Market Watch Weekly - November 28, 2014

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The holiday shopping season is in full swing, as retailers flung their doors open for Black Friday, the biggest shopping day of the year.  It is estimated that US consumers will spend over $13 billion today, a 1.6% increase over 2013.  Consider this figure:  Brian Cornell, CEO of Target, cited sales of 1,800 televisions per minute at the retailer’s stores nationwide today.  As mentioned in our previous few issues of Market Watch Weekly, this is indicative of positive consumer sentiment and business sentiment in North America.  Brian Yarbrough, retail analyst at Edward Jones & CO., notes that “all the economic data is better than it was this time last year.  The consumer seems to be in a better mood or consumer sentiment is better, and the consumer should have more cash.” Increased spending is a major catalyst for the overall economy.

 

Despite a shortened trading week for the US (Happy Thanksgiving), US stocks continued to move higher. Unfortunately, it has been a different story in Canada where the S&P/TSX is down roughly 2%. Among culprits is OPEC’s decision not to cut oil production in an effort to reduce oil’s current over supply. While global demand and consumption of oil continues to rise, recent production increases have caught up, with the net result being a decrease in oil price of approximately $8 - the biggest weekly drop since August 2011. Over time we do expect to see greater balance between supply and demand supporting higher commodity prices, but for now it looks like we are entering a new era for oil where prices will have to find their own equilibrium through demand and supply forces. OPEC made it clear that it is up to higher-cost producers to find this fine balance. The decline in oil prices also caused side effects in other commodities, probably due to liquidation in commodity funds.

 

On a more positive note, Canada’s economy grew faster than forecast in the third quarter as exports of crude oil grew and consumers opened their wallets for cars and other big-ticket items.  The expansion exceeded the central bank’s October estimate for third quarter growth of 2.3%.  Gross domestic product must expand by more than 1.9% to use up spare capacity and spark inflation.  On a monthly basis, Canada’s gross domestic product rose 0.4% in September following August’s 0.1% contraction, led by mining and oil and gas extraction.

 

“Canada is on the right track”, Finance Minister Joe Oliver said in a statement today, adding that “threats to the global economy loom”.

 

Despite the somber feeling in the Canadian energy space, a major catalyst for our economy in BC could be coming with the potential decision to go ahead with LNG. According to reports, Malaysia’s state owned energy giant, Petronas, last week stated that a final investment decision will be made by the end of next month.  We take that with a grain of salt, but the Petronas CEO is reported to be travelling to Vancouver to meet with BC officials to work out “loose ends”, and it was also noted in the Wall Street Journal that Petronas was pressing ahead with its Canadian LNG projects.  The go ahead could have positive implications for exploration and production (E&P) companies, service companies, and infrastructure companies.  Other projects such as Site C could have a similar positive impact on the economy, so we wait with bated breath for further news.

 

We hope you got yourself a new jacket and boots on Black Friday, as another heavy rainfall warning has gone into effect for Metro Vancouver, with as much as 70 mm in thee forecast for parts of Metro Vancouver.  According to Environment Canada, up to 25 mm is expected for the city, with additional heavier amounts of 40 mm in the Fraser Valley tonight and an additional 30 mm for the North Shore mountains.

Thank you for your trust.

 

As always, we welcome your feedback.  Have a great weekend.

The Dekker Hewett Group

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