• TSX + last traded on December 24 and volume is expected to be light through the three-day week as many market players are on holiday between Christmas and New Year's.
• DOW +24.63
• Dollar +. 94.53cUS The dollar held firm near a two-month high against the yen on the view that the U.S. economy is recovering well. Oil has often eased this year as the dollar firms, making crude more costly for holders of other currencies
• Oil -$.10 to $78.67US per barrel. Oil traded flat, off a five-week high the previous session, as a firming dollar offset colder U.S. weather and concerns over political developments in Iran.
• Gold -$9.40 to $1,086.00USD per ounce
Five things that should keep you awake at night about the unfolding economy JULIAN BELTRAME, THE CANADIAN PRESS
OTTAWA - Looking into the economic crystal ball, the vast majority of private sector and institution forecasts agree that the scary global recession of last year is past and that normal times are just around the corner.
It could still go horribly wrong.
Forecasters caution that the degree of uncertainty and doubt about their baseline forecasts - or most likely scenarios - has seldom been higher.
In fact, many, including the world's central bankers, say substantial risks lurk around that beckoning corner and some are serious enough to send the whole edifice of economic stability crumbling.
Bank of Canada governor Mark Carney refers to the economic landscape as filled with "significant fragilities" which encompass everything from steady growth going forward to a second recession.
"It's a pretty dangerous economy out there," agrees TD Bank's chief economist Don Drummond.
"This should be the easiest of times to do a forecast because you are at the bottom, so you know which direction you are going to go. But I do think there's almost an unparalleled degree of uncertainty out there."
First the baseline. No matter which source is consulted, from the Bank of Canada to the U.S. Federal Reserve, the International Monetary Fund or any number of private-sector forecasters, 2010 is the year Canadians, Americans and the world get their economic mojo back.
The recession ended some time in the second half of 2009, the logic goes, and with trillions of government money still being poured into global economies, growth in 2010 appears as certain as the sun rising in the east.
Growth rates vary from country to country, but the important thing is that they are all positive. In Canada, forecasts fall in the 2.5-per-cent to three-per-cent range - not a big rebound given that last year's slump knocked $30 billion off the economy's bottom line.
But those are baseline, most-likely forecasts. Things could also turn ugly again, economists caution.
"I'd say there's an about one in five chance of a double dip recession, or a hard W as we call it," said Nariman Behravesh, chief economist with one of the world largest forecasting firm, IHS Global Insight of Lexington, Mass.
What could go wrong? From interviews with a half-dozen economists from Canada and the U.S., here are the five most dangerous pitfalls:
-Inflation: It seems absurd to worry about inflation right now. Canada's is at one per cent and the Bank of Canada says it isn't worried about it reaching its target of two per cent for another year or two.
But the world's printing presses have been busy flooding financial markets with money, and governments have been spending like drunken sailors in an effort to keep the Great Recession from becoming the second Great Depression. It worked, with a cost.
"I don't see how we can increase the money supply the way we are increasing it and avoid inflation," says James Gillies, professor emeritus at York University's Schulich School of Business.
"I can see it happening everywhere around the world, and with heavy, heavy inflation, we'll see rapidly rising interest rates," he adds. Gillies believes that will bring the recovery to a grinding halt, possibly as early as the end of 2010.
Other economists also worry about inflation, but say it will take longer to exert itself. The end result is the same, however.
High inflation triggers a policy response from central banks in the form of high interest rates, which causes businesses to stop borrowing and consumers to stop buying. That's how the recessions of the early 1980s and 1990s started.
-Policy-makers get it wrong: The flip side to real inflation is that the fear of inflation will cause governments and central banks to stop stimulating the economy too soon.
The growth that currently exists in many economies, particularly those of the U.S. and Europe, is due to unprecedented levels of government spending, bank and industry bailouts, super-low interest rates and money market liquidity infusions.
Nobody knows for sure when the private sector economy will be ready to stand on its own two feet and how it will react when the public sector crutches are removed, as G20 leaders are already discussing.
"They can make a mistake on both sides. They can withdraw the stimulus too early and we get something like a double-dip... as soon as late next year," said Douglas Porter, deputy chief economist with the Bank of Montreal.
"The other side is they leave the stimulus too long and we end up with an inflation."
Drummond says deciding when to exit from stimulus will require almost "surgical precision."
The trouble is, governments and central banks have never attempted the surgery before, which is cold comfort to the patient.
