Financial Update

Toronto keeps triple-digit gains while New York battles bad jobs report

· TSX +116.9 (Reuters) - The Toronto stock market rose to its highest levels since late February as it ended the week with a triple-digit gain, while New York ended flat as it lost a battle to overcome dismal jobs data. Canada’s overall employment picture was mildly positive with unemployment edging up only 1/5th % to 6% and 14,600 net new jobs.

· Dow -16.61 U.S. employers cut 80,000 jobs, the most in 5 years and the 3rd straight month of job losses. The American unemployment rate jumped to 5.1 per cent from 4.8 per cent. The U.S. economy has given up jobs the 1st 3 months of this yr, and this adds to the belief that the U.S. is already in recession

· Dollar -.48c to $ $98.08US
· Oil +$2.40 to close at $106.23 US per barrel
· Gold +4 to $909US

Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>

MONTREAL (Reuters) – SMALL GUY CRACKS THE ABCP WHIP Irate investors saddled with some C$350 million of frozen asset-backed commercial paper investments want all of their money back, and signs are that Bay Street will have to placate them to prevent the collapse of its workout plan for all C$33 billion of the strange stuff.

Even though as a group they represent only 1% of the value of the ABCP that falls under the plan, retail investors get 1 vote each just like everyone else, and they far outnumber the big corporate players. For the restructuring plan to pass, a majority of investors at an April 25 meeting need to vote for it. But by voting in favor of the deal, small investors would give up the right to sue their brokers and banks in return for a promise to get an unknown amount of money back sometime down the road.

Please also find attached above an excellent article for you and your clients discussing variable rates vs fixed rates. The decision should not be based on the rate, but on the clients tolerance for risk, and their ability to withstand rises in a mortgage payment. Anyone wishing to take variable at Merix may fix their mortgage payment higher to avoid seeing changes when prime fluctuates.

Canada's mortgage rates set to go south

Cuts Predicted
Keith Woolhouse, Canwest News Service Published: Thursday, April 03, 2008
Canada's mortgage rates are heading down. At a time when stock markets are volatile and with the economy and income growth slowing, the positive news for those planning to get into the housing market or whose loans are up for renewal is that it's going to cost less to finance a mortgage.

Economists, who are on top of the eddies that influence the borrowing and lending of money, and mortgage brokers, who tap funds for buyers, all agree that in the months ahead it's going to be cheaper to borrow. What they don't agree on is where rates will bottom out.

All the forecasts point to the Bank of Canada reducing its key overnight lending rate currently at 3.5%. Chartered banks use the rate as a guide for their own prime rate that, in turn, dictates the cost of borrowing.

The 12-month outlook for the central bank's overnight lending rate suggests it will flatten out between 2.5% and 3%. If the banks follow the Bank of Canada down with its rate-cutting policy, consumers could see the posted five-year fixed rate, currently at 7.29%, drop to about 6.3%, and mortgage brokers offer around 5%. Variable rates would be under 5%. Consumers should not be misled by the posted rate. While it was at 7.29%, banks were readily offering 5.9%.

Current rates are higher than they should be, says Daniel Martel, president of G. R. Gauthier Financial Services Inc. In mid-March, his Ottawa-based company's five-year rate was 5.39% but Mr. Martel felt that it should be around 4.6%, based on the government bond market prior to the collapse in the subprime mortgage industry, when banks sought a 1.2-point cushion. He blamed the high rate on banks' desire to recover their losses in the subprime market and to appease shareholders.

"The banks claim the rates are higher than they should be because their cost of borrowing is higher, which I don't agree with. I think it's more the banks recouping their losses," he said.
Each percentage point makes a difference. One percentage point on a $100,000 mortgage with a five-year term, amortized over 25 years, costs $62 more per month ($744 a year).
A homeowner with a $250,000 mortgage with a rate of 6% pays $155 more a month ($1,860 a year) than his neighbour who has a rate of 5%.

Many factors influence the course of rates, and not all of them are homegrown. One of the biggest influences lies south of the border with the powerful Federal Reserve Board, which dictates U.S. interest rates.

The U.S. economy, left reeling by subprime mortgage defaults, tightening credit and a falling dollar, is getting bleaker. It is seeking to revitalize its economy and ward off the effects of a recession by continuing to cut rates. Because of the spillover effect from a weaker U.S economy, the Bank of Canada has little choice but to stay in step with U.S. monetary policy. CIBC's Jeff Rubin believes the bank will gradually reduce its rate to 3% as it follows the U.S. Federal Reserve downward. "While the Bank of Canada may not match the Federal Reserve Board basis point for basis point, it will, nevertheless, be following the Fed in direction," he said.

David Rosenberg at Merrill Lynch in New York forecasts that the Fed needs to get its Fed Fund rate down to 1%. "This may sound aggressive, but Fed easing cycles in recessions almost always see the prior tightening cycle completely unwind. The serious nature of the current housing deflation and credit crunch makes the case for an aggressive easing in policy all the more compelling," he says.

The Bank of Canada's next opportunity to adjust its overnight lending rate is on April 22. On April 30, the Federal Reserve Board has the opportunity to do the same. Those are two dates to watch.

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