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.