This morning, the US and the Canadian GDP numbers were released at the same time, and both were numbers that missed the estimates. The Canadian M/M number was a positive 0.2%, less than the expected 0.3%. There was an increase in the Y/Y number from 1.4% to 1.6%, which had been forecast
The US GDP number came in better than expected, an Annualized (Q/Q) rate of 1.7%, compared to the expected 1.0%. The increase in the US GDP came from revisions in the methodology used to compute the GDP. Some of the changes are: to count research and development by business, government, and non-profit institutions as income, no longer an expense, expenditures by business and entertainment, literary and other artistic originals will be treated as fixed investments. We wonder if this will cause the IRS to treat the tax impact of these endeavors differently?
The list goes on. Intellectual property, literary publications and movies will be treated as fixed investments. Defined benefit retirement plans in both the private and public sector, even if these plans are unfunded, shall be reported as a subsector of financial corporate reporting. And it continues. Having moved the goal posts in the middle of the game, how do you keep score? It is estimated the results of these changes increases the US GDP from $15,984T to $16535T on an average for 2013.
Unemployment change as measured by the ADP in the US came in at 200K, better than expected. This sent the USD higher for a bit as the taper-now crowd used this report as evidence that Bernanke would act. This idea was shot down later with the FOMC monetary policy statement. There was a slight downgrade in the Fed's outlook and no mention of a change in QE.
Confronted with various inputs, the Canadian dollar has had an outside day for the week. By this, I mean that the C$ has made both a weekly high and a weekly low today. One of the reasons cited for the shortfall in the Canadian GDP was that sales in the Alberta oil sands were down 1.7% from the previous month, following a 1.6% drop in April. Part of this can be attributed to weather, and part to a shortage of transportation. The June number will likely drop further, a consequence of floods in Alberta.
In addition to the oil sands troubles, the market for natural gas market is hurting Canada. The Globe and Mail Reports:
"Alberta's energy industry has gone from battling a bitumen bubble to grappling with a gas-price gap - a deep discount on the province's natural gas that threatens new cuts in
drilling activity and production levels.
The discount on natural gas prices in Alberta compared with Henry Hub, La., the pricing point for U.S. gas futures, has widened by 86 per cent in the last two months. Alberta gas for August delivery is selling for about $2.48 per gigajoule, down 25 per cent from the beginning of June.
At Henry Hub, the equivalent amount of gas sells for about $3.50. Early this year, Alberta's oil sands-derived crude sold at deep discounts to the price of U.S. benchmark light oil because of insufficient capacity to move a growing supply to export markets. That prompted the Alberta government to warn of a $6-billion shortfall in resource revenue."
Canada, of course, is much more than an oil, natural gas and metals exporter, but the export energy sector may be headed for a soft spot. The WTI oil price is up $2.25 a barrel today to over $105/barrel, but this well might be end of the month window dressing by the long funds.
There are more reports coming this week, which are certain to keep markets reacting to the news. The euro and the pound have been active today ahead of reports by the BOE, and the UCB on Thursday. The all important NFP follows on Friday.. If the NFP comes in better than expectations, this will revive the QE taper talk and bull the USD.
Should there be some pressure on the USD prior to or because of the NFP report, we want to use weakness to buy the USDCAD (FXC UUP UDN). And remember to mind your money.