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Oil cuts for Alberta, and an emergency bailout for Ukraine

Feb. 12: Plus, Target’s loss could be Wal-Mart’s gain, and the rising price of lazy gift-giving on Valentine’s Day


 

MORNING-PLAYBOOK-STORY
Bailouts, crises, negotiations and cuts – it’s been a busy, heavy week, so good thing we’ve got Valentine’s Day to look forward to. (Never mind, I took the opportunity today to ruin that, as well!)

The leading news this morning is a more than $17-billion emergency bailout for a beleaguered Ukraine, which was agreed to this morning, as we’re still awaiting news on peace talks. In Greece, emergency talks broke down at the 11th hour – according to reports, after the agreement appeared to have been done and dusted – and at home, Alberta announced a nine per cent spending cut to next month’s budget. The fate of Keystone is also in further flux today, after the House of Representatives passed a bill to approve the pipeline, and the Canadian government sent a letter to the American Environmental Protection Agency over statements on the project’s potential greenhouse gas emissions.

Today, we have a few numbers out: at home, there will be the December house pricing index released from Stats Can, as well as U.S. retail numbers. In the U.K., Mark Carney and the Bank of England will give an update on British inflation – or as may be the case, lack thereof – while in South Korea, a former airline executive has received a one-year jail term for going into a rage over macadamia nuts. After meeting yesterday, the Swedish central bank has indeed cut their rate into negative territory – to minus 0.1 per cent. Previously the rate was at zero.

Ukraine gets a $17.5-billion bailout. This morning, the IMF granted Ukraine another bailout to shore up their sinking economy – the currency is currently the world’s worst performing – as peace negotiations appear to have wrapped up in Minsk. The country has already received $22 billion in emergency funding, including money from the U.S. and the EU. The country had faced criticism that it hadn’t fixed structural issues on which the funding was conditional (including many that date from before the war), and this bill will come with more restructuring demands. That’s the first question of the day cleared up, but the even bigger question mark is the outcome of evidently gruelling peace negotiations between the country and Russia, with Germany and France, in Belarus. The Wall Street Journal reported earlier this morning that some kind of agreement has been reached – it’s not yet clear what that is – after a 12-hour, all-night negotiating session. Meanwhile, at around 3:30 a.m. Toronto time, the Financial Times was reporting that after 14 hours of tense negotiations, there’s no deal in sight.

Alberta’s big deficit. The province – not so long ago the fastest economic engine in Canada – is now facing a nine per cent spending cut, according to the premier. The price of oil is holding steady above $50 today, and even if oil stays where it is (as the province is predicting), the provincial government estimates the budget faces a $7-billion hole as it currently stands. The oil rout has had a searing impact on the province, undercutting the housing market, which has seen its fortunes suddenly turn, and leading to a slate of announcements of energy company cutbacks and layoffs. When it comes to Canadian oil, A is for Alberta, and that’s also the first letter in Maclean’s Encyclopedia of the Oil Crash.

Target closes a door, and Wal-Mart sees a window. As one American retailer has shut down its stores in Canada, another is ramping up an expansion – with another 29 Wal-Mart “supercentres” set to open in the next year, after 11 opened in January alone, which includes expanding some existing stores. Wondering what a “supercentre” is? It’s exactly what it sounds like – an especially huge Wal-Mart, complete with full grocery store. These supercentres which will make up the majority of the almost 400 stores the chain plans to have open in Canada by the end of next January. Meanwhile, small retailers and businesses are getting squeezed after cheques from Target have bounced, leaving some wondering whether the chain stocked up before going in to creditor protection.

Greece and the eurozone still can’t even agree to disagree. Negotiations between eurozone finance ministers and the Greek government, represented by the now-very-famous Yanis Varoufakis, on how to manage Greece’s bailout, did not reach a conclusion yesterday. Apparently, they got close: but the deal was supposedly scrapped at the last minute over Greek objections to the wording of the agreement. Negotiations will continue on Monday, but ministers had hoped it would get wrapped up and not spill into next week’s meetings, as the EU attempts to deflate the situation with Russia and Ukraine. Greece’s new prime minister, Alexis Tsipras, has pledged not to extend the bailout, and time is running out fast to reach some kind of compromise: the bailout program runs out at the end of this month, which means Greece could rapidly run out of cash.

Your Valentine’s Day just got pricier. At least if you’re planning on buying chocolate (and let’s face it, you probably are.) Cocoa is a commodity, just like oil and coffee beans, complete with pricing fluctuations, trading hours and a futures market. Over the past year, major chocolate producers have raised prices (by as much as eight per cent) and shrunk sizes, pushed by a rising appetite for chocolate (especially dark chocolate, and especially in Asia), as well as environmental pressures like hotter temperatures and more fungi in West Africa. Worry over the impact of Ebola, too, had a sharp impact on prices this summer. Chocolate may be everyone’s favourite treat, but cocoa itself is also controversial: over a third of the world’s chocolate comes from the Ivory Coast, and only a fraction of the price of a bar typically goes to those farmers (you can explore a few of these facts in this neat little graphic series from CNN). There have also been many well-documented, long running cases of human trafficking and child slave labour in chocolate farming and production. Since nothing says romance like an exploration of slave labour and commodity pricing, we’ll reserve this topic for the special Valentine’s Day edition of the Weekend Playbook.

Need to know:
TSX: 15,151.5 (+38.98), Wednesday
Loonie: 79.11 (-0.42 cents), Wednesday
Oil (WTI): $50.36, Thursday morning (4 a.m.)


 
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