Today is Britain’s general election, and hello from London! It’s anyone’s guess what’s going to happen today, but one take is that “gridlock is good” – with few clear answers about who will form the election, but also, as votes have fragmented beyond the two main parties, how. Any coalition-building could give markets some time to stew over policy changes to come, staving off any wild swings. The FTSE 100 is starting the day down.
It’s a rather different story in Canada, with the results of an NDP win in Alberta translating to a 2.5 per cent drop in energy shares yesterday, and analysts are saying the reason is concern about tax hikes on the companies. They’re also saying the market skittishness is premature, before the NDP has even clarified their position. The TSX/S&P Composite Index ended the day 150 points down yesterday, with seven out of the 10 sectors down, as markets in the U.S. also fell, partly on warnings from Fed chair Janet Yellen that stock prices are getting too high.
Today brings Canadian building permit numbers for March, and consumer credit for the U.S., also for March. Earnings today include Manulife, Molson, TELUS, Hudson’s Bay and Alibaba.
The outcome of the British election is a great big question mark. It’s the morning here in London (I’m actually sitting on Regent Street, and I can see Westminster!) and the results of today’s election are still completely too close to call. While the main question is David Cameron’s Conservatives versus Ed Miliband’s Labour, a coalition is likely, and if we throw in the Scottish National Party (SNP) and the Liberal Democrats, we have to get a little more sophisticated with the crystal ball. The economy has, of course, been one of the biggest issues of the election. The country’s economic growth was one of the fastest in Europe at 2.6 per cent last year, with unemployment less than half of Europe’s as a whole. But both Labour and Conservative have also been weighing the size of the budget deficit, which at £87 billion (about $160 billion Canadian) is about five per cent of national income. The combination of the budget deficit and the current account deficit, at 10 per cent, is the largest of any major, developed economy, according to the FT. Does the size of Britain’s debt really matter? Chris Giles at the Financial Times says it’s a major vulnerability if investors suddenly lose confidence, amidst a chaotic political situation, for example, pushing sterling down and borrowing costs up. Eric Reguly at the Globe has a different take on the debt, warning that both parties are pledging (more) cuts, even as the recovery in Britain, while good compared to Europe, still really hasn’t recovered from the crisis. (And one argument is wave after wave of cuts has hardly worked for Europe, see: Greece.)
Why should you care? Because, on many fronts, Britain is having a debate with itself about how open it should be to the world. The obvious sign is immigration, and while the anti-EU UKIP is the poster-child for cutting immigration, both the Conservatives and Labour have made various pledges to change how non-Brits can enter and stay in Britain. At issue is also Britain’s place in the EU, a topic on which the Tories have pledged to hold a referendum. Then throw in the rise of the SNP, which has shown that, despite a “no” on Scottish independence, the question of a united kingdom is far from a settled question. And think for a second about how much money goes through London’s City. It’s a world financial centre, second only to New York, and is by far the world’s most international financial centre. It’s also the undisputed centre of the world’s foreign exchange market, the biggest and most liquid market in the world. In October, daily forex trading through London was at $2.57 trillion a day, according to the Bank of England.
Is Alibaba’s honeymoon over? The Chinese e-commerce giant broke records when it went public in the autumn, raising $25 billion to become the world’s biggest public offering, ever. But today’s earnings report could show whether that offering was merely the company’s high point. The stock sold at $119 right after the I.P.O., but it’s since gone down, down, down, to a low of $79 this week, on slowing Chinese growth and concerns over counterfeit goods and bribery on the site. The site’s founder, Jack Ma, has responded to the slump by declaring a hiring freeze, but there are still questions about whether a $6-billion investment spree before its offering was a bad deal. The bigger story here is one of Chinese growth and Chinese consumption, as sign after sign comes in that production in the country’s factories is easing. The government has lowered interest rates and requirements for how much cash banks should hold, and has lowered their expectations for growth this year to seven per cent, which, while still a phenomenal rate of growth, would be the lowest rate in about a quarter of a century for China (meanwhile, an interview in Maclean’s earlier this week posited that Beijing has been lying about growth rates – and it could be three or four per cent lower). At the same time, Beijing wants to pivot the mega-economy from export-driven growth towards domestic buying and spending. So when we watch Alibaba’s earnings today, it’s not just about a Chinese tech giant, but about whether Beijing’s strategy is working.
Where are all the female venture capitalists? The case of few women in the tech industry had a high-profile moment recently during the trial of Ellen Pao, who accused her former firm, a famous venture capital firm, of sidelining her and pushing aside her complaints of sexual harassment. Pao ultimately lost her case, but the firm was just the latest to come out of a discrimination suit looking like a club for entitled frat boys (see: Snapchat, Uber, Tinder). Jessica McDiarmid at Canadian Business looks into the world of venture capital in Canada, and finds that women are few and far between, even with more efforts to attract more women to the career. Why does the gender balance in this small, stratified world matter? Because as the gatekeepers to seed money for entrepreneurs, it means that female may have to work extra hard to start and expand a business. McDiarmid notes an American study from last year which used the case study of identical pitches – the only difference was whether the entrepreneurs behind them were men or women. The male pitches were selected more than twice as often – 68 per cent – than the pitches presented by women, which were accepted 32 per cent of the time. With the tech industry attracting most of the attention, it also comes back to a long-running issue about why more girls aren’t studying, and then staying, in science, technology and engineering, because venture capitalists often need a background in one of those areas. (Another reminder that this isn’t inherent: many of the earliest programmers were women, and the numbers of women studying computer science has actually dropped sharply since the 1980s – NPR has a graph, here.) Another reminder of a discouraging fact we highlighted yesterday: women in Canada make an average of $8,000 less than their comparable male colleagues, according to a Toronto-based firm, who also says the gap is twice the global average.
Need to know:
TSX: 15,023.89 (-150.05), Wednesday
Loonie: 83.06 (+0.22), Wednesday
Oil (WTI): $60.73, Thursday (4:30 a.m.)