-The United States economy suffers a repeat pratfall: America is going great guns now, but again that's based on temporary government largesse and the need to refill empty warehouses.
That doesn't mean anyone will buy the products once the inventories are replenished.
Scotiabank vice-president of economics Derek Holt says he believes the U.S. economy will slow to about two per cent growth in the latter half of next year, and if the inventory restock is too aggressive, a double-dip is not out of the question.
"What could happen is we go through a temporary growth spurt and then it's the Emperor has no clothes all over again and the consumer is exposed," Holt explained.
Behravesh also calls the U.S. consumer the biggest wild card for the next year or two. Households may come to the realization that the wealth hit they took when their home values collapsed is permanent, and continuing high unemployment may spook them into hibernation.
For Canada, a second collapse in U.S. consumption will devastate the export sector, the auto industry in particular, and derail the recovery, Holt said.
-Global imbalances: Buyer economies like the U.S. are transferring unsustainable amounts of wealth to seller economies like China, which become the world's pre-eminent creditors, until a reckoning comes and the indebted nations can no longer borrow.
The recession was supposed to help resolve the problem, and to some extent it has. U.S. exports have risen and imports have fallen, which is one reason Canada fell into a slump.
But the U.S. still imports way more than it exports, and Drummond says Washington's response to the recession has added a second front to the imbalance.
"Those global imbalances are worse now than they were before," he said. "The U.S. consumer did fall back, but the U.S. government more than filled the vacuum. U.S. debt is even higher than it was two years ago."
Many industrialized countries have mortgaged their futures. Japan's debt to gross domestic product now stands at 227 per cent; Italy at 120 per cent, the U.S. and the United Kingdom are at 94 per cent, Germany and France at 83 per cent.
-Financial market shock: The collapse of Wall Street investment house Lehman Brothers is credited, or blamed, for being the final straw that broke the global economy's back last September.
Nothing of that magnitude has occurred since, although Dubai World's surprise request for a standstill on payments of about US$50 billion briefly sent shivers through overseas stock markets in late November.
Dubai proved a false alarm. But Peter Morici, the former chief economist at the U.S. International Trade Commission, says there are enough ghosts in the closets of the U.S. financial sector to keep policy-makers awake at night.
"The banks are back to their old tricks, at any point in time the banks here can be counted on to cook up some kind of scheme that will collapse on them," he said.
One danger signal starting to emerge revolves around the troubled U.S. commercial real estate market, which could spark another round of losses for banks in 2010. Most economists, however, say it won't be as serious as the 2007 subprime mortgage meltdown in residential real estate, but financial institutions are also less able to withstand shocks now.
Most of the risks identified by economists would emerge, if they do, from beyond Canada's borders, particularly in the U.S., economists say. But that is also how the 2008-2009 recession happened, they point out.
"Canada's exposure to the U.S. economy has diminished a little bit from what it was in the past, but you guys will still get clobbered if we go down the tubes," noted Behravesh.
Tuesday, December 29, 2009
Thursday, December 24, 2009
Financial Update For Dec. 24, 2009
• TSX +30.72 thanks to higher mining stocks. The TSX closes at 1pm today.
• DOW +1.51 amid another economic report showing that consumer spending and incomes rose last month. The U.S. Commerce Department says consumer spending jumped 0.5 per cent in November, while incomes gained 0.4 per cent.
• Dollar +.85c to 95.38cUS to the strongest level in almost 3 weeks amid speculation an accelerating economic recovery will prompt the central bank to raise interest rates sooner than it expected.
• Oil +$2.27 to $76.67US per barrel.
• Gold +$7.30 to $1,093.93USD per ounce
•
Stimulus and housing give economy one-two punch
The Canadian economy strung together back-to-back months of growth for the first time in almost two years, but economists warn that consumers and government stimulus have been "carrying the ball" by fuelling a booming real-estate market that is ultimately unsustainable.
Canada's economy grew a modest 0.2% in October, the latest figures from Statistics Canada show. That followed a 0.4% increase in September.
Stewart Hall, economist with HSBC Securities Canada, said the country's real-estate market has been a major factor, fuelling spending in everything from renovations to new furnishings and even new cars to go in new garages.
"Financial, insurance and real estate have continued to be that pillar of strength, consistently showing growth through much of this economic recession," he said. "And we know that is the housing market, a reflection of the remarkable strength in the existing-home sales market."
October figures from Statistics Canada show a 7.2% rise in existing-home sales activity from real-estate agents and brokers. However, construction activity was up only 0.1%.
