Financial Update For April 16, 2010

• TSX +7.11
• DOW +21.46 after the jobless claims report, which showed a surprise surge for the second week in a row. However the U.S. Labor Department's weekly jobless claims report said there were 484,000 new claims filed last week, up 24,000 from the previous week. Separately, a report from RealtyTrac said there were more than 930,000 foreclosure filings in the first quarter of 2010, up 7% from the previous quarter. Filings were up 16% versus the first-quarter of 2009.
• Dollar +.27c to 100.08cUS
• Oil -$.33 to $85.51US per barrel.
Gold +$1.00 to $1,161.00 USD per ounce
•

Housing may have peaked
Gary Marr, Financial Post
The spring homebuying season has reached a fever pitch with a record number of "for sale" signs being placed on Canadian lawns for the month of March.
But there are indications the market has reached the peak with nowhere to go but down.
The Canadian Real Estate Association said yesterday that 97,663 properties were put on market last month, a 25% increase from the number of new listings in March a year ago. Since the beginning of the new year, there have been 233,402 homes put on the market, the best-ever first quarter for new listings.
With demand still strong, sales continue to soar. There were 49,256 units that traded hands in March, the second-best March on record, and a 40.8% rise from a year earlier.
Yet despite the huge increase in year-over-year sales, March was the fifth straight month that the percentage increase has declined. In some markets, sales are already falling. Seasonally adjusted sales in British Columbia dropped 17.8% from a quarter earlier and Alberta sales dropped 9.7% during the same period.
Phil Soper, chief executive of Royal LePage Real Estate Services, said affordability and consumer confidence drive the market. "The former has not eroded enough to affect the market and the latter has improved considerably," he said.
Still, he concedes the spring market may be the top for real estate. "It will be the top from an industry-volume perspective. It's the last hurrah for the pent-up demand in the market," said Mr. Soper, who expects prices to continue to rise, but more slowly.
Even with the increase in the supply of homes, sales are expected to remain strong this spring as homebuyers scramble before tougher mortgage rules, rising interest rates and the new HST in Ontario and British Columbia come into play - all by July 1.
Many in the industry concede, however, the spring market could be the last gasp before housing sales start to drop, along with prices. Few, however, are predicting a U.S.-style crash.
"If this isn't the top, we are very close to it in terms of sale activity and price," said Gregory Klump, chief economist with CREA.
Mr. Klump doesn't predict the market will reverse dramatically, but says year-over-year comparisons are going to continue to shrink for sales and prices.
Mr. Klump said prices at the high end of the market are going to start driving down because consumers in that segment are trying to beat the clock on all the changes ¬coming.
New mortgage rules, which go into effect on April 19, will force consumers to borrow based on the five-year posted rate if they are locking in for a term less than five years. Previously, they could use the actual rate on their contract, meaning they could borrow more.
Banks have also raised long-term mortgage rates in the past two weeks, with a five-year, fixed-rate closed mortgage rising from 5.25% to 6.10%. The Bank of Canada is expected to raise its own benchmark rates shortly and that will affect consumers with floating-rate mortgages now based on a prime rate of 2.25%.
And the introduction of the harmonized sales tax on July 1 will raise costs for some services associated with buying a house, such as a real estate commission. It is coming only to British Columbia and Ontario, but Toronto and Vancouver are the most expensive real estate markets in the country and skew the national averages.
For now, the market still has some wind behind it. "Negotiations still favour sellers during the home-buying process in a number of major Canadian housing markets," said Georges Pahud, CREA's president.
"The rise in new listings means that buyers may shop around more before making an offer."
Financial Post Read more: http://www.financialpost.com/news-sectors/economy/story.html?id=2911893#ixzz0lGFvTYK7

Bank to keep us guessing on rates
Financial Post
OTTAWA -- Traders hope next week's interest-rate decision from the Bank of Canada settles the debate as to whether the central bank's first rate hike in nearly three years comes in June or July.
Some observers warn, though, that the central bank might keep people guessing.
"The reality may be somewhat messier, with quite a number of viable scenarios, and the most likely outcome [is] that the central bank elects to leave both options open - to be settled by incoming economic data," said Eric Lascelles, chief Canadian strategist at TD Securities.
It will be a big week for Mark Carney, the Bank of Canada governor, with the rate statement on Tuesday, followed two days later by the release of the central bank's latest economic outlook, which is bound to incorporate the robust data emerging not just in Canada, but the United States and the rest of the globe.
Markets, through bankers' acceptance futures, have priced in a 100% chance that the rate hike comes in July, allowing the central bank to fulfill its conditional commitment to maintain its 0.25% rate until the end of the second quarter. But those same instruments have priced in a 50-50 likelihood of a June increase.
Pressure on Mr. Carney to move in June has mounted in recent weeks, especially on news that inflation is stronger than the central bank had forecast, and a sharp upturn in inflation expectations among firms.
Core inflation in February surpassed the key 2% mark, while headline inflation remained above forecast. The central bank sets its interest rate to achieve and maintain 2% inflation.
The yield on the two-year Canada bond now stands at roughly 1.92%, for a spread of nearly 170 basis points against the Bank of Canada benchmark rate. Yanick Desnoyers, assistant chief economist at National Bank Financial, said history dictates rate hikes emerge once that spread reaches 160 basis points. (Higher yields generally forecast higher inflation down the road.)
"How can you justify a yield curve that is calling for rate hikes," said Mr. Desnoyers, who is among those calling for a June move.
Still, the consensus among private sector economists is that the Bank of Canada will wait until July. Even though inflation is stronger than expected, analysts note that's likely due to one-off factors such as the Winter Olympics, which will no longer be accounted for in future readings.
Further, an early rate hike could spark a sudden surge in the Canadian dollar, as the U.S. Federal Reserve has indicated no plans to raise its policy rate any time soon as inflation in that country remains tepid and unemployment relatively high.
"The Canadian dollar has to be a consideration for the Bank of Canada, and is the main reason we think it will wait until July," said Sal Guatieri, senior economist at BMO Capital Markets.
Sheryl King, head of Canadian economics strategy at Merrill Lynch Canada, said it would be best if the Bank of Canada began rate hikes in June, and take a "low and slow" approach. One option mentioned – that the central bank waits until July and undertake a 50-basis-point increase at that time – is "crazy talk," she said, as the market would then expect all future hikes to be similar in size and drive up long-term yields in "a heartbeat."
Financial Post