TSX-143.74 as the surging bond yields fueled concerns that consumers and businesses could face higher charges for mortgages and other loans.
DOW -173.47
Dollar -.13c to 89.33USD
Oil +$1.00 to $63.45US per barrel
Gold $.10 to $953.20USD per ounce
Canadian 5 yr bond yields +.21bps to 2.58- Four weeks ago it was 2.01 (that’s up .57). The spread, based on 5 yr rate of 3.89%, so is lower again at 1.31%.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Historically spreads have been 2.25%. With today’s spread of 1.31%, rate increases are imminent. Plus, this happened on a day when the TSX dropped (usually when the stock market goes down, bonds yields go down too). We expect other lenders will be increasing rates over 4% as early as today - Xceed and Laurentian have already moved up
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Thursday, May 28, 2009
Financial Update May 27, 2009
U.S. confidence data drives sharp loonie rally -TSX rallies as BMO tops estimates-Oil hits six-month high on consumer confidence
TSX+216.40 to 10,285.90 climbed to their highest closing level since October on a big jump in U.S. consumer confidence this month and a favourable start to second quarter bank earnings releases.
DOW +196.17 U.S. data showed that consumer confidence rose in May to its highest level in eight months.
Dollar +.45c to 89.46USD touched its loftiest level in more than 7 months, spurred by a rise in oil prices and by upbeat U.S. economic data that whetted investor appetite for risk.
Oil +$.78 to $62.45US per barrel hit a fresh 6-month high, bolstered by U.S. consumer confidence data and comments from OPEC kingpin Saudi Arabia that prices may continue to rise.
Gold -$5.60 to $953.30USD per ounce
Canadian 5 yr bond yields +.09bps to 2.37- Four weeks ago it was 1.93. The spread, based on 5 yr rate of 3.89%, so is now lower again at 1.52%.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Historically spreads have been closer to 2% or 2.25%. In January the spread was 3.30, however cost of funds had risen drastically with the “credit crunch” With today’s spread of 1.52%, half of January’s, rates are artificially low. Watch for fixed rate increases-two lenders increased yesterday already.
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Transmitted by CNW Group on : May 26, 2009 06:00
Affordability and job security most important factors for first-time homebuyers
New government incentives help but market fundamentals more important,Canadians say
TORONTO, May 26 /CNW/ - Canadians who are considering purchasing their
first home are primarily motivated by lower home prices and very low interest
rates, but some require confidence in the economy and their employment
prospects before they will enter the market, according to a report released
today by Royal LePage Real Estate Services. Eighty-six per cent of potential
first-time buyers say low interest rates make them more likely to purchase a
home; 81 per cent cite lower housing prices as a motivating factor; while 76
per cent cite job security and 64 per cent say a stable economy is an
important factor in their decision to buy.
Potential buyers were asked to rank their top incentives for purchasing a
first property. While home prices and interest rates took the number one and
two rankings, respectively, the third most popular incentive was the
First-Time Home Buyers' Tax Credit. The recently introduced Home Renovation
Tax Credit for 2009 was cited by 42 per cent of potential first-time buyers as
either 'very likely' or 'somewhat likely' to impact their purchasing decision.
"When first time buyers stepped out of the market in the fourth quarter
of 2008, at the height of the global recession, their absence was profoundly
felt. Without significant volumes of entry-level homes trading hands, the
entire market limped through the winter months. First time buyers are back in
force this spring, and with them the beginnings of a market recovery. While
these consumers appreciate government incentives such as tax credits, greater
RSP deduction limits and rebates on home renovations, it is markedly improved
affordability that is proving to be the powerful drawing card," said Phil
Soper, president and chief executive of Royal LePage Real Estate Services.
"Our survey demonstrates how important affordability factors such as interest
rates and house prices are in stimulating demand."
Across the country, potential first-time homebuyers agreed that
affordability was their top consideration, however the survey also revealed
differences amongst buyers in various regions of Canada. In provinces such as
British Columbia where high housing prices have kept some buyers out of the
market in recent years, 92 per cent of potential first-time buyers are now
motivated by low interest rates and 96 per cent say lower home prices are
likely to prompt them to buy.
In Atlantic Canada, where local economies have been resilient in the face
of a worldwide recession and housing markets remain stable, 43 per cent of
first-time buyers say they that job security is a factor in their decision to
buy, while 84 per cent of buyers in British Columbia and Alberta said job
security will influence them.
Atlantic Canadians were less motivated than other Canadians by declining
interest rates, with only 72 per cent saying it will likely prompt a buying
decision, compared to 86 per cent of Canadians overall. Buyers in Ontario and
Quebec rated the Home Renovation Tax Credit as a bigger factor in their buying
decision, compared to the Canadian average.
Mr Soper continued, "The significant response differences from region to
region show how closely the residential real estate market is tied to broader
economic trends and consumer confidence. Buying your first home is a major
life decision, and people are more likely to purchase a home if they feel
comfortable about the state of the economy and confident that they will have a
job to support their new mortgage obligation."
Top Incentives for First-Time Buyers Across Canada
Potential first-time buyers were asked to choose their number one
incentive for purchasing a first property. The table shows the percentage
of respondents who selected each factor as their top incentive.
-------------------------------------------------------------------------
BC &
Overall Territories Alberta Prairies Ontario Quebec Atlantic
-------------------------------------------------------------------------
Lower Housing
Prices 33% 49% 48% 55% 32% 13% 26%
-------------------------------------------------------------------------
Low Interest
Rates 27% 32% 29% 4% 23% 41% 17%
-------------------------------------------------------------------------
First-Time Home
Buyers' Tax
Credit 12% 3% 10% 22% 15% 11% 10%
-------------------------------------------------------------------------
Job Security 10% 6% 5% 2% 10% 16% 15%
-------------------------------------------------------------------------
Additional
Government
Actions to
Stabilize
Housing less less
Markets 3% 3% than 1% 10% 3% 4% than 1%
-------------------------------------------------------------------------
Home Renovation less
Tax Credit 2% 1% than 1% 1% 1% 3% 11%
-------------------------------------------------------------------------
Stable less less less
Economy 2% 2% than 1% than 1% 3% 2% than 1%
-------------------------------------------------------------------------
Greater RSP
Deduction less less less
Limits 1% than 1% 1% than 1% 1% 1% than 1%
-------------------------------------------------------------------------
Stable
Financial less less less less less less
Markets than 1% than 1% than 1% than 1% 1% than 1% than 1%
-------------------------------------------------------------------------
REGIONAL SUMMARIES
Atlantic
Overall activity in the housing market has remained steady in the
Atlantic region with first-time homebuyers continuing to enter the market. Low
interest rates and recent government incentives, such as the Home Renovation
Tax Credit, greater RSP deduction limits and the First-Time Homebuyer's Tax
Credit speak to affordability. Buyers in this area are entering the market
that would not have a few years ago, due to these influencing factors.
Entry-level buyers in Newfoundland, Prince Edward Island, New Brunswick and
Nova Scotia continue to search for detached bungalows, with the average price
ranging from $157,000 in Charlottetown to $215,667 in Halifax during the first
quarter of 2009.
Quebec
First-time buyers continue to pursue the dream of home ownership in
Montreal, as the number of entrants to the housing market has remained
relatively stable. Low interest rates are contributing to increased market
entry with 41 per cent of first-time buyers suggesting this is the key
incentive driving the purchase of their first property, followed by 13 per
cent who suggest lower housing prices might influence their buying decision.
With 47 per cent of new buyers in Quebec planning to settle in urban areas,
buyers are planning to invest and live in their first home for ten or more
years. Fifty-six per cent of first-time buyers hope to purchase a property in
the $150,000 to $300,000 price range.
Ontario
Encouraged by recent government initiatives, home ownership in Ontario is
becoming a reality for an increasing number of younger purchasers. Across
Ontario, 36 per cent of potential first-time buyers are most likely to
purchase property in an urban setting. Condominiums continue to attract
first-time buyers in the Greater Toronto Area with urban communities at
accessible price points appealing most to market newcomers. In addition to
affordability, location is a leading factor dictating condominium appeal.
Neighbourhoods in Toronto's east and west downtown core are popular with
first-time buyers. In Ottawa, affordability continues to drive activity and
most first-time buyers are opting to purchase in suburban areas where
properties typically cost $50,000 to $75,000 less than in the city centre.
Active first-time buyer markets include Orleans, Barrhaven and Kanata.
Manitoba & Saskatchewan
Thirty per cent of Prairie buyers planning on purchasing their first home
in the next three years will choose a detached bungalow. The second-most
popular choice for first-time buyers is condominiums at 21 per cent, followed
by detached two-story homes at 15 per cent. In Winnipeg, up-and-coming
neighbourhoods for first-time buyers include River Heights - which has
traditionally been attractive for people entering the market - Fraser's Grove
and East / North Caldonin. With a good selection of older bungalows and two
story homes, Broders Annex is the hottest neighbourhood for first-time buyers
in Regina.
Alberta
Alberta's urban centres continue to be popular with first-time buyers,
who make up nearly a third of home sales in both Calgary and Edmonton.
Condominiums and detached bungalows are the most popular choices for
first-time buyers in Edmonton, where lower housing prices and low interest
rates are the biggest incentives for buyers entering the market for the first
time. Popular areas for new buyers include the suburbs, where a new
condominium may be within budget, the university area, where many parents are
buying for their kids, Allendale and McKernan. In Calgary, new buyers are most
interested in inner city condominiums and detached houses in the suburbs, with
many seeking new or renovated homes.
British Columbia
With home prices either flat or declining in many communities in British
Columbia and with interest rates at record lows, first-time buyers are taking
advantage of greater affordability, with female buyers leading the trend.
Sixty per cent of the buyers getting into BC's housing market for the first
time are women. In British Columbia, 40 per cent of prospective first-time
buyers intend to purchase a 'fixer-upper' while 80 per cent would take
advantage of the Federal Government's Home Renovation Tax Credit in making
upgrades to a home. First-time buyers in Vancouver are favouring condominiums
and townhomes, however an increasing number of entry-level buyers are finding
affordable detached homes outside the city in the Fraser Valley suburbs.
TSX+216.40 to 10,285.90 climbed to their highest closing level since October on a big jump in U.S. consumer confidence this month and a favourable start to second quarter bank earnings releases.
DOW +196.17 U.S. data showed that consumer confidence rose in May to its highest level in eight months.
Dollar +.45c to 89.46USD touched its loftiest level in more than 7 months, spurred by a rise in oil prices and by upbeat U.S. economic data that whetted investor appetite for risk.
Oil +$.78 to $62.45US per barrel hit a fresh 6-month high, bolstered by U.S. consumer confidence data and comments from OPEC kingpin Saudi Arabia that prices may continue to rise.
Gold -$5.60 to $953.30USD per ounce
Canadian 5 yr bond yields +.09bps to 2.37- Four weeks ago it was 1.93. The spread, based on 5 yr rate of 3.89%, so is now lower again at 1.52%.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Historically spreads have been closer to 2% or 2.25%. In January the spread was 3.30, however cost of funds had risen drastically with the “credit crunch” With today’s spread of 1.52%, half of January’s, rates are artificially low. Watch for fixed rate increases-two lenders increased yesterday already.
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Transmitted by CNW Group on : May 26, 2009 06:00
Affordability and job security most important factors for first-time homebuyers
New government incentives help but market fundamentals more important,Canadians say
TORONTO, May 26 /CNW/ - Canadians who are considering purchasing their
first home are primarily motivated by lower home prices and very low interest
rates, but some require confidence in the economy and their employment
prospects before they will enter the market, according to a report released
today by Royal LePage Real Estate Services. Eighty-six per cent of potential
first-time buyers say low interest rates make them more likely to purchase a
home; 81 per cent cite lower housing prices as a motivating factor; while 76
per cent cite job security and 64 per cent say a stable economy is an
important factor in their decision to buy.
Potential buyers were asked to rank their top incentives for purchasing a
first property. While home prices and interest rates took the number one and
two rankings, respectively, the third most popular incentive was the
First-Time Home Buyers' Tax Credit. The recently introduced Home Renovation
Tax Credit for 2009 was cited by 42 per cent of potential first-time buyers as
either 'very likely' or 'somewhat likely' to impact their purchasing decision.
"When first time buyers stepped out of the market in the fourth quarter
of 2008, at the height of the global recession, their absence was profoundly
felt. Without significant volumes of entry-level homes trading hands, the
entire market limped through the winter months. First time buyers are back in
force this spring, and with them the beginnings of a market recovery. While
these consumers appreciate government incentives such as tax credits, greater
RSP deduction limits and rebates on home renovations, it is markedly improved
affordability that is proving to be the powerful drawing card," said Phil
Soper, president and chief executive of Royal LePage Real Estate Services.
"Our survey demonstrates how important affordability factors such as interest
rates and house prices are in stimulating demand."
Across the country, potential first-time homebuyers agreed that
affordability was their top consideration, however the survey also revealed
differences amongst buyers in various regions of Canada. In provinces such as
British Columbia where high housing prices have kept some buyers out of the
market in recent years, 92 per cent of potential first-time buyers are now
motivated by low interest rates and 96 per cent say lower home prices are
likely to prompt them to buy.
In Atlantic Canada, where local economies have been resilient in the face
of a worldwide recession and housing markets remain stable, 43 per cent of
first-time buyers say they that job security is a factor in their decision to
buy, while 84 per cent of buyers in British Columbia and Alberta said job
security will influence them.
Atlantic Canadians were less motivated than other Canadians by declining
interest rates, with only 72 per cent saying it will likely prompt a buying
decision, compared to 86 per cent of Canadians overall. Buyers in Ontario and
Quebec rated the Home Renovation Tax Credit as a bigger factor in their buying
decision, compared to the Canadian average.
Mr Soper continued, "The significant response differences from region to
region show how closely the residential real estate market is tied to broader
economic trends and consumer confidence. Buying your first home is a major
life decision, and people are more likely to purchase a home if they feel
comfortable about the state of the economy and confident that they will have a
job to support their new mortgage obligation."
Top Incentives for First-Time Buyers Across Canada
Potential first-time buyers were asked to choose their number one
incentive for purchasing a first property. The table shows the percentage
of respondents who selected each factor as their top incentive.
-------------------------------------------------------------------------
BC &
Overall Territories Alberta Prairies Ontario Quebec Atlantic
-------------------------------------------------------------------------
Lower Housing
Prices 33% 49% 48% 55% 32% 13% 26%
-------------------------------------------------------------------------
Low Interest
Rates 27% 32% 29% 4% 23% 41% 17%
-------------------------------------------------------------------------
First-Time Home
Buyers' Tax
Credit 12% 3% 10% 22% 15% 11% 10%
-------------------------------------------------------------------------
Job Security 10% 6% 5% 2% 10% 16% 15%
-------------------------------------------------------------------------
Additional
Government
Actions to
Stabilize
Housing less less
Markets 3% 3% than 1% 10% 3% 4% than 1%
-------------------------------------------------------------------------
Home Renovation less
Tax Credit 2% 1% than 1% 1% 1% 3% 11%
-------------------------------------------------------------------------
Stable less less less
Economy 2% 2% than 1% than 1% 3% 2% than 1%
-------------------------------------------------------------------------
Greater RSP
Deduction less less less
Limits 1% than 1% 1% than 1% 1% 1% than 1%
-------------------------------------------------------------------------
Stable
Financial less less less less less less
Markets than 1% than 1% than 1% than 1% 1% than 1% than 1%
-------------------------------------------------------------------------
REGIONAL SUMMARIES
Atlantic
Overall activity in the housing market has remained steady in the
Atlantic region with first-time homebuyers continuing to enter the market. Low
interest rates and recent government incentives, such as the Home Renovation
Tax Credit, greater RSP deduction limits and the First-Time Homebuyer's Tax
Credit speak to affordability. Buyers in this area are entering the market
that would not have a few years ago, due to these influencing factors.
Entry-level buyers in Newfoundland, Prince Edward Island, New Brunswick and
Nova Scotia continue to search for detached bungalows, with the average price
ranging from $157,000 in Charlottetown to $215,667 in Halifax during the first
quarter of 2009.
Quebec
First-time buyers continue to pursue the dream of home ownership in
Montreal, as the number of entrants to the housing market has remained
relatively stable. Low interest rates are contributing to increased market
entry with 41 per cent of first-time buyers suggesting this is the key
incentive driving the purchase of their first property, followed by 13 per
cent who suggest lower housing prices might influence their buying decision.
With 47 per cent of new buyers in Quebec planning to settle in urban areas,
buyers are planning to invest and live in their first home for ten or more
years. Fifty-six per cent of first-time buyers hope to purchase a property in
the $150,000 to $300,000 price range.
Ontario
Encouraged by recent government initiatives, home ownership in Ontario is
becoming a reality for an increasing number of younger purchasers. Across
Ontario, 36 per cent of potential first-time buyers are most likely to
purchase property in an urban setting. Condominiums continue to attract
first-time buyers in the Greater Toronto Area with urban communities at
accessible price points appealing most to market newcomers. In addition to
affordability, location is a leading factor dictating condominium appeal.
Neighbourhoods in Toronto's east and west downtown core are popular with
first-time buyers. In Ottawa, affordability continues to drive activity and
most first-time buyers are opting to purchase in suburban areas where
properties typically cost $50,000 to $75,000 less than in the city centre.
Active first-time buyer markets include Orleans, Barrhaven and Kanata.
Manitoba & Saskatchewan
Thirty per cent of Prairie buyers planning on purchasing their first home
in the next three years will choose a detached bungalow. The second-most
popular choice for first-time buyers is condominiums at 21 per cent, followed
by detached two-story homes at 15 per cent. In Winnipeg, up-and-coming
neighbourhoods for first-time buyers include River Heights - which has
traditionally been attractive for people entering the market - Fraser's Grove
and East / North Caldonin. With a good selection of older bungalows and two
story homes, Broders Annex is the hottest neighbourhood for first-time buyers
in Regina.
Alberta
Alberta's urban centres continue to be popular with first-time buyers,
who make up nearly a third of home sales in both Calgary and Edmonton.
