price of oil affects the economic outlook, and how much room the labour market has to improve before we’ll see more sustained inflationary pressures.

 

Fertilizer company posts solid set of earnings, hikes dividend. On Monday evening, Agrium (AGU) published its Q3 earnings report. While the company missed by a slight amount on revenue, its bottom-line figures beat the Street’s call by a considerable margin. Management announced a 4-percent increase to its quarterly dividend, from $0.75 to $0.78 per share (USD). The outlook provided for the fourth quarter, however, was both vague and rather weak. Shares have been on a tear since activist hedge fund ValueAct declared a sizeable stake in the company in late October.

Daily dispatches

The U.S. mid-term elections are held today, with the legendary Nate Silver of FiveThirtyEight forecasting that the Republicans have a 76-percent chance of gaining control of the Senate. Rather than prognosticate about the results, investors will more likely be interested in whether this has historically been a good time to buy or sell equities. Jim Marsten of Yardeni Research took a look back and found that buying the S&P 500 on the day of the mid-term election is “one of the best technical strategies” he has ever seen. “The historical odds are almost 100% in your favor,” he writes. “The average percentage changes are also good since 1942: 8.5 percent for the three-month periods, 15.0 percent for six months, and 15.6 percent for 12 months.” However, as the old adage goes, past performance is no guarantee of future results.

 

The Nikkei hit 17,000 for the first time since 2007 after the index was closed on Monday for Culture Day, with the U.S. dollar rising to its highest level against the yen since that year. The enhanced monetary stimulus from the Bank of Japan and confirmation that the nation’s pension fund will substantially increase its allocation to equities have fuelled the Nikkei’s stellar performance as of late.

 

The Reserve Bank of Australia held steady on rates, acknowledging that the level of the aussie has declined but reiterating that it “remains above most estimates of its fundamental value.” The Australian Bureau of Statistics also released revised employment figures for the period from December 2013 to September 2014, as its prints have seen even crazier swings than Canada’s. These revised readings show that unemployment is actually higher than previously thought.

 

Policymakers confirmed what we all knew to be true: that the euro zone is barely going to see any economic growth in the near future. The European Commission slashed its growth estimate for the region by 0.6 percentage points to 1.1 percent in 2015.