Financial Update for Feb. 24, 2009

TSX hits lowest point in 5 years

· TSX-302.32 to 7,647.67 (Reuters) to its lowest closing level in more than 5 years, hit by lower commodity prices, weak economic data and nagging concerns about U.S. banks.
· DOW -250.89 to 7,111.78 Lingering uncertainty about the U.S. government actions to shore up beleaguered banks rattled equities in the US causing the DOW to trade at its lowest level in 10 years
· Dollar -.12c to 79.92USD
· Oil -$1.69 to $38.44US per barrel.
· Gold -$7.20 to $994.60 USD per ounce The slide in oil prices followed weak Canadian retail sales data for December
· Canadian 5 yr bond yields -.05bps to 2.00
· http://www.financialpost.com/markets/market_data/money-yields-can_us.html


Made-in-Canada recession: retail sales plunge shows problems not all from afar

By Julian Beltrame, The Canadian Press

OTTAWA - The Canadian economy took a beating in December, with retail sales plunging a Scrooge-like 5.4 per cent, the largest such fall in 15 years, as consumers stayed away from stores and auto dealerships during the traditional high-spending month.

Retail figures released Monday by Statistics Canada suggest that weak consumer spending and a sagging housing market are adding to an already battered export sector to drag the economy more deeply into recession.

'We can't just point our finger at the U.S. and the rest of the world and say, 'There's our problem,"' noted economist Douglas Porter of BMO Capital Markets.

'We've also seen a deep drop in domestic indicators as well, like housing and now consumer spending."

The latest retail number may also go a long way toward dispelling the notion that Canada's economy is far healthier than that of the U.S., the so-called epicentre of the global crisis.

Economists are now unanimous in predicting Canada's gross domestic product will come in weaker than America's for all of 2008 when the fourth-quarter gross domestic product figures are released next Monday.

They predict fourth-quarter GDP in Canada shrank between three and four per cent, about the same as the 3.8 per cent contraction south of the border and far worse than the Bank of Canada's recent prediction of negative 2.3 per cent growth.

The two economies don't appear to be far apart for 2009, either.

A new survey of U.S. economists forecasts the U.S. economy will shrink a further 1.9 per cent this year, within the range of the more pessimistic projections for the Canadian economy.

'In terms of GDP growth, Canada did worse (last year), but in terms of employment growth we surpassed the U.S.," said Paul Ferley, assistant chief economist with the Royal Bank. He noted, however, that the loss of 129,000 jobs in January points to a worsening jobs picture in Canada as well.

Ferley and many other economists still see Canada doing slightly better this year, largely because of stronger financial markets and expectations that commodity prices, particularly that of oil, will recover somewhat.

But Merrill Lynch Canada chief economist David Wolf says those advantages may be overestimated, noting that although the crisis began in the U.S., countries such as Japan are already far deeper in the hole. The United States, he says, is further ahead of Canada in making adjustments to the recession and has taken more aggressive stimulus measures.

'Canada's financial markets are clearly in better shape but it's not going to matter much if no one wants to borrow or lend," Wolf said.

In a speech in Toronto, Bank of Canada senior deputy governor Paul Jenkins said getting credit markets working is the key to returning economies back to growth.

'Stabilization of the global financial system is a precondition for economic recovery globally and in Canada," he said in notes of his speech released by the central bank.

Later in the day, the central bank took the extraordinary step of agreeing to accept riskier securities like corporate bonds as collateral in an effort to make it easier for cash-strapped businesses to obtain loans.

The next move by the bank to spur lending will likely come on March 3, when many economists predict governor Mark Carney will slash short-term interest rates another half-point, bringing the bank's overnight rate to an historic 0.5 per cent.

If there was any good news on the horizon, it came from a Harris-Decima poll which showed consumer confidence in Canada reviving slightly.

The January poll showed 27 per cent of respondents expecting they'll be better off a year from now, an increase from the 20 per cent who were optimistic in December.

But if there is growing consumer confidence, it hasn't translated into behaviour yet and for good reasons, said Porter.

'There's no question the actual job losses we've seen and the actual wealth hit we've seen from the decline in equity markets is playing a role," he said. "It's more than just a confidence matter."

The retail sales decline in December was widespread, although the automotive sector suffered the most with sales crashing 12.7 per cent. Statistics Canada says three-quarters of the December retail decline was rooted in automotive, without which retail sales fell 1.8 per cent.
In non-automotive retailing, the largest decline in December was in building and outdoor home supplies, where retail sales fell 5.6 per cent.

Meanwhile, sales at gasoline stations fell 11.7 per cent in December, and have dropped 28.8 per cent since last September. That reflects a sharp decline in prices at the pump since last summer, but also the impact of a struggling economy on consumer driving habits as well as reduced business demand for gasoline for the industrial and trucking sectors.

Significant monthly decreases were also registered in sectors traditionally associated with holiday shopping. Sales in the clothing and accessories stores fell 3.7 per cent, furniture, home furnishings and electronics stores and miscellaneous retailers dropped two per cent, general merchandise stores fell 0.4 per cent.