Category: Economic World News

Nach einem Eklat während einer Pressekonferenz von US-Präsident Donald Trump hat das Weiße Haus dem beteiligten CNN-Journalisten Jim Acosta die Akkreditierung „bis auf Weiteres“ entzogen. Das teilte Regierungssprecherin Sarah Sanders am Mittwochabend mit.

Acosta selbst erfuhr von der Entscheidung offenbar erst, als er am Eingang zum Weißen Haus gestoppt wurde: „Mir wurde gerade der Eintritt ins Weiße Haus verweigert“, schrieb der Journalist auf Twitter. Der Secret Service habe ihn informiert, er könne nicht eintreten, so Acosta weiter.

Rising interest rates and efforts by policymakers and regulators to tame climbing residential real estate prices are prompting concerns about the ability of Canadians to manage popular and widespread home equity lines of credit.

Research conducted by the Financial Consumer Agency of Canada suggests plans to pay off the loans, which make up a significant portion of non-mortgage consumer debt, are optimistic.

New public opinion research confirmed the consumer agency’s earlier findings, which revealed one-quarter of the HELOC holders have been paying only the interest on these loans most months. That means they haven’t been paying down the principal on this debt, which will be subject to the higher rising interest rates.

“We have already identified a pressing need for us to help Canadians realize that not using HELOCs responsibly can have serious repercussions on their financial well being,” FCAC Commissioner Lucie Tedesco warned in a recent speech to mortgage professionals in Montreal.

Just over 60 per cent of those surveyed by the FCAC who were paying only interest said they planned to pay off their lines of credit over the next five years, but Tedesco suggested that was “overly optimistic,” particularly given that the average Canadian HELOC balance is $70,000.

Jason Mercer, a vice-president and senior analyst at Moody’s Investors Service, said higher debt-servicing costs driven by rising interest rates are a concern.

“If the consumer is barely making regular payments today, they will likely not be able to keep up with higher monthly payments – unless they pay down more of the HELOC,” said Mercer, who tracks mortgage and related debt for the credit-rating agency.

If the consumer is barely making regular payments today, they will likely not be able to keep up with higher monthly payments

Jason Mercer, senior analyst, Moody’s

This concern is separate from more hypothetical risk factors around HELOCs, such as rising unemployment levels and falling house prices, he said.

The FCAC isn’t the only market watchdog to sound the alarm on the HELOC, which has grown in popularity amid prolonged low interest rates and soaring house prices that provided the equity to back larger loans.

Bank of Canada Governor Stephen Poloz included concerns about how Canadians were using their HELOCs in a speech last December among things that keep him up at night.

Lines of credit secured by homes were initially marketed by banks as way of obtaining cheap and easy access to funds to pay for home renovations that would help maintain or increase the value of the home. But the funds are not limited to home improvement, and, as the FCAC noted in a report last year, have be used to fund the purchase of depreciating assets, such as cars, and even speculative stocks.

As a result of factors including low interest rates, rising housing prices and significant spending on marketing HELOCs, balances grew to $186 billion in 2010 from just $35 billion 10 years earlier. Over the same period, these loans grew to represent 40 per cent of non-mortgage consumer debt, up from 10 per cent. By the end of 2017, that balance had climbed to $230 billion, according to the Office of the Superintendent of Financial Institutions.

Rob McLister, founder of mortgage comparison website RateSpy.com, says policymakers are keen to pull in the reins on HELOCs because of concerns that the borrowing binge could have repercussions for the broader mortgage market and economy.

“To the extent over-borrowing makes consumers less likely to repay their mortgages in an economic shock, that adds to systemic risk,” he said.

There are further “systemic” concerns because heavily indebted households tend to cut back on spending in the event of an economic shock, such as the collapse of oil prices, which in turn reduces demand for consumer goods, which can trigger increasing unemployment and reduced investment.

“Any time you get multiple federal agencies (such as the FCAC and Bank of Canada) issuing worrisome reports on the growing risk of a financial product, it’s just a matter of time before that product sees new restrictions,” McLister said.

But he said policymakers should keep in mind that HELOCs can provide an effective fall-back measure for households, rather than “letting money waste away” in an emergency fund, and they are rarely called in by a financial institutions when a borrower is in good standing.

