• TSX +185.21 sharply higher as good economic news from China sent commodity stocks higher on the resource-heavy TSX and helped curb worry that Europe's debt crisis will seriously hamper the global recovery.
• DOW +273.28 to 10,172
• Dollar +1.21c to 96.97cUS
• Oil +$1.10 to $75.48US per barrel.
• Gold -$7.70 to $1,221.10 USD per ounce as a rise in stocks and the euro reflected sharper appetite for nominally higher-risk assets
Canada modestly impacted by European debt crisis so far, Bank of Canada says
BY LUANN LASALLE
MONTREAL — While the European debt crisis has only had a “modest” impact on Canada, the crisis isn’t over and all governments need to be on healthy fiscal paths, Bank of Canada governor Mark Carney said Thursday.
“So there’s been a modest impact on financial conditions — a slight tightening of financial conditions in Canada — and a modest impact on commodity prices,” Carney said at a news conference.
“But it’s not over. You know, this is serious stuff,” he said, adding that it is “incredibly important” to execute the right policies to deal with the situation.
The head of Canada’s largely independent central bank has been providing similar advice to policymakers for months. His latest speech comes as Canada prepares to play host to G20 and G8 meetings from June 25 to 27, when the state of the world’s financial system will be among the main topics.
Canada won widespread accolades during the 2008-09 credit crisis and recession, for a regulatory regime credited with avoiding problems that forced the United States and other governments to bail out major banks and insurance companies.
Carney said he’s encouraged with the measures that European policymakers have taken so far, “but I don’t think anybody is of the view that more will not be required.”
“What we are seeing at present is a stronger demand from the market for more credible plans, more rapid plans, more rapid movements to fiscal sustainability at any level of government.”
BMO Capital Markets senior economist Michael Gregory said Carney’s remarks suggest the Bank of Canada has room to raise its key rates in July — following a quarter-point hike this month.
The central bank’s policy rate had been set at an all-time low of 0.25 per cent last year as a means to ease the cost of borrowing in order to stimulate the economy out of the deepest recession in decades.
“Bottom line: It sounds like the urgency of the risks posed by the European situation has eased somewhat in the Bank of Canada’s mind,” Gregory wrote in a note.
“Other things equal, this modestly raises the odds of a followup rate hike on July 20.”
Carney wouldn’t say if another hike in the central bank’s policy rate is expected this summer. On June 1, the Bank of Canada raised its key rate a quarter point to 0.5 per cent, the first time in almost three years.
“I would say it’s too early to make a judgment, nor is it necessary for us to make a judgment today.”
This week, the World Bank raised the possibility of a second recession affecting most of the industrialized world if governments don’t deal successfully with the unfolding European debt crisis affecting such countries as Greece and Spain.
The risk is serious enough that it will likely be the key topic of discussion for leaders meeting in Toronto later this month at a G20 summit.
During his speech to a Montreal economic conference, Carney said that banks should prepare for radical reforms to the world’s financial system that will make it look a lot more like what’s already in Canada.
The Canadian banking sector has been held as an example for the international community because its conservative investment practices helped it endure the credit crisis in 2008.
“The rigour of Canadian capital regulation was an important — although far from exclusive — reason why the Canadian system fared so well during the crisis,” Carney told the International Organization of Securities Commissions.
And he stressed that reforms pose no threat to the global recovery, saying the opposite is true — they will help economic growth.
Once implemented, global financial institutions will be required to retain more and better capital, improve liquidity and reduce risk, and introduce a capital buffer that is sufficiently large to absorb losses encountered in the 2008 crisis that led to a global recession, Carney said.
Although the coming changes will be significant, Carney dismissed critics who believe the requirement for more capital reserves will limit banks’ ability to lend and slow down economic activity.
In fact, the opposite will happen, he said.
The reforms will cause banks to shift focus away from trading risky financial instruments and more to conventional lending to businesses and individuals that spur growth, he argued.
