• 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
Friday, April 16, 2010
Financial Update For April 15, 2010
• TSX +102.89 to 12,204 Banks powered TSX's main index to close at its highest level in nearly 19 months, encouraged by forecast-beating results from U.S. bank JP Morgan, while upbeat U.S. economic data and firmer commodity prices played supporting roles in the rise.
• DOW +103.69 to 11,123 in the U.S., a report Wednesday showed retail sales rose by a better-than-expected 1.6% in March over February
• Dollar +.27c to 100.08cUS A number of factors were driving the loonie . The U.S. dollar sold off against most developed world currencies after Singapore announced it would revalue its exchange-rate policy band to allow for "modest and gradual" appreciation. The Singapore move was viewed as a mark of confidence in the economic recovery, helping growth-sensitive currencies like the Canadian dollar. Also, South Korea's sovereign debt rating was raised by Moody's to A1 from A2 . Intel reported better-than-expected earnings and revenue, and provided an upbeat outlook for technology spending, suggesting business spending would lead the U.S. recovery
• Oil +$1.79 to $85.84US per barrel.
Gold +$6.20 to $1,159.00 USD per ounce
Anticipation of Bank of Canada rate hikes are fuelling mortgage increases, high dollar
BY JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA — The Bank of Canada has yet to officially start hiking interests rates, but already Canadians are feeling the impact of higher borrowing costs.
Analysts say expectations the central bank will boost rates June 1 at the earliest and July 20 at the latest have boosted the Canadian loonie and pushed the big banks to twice raise mortgage rates in the past two weeks.
The loonie has been steadily gaining ground for weeks and Wednesday closed above parity, at 100.08 cents U.S., for the first time in almost two years.But economists warn there is danger in the Bank of Canada moving ahead of the U.S. Federal Reserve on hiking rates, even if it is justified by the fundamentals.
“The Bank of Canada is basically going to fly solo,” said Benjamin Tal, an economist with CIBC World Markets.“The markets are already discounting 75, maybe 100 basis points and it’s already in the price of the dollar.”
Canada’s economy has sprinted forward following last year’s recession to record a five per cent advance in the fourth quarter of 2009, and expectations are the first quarter will show an even quicker pace.
More importantly, Canada has recouped nearly half of the total job losses of the downturn, while the United States still struggles with the disappearance of 8.5 million jobs, a decimated housing market and a financial sector still hobbled by an excessive overhang of debt.
In testimony to Congress on Wednesday, Fed chair Ben Bernanke suggested it will be some time before the U.S. starts raising the policy rate from the current near-zero emergency stance.
“The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke told a Congressional committee.
Economists say moving ahead of the U.S. — which is all but certain — could have some beneficial effects, such as cooling what many believe is an overheated housing market by making mortgage costs higher.
But the bigger problem is that higher rates attract more foreign capital into Canada and gives an additional lift to the loonie, something few, except for possibly cross-border shoppers, want.
Finance Minister Jim Flaherty said Wednesday that the strong loonie is a reflection of the relative strength of the Canadian and U.S. economies.
While true, said Liberal critic John McCallum, a former bank economist, there is a risk in raising rates while the U.S. keeps theirs low.
“Then our dollar could get even stronger and that would be really bad for exports and jobs,” he said.
While some analysts have speculated that Canada’s manufacturing sector is no longer as exposed by a strong currency as a decade ago, few disagree with the notion that currency appreciation is a net negative for the economy.
This week’s trade numbers showed the rebound is almost all due to energy, while the goods side registered a $4.4 billion deficit in February.
Carl Weinberg of U.S.-based High Frequency Economists was not impressed.
“You might think that the largest supplier of crude oil to the United States would be able to run a bigger surplus,” said Weinberg. “Blame the strong loonie for a lot of the woes of exporters, especially since so much of what Canada sells is priced in U.S. dollars.”
Given the signals the bank has sent, it would take a major reversal in the recent spate of good economic news, as well as easing inflationary pressures, to stay the central bank’s hand on rates.
However, Sheryl King, chief economist with Merrill Lynch in Canada, says she does not believe governor Mark Carney will get too ahead of the curve and will keep the increases modest.
