Bank of Canada Concerned by Outlook

Crude oil prices continued their global rout, sustaining the downtrend following last week’s report of an additional buildup in US crude stockpiles, fueling worries of a worsening global glut that has already left prices struggling to recover from multi-year lows. Adding to the declines was the latest Baker Hughes figure from Friday which showed the amount of drill rigs for oil and gas in America rising by 17 rigs in the latest week in a sign of growing production in the pipeline. Prices have faced strong headwinds for months, plunging more than 40% since the start of the year. Analysts forecast more of the same in the coming year as major oil producers including OPEC and Russia continue to pump at a breakneck pace in a bid to compete for market share. Brent fell from Friday’s high of $37.53 to $36.17 on Monday, marking the lowest level in 11-years.

December data highlighted a renewed slowdown in output growth across the US service economy as new business growth appears to be cooling. Markit's US Services PMI came in at 53.7 for December, just as the sector's output reached the lowest level since December of last year, sliding from the previous month’s value of 56.1. While the index remained above the 50 mark, indicating continue expansion, the December reading represents the slowest rate of growth in the services sector in a year. The weak overall reading reflected five straight months of contraction in accumulated orders as well as the slowest growth in new orders since January. Employment was described to be resilient despite the softness in other components of the reading. The services sector, largely insulated from global headwinds, had been growing at a strong pace relative to other areas of the economy.