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Welcome to Slump Day

Jan. 7: Oil drops below $48, Obama to veto Keystone, and a french-fry shortage in Venezuela


 

 

MORNING-PLAYBOOK-STORY

Another day, another oil rout. The big story going into yesterday was oil prices falling below $50, but, after another drop yesterday, prices for the U.S. benchmark were south of $48 and are falling this morning, bringing the TSX and the U.S. exchanges down with them.

After yesterday’s spate of numbers from around the world—including better than expected growth in China, and worse than expected factory orders for the U.S.—there’s very little set on the calendar today around the world, besides minutes from the Fed’s last meeting. Instead, spend the day speculating on what will happen if oil hits $40. 

WTI drops below $48, Brent drops below $50. West Texas Intermediate, the U.S. benchmark, fell below US$48 yesterday and has been falling this morning, with prices at US$47.26 around 3 a.m. Brent, the global benchmark, usually runs a couple dollars higher than WTI and, this morning, it fell below $50 for the first time in six years.

The TSX hit a three-week low. Canada’s main index was down again yesterday at close, falling almost 150 points. That’s still less than half of the fall on Monday alone, which was the biggest single-day drop in almost two years, and last month’s rally is still holding the index above the lows it reached earlier in the month. Losses were widespread, but were likely softened by a push in the gold industry as investors looked for safe havens. To the south, the main U.S. indexes also saw losses across the board, and demand for U.S. bonds has pushed yields below two per cent.

This morning, the picture is more mixed, with Asian markets showing a modest rally, and even energy-heavy Australia’s main index fairly flat. The FTSE 100 is also slightly up.

U.S. President Barack Obama will veto TransCanada’s Keystone pipeline. A Senate hearing on the pipeline is on the agenda today—you can even watch it online—but the President has already said he will strike down the pipeline proposal if it reaches him. The U.S. approval process has now taken six years, and a review process is still underway by the U.S. state department on the pipeline, which would bring oil from Alberta’s oil sands to the Gulf of Mexico.

Canadian industrial numbers lower than expected. Two indexes on production—the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI)—both came in lower than expected for November. BMO had expected the IPPI to come in slightly positive; instead, prices decreased. The drop was due to the impact of lower oil prices, Statistics Canada said. U.S. factory orders and an index that measures growth in the services sector were also slightly lower than expected.

No, you can’t get fries with that. McDonald’s in Venezuela has run out of french fries, and are serving local staples instead (which, to be fair, sound delicious). The stores themselves blamed hold-ups at a port on the U.S. west coast (they’ve also limited supplies of yoga pants for Lululemon). But that’s not really a feasible explanation; the fries are just one part of widespread food shortages in the country, whose oil-dependent economy has been battered by falling energy prices and tight currency controls. In August, the last time data was published, inflation in the country was the highest in the world and, with bonds currently at junk status, an eventual default has been predicted for a while.

Need to know: 

TSX: 14,246.77 (-145.93 points, 1.01 per cent), Tuesday
Oil (WTI):  $47.26, Wednesday morning
Loonie: 84.55 cents, Tuesday

 

 


 
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