• Matthew Fotheringham

🌎 Canada's economy freight train, EU reprimand Cayman's and Can rain bring new life - 3 Things

14th February 2019

Happy Friday!

It’s Valentine’s Day, thousands of us are scrambling around for that last-minute gift for our partners.

Prior to the 5th century - St Valentine’s day was originally called Lupercalia. A matchmaking lottery that was a bloody, violent and sexually-charged celebration awash with animal sacrifice with the hopes of warding off evil spirits and infertility. For some of us, it is a very different event today...

Did You Know...

Today the US is predicted to spend $27.4BN on St Valentine’s day. Can you name the 5 top gift categories by $ value? (Answers below)


Canadian economy on the right track, shame it won't be a CN one

Back in November, we mentioned that the Canadian National Railway “CN” worker strikes were causing havoc to the Canadian economy.

Canada relies heavily on its transcontinental rail system for both Import and Exports. So the irony was not lost on us when on Thursday evening CN announced that they were “initiating a progressive and orderly shutting down of their eastern Canadian network” thanks to illegal blockades set up by protestors over the Coastal GasLink pipeline, a key part of a $40-billion LNG Canada liquefied natural gas export project.

Clearly, these protestors were reading our newsletter and really know how to hurt their country. Sorry CN.

It’s certainly been a mixed bag of results for the Canadian economy, with resilient private consumption and a stabilization in the energy sector supporting economic activity. On the other hand, volatility in commodity prices and elevated household debt has hampered the Loonie.

Going forward, positive developments on the US-China trade front, a rebound in demand from Chinese firms for Canadian manufactured goods and the probable ratification of the USMCA should support the manufacturing sector this year. The China element is, of course, dependent on the resolution of the Coronavirus situation. CAD has been steadily weakening against the USD since the beginning of the year from a high of 1.29 to a low of 1.3320 (key support comes in at 1.35). Monthly volatility is currently at 1.9%. (6.58% annualized).


EU puts Cayman on the Naughty List

The Cayman Islands (A British territory) is to be “temporarily” placed on the EU blacklist just 2 weeks after Brexit happened, as the EU looks to crack down on the over $600BN of aggressive tax avoidance.

British territories and dependencies made up four of the 10 places said to have done the most to “proliferate corporate tax avoidance” on the corporate tax haven index. Sneaky Brits!

What does this mean?

Well, Cayman has already been working hard to get back in the world's good books. CIMA has been piling on the pressure for more of their companies to be regulated. “Gone are the days where we have 100,000 companies and we don’t know what is going on”, entities will now need dedicated AML officers and be far more open about their Ultimate Beneficial Owners.

Despite the added burden and potential extra costs, Cayman is expected to maintain its position as one of the most popular offshore financial centers.

The EU, as well though, has been under intense scrutiny this week, the economy has got off to a stagnant start this year. Foreign sales are set to slow due to mild global growth and an unsupportive global environment. This same global environment will also weigh heavily on investment activity and restrain industrial recovery.

With Brexit a done deal, the European Parliament is now turning to trade talks. Governments are churning, not helping -  interventionist policies in Italy and Spain and trade tensions with the U.S. pose downside risks. Growth was expected to come in at just 1.0% in 2020 and GDP actually dropped to 0.9% due to in part by Germany missing their own growth expectations.

EUR continues its long slide, having lost 12 percent in two years, not far off its 2017 low of 1.04. Monthly volatility is at 2.02% (6.99% annualized).


When it rains it pours Downunder

The Westpac-Melbourne Institute consumer sentiment index rose to 95.5 in February, likely due to easing concerns around wildfires Let it Rain!. However, 95.5 is less than 100, indicating that there are more pessimists than optimists among Australian consumers.

That being said, improving business conditions and growing signs of a rebound in house prices look to contribute to the private sector activity.

Plus, growth is expected to continue this year, thanks to stronger domestic demand. Faster wage growth and modest inflation will help private consumption, while lower interest rates and a turnaround in the housing market are expected to spur investment activity.

However it is difficult to look past the persistent wildfires, a rapidly-weakening Chinese economy and resurging trade tensions skew risks to the downside.

AUD continues its long slide, having lost 18% since the beginning of 2018. Volatility is elevated at 2.5% (8.6% annual volatility)


In Other News

This Weeks Economic Data Calendar

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Quiz of the week

Although 55% of us will choose Candy as our preferred gift of choice, the top 5 Valentine gifts by USD value this year were...

Jewelry = $5.8BN

An Evening out = $4.3BN

Clothing = $2.9BN

Candy = $2.4BN

Flowers = $2.3BN

Results from Statista

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