March 2016

Geopolitical briefing

March 18, 2016

A successful agreement to cut oil production unlikely in 2016

The recent accord signed by the world’s two largest oil producers, Saudi Arabia and Russia, to cap production at January levels if other major producers followed suit has been touted by some as an important first step towards an agreement by the major oil powers to significantly reduce oil production in the near term.

Over the longer term, it is a different story. Barring a sudden significant increase in the price of oil, we feel the most likely scenario is that the growing financial burden of having government expenditures exceed oil revenues will force the major players to overcome their mutual hatred and undertake serious negotiations to reduce oil production in about 12 months’ time. This is because worries over having insufficient financial resources to maintain political stability in their respective countries will take precedence over all other goals.



National Bank



March 15, 2016

The Revenant

• With the global economy continuing to struggle, markets desperately need some good news. China, a major source of bearish market sentiment in recent months, now has an opportunity to be a source of hope for the world economy as it presents its five-year plan this week. One can only hope Beijing doesn’t under-deliver. Else, risk aversion could move up a gear and rekindle flight towards USD.

• The greenback’s woes in February was partly due to soft US economic data which had investors pare expectations about the Fed this year. While the trade-weighted USD should give back some of the outsized gains registered in the last two years, it could nonetheless find bouts of strength if the European Central Bank and the Bank of Japan decide to provide more stimulus.

• Mauled by bears and left for dead just a few weeks ago, the Canadian dollar is now back with a vengeance. The loonie’s Revenant-like performance was helped by a softening greenback, but markets also started to question whether or not the Bank of Canada really needs to cut interest rates considering that upcoming fiscal stimulus will provide a boost to the economy. The earlier oil price collapse suggests there is more upside than downside for the commodity, and as such we remain comfortable with our view that WTI will hit $40/barrel by year-end. While the loonie has room to appreciate, don’t expect a linear movement towards our newly adjusted USDCAD end-of-year target of 1.32. Currency volatility is the name of the game, more so with Canada’s dependence on short term foreign inflows and much uncertainty with regards to commodity prices and Fed policy.

-Stéfane Marion/Krishen Rangasamy-

NBF Currency Outlook


Economic News

March 11, 2016

Jobs down again in February


LFS report released March 11, 2016 disappointed a second consecutive month. Moreover, the details of the report are not reassuring particularly in regards to the massive drop in full-time employment. The national unemployment rate is the highest since early 2013 and at a two decade high in Alberta. However, all is not bleak as private jobs posted its first increase in four months while construction jobs also rebounded strongly. We are particularly pleased to see manufacturing jobs continuing its upward trend in February. Over the past year, factories added no less than 41K jobs which represents a whopping 35% of new jobs in the country (middle chart) thanks to a depreciated loonie. We also take comfort that BC continued in February to compensate for other provinces weaknesses. It remains that after a surprising resilient year in 2015 despite weak economic growth, the labor market is moderating early this year in line with our baseline scenario. Keep in mind that hiring intentions of businesses were their lowest since the 2008-2009 recession based on the business outlook survey published in January. With oil prices remaining low and a more competitive Canadian dollar supporting growth in Central Canada and BC, expect regional divergences to persist this year.

-Matthieu Arseneau- Senior Economist