She says the economy may be hot now, but she sees it cooling in the second half of the year, and Carney putting on his brakes until the Fed shows signs of joining him on the policy tightening track. http://news.therecord.com/Business/article/698287
BMO lengthens its reach in the marketplace
John Greenwood, Financial Post
The big banks have long complained about federal rules prohibiting them from selling insurance from their branches, calling the situation protectionist and anti-competitive. But now Bank of Montreal may have found a way to get deeper into the insurance business without raising the ire of the federal government.
Canada's fourth-biggest bank plans to start distributing its mortgages, credit cards and other financial products through a network of as many as 4,000 independent insurance brokers as a way to dramatically broaden its reach and distribution in the marketplace.
The new approach also benefits the outside advisors, says the chief executive of BMO Life Assurance Co.
"The more products they can add to their clients, the closer they become to becoming that valued first advisor," Peter McCarthy told Bloomberg News.
Broadening distribution is typically a cost-intensive exercise involving the construction of new branches, one that players in Canada's mature banking industry embark on only after long and careful planning. But by allowing outside third-party players to market its products, BMO avoids much of that additional expense.
It's good that Bank of Montreal "is exploring new distribution channels," said Craig Fehr, an analyst at Edward Jones. "Any additional customer touch points is clearly going to be a positive in terms of overall sales growth."
But while the strategy creates the potential for increased sales, it also requires the bank to give up some control over the way its products are marketed, and that necessarily involves increased risk.
"The flip side of using a non-agency sales channel is that you are relying on the training and expertise of people outside the bank rather than BMO staff," Mr. Fehr said.
The big banks have been aggressively moving into insurance over the past few years which they see as one of the last few opportunities to significantly grow profits in what is one of the most mature financial services markets in the world.
BMO bought the Canadian life insurance operation of American International Group last year for $330-million.
But they are moving carefully as Canada's Bank Act strictly proscribes ways in which banks can compete in insurance and includes an outright ban on insurance sales from bank branches.
The banks were hit with a major setback last fall when Jim Flaherty, the Finance Minister, warned them to stop selling insurance on their websites.
Many in the industry expect Mr. Flaherty to soften his position in the coming months but BMO's move to start allowing insurance brokers to sell its banking products is at least in part a way to break into insurance that doesn't involve either bank branches or websites.
Read more: http://www.financialpost.com/news-sectors/financials/story.html?id=2906518#ixzz0lAPJbdwD
• DOW +103.69 to 11,123 in the U.S., a report Wednesday showed retail sales rose by a better-than-expected 1.6% in March over February
• Dollar +.27c to 100.08cUS A number of factors were driving the loonie . The U.S. dollar sold off against most developed world currencies after Singapore announced it would revalue its exchange-rate policy band to allow for "modest and gradual" appreciation. The Singapore move was viewed as a mark of confidence in the economic recovery, helping growth-sensitive currencies like the Canadian dollar. Also, South Korea's sovereign debt rating was raised by Moody's to A1 from A2 . Intel reported better-than-expected earnings and revenue, and provided an upbeat outlook for technology spending, suggesting business spending would lead the U.S. recovery
• Oil +$1.79 to $85.84US per barrel.
Gold +$6.20 to $1,159.00 USD per ounce
Anticipation of Bank of Canada rate hikes are fuelling mortgage increases, high dollar
BY JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA — The Bank of Canada has yet to officially start hiking interests rates, but already Canadians are feeling the impact of higher borrowing costs.
Analysts say expectations the central bank will boost rates June 1 at the earliest and July 20 at the latest have boosted the Canadian loonie and pushed the big banks to twice raise mortgage rates in the past two weeks.
The loonie has been steadily gaining ground for weeks and Wednesday closed above parity, at 100.08 cents U.S., for the first time in almost two years.But economists warn there is danger in the Bank of Canada moving ahead of the U.S. Federal Reserve on hiking rates, even if it is justified by the fundamentals.
“The Bank of Canada is basically going to fly solo,” said Benjamin Tal, an economist with CIBC World Markets.“The markets are already discounting 75, maybe 100 basis points and it’s already in the price of the dollar.”
Canada’s economy has sprinted forward following last year’s recession to record a five per cent advance in the fourth quarter of 2009, and expectations are the first quarter will show an even quicker pace.
More importantly, Canada has recouped nearly half of the total job losses of the downturn, while the United States still struggles with the disappearance of 8.5 million jobs, a decimated housing market and a financial sector still hobbled by an excessive overhang of debt.
