Top of the Morning
During a speech in Washington on Thursday, European Central Bank President Mario Draghi explained why he doesn’t think advice from one of the most renowned economists of the 20th century applies to present-day Europe:
As I was preparing these comments, I happened to re-read John Maynard Keynes’s open letter to president Franklin D. Roosevelt, published in the New York Times in December 1933. In it, Keynes tells president Roosevelt that the administration is engaged simultaneously in recovery and reform, and identifies a tension between the two. He worries especially about the risk that over-hasty reform impedes recovery.
There are some parallels here for Europe: we are also engaged in reform and recovery. But in fact we face the opposite concern to that expressed by Keynes. Without reform, there can be no recovery…
I recently said of monetary policy that, at the current juncture, the risks of doing too little exceed the risks of doing too much. If we want a stronger and more inclusive recovery, the same applies to doing too little reform.
On the Homefront
Major equity markets were absolutely crushed on Thursday, with the TSX not suffering as much as its American counterparts despite continued declines in the price of crude oil. Wednesday’s seemingly dovish news from the Fed produced a mere sugar high before investors went back to worrying about the state of the global economy and proceeded to sell stocks. TSX 60 futures suggest that more pain is on its way — they’re well in the red ahead of the open.
The loonie is down about a quarter of a cent against the greenback to trade at 0.8925 this morning, a continuation of yesterday’s dropoff.
The yield on the five-year Government of Canada bond has pared some of Thursday’s advance to hover around 1.515 per cent this morning.
It’s Jobs Day in Canada. At 8:30 a.m. (EDT), Statistics Canada will release September’s Labour Force Survey. The previous two prints have been the subject of much debate; July’s inital print was erroneous and had to be rereleased, while August’s reading showed a record monthly drop in private sector employment, which was partially offset by a record. Those huge swings caused many economists to question the validity of the results, though Statistics Canada took particular care to ensure there were no errors in this report. For September, economists are looking for net job growth of roughly 20,000, while observing that the labour market lacks momentum. “Though we’ve been calling for a catch-up in the labour market as the economy has heated up, we’re setting our sights a little lower,” writes CIBC economist Nick Exarhos. Indeed, the poor performance of the Canadian labour market is something that should be common knowledge by now, and this one reading is unlikely to change this. Meagre job growth has failed to keep pace with the growth of the core-age population (those between the ages of 25 and 54), something that is typically reserved for recessions.
UPDATE: Canada added way more jobs than expected in September, pushing the unemployment rate to its lowest level since 2008.
Seven Generations Energy announces lower than expected IPO price range. On Thursday evening, privately held Seven Generations Energy indicated that it planned to raise $800 million from its upcoming IPO, far less than it likely would have generating if the shares had been available a month ago. “Seven Generations said it expects to sell its shares at $17-$21 apiece,” writes the Globe and Mail’s Jeffrey Jones. “As recently as last month, some analysts and investors had speculated a range of $25-$30 share, saying the company’s record of drilling success should allow it to stand out from the crowd.” No doubt, the across the board drop in energy stocks and softness in the price of crude oil has played a key role in dimming this IPO’s potential. The offering will be formally priced during the last week of October.
Major pipeline delayed. The National Energy Board told Enbridge (ENB) that it has do do more to safeguard against oil spilling into water — namely, by installing shut-off valves on both sides of bodies of water that the Line 9B pipeline crosses — before it will be allowed to start shipping oil from east to west. Margo McDiarmid of CBC News writes that this decision will delay the pipeline’s launch by at least three months.
Prime Minister says tax credit to be doubled. During an event in Whitby, Ont., Prime Minister Stephen Harper announced that the Children’s Fitness Tax Credit will be doubled from $500 to $1,000 in this tax year, a move that enables the government to make good on past promises and begin spending the surplus that economists at TD think will materialize in this fiscal year. In addition, this tax credit will be made refundable next year. For Maclean’s, economist Kevin Milligan offers an overview of what the economic literature says about the merits of this tax credit.
Daily Dispatches
The era of low volatility may be over, writes IG chief market strategist Chris Weston. “Volatility in the equity market has come alive, with the VIX index 7.3 per cent above the 200-week moving average and looking ominously poised to close above this average – a feat it hasn’t managed since December 2012, although it has tried on at least six occasions since,” he writes. “Many trade structures have been put in place to take advantage of low volatility and positively trending equity markets.”
The sky isn’t falling in all European economies, according to August’s industrial production figures for France and Italy. The former’s reading came in flat, which was better than the decrease economists had expected, with July’s reading revised higher. In Italy, which is experiencing a triple-dip recession, bounced back from a one per cent decline in July with a 0.3 per cent increase in August. However, any green shoots emanating from these economies will continue to be overshadowed by concerns that Germany, the eurozone’s largest economy, is heading for a recession.
Tesla unveils new model. Elon Musk, the visionary behind Tesla, showed off the company’s new Model D last night, which adds all-wheel-drive capabilities — and many other features — to its popular Model S. The car will be available starting in December.