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Slow growth, big debts

May 11: Today is a day for weighing the challenges of Greece and China, plus, a recap of Jobs Day, and the economic problem with irrational humans


 

MORNING-PLAYBOOK-STORYToday is (yet) another day to watch for two special economies: one, a massive economic superpower, the other, a tiny, noisy eurozone nation, with little export power to speak of.

Yesterday, the People’s Bank of China announced it would cut the country’s interest rate yet again – the third such cut in recent months – by a quarter of a per cent, to 5.1 per cent. The cut, an attempt to reversing slowing growth and falling export numbers, is effective today. Asian markets rallied on the news of more stimulus (which came on the heels of a good jobs report from the U.S.), although European markets have failed to get a boost this morning.

It could be the fate of Greece that’s keeping spirits low. Today is another day of crunch time: tomorrow, a bill comes due from the IMF worth over a billion dollars, and an agreement between the country and its creditors to unlock the bailout funds for the country is still elusive. The IMF has said in the past that the date for the repayment cannot be delayed, and the real issue here is this is one of the first of several large repayments due over the course of the summer and autumn. In Germany, Angela Merkel is under increasing pressure from her own party to stop supporting Greece’s continued use of the euro, and the IMF is openly admitting that it is working on contingency plans with other European governments in case of a Greek default.

It’s a quiet day on the calendar in North America: there’s nothing on the economic calendar today in Canada or the U.S. In the U.K., the Bank of England will announce the benchmark interest rate, which was delayed due to the election results on Friday. It’s expected to stay at 0.5 per cent. The Greek meeting is also part of the two-day meeting of the eurozone finance ministers in Brussels, which begins today.

A mixed picture for jobs. Last month saw Canada lose 19,700 jobs –  bad, but better than expected, with a gain of almost 47,000 full-time jobs cancelled out by a loss in part-time jobs. This compared to previous months, where full-time losses were papered over with jobs with fewer hours and therefore lower pay. The unemployment rate stayed at the same rate for the third month running, of 6.8 per cent, although the rate for youth unemployment was up a tick to 13.6 per cent.
In the U.S., job growth got a boost to 223,000 new jobs with unemployment tipping downwards from 5.4 per cent from 5.5 per cent, easing worries that another month of underwhelming job growth could signal a slowdown in economic growth. But the report wasn’t unequivocally positive: March’s growth, which had been low at 126,000, was revised downwards to 82,000. Meanwhile, there was no significant progress on wage growth, which has lagged behind job growth (and been the subject of some large-scale protests in the low-paid fast food industry, as well as some high-profile announcements like McDonald’s and Wal-Mart that they would raise wages.)

I’ll just have a water, thanks. Bottled water, that is. The Financial Times reports that sales of bottled water are poised to surpass those of pop – another sign of changing tastes that are cutting a hole in the profits of major drink and fast-food companies. The research firm behind the study says sales of water will reach 238 billion litres by the end of the year, pushed by an average of six per cent annual growth in sales, compared to 1.3 for fizzy drinks. The change isn’t just in North America, though, where younger shoppers are buying healthier food, but also middle-class families in Asia, who are buying bottled water instead of drinking unreliable tap water. While bottled water may be better for you than a Coke, it’s also the subject of environmental campaigns, where critics say that in wealthy countries, bottled water is a waste of plastic, and in poor countries, it’s a waste of plastic and an excuse not to develop safe drinking for the country’s masses, rather than just the rich.

Humans just aren’t that rational – even when they’re making investment decisions. Big surprise, huh? In this Upshot post, behavioural Richard Thaler takes on the econ – or the “Spock” – the fictional, supremely rational decision-making being in traditional economic theory. Thaler notes that even economists know that under day-to-day circumstances, regular people don’t typically behave in the way theory expects, but that the idea seems to persist when we consider how and why markets should operate, despite the fact that “there is nothing in the workings of markets that turns otherwise normal human beings into Econs.” Emotions, packaging, convenience, and any number of extra details – or Supposedly Irrelevant Factors (SIFs) – matter.

Need to know:
TSX: 15,170.02 (+81.20), Friday
Loonie: 82.71 (+0.20), Friday
Oil (WTI): $59.57, Monday (4 a.m.)


 

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