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Domestic banks continue to defy pessimists

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

The end of the OPEC meetings in Vienna are again the top market story as skepticism that an agreement on production cuts can be reached intensifies.

Goldman Sachs sees only a 30-per-cent chance of successful negotiations,

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"The oil market is pricing in a 30-per-cent chance of producers reaching a deal to cut output at OPEC's meeting in Vienna, according to Goldman Sachs Group Inc. Global benchmark Brent crude may swing $6 a barrel on Wednesday, based on implied volatility for options contracts, analysts including Damien Courvalin and Jeff Currie said in a report Monday. Futures would rally into the low $50s a barrel and average $55 over the first half of next year if the group agrees to a cut, according to the bank. Failure to reach an accord would mean prices would average $45 a barrel through the summer.'"

"Goldman Sees OPEC Meeting Down to the Wire With 30% Odds of Deal" – Bloomberg
"@chris1reuters @Barclays expects a supply deficit of 3 million bpd in world #oil markets by 2019 as demand outstrips new projects " – (chart) Twitter
"Oil prices drop on doubts over OPEC production cut" – Report on Business

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Scotiabank announced a 9-per-cent year-over-year profit increase for the most recent quarter. This accounts for more than $2-billion in quarterly net income and also highlights the huge financial buffer the major banks have to offset the potential effects of a housing market slowdown.

"Scotiabank profit tops forecasts on domestic, international gain" – Report on Business

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The Financial Times details the rising risk in global pension funds as fund managers reach for yield with alternative investments,

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"Alternative assets such as property, infrastructure, private equity and hedge funds have been bought up by institutional investors in a world where yields on safer government bonds have hit rock bottom. Total assets managed by the 100 largest alternative investment managers rose to $3.6-trillion this year, up 3 per cent on 2015, according to consultants Willis Tower Watson, as these assets have become more embedded in the portfolios of pension funds and insurance groups. This switch into alternative products has prompted warnings that some of these institutional investors could be severely affected in the event of a financial shock or the seizing up of liquidity in the markets."

"Hunt for yield pushes more investors into riskier assets" – Financial Times

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Bank of Canada Stephen Poloz provided some interesting details on the domestic economy during a speech to the CD Howe Institute Tuesday,

"Today, more than 80 per cent of working Canadians are employed in services, while fewer than 20 per cent produce goods. Manufacturing now makes up less than 10 per cent of the workforce. The question is: How far can these trends go? …  It probably will not surprise you that the average wage in the finance and insurance industry is higher than that in manufacturing. But so is the average wage in the transportation and warehousing industry. And, together, those two industries employ more Canadians and produce more output than all of Canada's manufacturers."

"Stephen S Poloz: From hewers of wood to hewers of code - Canada's expanding service economy" – Bank for International Settlements

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The OECD has become the latest institution to warn of a possible real estate and financial crisis in Canada,

"The Paris-based OECD projects that Canada's economy will increase to 2.3 per cent in 2018, from 1.2 per cent in 2016. But, while non-energy exports, business investments and an increase in private consumption are expected to lead that growth, the OECD says a major housing market correction is the "main downside risk" to those projections…. 'This could result from an external shock that results in higher mortgage rates and/or unemployment, making it difficult for some financially stretched households to service their mortgage commitments,' the OECD says. Such a correction would reduce residential investments, private consumption and, "in an extreme case could threaten financial stability," it says."

"Canada at risk of 'disorderly' housing market correction: OECD" – CTV News

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Tweet of the Day: "@brianklaas The scariest chart nobody knows about. The declining belief, by age, that it is "essential" to live in a democracy. ' (chart) Twitter

Diversion: "Supersonic Is Coming Back. Will the Airlines Buy It?" – Bloomberg

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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