Meanwhile, after posting a 1% rise in September, the key manufacturing category fell flat in October.
One area that outperformed was utilities, which grew 2.4% during the month as temperatures returned to seasonal levels after a mild September.
"The housing market has been the big surprise for 2009," Mr. Hall said. He warned that consumers are taking on more and more debt due to record-low interest rates, and banks are happy to lend that money out.
"You hear [Bank of Canada governor Mark] Carney say both borrowers and lenders need to act prudently. Well, of course they do. But the history of the past few years shows telling people to behave themselves just doesn't work," he said.
Supporting domestic demand will continue to be an area of concern in 2010 as the downturn itself was caused by a collapse in external demand, namely from the United States.
"We lost a lot of external demand and it's unreasonable to think we can recover that from domestic sources for an extended period of time," Mr. Hall said.
Douglas Porter, deputy chief economist with BMO Capital Markets, said economists were disappointed in the overall numbers because results from manufacturing, retail and wholesale trade all came in short of preliminary reports. The difference was likely due in part to businesses burning off their existing inventories.
"It's unusual for all three to be moving in the opposite direction," he said. "But we shouldn't be too down on the number. It's gratifying to see two months in a row of growth for the first time since late 2007."
While there was growth month over month, the economy was still 3.2% smaller than it was in October 2008. The latest figures marked the 12th straight month that economy was weaker than it was in the year-earlier period.
Economists will now watch to see if the economy closed out the year as expected, bouncing back from the fairly shaking base built in September and October and accelerating into a full-fledged recovery in 2010.
Alex Koustas of Scotia Economics released a provincial outlook for 2010, highlighting an expected rebound in Ontario, a slowdown in Quebec and commodities producers in Western Canada benefiting the most from strengthening global markets.
"That Canada escaped from the global slump fairly quickly is reflective of our relatively healthy household balance sheets and stable financial system," he said in a report. "However, the modest pace of the recovery highlights the ongoing trade and competitive hurdles that need to be overcome in order to return to stronger growth."
Scotia expects British Columbia to lead the way with GDP growth of 3% in 2010, on the back of the Vancouver Winter Olympics and improving coal prices.
The Atlantic provinces will see the least growth, with Prince Edward Island bringing up the rear at +1.9%.
Quebec will underperform, growing only 2.2% on uncertainty in forestry and aerospace while Ontario's manufacturing will lead a comeback to 2.7% GDP gains.
• DOW +1.51 amid another economic report showing that consumer spending and incomes rose last month. The U.S. Commerce Department says consumer spending jumped 0.5 per cent in November, while incomes gained 0.4 per cent.
• Dollar +.85c to 95.38cUS to the strongest level in almost 3 weeks amid speculation an accelerating economic recovery will prompt the central bank to raise interest rates sooner than it expected.
• Oil +$2.27 to $76.67US per barrel.
• Gold +$7.30 to $1,093.93USD per ounce
•
Stimulus and housing give economy one-two punch
The Canadian economy strung together back-to-back months of growth for the first time in almost two years, but economists warn that consumers and government stimulus have been "carrying the ball" by fuelling a booming real-estate market that is ultimately unsustainable.
Canada's economy grew a modest 0.2% in October, the latest figures from Statistics Canada show. That followed a 0.4% increase in September.
Stewart Hall, economist with HSBC Securities Canada, said the country's real-estate market has been a major factor, fuelling spending in everything from renovations to new furnishings and even new cars to go in new garages.
"Financial, insurance and real estate have continued to be that pillar of strength, consistently showing growth through much of this economic recession," he said. "And we know that is the housing market, a reflection of the remarkable strength in the existing-home sales market."
October figures from Statistics Canada show a 7.2% rise in existing-home sales activity from real-estate agents and brokers. However, construction activity was up only 0.1%.
Meanwhile, after posting a 1% rise in September, the key manufacturing category fell flat in October.
One area that outperformed was utilities, which grew 2.4% during the month as temperatures returned to seasonal levels after a mild September.
"The housing market has been the big surprise for 2009," Mr. Hall said. He warned that consumers are taking on more and more debt due to record-low interest rates, and banks are happy to lend that money out.
"You hear [Bank of Canada governor Mark] Carney say both borrowers and lenders need to act prudently. Well, of course they do. But the history of the past few years shows telling people to behave themselves just doesn't work," he said.
Supporting domestic demand will continue to be an area of concern in 2010 as the downturn itself was caused by a collapse in external demand, namely from the United States.
