Top of the morning
From the print edition of The Economist comes a wonderful primer from Greg Ip on why deflation — something that many European economies are currently experiencing — is something to be feared:
[T]he stable low inflation fought for in the 1980s and 1990s and inflation hazardously close to zero are not so far apart. And as inflation drops, slipping into deflation becomes ever easier. It is in that dangerous position that the world now stands…
The lowflation of being consistently below an already low target is bad in itself; the deflation it could easy lead to is even worse. There are several reasons. The belief that money made tomorrow will be worth less than money today stymies investment; the belief that goods bought tomorrow will be cheaper than goods bought today chokes consumption.
On the homefront
TSX 60 futures are moving higher ahead of the open after the composite index fell along with the price of crude oil on Monday.
After hitting their lowest level since June 2012 on Monday, WTI crude oil futures are up modestly this morning. “Simply put, Saudi Arabia has more of an incentive to dump even more oil on the market by upping production, than by cutting production,” writes FT Alphaville’s Izabella Kaminska. “The chances of such a production increase, however, are still grossly underestimated by the market due to a misunderstanding about what Saudi Arabia’s situation really is.” On Monday, analysts at Goldman Sachs called for WTI crude to tumble to $75 per barrel by the first quarter of 2015, which gave jittery traders even more reason to sell crude. On the other hand, in the Financial Post, Claudia Cattaneo points out a number of Goldman’s predictions for crude have failed to materialize, to put it mildly. However, the supply/demand dynamics seem to be clear: as Ed Yardeni notes, supply has been soaring, with combined output from the U.S. and Canada exceeding that of Saudi Arabia, while demand has been flatlining.
The loonie is gaining on the greenback, trading around 0.891 USD this morning.
Pension fund to invest in Brazilian real estate. Following months of speculation, the Canada Pension Plan Investment Board has confirmed that it plans to invest roughly $400 million in commercial property in Brazil, including warehouses and development projects.
Ackman and Allergan in court today. A U.S. District Court judge in California will hear arguments from the legal team of billionaire activist investor Bill Ackman, who is teaming up with Valeant Pharmaceuticals (VRX) to aid in its hostile takeover bid for Allergan, and lawyers representing the Botox maker. At stake: whether Ackman can vote his 9.7 per cent stake in Allergan at the upcoming special meeting of shareholders scheduled for Dec. 18. Allergan contends that Ackman engaged in insider trading when amassing this position.
Air Canada to trade under single ticker. In an attempt to improve the liquidity of its Class ‘A’ variable voting shares (which may only be held by foreigners), Air Canada announced that these shares and its Class ‘B’ shares will trade under a single ticker — AC — on the TSX as of Nov. 3. Class ‘B’ shares may only be owned by Canadians. Fears that the Ebola virus would weigh on airline traffic weighed on the stock in early October, but shares have since recovered. The decline in the price of crude oil (while modest when priced in Canadian dollars), helps Air Canada, which counts jet fuel as a major expense.
Rail companies fail to report incidents. Both Canadian National Railway (CNR) and Canadian Pacific Railway (CP) — as well as Montreal, Maine & Atlantic, the railway at the centre of the tragedy in Lac Megantic — haven’t lived up to their obligations when it comes to reporting accidents. The Transportation Safety Board found 254 occasions over the past seven years in which these railways either failed to report an incident, or issued a report late. However, no injuries occurred during any of the unreported cases, according to the TSB.
The Rousseff re-election rout. Brazilian equities and the real finished markedly lower on Monday, with the latter hitting its lowest level against the greenback since early 2005, after the left-leaning Dilma Rousseff was re-elected as president. State-owned companies fared particularly poorly, with oil giant Petrobras ending the day down double digits.
Japanese consumers are beginning to break out of their slump. Retail sales rose 2.3 per cent year-over-year in September, well above the consensus estimate, to show their fastest rate of annual growth since March, the month before the sales tax hike was implemented.
The Russian ruble sank to an all-time low against the euro while North American slept.
Sweden’s central bank cut its benchmark interest rate to zero, a more aggressive move to combat deflation than economists had expected. The Swedish crown tumbled against the euro following the Riksbank’s decision.
A trio of U.S. economic releases are slated to be released this morning – durable goods for September at 8:30 a.m. (EDT), the Case-Shiller Home Price Index for August at 9:00, and the Conference Board Consumer Confidence Index for October at 10:00.