US soars, while the rest of the world falters

U.S. soars, while the rest of the world stumbles

Your financial and economic news for December 8

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MORNING-PLAYBOOK-STORY

It was an underwhelming finish on Friday for Canada, as markets dipped on an uptick in the unemployment rate and lower than expected profits for banks. But to the South, last week was a blockbuster, and the holiday cheer might just continue this week. At home this week, there’s plenty to look forward to, from housing numbers to the Bank of Canada’s financial systems review.

 

The day ahead

Oil is still falling this morning – in fact, it’s reached another five-year low, with Brent down to around US$68 and West Texas Intermediate down to around $65. While this means discounts at the pump, it’s also a good time to stock up on holiday think pieces about how oil’s fall is affecting the Canadian economy, climate talks in Peru, and Putin’s popularity.

The loonie fell slightly on Friday, ending the week at 87.47, on uninspiring jobs numbers from Statistics Canada: 10,700 jobs were lost in November, and unemployment ticked up to 6.6 per cent – although some temperance may be needed. The Globe pointed out that the change is actually so small, it’s statistically insignificant. Meanwhile, the U.S. dollar is at it’s highest in more than five years – and could be heading for its highest close in eight.
Meanwhile, other currencies are weakening, and this morning the euro slipped to a two-year low after few clear signs on stimulus from the European Central Bank last week.

The TSX stayed level on Friday: The exchange made no gains on the last day of the week, following a big drop on Thursday, due to lagging jobs numbers and some underwhelming profits for Canada’s big banks in the fourth quarter. Markets rose steadily in the U.S. on Friday, but in Europe, high closes in New York didn’t balance out news of slowing growth in Japan and China – European markets are down this morning.

Canadian housing starts will be released this morning, giving an indication of the health of the country’s housing market. Analysts expect that numbers will go up for November, a result of low interest rates and, overall, decent labour numbers. But the numbers may gain significance, as the Bank of Canada has warned about levels of household debt, warnings that may continue in Wednesday’s semi-annual financial systems review. Around this time, it’s always fun to speculate about a Canadian housing bubble – and review Canada’s addiction to household debt, in 11 charts.

This week will bring the financial systems review by the Bank of Canada, released on Wednesday, and on Thursday, agreement on extending funding for the American government. Let’s hope it avoids a repeat of last year’s calamitous government shutdown.

 

Things you missed

Last week saw banks earnings season and jobs numbers – expect the impact of both to be felt this week in Canada. Profits from several banks, including Scotiabank (which released their earnings on Friday) fell below estimates last week – and while banks still made plenty of money, the greater concern is for a rockier 2015.
Jobs numbers from Canada are also weighing, while a major surge in U.S. jobs has given a boost to markets that may outweigh news from Asia.

Japan is doing worse than expected. While forecasts were for Japan’s GDP to increase, one week before a general election, the economy is not looking so hot – in fact, real GDP slipped by 1.9, and there was also a contraction in business spending. But there are a few bright spots: the country’s current account is up on increased exports and a weak yen.

In China, slowing growth and a wacky stock market – Chinese stock markets, particularly the Shanghai composite, continue to hit record highs, even as new numbers this morning indicate the country’s imports have slowed. This morning, the country’s trade surplus was at its highest in at least 14 years – pointing to a slowdown in domestic consumption. So what’s pushing the wild ride on the Chinese stock market? U.S. jobs numbers might help, but with data showing a slowing China over and over again, the culprit is more likely a massive surge in retail investors getting in on the market.

Ireland up, Italy down – on Friday, S&P upgraded Ireland up one rating, while knocking Italy down a rating. The country is now resting just above junk status, at bbb-.

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