Condominiums and detached bungalows are the most popular choices for
first-time buyers in Edmonton, where lower housing prices and low interest
rates are the biggest incentives for buyers entering the market for the first
time. Popular areas for new buyers include the suburbs, where a new
condominium may be within budget, the university area, where many parents are
buying for their kids, Allendale and McKernan. In Calgary, new buyers are most
interested in inner city condominiums and detached houses in the suburbs, with
many seeking new or renovated homes.
British Columbia
With home prices either flat or declining in many communities in British
Columbia and with interest rates at record lows, first-time buyers are taking
advantage of greater affordability, with female buyers leading the trend.
Sixty per cent of the buyers getting into BC's housing market for the first
time are women. In British Columbia, 40 per cent of prospective first-time
buyers intend to purchase a 'fixer-upper' while 80 per cent would take
advantage of the Federal Government's Home Renovation Tax Credit in making
upgrades to a home. First-time buyers in Vancouver are favouring condominiums
and townhomes, however an increasing number of entry-level buyers are finding
affordable detached homes outside the city in the Fraser Valley suburbs.
Tuesday, May 26, 2009
Financial Update May 26, 2009
Financials send TSX higher amid investor optimism over bank earnings
TSX+76.08
DOW -14.81(unchanged with Memorial Day holiday)
Dollar -.25c to 89.01USD
Oil -$.46 to $61.21US per barrel
Gold +$7.70 to $958.50USD per ounce (unchanged)
Canadian 5 yr bond yields +.01bps to 2.28
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Where will the breaking point be for banks to trade competition for profitability? Rates are artificially low with these spreads. Watch for rate increases
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
The next decade: Return to growth, high loonie and western economic power
Julian Beltrame, The Canadian Press OTTAWA - Canadians can look forward to a sustained period of strong growth in the next decade, but one that will be different from the rise that came a cropper in the last, says a new report.
Canadian Imperial Bank of Commerce (TSX: CM.TO) economists say the next decade will bring major fundamental changes to the world economy, and a bit of deja vu for Canada, with the return of Western power, a high-flying loonie and surging stock values.
The major change is that Canada's economy will be less dependent on consumers or the United States, says the report written by economists Avery Shenfeld and Benjamin Tal.
Overall, it's a rosy picture of a decade that begins slowly next year but picks up steam based on global growth and surging consumer demand in newly-rich emerging economies like China and India, as well oil-rich countries from the OPEC nations and Russia.
"I am optimistic, particularly relative to those who say the global economy is in such a deep hole that even when we look over the medium turn we are going to be paying for it," said Shenfeld, the bank's chief economist.
"This is making the point that just because the last decade's growth included a lot of excessive leverage that came to ruin, it doesn't mean we are doomed for a slow decade of global growth ahead."
Excessive leveraging, or irrational consumer spending on borrowed money, will result in a sea-change in attitudes in the U.S., but also Canada and many other industrialized nations. But emerging economies, with their newfound wealth, will likely more than take up the slack.
Canada's economy will get a boost from exports, particularly commodities, whose prices will get back some of their lustre as demand in emerging markets grows.
"We're not going to break our ties to the US economy," said Shenfeld, "but what we sell to the world will be much more driven by demand coming from East Asia and even (the raw materials) we sell to the U.S., the price will be more determined by East Asia."
The diminished importance of the U.S. will impact the currency, the report states, forecasting a 20 per cent tumble during the decade. In part, the devaluation will be based on high inflation caused by the Federal Reserve's current quantitative easing policies that are massively increasing the supply of dollars.
That, in turn, will push the loonie above the U.S. dollar again, damaging central Canada's manufacturing sector and forestry exports, but boosting the West's resource sector.
Rising resource prices will re-ignite capital-intensive development of the oilsands, natural gas projects and metal mines, the report states.
"It'll be a bit of a return to some of the boon days we saw a couple of years ago," Shenfeld said.
One sector that won't bounce back as strongly is housing. The report sees housing starts averaging a tame 170,000 in the next decade, after being above 200,000 for most of the current decade.
TSX+76.08
DOW -14.81(unchanged with Memorial Day holiday)
Dollar -.25c to 89.01USD
Oil -$.46 to $61.21US per barrel
Gold +$7.70 to $958.50USD per ounce (unchanged)
Canadian 5 yr bond yields +.01bps to 2.28
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
Where will the breaking point be for banks to trade competition for profitability? Rates are artificially low with these spreads. Watch for rate increases
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
The next decade: Return to growth, high loonie and western economic power
Julian Beltrame, The Canadian Press OTTAWA - Canadians can look forward to a sustained period of strong growth in the next decade, but one that will be different from the rise that came a cropper in the last, says a new report.
Canadian Imperial Bank of Commerce (TSX: CM.TO) economists say the next decade will bring major fundamental changes to the world economy, and a bit of deja vu for Canada, with the return of Western power, a high-flying loonie and surging stock values.
The major change is that Canada's economy will be less dependent on consumers or the United States, says the report written by economists Avery Shenfeld and Benjamin Tal.
Overall, it's a rosy picture of a decade that begins slowly next year but picks up steam based on global growth and surging consumer demand in newly-rich emerging economies like China and India, as well oil-rich countries from the OPEC nations and Russia.
"I am optimistic, particularly relative to those who say the global economy is in such a deep hole that even when we look over the medium turn we are going to be paying for it," said Shenfeld, the bank's chief economist.
"This is making the point that just because the last decade's growth included a lot of excessive leverage that came to ruin, it doesn't mean we are doomed for a slow decade of global growth ahead."
Excessive leveraging, or irrational consumer spending on borrowed money, will result in a sea-change in attitudes in the U.S., but also Canada and many other industrialized nations. But emerging economies, with their newfound wealth, will likely more than take up the slack.
Canada's economy will get a boost from exports, particularly commodities, whose prices will get back some of their lustre as demand in emerging markets grows.
"We're not going to break our ties to the US economy," said Shenfeld, "but what we sell to the world will be much more driven by demand coming from East Asia and even (the raw materials) we sell to the U.S., the price will be more determined by East Asia."
The diminished importance of the U.S. will impact the currency, the report states, forecasting a 20 per cent tumble during the decade. In part, the devaluation will be based on high inflation caused by the Federal Reserve's current quantitative easing policies that are massively increasing the supply of dollars.
That, in turn, will push the loonie above the U.S. dollar again, damaging central Canada's manufacturing sector and forestry exports, but boosting the West's resource sector.
Rising resource prices will re-ignite capital-intensive development of the oilsands, natural gas projects and metal mines, the report states.
"It'll be a bit of a return to some of the boon days we saw a couple of years ago," Shenfeld said.
One sector that won't bounce back as strongly is housing. The report sees housing starts averaging a tame 170,000 in the next decade, after being above 200,000 for most of the current decade.
Monday, May 25, 2009
Financial Update May 25, 2009
TSX+43.83
DOW -14.81
Dollar +1.39c to 89.26USD
Oil +$.62 to $61.67US per barrel
Gold +$7.70 to $958.50USD per ounce
Canadian 5 yr bond yields +.01bps to 2.27
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Bear Market
A market in which stock prices are falling. The rule of thumb seems to be at least 20%. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually accompanies a bear market.
Bull Market
A market in which stock prices are rising for a length of time. Prices need not rise continuously. There can be days, weeks and even months in which prices fall. What matters is the long-term trend. When it comes to people, bullish describes one who is optimistic
Interesting article below on credit and interest rate costs
Banks walk tightrope while hoping to cushion profit fall
Bulls believe earnings season will signal turning point for industry, but the bears are still urging caution
RITA TRICHUR
BUSINESS REPORTER TORONTO STAR
Swollen loan losses, soaring writedowns and slumping profits – it's enough to make even seasoned bank shareholders run for cover.
But with Canadian bank stocks on a rebound since March, wary investors are wondering whether it would be wise to hang on for the long-term or head for the exits while the getting is still good. Analysts appear divided on the hold `em or fold `em debate, but surmise that next week's round of second-quarter earnings should provide some sense of direction.
Banks, meanwhile, are facing a delicate balancing act for the remainder of fiscal 2009. In order to stay profitable, they have to keep loans flowing, while boosting some rates because the recession is rife with risk. At the same time, they must sop up climbing credit losses and maintain plump capital cushions – all without jeopardizing the sanctity of their dividends.
While acknowledging that the economic outlook remains murky, bank bulls argue this earnings season marks a turning point for the industry. For the first time in about 18 months, those much-maligned capital markets-related writedowns are not expected to eclipse the earnings parade.
The running tally of those charges hit $20.24 billion for the "Big Six" at the end of January. While more writedowns are anticipated for the February-to-April quarter, some analysts suggest this batch of reports could signal those charges are on the wane. With capital markets on the mend, many are also betting that results from the banks' trading businesses could even surpass expectations.
Another plus, rebounding stock prices have taken the banks' dividend yields out of the danger zone, which has dampened speculation of cuts to those sacred payouts. In fact, Michael Goldberg of Desjardins Securities is actually expecting "minimal dividend growth" for the second half of fiscal '09.
Those in the bear camp, however, are advising investors to be extremely cautious because bank stocks remain fraught with risks. In short, "the economy still sucks," observed John Aiken of Dundee Capital Markets in a research note to clients. He has a majority of "sell" ratings on Canadian banks, most because they are bracing for more bad loans as the economy sheds jobs and consumer bankruptcies soar.
Provisions for credit losses, the money banks set aside to cover bad loans, have been rising in recent quarters. Craig Fehr, an analyst with Edward Jones, predicts credit conditions will worsen for the rest of this year.
"We are seeing some of the pressures that have existed for the last year or so, largely on the capital markets side, are starting to subside. And we're exchanging that a bit for the pressures that are coming from good old-fashioned credit deterioration – higher loan losses," Fehr said in an interview.
"I think that we are going to see pretty substantial year-over-year increases in provisions across the board – for all the banks. We're talking about 50 to 100 per cent increases in provisions year over year."
The key trouble spots are likely defaults in credit-card lending, while commercial mortgages are also expected to show increasing signs of stress. The Canadian Imperial Bank of Commerce administers Canada's largest credit-card portfolio. It began curbing lending during the second half of fiscal 2008 but remains at risk of more losses, Fehr said.
Toronto-Dominion Bank, meanwhile, has large exposures to the hard-hit U.S. commercial real-estate sector and the sputtering Ontario economy, suggesting its "results might disappoint," said André-Philippe Hardy of RBC Capital Markets. His research also proposes that results from the Bank of Nova Scotia could miss expectations because it "is also exposed to rising credit losses in Latin America and the Caribbean."
While all banks are expected to pad their provisions, it appears to be "less of a negative" for Bank of Montreal, while National Bank of Canada is "least exposed to deteriorating credit quality near term" because of its regional concentration in Quebec, Hardy said.
Royal Bank of Canada, meanwhile, is facing its own challenges south of the border. Last month, RBC pre-announced an $850 million (U.S.) goodwill impairment charge for its international banking business. "The impairment charge is the result of the prolonged economic difficulties in the U.S., in particular the deterioration of the U.S. housing market, and the decline in market value of U.S. banks," noted Scotia Capital's Kevin Choquette.
Despite those economic hurdles, some analysts contend the Canadian banks' penchant for being "boring" retail lenders is standing them in good stead for longer-term profit growth.
While the banks' net interest margins – the difference between the money they make on interest and their own interest expenses – are being squeezed because of historically low interest rates, that pressure is expected to ease going forward for a number of reasons.
First, banks have taken action to hike their rates on popular consumer loans such as personal lines of credit and float-rate mortgages. "Banks have repriced some of their mortgages and we believe banks are now charging a premium of about 75 to 100 basis points over prime on a five-year variable mortgage versus a discount of 75 to 100 basis points before the crisis," Hardy said.
Moreover, the banks' key short-term funding costs have fallen in recent months. Medium-term funding is also down from crisis levels, while longer-term funding remains elevated. Banks are also benefiting from a surge of new deposits as their customers hoard cash.
Fehr said those various factors have created a wider spread between short-term and longer-term interest rates, which suggests that banks are poised to reap profits from interest income in the not-too-distant future. That's because banks tend to borrow "cheap" short-term funds to make longer-term loans that feature higher interest rates, he said.
"As we reprice on the long end and keep the short end very cheap, that spread will increase for the banks. And it will actually be a very strong driver of profits for them going forward," Fehr said.
"There's no doubt in my mind that (loan) volumes will slow relative to peak years. The idea here is that the profitability of each loan they make now has the potential to be higher. So, net interest margins, in my mind, will probably increase as we move throughout the year."
Retail sales rise for third-straight month
THE CANADIAN PRESS
OTTAWA–Retail sales increased for the third straight month in March in a further evidence of a stabilizing Canadian economy or at least a slowing of the torrid pace of decline experienced early this year.
And economists say the data, one of the last major pieces of information left that make up the first quarter gross national product reading, suggests the first three months of 2009 might not be as bad as some feared.
"I think we've put to bed the notion that the first quarter hit could be as large as nine or 10 per cent (contraction), which was some of the scare talk earlier in the year," said Derek Holt, vice-president of economics with Scotia Capital.
"Now we're only looking at about 6.5 per cent contraction."
That would still be the biggest quarterly decline in GDP since records began being kept in 1961, beating the 5.9 per cent fall-off in the early 1990s.
The actual retail sales pickup of 0.3 per cent in March, to $33.9 billion, was smaller than some economists had hoped. But it also obscures the better 0.7 per cent increase in the volume of sales.
That suggests Canadian were buying again, but partly because they were taking advantage of bargains, particularly large rebates at car dealerships.
Bank of Montreal economist Douglas Porter said after the sizable decline in retail sales last fall and over the holiday season, the modest bounce-back is at least partly pent-up demand and likely does not signal a major and lasting change of sentiment among consumers.
"It's nice to see three modest gains in the row, but we have to take into context that they took an absolutely massive step backward last year. We're only just beginning to recover," he said.
Statistics Canada noted the three consecutive months of gains in retail sales have not completely offset the sharp declines reported in November and December.
The agency says March's retail sales were 6.3 per cent lower than their peak in September 2008, and the volume of sales were down 2.6 per cent.
The main contributor to the rise was a six per cent volume increase in new vehicles, while the automotive sector as a whole increased by 0.5 per cent.
Holt cautioned that the new figures already show the gain in March auto sales won't be repeated when the April numbers are released next month, as "we already the volume of new vehicle sales was flat in April over March."
As well, higher food prices boosted sales at food-and-beverage stores, which rose 0.9 per cent, their third straight increase.
The largest drop in the four sectors that registered sales declines came at miscellaneous retailers where sales fell 0.7 per cent. The sector includes sporting goods stores and office supply stores.
Sales increased in seven provinces in March, led by a third straight month of rising sales in Quebec, at two per cent, and Ontario, at 0.6.
The largest sales decline in March was a 1.8 per cent drop in Alberta, coming on the heels of a 1.5 per cent decrease in February.
DOW -14.81
Dollar +1.39c to 89.26USD
Oil +$.62 to $61.67US per barrel
Gold +$7.70 to $958.50USD per ounce
Canadian 5 yr bond yields +.01bps to 2.27
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Bear Market
A market in which stock prices are falling. The rule of thumb seems to be at least 20%. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually accompanies a bear market.
Bull Market
A market in which stock prices are rising for a length of time. Prices need not rise continuously. There can be days, weeks and even months in which prices fall. What matters is the long-term trend. When it comes to people, bullish describes one who is optimistic
Interesting article below on credit and interest rate costs
Banks walk tightrope while hoping to cushion profit fall
Bulls believe earnings season will signal turning point for industry, but the bears are still urging caution
RITA TRICHUR
BUSINESS REPORTER TORONTO STAR
Swollen loan losses, soaring writedowns and slumping profits – it's enough to make even seasoned bank shareholders run for cover.
But with Canadian bank stocks on a rebound since March, wary investors are wondering whether it would be wise to hang on for the long-term or head for the exits while the getting is still good. Analysts appear divided on the hold `em or fold `em debate, but surmise that next week's round of second-quarter earnings should provide some sense of direction.
Banks, meanwhile, are facing a delicate balancing act for the remainder of fiscal 2009. In order to stay profitable, they have to keep loans flowing, while boosting some rates because the recession is rife with risk. At the same time, they must sop up climbing credit losses and maintain plump capital cushions – all without jeopardizing the sanctity of their dividends.
While acknowledging that the economic outlook remains murky, bank bulls argue this earnings season marks a turning point for the industry. For the first time in about 18 months, those much-maligned capital markets-related writedowns are not expected to eclipse the earnings parade.
The running tally of those charges hit $20.24 billion for the "Big Six" at the end of January. While more writedowns are anticipated for the February-to-April quarter, some analysts suggest this batch of reports could signal those charges are on the wane. With capital markets on the mend, many are also betting that results from the banks' trading businesses could even surpass expectations.
Another plus, rebounding stock prices have taken the banks' dividend yields out of the danger zone, which has dampened speculation of cuts to those sacred payouts. In fact, Michael Goldberg of Desjardins Securities is actually expecting "minimal dividend growth" for the second half of fiscal '09.
Those in the bear camp, however, are advising investors to be extremely cautious because bank stocks remain fraught with risks. In short, "the economy still sucks," observed John Aiken of Dundee Capital Markets in a research note to clients. He has a majority of "sell" ratings on Canadian banks, most because they are bracing for more bad loans as the economy sheds jobs and consumer bankruptcies soar.
Provisions for credit losses, the money banks set aside to cover bad loans, have been rising in recent quarters. Craig Fehr, an analyst with Edward Jones, predicts credit conditions will worsen for the rest of this year.
"We are seeing some of the pressures that have existed for the last year or so, largely on the capital markets side, are starting to subside. And we're exchanging that a bit for the pressures that are coming from good old-fashioned credit deterioration – higher loan losses," Fehr said in an interview.
"I think that we are going to see pretty substantial year-over-year increases in provisions across the board – for all the banks. We're talking about 50 to 100 per cent increases in provisions year over year."
The key trouble spots are likely defaults in credit-card lending, while commercial mortgages are also expected to show increasing signs of stress. The Canadian Imperial Bank of Commerce administers Canada's largest credit-card portfolio. It began curbing lending during the second half of fiscal 2008 but remains at risk of more losses, Fehr said.
