Every week at the Current we round up the biggest business stories. This week: the loonie hits a new low, the Bank of England drops rates, Iranian nuclear deal impacts oil prices, and what does the Chinese stock market drop mean?
The loonie hit a 6 year low against the greenback, falling 77 cents for the first time since 2009. The most recent decline began on Wednesday after the Bank of Canada slashed interest rates to 0.5%. The loonie’s troubles may not be over and some are predicting a further drop in value. Investors may look to offload the loonie (despite its already low value) in order to prevent further losses. Canada’s economy has been struggling due to the fall in the price of oil, and although the loonie might make travelling a bit more pricey, its low value could lure in more foreign tourists.
Canada’s low interest rate could increase household debt as consumers choose to take advantage of low rates to finance big purchases. The already red hot property markets of cities like Toronto and Vancouver could see an increase in house prices, despite broader economic concerns, thanks to cheap mortgages. Inflation across the country, meanwhile, sat at 1% in June. Up from 0.9% in May. Gas prices, despite this inflation, have continued to remain low and even decrease.
Flat Lining UK
The UK Consumer Price Index indicates that inflation flat lined at 0% last month. Clothing and food prices fell and Mark Carney – Bank of England Governor – expects inflation to remain low until late in the year.
Following news of a deal with Iran restricting and monitoring nuclear development in exchange for rolling back sanctions, oil prices fell. Lifting Iran’s harsh sanctions could flood the world’s economy with cheap oil from Iran’s vast reserves. Some experts believe that Iranian oil exports could increase by over 50%, forcing prices down. The news comes at a time when oil producers are already struggling to turn a profit with rock bottom prices.
Aer Lingus Greenlight
The European Commission (one of the EU’s governing bodies) has given the green light for International Airline Group (IAG) to take over Aer Lingus, an Irish Airline. IAG already owns British and Iberia Airlines, causing some concern regarding competition. The deal will have a stipulation requiring IAG to forfeit 5 slots at London’s Gatwick airport to allow other airlines a chance to compete.
After much drama, a referendum, political grandstanding and a senior resignation, Greece’s government voted in favour of implementing political and economic reforms in exchange for a much needed bailout. The reforms will push back the retirement age, increase VAT and make a number of structural reforms aimed at limiting public spending in the coming years. It is a tame end to a gripping drama but will likely lend some much needed stability to the euro and the eurozone. The deal is not quite stamped, sealed and delivered but few foresee any serious setbacks on the horizon.
Uber has been battling lawsuits across the world and has been hit hard by a California court. The ride share app was fined $7.3 million for failing to provide regulators with adequate information about its operations.
US rate rise?
Janet Yellen, has reiterated that interest rates will probably rise before the end of the year. The Federal Reserve Chair has voiced concerns over the instability in Greece and the euro zone as well as the recent stutter in China’s stock market but says that positive signs in the US will likely prompt the bank to raise rates as expected.
China’s recent stock market instability has wiped out over $3.5tr in wealth – a number exceeding the total value of India’s stockmarket. Despite painful losses the threat of broader economic trouble resulting from the market downturn is unlikely. With under 15% of household financial assets invested in the market the downturn is unlikely to affect broader consumption – which means people will still be spending money. Meanwhile loans make up only 1.5% of total assets in China’s banking system so the risk of a banking crisis is minimal. All told, the Chinese stock market is still ahead over 75% year on year – but some investors remain wary.
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