"We lost a lot of external demand and it's unreasonable to think we can recover that from domestic sources for an extended period of time," Mr. Hall said.
Douglas Porter, deputy chief economist with BMO Capital Markets, said economists were disappointed in the overall numbers because results from manufacturing, retail and wholesale trade all came in short of preliminary reports. The difference was likely due in part to businesses burning off their existing inventories.
"It's unusual for all three to be moving in the opposite direction," he said. "But we shouldn't be too down on the number. It's gratifying to see two months in a row of growth for the first time since late 2007."
While there was growth month over month, the economy was still 3.2% smaller than it was in October 2008. The latest figures marked the 12th straight month that economy was weaker than it was in the year-earlier period.
Economists will now watch to see if the economy closed out the year as expected, bouncing back from the fairly shaking base built in September and October and accelerating into a full-fledged recovery in 2010.
Alex Koustas of Scotia Economics released a provincial outlook for 2010, highlighting an expected rebound in Ontario, a slowdown in Quebec and commodities producers in Western Canada benefiting the most from strengthening global markets.
"That Canada escaped from the global slump fairly quickly is reflective of our relatively healthy household balance sheets and stable financial system," he said in a report. "However, the modest pace of the recovery highlights the ongoing trade and competitive hurdles that need to be overcome in order to return to stronger growth."
Scotia expects British Columbia to lead the way with GDP growth of 3% in 2010, on the back of the Vancouver Winter Olympics and improving coal prices.
The Atlantic provinces will see the least growth, with Prince Edward Island bringing up the rear at +1.9%.
Quebec will underperform, growing only 2.2% on uncertainty in forestry and aerospace while Ontario's manufacturing will lead a comeback to 2.7% GDP gains.
Monday, December 21, 2009
Financial Update For Dec. 21, 2009
• TSX -9.66 Stock markets are expected to remain volatile in the shortened trading week ahead of Christmas, as investors clean up their books before the start of the new year.
• DOW +20.63
• Dollar +.38c to 93.81cUS
• Oil +$.71 to $73.36US per barrel. the Iraqi government said that an oil well had been taken over by a group of armed Iranians, which sent the prices up slightly in the final hours of trading.
• Gold +$4.00 to $1,110.80USD per ounce
• On the economic front, Canadian retail sales numbers for October will be released on Monday, with consensus forecasts predicting a 0.8 per cent rise month-over-month.
• On Wednesday, Canadian real GDP numbers for October will be released with consensus predictions targeting a modest 0.3 per cent gain for the month, on stronger manufacturing and housing market activity.
• Also, U.S. personal income and consumer spending will be released on Wednesday, and is expected to show that personal consumption was up 0.8 per cent for November, despite the economy
Canadian housing market sound, fears of consumer debt exaggerated: economists
December 18, 2009
Julian Beltrame, THE CANADIAN PRESS
The Canadian Press, 2009
OTTAWA - Canada's hot housing market received a clean bill of health from a major Canadian bank Friday, dismissing concerns voiced by the Bank of Canada that consumers may be taking on too much debt.
In a report on house and stock market rallies, economists with CIBC World Markets argue that the central bank's concerns are exaggerated, even though the bank was justified in raising them.
"Canada is not doomed to see a U.S.-style housing and mortgage blow-up," wrote CIBC's chief economist, Avery Shenfeld.
"The lessons for the U.S. were not that an extended period of low rates caused a mortgage and housing blow-up. It was a massive failure to supervise the worst excess of the American mortgage market that caused the trouble."
Last week, the Bank of Canada called record household debt the top risk facing the country's financial system, a warning repeated in Toronto earlier this week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Fresh data released Friday showed that spending by Canadian households averaged $71,360 last year, two per cent more than in 2007, with shelter representing about 20 per cent of the load.
Others have also expressed concern about consumer debt levels. In a note Friday, Bank of Montreal economist Sal Guatieri said at current rates the debt burdens being piled on by Canadians could reach American and British levels "just before they keeled over."
CIBC's Shenfeld and Benjamin Tal say their analysis shows that there is basis for the concern, but there are also critical factors that make the Canadian situation different.
By their calculation, the current $350,000 average selling price for a home in Canada is about seven per cent too high.
But they also say that with housing starts on the rise, thereby increasing the supply, the price of housing in Canada will moderate, not collapse.
And Canadian households are not exposed as their southern neighbours were to a market collapse.
