Financial Update for Feb. 4, 2009

Harper government survives budget vote

By Joan Bryden, The Canadian Press OTTAWA –

Stephen Harper's minority government has extended its lease on life, winning approval in principle Tuesday for a federal budget that will plunge the country into deep deficit. The big-spending budget aimed at stimulating the flagging economy passed easily by a vote of 211-91.

The budget includes plans to spend $40 billion over two years on measures to kickstart the economy, including infrastructure, social housing, home retrofits, parks, tourism, railways and Arctic research. It also includes $2 billion in income tax cuts.

In the process, the budget projects the government will rack up towering deficits of $86 billion over five years - the first time in 13 years that Canada has plunged into red ink

· TSX +3.80 as a rise in financials on hopes generated by surprise jump in U.S. home sales data offset commodity stock weakness.
· DOW +141.53 as some better than expected housing data helped take investors' minds off mixed earnings news and dismal auto sales figures.
· Dollar +.88c to 81.29USD
· Oil +$.40 to $40.78US per barrel.
· Gold -14.70 to 892.00 USD per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

National Post WASHINGTON -- U.S. President Barack Obama said Tuesday he wants Congress to make changes to the controversial "Buy American" provision in its nearly $900-billion economic stimulus legislation, warning it would be a "mistake" for the United States to put up new barriers when global trade is already suffering.

"I agree that we can't send a protectionist message," Mr. Obama said in a televised interview with Fox News. "I want to see what kind of language we can ... work on this issue," he added. "I think it would be a mistake, though, at a time when worldwide trade is declining for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

Credit delinquencies rising, Deloitte warns

Jamie Sturgeon, Financial Post

Canadian credit-card users could face a wave of credit checks, limit reductions and even account closures as issuers fight against a rise of between 5% and 10% in the delinquency rate.

Consumer debt on credit-cards issued by Canadian banks has soared nearly 40% since 2004 on the back of loosened standards, according to accounting giant and advisory firm Deloitte. Now, it's delinquencies that are rising. The average loss rate of between 3% and 4% has risen by between 50 and 100 basis points, according to the firm's new report, Uncharted Waters for Credit Issuers, released Tuesday.

Deloitte puts the total value of outstanding consumer debt on credit cards at $80-billion, putting as much as $800-million at risk of write-offs in the next year if issuers "fail to take action immediately."

Some institutions have already moved to tighten standards, implement credit limit decreases on some accounts and have halted advertising of low-rate balance transfers.

However, "overall balances for most issuers are staying level or increasing," the report said. As a result, it suggests banks, credit unions and other financial institutions offering credit cards should increase credit checks on customers.

The report also calls for a "watch list" for accounts with unusually high cash-advance activities, as they "may indicate that cardholder is in financial difficulty."

"There is a high correlation between the percentage of the credit line being used and the likelihood of default."

Other measures include stopping automatic credit limit increases as well as speeding up the process of contacting customers who've failed to make a payment.