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Take a break from watching Russia – and turn your eyes to the Fed

Your financial and economic news for December 17


 

MORNING-PLAYBOOK-STORY
All eyes are on Washington today, as the U.S. Federal Reserve releases its final quarterly economic statement, and markets hope for hints on when a change to the overnight interest rate will come. Speculation has been rife for days, as analysts weigh a stronger US economy against global events: from the drop in oil to the slowing of the Chinese economy.

The Day Ahead

Oil clawed its way back to minor gains yesterday, fuelling a boost to the TSX and the loonie. But the gains could be more a reprieve than a satisfying bounce – West Texas Intermediate was perched just above US$55 this morning, after dropping below the mark yesterday, while Brent was at US$59.58, around 4 a.m. Toronto time. Plenty of bets are being made at the moment on where oil’s floor is, after the head of OPEC said the price of oil had fallen lower than it should have, but made no overtures on reducing production volume in light of a surge of American supply. But there could be upward pressure, with speculators betting for the last couple of weeks that oil is due for a rebound.

The TSX had a bright day yesterday, surging more than 350 points during the day, before coming down to close over 150 points up, with the energy sector making much of the gains. The close keeps the TSX/S&P composite index above where it started the year, a mark it has been flirting with in recent days. To the south, markets finished the day down, and markets in Europe are also starting the day down, as they wait for word from the Fed on the state of the world’s biggest economy.

The loonie edged up to close at 85.94 on slight gains in the oil price.

It’s a big day in the U.S. today – as the Fed’s Open Market Committee release their final quarterly assessment of the American economy, including their predictions for unemployment, GDP and inflation. The announcement, to be made this afternoon, will be followed by a press conference with Chair Janet Yellen.

Markets and analysts aren’t looking for an announcement of a change to the 0 to 0.25 per cent overnight interest rate today, but rather a change of wording: last year, the Fed said rates were expected to stay at their current rate for a “considerable time” – now, the big question if whether that phrasing will be tweaked to foreshadow a rate change in 2015.

The Fed ended it’s quantitative easing (bond buying) program in October, and since then, a blockbuster jobs report has been just one sign that the American economy could be due for a rate increase. But with international events weighing heavily on global markets – to the drop in oil prices, to barely-there growth in the eurozone, to a slew of signs that domestic growth in China is slowing (to name just a few) – it’s not clear how the Fed will weigh the resilience of a recovery.
Today will also see numbers released in the U.S.: both third quarter current account numbers, as well as November’s consumer price index, which measures inflation

Blackberry releases a new phone, American Apparel replaces controversial CEO. News from two beleaguered companies: today, Blackberry puts the keyboard back on an updated model of it’s older smartphones, in the second release of a phone so far this fall. The move is unlikely to turn around Blackberry’s fortunes, but may make soothe some devotees, who have been loathe to give up the keyboard. And American Apparel’s Canadian founder and CEO, Montreal-born Dov Charney, has finally been fired – six months after his board voted to out him over issues of sexual harassment and financial mismanagement, which Charney denies. It’s a good time revisit his impressive, divisive – it’s also been called “sleazy” – legacy, with this Businessweek cover story from July.

Greek presidential elections begin today. Although not a general election, today will be closely watched over speculation that a lack of confidence in the government will translate to a general election early next year. Following five years of austerity-cuts, an anti-austerity party is polling high, and it’s unclear what a change in government would mean for bailouts and the strength of the eurozone, for which Greece has often been the anti-poster child.

 

What You Missed

The ruble had a wild day yesterday. If you missed it, the ruble endured some major swings yesterday, after an emergency interest rate rise – to 17 per cent – gave a boost to a plunging ruble… before it crashed even lower, ending the day down 11 per cent from the previous day’s record-breaking drop. The drop in oil, and to some extent sanctions over Ukraine, have pushed the weakening of the Russian currency, and it now looks like the country is heading for a major financial crisis. This morning, the ruble continued to swing as the central bank announced it would start to sell it’s “remaining” foreign currency. Capital controls, which would control the movement of foreign currencies into and out of the country, could be next.

Canadian manufacturing data is down (but wait!), as foreign investment in Canadian securities increases. Manufacturing sales declined by 0.6 per cent in October, according to data released yesterday by Statistics Canada, but the numbers don’t point convincingly to a slowdown. The drop was largely confined to aerospace and primary metals (the rest of the manufacturing sector had an overall 0.4 per cent increase), and even that drop is relatively small, considering September saw the biggest growth in the aerospace product and parts sector since 1992.
Meanwhile, Canada saw a net inflow of funds in October – as foreign investment in Canadian securities ticked up, and Canadian investment in foreign securities dropped from $8.3 billion to $293 million.


 
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