Watching the eurozone

May 13: Today, a test of how much the eurozone has grown since quantitative easing began. Plus, Chinese retail sales fall.


This morning we’re watching the eurozone, as bond prices and share prices pick up in the lead-up to the release of the first-quarter real GDP for the eurozone, which should be out while you’re eating breakfast. This morning has already brought GDP, as well as inflation numbers for most of the eurozone economies,  including Germany, which at 0.3 per cent growth in the first quarter came up a little short of expectations – after all, Germany is Europe’s blockbuster economy. The German economy grew by 0.7 per cent in the last quarter of 2014. But growth in France and Italy has been better than expected: France saw 0.6 per cent growth, and Italy grew 0.3 per cent, which in Italian terms is good – the government says it is slowing down austerity and expects the country to see growth this year. The eurozone numbers will provide a chance to check out how the European Central Bank’s stimulus program – quantitative easing – has fared in its initial months. The initial impression has been tentatively good, as deflation seems to have eased up since the program began.

Meanwhile, new data this morning from China adds to the picture of slowing growth. Industrial production picked up (from 5.6 to 5.9 per cent), but it’s still deep in the shadow of last month’s poor showing, which was the slowest rate of industrial growth since the financial crash. Meanwhile, retail sales slowed from 12 to 10 per cent, which was the slowest rate for nine years.

Today will see retail sales for the U.S., and in London the governor of the Bank of England, Mark Carney, speaks about inflation, breaking his campaign-period silence.

Today will also bring several oil reports: the weekly report from U.S. on crude production, and the monthly report from the International Energy Agency on oil trends, so keep a close watch on oil prices today. The Canadian-U.S. Securities Summit will also kick off in New York City.

What remains of Nortel. The former tech giant has now been reduced to about $7.3 billion, which will be divided out between various creditors, including Nortel pensioners. Creditors in three countries could get as much as 71 per cent of their original claims, which would be a victory for pensioners who saw their expected compensation slashed as the company has gone through round after round of legal haggling. It also means the pensioners would get precedence over people who hold Nortel debt, as a result of an unusual legal decision to reverse who gets considered first for the payouts when a company goes under. But it’s still an early number, and there are many more costs to come: the dissolution of Nortel, which was once worth almost $300 billion, has cost more than $1.5 billion so far – and almost half a billion has gone directly to lawyers.

Salt and diamonds. When it comes to Ontario, the two minerals are one and the same, at least on the balance sheet: they appear as merely “royalties.” CBC’s Rita Celli has been working on a long-running investigation of Ontario’s highly secretive mineral royalties as part of an investigative fellowship. The two minerals are lumped together under one heading, and Celli discovered that salt royalties gave the province almost $4 million in 2013-14, and diamonds a mere $226.* The big mystery here is not how much the royalties are worth, however, it’s why on earth they are secret in the first place: a rule on confidentiality states that the exact amount of royalties from the province’s single diamond mine are never stated. Secrecy in mining is a running debate, as Celli notes, not just for Canadian companies operating in Canada, but for Canadian companies operating abroad: a rule intended to begin next year will require Canadian-owned extractive companies (mining and energy) to report payments over $100,000 to governments anywhere in the world, and are intended to lessen corruption.

The woman behind India’s biggest stock exchange. Chitra Ramkrishna was one of the first technocrats to be chosen to start the National Stock Exchange of India in 1992 – an exchange intended to rival the Bombay Stock Exchange and move trading from open outcry to electronic trading. Now, the NSE looms large over the much older Bombay exchange, and in Bloomberg‘s profile of Ramkrishna, she lays out her plan for bringing more middle-class Indians into the stock market: only 1.3 per cent of Indians own stock, compared with 10 per cent in China and almost 20 per cent in the U.S. The push for Indian equities has gained partly from Prime Minister Narendra Modi’s promotion of Indian equity, and in 2014 the main index was up by more than a third in just a year. However, so far this year the index is pretty much flat, with Indian companies posting underwhelming earnings and low oil prices and slow growth worldwide cutting out some of the earlier momentum.

The problem with the six-dollar burger: inflation. Maclean’s Aaron Hutchins and Amanda Shendruk take the burger chain Carl’s Jr’s (best known for their highly creative ads featuring girls in bikinis) to task over their promotion of a “six dollar” premium burger, marketed in the U.S. to come under that price. In Canada, however, the burger comes out to $7.50 Canadian. The chain is opening up stores in Ontario, and the misleading name doesn’t just have to contend with the currency exchange – virtually every element in a burger has become more expensive over the last several years.

Need to know:
TSX: 15,043.15 (-109.49), Tuesday
Loonie: 83.31 (+0.63), Tuesday
Oil (WTI): $61.26, Wednesday (4 a.m.)

*Correction: an earlier version of this post incorrectly stated that diamond royalties in Ontario totalled $226 million – in fact they were just $226. This version has been amended. 

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