Financial Update for April 20, 2009

Here’s an updated forecast from Bloomberg regarding the BOC announcement tomorrow…. The prediction is The Bank of Canada WILL NOT change interest rates.

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Canadian Dollar Weakens as Inflation Rate Unexpectedly Slows By Chris Fournier

April 17 (Bloomberg) -- Canada’s currency depreciated for a second day against its U.S. counterpart as a government report showed the annual inflation rate unexpectedly slowed last month.

“We’re going to see inflation hugging bottom for a good long time,” said Derek Holt, an economist at Scotia Capital Inc., a unit of Canada’s third-largest bank. “The markets are fixated on what the Bank of Canada is going to do next week.”

The annualized increase in consumer prices was 1.2 percent in March, compared with 1.4 percent in the previous month, Statistics Canada said today in Ottawa. The median forecast of 20 economists in a Bloomberg News survey was for the rate to remain at 1.4 percent. The Bank of Canada cut its benchmark interest rate last month to a record low of 0.5 percent. Policy makers will leave it unchanged when they meet on April 21, according to the median forecast of 19 economists surveyed by Bloomberg.

“All eyes await Tuesday’s Bank of Canada meeting,” said Firas Askari, head currency trader in Toronto at BMO Nesbitt Burns, a unit of Bank of Montreal. “On its merits, the Canadian dollar should be a bit better.”

Governor Mark Carney is due to announce guidelines on April 23 about quantitative easing, a policy in which a central bank buys government debt to try to revive economic growth.

• TSX +98.28
• DOW +5.90
• Dollar -.37c to 82.30USD
• Oil +$.35 to $50.33US per barrel.
• Gold -$12.00 to $867.80USD per ounce
• Canadian 5 yr bond yields +.06bps to 1.96. Four weeks ago it was 1.72. The spread today is -.173
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Has elusive 'second derivative' arrived?

KEVIN CARMICHAEL From Friday's Globe and Mail

OTTAWA — Before a shrinking economy rebounds, the pace of decline must slow.
Economists call it the "second derivative," a bit of calculus they are using a lot these days as they search for the bottom of the biggest global recession since the Second World War.

A spate of economic data yesterday suggested that mathematical moment has arrived.
In the United States, for example, a government report yesterday showed that new claims for unemployment benefits decreased by 53,000 to 610,000 last week, the lowest level since January.

Factories in the Philadelphia region reported that orders were falling less rapidly last month, and builders broke ground on 358,000 single-family homes at an annual rate in March, little changed since January.

Figures such as those are reinforcing the idea the breakneck rate at which the world's biggest economy was contracting at the end of last year is easing to a less-frightening pace.

Investors are taking a breath and having a closer look at future prospects. Some like what they see.

The Standard & Poor's 500-stock index in New York rose yesterday, and has soared almost 30 per cent higher than the 22-year low reached on March 9. Canada's benchmark stock index, the Toronto-based S&P/TSX composite, climbed more than 1 per cent and is 15 per cent higher since the end of March.

"Flat is the new up," said Craig Wright, chief economist at Royal Bank of Canada in Toronto. "What we are seeing now is less bad news."

Economic reports these days are a mix of dour assessments of the present and hopeful signs about the future.

Canadian factory shipments were 18.7 per cent lower in February from a year earlier, a stark reminder of the heavy blow dealt manufacturers by the global recession. At the same time, the Statistics Canada report showed that factories depleted inventories by 1 per cent, a positive sign because companies must reduce stockpiles before they resume production.

In China, a government report said the world's third-largest economy grew at an annual rate of 6.1 per cent in the first quarter, the slowest in almost a decade.

Still, many economists focused on separate indicators that showed urban fixed-asset investment surged by almost a third in March and industrial output growth accelerated, suggesting the country's $585-billion stimulus program is taking hold.

Container traffic carrying consumer goods on the West Coast of North America picked up in March after severe declines in the first two months of the year, according to new figures. At Port Metro Vancouver, according to new statistics, container traffic in March was down 1.6 per cent from a year ago, slowing the rate of decline in 2009 to 15 per cent from 21.5 per cent in February.