In testimony to Congress on Wednesday, Fed chair Ben Bernanke suggested it will be some time before the U.S. starts raising the policy rate from the current near-zero emergency stance.
“The Federal Open Market Committee has stated clearly that they currently anticipate that very low, extremely low rates will be needed for an extended period,” Bernanke told a Congressional committee.
Economists say moving ahead of the U.S. — which is all but certain — could have some beneficial effects, such as cooling what many believe is an overheated housing market by making mortgage costs higher.
But the bigger problem is that higher rates attract more foreign capital into Canada and gives an additional lift to the loonie, something few, except for possibly cross-border shoppers, want.
Finance Minister Jim Flaherty said Wednesday that the strong loonie is a reflection of the relative strength of the Canadian and U.S. economies.
While true, said Liberal critic John McCallum, a former bank economist, there is a risk in raising rates while the U.S. keeps theirs low.
“Then our dollar could get even stronger and that would be really bad for exports and jobs,” he said.
While some analysts have speculated that Canada’s manufacturing sector is no longer as exposed by a strong currency as a decade ago, few disagree with the notion that currency appreciation is a net negative for the economy.
This week’s trade numbers showed the rebound is almost all due to energy, while the goods side registered a $4.4 billion deficit in February.
Carl Weinberg of U.S.-based High Frequency Economists was not impressed.
“You might think that the largest supplier of crude oil to the United States would be able to run a bigger surplus,” said Weinberg. “Blame the strong loonie for a lot of the woes of exporters, especially since so much of what Canada sells is priced in U.S. dollars.”
Given the signals the bank has sent, it would take a major reversal in the recent spate of good economic news, as well as easing inflationary pressures, to stay the central bank’s hand on rates.
However, Sheryl King, chief economist with Merrill Lynch in Canada, says she does not believe governor Mark Carney will get too ahead of the curve and will keep the increases modest.
She says the economy may be hot now, but she sees it cooling in the second half of the year, and Carney putting on his brakes until the Fed shows signs of joining him on the policy tightening track. http://news.therecord.com/Business/article/698287
BMO lengthens its reach in the marketplace
John Greenwood, Financial Post
The big banks have long complained about federal rules prohibiting them from selling insurance from their branches, calling the situation protectionist and anti-competitive. But now Bank of Montreal may have found a way to get deeper into the insurance business without raising the ire of the federal government.
Canada's fourth-biggest bank plans to start distributing its mortgages, credit cards and other financial products through a network of as many as 4,000 independent insurance brokers as a way to dramatically broaden its reach and distribution in the marketplace.
The new approach also benefits the outside advisors, says the chief executive of BMO Life Assurance Co.
"The more products they can add to their clients, the closer they become to becoming that valued first advisor," Peter McCarthy told Bloomberg News.
Broadening distribution is typically a cost-intensive exercise involving the construction of new branches, one that players in Canada's mature banking industry embark on only after long and careful planning. But by allowing outside third-party players to market its products, BMO avoids much of that additional expense.
It's good that Bank of Montreal "is exploring new distribution channels," said Craig Fehr, an analyst at Edward Jones. "Any additional customer touch points is clearly going to be a positive in terms of overall sales growth."
But while the strategy creates the potential for increased sales, it also requires the bank to give up some control over the way its products are marketed, and that necessarily involves increased risk.
"The flip side of using a non-agency sales channel is that you are relying on the training and expertise of people outside the bank rather than BMO staff," Mr. Fehr said.
The big banks have been aggressively moving into insurance over the past few years which they see as one of the last few opportunities to significantly grow profits in what is one of the most mature financial services markets in the world.
BMO bought the Canadian life insurance operation of American International Group last year for $330-million.
But they are moving carefully as Canada's Bank Act strictly proscribes ways in which banks can compete in insurance and includes an outright ban on insurance sales from bank branches.
The banks were hit with a major setback last fall when Jim Flaherty, the Finance Minister, warned them to stop selling insurance on their websites.
Many in the industry expect Mr. Flaherty to soften his position in the coming months but BMO's move to start allowing insurance brokers to sell its banking products is at least in part a way to break into insurance that doesn't involve either bank branches or websites.
Read more: http://www.financialpost.com/news-sectors/financials/story.html?id=2906518#ixzz0lAPJbdwD
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