Financial Update

Slide in metals, oil sends TSX plunging 260 points;NY mixed on economic news

· TSX -260.25 (Reuters) - Toronto's main stock market index remained weak on Tuesday
amid falling gold and energy prices

· Dow -39.81

· Dollar +.07c to $ $98.82US

· Oil -3.12 to $115.63US per barrel

· Gold -18.70US to $874.20US

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

By Malcolm Morrison, The Canadian Press- The Toronto stock tumbled more than 250 points Tuesday as both oil and gold registered steep declines a day before the U.S. Federal Reserve is widely expected to announce a quarter-point cut in its key funds rate. Analysts suggested that it's the prospect of a break in rate cuts that punished commodities, since the parade of rate declines since last year has also helped weaken the American dollar and push up the prices of oil and metals.

"If we get an indication from the Fed that after tomorrow, that's it, then there's not necessarily that U.S. dollar weakness stimulus consistently coming out of each Fed meeting," said Gareth Watson, Canadian equity adviser at Scotia Capital. "With the Fed decision.... it could very well be people pre-emptively saying well, made some money, let's take it off the table no matter what happens."

The have-not province?

Equalization payments for Ontario by '09, bank says April 30, 2008 Keith Leslie The Canadian Press

With soaring energy prices changing the landscape of the Canadian economy, analysts warned yesterday that Ontario could soon qualify for equalization payments while Newfoundland and Labrador is poised to shed its have-not status.

The latest report from TD Bank Financial Group said Ontario is set to become a have-not province that would qualify for equalization payments by 2010 -- and perhaps even as early as next year.

That dire prediction came on the same day the Newfoundland budget forecast a $544-million surplus. The province is poised to get off equalization next year for the first time since joining Confederation. The boon comes largely through record oil prices.

It's no coincidence that Ontario's recent slippage in terms of a relative standard of living "occurred in lockstep'' with the high dollar, soaring energy rates, and high commodity prices, the TD report said. The fall, so far, is more a story of booming economic strength in the energy-rich western provinces than it is about a poor performance in Ontario, said TD chief economist Don Drummond.

"That was a fairly minor factor, in fact, when you go through the calculations,'' Drummond said. "It was basically the western provinces, in particular Alberta, have been earning so much resource royalties, and that interacted with the change in the formula that was made last year.''

Falling to have-not status is an important psychological barrier for Canada's largest province, Drummond added.

"It gives the signal that Ontario is not the mighty king of the economy anymore,'' he said. "It's one of the weaker partners, but again it's not so much Ontario's being weak as the other provinces are really roaring along.''

The equalization formula, which aims to smooth out regional disparities, sees provinces deemed to have a less-than-average ability to generate tax revenue get cash transfers from the federal government. Ottawa has a constitutional responsibility to help provinces deliver similar social services at comparable tax rates.

The formula was changed recently from a five-province standard to a 10-province standard, which brought oil-rich Alberta into the calculations and automatically raised the economic performance bar for all provincial economies, Drummond said.

"High oil prices, of course, hurt Ontario because it's an oil importer, and the high oil prices have pulled up the Canadian dollar, which has been the weakness for Ontario manufacturers,'' he said.

"If we look for a common culprit, certainly the oil prices stand out.''

Federal Finance Minister Jim Flaherty raised the ire of many provincial politicians when he said recently that Ontario was on its way to have-not status. Yesterday, he rejected Ontario's claims that it's the equalization funding formula that's flawed and not the province's corporate tax policies. "What we have to do as governments is to stop blaming, you know, people that do economic calculations and instead say what can we do as a government to encourage economic growth in our jurisdiction,'' Flaherty said in Ottawa.

"I've been urging Premier McGuinty and his government to reduce the tax burden on businesses in Ontario because they're shouldering the heaviest tax burden in Canada.''

Liberal critics said yesterday that Flaherty was turning into "an economic hazard'' for Canadian workers with his repeated attacks on the Ontario government.

Ontario's Progressive Conservatives blamed the Liberal government's high corporate taxes for driving the province towards have-not status.

"Premier, you've taken Ontario from a province that gives a hand up to one that will soon be taking handouts from the rest of Canada,'' said acting Opposition Leader Bob Runciman.

But Premier Dalton McGuinty wasn't prepared to accept blame for Ontario's woes, telling the legislature the TD report also noted the province sends $20 billion more to the federal government every year than it receives in transfers and services.

"How is it that we can be a have-not province if we're sending $20 billion annually to the rest of the country?'' McGuinty asked the legislature. "I think that tells us something about the (equalization) formula.''

