It was a high-flying year – and then some – for the Canadian dollar and oil.
While the Bank of Canada raised interest rates, then promptly cut them, and the stock market managed to eke out a single-digit gain on the year, it was the loonie and crude oil prices that sent financial markets reeling in 2007.
The price of oil hit an all-time high of $99.29 (U.S.) a barrel on Nov. 21, though the story of its rise started in 2003. The price of oil has quadrupled in four years, driven by surging demand from China and other developing economies.
Meanwhile, production cuts by the Organization of Petroleum Exporting Countries and rising geopolitical turmoil have put the squeeze on the supply side. The price rose about 58 per cent from the start of this year alone, leaving the average for 2007 at about $72 per barrel.
Yesterday, light crude oil prices settled at $95.98 a barrel, off two cents, on the New York Mercantile Exchange.
The Canadian dollar soared to parity with its U.S. counterpart for the first time in 30 years in September.
The currency rose to an all-time high of $1.10 on Nov. 7, though it has since hit some turbulence. The loonie – which closed yesterday at $1.0088 – has risen about 18 per cent this year, strengthened by higher commodity prices.
The S&P/TSX composite index scratched out a small gain yesterday, leaving the benchmark Canadian market up about 7 per cent for the year.
That's enough for investors to breathe a sigh of relief after the global credit crunch that wreaked havoc on the stock markets through the summer and fall, but it's also a far cry from the healthy 14.5 per cent gain the market saw for 2006.
The Bank of Canada, worried that a surging Alberta economy would boil over, raised the key overnight bank rate by 25 basis points to 4.50 per cent in July. It then cut the rate back to 4.25 per cent in December, much to the relief of exporters and manufacturers in Ontario and Quebec who have been broadsided by the loonie's rise.
What's in store for the next year?
The Toronto Star asked three economists for their outlooks for 2008 on oil prices, the Canadian dollar, the S&P/TSX composite index, and whether the Bank of Canada will raise or lower interest rates.
Benjamin Tal, CIBC World Markets
Oil: "We believe oil prices will remain elevated. This is not an oil shock. This is a permanent structural change in the economics of oil.
"We have huge demand coming from China, India, and supply is limited. We see oil prices averaging about $100 (U.S.) in 2008."
Canadian dollar: "We see the Canadian dollar losing some ground over the next six months and then regaining this ground and closing the year at about $1.05.
"It will stay below par for six months or so, reflecting some softness in commodity prices, but we believe by the second half, we will see overall recovery in global economic growth and the U.S. economy."
Interest rates: "We see the Bank of Canada cutting interest rates by 25 basis points because of the credit crunch early in 2008, then taking a break for the rest of the year, with potentially starting to raise them toward the end of the year."
Stock market: "We are bullish on the stock market. We think the next few months will continue to be very volatile.
"Beyond that, we believe we will see a significant rebound in the stock market as the credit crunch will come to an end, and it will end up to be not as bad as some people believe.
"We also think the North American economy will start the process of recovery. We see the S&P/TSX ending 2008 at roughly 16,000 points."
Clément Gignac, chief economist at National Bank Financial
Oil: "We see oil prices averaging $75 (U.S.) for 2008, largely because of a deceleration of the worldwide economy, with a huge headwind from the U.S. side.
"I think we will find that gasoline demand is probably more cyclical than structural. If you lose your job, and go less often to the restaurant, the shopping centre, and less often to Florida, you will use less gasoline."
Canadian dollar: "On one side, I see a headwind on commodities and oil prices. On the other end, I see rate cuts on the U.S. side, which will support the Canadian dollar. After five years of aggressive targets on the Canadian dollar, this year I'm very low profile with my target. I predict a trading range of 97 cents (U.S.) to $1.03."
Interest rates: "We're working with assumption of a significant easing on the U.S. side to avoid a recession. We expect easing in Canada as well, though not as much since the economy is running at full capacity already with tame and friendly core inflation. We see the Bank of Canada cutting rates by a maximum of 50 basis points."
Stock market: "I'm working with a 12,800 target on the S&P/TSX – a negative return. Even with a negative return, 30 to 35 per cent of stocks will deliver a positive return. Some sectors will be better than others ... For instance, life insurance stocks will continue to outperform banking stocks and gold will outperform base metals."
Doug Porter, BMO Capital Markets
Oil: "We're looking at an average price of $81 (U.S.). A lot of the spectacular increase we've seen over the last six months would be sustained, but we do think there's a bit of air built into those prices, so it could come off a bit from current levels."
Canadian dollar: "We see it hanging around parity for the first half of the year and then slowly receding to about 95 cents by the end of the year. That would still leave the currency with an average exchange rate of about 98 cents. Most of the spectacular gains we've seen since the spring would be sustained."
Stock market: "We see a mild to modest gain of under 10 per cent for 2008. The market will be dealing with slower growth and softer profit gains on one side, but lower interest rates on the other side.
"But the stock market always tends to surprise. There's always the possibility it could have a nice bounce if the U.S. economy turns out to be better than expected and interest rates come down and inflation pressures ease. That's the combination it would take to fire the market up."
