On Tuesday, the S&P 500 ended the day up 0.8% and Toronto was up 0.4%.
Oil dipped under $30 and is currently at $30.75. The Canadian dollar dipped under 70 U.S. cents and is now at 70.23.
Winning stocks today included Dollarama, up 3.5% and Wells Fargo, up 2.5%.
Declining stocks included Liquor Stores N.A. down 5.1% and AutoCanada down 3.7%.
Rate reset preferred shares fell as the yield on the 5 year Canada bond fell to 0.57%. (I wonder what institutions buy these bonds and why they would do so. Perhaps a slavish adherence to asset allocation rules explain it.)
I can’t fathom why the Bank of Canada would consider lowering interest rates. The dollar seems more than low enough. We don’t need to encourage corporations to borrow. Many may have already blown their brains out with debt. And few would argue that consumers need to be encouraged to borrow. My understanding it that the main (perhaps only) mandate of the Bank of Canada is to keep inflation on target. The lower dollar seems sure to push inflation well above the 2% target.
Alberta is facing the sobering realisation that it relied for years on oil companies investing vast amounts in high cost oil production, without insuring pipelines were in place to bring the oil to tidewater. Alberta was counting on high oil prices. It now appears that high oil prices were only the result of the OPEC cartel limiting production. Now, cheap oil seems to be in abundance around the world and the OPEC cartel is not functioning. Commodity producers can make money when they are the low cost producer or when there is a shortage (real or engineered by a cartel). It’s tough to make money as a high cost oil producer at a time of excess supply. Perhaps the Alberta oil industry can lower its costs to reflect current prices. Or maybe enough U.S. producers will be driven out of business to allow the price to rise. Or maybe OPEC will limit production. Otherwise much of the recent billions in capital invested in oil in Alberta based on $100 prices will be lost. What the collateral damage will be to the Alberta economy remains to be seen. So far, Albertan unemployment is only 7%. Not that high.