The TD report said Ontario's gross domestic product per capita fell steadily for five years, from seven per cent above the national average in 2002 to two per cent below the average in 2007, and warned the situation isn't expected to improve in the short term.

Nagging credit woes trigger Bank of Canada moves Louise Egan, Reuters Published: Tuesday, April 29, 2008 OTTAWA -- The Bank of Canada has injected $5.5 billion in overnight money markets in four days and renewed a term liquidity agreement in a sign the market doesn't believe the credit crunch is waning. "They're injecting liquidity into a market that is not convinced that the credit crisis is fully over with," said Derek Holt, vice-president of economics at Scotia Capital.

The central bank bought $1.71-billion worth of securities in the market on Tuesday for resale on Wednesday, its fourth straight intervention to nudge the overnight interest rate closer to its target of 3%. The market rate is slightly higher at about 3.09%. The volume of the so-called SPRA transaction was bigger than any done at the height of the global credit squeeze last August and the biggest since Oct. 31, 2006, according to data on the central bank's Web site.

U.S. foreclosures jump 112%, with no end in sight Lynn Adler, Reuters Published: Tuesday, April 29, 2008 Financial Post

BloombergOne in every 54 Nevada households got a foreclosure filing in the first quarter, while California had the second-highest rate of filings among states with one in every 78 households.

NEW YORK -- Home foreclosure filings in the United States jumped 23% in the first quarter from the prior quarter, and more than doubled from a year earlier, as more overextended borrowers failed to make timely payments, real estate data firm RealtyTrac said on Tuesday.

One of every 194 households received a notice of default, auction sale or bank repossession between January and March, for the seventh straight quarter of rising foreclosure activity, RealtyTrac said.

Foreclosure filings were far-reaching, rising on an annual basis in 46 states and in 90 of the 100 largest metropolitan areas, to a total of 649,917 properties. The first quarter filings surged 112% from the same period last year.

"In most of the states with the highest levels of foreclosure activity, we're still seeing the fallout from overheated home prices and people overextending themselves with risky loans to try to buy those properties," Rick Sharga, vice president of marketing at RealtyTrac, in Irvine, California, said in an interview.

"I'm more convinced that we haven't seen the peak of foreclosure activity yet, and the wave probably won't crest until late third or fourth quarter of 2008," he added.

Nevada, California, Arizona and Florida had the highest foreclosure rates among states during the quarter.

A buying frenzy by speculative investors had sharply inflated home prices in all of those states before a slide into one of the worst housing markets in a century began in 2006.

These states are now inundated with unsold homes, many valued less than the size of the mortgage. The oversupply is pressing prices down, forcing some owners to walk away and escalating pressure to foreclose.

Many homeowners, particularly those with adjustable-rate subprime mortgages, are struggling to make payments that have skyrocketed when the loans reset.

One in every 54 Nevada households got a foreclosure filing in the first quarter, up 137% from a year earlier.

California had the second-highest rate of filings among states with one in every 78 households, soaring by nearly 213% above the same period last year.

"The really insidious part is that, particularly if you're in a market with a glut of inventory, as more properties go through foreclosure ... they add properties on the market that are effectively going to be coming in with distress pricing, which makes it even worse," Sharga said.

Georgia, Michigan, Ohio, Massachusetts and Connecticut were the other states with the top 10 foreclosure filings.

Poor underlying economic conditions drove foreclosure filings higher in Michigan and Ohio, according to RealtyTrac.

The share of vacant U.S. homes grew to a record high in the first quarter, the government reported on Monday, as homeowners struggled to find buyers and foreclosures escalated.

The percentage of owner-occupied homes sitting empty rose to 2.9%, the third straight monthly rise, for a total of 18.6 million vacancies, U.S. Census Bureau data showed.

With prices seen falling further at a time when there is an overabundant supply, some government mortgage relief programs may not preclude foreclosures from mounting.

Philadelphia, Pennsylvania, for example, has adopted a program that delays foreclosure proceedings on owner-occupied properties until owners have met directly with lenders to attempt a loan workout plan, James J. Saccacio, chief executive officer of RealtyTrac, said in a press release.

"While we're hopeful that programs like those in Philadelphia will have a positive long-term impact, they could be simply deferring another flood of foreclosures," extending the time it takes for housing to recover, he said.

Metro areas in California and Florida had 13 of the 20 cities with the highest foreclosure filing rates. Stockton and Riverside-San Bernardino in California had the top two spots.

One in every 30 households in Stockton got a foreclosure filing during the quarter, 6.6 times the national average.

Las Vegas had the third-highest foreclosure filing rate among metro areas, at one in every 44 households. The rate was up 1% in the quarter, and 134% from the first quarter of last year.

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