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Crises abound, from oil prices to Greece to Ukraine

Feb. 11: Plus, a Scandinavian rate-cutting frenzy and Coke’s earning’s meets Pepsi


 

MORNING-PLAYBOOK-STORY
It’s another day of high-stakes geopolitics today, so make sure you have a big breakfast.

Finance ministers and central bankers are heading home after the G20 meeting wrapped up in Istanbul yesterday, during which officials expressed worry over how massive economic inequality has become, while Bank of Canada Governor Stephen Poloz denied he is talking down the loonie. In Ottawa, the deputy governor gave a speech on the “labour gap,” and German Chancellor Angela Merkel and Prime Minister Stephen Harper had a meeting to talk about Ukraine, a day after the German leader was in Washington to speak with U.S. President Barack Obama. Meanwhile, amid a major petroleum conference in London, the International Energy Association (IEA) released its update on oil, predicting prices won’t hit $100 again for at least the next five years. As recently as the end of June, oil was at almost $108. Any increase wouldn’t be driven by demand, the IEA said, but was more likely to come from decreasing production. The price for WTI fell back to around $50 after the news, but is holding strong above the $50 line this morning so far.

Today is another hectic day for world leaders: Merkel must not be getting much sleep, because she’s expected in Belarus for a meeting between Germany, France, Russia and Ukraine to discuss ending the catastrophe in Ukraine. Meanwhile, her finance minister will be at an emergency meeting with his eurozone counterparts—most important, Greece’s Yanis Varoufakis—called to try to end a dangerous game of brinkmanship over Greece’s debt payments. Markets rose yesterday, allegedly, on hopes this will all be resolved soon.

Markets are closed in Japan today, and we’ll have also have the U.S.’s monthly budget statement, earnings from electric carmaker Tesla, as well as a chance to look at how the oil rout is affecting Norway’s GDP. Sweden will also contemplate cutting its benchmark rate to a negative rate, but we’ll look at that below.

Is Stephen Poloz talking down the loonie? The Bank of Canada’s governor was at the G20 meeting, where he (again) adamantly denied claims he’s been encouraging the dollar to sink in order to bolster exports. He insisted that last month’s surprise rate cut was an attempt to manage the impact of the oil rout on the economy, saying, “I honestly reject the notion that I’m talking down the dollar.” Some U.S. legislators are not happy about what they perceive to be currency manipulation by trading partners, threatening punishment in the form of import taxes, but that spotlight has been focused mainly on China and Japan (at least for now.) Meanwhile, the loonie sank by almost 0.7 cents yesterday, bringing it below 80 cents once again.

Fewer Canadians are participating in the job market. While Poloz was in Istanbul, his senior deputy was in Ottawa talking about the employment picture. In addition to the usual stuff on how the economy still has “room to grow,” Carolyn Wilkins confirmed that the headline numbers for the most recent jobs report are not as strong as they look. Even as unemployment is at a post-crisis low of 6.6 per cent, part of that number is attributable to part-time jobs—with more than one in four part-timers actually wishing to work full-time—and very low participation rates, including in the key working years of 25 to 53, as the number of people who dropped out of the workforce increased last year. The length people are unemployed is also at a “post-crisis peak,” she said, at more than five months (21 weeks) on average.

The Scandinavian rate-cutting frenzy. After Switzerland comes Denmark and Sweden. The Swedish central bank (the oldest central bank in the world) will meet today, and may cut its benchmark rate below the current rate of zero. Sweden and Denmark have both seen an influx of money, as the Greece-eurozone crisis has warmed up and Switzerland turned to a negative interest rate. But Sweden is trailing behind Denmark, which has been desperately cutting its interest rate—four times in the last month—to minus 0.75 per cent (so, the Canadian benchmark rate, but negative), in order to keep the Danish krone pegged to the euro. Unlike Switzerland, Denmark can’t just drop the peg: It’s enshrined in law and, before the euro, the krone was traditionally pegged to the German Deutschmark. We’ll check in again with Greece tomorrow. But if you’re having trouble understanding how it got to this point (who isn’t?), here’s a helpful video, full of charts on debt, real wages and unemployment, plus some weirdly jaunty music.

When Coke met Pepsi. You could call it one of the great rivalries of our time, so it can’t be coincidence that the two companies report within a day of each other. Yesterday, Coca-Cola reported $770 million in earnings in the final quarter, but, over the year, sales were $46 billion. The number was $900 million less than the previous year, but, since it was actually better than expected, Coke shares pushed higher. The drop is attributed to generally changing tastes, as Americans alter their diet away from sugary drinks (McDonald’s has been suffering, too.) Pepsi will report its earnings today, but, unlike Coca-Cola, which mainly makes drinks, Pepsico also makes snacks such as Doritos and Quaker cereal. The company upgraded its prediction for growth for last year to nine per cent when it last reported earnings, but cautioned it was vulnerable to currency swings. Today we’ll see if those predictions came true. In other company news, Apple is now the highest-valued company of all time, after it reached a valuation of $700 billion. 

Need to know:
TSX: 15,112.52 (+11.82), Tuesday
Loonie: 79.53 (-0.69 cents), Tuesday
Oil (WTI): $50.40, Wednesday morning (4 a.m.)


 

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