Stock markets surge on late day recovery in financials, energy
TORONTO - The Toronto stock market ended a volatile session sharply higher thanks to late day bounces in financial and energy stocks, which helped to claw back a good-sized chunk of the previous day's losses.Rising financials also helped New York markets surge, as did a well-received earnings report from IBM Corp. (Canadian press)
· TSX +252.96 to 8757.89
· DOW +279.01 to 8228.10
· Dollar 0.7928 USD
· Oil +.15 to $43.70 per barrel.
· Gold +2.20 to $852.30 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Decade of debt reduction in peril
STEVEN CHASE
From Thursday's Globe and Mail
January 21, 2009 at 9:07 PM EST
OTTAWA — A five-year string of huge deficits projected for Ottawa will unwind a decade of debt reduction and leave the country more than $100-billion further in the hole, new forecasts say.
Canada's parliamentary budget watchdog and a senior private-sector economist separately released similar projections for Ottawa's financial health Wednesday, less than one week before the Harper government is set to tip Canada deep into deficit through a massive stimulus budget aimed at countering a deepening recession.
Both projections blame the deteriorating economy and an expected slow recovery.
Dale Orr of IHS Global Insight Canada forecasts Ottawa will rack up cumulative deficits of $115-billion over the next five years – an amount that would more than reverse its efforts at paying down the national debt since 1997-1998.
Ottawa has paid down $105.2-billion of federal debt in the past 11 years, starting from when former Prime Minister Jean Chrétien's Liberal administration slashed the deficit and began running surpluses.
Although more debt is not ideal, the federal government is more equipped to handle it than it was in the mid-1990s, when the national mortgage hit $562-billion. That's because the Canadian economy has grown significantly since then.
Still, Ottawa will now miss its goal of reducing the debt-to-gross domestic product ratio – a measure of an economy's ability to afford government debt – to 25 per cent by 2012.
The ratio is currently 30 per cent, and because of the faltering economy, it would only have dropped to 27 per cent by 2013-14, according to Mr. Orr. He says the effect of the stimulus package will push it to 29 per cent instead.
Kevin Page, Canada's parliamentary budget officer, said his calculations show Ottawa could run deficits over the next half decade that total between $46-billion and $105-billion. And this forecast doesn't include the tens of billions of dollars in additional spending in next week's budget.
“It's symptomatic of an economy that's going to be operating for a number of years well below its potential,” Mr. Page said.
“I think we kind of fell asleep at the switch, almost assuming we'd never get one of these downturns [again],” he said. “When you get these cyclical downturns, you're going to get revenues falling dramatically.”
Finance Minister Jim Flaherty didn't quarrel with Mr. Page's projections of up to $105-billion in deficits over the next five years.
“What we're going to do is what we've been asked to do by Canadians from coast to coast: We are going to address Canada's needs in a time of global recession,” he said.
“Canada needs some spending on the stimulus side. We will do that and that will result … in a substantial deficit.”
He said the Harper government will lay out a plan for emerging from deficits “as Canada exits from recession” in next week's budget. “We will not create a permanent, long-term deficit for Canada and I will set out how we will ensure that on Tuesday.”
Mr. Orr predicts Ottawa will end up spending $50-billion over several years in stimulus to help revive the economy and won't run balanced budgets again before 2014-2015.
Still, he noted, the additional debt will mean more money goes toward paying interest to lenders. “[It] will slightly restrict the fiscal options for future generations, and perhaps more important, threaten the hard won fiscal discipline of the past decade,” Mr. Orr said.
Both Mr. Orr and Mr. Page say Ottawa would have to cut spending or raise taxes in order to return the federal government books to a balanced position within five years.
“It's a psychological turning point for Canadians to come off 11 years of balanced budgets and surpluses,” Mr. Page said.
Mr. Flaherty said Wednesday Ottawa will offer tax breaks or incentives in the budget to revive the economy – measures sources expect will target both businesses and consumers.