Some have substantial equity in their homes and could downsize. Others, about 40 per cent of mortgage holders, have high debt payments because they are making accelerated pay-downs on principal, which they could suspend.
They note that while mortgage interest rates average about 4.4 per cent, payments as a share of after-tax income are higher - at the level they would be if rates were effectively six per cent.
And "history suggests many will jump into fixed mortgages" once variable rates come under upward pressure.
"The Bank of Canada was justified in raising these concerns, but once you get into the details, some of those threats don't appear quite as ominous," Shenfeld explained in an interview.
The CIBC economists agree with Carney that interest rates will rise, likely starting in the second half of next year, but "we don't see that as endangering a bubble either in the mortgage market or the equity market."
In a separate analysis, Shenfeld, Peter Buchanan and Krishen Rangasamy, all of CIBC, judged that the equity markets in Toronto still have room to grow even if some analysts believe stocks are overpriced already.
And they predict the Canadian dollar will average $1.05 US next year.
• DOW +20.63
• Dollar +.38c to 93.81cUS
• Oil +$.71 to $73.36US per barrel. the Iraqi government said that an oil well had been taken over by a group of armed Iranians, which sent the prices up slightly in the final hours of trading.
• Gold +$4.00 to $1,110.80USD per ounce
• On the economic front, Canadian retail sales numbers for October will be released on Monday, with consensus forecasts predicting a 0.8 per cent rise month-over-month.
• On Wednesday, Canadian real GDP numbers for October will be released with consensus predictions targeting a modest 0.3 per cent gain for the month, on stronger manufacturing and housing market activity.
• Also, U.S. personal income and consumer spending will be released on Wednesday, and is expected to show that personal consumption was up 0.8 per cent for November, despite the economy
Canadian housing market sound, fears of consumer debt exaggerated: economists
December 18, 2009
Julian Beltrame, THE CANADIAN PRESS
The Canadian Press, 2009
OTTAWA - Canada's hot housing market received a clean bill of health from a major Canadian bank Friday, dismissing concerns voiced by the Bank of Canada that consumers may be taking on too much debt.
In a report on house and stock market rallies, economists with CIBC World Markets argue that the central bank's concerns are exaggerated, even though the bank was justified in raising them.
"Canada is not doomed to see a U.S.-style housing and mortgage blow-up," wrote CIBC's chief economist, Avery Shenfeld.
"The lessons for the U.S. were not that an extended period of low rates caused a mortgage and housing blow-up. It was a massive failure to supervise the worst excess of the American mortgage market that caused the trouble."
Last week, the Bank of Canada called record household debt the top risk facing the country's financial system, a warning repeated in Toronto earlier this week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Fresh data released Friday showed that spending by Canadian households averaged $71,360 last year, two per cent more than in 2007, with shelter representing about 20 per cent of the load.
Others have also expressed concern about consumer debt levels. In a note Friday, Bank of Montreal economist Sal Guatieri said at current rates the debt burdens being piled on by Canadians could reach American and British levels "just before they keeled over."
CIBC's Shenfeld and Benjamin Tal say their analysis shows that there is basis for the concern, but there are also critical factors that make the Canadian situation different.
By their calculation, the current $350,000 average selling price for a home in Canada is about seven per cent too high.
But they also say that with housing starts on the rise, thereby increasing the supply, the price of housing in Canada will moderate, not collapse.
And Canadian households are not exposed as their southern neighbours were to a market collapse.
Some have substantial equity in their homes and could downsize. Others, about 40 per cent of mortgage holders, have high debt payments because they are making accelerated pay-downs on principal, which they could suspend.
They note that while mortgage interest rates average about 4.4 per cent, payments as a share of after-tax income are higher - at the level they would be if rates were effectively six per cent.
And "history suggests many will jump into fixed mortgages" once variable rates come under upward pressure.
"The Bank of Canada was justified in raising these concerns, but once you get into the details, some of those threats don't appear quite as ominous," Shenfeld explained in an interview.
The CIBC economists agree with Carney that interest rates will rise, likely starting in the second half of next year, but "we don't see that as endangering a bubble either in the mortgage market or the equity market."
In a separate analysis, Shenfeld, Peter Buchanan and Krishen Rangasamy, all of CIBC, judged that the equity markets in Toronto still have room to grow even if some analysts believe stocks are overpriced already.
And they predict the Canadian dollar will average $1.05 US next year.
Subscribe to:
Posts (Atom)