And he noted that banks will be given plenty of lead time to meet new standards since the implementation date of key reforms won’t be until the end of 2012.
http://news.therecord.com/Business/article/726447
The bad news - bad news on U.S. jobs
by Brett Arends, WSJ.com and MarketWatch
Commentary: Five reasons the employment numbers are worse than they seem
BOSTON -- The news on jobs isn't as bad as it seemed last Friday.
It's worse.
President Obama and Treasury Secretary Geithner were trying to putting on a happy face, but the markets weren't buying. They have tumbled worldwide since the latest payroll data.
But instead of overreacting, the markets may only just be waking up to the real bad news.
1. Look out ahead.
We already know that when you strip out the short-term Census jobs, May's jobs growth was a pitiful 41,000. But what people haven't realized is that the leading indicators for June are even worse. TrimTabs Investment Research Inc. tracks the real-time jobs picture by monitoring income tax deposits at the Treasury. And these have suddenly started falling. Based on the latest data, the firm predicts the economy will actually lose up to 200,000 jobs, net, in June. "The big news is that we have a job loss of about 200,000 coming in June," says Trim Tabs' Madeline Schnapp, "and the market isn't ready for it."
It's not just the stock market. You can bet that the administration -- and the country -- isn't ready either. Remember, we need to create about 100,000 just to keep up with population growth.
2. One and a half million people have 'disappeared'?
The government says the unemployment rate "edged down" to 9.7% -- keeping it below the politically sensitive 10% level.
But that's only because about one and a half million people have just, miraculously "disappeared" from the official labor force.
A million and a half people disappearing? It sounds like a crazy conspiracy theory. But there it is, buried in the fine print of the government's own data.
From May 2009 to May 2010, the U.S. "civilian non-institutional population" of prime working age -- 20 to 64 -- expanded by one and a half million, 180.5 million to 182 million.
Yet over the same period the official tally of the labor force over age 20 held steady at just 148 million.
What happened to those extra people?
The Bureau of Labor Statistics doesn't have a full explanation. "We don't have direct questions (in the survey) addressing that fact," said a spokeswoman. But many of the disappeared are "unemployed who have decided not to look for work any more," or who haven't looked for work recently. Anyone who hasn't actively sought a job in the last four weeks vanishes from the rolls.
People dropping out completely are not a bullish sign -- unless, perhaps, one is measuring the unemployment figures for the government.
3. Some of the new "jobs" may not even exist
That's because they're being counted by the Federal Department of Guesswork. Ever since 1994, say economists, Uncle Sam has been using some statistical, er, "adjustments" to the core jobs data to come up with the, er, "true" picture. It will surprise no one that these "adjustments" make the data look better, rather than worse. The government makes estimates about new companies being started up as well as jobs being lost.
Those adjustments may be adding as many as half a million extra "jobs" to the core figure, says independent economist John Williams at Shadow Government Statistics.
In previous recessions, these adjustments may have had some justifications, because new companies formed very quickly in the recovery. But this recession has been unlike any other in our lifetimes, because it was caused by too much debt rather than economic overheating. So the recovery has been different as well. The slump in bank lending and the money supply in the past year suggest new companies are probably being formed far more slowly than in past recoveries, if at all. Bottom line: many of those jobs may not exist.
4. The private sector picture may still be in recession
Some recovery: The number employed in the private sector is still about 900,000 below where it was even a year ago, and about 8 million below where it was in 2007. And remember, it has to keep growing just to stand still, because the population is growing.
"There's practically no growth in private sector employment," says Gluskin Sheff strategist David Rosenberg. Jobs growth was anemic even in the parts of the economy allegedly leading the recovery, such as manufacturing. And now, he says, many leading economic indicators have started to turn down again.
The jobs growth is so slow, Rosenberg says, that by his calculations "it is going to take years, probably five to seven years, before we recoup the employment (lost) from the Great Recession," he says. Five to seven years? "There's a significant chance," he adds, "that for the first time ever we will go into the next recession without having seen a new peak in employment."