Thursday, January 22, 2009
Wednesday, January 21, 2009
Financial Update for Jan. 21,2009
· TSX -336.55 to 8504.93
· DOW -332.00 to 7949.09
· Dollar 0.7923 USD
· Oil +.34 to $41.15 per barrel.
· Gold +3.60 to $859.00 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Canada finds itself in a 'credit deadlock'
Jacqueline Thorpe, Financial Post Published: Tuesday, January 20, 2009
What if the Bank of Canada cut interest rates and nobody borrowed? As the Bank of Canada joins other central banks around the world in slashing interest rates to historic lows, this is the essential conundrum they face.
They may have brought some semblance of normality to credit markets, and harangued banks back into lending, but now borrowers are on strike.
Call it a "credit deadlock," as David Laidler, fellow-in-residence at the C.D. Howe Institute, does, or a shift from "aspirational to desperational" spending, as Goldman Sachs quipped Tuesday, but the fact is people are becoming less willing to borrow and spend, even if the Bank of Canada's benchmark interest rate is now a tantalizing 1%, the lowest policy rate since the Bank of Canada was founded in 1934.
If consumers were getting antsy about spending as house prices and stock prices tanked, they are hardly going to start borrowing and spending if they are now also losing their jobs.
The United States is now well into this consumer deleveraging process as the unemployment rate has risen from a trough of 4.4% to 7.2% in the space of little over a year.
In Canada, the process has only just begun. For a while, it looked like we might be able to skate through the slowdown with just a flesh wound or two but the complete and total collapse in commodity prices has put paid to that notion, as news Tuesday showed.
Manufacturing shipments for November fell 6.4% to $48.4-billion in November as commodity prices plunged. Strip out the price declines and volumes were still down 3% and new orders plummeted 12.9% as U.S. demand froze.
Meanwhile, Suncor Energy Inc. reported its first quarterly loss in 15 years, chopped spending plans for the second time in less than three months, and indefinitely postponed its oil sands expansion plans as oil has cratered to US$39 per barrel from its peak of US$147 in the summer.
We may have a healthier financial system than our G7 colleagues but our G7 colleagues haven't seen their golden goose vaporized in the space of six months.
That goose -- all natural resources combined -- accounted for all the growth in Canada's export earnings from 2004 to 2008 (non-resource exports slumped 17% on the back of a strong dollar and a drop in auto sales) half the value of the S&P/TSX until the third quarter of 2008 (up from 20% in 2003); and half the growth in business investment from 2003 to 2006.
The goose has not been a big jobs or GDP generator on its own since it is so capital intensive, but the boost to national income from the longest and steepest commodity boom in the post-war period has been phenomenal, stoking profits and the Canadian dollar which have been recycled back to consumers in the form of tax cuts, lower import prices and higher disposal income. That in turn has boosted jobs and income growth all down the pipeline.
Canadians were not afraid to take on ever-increasing debt under this rosy scenario.
But it has all vanished now. A report from BMO Capital markets Tuesday said many commodities such as copper and zinc are now trading below their average operating costs, let alone their all-in costs.
As we wait for other sectors to pick up the slack, the job losses will mount and the opposite, negative dynamic will take hold.
That is not to say the rate cuts will have no impact at all. They will help the banks, which dutifully passed on the cuts through a drop in prime lending rates to 3% from 3.5%. Those with variable rate mortgages and lines of credit will benefit.
An FP colleague who renegotiated her mortgage in September says her mortgage rate -- prime, minus 75 basis points -- will fall to an astonishingly low 2.25%. But she is not about to go out and run up her line of credit. People in general will try to cut back their debt and shy from fresh borrowing.
And while the Bank of Canada forecasts growth will rebound to 3.8% in 2010 from a contraction of 1.2% this year, debt workouts are usually long and painful as anyone who has watched them in the corporate sector knows.
