Financial Update For Dec. 24, 2009

• TSX +30.72 thanks to higher mining stocks. The TSX closes at 1pm today.
• DOW +1.51 amid another economic report showing that consumer spending and incomes rose last month. The U.S. Commerce Department says consumer spending jumped 0.5 per cent in November, while incomes gained 0.4 per cent.
• Dollar +.85c to 95.38cUS to the strongest level in almost 3 weeks amid speculation an accelerating economic recovery will prompt the central bank to raise interest rates sooner than it expected.
• Oil +$2.27 to $76.67US per barrel.
• Gold +$7.30 to $1,093.93USD per ounce
•

Stimulus and housing give economy one-two punch
The Canadian economy strung together back-to-back months of growth for the first time in almost two years, but economists warn that consumers and government stimulus have been "carrying the ball" by fuelling a booming real-estate market that is ultimately unsustainable.
Canada's economy grew a modest 0.2% in October, the latest figures from Statistics Canada show. That followed a 0.4% increase in September.
Stewart Hall, economist with HSBC Securities Canada, said the country's real-estate market has been a major factor, fuelling spending in everything from renovations to new furnishings and even new cars to go in new garages.
"Financial, insurance and real estate have continued to be that pillar of strength, consistently showing growth through much of this economic recession," he said. "And we know that is the housing market, a reflection of the remarkable strength in the existing-home sales market."
October figures from Statistics Canada show a 7.2% rise in existing-home sales activity from real-estate agents and brokers. However, construction activity was up only 0.1%.
Meanwhile, after posting a 1% rise in September, the key manufacturing category fell flat in October.
One area that outperformed was utilities, which grew 2.4% during the month as temperatures returned to seasonal levels after a mild September.
"The housing market has been the big surprise for 2009," Mr. Hall said. He warned that consumers are taking on more and more debt due to record-low interest rates, and banks are happy to lend that money out.
"You hear [Bank of Canada governor Mark] Carney say both borrowers and lenders need to act prudently. Well, of course they do. But the history of the past few years shows telling people to behave themselves just doesn't work," he said.
Supporting domestic demand will continue to be an area of concern in 2010 as the downturn itself was caused by a collapse in external demand, namely from the United States.
"We lost a lot of external demand and it's unreasonable to think we can recover that from domestic sources for an extended period of time," Mr. Hall said.
Douglas Porter, deputy chief economist with BMO Capital Markets, said economists were disappointed in the overall numbers because results from manufacturing, retail and wholesale trade all came in short of preliminary reports. The difference was likely due in part to businesses burning off their existing inventories.
"It's unusual for all three to be moving in the opposite direction," he said. "But we shouldn't be too down on the number. It's gratifying to see two months in a row of growth for the first time since late 2007."
While there was growth month over month, the economy was still 3.2% smaller than it was in October 2008. The latest figures marked the 12th straight month that economy was weaker than it was in the year-earlier period.
Economists will now watch to see if the economy closed out the year as expected, bouncing back from the fairly shaking base built in September and October and accelerating into a full-fledged recovery in 2010.
Alex Koustas of Scotia Economics released a provincial outlook for 2010, highlighting an expected rebound in Ontario, a slowdown in Quebec and commodities producers in Western Canada benefiting the most from strengthening global markets.
"That Canada escaped from the global slump fairly quickly is reflective of our relatively healthy household balance sheets and stable financial system," he said in a report. "However, the modest pace of the recovery highlights the ongoing trade and competitive hurdles that need to be overcome in order to return to stronger growth."
Scotia expects British Columbia to lead the way with GDP growth of 3% in 2010, on the back of the Vancouver Winter Olympics and improving coal prices.
The Atlantic provinces will see the least growth, with Prince Edward Island bringing up the rear at +1.9%.
Quebec will underperform, growing only 2.2% on uncertainty in forestry and aerospace while Ontario's manufacturing will lead a comeback to 2.7% GDP gains.