Solving this with over-regulation is like legislating consumption limits on French fries because they contribute to heart disease. Ultimately people need (to take) some personal responsibility

Rob McLister, RateSpy

“The biggest problem with HELOCs is their ability to delay retirement for debt-a-holics,” McLister said, noting that paying down a mortgage is often a form of forced savings that funds the cost of living in retirement.

“Solving this with over-regulation is like legislating consumption limits on French fries because they contribute to heart disease,” he said. “Ultimately people need (to take) some personal responsibility.”

Mercer, the Moody’s analyst, said banks are likely to work with clients struggling to pay off their HELOCs, such as by combining the lines of credit with mortgages and rolling both into a new amortizing structure the consumer can afford, thereby closing out the HELOC.

Some industry watchers suggest rising interest rates, combined with the added scrutiny on HELOCs from regulators and policymakers, could also prompt banks to consider changing their behaviour even in the absence of new rules. This could include tweaks to underwriting policies and new lending restrictions.

In an emailed statement in response to questions about HELOCs and the recent concerns raised by the FCAC, the Canadian Bankers Association said its members run internal stress tests on lending models that factor in interest rate increases, as well as the potential for rising unemployment, but these reports and their conclusions are not made public.

In addition, the statement said, the banks “prudently” adjudicate and underwrite all home equity loans and lines of credit.

“Before granting a home equity loan or line of credit, banks complete a thorough due diligence process, including the likelihood that the applicant will be willing and able to meet their loan obligations on a timely basis and that the property, which is offered as security, is appropriately valued,” the CBA said.

OPEC is enduring one of the most head-spinning years in its history, swerving from cutting oil production to boosting it as quickly as possible. Now it’s talking about reversing course again.

Ministers from the group gathering in Abu Dhabi this weekend will discuss the possibility of cutting production again next year, according to delegates, a move that would mark an abrupt end to six months of supply increases.

The message from OPEC looks like: fasten the seat belts

The group is responding to a worrying prospect: Even though U.S. sanctions on Iran are removing significant amounts of crude from world markets, a fresh surge of American shale oil threatens to unleash a new surplus in 2019. Some members are concerned that inventories are rising, said the delegates, who asked not to be named as the discussions are private.

Crude prices already reflect this. Brent for January delivery has retreated about 15 per cent from a four-year high reached in early October. The Organization of Petroleum Exporting Countries and its allies are showing they’re worried, signalling last month that they might need to dial back near-record output levels.

“The message from OPEC looks like: fasten the seat belts,” said Bob McNally, president of Rapidan Energy Advisors LLC, a consultant in Washington. The cartel looks sets to “put pedal to the metal to boost production, and then immediately slam the brakes pretty hard and talk about cutting supply.”

If the group, led by Saudi Arabia, does ultimately decide fresh cutbacks are necessary, it will confront a number of challenges. It will need to once again secure the support of rival-turned-partner Russia, which has less need for high oil prices. There’s also the risk of antagonizing the kingdom’s key geopolitical ally, U.S. President Donald Trump.

Powerful Forces

All this is a far cry from the usual OPEC mantra of preserving stability and careful market stewardship. Yet it does reflect the level of uncertainty in a market experiencing huge shifts in supply and demand.

Earlier in the summer, prices began to surge as the risk of production shortfalls from sanctions on Iran and Venezuela’s economic collapse rattled the market. Losses from those two OPEC members threatened the biggest supply disruption since the start of the decade and Brent crude eventually peaked above US$86 a barrel last month.

Yet big things are happening on the other side of the supply equation too, meaning the risk of scarcity may not last. OPEC has been in “produce as much as you can mode” to reassure consumers, Saudi Energy Minister Khalid Al-Falih said in Riyadh last month. The kingdom has lifted output close to record levels, while Libya is pumping the most in five years.

Then there’s the small matter of U.S. production growing at the fastest rate in a century, just as fuel demand is at risk from the slowdown in emerging economies and the U.S.-China trade war.

Well Supplied

Right now, global markets are “well supplied,” in the assessment of the International Energy Agency, which advises consuming nations. OPEC’s own projections show that next year the world will need about 1 million barrels a day less than the 31.8 million its 15 members pumped in September.

“They will absolutely want to at some point next year try to arrange a reduction in production,” said Ed Morse, head of commodities at Citigroup Inc. “Everything points to a fairly weak balance: the world economy is decelerating, the China trade tensions are having a visible impact on demand.”

