Good morning and welcome to the first week of February! Today, in addition to watching the usual—oil, China and political drama in Greece—we’ll also be keeping a keen eye trained south, where U.S. President Barack Obama is due to present his budget. The budget’s highlights are expected to include measures to tax American companies’ offshore holdings.
Today will also offer a chance to see how the oil rout is affecting profits at ExxonMobil, the world’s largest oil and gas company. On the other side of the Atlantic, the slump in oil (and a boost in passengers) has given a profit boost to Irish budget airline Ryanair.
We’ll also have numbers today for consumer confidence and manufacturing (from RBC), as well as construction and manufacturing numbers in the U.S., and manufacturing numbers in the eurozone. Friday is the big day this week, as we’ll see January jobs numbers for Canada and the U.S.
Obama’s big tax plan. Today, Obama unveils his 10-year budget proposal, and the headliner is a tax on offshore funds, estimated to be in the trillions of dollars, which could bring in US$238 billion. Currently, American companies aren’t charged U.S. tax for profits kept abroad, but the new proposal would levy a 14 per cent tax on these funds—less than half the onshore corporate tax rate—as well as a 19 per cent tax on future profits. Obama says the funds would go toward restoring highway and bridge infrastructure. The New York Times says the budget will predict a $474-billion deficit, 2.5 per cent of GDP. The move comes after Obama announced tax tightening on capital gains and a closing of a tax loophole that allows Americans to inherit certain kinds of income without paying tax, as part of a broader emphasis on economic inequality in the world’s biggest economy.
The loonie keeps slipping. The loonie lost almost another half-cent on Friday, after continuous losses the previous few days. While it closed at 78.81, the dollar sunk to as low as 78.14 during the day before recovering slightly, after news that Canadian GDP in November was down by 0.2 per cent, below expectations. Stats Canada said the drop was the result of widespread losses in oil and gas, mining and manufacturing, thus reversing growth in the previous months. The U.S. also received disconcerting news: Fourth-quarter GDP also hit below expectations, coming in at 2.6 per cent growth, a drop from the five per cent growth in the third quarter. On the same day, oil had a sudden jump: Both Brent, the global benchmark, and West Texas Intermediate, the U.S. benchmark, jumped around eight per cent, on news that the American oil-rig count had dropped to levels not seen since the late 1980s. The news is an indication that the country’s oil industry is finally feeling the pain of the oil rout—but calling it a turnaround is likely premature. Oil prices are falling again this morning.
What is the fate of Greece’s debt? Honestly, no one seems to know, including the eurozone leaders and SYRIZA, the anti-austerity party that is leading Greece’s new government. After calling for the country’s debt bill to be halved, something German Chancellor Angela Merkel said was impossible, a party spokesman said last week it wouldn’t be possible for Greece to pay back its massive bill. But Prime Minister Alexis Tsipras seemed to reverse course on Friday, saying the country would repay the bill to the eurozone, and that the country and the troika will reach an agreement. Meanwhile, the new finance minister also pledged to “end the addiction” by not taking another round of bailouts.
Chinese factories are still slowing down. Chinese manufacturing numbers contracted for the second month in January, according to PMI numbers from HSBC/Markit, coming in at 49.7—50 separates growth from contraction—a slight uptick from the previous month. The news comes a week after China saw an eight per cent year-to-year drop in industrial profit for December, almost double November’s drop, pointing to yet another sign of a global slowdown.
The sex toy industry heats up. If you’ve somehow managed to miss the news (lucky you), the movie adaptation of Fifty Shades of Grey comes out this month—and the adult toy industry is launching countless tie-ins, in anticipation of a boost in sales unlike any they’ve seen before . . . at least since the books came out. One retailer told the New York Times, “It is the biggest moment for our industry in popular culture pretty much ever,” while another referred to the “worldwide shortage” of Kegel balls spurred by the immense demand after the books’ popularity skyrocketed. But Maclean’s is a family magazine, so that is something you can google for yourself.
Need to know:
TSX: 14,673.48 (+36.20), Friday
Loonie: 78.67 (-0.63 cents), Friday
Oil (WTI): $46.89, Monday morning