Toronto-Dominion Bank, meanwhile, has large exposures to the hard-hit U.S. commercial real-estate sector and the sputtering Ontario economy, suggesting its "results might disappoint," said André-Philippe Hardy of RBC Capital Markets. His research also proposes that results from the Bank of Nova Scotia could miss expectations because it "is also exposed to rising credit losses in Latin America and the Caribbean."
While all banks are expected to pad their provisions, it appears to be "less of a negative" for Bank of Montreal, while National Bank of Canada is "least exposed to deteriorating credit quality near term" because of its regional concentration in Quebec, Hardy said.
Royal Bank of Canada, meanwhile, is facing its own challenges south of the border. Last month, RBC pre-announced an $850 million (U.S.) goodwill impairment charge for its international banking business. "The impairment charge is the result of the prolonged economic difficulties in the U.S., in particular the deterioration of the U.S. housing market, and the decline in market value of U.S. banks," noted Scotia Capital's Kevin Choquette.
Despite those economic hurdles, some analysts contend the Canadian banks' penchant for being "boring" retail lenders is standing them in good stead for longer-term profit growth.
While the banks' net interest margins – the difference between the money they make on interest and their own interest expenses – are being squeezed because of historically low interest rates, that pressure is expected to ease going forward for a number of reasons.
First, banks have taken action to hike their rates on popular consumer loans such as personal lines of credit and float-rate mortgages. "Banks have repriced some of their mortgages and we believe banks are now charging a premium of about 75 to 100 basis points over prime on a five-year variable mortgage versus a discount of 75 to 100 basis points before the crisis," Hardy said.
Moreover, the banks' key short-term funding costs have fallen in recent months. Medium-term funding is also down from crisis levels, while longer-term funding remains elevated. Banks are also benefiting from a surge of new deposits as their customers hoard cash.
Fehr said those various factors have created a wider spread between short-term and longer-term interest rates, which suggests that banks are poised to reap profits from interest income in the not-too-distant future. That's because banks tend to borrow "cheap" short-term funds to make longer-term loans that feature higher interest rates, he said.
"As we reprice on the long end and keep the short end very cheap, that spread will increase for the banks. And it will actually be a very strong driver of profits for them going forward," Fehr said.
"There's no doubt in my mind that (loan) volumes will slow relative to peak years. The idea here is that the profitability of each loan they make now has the potential to be higher. So, net interest margins, in my mind, will probably increase as we move throughout the year."
Retail sales rise for third-straight month
THE CANADIAN PRESS
OTTAWA–Retail sales increased for the third straight month in March in a further evidence of a stabilizing Canadian economy or at least a slowing of the torrid pace of decline experienced early this year.
And economists say the data, one of the last major pieces of information left that make up the first quarter gross national product reading, suggests the first three months of 2009 might not be as bad as some feared.
"I think we've put to bed the notion that the first quarter hit could be as large as nine or 10 per cent (contraction), which was some of the scare talk earlier in the year," said Derek Holt, vice-president of economics with Scotia Capital.
"Now we're only looking at about 6.5 per cent contraction."
That would still be the biggest quarterly decline in GDP since records began being kept in 1961, beating the 5.9 per cent fall-off in the early 1990s.
The actual retail sales pickup of 0.3 per cent in March, to $33.9 billion, was smaller than some economists had hoped. But it also obscures the better 0.7 per cent increase in the volume of sales.
That suggests Canadian were buying again, but partly because they were taking advantage of bargains, particularly large rebates at car dealerships.
Bank of Montreal economist Douglas Porter said after the sizable decline in retail sales last fall and over the holiday season, the modest bounce-back is at least partly pent-up demand and likely does not signal a major and lasting change of sentiment among consumers.
"It's nice to see three modest gains in the row, but we have to take into context that they took an absolutely massive step backward last year. We're only just beginning to recover," he said.
Statistics Canada noted the three consecutive months of gains in retail sales have not completely offset the sharp declines reported in November and December.
The agency says March's retail sales were 6.3 per cent lower than their peak in September 2008, and the volume of sales were down 2.6 per cent.
The main contributor to the rise was a six per cent volume increase in new vehicles, while the automotive sector as a whole increased by 0.5 per cent.
Holt cautioned that the new figures already show the gain in March auto sales won't be repeated when the April numbers are released next month, as "we already the volume of new vehicle sales was flat in April over March."
As well, higher food prices boosted sales at food-and-beverage stores, which rose 0.9 per cent, their third straight increase.
The largest drop in the four sectors that registered sales declines came at miscellaneous retailers where sales fell 0.7 per cent. The sector includes sporting goods stores and office supply stores.
Sales increased in seven provinces in March, led by a third straight month of rising sales in Quebec, at two per cent, and Ontario, at 0.6.
The largest sales decline in March was a 1.8 per cent drop in Alberta, coming on the heels of a 1.5 per cent decrease in February.
Friday, May 22, 2009
Financial Update May 22, 2009
TSX-282.85 the index is still up about 30 % from its March lows.
DOW -129.91 A possibility of a rating downgrade of British government debt and renewed worries about an American economic recovery sent stock markets down sharply
Dollar +.18c to 87.87USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil -$.99 to $61.05US per barrel
Gold +$13.80 to $951.20USD per ounce
Canadian 5 yr bond yields +.11bps to 2.25- Unexpected with the drop in TSX. Four weeks ago it was 1.94.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
A couple of articles which may mistakenly seem conflicting on Canadian Banks. One says due to the strength of the Canadian banking system, Canadian Banks will be the first to recover. The other announces a drop in bank ratings, however although it agrees Canadian Banks are still strong, it advises Canadian banks are still heavily influenced by U.S. and global economic trends.
New federal credit card rules give clearer info, minimum 21-day grace period
By The Canadian Press
TORONTO - The countless Canadian consumers willing to pay the often hefty price of relying on a credit card are getting a break from federal Finance Minister Jim Flaherty - although some critics aren't convinced that it's much of a reprieve at all.
Flaherty unveiled new rules Thursday that will cost banks and other credit-card issuers "tens of millions of dollars," requiring clearer information and a minimum 21-day interest-free period on new purchases made with plastic.
However, Flaherty has no intention of limiting card interest rates, which range from about nine per cent to twice that much for bank-issued cards, and typically from 19 to 28 per cent for cards from big department stores and other retailers.
The banks and other credit card issuers have come under fire during the recession from ordinary consumers, businesses and critics worried about a clampdown on credit, more restrictions on card use, rising penalties and sky-high interest rates at a time when the global credit crunch has squeezed their ability to get financing.
Thursday's changes, Flaherty told a news conference in Toronto, will improve a well functioning financial system that already provides adequate choice for consumers.
"There are dozens and dozens of options for consumers - some credit cards with higher interest rates offer more frills and benefits and points and various things," he observed.
"Our concern is to make sure that consumers have easily available, clear information so that they can make informed choices."
NDP Leader Jack Layton jibed that Flaherty's changes merely mean consumers will be told a bit more about how they're going to be gouged.
"Today was a day when the banks won," Layton said.
He called for legislation requiring banks to provide no-frills low-interest cards, saying the choice consumers have now is that "they can be gouged, or they can be gouged more deeply."
However, Bruce Cran, president of the Consumers' Association of Canada, said consumers should be pleased.
"All of the things that he's done in there are actually just what we asked for," Cran said from Washington, where the U.S. Congress has approved a bill that prohibits card companies from arbitrarily raising interest rates on existing balances, bans a variety of fees and restricts access to cards for people younger than 21.
The Americans "have got a range of different problems to what we have in Canada," Cran said, "but I think Mr. Flaherty has done a much better job of addressing the real problems that we've encountered."
As for the level of card interest rates, "these things take care of themselves," Cran said. "We do have 300 card issuers, and if there's demand for that sort of (low-interest) card, it should gain a place in the marketplace without having to legislate it."
In Ottawa, Liberal finance critic John McCallum - a former chief economist at the Royal Bank - said Flaherty's moves are "not a bad start, but they have not finished the job."
The new framework - particularly the 21-day grace period on all new purchases when cardholders pay the monthly balance in full by the due date - "was resisted by financial institutions," Flaherty declared.
"It is a major change; it will cost financial institutions tens of millions of dollars," he said.
"Right now the situation is that credit cards offer 15-to 24-day grace periods with most offering 21 days. However, many cards also charge consumers interest that accrues during that period, even if they pay their balance in full that month," Flaherty said.
"Moreover, if a consumer carries a balance from one month to another, some cards essentially give that consumer no grace period on new purchases."
Under the new regulations, the 21-day grace period on new purchases applies even if an outstanding balance is carried forward from the previous month, as long as the full balance is paid by the current month's deadline.
The new regulations will also require that credit card applications and contracts feature a simple summary box of "all salient information, such as interest rates, grace periods and fees."
Additionally, monthly statements will have to show how long it would take to pay off a balance by making only minimum payments. This will give consumers a truer picture of their debt load, Flaherty said.
The regulations, open for comment until June 13, also include:
-Notice on monthly statements if interest rates are going to increase during the next statement period;
-Express consent from the consumer for credit limit increases;
-Prohibition of some debt-collection practices, such as contacting clients later than 9 p.m. on weekdays or Saturdays, and after 5 p.m. on Sundays.
Flaherty noted that about 25 million Canadians have credit cards and most pay their monthly balances in full, "which is a great credit to how prudent Canadians are generally."
But Layton said financial institutions are encouraging consumers to use credit cards to buy groceries, and he meets people who are using cards to meet mortgage payments.
"In other words, they're up against the wall with a gun to their head," the NDP leader said, "and the banks refuse to give really fair interest rates to people like that, and the government is backing the banks."
The Consumers' Association's Cran commented that low introductory card rates "tend to take advantage of people that don't fully understand what's going on," and "we do object to some of the high penalty rates - I just can't see the point of penalizing people who can't pay."
But overall, "I've got to congratulate Mr. Flaherty."
"The proposed regulations are too little, too late to stop gouging of financial consumers by credit card companies," countered Duff Conacher, head of the Canadian Community Reinvestment Coalition.
The bank-accountability citizen group is calling on Flaherty to require credit card companies to undergo independent audits "to determine if they are reaping excessive profits."
In addition to not addressing interest rates, the rule changes do not deal with credit card interchange fees levied on merchant transactions.
Flaherty noted that parliamentary committees have been looking at the issue.
Credit Suisse chops ratings on Canada banks
John Greenwood, Financial Post
Canadian bank stocks are headed for a second wave of trouble, a Bay Street analyst warned Thursday.
James Bantis, an analyst at Credit Suisse, chopped his ratings on Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada and Bank of Nova Scotia on concern the recent run-up in share prices fails to take into account the impact the recession will continue to have on bank revenues.
Mr. Bantis forsees rising loan loss provisions and pressure on retail margins, as the second round effects of the credit crunch and recession set in.
"We believe the severity of the economic slowdown in Canada is still in early days and earnings challenges remain ahead, not behind the banking sector," Mr. Bantis said in the note, titled "Green Shoots or Green Weeds."
Many of the threats that emerged at the height of the financial crisis late last year such as the risk of depression and possible systemic failure of global credit markets have abated, but Canadian banks are still heavily influenced by U.S. and global economic trends, most of which suggest tough times well into 2010.
But according to Mr. Bantis, this possibility is not reflected in current bank share prices.
Since its February low, the S&P/TSX Bank index has moved up 58%.
"Time to sell into strength," Mr. Bantis said.
Thursday he cut his ratings on CIBC and Bank of Montreal to "Underperform" from "Neutral," and lowered Royal and Scotia to "Neutral" from "Outperform."
The comments come about a week before the banks are set to report financial results for the second quarter.
On Friday, Scotia Capital analyst Kevin Choquette predicted an 8% decline in second quarter bank earnings compared to the same period in 2008 because of a doubling of loan loss provisions.
But he said results would be buoyed by a falling Canadian dollar and improving wholesale banking margins.
Mr. Choquette did not change any of his ratings at the time.
Calling their share prices "compelling," Mr. Choquette said Canadian banks "are well capitalized, with high-quality balance sheets, a diversified revenue mix [and] a solid long-term earnings growth outlook."
"The reduced fear about the collapse of the U.S. banking system has taken a lot of pressure off Canadian bank stocks that have been suffering from valuation contagion compounded by aggressive investor views that the Canadian system has massive leverage," he said.
Despite share price declines they suffered in the financial crisis -- the sector lost more than half its value -- Canadian banks for the most part steered clear of the kind of investments in credit derivatives that destroyed Lehman brothers and brought so many global banks to their knees.
As a result they are now widely recognized as among the safest in the world, which has attracted a lot of interest from foreign investors as well as governments.
But while the effects of the credit crunch appear to be subsiding, the Canadian economy has suffered a blow from the declining global economy and the collapse of the commodities market, and the impact is starting to manifest itself in the form of slumping corporate profits and rising unemployment.
Canada, Australia, the U.K. seen first to recover from recession
Alia McMullen, Financial Post
Canada, with Australia and the United Kingdom, is expected to be among the first of the advanced economies to emerge from recession, close its output gap and return to a normal rate of economic growth. But it will likely be close to a decade before conditions normalize in the mega economies of the United States, Europe and Japan, a report says.
By analyzing business new orders data, a key indicator of growth, Goldman Sachs economists Peter Berezin and Alex Kelston said Canada, Australia and the U.K. would likely return to their long-term trend rate of economic growth sometime in the second half of 2010 or early 2011.
Their output gaps -- the difference between actual and potential output -- would likely close between 2013 and 2015.
On the other hand, the United States and Europe were not expected to return to trend growth until 2011, with output likely to run under capacity until 2017. Japan, while returning to a trend rate of growth sooner, was not expected to close its output gap until 2019.
Not all believe the U.S. juggernaut will lag others in recovery. Bill Cheney, the chief economist at MFC Global Investment Management in Boston said the U.S. was the first to fall into recession and it would likely lead the world back out.
Nariman Behravesh, the chief economist at IHS Global Insight said China and the U.S. would likely lead the world out of recession, with Europe lagging behind.
This sentiment falls in line with U.S. government expectations. Douglas Elmendorf, the director of the Congressional Budget Office said in a testimony to the House Budget Committee on Thursday that the economy's output gap would average 7% of gross domestic product, equivalent to about US$1-trillion, in 2009-10. However, he said the U.S. would close this output gap by 2013.
While some countries are expected to take longer than others to make a full recovery, Mr. Berezin and Mr. Kelston said it appeared almost all major economies had already experienced their worst quarter of GDP in either the fourth quarter of 2008 or the first quarter of this year.
"This is important in as much as our research suggests that equity markets tend to bottom and equity volume tends to peak around the time when growth is at its worst," they said. "This supports our strategists' view that equities should continue to grind higher in the months ahead."
The report predicted the time taken for countries to return to their trend rate of growth and close their output gap would have a huge bearing on asset prices.
"Countries that are among the first to close their output gaps are also likely to experience foreign exchange appreciation," the Goldman economists said.
Emerging market economies were likely to return to trend growth an average six months before advanced economies. These countries are also expected to close their output gaps almost two years before developed nations.
However, conditions across the emerging markets will differ. For example, Asian economies are expected to rebound before those in Eastern Europe, while Latin America will likely recover before Mexico.
DOW -129.91 A possibility of a rating downgrade of British government debt and renewed worries about an American economic recovery sent stock markets down sharply
Dollar +.18c to 87.87USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil -$.99 to $61.05US per barrel
Gold +$13.80 to $951.20USD per ounce
Canadian 5 yr bond yields +.11bps to 2.25- Unexpected with the drop in TSX. Four weeks ago it was 1.94.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
A couple of articles which may mistakenly seem conflicting on Canadian Banks. One says due to the strength of the Canadian banking system, Canadian Banks will be the first to recover. The other announces a drop in bank ratings, however although it agrees Canadian Banks are still strong, it advises Canadian banks are still heavily influenced by U.S. and global economic trends.
New federal credit card rules give clearer info, minimum 21-day grace period
By The Canadian Press
TORONTO - The countless Canadian consumers willing to pay the often hefty price of relying on a credit card are getting a break from federal Finance Minister Jim Flaherty - although some critics aren't convinced that it's much of a reprieve at all.
Flaherty unveiled new rules Thursday that will cost banks and other credit-card issuers "tens of millions of dollars," requiring clearer information and a minimum 21-day interest-free period on new purchases made with plastic.
However, Flaherty has no intention of limiting card interest rates, which range from about nine per cent to twice that much for bank-issued cards, and typically from 19 to 28 per cent for cards from big department stores and other retailers.
The banks and other credit card issuers have come under fire during the recession from ordinary consumers, businesses and critics worried about a clampdown on credit, more restrictions on card use, rising penalties and sky-high interest rates at a time when the global credit crunch has squeezed their ability to get financing.
Thursday's changes, Flaherty told a news conference in Toronto, will improve a well functioning financial system that already provides adequate choice for consumers.
"There are dozens and dozens of options for consumers - some credit cards with higher interest rates offer more frills and benefits and points and various things," he observed.
"Our concern is to make sure that consumers have easily available, clear information so that they can make informed choices."
NDP Leader Jack Layton jibed that Flaherty's changes merely mean consumers will be told a bit more about how they're going to be gouged.
"Today was a day when the banks won," Layton said.
He called for legislation requiring banks to provide no-frills low-interest cards, saying the choice consumers have now is that "they can be gouged, or they can be gouged more deeply."
However, Bruce Cran, president of the Consumers' Association of Canada, said consumers should be pleased.
"All of the things that he's done in there are actually just what we asked for," Cran said from Washington, where the U.S. Congress has approved a bill that prohibits card companies from arbitrarily raising interest rates on existing balances, bans a variety of fees and restricts access to cards for people younger than 21.
The Americans "have got a range of different problems to what we have in Canada," Cran said, "but I think Mr. Flaherty has done a much better job of addressing the real problems that we've encountered."
As for the level of card interest rates, "these things take care of themselves," Cran said. "We do have 300 card issuers, and if there's demand for that sort of (low-interest) card, it should gain a place in the marketplace without having to legislate it."
In Ottawa, Liberal finance critic John McCallum - a former chief economist at the Royal Bank - said Flaherty's moves are "not a bad start, but they have not finished the job."
The new framework - particularly the 21-day grace period on all new purchases when cardholders pay the monthly balance in full by the due date - "was resisted by financial institutions," Flaherty declared.