5. And as for earnings...
In the quest for some more cheerful news, the government said for those who do have jobs, average hourly earnings were up 1.9% from a year ago.
Good, yes?
Er, not really.
The government also reported that those workers produced 2.8% more goods and services per hour. So they actually got paid about 1% less for each widget they made, TV they sold, or meal they served. Oh, and over the same period consumer prices rose 2.2%. So even those lucky enough to be working have gone backwards -- before taxes.
http://ca.finance.yahoo.com/personal-finance/article/yfinance/1646/the-bad-news---bad-news-on-jobs
Managing debt while rates grow
Terry McBride , For Canwest News Service SASKATOON -- Canadians have taken advantage of extremely low interest rates to overextend themselves. The Bank of Canada wants to try to prevent inflation by raising interest rates to slow the economy down. How will debtors manage?
Inflation vs. deflation
Actually, debtors generally prefer inflation (when prices go up) because that can make it easier to repay a debt, which is a fixed dollar amount owing. Loan payments become more affordable when wages keep up with inflation.
Debtors usually fear deflation (when prices go down) because it becomes more difficult to repay an obligation when the fixed number of dollars can buy more. Deflation is already a major concern these days in Europe where some governments are raising taxes and cutting back on spending to tackle mushrooming public debts. Businesses there may be forced to cut prices and workers’ wages to cope with the economic slowdown.
Debtors fear deflation. How can they handle debt payments after their wages are cut or they lose their jobs? Serious household debt management issues arise.
Mortgage term
If your mortgage is coming up for renewal, how do you choose the best mortgage term? If you have had a variable or floating rate of interest tied to the prime rate, should you take the safe route and lock in a fixed, usually considerably higher, interest rate for five years?
If your mortgage payments rise, then you will have to look at various ways to manage other debts.
Consolidate
One popular debt management strategy is to combine various loans into your mortgage or a line of credit. Consolidation can eliminate high-interest credit card debt. Free up some cash flow by reducing your interest costs.
Talk to a professional debt counsellor. Can you have a single monthly payment? You could continue to make the same level of payments on your consolidated loan as you did before consolidation. Aim to reduce your principal owing and cut interest costs.
Amortization
Knowing how amortization works will help you to understand how to properly manage your debts. Amortization is how long you are scheduled to repay an instalment loan.
If interest rates rise, consider stretching the repayment period on an instalment loan to reduce the size of your monthly payments. Making your payments smaller seems very attractive at first. However, by making payments over a longer time period you will eventually pay much more interest in the long run.
Debt snowball
Here is a strategy for cutting down your overall debt level:
Make a list of your debts. Add up how much you pay on each loan.
Pick the smallest debt to tackle first. Pay the minimum on all debts except for your target debt. Pay whatever is left on your target debt until it is paid off. Then, continue with the debt snowball strategy by choosing the next debt on the list as your target debt. Pay it off.
Borrow wisely
The next time you have to borrow, avoid buying something that drops in value. The only time you should buy something using debt is if it is something that will appreciate in value or generate additional cash flow for you.
As a general rule, if you are buying something with borrowed money, make sure that what you buy lasts longer than the debt. Don’t add to your debt burden by going on a vacation financed by credit cards.
Emergency fund
Do you have to borrow when you have an emergency? Instead you should build an emergency fund with cash held in reserve. You could use a Tax-Free Savings Account, the cash surrender value of a whole life policy or a Canada Savings Bond payroll savings plan, for example. Having cash available to pay for an emergency will give you greater financial security than an untapped line of credit.
Terry McBride is a member of Advocis (The Financial Advisors Association of Canada)
Read more: http://www.financialpost.com/personal-finance/mortgage-centre/Managing+debt+while+rates+grow/3136091/story.html#ixzz0qXodyQrw
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