Financial Update

· TSX +1.99pts (Reuters). After 2 days of big rises, the TSX's main index eked out more tiny gain as firmness in financial shares, due in part to a U.S. Federal Reserve plan to aid consumer lending, offset weakness in technology and materials issues
· DOW +36.08pts Investors reacted to an announcement that the Federal Reserve will purchase up to $100 billion in direct mortgage obligations and another $500 billion in mortgage-backed securities. The Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans. Investors got some more good news about U.S. consumers. The Conference Board said its Consumer Confidence Index unexpectedly rose to 44.9 in November, up from a revised 38.8 in the previous month
· Dollar +.63c to $81.63US. rises to its highest level in a week as prices for oil, a key Canadian export, rose while a more optimistic tone in the market took the shine off the U.S. dollar's safe-haven status.
· Oil -$3.73 to $50.77US per barrel. falling near 7% as consumers and businesses have pulled back on energy spending, with massive layoffs and cost-cutting across almost every sector. That means less money will go toward powering everything from industrial plants to automobiles
· Gold -$1.00 to $818.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Optimists still rule on real estate Canwest News Service Published: Saturday, November 22, 2008

Canadians are still in a mood to mortgage. Nearly 4 in 10 Canadians still think that now is a good time to buy a house, even though the proportion who expect home prices to fall further has soared, according to a recent survey by the Canadian Association of Accredited Mortgage Professionals. Attitudes toward local conditions in the mid-October survey have shifted only slightly, with 38% of Canadians believing now is a good time to purchase a house -- still outweighing the 32% who believe it is a bad time. Meanwhile, only 0.28% of mortgages are in arrears, a proportion that is not only low but also steady, the organization said. Still, the proportion expecting home prices to fall has more than doubled from last fall to 35%. That's especially the case in British Columbia, where 48% expect prices to fall. Jim Murphy, association president, notes that anticipated mortgage credit growth would slow, but remain relatively strong.Close

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OECD warns of worst recession since early 1980s; Canada will be drawn in Julian Beltrame, The Canadian Press

OTTAWA - The Organization for Economic Co-operation and Development says Canada will not be immune from the current global malaise and will see its economy shrink by an average 0.5 per cent next year.

The group says almost all the 30 developed countries that make up the OECD have already entered the recession.

It estimates the OECD countries will have an average 1.4 per cent contraction in the fourth quarter of this year, the October-December period.

The OECD report is unwelcome news to the government as it prepares for Thursday's economic update and upcoming federal budget.

"No one in the world was predicting the kind of economic downturn and the severity and depth of the economic downturn that we've experienced in the last 12 weeks," Finance Minister Jim Flaherty said in the answering questions on the report in the House of Commons.

But Flaherty took comfort in the fact the OECD projecting that Canada would lead the recovery among G7 nations in 2010.

The think-tank says Canada's economy will advance by 2.1 per cent in 2010, a tepid rebound, given that it is coming off a down year.

Although the OECD praises Canada's relative strengths, including government fiscal positions, and relatively sound banking and housing sectors, the group says as an exporting nation, it cannot avoid being sideswiped by the global financial crisis and economic slowdown.

"Sharply deteriorating conditions in global financial markets, generalized softness in the U.S. economy and receding commodity prices are amplifying export weakness and dragging down domestic spending," the think-tank says.

It predicts unemployment will rise to 7%next year and 7.5 %in 2010, from the current 6.2 %.
Federal and provincial governments will record an accumulated deficit of 1.3 per cent of GDP next year, about $21.6 billion, and 1.7 per cent, or $28.2 billion, the following year.

But given that Canadian governments have been in surplus positions for most of the past decade, the upcoming deficits should not cause alarm, the group said.

"The general government is expected to move into deficit in 2009 and 2010, a largely cyclical outcome that is not alarming and leaves room to absorb eventualities but underlines the need to keep a lid on discretionary expenditure increases," it wrote in its report.

The report forecasts private consumption will fall 0.6 per cent next year.

Flaherty said Monday he expects to introduce a significant stimulus package comprising largely of construction projects to rebuild Canada's infrastructure in the next budget.

He also suggested he will move forward the timing of the budget to early next year to ensure the economic stimulus occurs as quickly as possible.

The OECD said the Bank of Canada should also act by reducing interest rates, something economists predict will occur at the next scheduled action date, Dec. 9.

In a separate report Tuesday, Statistics Canada said retail sales beat market expectations and rose 1.1 per cent in September from the previous month. It was the strongest increase in eight months, but was mostly discounted by economists because it came before the major stock market collapse.

As a gauge of how economic expectations have flipped in the past month or so, the OECD had been projecting positive growth for most of the developed countries as recently as September. But all that has changed in barely over a month.

The United States, it says, will be among the hardest hit next year with a gross domestic product contraction of 0.9 per cent next year, while the 15-member euro zone will shrink by an average 0.6 per cent.

Among the OECD countries, the group estimates eight million workers will lose their jobs over the next two years and that there is a risk, "albeit small," that some countries will experience deflation - falling prices.

The figures indicate that the developed world has now entered a slump estimated to last at least four quarters; two consecutive quarters is a common definition of recession.

"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s," said Klaus Schmidt-Hebbel, the OECD's chief economist.

The OECD said the U.S. economy would contract by a massive 2.8 per cent in the last quarter this year, with a mild recovery anticipated in the third quarter of 2009.

In the euro zone, output is seen to have fallen by 0.9 per cent in the third quarter, followed by a 1.0 per cent decline in the fourth.

In Japan, the recession, which started in the second quarter of 2008, is only expected to last through to the first quarter of 2009, when output is expected to rebound by an annual rate of 0.8 per cent.

Because of the anticipated bounce-back in growth by the second half of next year, the OECD projected that economic output across its membership will rise in 2010 by 1.5 per cent.

The uncertainties around the projections are "exceptionally large", mainly on the downside and mostly relate to the assumption regarding the speed at which the financial market crisis is overcome, said the OECD's Schmidt-Hebbel.

He added that "prompt and massive" policy action to restore confidence and provide liquidity in the banking sector appears to have "successfully limited the period of panic" but that financial institutions still need to repair their balance sheets.

The OECD added that there was a justification for governments around the world to cut taxes or raise spending to ameliorate the effects of the recession. "It is vital that any discretionary action by timely and temporary," he said.