This week’s episode - week ending December 4, 2016
OPEC STRIKES A DEAL
Despite growing doubt leading up to the scheduled meeting, OPEC member nations agreed to a production cut this week, the first of its kind in eight years.
OPEC will reduce output by ~1.3 million barrels/day (to 32.5 billion b/d) effective January 1, 2017. The agreement will remain in effect for six months, with the option to extend a further six months should market conditions warrant.
Non-OPEC nations will trim output further by ~600 million barrels/day, namely Russia is said to have agreed to a 300 million barrels/day reduction.
In an attempt to improve commitment to the deal, a newly created monitoring committee will oversee compliance. Historically, OPEC deals have had a poor track record of remaining intact throughout the duration of agreed terms, only around 60%.
UNEMPLOYMENT TICKS LOWER
Canada’s job market grew by 10,700 in November, surprising consensus predictions for a minor loss. The headline number was entirely supported by part-time jobs. Indeed, full-time jobs fell by 8,700. Canada’s unemployment rate improved to 6.8%, from a previous level of 7.0%.
The U.S. added 178,000 jobs in November, in line with this year’s monthly averages. The unemployment rate ticked down to 4.6%, a nine-year low, due to a lesser labour force and participation rate. Now below the Fed’s 4.8% estimate of a “natural rate”, current levels add further support for a December interest rate hike.
CANADIAN GROWTH REBOUNDS
Canada reported upbeat growth for the third quarter 2016, as GDP rose 3.5% on an annualized basis, a welcome bounce off the previous quarter’s loss of 1.3% due to the wildfires in Alberta.
Exports jumped by 8.9%, helped by the rise in oil prices. Capital expenditures, inventories and consumer spending also contributed. Housing activity declined by 5.5%, which weighed on growth.
Most of the gains were realized towards the end of the quarter, setting the stage for a strong fourth quarter and perhaps enough to lead towards upward revisions to Canada’s growth rate this year and next.
Despite strong third quarter economic growth, the main driver was a solid rebound in activity following the Alberta wildfires. The overall results are largely in line with the Bank of Canada’s forecasts and is unlikely to cause movement in either direction over the short-term.
OTHER ECONOMIC NEWS
U.S. GDP growth for the third quarter was revised higher to 3.2% from the 2.9% level previously reported. The better-than-expected figure came thanks to stronger consumer spending and residential investment.
Global manufacturing activity generally improved in November, suggesting a potential improvement in global economic activity during the fourth quarter. U.S. manufacturing activity climbed in November (ISM climbed to 53.2 while Markit’s Manufacturing PMI index climbed to 54.1). Canadian manufacturing activity climbed modestly to 51.5, while Japan’s improved to 51.3, the third straight month of expansion. China’s manufacturing PMI improved to 51.7, though the Caixin Manufacturing PMI declined to 50.9. Manufacturing activity in the eurozone remained unchanged at 53.7.
Prime Minister Trudeau and the Liberal cabinet formally approved two pipelines, expected to add production of ~1 million barrels/day. Kinder Morgan’s Tran Mountain pipeline will twin 1,150km of existing line between Edmonton and Burnaby, BC while Enbridge’s Line 3 project will replace existing pipe between Alberta and the U.S. Trudeau also announced his rejection of the Northern Gateway project at the meeting, a decision widely expected.
Sources: Ned Davis Research, Financial Times, BMO Economics, TD Economics