The meeting this weekend of the Joint Ministerial Monitoring Committee, a six-nation body representing the broader 25-country coalition, is intended as just an interim review before all ministers discuss policy next month in Vienna. Still, it will discuss options for 2019 including the scenario of fresh supply cuts, the delegates said.

“When OPEC looks at the challenge with the shale story in 2019, what does it need to do — does it have to start signalling now?” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC. “At this JMMC, do we get any clues that OPEC needs to get back into active market management?”

Big Decision

There’s a lot to consider before the December meeting. U.S. sanctions could end up squeezing Iranian output so much that other producers won’t need to cut. Although Washington granted some of Iran’s customers temporary waivers that let them keep buying, the Trump administration has said repeatedly it intends to entirely choke off the country’s energy revenues.

Shale has plenty of potential to surprise. The U.S. is already poised to satisfy most of the increase in global oil demand next year, the IEA forecasts. In August, a surprise surge in output meant the country briefly overtook Russia as the world’s biggest crude producer, with output of 11.3 million barrels a day. The Energy Information Administration just increased its 2019 production forecast by 300,000 barrels a day to 12.06 million.

Then there are political considerations. The Saudis may struggle to persuade the rest of OPEC to return to cutting production. Some members, like Iraq, are pressing on with new projects. Others may have grown weary of having their production policy steered by the kingdom.

Russia, the most important non-OPEC partner in the coalition, has ramped up output to a post-Soviet record and President Vladimir Putin has said he’s comfortable with prices in a US$65 to $75 range, giving some downside from the current level of about US$73 in London.

Saudi Minister Al-Falih discussed the agenda of the Abu Dhabi meeting with his Russian counterpart Alexander Novak by phone on Monday, an official familiar with the matter said, asking not to be identified as the information isn’t public yet. While there has been talk in the market that the group should consider renewed output cuts, Russia currently isn’t ready for such a decision, the official said.

If another cuts agreement can be secured, it could prompt renewed attacks from President Trump or encourage U.S. lawmakers to advance anti-cartel legislation known as NOPEC.

“There’s a lot at stake for them if they antagonize the wrong sets of people in consuming countries,” said Citigroup’s Morse.
With assistance from Elena Mazneva

Bloomberg.com

Finances in Ontario, already one of world’s most indebted regions, will get a whole lot worse if the government follows through on its campaign pledges.

The budget deficit in Canada’s most populous province is poised to jump almost 50 per cent to $18.7 billion (US$14.3 billion) in 2019-20 from this fiscal year under plans by new Premier Doug Ford, according to a report from Toronto-Dominion Bank. By 2022-23, the province’s net debt would rise to $483 billion, or to about 48 per cent of its annual output.

Finance Minister Victor Fedeli is scheduled to release an economic update on Nov. 15. It comes in the wake of an independent inquiry that estimated in September the deficit for the fiscal year ending March 31 2018-19 could be as high as $15 billion, more than double the previous government’s forecast, due largely to accounting changes. TD is estimating a budget deficit of $12.5 billion for this year including a $1 billion reserve.

“The upcoming fiscal update will provide a huge opportunity for the government to signal how it plans to slay the deficit monster,” TD’s economists Derek Burleton and Rishi Sondi wrote in the note released Wednesday. “From a credibility perspective, the sooner the government gets its fiscal house in order, the better.”

Ford, who took office late June, pledged to cut corporate and personal income taxes, which could cost $3.6 billion per year by year three of its mandate, according to TD. A promise to reduce the gas tax would would cost another $1.2 billion per year.

The path to balance will be fraught with hard decisions

Derek Burleton and Rishi Sondi, TD Bank economists

To be sure, Ford has committed to balancing the books over time, and could introduce cuts or other spending restraints. The government has already halted expansions at some universities, scrapped a pilot basic income program, and plans to cap social assistance which together with other measures could shave off $2 billion from spending this year, according to the report. Allowing other programs to lapse could save another $1 billion while freezing a minimum wage hike may support employment and boost revenues.

“If the government plans to honour its campaign promises, program spending will have to be pared significantly,” the economists said. “Should the economy take a turn for the worse, the government’s job becomes exponentially harder. All told, the path to balance will be fraught with hard decisions.”

