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