Angus Watt Advisory Group

10 Second Headline of the Week - July 14, 2017

B.C. WILDFIRES

  • As of July 11th, there were 310 wildfires in BC. As of July 13th, 50% have been contained, estimates are now around 200 fires.
  • The province has declared its 1st state of emergency in 14 years; more than 14,000 people have been evacuated.
  • Norbord Inc. and West Fraser Timber Co. have temporarily suspended production at their lumber mills.
  • Enbridge Inc. shut their natural gas compressor station; fires are in the ‘vicinity’ of Kinder Morgan’s Trans Mountain pipeline – preventative actions are being taken.
  • No major mines have been shut down; operations have been ‘significantly reduced’. Three junior producers have been affected.
  • BC Hydro states the province’s electric utility infrastructure has suffered ‘significant damage’.
  • Too early to determine cost of shutdowns.

BANK OF CANADA (BoC)

  • BoC raised the overnight rate to 0.75% vs. 0.50%, the first increase in 7 years.
  • Real GDP growth forecast now 2.8% vs. 2.6% for 2017; 2% for 2018 and 1.6% for 2019; BoC estimates the economy will return to full capacity by the end of 2017.
  • Real domestic income is expected to increase by 4% in 2017 vs. 3.6%; inflation is expected to return ‘close to’ the 2% target by the middle of 2018.
  • The Bix Six banks have all raised their prime lending rates to 2.95% from 2.7%, effective July 13th.
  • Mortgage rates increased last week in anticipation of the hike, RBC’s 2yr, 3yr, and 5yr fixed rates are now 2.54%, 2.64%, and 2.84% respectively for mortgages with amortization periods of 25 years or less.

UNITED STATES

  • More than 130 commodity groups, agribusinesses, and farm groups from rural states are heavily lobbying President Trump to leave farming and agriculture out of NAFTA talks.
  • June U.S. inflation index (CPI) 1.6% Y/Y vs. expected 1.7%; core up 1.7%.
  • June U.S. retail sales unexpectedly fell 0.2% vs. expected up 0.1%.

ENERGY

  • It appears that commodity traders are covering short positions in oil to drive the price higher.
  • OPEC production increased by 393,500 bbl/d to 32.6mil bbl/d in June, compliance at 78% – lowest in 6 months.
  • OPEC was oversupplying world markets by 700,000 bbl/d in H1 of 2017; if current output is sustained, OPEC will oversupply by 900,000 bbl/d in H1 of 2018.
  • Oil sands will be second to shale as the biggest contributor of oil to global growth over the next 2 years according to HIS Energy; 500,000 bbl/d of production is scheduled to enter the market.
    • Devon Energy, Suncor and Cenovus all have production sites running 30% above capacity.
  • Saudi Aramco’s CEO states the world might be heading for an oil supply shortage from the lack of investments and fresh conventional discoveries.
  • India wants $300bil in investments over the next 10 years to satisfy accelerating demand for oil.
    • BP announced $6bil to boost natural gas production in India’s east coast.
    • State-run ONGC plans to invest $10bil to expand output.
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