Top of the morning
In the Financial Post, Jack Mintz explains why British Columbia’s LNG tax regime is poor public policy:
The government views it has struck the right balance to attract large investments while ensuring some additional revenue for the provincial government. Neither is correct.
This B.C. tax policy should be taken for what it is: A revenue grab without much thought given to economic or tax policy objectives. It sets a precedent of taxing differently one form of business activity compared to others, distorting the allocation of capital and labour in the economy. Instead of moving to a smart efficient tax system with respect to resource development, the province has created a poor public policy precedent for the coming years…
If other provinces take the same view with respect to resource taxation, new levies would be applied to oil refining, forest product manufacturing, mining processing and a host of other activities linked to resource industries. The B.C. LNG tax is out of sync with the notion that the appropriate rent tax is applied at the extraction stage, not at manufacturing and distribution stages of production.
On the homefront
The see-saw swings of the TSX continued on Thursday, with Canada’s benchmark index posting a triple-digit gain. The price of WTI crude oil rebounded, as such, the energy sector was responsible for much of the advance. Interestingly, gold miners managed to make a move higher despite a sell-off in bullion. The shiny metal hasn’t recovered overnight, suggesting that there might be some payback for gold miners to end the week. On Tuesday, the TSX had its best day of the year, which was followed by its worst day of the year. TSX 60 futures are in the red ahead of the open.
Thursday’s pick-up in the price of oil was tied to reports that Saudi Arabia supplied less crude to the market in September relative to August. However, as output increased over the course of the month, it’s uncertain that OPEC’s largest producer is committed to measures that would help push up the price (as opposed to pursuing a volume-over-price strategy to win market share). WTI crude futures are well off yesterday’s highs early this morning.
The Canadian dollar is steady against the greenback to hover above 0.891 this morning.
Deal on a yuan trading hub in Canada appears to be imminent. The Globe and Mail’s Nathan VanderKlippe and Adrian Morrow report that there’s a good chance Ottawa and Beijing will formalize an agreement to bring a yuan trading hub to Canada early next month. This would help foster greater trade links between the two countries and provide domestic banks with “a more free exchange between the local currency and the yuan,” they write.
Canadian oil giants aren’t fretting over plunge in prices. Executives at Husky Energy (HSE) and Cenovus Energy (CVE) don’t plan on curtailing production despite the drop-off in oil prices, according to the Financial Post’s Geoffrey Morgan. Both firms released quarterly results before the market opened on Thursday, with Husky posting a sizable bottom-line miss as input cost inflation continues to weigh on its performance, while Cenovus recorded a big beat on earnings. However, neither company has provided an update on their 2015 capital spending plans at this time, though both are expected to in December.
Pipeline company wins battle with Vancouver municipality. Burnaby’s latest attempt to stop the expansion of Kinder Morgan’s Trans Mountain pipeline looks to have failed. Burnaby Now’s Jennifer Moreau writes that the National Energy Board will allow the pipeline company to conduct survey work on Burnaby Mountain, which happens to be municipal land. Burnaby Mayor Derek Corrigan hinted that the city would likely appeal this ruling.
Equity futures plunged on Thursday evening following confirmation that the Ebola virus had spread to New York City. However, this appears to be another case of “sell now, ask questions later,” as futures pared about half of their losses while North America slept. “It does feel like the bulls are back in control, although the level of attention traders pay to Ebola could increase from here,” writes IG chief market strategist Chris Weston. “It’s also interesting to see the startling correlation between the VIX and the level of Ebola quotes in mainstream publications.” According to the New York Times, Dr. Craig Spencer, the man infected with the virus, had recently returned from Guinea, where he was providing treatment to people afflicted with Ebola.
China’s real estate market, the elephant in the room of the world’s second-largest economy, continues to sputter. New home prices fell from August to September in 69 of 70 cities surveyed, the fifth consecutive month of declines. This decrease brought new home prices negative on an annual basis for the first time in nearly two years.
The Russian ruble is tumbling against a host of major currencies to hit fresh record lows amid a weakening price of oil and worries that a debt downgrade is coming soon, writes Business Insider’s Tomas Hirst.
The United Kingdom saw economic growth ease from 3.2 per cent year-over-year in Q2 to three per cent in Q3, a reading that was in line with expectations. Reuters reports that Chancellor George Osborne warned that growth could continue to moderate due to the weakness in the euro area, and more broadly, the global economy.
Another bright spot for the German economy: the Gfk consumer climate index unexpectedly edged up to 8.4 in October, breaking a string of three consecutive monthly declines. This comes on the heels of a survey that suggests the nation’s manufacturing sector expanded over the course of the month after a poor print in September.