• TSX -126.94 with commodity stocks bearing the brunt of the selloff as aluminum giant Alcoa Inc. delivered disappointing earnings and China moved to cool off a hot economy.
• DOW -36.73
• Dollar -.24c to 96.22cUS
• Oil -$1.73to $80.79US per barrel. the Chinese action to curtail economic growth put pressure on commodity prices because of concerns about a possible slowing of demand.
• Gold -$21.80 to $1,128.90USD per ounce
Canada falls back into trade deficit as dollar, low demand stalls exports
JULIAN BELTRAME, THE CANADIAN PRESS
THE CANADIAN PRESS, 2010
OTTAWA - Canada was pulled back into a trade deficit in November as the country faced twin headwinds of both a strong loonie and weaker demand for exports, after a surprisingly strong performance the previous month.
The value of exports from Canada rose 1.1 per cent from October, but imports jumped 3.9 per cent, producing a deficit of $344 million. In October, saw Canada posted its first trade surplus in months at $503 million.
In terms of volume, exports fell a disappointing 0.1 per cent in November, Statistics Canada reported.
Economists say with the loonie worth nearly as much as the American dollar, and potentially reaching parity within the year, the prospects for 2010 remain bleak for Canadian exporters.
"Don't look for a quick return to the halcyon days of big surpluses any time soon with domestic demand reviving faster than U.S. spending, and the Canadian dollar remaining lofty," BMO Capital Markets economist Douglas Porter wrote in an analysis of the trade data.
On Monday, Prime Minister Stephen Harper blamed soft international demand and the strong loonie for the weakness in Canada's manufacturing sector and slow jobs recovery.
But Export Development Canada offered some modest hope Tuesday, saying its semi-annual trade confidence index rose to 77.4 in the fall of 2009 from 68.5 during the spring.
"Trade is definitely in a growth mode, but we can't forget the starting point," said EDC chief economist Peter Hall. "Canadian exports took a 20 per cent hit in 2009, six times greater than any annual decline in recent memory. What exporters are saying is that they expect to start climbing out of that chasm."
And Hall believes exporters will be getting a break from the currency in the latter half of this year, although many other analysts see the loonie remaining near or above par with the U.S. dollar for most of 2010.
"We think the drivers of the currency are out of whack with reality," Hall explained. "Base metal prices seem a little too high and oil prices now are more indicative of an economy that is fully recovered than it actually is." Hall says he believes the Canadian dollar will slump to about 86 cents US in the second half of 2010, about 10 cents US lower than its current level.
Still, economists are not looking for a quick turnaround in Canada's trade performance.
TD Bank economist Dina Petramala said although goods exports are on track to record a 12 per cent annualized gain in the fourth quarter of 2009, she still expects Canada to stay in a trade deficit for most of this year.
She said weak U.S. demand for Canadian exports and the high dollar points to another year of struggle for the export sector. About 75 per cent of Canada's exports head to the U.S.
As well, a strong dollar has the effect of making imports more attractive to Canadians, further exacerbating the trade deficit.
In November, exports increased to $31.6 billion benefiting on the higher price of oil - the fifth increase in six months - as prices rose 1.1 per cent.
But in volume terms, exports actually slipped 0.1 per cent. And excluding energy products, exports fell 0.3 per cent.
Meanwhile, imports to Canada increased by $1.2 billion to $31.9 billion, almost offsetting the declines of the previous three months.
Most import sectors posted gains, with automotive products, machinery and equipment, and energy products accounting for the bulk of November's increase.
The exception was industrial goods and materials.
Exports to the United States rose two per cent while imports, which increased 3.8 per cent, accounted for almost two-thirds of the gain in overall imports.
As a result, Canada's trade surplus with the United States narrowed to $3.2 billion in November from $3.5 billion in October.
Exports to countries other than the United States fell 1.2 per cent while imports from these countries increased four per cent.
Consequently, Canada's trade deficit with countries other than the United States widened to $3.6 billion in November from $3 billion in October.
China takes new steps to curb bank lending
By Joe McDonald
BEIJING — China took new steps Tuesday to control bank lending, ordering institutions to set aside more reserves in a move to avert a surge in credit that Beijing worries might fuel inflation or asset price bubbles.
China’s nascent rebound from the global crisis was fuelled by a flood of lending by state-owned banks last year. Bankers cut lending under government orders toward the end of 2009 but regulators worry credit might rebound this year.
The move indicates Beijing is confident growth can be sustained and has shifted focus to preventing financial excesses and economic overheating. The government is forecasting growth of 8.3 per cent for 2009, up from a low of 6.1 per cent for the first quarter of the year.
The central bank raised the amount of reserves that banks must hold by 0.5 per cent to 15 per cent of their deposits. Also Tuesday, the bank raised interest rates paid on one-year bills for the first time since August to absorb money from the market and cool credit growth.
“This series of moves by the central bank provides a clear sign that policy-makers are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset price bubbles,” said Jing Ulrich, chair of China equities for J.P. Morgan, in a report.
Chinese stock and real estate prices soared last year, driven in part by stimulus money being diverted to speculation. The central bank governor and others have called for measures to prevent a dangerous boom and bust in asset prices, warning that could hurt the economy and banks that are left with unpaid loans.
Beijing also is trying to curb an inflow of foreign “hot money” that is coming into China to speculate in stocks and real estate.
Chinese banks lent 8.95 trillion yuan ($1.3 trillion) in January-October, up from a total of 4.2 trillion yuan for all of 2008. Much of that was in the first half of the year and lending fell sharply after July, when regulators tightened regulations on loans to buy second homes and ordered banks to scrutinize borrowers more closely.
The recent measures appear to be aimed at preventing a return to the torrid lending of early 2009. Despite the lending curbs, Chinese leaders have repeatedly assured the public that stimulus spending would continue in 2010. They say the government will pay special attention to entrepreneurs who missed out on aid in the first year of the stimulus.
The spending has sent housing prices soaring in Beijing and Shanghai since late 2008. Prices have roughly doubled over the past three years to more than 12,000 yuan ($1,700) per square meter, according to a December report by the U.S. bond manager Pimco.
Neighbouring Russia is suffering from the opposite problem.
Lending there is weak because banks are afraid of incurring bad loans, the chair of its central bank, Sergei Ignatyev, told parliament last month. He said corporate lending is flat, and retail lending is declining.
The politically sensitive prices of food and consumer goods also are edging up. After nine months of decline, consumer prices rose 0.6 per cent in November from a year earlier.
The bank reserve rate now stands at 15 per cent, its highest level since Dec. 5, according to the Chinese financial data website Hexun.com.
Rural credit cooperatives were exempt from the increase to make sure they can lend enough for spring planting, the central bank said. Their reserve rate was left at 13.5 per cent, according to Hexun.com.
The boost in the interest rate on the one-year bill was the first since August. The central bank had raised the rate for its three-month bills on Thursday.
The increase in the reserve rate was announced after Chinese stock markets closed.
The country’s benchmark Shanghai Composite Index closed up 1.9 per cent, or 61.22 points, at 3,273.97 on Tuesday. The index was one of the world’s best performers in 2009, ending the year up 80 per cent after heavy stimulus spendin
Wednesday, January 13, 2010
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