"No one wants to be so bold and so stupid as to say this is the bottom," said Glen Hodgson, chief economist at the Conference Board of Canada in Ottawa. "But this is what happens in recession. The rate of decay slows down."

Even if the second derivative has arrived, it isn't exactly providing pain relief.
China needs growth rates of 8 per cent and higher to fully employ its vast population. And if Canada's factories are meeting orders from existing stockpiles, then they aren't employing people to run their machines.

In fact, the recession is likely to persist longer than typical downturns, and the recovery could be far more muted.

The International Monetary Fund released new research yesterday that looked at past recessions and found that slumps sparked by financial crises or that are part of a synchronized downturn tend to deal heavier blows because banks aren't lending and importers aren't buying.

The current global recession is the result of both. Since 1960, that has happened six times. On average, those recessions lasted almost two years and recoveries were generally "weak," the IMF said.

"I'm not sure how comforting a bottom it is with levels of activity as low as they are right now," said Peter Hall, chief economist at Export Development Canada. "If the second derivative is declining, that means the pace of decline is slowing, but you are still declining."

Financial Update for April 17, 2009

Financials lead the way to solid stock market gains following JPMorgan earns The spring rally on markets, now in its 6th week, has been driven in large part by growing optimism that the financial industry is on the mend.

• TSX +97.26 as good news from U.S. banks raised hopes the financial sector is recovering
• DOW +95.81
• Dollar -.44c to 82.67USD from the 13-week high it raced to earlier as its move through a key level sparked a wave of selling as traders felt it got ahead of itself
• Oil +$.43 to $49.98US per barrel.
• Gold -$13.70 to $879.80USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.90. Four weeks ago it was 1.71
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Thanks to DBD David Neville in the Maritimes for creating our bond chart. He has added a line (bottom below the date) that shows the spread between the bond yield and the 5 year fixed rate. This is key now as the spread grows smaller, it could trigger either a stop to the dropping rates or, eventually, an increase in rates. There are many factors that influence rates, bond yield is but one, so use this as a guide only.

Financial Update for April 16, 2009

Late day gains in financial stocks help take stock markets higher

• TSX +14.49 with a late day burst of strength from the financial sector
• DOW +109.44
• Dollar +.74c to 83.11USD
• Oil -$.16 to $49.25US per barrel. amid an indication that falling demand is lifting U.S. crude stocks far more than expected.
• Gold +$1.50 to $893.50USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.84
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Realtors say March home sales data contains promising signs By The Canadian Press
OTTAWA - The number of existing homes sold last month was down from a year ago, but continued an upward trend that began in February, the Canadian Real Estate Association said Wednesday.

The association, which represents real-estate brokerage firms, also reported that the national average price for homes fell again in March compared with the same month last year.
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"Housing markets are starting to show signs of buyer interest because of lower prices and interest rates," CREA president Dale Ripplinger said in a statement.

Sales of existing homes listed with the industry's MLS service totalled 35,225 units across Canada in March. That's 13.5 per cent below actual sales in March 2008, but CREA said it's the smallest year-over-year decline in six months.

The association also noted that, on a seasonally adjusted basis, March sales were seven per cent higher than in February, which was 10.3 per cent above January.

The association said the number of transactions in March was 18 per cent higher than in January, when activity was the lowest in a decade.

The average house price in Canada fell to just under $289,000 - down 7.7 per cent from March 2008 - also the smallest year-to-year decline in six months.

Robert Kavcic, of BMO Capital Markets, wrote in a separate analysis saying that "the improvement in recent months is an encouraging sign that the Canadian housing market has crossed the halfway point for this downturn."

He noted that the number properties put up for sale fell in March, but the ratio of listings-to-sales remained slightly elevated at 2.2.

"Despite two months of improved sales activity, buyers are still in control of the Canadian real estate market," Kavcic wrote.

"Further price declines and low mortgage rates will ultimately help trigger a recovery, but a reversal in the wave of job losses is one major pre-requisite still outstanding."