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Election day in Alberta, and China’s push to be a reserve currency

March 5: Plus, the IMF threatens Greece, and the tyranny of when stupid meets “smart” objects


 

MORNING-PLAYBOOK-STORYIt’s a day to watch for Canada’s oil industry, as Alberta heads to the polls in an election that has been full of twists, turns and unlikely parties in the lead. Andrew Leach has a big round-up of the parties’ energy policies, which we have below, as well as the risks and rewards of China’s efforts to internationalize the renminbi, more nail-biting negotiating for Greece, and the new wave of smart everythings (even things that shouldn’t be).

From Canada’s southern cousin, there are also signs of a resource crunch: Earlier today, the Reserve Bank of Australia cut the interest rate down to a record low of two per cent, as mining slows. Meanwhile, McDonald’s turnaround plan yesterday failed to satisfy, with lots of same-old discussions of cost-cutting and franchises and, as Fortune noted, little discussion of the food. (I went for McDonald’s afterward. The food also failed to satisfy.) Afterward, shares fell 1.7 per cent.

There’s not much out today: In Canada, we’ll see what merchandise trade was like in Canada in March and, to the south, it’s the goods and services trade numbers for last month.

It’s Alberta election day, and the oil industry is the big issue on the table. As for who will win, well, that seems less clear, with the governing Conservatives polling in third place, and the NDP and the Wildrose party offering an unlikely political battle across a major ideological divide. But then there’s the fact that not many people seem to trust the polls. Maclean’s Andrew Leach took some of the energy questions of the election, from oil royalties to climate change policy, and put them to the Wildrose party here, and the NDP here, as well as his analysis of the PC platform, here. One takeaway? After more than four decades of PC rule in Alberta, some of the opposition policies don’t have a lot of meat on them—and they might be a little closer together than you think. (Other than a pledge to look at increasing oil royalties, the NDP doesn’t have a huge amount to say about climate change, and all the parties say Alberta needs to save more.) From a market perspective, the Globe and Mail notes that any pre-election jitters have so far left the market unfazed: The energy group on the TSX is up by two per cent since the election season began.

China wants to be a reserve currency. Or, at least, China wants its currency—called the renminbi, or the yuan—to be part of the IMF’s SDR basket of currencies. The SDR, or Special Drawing Rights, is a basket made up of the world’s four largest currencies: the dollar, the yen, the euro and the pound, and was created by the IMF in the late ’60s as an alternative reserve currency. The catch here is that, in order to be part of the currency basket, the IMF must judge the renminbi to be “freely usable,” among other things, and right now, it’s not. While there are channels to move money in and out of mainland China, these routes are still controlled by the Chinese central bank. Currency outside of China, or “offshore,” trades freely, while currency on the mainland is still subject to a target set by Beijing, and a two per cent trading band. If China wants to be part of the SDR, then, analysts are saying its project to liberalize the currency would have to move fast, allowing the currency to flow much more freely, as well as adopting a market-set exchange rate. But the FT hits the nail on the head when it says this issue is, ultimately, a matter of politics above economics: China entered the Top Five list of most-traded currencies earlier this year, and joining the SDR would solidify the renminbi’s spot as a global currency. For a country that is the world’s second-largest or even largest economy, this would be a recognition of its power. The announcement will come in the winter. On the other hand, China has some major cracks on the home front, as Andrew Hepburn points out in Maclean’s. While stock markets in Shanghai and Hong Kong have been on an incredible tear (partly due to buying with debt), and new access to the Hong Kong market, he says economists there say economic growth may be much slower than the government claims. While the government has lowered expectations for growth down to seven per cent this year, he quotes one China expert who says the situation is much more dire, and growth is far lower, as demand for concrete and steel, and consumer spending, has slipped rapidly. There have been indications lately that, despite constraints, money is also leaving mainland China. The lingering question here for the renminbi and the Chinese government is whether, if a crisis is indeed coming, it actually wants a liberalized account and a free-floating exchange rate.

What’s going on with Greece? Oh, the usual: rapidly deteriorating economic conditions—a projected surplus of three per cent of GDP for the year has now reversed course and become a 1.5 per cent deficit—a looming cash crunch with more debt repayments coming up, and a lot of brokering and negotiating between the Greek government (including a sidelined Yanis Varoufakis) and angry eurozone ministers. Now, the IMF is saying it may not shell out its part of the 7.2-billion-euro bailout package it promised Greece this year (but which it is still in negotiations to get), unless the country agrees to (more) austerity measures or writes off the debt. Meanwhile, new polls show that 67 per cent of Greeks would vote to stay in the eurozone if a referendum were held, and the president of the European Commission again denied that a Greek exit from the eurozone was a possibility.

Now you can fart smart. No, really, this is now a thing: a “device” that the creator says you should clip on your back pocket (unfortunately, where people can see it), where it will measure your gas, and tell you what foods make you feel a little crampy, via a smartphone app. So far, the product, which is on Kickstarter and is called CH4, does not seem to be a joke (hey, there’s still time). But in any case, it’s just one of a staggering range of apparently real products (smart socks, smart pans, smart seats, smart FORKS) in Christopher Mims’s column in the Wall Street Journal. Mims makes the very underappreciated point that, in a world of distractions and quickly depleted battery life, is there really such a great reason to have a fork that charts, and analyzes, your every bite? (For a website that’s more diverting than a bar chart of your every thought and movement, there’s “We Put A Chip In It!”, a compendium of all the daily household objects that now, for unclear reasons, have a chip in them. It comes with the tagline: “It was just a dumb thing. Then we put a chip in it. Now it’s a smart thing.” Enjoy!)

Need to know:
TSX: 15,367.47 (+27.2), Monday
Loonie: 82.70 (+0.44), Monday
Oil (WTI): $59.29 Tuesday, 5 a.m.


 

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