"It is a major change; it will cost financial institutions tens of millions of dollars," he said.
"Right now the situation is that credit cards offer 15-to 24-day grace periods with most offering 21 days. However, many cards also charge consumers interest that accrues during that period, even if they pay their balance in full that month," Flaherty said.
"Moreover, if a consumer carries a balance from one month to another, some cards essentially give that consumer no grace period on new purchases."
Under the new regulations, the 21-day grace period on new purchases applies even if an outstanding balance is carried forward from the previous month, as long as the full balance is paid by the current month's deadline.
The new regulations will also require that credit card applications and contracts feature a simple summary box of "all salient information, such as interest rates, grace periods and fees."
Additionally, monthly statements will have to show how long it would take to pay off a balance by making only minimum payments. This will give consumers a truer picture of their debt load, Flaherty said.
The regulations, open for comment until June 13, also include:
-Notice on monthly statements if interest rates are going to increase during the next statement period;
-Express consent from the consumer for credit limit increases;
-Prohibition of some debt-collection practices, such as contacting clients later than 9 p.m. on weekdays or Saturdays, and after 5 p.m. on Sundays.
Flaherty noted that about 25 million Canadians have credit cards and most pay their monthly balances in full, "which is a great credit to how prudent Canadians are generally."
But Layton said financial institutions are encouraging consumers to use credit cards to buy groceries, and he meets people who are using cards to meet mortgage payments.
"In other words, they're up against the wall with a gun to their head," the NDP leader said, "and the banks refuse to give really fair interest rates to people like that, and the government is backing the banks."
The Consumers' Association's Cran commented that low introductory card rates "tend to take advantage of people that don't fully understand what's going on," and "we do object to some of the high penalty rates - I just can't see the point of penalizing people who can't pay."
But overall, "I've got to congratulate Mr. Flaherty."
"The proposed regulations are too little, too late to stop gouging of financial consumers by credit card companies," countered Duff Conacher, head of the Canadian Community Reinvestment Coalition.
The bank-accountability citizen group is calling on Flaherty to require credit card companies to undergo independent audits "to determine if they are reaping excessive profits."
In addition to not addressing interest rates, the rule changes do not deal with credit card interchange fees levied on merchant transactions.
Flaherty noted that parliamentary committees have been looking at the issue.
Credit Suisse chops ratings on Canada banks
John Greenwood, Financial Post
Canadian bank stocks are headed for a second wave of trouble, a Bay Street analyst warned Thursday.
James Bantis, an analyst at Credit Suisse, chopped his ratings on Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada and Bank of Nova Scotia on concern the recent run-up in share prices fails to take into account the impact the recession will continue to have on bank revenues.
Mr. Bantis forsees rising loan loss provisions and pressure on retail margins, as the second round effects of the credit crunch and recession set in.
"We believe the severity of the economic slowdown in Canada is still in early days and earnings challenges remain ahead, not behind the banking sector," Mr. Bantis said in the note, titled "Green Shoots or Green Weeds."
Many of the threats that emerged at the height of the financial crisis late last year such as the risk of depression and possible systemic failure of global credit markets have abated, but Canadian banks are still heavily influenced by U.S. and global economic trends, most of which suggest tough times well into 2010.
But according to Mr. Bantis, this possibility is not reflected in current bank share prices.
Since its February low, the S&P/TSX Bank index has moved up 58%.
"Time to sell into strength," Mr. Bantis said.
Thursday he cut his ratings on CIBC and Bank of Montreal to "Underperform" from "Neutral," and lowered Royal and Scotia to "Neutral" from "Outperform."
The comments come about a week before the banks are set to report financial results for the second quarter.
On Friday, Scotia Capital analyst Kevin Choquette predicted an 8% decline in second quarter bank earnings compared to the same period in 2008 because of a doubling of loan loss provisions.
But he said results would be buoyed by a falling Canadian dollar and improving wholesale banking margins.
Mr. Choquette did not change any of his ratings at the time.
Calling their share prices "compelling," Mr. Choquette said Canadian banks "are well capitalized, with high-quality balance sheets, a diversified revenue mix [and] a solid long-term earnings growth outlook."
"The reduced fear about the collapse of the U.S. banking system has taken a lot of pressure off Canadian bank stocks that have been suffering from valuation contagion compounded by aggressive investor views that the Canadian system has massive leverage," he said.
Despite share price declines they suffered in the financial crisis -- the sector lost more than half its value -- Canadian banks for the most part steered clear of the kind of investments in credit derivatives that destroyed Lehman brothers and brought so many global banks to their knees.
As a result they are now widely recognized as among the safest in the world, which has attracted a lot of interest from foreign investors as well as governments.
But while the effects of the credit crunch appear to be subsiding, the Canadian economy has suffered a blow from the declining global economy and the collapse of the commodities market, and the impact is starting to manifest itself in the form of slumping corporate profits and rising unemployment.
Canada, Australia, the U.K. seen first to recover from recession
Alia McMullen, Financial Post
Canada, with Australia and the United Kingdom, is expected to be among the first of the advanced economies to emerge from recession, close its output gap and return to a normal rate of economic growth. But it will likely be close to a decade before conditions normalize in the mega economies of the United States, Europe and Japan, a report says.
By analyzing business new orders data, a key indicator of growth, Goldman Sachs economists Peter Berezin and Alex Kelston said Canada, Australia and the U.K. would likely return to their long-term trend rate of economic growth sometime in the second half of 2010 or early 2011.
Their output gaps -- the difference between actual and potential output -- would likely close between 2013 and 2015.
On the other hand, the United States and Europe were not expected to return to trend growth until 2011, with output likely to run under capacity until 2017. Japan, while returning to a trend rate of growth sooner, was not expected to close its output gap until 2019.
Not all believe the U.S. juggernaut will lag others in recovery. Bill Cheney, the chief economist at MFC Global Investment Management in Boston said the U.S. was the first to fall into recession and it would likely lead the world back out.
Nariman Behravesh, the chief economist at IHS Global Insight said China and the U.S. would likely lead the world out of recession, with Europe lagging behind.
This sentiment falls in line with U.S. government expectations. Douglas Elmendorf, the director of the Congressional Budget Office said in a testimony to the House Budget Committee on Thursday that the economy's output gap would average 7% of gross domestic product, equivalent to about US$1-trillion, in 2009-10. However, he said the U.S. would close this output gap by 2013.
While some countries are expected to take longer than others to make a full recovery, Mr. Berezin and Mr. Kelston said it appeared almost all major economies had already experienced their worst quarter of GDP in either the fourth quarter of 2008 or the first quarter of this year.
"This is important in as much as our research suggests that equity markets tend to bottom and equity volume tends to peak around the time when growth is at its worst," they said. "This supports our strategists' view that equities should continue to grind higher in the months ahead."
The report predicted the time taken for countries to return to their trend rate of growth and close their output gap would have a huge bearing on asset prices.
"Countries that are among the first to close their output gaps are also likely to experience foreign exchange appreciation," the Goldman economists said.
Emerging market economies were likely to return to trend growth an average six months before advanced economies. These countries are also expected to close their output gaps almost two years before developed nations.
However, conditions across the emerging markets will differ. For example, Asian economies are expected to rebound before those in Eastern Europe, while Latin America will likely recover before Mexico.
Thursday, May 21, 2009
Financial Update May 21, 2009
New numbers give hope for early recovery
TSX+131.49
DOW -52.81
Dollar +1.21c to 87.69USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$1.94 to $62.04US per barrel
Gold +$10.70 to $937.40USD per ounce
Canadian 5 yr bond yields -.01bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
New numbers give hope for early recovery
JULIAN BELTRAME
THE CANADIAN PRESS
OTTAWA -- The hair-raising plunge in the world and Canadian economies this winter is showing signs of levelling off as new evidence emerged yesterday pointing to improving conditions.
Economic growth is still months away, say economists, but with each "less bad'' indicator that is posted, fear of continued free-fall is being replaced by cautious optimism.
"I'm in the glass half-full camp,'' said Bank of Montreal deputy chief economist Douglas Porter. "The way the financial markets are going, I think it's quite possible we'll see a recovery sooner than the end of the year. It seems the optimism is becoming more infectious around the world, and that's a good thing.''
The glass half-empty camp argues that financial markets, while much improved, remain risk adverse and that the recovery may be too dependent on temporary massive government stimulus to be sustained.
Yesterday saw more reasons to support a growing consensus that sees global economies starting to come out of the nightmare of the past few months.
* Canada's inflation rate fell to a near 15-year low of 0.4 per cent in April, a clear signal of economic weakness but because the plunge was due to a single-factor -- lower gasoline prices compared to last year -- the steep drop was not worrisome.
* The country's leading indicator of future economic activity rose 0.5 per cent last month over March, the first sign of life in eight months.
* As significant, a survey of 220 fund managers by Bank of America-Merrill Lynch showed the bulls are waking from their slumber, with 57 per cent of managers forecasting a stronger global economy in the next 12 months.
"The unrelenting gloom of a mere three months ago has been replaced by a fairly typical early-cyclical sentiment, with the only hint of potential irrational exuberance in emerging markets,'' the global investment bank said.
The May survey showed that fund managers are still reluctant to jump into the market with both feet as asset allocations remain underweight in securities by six per cent, but that is less than the minus-17 per cent number found in the April survey.
Merrill Lynch analysts said there is still a risk of "too much, too soon'' with the stock markets rally of the past two months, but noted that unlike last fall and early 2009, investors now appear willing to shrug off bad news in expectation the economy will indeed recover.
The past month has seen the emergence of a number of so-called "green shoots'' that point to an improving economic landscape.
After a correction last week, Toronto's stock exchange was back over the 10,000-point line this week.
More bad news is on the way as countries start reporting first-quarter gross domestic product retreats in the next few weeks.
Japan said yesterday its economy contracted a massive 15.2 per cent, the most since it began to keep records in 1955.
The Bank of Canada forecasts Canada's first quarter GDP contraction will top seven per cent when all the data is available in two weeks, also the worst performance since records began in 1961.
But these numbers represent a rear-view mirror of the economy, say analysts, something markets have already left behind.
Economists also judged that the Bank of Canada is now less likely to resort to extraordinary measures because the risk of further steep contraction has diminished.
In a speech Tuesday, Bank of Canada deputy governor John Murray said the bank's action of dropping the policy rate to 0.25 per cent -- and vowing to keep it there for the next year -- has succeeded in improving credit.
TSX+131.49
DOW -52.81
Dollar +1.21c to 87.69USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$1.94 to $62.04US per barrel
Gold +$10.70 to $937.40USD per ounce
Canadian 5 yr bond yields -.01bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
New numbers give hope for early recovery
JULIAN BELTRAME
THE CANADIAN PRESS
OTTAWA -- The hair-raising plunge in the world and Canadian economies this winter is showing signs of levelling off as new evidence emerged yesterday pointing to improving conditions.
Economic growth is still months away, say economists, but with each "less bad'' indicator that is posted, fear of continued free-fall is being replaced by cautious optimism.
"I'm in the glass half-full camp,'' said Bank of Montreal deputy chief economist Douglas Porter. "The way the financial markets are going, I think it's quite possible we'll see a recovery sooner than the end of the year. It seems the optimism is becoming more infectious around the world, and that's a good thing.''
The glass half-empty camp argues that financial markets, while much improved, remain risk adverse and that the recovery may be too dependent on temporary massive government stimulus to be sustained.
Yesterday saw more reasons to support a growing consensus that sees global economies starting to come out of the nightmare of the past few months.
* Canada's inflation rate fell to a near 15-year low of 0.4 per cent in April, a clear signal of economic weakness but because the plunge was due to a single-factor -- lower gasoline prices compared to last year -- the steep drop was not worrisome.
* The country's leading indicator of future economic activity rose 0.5 per cent last month over March, the first sign of life in eight months.
* As significant, a survey of 220 fund managers by Bank of America-Merrill Lynch showed the bulls are waking from their slumber, with 57 per cent of managers forecasting a stronger global economy in the next 12 months.
"The unrelenting gloom of a mere three months ago has been replaced by a fairly typical early-cyclical sentiment, with the only hint of potential irrational exuberance in emerging markets,'' the global investment bank said.
The May survey showed that fund managers are still reluctant to jump into the market with both feet as asset allocations remain underweight in securities by six per cent, but that is less than the minus-17 per cent number found in the April survey.
Merrill Lynch analysts said there is still a risk of "too much, too soon'' with the stock markets rally of the past two months, but noted that unlike last fall and early 2009, investors now appear willing to shrug off bad news in expectation the economy will indeed recover.
The past month has seen the emergence of a number of so-called "green shoots'' that point to an improving economic landscape.
After a correction last week, Toronto's stock exchange was back over the 10,000-point line this week.
More bad news is on the way as countries start reporting first-quarter gross domestic product retreats in the next few weeks.
Japan said yesterday its economy contracted a massive 15.2 per cent, the most since it began to keep records in 1955.
The Bank of Canada forecasts Canada's first quarter GDP contraction will top seven per cent when all the data is available in two weeks, also the worst performance since records began in 1961.
But these numbers represent a rear-view mirror of the economy, say analysts, something markets have already left behind.
Economists also judged that the Bank of Canada is now less likely to resort to extraordinary measures because the risk of further steep contraction has diminished.
In a speech Tuesday, Bank of Canada deputy governor John Murray said the bank's action of dropping the policy rate to 0.25 per cent -- and vowing to keep it there for the next year -- has succeeded in improving credit.
Wednesday, May 20, 2009
Financial Update for May 20, 2009
TSX back in rally mode as oil hits US$60; N.Y. tepid on construction data
"We're into the third month of a very powerful rally - this could go on for months," observed Paul Thornton, investment adviser at Global Maxfin Capital. "This is going to be driven higher by the enormous amounts of cash that have been on the sidelines - people are afraid of missing this rally and the institutions have been big buyers."
TSX+338.10 to 10,100.95 reclaiming last week's losses, as higher oil prices boosted energy issues and as the TSX caught up with a rise by U.S. stocks on Monday when the TSX was closed.
DOW -29.23
Dollar +1.67c to 86.48USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$2.69 + $.58 to $60.10US per barrel
Gold +$5 to $926.70USD per ounce
Canadian 5 yr bond yields +.04bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
April Uptick
National Post Published: Saturday, May 16, 2009
The Canadian Real Estate Association said this week that the rebound in home sales and prices for April was stronger than expected. Seasonally adjusted national sales climbed 11.2% from March, the largest month-over-month gain in more than five years. The number of homes that changed hands (34,838), was higher than in any of the prior seven months.
Calgary led the rebound, with a 31% gain in sales over March, followed by Vancouver (30%), Montreal (15%) and Toronto (10%). Sales were up from March levels in 70% of markets across the country. Actual sales of 43,473 in April was down 11.8% from the same month a year ago.
The average sale price of $306,366 is 3.2% below April, 2008's, average. Inventory numbers were down 1.8%, to their lowest level since June, 2006, and 16.4% below the peak in May, 2008. The supply-versus-demand ratio is more balanced now in British Columbia, Alberta, Ontario and Quebec.
Home Depot beats estimates Bloomberg News Published: Tuesday, May 19, 2009
Home Depot Inc., the world's largest home-improvement retailer, posted profit that exceeded analysts' estimates after the company reduced costs.
Net income rose to US$514-million, or 30 U.S. cents a share, from US$356-million, or 21 U.S. cents, a year earlier, the Atlanta-based company said on Tuesday in a statement. Sales fell 9.7% to US$16.2 billion in the three months ended May 3.
Excluding some items, Home Depot's profit was 35 U.S. cents a share. Analysts anticipated earnings on that basis of 29 U.S. cents from revenue of US$15.8 billion, the average of estimates compiled by Bloomberg.
Sales in stores open at least a year fell 10.2% in the period. Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York, estimated a decline of 11.7%.
Lowe's Cos., the company's smaller rival, reported first-quarter earnings on Monday that also topped analysts' estimates as it curbed discounts and boosted sales of more-profitable plants and flowers.
Couple pay 1p a month for mortgage after rates slashed
A couple are paying just 1p a month on their mortgage after the Bank of England slashed interest rates
Daily Telegraph
Ben Cameron and his wife Nicola are being charged the nominal sum after signing up for an interest-only tracker deal in December 2007.
Their mortgage with Cheltenham & Gloucester tied their payments to 1.01 per cent below the base rate, which then stood at 5.5 per cent.
Since then it has fallen to 0.5 per cent, cutting their monthly bill from around £1,500 ($2,674) to zero.
But the couple from Hampton, south west London are being charged 1p because their building society's computers cannot deal with payments of nothing.
Their case highlights the tens of thousands of homeowners who have had their repayments slashed by the series of rate cuts imposed by the Bank in an attempt to stimulate lending. Interest rates have been reduced six times since October last year.
But while most people who took out tracker deals pegged below the base rate are still spending hundreds of pounds a month to pay off the capital on their homes, the Camerons' interest-only deal means they are enjoying a zero interest loan.
Mr Cameron, 37, an estate agent, said that they were keeping the money they have saved to put more equity in their home when their mortgage deal comes up for renewal. They had originally paid a 20 per cent deposit on the £400,000 property.
"We fell incredibly lucky, we almost didn't go for it," he told the Evening Standard. "We look at our mortgage statements now and they look ridiculous, it's fantastic." The couple are expecting their first baby in June.
Since rates began falling lenders have withdrawn all tracker deals that are tied below the base rate. The most attractive tracker mortgage currently on the market is 2.39 per cent above the Bank's rate.
Staying alive: As recession deepens, businesses keep bankruptcy at bay
By Julian Beltrame, The Canadian Press
OTTAWA - The ability of Canadian businesses to survive the worst recession in decades is giving hope that the rebound from current massive job losses will be stronger than widely expected.
One of the biggest surprises of the downturn - unique to Canada - is that as the economy has slumped, the number of businesses declaring bankruptcy has also declined.
This has hardly ever happened before and although Canada is only seven months into a recession expected to last another half-year, it suggests that the corporate destruction of past recessions won't be a major factor this time around.
"This is the story of the recession so far," Benjamin Tal of CIBC World Markets said Tuesday.
"The recession is not over, so I would expect to see (business bankruptcy) numbers rising before it is over. But the fact we're starting from a very low point suggests that the number will not be very high compared to previous recessions."
