Top of the Morning
Over at Marginal Revolution, Tyler Cowen explains why you might not have heard of Jean Tirole, who was awarded the 2014 Nobel Laureate in economics for his research on firms with a large amount of market power:
On the Homefront
Canada’s benchmark index is on the verge of a technical correction: a decline of 10 percent from its September 3 peak. Financials, Materials, and especially Energy – the three biggest weights on the index – have performed poorly during this period, thanks in large part to the cratering price of crude oil. U.S. equities got crushed while markets in the Great White North were closed on Monday, so the TSX is slated to play catch-up this morning, implying an open below Friday’s close of 14,227.36. Traders will look to see if buyers pile in around 14,116.59 (a 10 percent decline from its intraday all-time high) to 14,091.87 (10 percent below its September 3 record close). The latter is the more important milestone; the TSX will only have suffered a technical correction if it closes below that level. The index hasn’t endured a 10-percent pullback since the middle of 2012. As you’d expected, TSX 60 futures are well in the red ahead of the open.
The loonie is hovering near its lows of the year, trading below 89 cents against the U.S. greenback.
The yield on the five-year Government of Canada bond is holding steady around 1.515 percent.
Canadian iron horse mulls mega-merger. According to The Wall Street Journal, Canadian Pacific Railway (CP) approached CSX Corp. about the possibility of uniting the rail giants, but its advances were rejected. Whether CP Rail will pursue a hostile takeover bid is unknown at this time. Many analysts have expressed doubt that regulators would approve any deal between the two companies in light of anti-trust concerns. Shares of CP Rail got hit hard on the New York Stock Exchange on Monday, while shares of CSX soared.
Finance’s fat finger moment. The Department of Finance, led by Joe Oliver, accidentally posted press release on Thursday afternoon related to tax measures that had yet to be formally introduced by the government, including tweaks to personal, business, and international taxation. After quickly correcting in the error and removing the release in a matter of minutes, the government tabled a notice of its plans to introduce such measures in the House of Commons on Friday. Former Parliamentary Budget Officer Kevin Page criticized the move as “very sloppy,” according to The Globe and Mail’s Bill Curry. The press release can once again be found on the Department of Finance’s website.
Poloz kills forward guidance. On Friday, the Bank of Canada published a discussion paper authored by Governor Stephen Poloz. Therein, the governor signalled that it was time to abandon forward guidance – which is, essentially, a phrase or sentence in its statement that provides some insight on which way rates are likely to go, or how long they might stay at a given level. Poloz writes that this tool is best saved for when a central bank is near the zero lower bound, as it is “tantamount to giving the market a one-way bet.”
Hold off on the ‘China collapse’ talk: the country’s exports jumped 15.3 percent year-over-year in September while imports unexpectedly rose. This increase in demand for Chinese goods and increased demand for goods by China are both healthy signs for a global economy in which growth continues to disappoint.
Oil has continued to come under pressure after the powers that be in Saudi Arabia suggested that crude prices around $80 per barrel wouldn’t be the end of the world. Officials are looking to ensure that the nation doesn’t see market share slip substantially due to the North American shale revolution. To make matters worse, the International Energy Agency thinks growth in oil demand will rise at its slowest clip since 2009 this year.
Inflation is muted across the developed world. In the U.K., headline and core inflation came in at 1.2 and 1.5 percent, respectively, both well below the consensus estimate and sitting at five-year lows. Meanwhile, the French measure of inflation tracked by the European Central Bank rose a paltry 0.4 percent year-over-year, and inflation in Italy declined by 0.2 percent year-over-year.
A crisis of confidence in Germany. In October, the Zew economic sentiment index dipped into negative territory for the first time since November 2012, falling from 6.9 to -3.6. Zew President Professor Clemens Fuest said that the poor data flow, continued geopolitical tensions, and softness in euro zone economic activity were contributing to this drop-off in confidence. There are a few measures of German consumer, investor, and business confidence, and they’ve all been trending in the same direction for a while – downwards. In a widely expected move, the Germany government slashed its growth forecast for 2014 by 0.6 percentage points to 1.2 percent, and cut its 2015 projection from 2 percent to 1.3 percent.
…and a plain old crisis across the euro zone. Industrial production in the region fell by 1.8 percent month-over-month in August, yet another indication of economic deterioration.