Morning Playbook: How low can oil go?
 

How low can oil go?

Your financial and economic news for December 12


 

MORNING-PLAYBOOK-STORY

That’s the question everyone’s asking, after oil dived below $60 yesterday, a day after it caused headlines for beating the $65 mark. Between speculating, take a break to worry about eurozone inflation (or lack thereof!), Chinese industrial output (flagging), and whether sales of yoga pants can really go global (probably). Happy Friday!

 

The day ahead

 

Oil dipped under $60. Yesterday saw more big drops in oil prices, turning a drop in West Texas Intermediate to below $65 – a five-year low – into a five-and-a-half year low. WTI closed at US$59.95, but had already dropped 75 cents this morning to $59.20 around 3:30 a.m. Brent is down to $63.23 this morning.

The loonie dropped under 87 cents, closing on Thursday at 86.75, 36 cents below where it closed on Wednesday and a new five-and-a-half year low. The drop was caused by the rout in oil and commodities prices as well as a strengthening dollar, as U.S. job numbers released yesterday showed strong retail sales for November. 

No net fall for the TSX, though. The exchange ended the day above where it started – albeit only slightly – settling at 13,905.12. But considering Wednesday’s correction – the biggest single-day drop in a year and a half – it wasn’t much of a rebound. The bounce was likely because sinking oil prices and a weakening loonie offer a mixed bag for the Canadian economy – while energy stocks have plunged, industrial stocks rose, and the U.S. retail numbers helped both Canadian and US markets. Markets in Asia and the Pacific were on the rebound today, particularly the Nikkei 225 in Tokyo, on the last day of trading before Sunday’s general election. But markets in Europe are ending the week on a slow note, as the major exchanges started the day down 0.8 per cent to one per cent.

More data from the eurozone and China today – with more evidence of a slowdown for both. China released industrial output numbers, which measure output in factories, coming in below forecasts at 7.2 per cent. Europe’s numbers will be released this morning, but it’s not looking good. Spain started the day off by announcing extremely low inflation last month, at 0.2 per cent, after France, Germany and Sweden all reported inflation at or below half a percentage point yesterday.

What you missed

Operating capacity, house prices, both up. The country’s industrial capacity – which rates to what extent the economy is operating at its potential – rose again to 83.4 per cent, the highest in nine years, according to Statistics Canada. Housing prices also rose again in October by 0.1 per cent, exactly the same rate as September, with the biggest jump in Vancouver. 

U.S. retail sales picked up for Novemberrising 0.7 per cent, more than expected, as holiday shopping kicked off spending. This was the biggest gain for American retail since March, and is another sign that the U.S. economy is kicking back into gear, even as oil prices fillet world markets, and slowdowns from China and Europe leave tepid expectations for global growth. Auto dealers and “non-store retailers” (that’s code for online shopping) posted the biggest gains, with 9.5 per cent and 8.7 per cent growth respectively. Maybe Cyber Monday wasn’t such a bust after all?

Lululemon posts profit, but says growth for next year a stretch. See what I did there? The Canadian yoga apparel brand did better than expected for the third quarter with revenue at $419 million, but warned investors that revenue growth might be hard to come by in their fourth quarter. The company blamed congestion issues at a Los Angeles port, which has held up shipments. The retailer, whose clothes are regularly worn nowhere near yoga studios, is in the midst of an international expansion, with more stores set to open in the U.K., the Middle East and Singapore within the next year.

Voting on the U.S. spending bill got a bit dicey. The $1-trillion US government spending bill – whose predecessor shut down the American government for more than two weeks – passed only two-and-a-half hours ahead of the deadline. The biggest resistance actually came from the Democrat side this year, over the bill’s changes to the Dodd-Frank Act, which brought in regulations on major banks in the wake of the financial crisis. The issue at hand is a roll-back of regulations on certain derivatives trading, which are often credited with causing a large part of the crisis. You can read a bit more about this here. 

The Athens Stock Market has fallen almost 20 per cent this week. The Greek exchange fell another 7.4 per cent yesterday, after dropping almost 13 per cent on Tuesday. In the lead up to a snap presidential election in the Greek parliament – which could lead to a general election early next year – austerity plans for the country are in question.

Love charts? When words just don’t give you the full picture, have a look at what the year ahead could bring with 35 charts to watch, on everything from foreign investment, to investing fees, to how demographics will shape the Canadian economy.

 


 

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