Oil slips, Fed hikes and The Big 3 become 4: BUSINESS WEEK WRAP
Crude prices plunged to yet another multi-year low this week, and are now taking aim at going below where there were during the depths of the recession.
But at least one aspect of oil's decline isn't behaving the way it should be. Gasoline prices should be a lot lower than they currently are, according to a BMO report that was one of our most-read stories this week.
Oil prices are at their lowest level since 2009, a time when gasoline prices in Canada bottomed out at a little over 76 cents a litre.
But now, while gas prices have come down, they're not down by as much as oil, averaging at around $1 a litre across the country.
What gives? The things that go into pricing gasoline are very complex at the best of times, and that's no exception here. Part of the reason for higher prices is because Americans are driving more than ever, which has pushed up the price of gasoline higher than it would otherwise be.
And the weak loonie is exacerbating the problem of pump prices for Canadians. But with a disconnect between oil and gas like we've never seen before, clearly there's something else going on. And the 12,000 social media shares our story received this week suggest our readers think so too
The Big Four
There was big news in telecom as Shaw bid to buy small rival Wind Mobile for $1.6 billion. Shaw isn't currently in the mobile game, although their scope in the cable and internet business makes them an intriguing dance partner for mobile-only Wind.
Consumer advocates say Canada's telecom industry is in desperate need of a shakeup from its current big three oligopoly of national players — Rogers, Bell and Telus — who together control more than 90 per cent of the market.
Studies in other countries have shown that four players is the sweet spot to maximize competition, bring down prices and improve service, so there's hope that Shaw's deal could do the same.
But at least one expert we talked to this week worries that Shaw's foray into wireless won't bring prices down as much as draw a former cheap alternative into a fight with the big boys
"Finally we have a viable fourth option, that I think most Canadians will be able to benefit from. But the worry is that Shaw will simply hike Wind's low prices to bring them in line with the big three," Open Media's David Christopher said this week.
Fed hike rate
Finally, the most momentous event of the week in the financial world will likely prove to be the Fed's decision on Wednesday to hike its benchmark interest rate for the first time in more than nine years.
Calling the decision the end of an "extraordinary era," Fed chair Janet Yellen also cautioned that moving America's benchmark interest rate from effectively zero won't be ushering in a new age of rapidly rising rates.
The Fed's expectations moving forward are calling for its benchmark rate to return to around three per cent, but not until 2018. And even that is below its long-run average of 3.5 per cent.
Still, the Fed's hike was a big deal, and a sign that the era of cheap money is nearing an end. While it will have no direct impact in Canada, the Fed's move will nonetheless affect things up here, especially since the Bank of Canada is moving in the opposite direction, having slashed rates twice this year and some are musing it may do so again.
That's bad news for the loonie as higher rates in the U.S. will make Canada look like an even worse place to invest, BMO economist Doug Porter told us this week.
"Higher U.S. interest rates with the Bank of Canada on hold, likely means the Canadian dollar will remain under pressure through 2016," he said.
Those were just a few of our best offerings this week. Be sure and follow us on Twitter here for more, and don't forget to check out our website often. In the meantime, here's a day-by-day list of some of our most-read stories of the week.
- Slavery in shrimp industry discovered inside major retailers and supermarkets
- Debt-to-income ratio rises to 163.7% in third quarter, Statscan says
- Gasoline should be much cheaper based on oil prices, BMO says
- Bank of Canada says housing debt threatens financial system
- U.S. interest rate hike will be bitter medicine for debt-laden Canada
- Fed hikes interest rate for first time in 9 years
- Shaw communications buys Wind Mobile in deal worth $1.6 billion
- Turing CEO Martin Shkreli arrested for securities fraud