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New Year, same wild ride

Jan. 5: Start 2015 right with falling oil prices, Janet Yellen watching, and high-tech TVs


 

MORNING-PLAYBOOK-STORY

Welcome to 2015! It’s a brand-new page on the calendar, but if you thought this would mean a brand-new economic story, think again. Never mind the turkey and champagne hiatus, the new year picks up where 2014 left off, with more slumping oil prices, limping growth in the eurozone, flagging factories in China, and a strong dollar to the south.

In addition to watching oil prices at home, this year will be the year of watching central banks. In Canada, the U.S. and the U.K., this means waiting for signals on when rate hikes, expected this year, could begin, as growth has picked up. In the beleaguered eurozone, this is watching the central bank for signs of what stimulus could come next.

January also means looking backward, as numbers are released for December on jobs, inflation and housing, giving us a final overview on how the economy fared in the year that was.

The Bank of Canada will meet later this month for its first interest rate announcement of the year. In the meantime, you can look back at what Governor Stephen Poloz considers the biggest risks to the Canadian economy this year.

Oil gets low, low, low—south of $55 low. This morning, West Texas Intermediate (the U.S. benchmark) was clinging above $51, at a five-and-a-half-year low of US$51.81, while Brent (the global benchmark) was at US$55.45.

The Canadian media universally called falling oil prices the story of 2014, throwing a massive question mark onto what was slated to be a strong upcoming year for the economy. Five days into the new year, it looks like it could be the story of 2015.

Several companies in Alberta’s oil patch are struggling to pay their bills, and even larger companies have revised their forecasts, as the Bank re-assesses growth and the provinces reshuffle: Among other highlights, Ontario has pushed past an oil-dependent Alberta to become Canada’s fastest-growing economy.

The story has been a surge in U.S. oil production paired with a refusal by OPEC to cut production in the face of a supply glut: Last month was the seventh they pumped above their quota. Russia and Iraq also had supply surges last month, their highest in decades, according to some reports.

Will the party in the U.S. continue? While the first trading day of 2015 was fairly unremarkable to the south, the greenback had a big day, jumping up almost a per cent to a nine-year high—while, across the Atlantic, the euro hit a nine-year low. The loonie also dropped against the dollar, ending the day at 85.02, its lowest level in five years.

There’s plenty to watch for this week in the U.S. economy, including a jobs report for December, after a star-spangled report for November set off market rallies last month. The main activity is likely to be Yellen-watching: dissecting every word from the U.S. Fed chair for signs of when interest rates will rise. Assurances last month that the Fed would be “patient” extended both the rally and a multi-year stretch for the Fed’s 0.25 per cent emergency interest rate. Nonetheless, the looming question is whether the U.S. can be the exception to flagging growth in much of the world, including Europe, China and Japan.

How much do Canadians love cars? Numbers for Canadian auto sales last month should be out either today or early this week. Canadian auto sales have been strong in recent months as oil prices dropped—even as auto recalls last year hit a record, with 600 notices, centring on airbag and ignition-switch problems. The car shopping also comes with a warning from the Bank of Canada over how much auto debt Canadians are carrying amid high household-debt levels.

Keep watching the eurozone. Across the Atlantic, the big question is what kind of Europe the European Central Bank will face in 2015, including a flirtation with deflation and a Greece that is once again in the headlines. This means a chance to break up your bouts of  Yellen-watching with signs from ECB chair Mario Draghi that the Bank will kick-start qualitative easing—a massive asset-buying program used by both the U.K. and the U.S.—early this year.

Meanwhile, a presidential election in Greece in December has turned into a general election for the Mediterranean country. After Greece became the poster child for eurozone fallout, the country has been put through several rounds of austerity measures, and the left-wing party that may be leading in the polls has pledged an end to the measures for to Greek voters, causing worry in Brussels that the country could imperil the union again. A disputed report published by Der Spiegel—denied by the German governmentclaims Germany believes the eurozone could get on even with a Greek exit. It hasn’t helped measures: European markets opened this morning with a cold. 

TVs, tech, and virtual reality. The International Consumer Electronics Show begins today in Las Vegas, with all the best, brightest and straight-out weirdest “smart” everythings for the year ahead. Even if you’re nowhere near Nevada, you can still follow the trends this week (more curved TVs, anyone?) But even with all the fanfare and flash, Businessweek notes the proliferation of gadgets can take the shine off long-term tech profits, as prices for smartphones and TVs have dropped year after year. Bad news for them, good news for you—as long as you have lots of extra drawers to stash those models from last year you no longer need.

Need to know:
TSX: 14,753.65 (+121.21), Friday close
C$: 85.02 cents, Friday close
Oil (WTI): US$51.81, Monday morning


 
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