Interest rates: "We see modest interest-rate reductions by the Bank of Canada.
"The decline in core inflation and slower growth leave the door open for further cuts, but I don't think they're going to embark on a major rate-cutting campaign, because the unemployment rate remains so low.
"We see one 25-basis-point rate cut early in the year and possibly a second one after (new Bank of Canada governor Mark) Carney takes over."
The year Timminco soared 7,000% TheStar.com - Business - The year Timminco soared 7,000%
Ore, fertilizer, BlackBerrys helped 2007 markets while debt crisis, recalls and patent losses took toll
January 01, 2008
Gary Norris THE CANADIAN PRESS It was the best of times, for those who bought stock in Timminco Ltd. a year ago and watched it gain more than 7,000 per cent.
It was the worst of times for shareholders in Coventree Inc., Menu Foods Income Fund and even former blue chips like Quebecor World or Loblaw Cos.
The benchmark S&P/TSX composite index gained about 7 per cent for the year but, as always, the average concealed a tumultuous cavalcade of thrills of elation and pangs of agony.
Shares in Timminco, a Toronto-based maker of specialized metal, ended 2006 at 30 cents on the Toronto Stock Exchange. By the end of this year, jolted by sales of high-purity silicon for solar-power applications, it was at $21.95, a gain of 7,216 per cent. The company, majority owned by AMG Advanced Metallurgical Group NV, lost $4.6 million in its latest quarter as sales slipped 2 per cent to $43 million.
At the other extreme, the "nobody's perfect" contingent featured Coventree, a company few had heard of before Aug. 13 but which had found a profitable business issuing asset-backed commercial paper. Coventree stock started 2007 at $14.80 and hit $16.30 before the summer credit-market convulsion. It traded yesterday at 77 cents, down 95 per cent on the year.
Among other conspicuous calendar-year ups and downs:
Research In Motion rode rampant over the threat of Apple's iPhone, a stock-option-grant review and fears that financial-market turmoil would decimate the ranks of BlackBerry-thumbers in expensive suits. RIM stock split three for one and ended the year at $112.56, up from $49.67 – a gain of 127 per cent.
Posting a steeper if less widely tracked gain than RIM was Major Drilling International, a provider of drilling services for the global mining industry, based in Moncton, N.B. MDI closed 2007 at $62.60, up 140 per cent for the year.
Fertilizer bloomed as demand boomed. Potash Corp. of Saskatchewan rose 158 per cent, while Agrium Inc. added 102 per cent and China-centred Hanfeng Evergreen Inc. grew 243 per cent.
While it was a miserable year in the forest industry – Tembec Inc., for example, lost 80 per cent of its market value – TSX-listed Chinese tree-farm operator Sino-Forest Corp. rose 173 per cent.
Infrastructure was also big. Aecon Group Inc. saw a 256 per cent stock-price rise on the year, outpacing 50-per-cent-plus gains for fellow engineering providers SNC Lavalin Group and Stantec Inc.
It was a tough year for many in the oil patch. Precision Drilling Trust fell 44 per cent, but Petrobank Energy and Resources Ltd. rose 238 per cent.
Among other notable gains, Thompson Creek Metals was up 65 per cent, WestJet climbed by half and Bell Canada showed a 26 per cent increase thanks to the country's biggest-ever corporate takeover, by a group led by the Ontario Teachers' Pension Plan.
Coventree had no shortage of company in the doghouse, including pet-food maker Menu Foods Income Fund, down 90 per cent on the year after an adulterated ingredient from China poisoned pets.
Investors in CV Technologies Inc. kept feeling worse all year. The maker of the cold and flu remedy pitched by Don Cherry bombed, ending down 78 per cent from a year ago, afflicted by disappointing sales, accounting woes and allegations of lobbying irregularities.
Bigger and more established drug maker Biovail Corp. tumbled 46 per cent as generic competition ravaged its Wellbutrin antidepressant franchise amid U.S. regulatory approval delays and the retirement of founder Eugene Melnyk.
So how about stashing your cash in a massive international commercial printer? Quebecor World churned out an 87 per cent loss, hurt by operational woes, executive-suite uproar and a deepening financial crisis. Parent company Quebecor Inc. finished down just 2 per cent, supported by its Vidéotron cable-TV subsidiary and media holdings. But the year was less kind to TV and newspaper operator CanWest Global Communications Corp., down 35 per cent.
Another family-controlled giant, Loblaw Cos., slumped 32 per cent during 2007 as Galen Weston Jr. struggled to turn around Canada's largest supermarket company. Parent company George Weston sagged 28.5 per cent.
Toy maker Mega Brands Inc. tumbled 76 per cent as its woes piled up after a major recall of magnetic building sets blamed for injuring children who swallowed the pieces.
Also down by three-quarters on the year was Cinram International Income Fund as investors tuned out the world's biggest maker of pre-recorded CDs and DVDs in an increasingly online world.
The Canadian banking industry had its most profitable year ever, but the debt crisis took a toll on share prices. Hardest hit was CIBC. Itsexposure to securities based on the U.S. mortgage market knocked its stock down 28.5 per cent. TD Bank finished the year almost exactly where it started.