The federal Office of the Superintendent of Bankruptcy reported last week that insolvencies in March totalled 14,244, up 51 per cent from March of last year. But while swelling numbers of individuals succumbed to their debts, business bankruptcies were down 10 per cent.
By comparison, five months into the downturns of 1982 and 1992 corporate bankruptcies were 15 to 20 per cent higher than pre-recession levels, Tal said in an analysis.
In the United States, he added, business bankruptcies now are about 40 per cent higher than a year ago.
For the first three months of 2009 - in which the Bank of Canada estimates the economy contracted at an annualized rate of 7.3 per cent, the worst on record - business bankruptcies were actually down 14 per cent from the corresponding period in 2008.
Not all Canadian businesses have been fortunate. This year has seen several high-profile Canadian bankruptcy filings, notably Nortel Networks (TSX: NT.TO) and AbitibiBowater (TSX: ABH.TO).
And consumer insolvencies were up 57 per cent in March over a year ago.
However, Tal says Canadian businesses, after years of profit, entered the recession with plenty of cash. As well, many have aggressively downsized - laying off workers to cut operating costs. In fact, over 300,000 jobs have disappeared in the past six months.
While that is bad news for workers, Tal says it portends well for the recovery, which most economists, including the Bank of Canada, forecast will begin late in 2009.
Fewer corporate bankruptcies could result in a quicker rebound in the employment market, which normally trails recoveries, says Tal.
"There's been a little bit of pre-emptive downsizing that is making the situation worse now, but it means the recovery will be faster because it is much easier to re-hire when you still exist," he observed.
Tuesday brought another indication that Canada is surviving the recession better than its southern neighbour.
Canada Mortgage and Housing Corp. projected the recession will cause housing starts to fall about 33 per cent this year to 141,900, but predicted that building will edge up in subsequent years - although not to the 200,000-plus rates seen in the past several years.
While that shows significant weakness, it is far ahead of the U.S. situation, where starts have crumbled to one-quarter of pre-recession levels. Nor are the Canadian numbers far off the demographic fundamentals, including population growth.
"Housing market activity will begin to strengthen in 2010 as the Canadian economy recovers, bringing housing starts more in line with demographic fundamentals over the forecast period," said CMHC chief economist Bob Dugan.
Dugan forecasts housing starts in the 150,000 to 180,000 range over the next four years.
"We're into the third month of a very powerful rally - this could go on for months," observed Paul Thornton, investment adviser at Global Maxfin Capital. "This is going to be driven higher by the enormous amounts of cash that have been on the sidelines - people are afraid of missing this rally and the institutions have been big buyers."
TSX+338.10 to 10,100.95 reclaiming last week's losses, as higher oil prices boosted energy issues and as the TSX caught up with a rise by U.S. stocks on Monday when the TSX was closed.
DOW -29.23
Dollar +1.67c to 86.48USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$2.69 + $.58 to $60.10US per barrel
Gold +$5 to $926.70USD per ounce
Canadian 5 yr bond yields +.04bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
April Uptick
National Post Published: Saturday, May 16, 2009
The Canadian Real Estate Association said this week that the rebound in home sales and prices for April was stronger than expected. Seasonally adjusted national sales climbed 11.2% from March, the largest month-over-month gain in more than five years. The number of homes that changed hands (34,838), was higher than in any of the prior seven months.
Calgary led the rebound, with a 31% gain in sales over March, followed by Vancouver (30%), Montreal (15%) and Toronto (10%). Sales were up from March levels in 70% of markets across the country. Actual sales of 43,473 in April was down 11.8% from the same month a year ago.
The average sale price of $306,366 is 3.2% below April, 2008's, average. Inventory numbers were down 1.8%, to their lowest level since June, 2006, and 16.4% below the peak in May, 2008. The supply-versus-demand ratio is more balanced now in British Columbia, Alberta, Ontario and Quebec.
Home Depot beats estimates Bloomberg News Published: Tuesday, May 19, 2009
Home Depot Inc., the world's largest home-improvement retailer, posted profit that exceeded analysts' estimates after the company reduced costs.
Net income rose to US$514-million, or 30 U.S. cents a share, from US$356-million, or 21 U.S. cents, a year earlier, the Atlanta-based company said on Tuesday in a statement. Sales fell 9.7% to US$16.2 billion in the three months ended May 3.
Excluding some items, Home Depot's profit was 35 U.S. cents a share. Analysts anticipated earnings on that basis of 29 U.S. cents from revenue of US$15.8 billion, the average of estimates compiled by Bloomberg.
Sales in stores open at least a year fell 10.2% in the period. Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York, estimated a decline of 11.7%.
Lowe's Cos., the company's smaller rival, reported first-quarter earnings on Monday that also topped analysts' estimates as it curbed discounts and boosted sales of more-profitable plants and flowers.
Couple pay 1p a month for mortgage after rates slashed
A couple are paying just 1p a month on their mortgage after the Bank of England slashed interest rates
Daily Telegraph
Ben Cameron and his wife Nicola are being charged the nominal sum after signing up for an interest-only tracker deal in December 2007.
Their mortgage with Cheltenham & Gloucester tied their payments to 1.01 per cent below the base rate, which then stood at 5.5 per cent.
Since then it has fallen to 0.5 per cent, cutting their monthly bill from around £1,500 ($2,674) to zero.
But the couple from Hampton, south west London are being charged 1p because their building society's computers cannot deal with payments of nothing.
Their case highlights the tens of thousands of homeowners who have had their repayments slashed by the series of rate cuts imposed by the Bank in an attempt to stimulate lending. Interest rates have been reduced six times since October last year.
But while most people who took out tracker deals pegged below the base rate are still spending hundreds of pounds a month to pay off the capital on their homes, the Camerons' interest-only deal means they are enjoying a zero interest loan.
Mr Cameron, 37, an estate agent, said that they were keeping the money they have saved to put more equity in their home when their mortgage deal comes up for renewal. They had originally paid a 20 per cent deposit on the £400,000 property.
"We fell incredibly lucky, we almost didn't go for it," he told the Evening Standard. "We look at our mortgage statements now and they look ridiculous, it's fantastic." The couple are expecting their first baby in June.
Since rates began falling lenders have withdrawn all tracker deals that are tied below the base rate. The most attractive tracker mortgage currently on the market is 2.39 per cent above the Bank's rate.
Staying alive: As recession deepens, businesses keep bankruptcy at bay
By Julian Beltrame, The Canadian Press
OTTAWA - The ability of Canadian businesses to survive the worst recession in decades is giving hope that the rebound from current massive job losses will be stronger than widely expected.
One of the biggest surprises of the downturn - unique to Canada - is that as the economy has slumped, the number of businesses declaring bankruptcy has also declined.
This has hardly ever happened before and although Canada is only seven months into a recession expected to last another half-year, it suggests that the corporate destruction of past recessions won't be a major factor this time around.
"This is the story of the recession so far," Benjamin Tal of CIBC World Markets said Tuesday.
"The recession is not over, so I would expect to see (business bankruptcy) numbers rising before it is over. But the fact we're starting from a very low point suggests that the number will not be very high compared to previous recessions."
The federal Office of the Superintendent of Bankruptcy reported last week that insolvencies in March totalled 14,244, up 51 per cent from March of last year. But while swelling numbers of individuals succumbed to their debts, business bankruptcies were down 10 per cent.
By comparison, five months into the downturns of 1982 and 1992 corporate bankruptcies were 15 to 20 per cent higher than pre-recession levels, Tal said in an analysis.
In the United States, he added, business bankruptcies now are about 40 per cent higher than a year ago.
For the first three months of 2009 - in which the Bank of Canada estimates the economy contracted at an annualized rate of 7.3 per cent, the worst on record - business bankruptcies were actually down 14 per cent from the corresponding period in 2008.
Not all Canadian businesses have been fortunate. This year has seen several high-profile Canadian bankruptcy filings, notably Nortel Networks (TSX: NT.TO) and AbitibiBowater (TSX: ABH.TO).
And consumer insolvencies were up 57 per cent in March over a year ago.
However, Tal says Canadian businesses, after years of profit, entered the recession with plenty of cash. As well, many have aggressively downsized - laying off workers to cut operating costs. In fact, over 300,000 jobs have disappeared in the past six months.
While that is bad news for workers, Tal says it portends well for the recovery, which most economists, including the Bank of Canada, forecast will begin late in 2009.
Fewer corporate bankruptcies could result in a quicker rebound in the employment market, which normally trails recoveries, says Tal.
"There's been a little bit of pre-emptive downsizing that is making the situation worse now, but it means the recovery will be faster because it is much easier to re-hire when you still exist," he observed.
Tuesday brought another indication that Canada is surviving the recession better than its southern neighbour.
Canada Mortgage and Housing Corp. projected the recession will cause housing starts to fall about 33 per cent this year to 141,900, but predicted that building will edge up in subsequent years - although not to the 200,000-plus rates seen in the past several years.
While that shows significant weakness, it is far ahead of the U.S. situation, where starts have crumbled to one-quarter of pre-recession levels. Nor are the Canadian numbers far off the demographic fundamentals, including population growth.
"Housing market activity will begin to strengthen in 2010 as the Canadian economy recovers, bringing housing starts more in line with demographic fundamentals over the forecast period," said CMHC chief economist Bob Dugan.
Dugan forecasts housing starts in the 150,000 to 180,000 range over the next four years.
Tuesday, May 19, 2009
Financial Update for May 19, 2009
TSX-86.35
DOW -62.68
Dollar -.73c to 84.81USD
Oil -$2.28 to $56.34US per barrel
Gold +$2.90 to $931.30USD per ounce
Canadian 5 yr bond yields +.01bps to 2.12
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
'Banking crisis over' says CIBC economist
Jobs and housing still must recover
May 16, 2009 JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
The financial crisis that plunged the world into the worst recession in decades is showing signs of having righted itself.
A proclamation of the welcome development came at the same time that data showed the Canadian economy took another hard knock in March, with manufacturing sales falling 2.7 per cent, reversing a February pickup.
The cheerier harbinger is a steady reduction in global credit spreads -- the gaps between interest rates on low-risk government bonds and higher-yielding corporate and other debt -- which suggest that the financial meltdown is on course to being resolved.
"The banking crisis is over,'' declared the headline in a note yesterday from CIBC World Markets chief economist Avery Shenfeld.
"Nobody now expects there's another Lehman out there,'' Shenfeld wrote, referring to the mid-September collapse of U.S. investment bank Lehman Brothers, which jolted financial markets around the world.
"Nor will banks be pushed into a fire sale of assets that would depress valuations of like assets on other banks' balance sheets.''
The three-month London Interbank Offered Rate, a benchmark for lending between banks, was down 10 basis points on the week to 0.84 per cent, reducing bank funding costs.
Some base rates were the lowest since the U.S. subprime mortgage crisis erupted in the summer of 2007.
Pointing to narrowing credit spreads and improved interbank lending, Shenfeld said a turning point in the U.S. crisis was reached with the Obama administration's rescue measures.
Bank of Montreal economist Sal Guatieri said he also was encouraged by narrowing credit spreads.
"It means borrowing costs will be coming down for a wide range of borrowers, because a lot of variable-rate mortgages and a lot of personal and business loans are tied to the LIBOR rates,'' he said.
Guatieri cautioned that weakness remains in the economy and he is not ready to declare an all-clear until he sees improvement in job creation and housing, particularly in the United States.
Yesterday's data on Canadian manufacturing showed that the recovery will not be a "neat, straight-line'' move, noted economist Derek Holt of Scotia Capital.
The surprising 2.7 per cent tumble in factory sales in March left them down 23 per cent from their peak last July, despite a bounce in auto shipments following assembly-plant shutdowns in January and February.
The retreat was widespread, and with more auto sector retrenchment on stream, the manufacturing picture only looks bleaker down the road.
"Manufacturers are reining in production, but not as quickly as sales are plummeting,'' said Grant Bishop at TD Economics.
"Downward pressure on Canadian manufacturers will continue throughout the next two quarters.''
DOW -62.68
Dollar -.73c to 84.81USD
Oil -$2.28 to $56.34US per barrel
Gold +$2.90 to $931.30USD per ounce
Canadian 5 yr bond yields +.01bps to 2.12
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
'Banking crisis over' says CIBC economist
Jobs and housing still must recover
May 16, 2009 JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
The financial crisis that plunged the world into the worst recession in decades is showing signs of having righted itself.
A proclamation of the welcome development came at the same time that data showed the Canadian economy took another hard knock in March, with manufacturing sales falling 2.7 per cent, reversing a February pickup.
The cheerier harbinger is a steady reduction in global credit spreads -- the gaps between interest rates on low-risk government bonds and higher-yielding corporate and other debt -- which suggest that the financial meltdown is on course to being resolved.
"The banking crisis is over,'' declared the headline in a note yesterday from CIBC World Markets chief economist Avery Shenfeld.
"Nobody now expects there's another Lehman out there,'' Shenfeld wrote, referring to the mid-September collapse of U.S. investment bank Lehman Brothers, which jolted financial markets around the world.
"Nor will banks be pushed into a fire sale of assets that would depress valuations of like assets on other banks' balance sheets.''
The three-month London Interbank Offered Rate, a benchmark for lending between banks, was down 10 basis points on the week to 0.84 per cent, reducing bank funding costs.
Some base rates were the lowest since the U.S. subprime mortgage crisis erupted in the summer of 2007.
Pointing to narrowing credit spreads and improved interbank lending, Shenfeld said a turning point in the U.S. crisis was reached with the Obama administration's rescue measures.
Bank of Montreal economist Sal Guatieri said he also was encouraged by narrowing credit spreads.
"It means borrowing costs will be coming down for a wide range of borrowers, because a lot of variable-rate mortgages and a lot of personal and business loans are tied to the LIBOR rates,'' he said.
Guatieri cautioned that weakness remains in the economy and he is not ready to declare an all-clear until he sees improvement in job creation and housing, particularly in the United States.
Yesterday's data on Canadian manufacturing showed that the recovery will not be a "neat, straight-line'' move, noted economist Derek Holt of Scotia Capital.
The surprising 2.7 per cent tumble in factory sales in March left them down 23 per cent from their peak last July, despite a bounce in auto shipments following assembly-plant shutdowns in January and February.
The retreat was widespread, and with more auto sector retrenchment on stream, the manufacturing picture only looks bleaker down the road.
"Manufacturers are reining in production, but not as quickly as sales are plummeting,'' said Grant Bishop at TD Economics.
"Downward pressure on Canadian manufacturers will continue throughout the next two quarters.''
Friday, May 15, 2009
Financial Update for May 15, 2009
Home sales jump in April (below) TSX Recovers
TSX +139.69
DOW +46.43
Dollar +.50c to 85.54USD
Oil +$.60 to $58.62US per barrel
Gold +$2.50 to $928.40USD per ounce
Canadian 5 yr bond yields +.02bps to 2.11-
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Home sales jump in April
Third straight monthly increase puts numbers up 32% from January's decade-long low, but still far below last year
HEATHER SCOFFIELD
Globe and Mail Update
May 14, 2009 at 12:21 PM EDT
OTTAWA — Home sales picked up in April for the third month in a row, but the real estate market has not yet made up for all the lost momentum of the past year, the Canadian Real Estate Association says.
Sales of homes in Canada, seasonally adjusted, jumped 11.2 per cent in April compared to March, the largest month-to-month increase in more than five years, CREA said. The gain compounds advances of 10.3 per cent in February and 7.7 per cent in March.
Home sales volumes were a full 32 per cent above January's levels – the lowest levels in a decade.
Compared to a year ago, however, home sales were down 11.8 per cent, CREA said. Still, this is a far milder decline than the record year-over-year drop of 42.2 per cent in November.
Prices are still lower now than a year ago, with the average sale price in April at $306,366 – about 3.2 per cent lower than April, 2008, when prices hit their pre-recession peak.
The volume of homes trading hands rose in 70 per cent of local markets in April, compared to March, CREA added. In particular, Toronto saw a 10 per cent increase, Vancouver's sales rose 30 per cent, Montreal was up 15 per cent and Calgary was up 31 per cent.
Still, compared to a year ago, home sales in Toronto were 10.5 per cent lower, Vancouver was off 17.4 per cent, Montreal was down 4.3 per cent and Calgary was 21 per cent lower.
The only cities showing a year-over-year increase in sales were Kitchener-Waterloo in southern Ontario, and Ottawa.
The key to the substantial increase in sales in the past few months is a growing realization by sellers that pricing has to be realistic, said Dale Ripplinger, a real estate broker based in Regina and also the president of CREA.
“Price adjustments in some markets have helped affordability. Second, lenders do have money for people and properties that qualify, although some are being more stringent.”
A recovery of consumer confidence has also helped boost sales in the housing market, he said.
Also encouraging a more stable housing market is a continuing decline in the supply of homes coming on to the market, CREA noted. New listings in April (seasonally adjusted) were 1.8 per cent lower than in March, and 16.4 per cent lower than the peak of May, 2008.
The spring housing market has been more active than CREA had anticipated, prompting a small upward revision to its forecast for sales for the rest of 2009.
For 2009, CREA now expects sales to fall 14.7 per cent to 307,500 homes – slightly less than in its last forecast issued in February. Stronger-than-expected rebounds in British Columbia and Ontario were the drivers behind the revision, CREA said.
2010 should bring a 7.2 per cent increase in sales – a slightly weaker rebound than in previous forecasts because of downgraded expectations for economic growth next year. The rebound is expected to be strongest in British Columbia and Alberta.
CREA economist Gregory Klump said he expects national average prices will rebound slowly from the low reached in January, and begin to post modest year-over-year increases during the fourth quarter of 2009.
TSX +139.69
DOW +46.43
Dollar +.50c to 85.54USD
Oil +$.60 to $58.62US per barrel
Gold +$2.50 to $928.40USD per ounce
Canadian 5 yr bond yields +.02bps to 2.11-
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Home sales jump in April
Third straight monthly increase puts numbers up 32% from January's decade-long low, but still far below last year
HEATHER SCOFFIELD
Globe and Mail Update
May 14, 2009 at 12:21 PM EDT
OTTAWA — Home sales picked up in April for the third month in a row, but the real estate market has not yet made up for all the lost momentum of the past year, the Canadian Real Estate Association says.