· DOW -332.00 to 7949.09
· Dollar 0.7923 USD
· Oil +.34 to $41.15 per barrel.
· Gold +3.60 to $859.00 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Canada finds itself in a 'credit deadlock'
Jacqueline Thorpe, Financial Post Published: Tuesday, January 20, 2009
What if the Bank of Canada cut interest rates and nobody borrowed? As the Bank of Canada joins other central banks around the world in slashing interest rates to historic lows, this is the essential conundrum they face.
They may have brought some semblance of normality to credit markets, and harangued banks back into lending, but now borrowers are on strike.
Call it a "credit deadlock," as David Laidler, fellow-in-residence at the C.D. Howe Institute, does, or a shift from "aspirational to desperational" spending, as Goldman Sachs quipped Tuesday, but the fact is people are becoming less willing to borrow and spend, even if the Bank of Canada's benchmark interest rate is now a tantalizing 1%, the lowest policy rate since the Bank of Canada was founded in 1934.
If consumers were getting antsy about spending as house prices and stock prices tanked, they are hardly going to start borrowing and spending if they are now also losing their jobs.
The United States is now well into this consumer deleveraging process as the unemployment rate has risen from a trough of 4.4% to 7.2% in the space of little over a year.
In Canada, the process has only just begun. For a while, it looked like we might be able to skate through the slowdown with just a flesh wound or two but the complete and total collapse in commodity prices has put paid to that notion, as news Tuesday showed.
Manufacturing shipments for November fell 6.4% to $48.4-billion in November as commodity prices plunged. Strip out the price declines and volumes were still down 3% and new orders plummeted 12.9% as U.S. demand froze.
Meanwhile, Suncor Energy Inc. reported its first quarterly loss in 15 years, chopped spending plans for the second time in less than three months, and indefinitely postponed its oil sands expansion plans as oil has cratered to US$39 per barrel from its peak of US$147 in the summer.
We may have a healthier financial system than our G7 colleagues but our G7 colleagues haven't seen their golden goose vaporized in the space of six months.
That goose -- all natural resources combined -- accounted for all the growth in Canada's export earnings from 2004 to 2008 (non-resource exports slumped 17% on the back of a strong dollar and a drop in auto sales) half the value of the S&P/TSX until the third quarter of 2008 (up from 20% in 2003); and half the growth in business investment from 2003 to 2006.
The goose has not been a big jobs or GDP generator on its own since it is so capital intensive, but the boost to national income from the longest and steepest commodity boom in the post-war period has been phenomenal, stoking profits and the Canadian dollar which have been recycled back to consumers in the form of tax cuts, lower import prices and higher disposal income. That in turn has boosted jobs and income growth all down the pipeline.
Canadians were not afraid to take on ever-increasing debt under this rosy scenario.
But it has all vanished now. A report from BMO Capital markets Tuesday said many commodities such as copper and zinc are now trading below their average operating costs, let alone their all-in costs.
As we wait for other sectors to pick up the slack, the job losses will mount and the opposite, negative dynamic will take hold.
That is not to say the rate cuts will have no impact at all. They will help the banks, which dutifully passed on the cuts through a drop in prime lending rates to 3% from 3.5%. Those with variable rate mortgages and lines of credit will benefit.
An FP colleague who renegotiated her mortgage in September says her mortgage rate -- prime, minus 75 basis points -- will fall to an astonishingly low 2.25%. But she is not about to go out and run up her line of credit. People in general will try to cut back their debt and shy from fresh borrowing.
And while the Bank of Canada forecasts growth will rebound to 3.8% in 2010 from a contraction of 1.2% this year, debt workouts are usually long and painful as anyone who has watched them in the corporate sector knows.
Tuesday, January 20, 2009
Financial Update for Jan. 20,2009
Bank of Canada lowers overnight rate target by 1/2 percentage point to 1 per cent
· TSX -78.92 to 8841.48
· DOW 8282.22 markets were closed yesterday.