Bloomberg.com

CALGARY – Imperial Oil Ltd. said it will build a brand new $2.6-billion oilsands project in Alberta, but a newly elected governor in Michigan threatens the company’s ability to move the additional oil production to its refineries.

Imperial announced late Tuesday it would proceed with its 75,000 barrels per day Aspen oilsands project north of Fort McMurray, Alta., which marks just the second time a new oilsands project has been given a green light since the oil price collapse of 2014, after Canadian Natural Resources Ltd. announced it would build a 40,000 bpd project called Kirby North.

The Aspen project also marks the first full deployment of a technology that combines steam with chemicals, called solvents, that oilsands companies have been experimenting with for years in an attempt to lower carbon emissions.

Construction on the new project will begin before the end of the year and Imperial expects to begin pumping oil from Aspen in 2022, at which point new Canadian export pipelines would be in service, president and CEO Rich Kruger said.

However, there could be fresh problems for a Canadian export pipeline following the U.S. midterm elections Tuesday after Gretchen Whitmer, a Democrat who has vowed to shut down a critical Enbridge pipeline called Line 5, won the Michigan governor’s race.

Enbridge’s Line 5 moves 540,000 barrels of oil per day across Michigan’s Straits of Mackinac between Lake Michigan and Lake Huron toward Sarnia, Ont., where Imperial owns a refinery and a petrochemicals complex.

During the election campaign, Whitmer promised that as governor she would “immediately file to enjoin the easement and begin the legal process to decommission Line 5.”

In October, Enbridge announced a deal with former Michigan governor Rick Snyder, a Republican, to replace the portion of Line 5 that crosses the Straits of Mackinac at an estimated cost of between $350 million to $500 million.

Enbridge spokesman Michael Barnes said in an email the company is continuing to work with the state, but did not address whether a new governor could jettison the agreement with Snyder.

Kruger said during Imperial’s investor day presentations Wednesday that he wasn’t familiar with the new governor’s position but downplayed any potential threat as campaign rhetoric. “I understand campaigns are campaigns,” he said.

He also acknowledged that Canadian oil pipelines are constrained, leading to record-setting discounts for domestic crude and that new production will require new pipeline capacity or move on railway cars.

“I wouldn’t say that we have a surplus of plumbing,” Kruger said of Canadian oil export pipelines. “I don’t have other pipe that would get crude there in a material way.”

Analysts were also critical of the decision to proceed with the project amid ongoing pipeline constraints.

“We suspect the street will question the company pursuing such a large project in the midst of lingering uncertainty with respect to longer-term pipeline egress,” Raymond James analyst Chris Cox wrote in a research note.

Imperial stock was down 1.47 per cent to $41.57 on the Toronto Stock Exchange.

Kruger believes it’s the right time to move ahead with the first oilsands project that uses solvents in addition to steam – a technological breakthrough that is expected to reduce emissions and water use by 25 per cent.

The technology could lead to emissions’ reductions between 17 per cent and 27 per cent, according to a study from IHS Markit.

“These technologies are potentially transformational for the industry,” IHS Markit vice-president, North American crude oil markets, Kevin Birn said, adding that Aspen would “provide a model for the rest of the industry.”

A handful of other companies including Suncor Energy Inc., Cenovus Energy Inc. and MEG Energy Corp. have been developing their own versions of solvent-assisted, steam-based oilsands plants but Imperial is the first to bring the technology to a full-scale commercial development.

“It can provide a demonstration to the industry and to the world of the next-generation technology,” Birn said, adding that Aspen is also expected to have lower capital costs than previous projects of a similar size.

Aspen, which could eventually be expanded by another 75,000 bpd to produce a total of 150,000 bpd, is an important growth project for Imperial, which was once among the three largest oil and gas producers in Canada but has been leapfrogged by the likes of Canadian Natural and Cenovus after those companies’ major acquisitions in recent years.

Imperial indicated that Aspen, which will be built near the company’s Kearl oilsands mine, would benefit from shared warehousing, workforce housing, transportation and logistics with Kearl.

In addition, the new project would benefit from a wider slowdown in the Alberta economy.

“When’s the best time to build things? When no one else is building them because we will have the highest quality trades,” Kruger said.

• Email: gmorgan@nationalpost.com | Twitter: geoffreymorgan