Weekly Review

Gloom and Doom

Certainly this has not been a fun week for most markets around the world.  Many companies came out missing target estimates reaffirming the fact that the economy is far away from a real recovery. The UK shocked the markets when the latest GDP numbers from the Office for National Statistics showed that the economy shrank by 0.7% over the second quarter. 

USA
The US economy expanded at a rate of 1.9% the first quarter.  Numbers just came out today indicating that the economy grew at a slower pace of 1.5% for the second quarter from April to June.  The economy slowed amid weak consumer spending, government cuts and a rise in imports from foreign countries.  Weak confidence in the Euro currency has led to capital flight into the American dollar thereby pushing up its value.  With a stronger US dollar exports have become less attractive which in turn is hurting local manufacturers export their products.
Bush tax cuts are set to expire be the end of 2012 (Fiscal Cliff).  Most economist predict that if all of the 2012 tax and spending cut measures occur under current law, it would reduce the deficit but also drag down GDP by 4% or more and cause a recession next year.

EU

European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the euro zone from collapse, sending a strong signal that inflated Spanish and Italian borrowing costs were in his sights.  Spain's 10-year bond yield sank to as low as 6.92%, around 40 basis points lower.  Furthermore, the news reversed the 5 day decline of the Euro/USD.  The Euro made significant gains.

Italy also came into the spotlight as the provincial government association (UPI) warned that schools may not be able to open after the summer holidays due to planned spending cuts and local finances. These comments proceeded prime minister Mario Monti's comments last week announcing that Sicily was on the brink of default and on the same day the press stated that 10 Italian cities faced serious financial difficulties.
  
Citigroup said there’s now a 90 percent chance Greece will leave the euro in the next 12 months to 18 months.



 

China

China National Offshore Oil Corp.(CNOOC) — is a state-owned oil company.
Calgary-based oil and gas firm Nexen Inc. has agreed to be acquired by CNOOC Oil Company in a $15.1 billion US cash deal. It will pay $27.50 per Nexen share. That price makes the deal the largest foreign transaction that Beijing has ever attempted.

The New York senator, a noted opponent of China's international trade policies, told U.S. Treasury Secretary Timothy Geithner that the U.S. should block the takeover of Calgary-based Nexen unless China lives up to its free trade commitment.

With stronger Canadian/Chinese trade relations and uncertainty in middle eastern oil we can expect to see more M&A activity in the Canadian energy markets.

Herman Venegas