Sales of homes in Canada, seasonally adjusted, jumped 11.2 per cent in April compared to March, the largest month-to-month increase in more than five years, CREA said. The gain compounds advances of 10.3 per cent in February and 7.7 per cent in March.
Home sales volumes were a full 32 per cent above January's levels – the lowest levels in a decade.
Compared to a year ago, however, home sales were down 11.8 per cent, CREA said. Still, this is a far milder decline than the record year-over-year drop of 42.2 per cent in November.
Prices are still lower now than a year ago, with the average sale price in April at $306,366 – about 3.2 per cent lower than April, 2008, when prices hit their pre-recession peak.
The volume of homes trading hands rose in 70 per cent of local markets in April, compared to March, CREA added. In particular, Toronto saw a 10 per cent increase, Vancouver's sales rose 30 per cent, Montreal was up 15 per cent and Calgary was up 31 per cent.
Still, compared to a year ago, home sales in Toronto were 10.5 per cent lower, Vancouver was off 17.4 per cent, Montreal was down 4.3 per cent and Calgary was 21 per cent lower.
The only cities showing a year-over-year increase in sales were Kitchener-Waterloo in southern Ontario, and Ottawa.
The key to the substantial increase in sales in the past few months is a growing realization by sellers that pricing has to be realistic, said Dale Ripplinger, a real estate broker based in Regina and also the president of CREA.
“Price adjustments in some markets have helped affordability. Second, lenders do have money for people and properties that qualify, although some are being more stringent.”
A recovery of consumer confidence has also helped boost sales in the housing market, he said.
Also encouraging a more stable housing market is a continuing decline in the supply of homes coming on to the market, CREA noted. New listings in April (seasonally adjusted) were 1.8 per cent lower than in March, and 16.4 per cent lower than the peak of May, 2008.
The spring housing market has been more active than CREA had anticipated, prompting a small upward revision to its forecast for sales for the rest of 2009.
For 2009, CREA now expects sales to fall 14.7 per cent to 307,500 homes – slightly less than in its last forecast issued in February. Stronger-than-expected rebounds in British Columbia and Ontario were the drivers behind the revision, CREA said.
2010 should bring a 7.2 per cent increase in sales – a slightly weaker rebound than in previous forecasts because of downgraded expectations for economic growth next year. The rebound is expected to be strongest in British Columbia and Alberta.
CREA economist Gregory Klump said he expects national average prices will rebound slowly from the low reached in January, and begin to post modest year-over-year increases during the fourth quarter of 2009.
Thursday, May 14, 2009
Financial Update for May 14, 2009
TSX -368.19
DOW -184.22
Dollar -1.02c to 85.04USD
Oil -$.83 to $58.02US per barrel
Gold +$2.00 to $925.50USD per ounce
Canadian 5 yr bond yields -.01bps to 2.09- (could be more fallout today)
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
“The TSX is down 3% (300 points or so) on worse than expected retail sales in the U.S.
Retail sales dropped slightly in April, but the markets expected no change. So people are really starting to think that maybe we haven’t turned the corner yet.
Bond yields have dropped on the news as people are selling stock and putting their money back into fixed income. I don’t have 5 year bond info (yet) but the yield on the 10 year bond is down 4 bps. So that should relieve some of the pressure that was building for an increase in fixed interest rates.”
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
New figures undermine hints of recovery
JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
Hold off on the talk about "green shoots'' and an economic recovery being just around the corner.
New data yesterday indicated that although there is reason to believe the economy is no longer in free-fall, it is still sliding toward a bottom not yet visible.
Retail sales in the United States fell 0.4 per cent in April, far worse than the flat reading economists anticipated, confirming that the American shopper is still dormant. In Canada, credit rating agency DBRS said conditions for domestic airlines are typical of past recessions, with first-quarter passenger traffic down three to six per cent.
This follows Tuesday's mixed report on bankruptcies -- consumer defaults alarmingly up; business insolvencies unexpectedly down.
One harbinger of global economic activity is demand for energy, and despite all the talk of a rebound in China and better conditions in the U.S., this appears to be muted, according to the Organization of Petroleum Exporting Countries. The oil cartel has lowered its estimate for world oil consumption for the ninth consecutive month.
Analysts believe conjecture about green shoots -- delicate signs of revival sprinkled among the economic desolation -- has overshadowed the risk that conditions could deteriorate further.
"I think it was the combination of the stock markets doing so well in March and April, and then we had that good employment report on Friday; people were getting ahead of themselves,'' said Dale Orr, a Toronto economist and consultant. "I still say it's going to be the fourth quarter until we see any growth at all.''
Even this forecast, which coincides with the Bank of Canada's projection, comes with caveats, including that there won't be another major financial-sector failure or that the broken North American auto sector won't finally expire.
Hard data over the past months are consistent with a severe recession, not growth, said CIBC economist Meny Grauman. Often-cited retail sales figures earlier in the year appeared solid only in contrast to the "horrid'' results of the previous months, he said.
And while housing markets are showing signs of nearing bottom, there is scant evidence of a rebound in prices or construction.
Friday's report of 36,000 new Canadian jobs in April, all in self-employment, provided the most encouraging signal since November. But it should be regarded as little more than a snapshot that may not be indicative of a trend, said Orr.
Economists like to put labour force numbers into a rolling three-month average to obtain a clearer picture. On that basis, Canada lost 108,000 jobs in the past three months, better than the 234,000 that vanished in the previous three months, but little to cheer about.
Extended over a full year, the recent numbers would translate into more than 400,000 job losses.
The clearest green light for the economy is being sent by stock markets, which until this week's reversal had rebounded strongly from early March. Investor exuberance has gone far beyond what was justified. "If you have a near-death experience, all the mundane things seem a lot sweeter,'' he explained.
DOW -184.22
Dollar -1.02c to 85.04USD
Oil -$.83 to $58.02US per barrel
Gold +$2.00 to $925.50USD per ounce
Canadian 5 yr bond yields -.01bps to 2.09- (could be more fallout today)
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
“The TSX is down 3% (300 points or so) on worse than expected retail sales in the U.S.
Retail sales dropped slightly in April, but the markets expected no change. So people are really starting to think that maybe we haven’t turned the corner yet.
Bond yields have dropped on the news as people are selling stock and putting their money back into fixed income. I don’t have 5 year bond info (yet) but the yield on the 10 year bond is down 4 bps. So that should relieve some of the pressure that was building for an increase in fixed interest rates.”
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
New figures undermine hints of recovery
JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
Hold off on the talk about "green shoots'' and an economic recovery being just around the corner.
New data yesterday indicated that although there is reason to believe the economy is no longer in free-fall, it is still sliding toward a bottom not yet visible.
Retail sales in the United States fell 0.4 per cent in April, far worse than the flat reading economists anticipated, confirming that the American shopper is still dormant. In Canada, credit rating agency DBRS said conditions for domestic airlines are typical of past recessions, with first-quarter passenger traffic down three to six per cent.
This follows Tuesday's mixed report on bankruptcies -- consumer defaults alarmingly up; business insolvencies unexpectedly down.
One harbinger of global economic activity is demand for energy, and despite all the talk of a rebound in China and better conditions in the U.S., this appears to be muted, according to the Organization of Petroleum Exporting Countries. The oil cartel has lowered its estimate for world oil consumption for the ninth consecutive month.
Analysts believe conjecture about green shoots -- delicate signs of revival sprinkled among the economic desolation -- has overshadowed the risk that conditions could deteriorate further.
"I think it was the combination of the stock markets doing so well in March and April, and then we had that good employment report on Friday; people were getting ahead of themselves,'' said Dale Orr, a Toronto economist and consultant. "I still say it's going to be the fourth quarter until we see any growth at all.''
Even this forecast, which coincides with the Bank of Canada's projection, comes with caveats, including that there won't be another major financial-sector failure or that the broken North American auto sector won't finally expire.
Hard data over the past months are consistent with a severe recession, not growth, said CIBC economist Meny Grauman. Often-cited retail sales figures earlier in the year appeared solid only in contrast to the "horrid'' results of the previous months, he said.
And while housing markets are showing signs of nearing bottom, there is scant evidence of a rebound in prices or construction.
Friday's report of 36,000 new Canadian jobs in April, all in self-employment, provided the most encouraging signal since November. But it should be regarded as little more than a snapshot that may not be indicative of a trend, said Orr.
Economists like to put labour force numbers into a rolling three-month average to obtain a clearer picture. On that basis, Canada lost 108,000 jobs in the past three months, better than the 234,000 that vanished in the previous three months, but little to cheer about.
Extended over a full year, the recent numbers would translate into more than 400,000 job losses.
The clearest green light for the economy is being sent by stock markets, which until this week's reversal had rebounded strongly from early March. Investor exuberance has gone far beyond what was justified. "If you have a near-death experience, all the mundane things seem a lot sweeter,'' he explained.
Wednesday, May 13, 2009
Financial Update for May 13, 2009
TSX -16.44
DOW +50.34
Dollar +.28c to 86.06USD after Stats Canada reported the country's merchandise trade surplus increased to $1.1 billion in March from $26 m in February, as imports fell faster than exports.
Oil +$.35 to $58.85US per barrel
Gold +$10.40 to $923.90USD per ounce
Canadian 5 yr bond yields +.03bps to 2.10-
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Info below is from the US, however still valuable and relative to issues of the day as to what is happening in other markets. We can learn from other markets and identify future trends for our market
Fed Chief Bernanke Defends Stress Tests of Major Banks
Wall Street Journal (05/12/09) P. A5; Derby, Michael S.
In a May 11 speech, Federal Reserve Chairman Ben Bernanke stood behind stress tests conducted on the nation's biggest banks, addressing criticism that they were too easy and understated banks' financial challenges. Bernanke acknowledged that predicting credit losses in the current economy is difficult but said the capital estimates are based on "pessimistic potential outlooks" and are therefore "appropriately conservative."
We're Dull, Small Banks Say, And Have Profit to Show for It
New York Times (05/12/09) P. A1; Segal, David
In recent months, community bankers have mounted PR campaigns to tout their fiscal health and to announce their rejection of Troubled Asset Relief Program funds.
Community banks hold less than 10 percent of the $13.8 trillion in bank assets nationwide, and their sound lending practices have shielded them from the worst of the recession and corresponding credit crunch. The 50 or so bank failures have been primarily clustered in states such as Californiaand Floridawhere the bursting housing bubble has had the greatest impact. In such states as Indiana where property values never skyrocketed, community banks have been on solid footing throughout the crisis.
U.S. Projects Aid Tally for Mortgage Giants
Washington Post (05/12/09) P. A16; Goldfarb, Zachary A.
Fannie Mae and Freddie Mac could need $92.2 billion more to cover their rising losses on mortgage-related investments, according to budget details from the Obamaadministration. The additional funds could raise the cost of taking over the mortgage finance giants to $171.1 billion for taxpayers. The budget report also discusses the potential fate of Fannie Mae and Freddie Mac, including a possible return to their previous status, but adds that the White House plans to work with Congress, regulatorsand the mortgage industry on a long-term role for the companies.
DOW +50.34
Dollar +.28c to 86.06USD after Stats Canada reported the country's merchandise trade surplus increased to $1.1 billion in March from $26 m in February, as imports fell faster than exports.
Oil +$.35 to $58.85US per barrel
Gold +$10.40 to $923.90USD per ounce
Canadian 5 yr bond yields +.03bps to 2.10-
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Info below is from the US, however still valuable and relative to issues of the day as to what is happening in other markets. We can learn from other markets and identify future trends for our market
Fed Chief Bernanke Defends Stress Tests of Major Banks
Wall Street Journal (05/12/09) P. A5; Derby, Michael S.
In a May 11 speech, Federal Reserve Chairman Ben Bernanke stood behind stress tests conducted on the nation's biggest banks, addressing criticism that they were too easy and understated banks' financial challenges. Bernanke acknowledged that predicting credit losses in the current economy is difficult but said the capital estimates are based on "pessimistic potential outlooks" and are therefore "appropriately conservative."
We're Dull, Small Banks Say, And Have Profit to Show for It
New York Times (05/12/09) P. A1; Segal, David
In recent months, community bankers have mounted PR campaigns to tout their fiscal health and to announce their rejection of Troubled Asset Relief Program funds.
Community banks hold less than 10 percent of the $13.8 trillion in bank assets nationwide, and their sound lending practices have shielded them from the worst of the recession and corresponding credit crunch. The 50 or so bank failures have been primarily clustered in states such as Californiaand Floridawhere the bursting housing bubble has had the greatest impact. In such states as Indiana where property values never skyrocketed, community banks have been on solid footing throughout the crisis.
U.S. Projects Aid Tally for Mortgage Giants
Washington Post (05/12/09) P. A16; Goldfarb, Zachary A.
Fannie Mae and Freddie Mac could need $92.2 billion more to cover their rising losses on mortgage-related investments, according to budget details from the Obamaadministration. The additional funds could raise the cost of taking over the mortgage finance giants to $171.1 billion for taxpayers. The budget report also discusses the potential fate of Fannie Mae and Freddie Mac, including a possible return to their previous status, but adds that the White House plans to work with Congress, regulatorsand the mortgage industry on a long-term role for the companies.
Financial Update for May 12, 2009
• TSX -143.85
• DOW -155.88
• Dollar -1.20c to 85.78USD
• Oil -$.13 to $58.50US per barrel
• Gold -$1.40 to $913.00USD per ounce
• Canadian 5 yr bond yields - .07bps to 2.07- Four weeks ago it was 1.85. The spread today vs the 5 year rate is now down to 1.71%
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us NEW LINK
Spreads have really come down and not sure how long this is going to last. If bond yields get any higher rates could start to move up. The Banks could be keeping the rates artificially low because of the spring season and don’t wish to be perceived as making things harder for consumers. If the stock market is down today we may see an easing on the bond yield side (bond yield will drop). Keep watching them and if they continue to rise, I expect we will see a rate increase
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Canada's rebound lagging, OECD says
JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
The Canadian economy remains in the grip of "strong slowdown'' despite the first baby steps of growth appearing in other parts of the world, a new report from the Organization for Economic Co-operation and Development shows.
The OECD says China is leading the world in a potential rebound from the world's most severe slump since the Great Depression, with the United Kingdom, France and Italy also showing signs that the economic slide is bottoming out.
The positive indicators in these countries are "tentative'' and "weak,'' the international think-tank says, but "they are present in a majority of the (composite leading indicators) component series.''
The rest of the industrialized world, including Canada, however, faces more economic deterioration, the think-tank says, although at a slowing pace.
The OECD's monthly data on economic indicators sensitive to expectations of future activity shows Canada's index falling for the fifth straight month, by 0.4 points in March. That puts it down 10.2 points over the past year, both numbers below the average for the 29 countries in the survey.
The report is at odds with Ottawa's oft-repeated boast that Canada will lead most major economies out of recession, and will bounce back higher.
Liberal finance critic John McCallum charged the federal government is partly to blame for Canada lagging behind some other economies, charging that Ottawa has been slow-footed in spending billions earmarked in January's budget for shovel-ready infrastructure.
"If you don't get your fiscal stimulus money out, you may as well not have a fiscal stimulus because it doesn't do one bit of good,'' he said.
"I don't think they can point to one job being created, for example, for infrastructure.''
Transport Minister John Baird, who is responsible for infrastructure, responded that the government has already given municipalities July's gas tax money and are moving quickly on construction projects.
The OECD report was not a surprise to most economists, many of whom have disputed Prime Minister Stephen Harper's contention that Canada would lead the world in coming out of recession.
Canada's dependence on exports to the U.S., China and other countries suggests that the country's economy depends on recovery outside its borders to boost demand for its products.
"At best, we've seen early signs Canada and the U.S. may be entering a period of more moderate decline rather than growth, but in East Asia we're seeing convincing signs that they are past the trough,'' said Avery Shenfeld, chief economist with CIBC World Markets.
China's resurgence would be good news for Canada, he adds, boosting demand for the country's base metals.
"Non-energy commodity prices typically rise in the early stages of recovery, or even before, in part due to the fact that firms must rebuild inventories before they can reactivate production lines,'' he said.
The OECD report is only the most recent voice sighting so-called "green shoots'' that are giving economists, investors and governments hope that the global economic and financial crisis is approaching a bottom.
European Central Bank president Jean-Claude Trichet also noted that growth has returned to some countries, although he cautioned that uncertainty remains high.
Even in North America, talk of seeing the light at the end of the tunnel is growing bolder with each encouraging, or less-than-awful, economic indicator.
Canada saw its first positive jobs report in six months in April, with employment registering a modest 36,000 jobs gain, although all came in the self-employment category.
• DOW -155.88
• Dollar -1.20c to 85.78USD
• Oil -$.13 to $58.50US per barrel
• Gold -$1.40 to $913.00USD per ounce
• Canadian 5 yr bond yields - .07bps to 2.07- Four weeks ago it was 1.85. The spread today vs the 5 year rate is now down to 1.71%
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us NEW LINK
Spreads have really come down and not sure how long this is going to last. If bond yields get any higher rates could start to move up. The Banks could be keeping the rates artificially low because of the spring season and don’t wish to be perceived as making things harder for consumers. If the stock market is down today we may see an easing on the bond yield side (bond yield will drop). Keep watching them and if they continue to rise, I expect we will see a rate increase
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Canada's rebound lagging, OECD says
JULIAN BELTRAME THE CANADIAN PRESS OTTAWA
The Canadian economy remains in the grip of "strong slowdown'' despite the first baby steps of growth appearing in other parts of the world, a new report from the Organization for Economic Co-operation and Development shows.
The OECD says China is leading the world in a potential rebound from the world's most severe slump since the Great Depression, with the United Kingdom, France and Italy also showing signs that the economic slide is bottoming out.
The positive indicators in these countries are "tentative'' and "weak,'' the international think-tank says, but "they are present in a majority of the (composite leading indicators) component series.''
The rest of the industrialized world, including Canada, however, faces more economic deterioration, the think-tank says, although at a slowing pace.
The OECD's monthly data on economic indicators sensitive to expectations of future activity shows Canada's index falling for the fifth straight month, by 0.4 points in March. That puts it down 10.2 points over the past year, both numbers below the average for the 29 countries in the survey.