· Dollar 0.7957 USD
· Oil -1.43to $40.87 per barrel.
· Gold -2.80 to $832.20 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 1 1/4 per cent.
The outlook for the global economy has deteriorated since the Bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity.
Heightened uncertainty is undermining business and household confidence worldwide and further eroding domestic demand. Major advanced economies, including Canada's, are now in recession and emerging-market economies are increasingly affected. Energy prices have fallen as a result of substantially weaker global demand.
Stabilization of the global financial system is a precondition for economic recovery. To that end, governments and central banks are taking bold and concerted policy actions. There are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize. In addition, considerable monetary and fiscal policy stimulus is being provided worldwide.
Canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and consumer and business confidence. Canada's economy is projected to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual average basis. As policy actions begin to take hold in Canada and globally, and with support from the past depreciation of the Canadian dollar, real GDP is expected to rebound, growing by 3.8 per cent in 2010.
A wider output gap through 2009 and modest decreases in housing prices should cause core CPI inflation to ease, bottoming at 1.1 per cent in the fourth quarter. Total CPI inflation is expected to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy prices. With inflation expectations well-anchored, total and core inflation should return to the 2 per cent target in the first half of 2011 as the economy returns to potential.
Against this background, the Bank today lowered its policy rate by 50 basis points, bringing the cumulative monetary policy easing to 350 basis points since December 2007. Guided by Canada's inflation-targeting framework, the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent target over the medium term. Low, stable, and predictable inflation is the best contribution monetary policy can make to long-term economic growth and financial stability.
Information note:
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report Update on 22 January 2009. The next scheduled date for announcing the overnight rate target is 3 March 2009.
· TSX -78.92 to 8841.48
· DOW 8282.22 markets were closed yesterday.
· Dollar 0.7957 USD
· Oil -1.43to $40.87 per barrel.
· Gold -2.80 to $832.20 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
OTTAWA – The Bank of Canada today announced that it is lowering its target for the overnight rate by one-half of a percentage point to 1 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 1 1/4 per cent.
The outlook for the global economy has deteriorated since the Bank's December interest rate announcement, with the intensifying financial crisis spilling over into real economic activity.
Heightened uncertainty is undermining business and household confidence worldwide and further eroding domestic demand. Major advanced economies, including Canada's, are now in recession and emerging-market economies are increasingly affected. Energy prices have fallen as a result of substantially weaker global demand.
Stabilization of the global financial system is a precondition for economic recovery. To that end, governments and central banks are taking bold and concerted policy actions. There are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize. In addition, considerable monetary and fiscal policy stimulus is being provided worldwide.
Canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and consumer and business confidence. Canada's economy is projected to contract through mid-2009, with real GDP dropping by 1.2 per cent this year on an annual average basis. As policy actions begin to take hold in Canada and globally, and with support from the past depreciation of the Canadian dollar, real GDP is expected to rebound, growing by 3.8 per cent in 2010.
A wider output gap through 2009 and modest decreases in housing prices should cause core CPI inflation to ease, bottoming at 1.1 per cent in the fourth quarter. Total CPI inflation is expected to dip below zero for two quarters in 2009, reflecting year-on-year drops in energy prices. With inflation expectations well-anchored, total and core inflation should return to the 2 per cent target in the first half of 2011 as the economy returns to potential.
Against this background, the Bank today lowered its policy rate by 50 basis points, bringing the cumulative monetary policy easing to 350 basis points since December 2007. Guided by Canada's inflation-targeting framework, the Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required to achieve the 2 per cent target over the medium term. Low, stable, and predictable inflation is the best contribution monetary policy can make to long-term economic growth and financial stability.
Information note:
A full update of the Bank's outlook for the economy and inflation, including risks to the projection, will be published in the Monetary Policy Report Update on 22 January 2009. The next scheduled date for announcing the overnight rate target is 3 March 2009.
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