Top of the Morning
Michael Wolf, chief economics commentator at the Financial Times, gives a succinct explanation of why investors should be worried about a potential Chinese hard landing:
Imagine you were told of an unnamed economy that had soaring investment and credit, but falling growth. A rising proportion of investment activity was being funded by debt, while at the same time returns were falling. You would surely expect an unhappy ending…
As the late Herbert Stein, economic adviser to president Richard Nixon, famously remarked: if something cannot go on forever, it will stop. Credit cannot grow faster than GDP forever, even in China. The question is not whether it will stop, but how – and when. The longer this goes on, the greater the risk of a nasty surprise down the road. Furthermore, some part of the recent growth has almost certainly been an illusion: investment that does not generate much of a return is in part waste, rather than valuable output – however beneficial its immediate impact on demand may seem to be.
On the Homefront
- TSX 60 futures are trading slightly to the downside ahead of the open after the composite index booked a solid gain on Tuesday.
- The loonie has caught a bid this morning, rising to just below 0.909 against the greenback.
- BlackBerry (BBRY) has announced that it won’t renew T-Mobile’s license to sell the company’s devices when the contract expires later in April. While the company didn’t give a reason for this move, a T-Mobile’s promotion earlier in the year that encouraged BlackBerry users to trade in their phone, may have played a role in this decision. Current BlackBerry users who use the carrier will not be affected.
- South African authorities are calling for an investigation into a contract recently awarded to Bombardier (BBD.B) to build trains, alleging that the company engaged in a practice known as “fronting” – using front companies to comply with the country’s black-empowerment policies.
- Agrium (AGU) has indicated that its Q1 earnings per share will come in just above the break-even level, which is well below what analysts had expected. The company blamed a late start to the spring season for these poor results, also mentioning limited rail availability. In addition, the failure of a boiler at one of its nitrogen facilities is expected to weigh on production during both the first and second quarters.
- Home sales in the Calgary metropolitan area soared 21 percent year-over-year in March, with the MLS Home Price Index up 9.5 percent. The tightness of Calgary’s real estate market is what’s particularly noteworthy. As BMO chief economist Doug Porter observes, only 1.5 months of supply are currently up for sale.
- An earthquake with a magnitude of 8.2 rocked northern Chile last night, setting off a tsunami and resulting in multiple casualties. In terms of a market impact, copper spiked, as Chile is the world’s largest copper producer. High frequency trading has dominated headlines lately, thanks to a new book from Michael Lewis, and IG chief market strategist Chris Weston writes that the algos’ response to this natural disaster “will have done little to improve the image of the HFT space.”
- The U.K.’s Construction PMI slipped marginally to a still-robust 62.6 in March, suggesting the growth of this sector continues in earnest. Meanwhile, the rate of home price appreciation also fell, as the Nationwide HPI rose 0.4 percent month-over-month in March compared to 0.7 percent in February.
- In the United States, the ADP private payrolls report, the preview for Friday’s non-farm payrolls report, is expected to rise to 195,000 in March from 139,000 in its previous reading.
- There will also be a double dose of Fed-speak, as Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard are scheduled to deliver remarks.