The report is at odds with Ottawa's oft-repeated boast that Canada will lead most major economies out of recession, and will bounce back higher.
Liberal finance critic John McCallum charged the federal government is partly to blame for Canada lagging behind some other economies, charging that Ottawa has been slow-footed in spending billions earmarked in January's budget for shovel-ready infrastructure.
"If you don't get your fiscal stimulus money out, you may as well not have a fiscal stimulus because it doesn't do one bit of good,'' he said.
"I don't think they can point to one job being created, for example, for infrastructure.''
Transport Minister John Baird, who is responsible for infrastructure, responded that the government has already given municipalities July's gas tax money and are moving quickly on construction projects.
The OECD report was not a surprise to most economists, many of whom have disputed Prime Minister Stephen Harper's contention that Canada would lead the world in coming out of recession.
Canada's dependence on exports to the U.S., China and other countries suggests that the country's economy depends on recovery outside its borders to boost demand for its products.
"At best, we've seen early signs Canada and the U.S. may be entering a period of more moderate decline rather than growth, but in East Asia we're seeing convincing signs that they are past the trough,'' said Avery Shenfeld, chief economist with CIBC World Markets.
China's resurgence would be good news for Canada, he adds, boosting demand for the country's base metals.
"Non-energy commodity prices typically rise in the early stages of recovery, or even before, in part due to the fact that firms must rebuild inventories before they can reactivate production lines,'' he said.
The OECD report is only the most recent voice sighting so-called "green shoots'' that are giving economists, investors and governments hope that the global economic and financial crisis is approaching a bottom.
European Central Bank president Jean-Claude Trichet also noted that growth has returned to some countries, although he cautioned that uncertainty remains high.
Even in North America, talk of seeing the light at the end of the tunnel is growing bolder with each encouraging, or less-than-awful, economic indicator.
Canada saw its first positive jobs report in six months in April, with employment registering a modest 36,000 jobs gain, although all came in the self-employment category.
Monday, May 11, 2009
Financial Update for May 11, 2009
• TSX +270.94
• DOW +164.80
• Dollar +1.69c to 85.29USD bulked up by more than 1 1/2 cents to a 6-month high
• Oil +$1.92 to $58.63US per barrel hitting a 5 month high
• Gold -$.60 to $914.40USD per ounce
• Canadian 5 yr bond yields + .07bps to 2.19
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_usNEW LINK
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Dollar rises after news of job gain in April
May 09, 2009
THE CANADIAN PRESS
TORONTO
The Canadian dollar bulked up by more than 1 1/2 cents US yesterday to a six-month high, lifted by brightening economic hopes supported by better-than-expected job data.
The currency jumped to 86.91 cents US late in the afternoon, a gain of 1.62 cents from Thursday's close. This was up from below 77 cents in early March. It was the loonie's highest level since it spiked up by more than two cents on Nov. 4 as Americans elected Barack Obama -- a gain the Canadian currency quickly surrendered as it resumed a decline from almost 97 cents last September and from parity a year ago.
Yesterday's upward move came after Statistics Canada reported the economy added 35,900 jobs last month -- confounding economist expectations that losses would continue for a sixth month, likely by 50,000.
The currency was further bolstered by hopeful signs in Canada's main export market, as the United States shed 539,000 jobs, the fewest in six months and far smaller than market expectations of 620,000 job cuts.
The loonie also got support from oil. The near-month crude contract was up $1.92 to US$58.63 a barrel on the New York Mercantile Exchange, continuing an upturn after trolling around the $50 range for more than month.
"Oil prices are being driven higher by optimism over economic recovery and in response to soaring equities and associated weakness in the U.S. dollar,'' said British energy consultancy KBC Market Services.
The economic numbers support the so-called "green shoots'' thesis that recent data indicate signs of revival. "All in all, we're seeing that growth currencies like Canada are doing very well as commodities are having a good run, and the world is focusing on the potential that global growth comes back,'' said Camilla Sutton at Scotia Capital.
• DOW +164.80
• Dollar +1.69c to 85.29USD bulked up by more than 1 1/2 cents to a 6-month high
• Oil +$1.92 to $58.63US per barrel hitting a 5 month high
• Gold -$.60 to $914.40USD per ounce
• Canadian 5 yr bond yields + .07bps to 2.19
• http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_usNEW LINK
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Dollar rises after news of job gain in April
May 09, 2009
THE CANADIAN PRESS
TORONTO
The Canadian dollar bulked up by more than 1 1/2 cents US yesterday to a six-month high, lifted by brightening economic hopes supported by better-than-expected job data.
The currency jumped to 86.91 cents US late in the afternoon, a gain of 1.62 cents from Thursday's close. This was up from below 77 cents in early March. It was the loonie's highest level since it spiked up by more than two cents on Nov. 4 as Americans elected Barack Obama -- a gain the Canadian currency quickly surrendered as it resumed a decline from almost 97 cents last September and from parity a year ago.
Yesterday's upward move came after Statistics Canada reported the economy added 35,900 jobs last month -- confounding economist expectations that losses would continue for a sixth month, likely by 50,000.
The currency was further bolstered by hopeful signs in Canada's main export market, as the United States shed 539,000 jobs, the fewest in six months and far smaller than market expectations of 620,000 job cuts.
The loonie also got support from oil. The near-month crude contract was up $1.92 to US$58.63 a barrel on the New York Mercantile Exchange, continuing an upturn after trolling around the $50 range for more than month.
"Oil prices are being driven higher by optimism over economic recovery and in response to soaring equities and associated weakness in the U.S. dollar,'' said British energy consultancy KBC Market Services.
The economic numbers support the so-called "green shoots'' thesis that recent data indicate signs of revival. "All in all, we're seeing that growth currencies like Canada are doing very well as commodities are having a good run, and the world is focusing on the potential that global growth comes back,'' said Camilla Sutton at Scotia Capital.
Friday, May 8, 2009
Financial Update for May 7, 2009
Employment surprise: Canada adds jobs in April
OTTAWA - The Canadian economy saw an unexpected increase in jobs during April, despite a deepening economic recession, leaving the unemployment rate at 8%.
Statistics Canada said 35,900 positions were added during the month, driven by an increase in self-employment.
"Despite this increase, overall employment has fallen by 321,000 since the peak in October 2008," the federal agency said. "The unemployment rate was unchanged at eight per cent in April, remaining at its highest level in seven years, with the growth in employment coinciding with an increase in the labour force."
Most economists had expected 50,000 job losses in April, with the unemployment rate rising to 8.3%.
• TSX -176.38
• DOW -102.43
• Dollar -.49c to 85.29USD
• Oil -$.37 to $56.71US per barrel hitting a 5 month high
• Gold +$4.50 to $915.00USD per ounce
• Canadian 5 yr bond yields + .07bps to 2.09 http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_usNEW LINK
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Ten U.S. banks need to raise a total of US$75B
Janet Whitman, Financial Post NEW YORK -- After poring over the books of America's 19 largest financial firms in a two-month, 150-person-strong investigation, U.S.
regulators are forcing ten of them to raise a combined US$75-billion in capital as a buffer against future losses from bad loans.
Soon after the results were released, several of them raced to detail how they would do just that with Wells Fargo announcing plans to issue US$6-billion of common stock.
The dollar amount tallied in the government-mandated "stress" tests to determine the health of the banks is less than many analysts were forecasting. That could help restore faith that the financial system is stabilizing -- or fan criticism that the tests weren't rigorous enough.
The immediate reaction from investors seemed to be positive. A leading bank sector stock index surged in after-hours trading, while individual stocks such as Citigroup Inc., which must raise a further US$5.5-billion, and Fifth Third Bancorp, which has to raise an additional US$1.1-billion, rising 6.8% and 25.3% in after hours trading respectively.
"I guess it is pretty much good news in that we didn't have any real negative surprises from the leaks that we've seen through the week," said Kim Rupert, managing director of Action Economics LLC in San Francisco.
At a media briefing late Thursday as the results of the stress test were being made public, top U.S. government regulators said they were hopeful that the banks would be able to raise capital through private sources rather than turning to U.S.
taxpayers again for a handout.
Plans by Wells, the biggest U.S. mortgage originator, to sell US$6-billion of common stock would meet a good chunk of the US$13.7-billion it's being required to raise.
Meanwhile Citigroup said it was looking to exchange an additional US$5.5-billion of preferred securities for common stock to fill its capital shortfall.
Besides selling common stock, banks also will look to raise fresh capital by selling assets, offloading toxic loans into the government's "bad bank" if it gets off the ground.
Banks must make their capital-raising plans known within a month. They have six months to raise the money.
If the companies can't raise the funds from private sources, the U.S. government will pump in more money from its existing US$700-billion bailout fund.
Banks will be loath to accept this funding, however, because of the stigma that goes with needing a government bailout and the constraints that go with it, such as limits on executive bonuses that make it difficult to hire and retain top talent.
The results of the test are bound to widen the gap between healthy and ailing former Wall Street titans.
Bank of America Corp. was determined to need nearly US$34-billion in additional capital, by far the largest requirement of any of the top banks, while Morgan Stanley must raise US$1.8-billion and Citi US$5.5-billion.
Their healthier rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co. were deemed not to need funds.
Bank of New York Mellon Corp., MetLife Inc., American Express, State Street Corp., BB&T Corp., US Bancorp and Capital One Financial Corp. also aren't required to raise more capital.
Other banks being ordered to raise funds include KeyCorp at US$1.8-billion; PNC Financial Services Group Inc. at US$600-million; Regions Financial Corp. at US$2.5-billion; SunTrust Banks Inc. at US$2.2-billion; and GMAC LLC at US$11.5-billion.
The stress test estimated that losses for the 19 banks for this year and next could total U$600-billion on top of the hundreds of billions already lost. About US$455-billion of those losses are expected to come from bad home-mortgage loans.
Seeking to emphasize the point that the tests were stringent, regulators said that the more than 9% loss projected over two years is worse than the worst two-year period of the Great Depression, regulators said.
Timothy Geithner, the U.S. Treasury Secretary, didn't rule out having to go to the U.S. Congress to ask for more money beyond the US$700-billion bailout fund.
He said the U.S. government would extend the window allowing other banks to get government funds, but would not require them to under go stress tests.
Mr. Geithner cautioned that, though there are tentative signs the economy as a whole is on the mend, the government remains only at the beginning of its effort to stabilize the financial sector.
"We want to do this right...to get the economy back on track," he said.
OTTAWA - The Canadian economy saw an unexpected increase in jobs during April, despite a deepening economic recession, leaving the unemployment rate at 8%.
Statistics Canada said 35,900 positions were added during the month, driven by an increase in self-employment.
"Despite this increase, overall employment has fallen by 321,000 since the peak in October 2008," the federal agency said. "The unemployment rate was unchanged at eight per cent in April, remaining at its highest level in seven years, with the growth in employment coinciding with an increase in the labour force."
Most economists had expected 50,000 job losses in April, with the unemployment rate rising to 8.3%.
• TSX -176.38
• DOW -102.43
• Dollar -.49c to 85.29USD
• Oil -$.37 to $56.71US per barrel hitting a 5 month high
• Gold +$4.50 to $915.00USD per ounce
• Canadian 5 yr bond yields + .07bps to 2.09 http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_usNEW LINK
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Ten U.S. banks need to raise a total of US$75B
Janet Whitman, Financial Post NEW YORK -- After poring over the books of America's 19 largest financial firms in a two-month, 150-person-strong investigation, U.S.
regulators are forcing ten of them to raise a combined US$75-billion in capital as a buffer against future losses from bad loans.
Soon after the results were released, several of them raced to detail how they would do just that with Wells Fargo announcing plans to issue US$6-billion of common stock.
The dollar amount tallied in the government-mandated "stress" tests to determine the health of the banks is less than many analysts were forecasting. That could help restore faith that the financial system is stabilizing -- or fan criticism that the tests weren't rigorous enough.
The immediate reaction from investors seemed to be positive. A leading bank sector stock index surged in after-hours trading, while individual stocks such as Citigroup Inc., which must raise a further US$5.5-billion, and Fifth Third Bancorp, which has to raise an additional US$1.1-billion, rising 6.8% and 25.3% in after hours trading respectively.
"I guess it is pretty much good news in that we didn't have any real negative surprises from the leaks that we've seen through the week," said Kim Rupert, managing director of Action Economics LLC in San Francisco.
At a media briefing late Thursday as the results of the stress test were being made public, top U.S. government regulators said they were hopeful that the banks would be able to raise capital through private sources rather than turning to U.S.
taxpayers again for a handout.
Plans by Wells, the biggest U.S. mortgage originator, to sell US$6-billion of common stock would meet a good chunk of the US$13.7-billion it's being required to raise.
Meanwhile Citigroup said it was looking to exchange an additional US$5.5-billion of preferred securities for common stock to fill its capital shortfall.
Besides selling common stock, banks also will look to raise fresh capital by selling assets, offloading toxic loans into the government's "bad bank" if it gets off the ground.
Banks must make their capital-raising plans known within a month. They have six months to raise the money.
If the companies can't raise the funds from private sources, the U.S. government will pump in more money from its existing US$700-billion bailout fund.
Banks will be loath to accept this funding, however, because of the stigma that goes with needing a government bailout and the constraints that go with it, such as limits on executive bonuses that make it difficult to hire and retain top talent.
The results of the test are bound to widen the gap between healthy and ailing former Wall Street titans.
Bank of America Corp. was determined to need nearly US$34-billion in additional capital, by far the largest requirement of any of the top banks, while Morgan Stanley must raise US$1.8-billion and Citi US$5.5-billion.
Their healthier rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co. were deemed not to need funds.
Bank of New York Mellon Corp., MetLife Inc., American Express, State Street Corp., BB&T Corp., US Bancorp and Capital One Financial Corp. also aren't required to raise more capital.
Other banks being ordered to raise funds include KeyCorp at US$1.8-billion; PNC Financial Services Group Inc. at US$600-million; Regions Financial Corp. at US$2.5-billion; SunTrust Banks Inc. at US$2.2-billion; and GMAC LLC at US$11.5-billion.
The stress test estimated that losses for the 19 banks for this year and next could total U$600-billion on top of the hundreds of billions already lost. About US$455-billion of those losses are expected to come from bad home-mortgage loans.
Seeking to emphasize the point that the tests were stringent, regulators said that the more than 9% loss projected over two years is worse than the worst two-year period of the Great Depression, regulators said.
Timothy Geithner, the U.S. Treasury Secretary, didn't rule out having to go to the U.S. Congress to ask for more money beyond the US$700-billion bailout fund.
He said the U.S. government would extend the window allowing other banks to get government funds, but would not require them to under go stress tests.
Mr. Geithner cautioned that, though there are tentative signs the economy as a whole is on the mend, the government remains only at the beginning of its effort to stabilize the financial sector.
"We want to do this right...to get the economy back on track," he said.
Wednesday, May 6, 2009
Financial Update for May 6, 2009
Manufacturers see 'signs of pickup' They have been at the centre of the global economic storm for months, but now even Canadian manufacturers are daring to express a bit of optimism, FP article below
• TSX +10.35 touching its highest level in almost 6 months, as a firmer financial sector overcame weak energy issues, which fell as oil prices sagged.
• DOW -16.09
• Dollar +.42c to 85.64USD The Canadian dollar climbed to its highest level versus the U.S. currency in nearly six months as demand for riskier currencies was on the rise.
• Oil -$.63 to $53.84US per barrel
• Gold +$2.10 to $904.30USD per ounce as weak physical demand and growing risk appetite dented safe-haven demand in the bullion market.
• Canadian 5 yr bond yields - .02bps to 2.00- Four weeks ago it was 1.86.
The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Manufacturers see 'signs of pickup'
Paul Vieira, Financial Post OTTAWA -- They have been at the centre of the global economic storm for months, but now even Canadian manufacturers are daring to express a bit of optimism, with many expecting a jump in new orders in the coming months or at the very least demand to have stabilized.
The results are contained in the most recent monthly survey conducted by the Canadian Manufacturers and Exporters, which shows a "markedly more optimistic" outlook in the sector - which has shed roughly 500,000 jobs since 2002 and 110,000 this year alone.
The survey indicated that a "new positive trend" emerged in April, with 63% of manufacturers stating they expect the value of new orders to either stay the same or increase over the next three months.
"I think it may be a sign that we are kind of hitting bottom here," said Jayson Myers, chief executive of the Ottawa industry association. "We are seeing signs of pickup."
However, Mr. Myers warned further hurdles remain for the battered sector, including troubles among members in accessing financing, and the growing threat of U.S. protectionism through so-called "buy America" clauses.
Nevertheless, the CME survey results represent another sign that a recovery is in sight. Ben Bernanke, the chairman of the U.S. Federal Reserve, told Congress on Tuesday demand may be stabilizing.
Further, equity markets and the Canadian dollar have been on a tear in recent weeks, as investors who have stood on the sidelines during the financial crisis unwind their U.S.-dollar positions and take on additional risk in the belief the worst of the crisis is over.
According to the CME survey, conducted between April 13 and 22, 41% of members questioned said they expected orders up until July of 2009 to remain at current levels, and 22% suggested an uptick.
CME said this was "markedly more optimistic" than March's results, when 49% expected new orders to drop; 33% said they remain about the same; and 18% believed orders would increase.
Optimism was most pronounced in the chemicals and plastics sector, Mr. Myers said. This is key, he added, because these are raw materials to be used in building finished products.
As for employment prospects, 36% of manufacturers indicated jobs cuts were likely in the offing. However, CME said that was an improvement from surveys done in March and February, which suggested 42% and 44% of companies intended to reduce payrolls.
On the credit front, the CME survey said 56% of manufacturers reported experiencing trouble getting financing, which was a slight drop from previous surveys.
Mr. Myers said of particular concern was the number of companies indicating they were turned down due to the sector they operate in as opposed to the health of their balance sheet.
"Access to credit is going to remain an issue, and will remain an issue as orders come back," Mr. Myers said. "It is going to be harder [to access financing] as the economy rebounds because you don't have the money coming in but you have the cost of ramping up production again."
