The TSX calls in sick

Financial and economic news for December 9


It’s Tuesday – but you could be excused for having a case of the Mondays. Despite strong housing numbers, another drop in oil prices has brought the TSX, and the loonie, down with it. And while US markets nudged downwards yesterday, the glow of American jobs numbers continues, though the slumping in the popularity of donuts could tell a different story.

The day ahead

The TSX fell to a year and a half low. The S&P/TSX composite index closed down 330 points, or 2.3%, at 14,144.17. It hasn’t been a good couple of weeks for Canadian markets, as falling oil prices cut down energy stocks and took the shine off the country’s biggest banks, who reported lackluster profits last week. The index is still on track to finish the year up from last, but energy companies are no doubt short on holiday cheer as they ponder how low oil is going to go.
In the US, the S&P 500 fell slightly, but they’re still riding high after a record-breaking day on Friday. Markets in Asia and Europe are down so far this morning.

Speaking of oil: another five year low. Oil prices were at a five-year low yesterday, and so far this morning, they’ve nudged still lower – Brent was at USD $65.4, and West Texas Intermediate was at $62.5 around 3 a.m.

Yes, the loonie is down, too. Despite strong housing start numbers, the Canadian dollar fell to 87.09 yesterday. Emerging economies’ currencies are hurting even more – with a strong US dollar, they’ve collectively plunged to a 14-year low, according to the FT. The Russian ruble, in particular, is having a bad day. The currency, which is heavily dependent on oil, fell to it’s lowest since the 1998 Russian financial crisis last week, and may be on track to hit that low again today.

The Bank releases it’s financial system review tomorrow. Get ready for a laundry-list of what keeps the governor of the Bank of Canada up at night.

What you missed

Housing starts jumped for November – and condos were responsible. A 6.5% jump was largely fuelled by “multiples” in urban areas in B.C., Quebec and Ontario, while construction of stand-alone homes actually fell. The numbers met expectations, but there are still concerns from credit agencies that Canadian housing prices are over inflated, and household debt is too high.

Donuts and burgers – Krispy Kreme will report it’s third quarter earnings today. But the American donut chain is expected to report profits that don’t justify the calories. The slump is part of a bigger trend in fast-food profits from well-known American chains: McDonalds’ US profits, released yesterday, showed the biggest drop in a decade, down 4.6%. In fact, they haven’t made a profit at all since more than a year ago.
The chains blame changing tastes – spoiler: donuts and burgers aren’t good for you – as well as up-and-comers like the US Mexican-style chain Chipotle. But they also blame something else for poor sales: while jobs numbers in the US have surged and signs of economic recovery abound, fast-food chains say the bounce has been uneven, and their low-income base hasn’t recovered as fast as the rest of the economy. They should know: last week, fast food workers protested over wages in 190 American cities.

On that note, a report from the OECD released yesterday says rising inequality in rich countries hurts growth, echoing a similar report by the IMF released earlier this year.

China’s wild ride continues. If you feel like a roller-coaster, head to the Shanghai Composite. The Chinese exchange was down 5% at closing today, and was down as much as 8% at one point in the day. Yesterday, the market rocketed to a high of at least 14 years (as long as Bloomberg data on the exchange has existed), despite more evidence domestic growth is slowing. Various analysts have pointed to a huge increase in retail investors, rather than foreign investment, as the explanation. But frankly, no one seems to have any idea where the markets will go next.


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