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Spotlight on oil plus US and Canada payrolls previews

Crude oil has been in the spotlight rallying in the morning before easing back in the afternoon. Raging wildfires in Canada’s oil sands producing region have forced over 80,000 people to be evacuated from the City of Fort McMurray where many of the people who work in the oil sands live. Although the fires appear to be south of the main mines, with their workforces having been displaced by the fires, oil sands operations have been forced to stop or slow production. So far about 500,000 bbl/d day has been impacted which could go up over a million should this disaster worsen.  Oilsands giant Suncor energy fell 3.4% on the day.

Fort McMurray and the oil sands operations are in an isolated region with limited road access, the nearest small towns a two hour drive away and the nearest major city, Edmonton, a five hour drive away. Because of this, once the fires do end, it could take some time for everyone to get back up on their feet again.

Oil trading was also influenced by news from Libya that a dispute among factions has curtailed exports from a major port. US oil production fell again last month providing longer-term support, but afternoon action indicates that if prices spike up too quickly or too much further, some higher cost shale production could come back on stream, potentially limiting the upside for oil in the near term.

The impact of the oil and gas sector’s struggles on banks has also been in focus today. National Bank of Canada announced it is taking a $250 million provision for credit losses from the oil patch in its next earnings report, a $0.54 hit to earnings per share essentially cutting earnings in half.

Traders have been increasingly worried lately about what the oil crash could mean for companies’ ability to repay their debts. Some have gone so far to worry that underperforming oilfield loans could spark another financial crisis. Today’s trading action suggests these worries may be overblown. With every reason to collapse, National’s shares fell only 1.5% and no other bank stocks were impacted. This suggests that the flat to lower trend in bank stocks over the last 18 months has likely already priced in oilfield loss exposure.

Tomorrow brings the big nonfarm payrolls report traders have been looking to all week. jobless claims were running low through the month suggesting a robust job market but retail sales, industrial production, personal spending and other indicators suggest a growing economy but not a barnburner. ADP payrolls came in low (156K vs street 195K) and I suspect we could see a moderate miss for nonfarms as well. I’m thinking 175K with a small downward revision of 5K to last month.  

Canada added 40K jobs last month and a retrenchment is common the month after. A pickup in Canada’s economy last month shown by another rise in manufacturing PMI and rising energy prices suggests Canada’s economy continues to transition away from a dependence on oil although a rising loonie may have had some impact on exports. Overall, I think the drop back to 2K job growth the street is expecting looks a bit much, I think we could see job creation of 10K more balanced between full and part time.

Australian markets could be active today around the construction PMI report. Copper was lower but gold miners were among the top performers in Canada today so the resource sector may be active again. Japan service PMI could spark some action in Japanese markets.

Corporate News

Activision Blizzard    $0.23 vs street $0.12, sales $908M vs street $813M, guides next Q $0.38 above street $0.34

Economic News

Significant announcements released overnight include:

Canada building permits            (7.0%) vs street 4.8%
US jobless claims            274K vs street 260K

UK service PMI                52.3 vs street 53.5

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)  

7:15 pm EDT        FOMC Bullard, Kaplan, Lockhart, Williams panel discussion

9:30 am AEDT        Australia construction PMI        previous 45.2
11:30 am AEDT        Australia RBA monetary policy statement

12:00 pm AEDT        Japan Nikkei service PMI        previous 50.0

8:00 am BST        Spain industrial output            street 1.5%

8:30 am EDT        US nonfarm payrolls            street 200K
8:30 am EDT        US previous month revision        from 215K
8:30 am EDT        US 2 month payrolls net revision
8:30 am EDT        US private payrolls            street 195K
8:30 am EDT        US manufacturing payrolls        street (5K) vs previous (29K)
8:30 am EDT        US unemployment rate            street 4.9%
8:30 am EDT        US average hourly earnings        street 2.4%

8:30 am EDT        Canada employment change        street 2K vs previous 40K
8:30 am EDT        Canada full-time jobs            previous 35K
8:30 am EDT         Canada part-time jobs            previous 5K
8:30 am EDT        Canada unemployment rate        street 7.2%

10:00 am EDT        Canada Ivey PMI            street 52.3

On the weekend    China trade balance            street $40.0B
            China exports                street (0.5%) vs previous 11.5%
            China imports                street (4.0%) vs previous (7.6%)


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