In the budget tabled in January, the federal government announced measures totalling $200-billion in an effort to ease the availability of credit. But Mr. Myers said many of initiatives have yet to be implemented - citing, in particular, the $12-billion secured credit facility aimed at reviving the car- and equipment-leasing market
• TSX +10.35 touching its highest level in almost 6 months, as a firmer financial sector overcame weak energy issues, which fell as oil prices sagged.
• DOW -16.09
• Dollar +.42c to 85.64USD The Canadian dollar climbed to its highest level versus the U.S. currency in nearly six months as demand for riskier currencies was on the rise.
• Oil -$.63 to $53.84US per barrel
• Gold +$2.10 to $904.30USD per ounce as weak physical demand and growing risk appetite dented safe-haven demand in the bullion market.
• Canadian 5 yr bond yields - .02bps to 2.00- Four weeks ago it was 1.86.
The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Manufacturers see 'signs of pickup'
Paul Vieira, Financial Post OTTAWA -- They have been at the centre of the global economic storm for months, but now even Canadian manufacturers are daring to express a bit of optimism, with many expecting a jump in new orders in the coming months or at the very least demand to have stabilized.
The results are contained in the most recent monthly survey conducted by the Canadian Manufacturers and Exporters, which shows a "markedly more optimistic" outlook in the sector - which has shed roughly 500,000 jobs since 2002 and 110,000 this year alone.
The survey indicated that a "new positive trend" emerged in April, with 63% of manufacturers stating they expect the value of new orders to either stay the same or increase over the next three months.
"I think it may be a sign that we are kind of hitting bottom here," said Jayson Myers, chief executive of the Ottawa industry association. "We are seeing signs of pickup."
However, Mr. Myers warned further hurdles remain for the battered sector, including troubles among members in accessing financing, and the growing threat of U.S. protectionism through so-called "buy America" clauses.
Nevertheless, the CME survey results represent another sign that a recovery is in sight. Ben Bernanke, the chairman of the U.S. Federal Reserve, told Congress on Tuesday demand may be stabilizing.
Further, equity markets and the Canadian dollar have been on a tear in recent weeks, as investors who have stood on the sidelines during the financial crisis unwind their U.S.-dollar positions and take on additional risk in the belief the worst of the crisis is over.
According to the CME survey, conducted between April 13 and 22, 41% of members questioned said they expected orders up until July of 2009 to remain at current levels, and 22% suggested an uptick.
CME said this was "markedly more optimistic" than March's results, when 49% expected new orders to drop; 33% said they remain about the same; and 18% believed orders would increase.
Optimism was most pronounced in the chemicals and plastics sector, Mr. Myers said. This is key, he added, because these are raw materials to be used in building finished products.
As for employment prospects, 36% of manufacturers indicated jobs cuts were likely in the offing. However, CME said that was an improvement from surveys done in March and February, which suggested 42% and 44% of companies intended to reduce payrolls.
On the credit front, the CME survey said 56% of manufacturers reported experiencing trouble getting financing, which was a slight drop from previous surveys.
Mr. Myers said of particular concern was the number of companies indicating they were turned down due to the sector they operate in as opposed to the health of their balance sheet.
"Access to credit is going to remain an issue, and will remain an issue as orders come back," Mr. Myers said. "It is going to be harder [to access financing] as the economy rebounds because you don't have the money coming in but you have the cost of ramping up production again."
In the budget tabled in January, the federal government announced measures totalling $200-billion in an effort to ease the availability of credit. But Mr. Myers said many of initiatives have yet to be implemented - citing, in particular, the $12-billion secured credit facility aimed at reviving the car- and equipment-leasing market
Tuesday, May 5, 2009
Financial Update for May 5, 2009
Stocks surge as data encourage hopes world economy is reviving~ Resources lead TSX up almost 4% to 2009 high
It's like watching the market's blood pressure come down," said David Kelly, chief market strategist at JPMorgan Funds in New York. "Every day that goes by without something bad happening is reducing the risk of an economic rebound getting derailed."
• TSX +373.41 to 9,870 as optimism over the health of the global financial sector and the economy in general pushed up issues across all industry groups.
• DOW +214.33The strength has raised hopes that a full-blown recovery is in process. Traders were heartened as the U.S. Commerce Department said construction spending rose 0.3% in March after 5 straight declines.
• Dollar +.90c to 85.22USD
• Oil +$1.27 to $54.47US per barrel
• Gold +$14.00 to $901.60USD per ounce
• Canadian 5 yr bond yields +.02bps to 2.02- Four weeks ago it was 1.88.
http://www.financialpost.com/markets/market_data/money-yields-can_us.html
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
It's like watching the market's blood pressure come down," said David Kelly, chief market strategist at JPMorgan Funds in New York. "Every day that goes by without something bad happening is reducing the risk of an economic rebound getting derailed."
• TSX +373.41 to 9,870 as optimism over the health of the global financial sector and the economy in general pushed up issues across all industry groups.
• DOW +214.33The strength has raised hopes that a full-blown recovery is in process. Traders were heartened as the U.S. Commerce Department said construction spending rose 0.3% in March after 5 straight declines.
• Dollar +.90c to 85.22USD
• Oil +$1.27 to $54.47US per barrel
• Gold +$14.00 to $901.60USD per ounce
• Canadian 5 yr bond yields +.02bps to 2.02- Four weeks ago it was 1.88.
http://www.financialpost.com/markets/market_data/money-yields-can_us.html
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Monday, May 4, 2009
Financial Update for May 4, 2009
• TSX +172.13
• DOW +44.29
• Dollar +.50c to 84.32USD
• Oil +$2.08 to $53.20US per barrel
• Gold -3.10 to $887.60USD per ounce
• Canadian 5 yr bond yields -.01bps to 2.00- Four weeks ago it was 1.88.
http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Today’s quote from www.canadianmortgagetrends.com that states what we have been saying for a few days now, that we may see a possible rate increase in the future triggered by the bond yields going up and the spread going down
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
April 29, 2009
5-Year Yields Break Above 2%
Earlier today, 5-year bond yields broke above 2% for the first time in 8 weeks.
Keep an eye on the chart. A further 10-20 basis point increase might prompt certain lenders to start lifting fixed mortgage rates.
If you’re considering a new fixed-rate mortgage or pre-approval, there has never been a better time to apply.
Obama eyes Canada as bank model
TORONTO STAR DAVID OLIVE BUSINESS COLUMNIST
Barack Obama, contemplating sweeping reforms to the U.S. financial system, cited Canada as a model worth emulating in an interview published yesterday.
"You know, I've looked at the evidence so far that indicates that other countries that have not seen some of the problems in their financial markets that we have nevertheless don't separate between investment banks and commercial banks," the U.S. president told New York Times economics columnistDavid Leonhart in a Times Magazine cover story yesterday. "They have a `supermarket' model that they've got strong regulation of."
"Like Canada?" Leonhart asked.
"Canada being a good example," Obama said. "And they've actually done a good job in managing through what was a pretty risky period in the financial markets."
"When it comes to something like investment banking versus commercial banking," Obama said, "the experience in a country like Canada would indicate that good, strong regulation that focuses less on the legal form of the institution and more on the functions that they're carrying out is probably the right approach to take."
Obama praised Canada's banking system in an earlier interview, in advance of the G20 meeting of world leaders in London last month. His more recent comments suggest Obama's economic team is closer to deciding on an approach to a long-anticipated overhaul of financial regulation in America, where the current global financial crisis has its origins.
Wall Street observers worry Obama might push for a breakup of America's largest banks and other financial institutions, often deemed "too big to fail," in order to make them easier to manage prudentially and to regulate.
At the very least, a rough consensus of observers believe, Obama would reinstitute the divorce of commercial from investment banking that Franklin Roosevelt forced in 1933, and which remained in effect until 1999. Not long after, America's disastrous housing boom got underway along with the distribution of "toxic" U.S. subprime, or `junk'," mortgages to lenders worldwide.
But the "Canadian option" of stricter regulations and stronger enforcement of them by a beefed-up existing regulatory regime would best fit Obama's approach of tweaking, rather than overturning, the status quo.
Canadian banks are limited by federal regulation to $20 in loans and other investments for each $1 in capital. The "reserve ratio" in the U.S. and Europe ranges as high as 40:1, a level of risk that some of the biggest world banks proved unable to handle when the U.S. housing boom collapsed in 2007 and default rates on mortgages soared.
All of Canada's six largest banks follow the supermarket model, having absorbed the securities industry and the trust sector in the 1980s. Only insurance, in which the banks merely dabble, remains mostly outside the banks' ambit, despite years of bank lobbying of Ottawa to allow the marketing of a wider range of insurance products.
As a result of their largely shunning the purchase of multimillion-dollar packages of U.S. junk mortgages, Canadian banks have earned international acclaim for their continued sound condition. But that had nothing to do with the Canadian banks' size or diversity of functions, and everything to do with prudent risk decisions and scrupulous regulatory supervision.
Canada's five largest banks now are among the 50 most valuable in the world. A decade ago, none were in those ranks.
• DOW +44.29
• Dollar +.50c to 84.32USD
• Oil +$2.08 to $53.20US per barrel
• Gold -3.10 to $887.60USD per ounce
• Canadian 5 yr bond yields -.01bps to 2.00- Four weeks ago it was 1.88.
http://www.financialpost.com/markets/market_data/money-yields-can_us.html
Today’s quote from www.canadianmortgagetrends.com that states what we have been saying for a few days now, that we may see a possible rate increase in the future triggered by the bond yields going up and the spread going down
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
April 29, 2009
5-Year Yields Break Above 2%
Earlier today, 5-year bond yields broke above 2% for the first time in 8 weeks.
Keep an eye on the chart. A further 10-20 basis point increase might prompt certain lenders to start lifting fixed mortgage rates.
If you’re considering a new fixed-rate mortgage or pre-approval, there has never been a better time to apply.
Obama eyes Canada as bank model
TORONTO STAR DAVID OLIVE BUSINESS COLUMNIST
Barack Obama, contemplating sweeping reforms to the U.S. financial system, cited Canada as a model worth emulating in an interview published yesterday.
"You know, I've looked at the evidence so far that indicates that other countries that have not seen some of the problems in their financial markets that we have nevertheless don't separate between investment banks and commercial banks," the U.S. president told New York Times economics columnistDavid Leonhart in a Times Magazine cover story yesterday. "They have a `supermarket' model that they've got strong regulation of."
"Like Canada?" Leonhart asked.
"Canada being a good example," Obama said. "And they've actually done a good job in managing through what was a pretty risky period in the financial markets."
"When it comes to something like investment banking versus commercial banking," Obama said, "the experience in a country like Canada would indicate that good, strong regulation that focuses less on the legal form of the institution and more on the functions that they're carrying out is probably the right approach to take."
Obama praised Canada's banking system in an earlier interview, in advance of the G20 meeting of world leaders in London last month. His more recent comments suggest Obama's economic team is closer to deciding on an approach to a long-anticipated overhaul of financial regulation in America, where the current global financial crisis has its origins.
Wall Street observers worry Obama might push for a breakup of America's largest banks and other financial institutions, often deemed "too big to fail," in order to make them easier to manage prudentially and to regulate.
At the very least, a rough consensus of observers believe, Obama would reinstitute the divorce of commercial from investment banking that Franklin Roosevelt forced in 1933, and which remained in effect until 1999. Not long after, America's disastrous housing boom got underway along with the distribution of "toxic" U.S. subprime, or `junk'," mortgages to lenders worldwide.
But the "Canadian option" of stricter regulations and stronger enforcement of them by a beefed-up existing regulatory regime would best fit Obama's approach of tweaking, rather than overturning, the status quo.
Canadian banks are limited by federal regulation to $20 in loans and other investments for each $1 in capital. The "reserve ratio" in the U.S. and Europe ranges as high as 40:1, a level of risk that some of the biggest world banks proved unable to handle when the U.S. housing boom collapsed in 2007 and default rates on mortgages soared.
All of Canada's six largest banks follow the supermarket model, having absorbed the securities industry and the trust sector in the 1980s. Only insurance, in which the banks merely dabble, remains mostly outside the banks' ambit, despite years of bank lobbying of Ottawa to allow the marketing of a wider range of insurance products.
As a result of their largely shunning the purchase of multimillion-dollar packages of U.S. junk mortgages, Canadian banks have earned international acclaim for their continued sound condition. But that had nothing to do with the Canadian banks' size or diversity of functions, and everything to do with prudent risk decisions and scrupulous regulatory supervision.
Canada's five largest banks now are among the 50 most valuable in the world. A decade ago, none were in those ranks.
Friday, May 1, 2009
Financial Update for May 1, 2009
• TSX -91.48tumbling from its highest level in more than 5 months as commodity shares turned lower and Chrysler's bankruptcy filing weighed on the market's mood.
• DOW -17.61
• Dollar +.69c to 83.82USD
• Oil +$..15 to $51.12US per barrel
• Gold -9.10 to $890.70USD per ounce
• Canadian 5 yr bond yields +.00bps to 2.01- Four weeks ago it was 1.82. http://www.financialpost.com/markets/market_data/money-yields-can_us.html
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Canada splits with U.S. on accounting rules
Eoin Callan, Financial Post
Canada is splitting with the United States and aligning with Europe over how much discretion to give banks when they value distressed assets on their books.
The decision was confirmed Thursday by the Canadian Accounting Standards Board and marks a decisive shift by the country to align with international rules rather than move in lockstep with the U.S. sector.
The stance was affirmed despite an intensive lobbying effort by Bay Street to level the playing field with U.S. banks, to which Washington granted extra leeway in April.
Chief executives of the country's largest banks had sought political intervention from the highest level and made direct personal appeals to Jim Flaherty, the Finance Minister.
They asked Mr. Flaherty to use his influence during private one-on-one conversations with the Finance Minister, said people familiar with the discussions.
Ottawa subsequently brought pressure to bear on standard-setters, according to a person familiar with the matter.
But those efforts fell short in the face of appeals from the accounting industry and advocates for financial analysts and investors not to copy the unilateral action taken by Washington.
The Canadian body did, however, make a significant concession to Bay Street that lobbyists cheered as a victory.
After previously insisting it would avoid a piecemeal approach to setting rules about how companies' handle their books, the Canadian Accounting Standards Board Thursday said it had "decided to revise its standards on impairment of debt instruments."
The changes will allow banks more flexibility when valuing financial assets classified as "held-to-maturity" or "loans and receivables".
The body said the fresh rules would be circulated for comment and would "narrow the differences with new U.S. requirements".
The board said the rules brought Canada into line with the approach of the London-based International Accounting Standards Board.
The alignment with international rules was welcomed by the Canadian Advocacy Council (CAC), which represents financial analysts and investor interests.
Blair Carey, an analyst with the CAC, said that the "most important thing in the big picture" was that Canada was still moving towards global rules rather than "U.S. methods."
But he said the interference from Ottawa was "unwelcome and problematic".
Brad Smith, a financial analyst at Blackmont Capital, said: "Changing anything like this on the fly is always dangerous."
He added the compromise could ultimately undermine confidence in the Canadian financial system.
"Any moves towards a subjective, influence-driven way of doing things tells you the system is still broken," he said.
Vincent Papa, senior policy analyst at the Chartered Financial Analysts Institute, said the precise wording arrived at by rule-setters would leave auditors vulnerable to pressure to acquiesce to the demands of chief financial officers at banks seeking to avoid costly writedowns.
Canadian banks have recorded about $20-billion in losses on financial assets during the course of the credit crisis but avoided the heavier writedowns booked by foreign peers
• DOW -17.61
• Dollar +.69c to 83.82USD
• Oil +$..15 to $51.12US per barrel
• Gold -9.10 to $890.70USD per ounce
• Canadian 5 yr bond yields +.00bps to 2.01- Four weeks ago it was 1.82. http://www.financialpost.com/markets/market_data/money-yields-can_us.html
*The yield, the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise.
Canada splits with U.S. on accounting rules
Eoin Callan, Financial Post
Canada is splitting with the United States and aligning with Europe over how much discretion to give banks when they value distressed assets on their books.
The decision was confirmed Thursday by the Canadian Accounting Standards Board and marks a decisive shift by the country to align with international rules rather than move in lockstep with the U.S. sector.
The stance was affirmed despite an intensive lobbying effort by Bay Street to level the playing field with U.S. banks, to which Washington granted extra leeway in April.
Chief executives of the country's largest banks had sought political intervention from the highest level and made direct personal appeals to Jim Flaherty, the Finance Minister.
They asked Mr. Flaherty to use his influence during private one-on-one conversations with the Finance Minister, said people familiar with the discussions.
Ottawa subsequently brought pressure to bear on standard-setters, according to a person familiar with the matter.
But those efforts fell short in the face of appeals from the accounting industry and advocates for financial analysts and investors not to copy the unilateral action taken by Washington.
The Canadian body did, however, make a significant concession to Bay Street that lobbyists cheered as a victory.
After previously insisting it would avoid a piecemeal approach to setting rules about how companies' handle their books, the Canadian Accounting Standards Board Thursday said it had "decided to revise its standards on impairment of debt instruments."
The changes will allow banks more flexibility when valuing financial assets classified as "held-to-maturity" or "loans and receivables".
The body said the fresh rules would be circulated for comment and would "narrow the differences with new U.S. requirements".
The board said the rules brought Canada into line with the approach of the London-based International Accounting Standards Board.
The alignment with international rules was welcomed by the Canadian Advocacy Council (CAC), which represents financial analysts and investor interests.
Blair Carey, an analyst with the CAC, said that the "most important thing in the big picture" was that Canada was still moving towards global rules rather than "U.S. methods."
But he said the interference from Ottawa was "unwelcome and problematic".
Brad Smith, a financial analyst at Blackmont Capital, said: "Changing anything like this on the fly is always dangerous."
He added the compromise could ultimately undermine confidence in the Canadian financial system.
"Any moves towards a subjective, influence-driven way of doing things tells you the system is still broken," he said.
Vincent Papa, senior policy analyst at the Chartered Financial Analysts Institute, said the precise wording arrived at by rule-setters would leave auditors vulnerable to pressure to acquiesce to the demands of chief financial officers at banks seeking to avoid costly writedowns.
Canadian banks have recorded about $20-billion in losses on financial assets during the course of the credit crisis but avoided the heavier writedowns booked by foreign peers
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