Central bank plays down recession threat
· TSX -5.94
· Dow -88.66
· Dollar +.56c to $ $98.67US
· Oil +$3.65 to $119.97US per barrel
· Gold +16.20US to $872.30US
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html
As other countries pump cash into their credit systems, the Bank of Canada is standing on the sidelines
May 03, 2008 Julian BeltrameThe Canadian PressThe Bank of Canada sat on the sidelines yesterday as the United States and Europe stepped up efforts to loosen tight credit conditions, a further indication that Canada's top banker believes the country's economic woes were not the same as south of the border.
Bank governor Mark Carney appeared relatively upbeat about Canada's economic prospects at two appearances before parliamentary committees this week, highlighting the country's "strengths'' and describing credit conditions as superior to those in the United States and Europe.
Yesterday, the U.S. Federal Reserve acknowledged the global credit crisis was not yet over, saying it will work with European central banks on the issue and announcing a boost in the emergency reserves it supplies to U.S. banks to $150 billion US in May, up from the $100 billion it supplied in April.
But in a statement, the Canadian central bank noted that while it had rolled over $2 billion in purchase and resale agreements with Canada's chartered banks on Tuesday, it was not injecting more or new money into the system.
"The Bank of Canada has not offered the specific types of facilities covered by these central bank announcements because markets and institutions in Canada have not been affected in the same way nor to the same extent as elsewhere,'' it said in a statement.
Carney's sanguine comments this week -- no recession and no inflation -- appeared directed at countering what the central bank likely considers overly pessimistic views propagated by analysts, the media and opposition politicians, especially after Statistics Canada reported gross domestic product had contracted by 0.2 per cent in February.
Bank of Montreal's Doug Porter pointed out that Canadians have had it far better than their American cousins, and will continue to experience superior economic prospects for some time.
The number of people working in Canada is at a record 63.9 per cent, while in the U.S. it has dropped to 62.6 per cent, he said.
As well:
Retail sales are up 6.8 per cent so far this year in Canada, compared to 2.9 per cent in the U.S.
Housing starts are up 3.7 per cent in Canada, versus down 29 per cent in the United States
And Canadian auto sales are up 6.1 per cent; American sales are down 7.7 per cent this year.
Part of the despair about the economy, said Porter, is related to analysts and Canadians putting too much weight on one indicator -- real gross domestic product growth -- which has been misleading in an era of rising exports values and falling import prices.
Tuesday, May 6, 2008
Monday, May 5, 2008
Financial Update
Interest rates set to climb back, taking resource stocks with them
· TSX +214.47 finished the week much stronger
· Dow +48.20
· Dollar -1.18c to $ $98.11US
· Oil -$0.94 to $112.56US per barrel
· Gold -13.90US to $848.90US
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html
TORONTO, May 5 /CNW/ - CIBC (CM: TSX; NYSE) - "Unrelenting pressure" on food and energy prices will reverse the direction of interest rates in the next 12 months, and lift energy and materials stocks to new record highs, notes a CIBC World Markets report.
"While the bank of Canada may still have one more (rate) cut up its sleeve, markets will be surprised at how rapidly the Bank is compelled to take back those easings," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets in his monthly Canadian Portfolio Strategy Outlook report.
"We expect to see at least 100 basis points of tightening" by the end of next year.
Because rising interest rates make bond yields less attractive, Mr. Rubin is paring back the bond weighting in his model portfolio to "neutral" from "overweight". That frees up funds to take a slightly overweight stance in equities, with emphasis on energy and materials stocks.
Mr. Rubin's increased weighting in energy stocks reflects supply struggles and surging demand that he predicts will push oil to US$130 a barrel and natural gas to US$13 per Mn BTUs in 2009.
"We remain wary of near-term market volatility. But the strength of the resource market, particularly energy, and a gradual recovery in the U.S.
economy should see the TSX justify our equity weighting," says Mr. Rubin.
Mr. Rubin's "overweight" stance in materials is tied to the strength of emerging markets where infrastructure developments are driving demand for metals and other resources, and rising income levels and meat consumption are pushing up global agricultural prices.
"An expected return to a global supply deficit in 2009 has led us to upgrade our forecast for copper prices," says Mr. Rubin. "In comparison to the other metals, the golds haven't shone of late. But the pullback there should prove temporary, given the prospect for further dollar weakness and continuing inflation jitters, fuelled by rising oil and food prices.
"Agricultural commodity and chemical producers, along with purveyors of needed infrastructure or crop improvements like irrigation and biotech firms offer the greatest potential positive leverage to global food supply troubles.
Profits in the agricultural chemicals sector are expected to nearly triple this year."
While those sectors are winners, Mr. Rubin says companies that "rely heavily on grain, oil, or other commodities as inputs face increasing costs and thus weaker profits." As a result, he has cut a half percentage point of weighting in the consumer staples group, which includes both food retailers and processors.
He has also shed weight in the utilities sectors where dividend yields are likely to prove less attractive in a rising interest rate environment. "In addition, rising carbon abatement costs could also reduce future profit growth, especially for coal-dependent power generators."
Mr. Rubin's end of 2009 forecast of 16,200 for the TSX, versus 1,475 for the S&P 500, points to the globally leveraged Canadian market continuing to outperform the S&P 500 for at least another year, aided by continuing strength in energy and materials stocks.
"We now expect TSX earnings to rise by an above-trend 16 per cent this year. That should easily surpass the consensus estimate of a 10 per cent rise in S&P 500 earnings, marking the fourth consecutive year of better earnings growth north of the border.
"Beyond the positive effect of triple-digit crude, US$4/lb copper and US$1,000/tonne potash on the energy and materials groups, profit expectations have also been upgraded for info tech and more modestly for key industrial producers like the rails. Alternatively, financial sector earnings are expected to fall modestly for the first time since 2002. That compares with expectations just three months ago for a near-double-digit gain for the sector.
The complete CIBC World Markets report is available at:
http://research.cibcwm.com/economic_public/download/psmay08.pdf
Thursday, May 1, 2008
Financial Update
Stock markets rack up solid advance as US Fed decreases overnight rate by 25 bps
· TSX +109.94 recovering nearly half of Tuesdays slide
· Dow -11.81 despite data showing the U.S. economy still registering some growth during
the first quarter while GM handed in a quarterly loss that was less than expected. ($3.3b)
The Fed's failure to deliver an unequivocal statement that the worst was over for the economy
caused investors to sell their best performers.
· Dollar +.47c to $ $99.29US
· Oil -2.17 to $113.46US per barrel contributing to plummeting sales of sport utility vehicles and
pickups and GMs huge quarterly loss
· Gold -11.40US to $862.80US
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>
“Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than currently expected. Fed said it stood ready to “act as needed to promote sustainable economic growth and stability.” That phrase was seen as a signal that the Fed is as worried about weak growth as it is about the risk of higher inflation.”
Let the talk of Fixed Rate Mortgages begin again!!
________________________________
Fed cuts interest rates by a quarter point
MARTIN CRUTSINGER The Associated Press
April 30, 2008 at 2:37 PM EDT
WASHINGTON — The United States Federal Reserve has cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.
The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 per cent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.
The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.
The Fed move was in line with expectations.
The Fed devoted portions of its statement to both the threats of weakness and the threats that inflation could pose, likely reflecting the debate inside the central bank.
There were two dissents from the move, with both Richard Fisher, president of the Dallas regional Fed bank, and Charles Plosser, head of the Philadelphia Fed, arguing that the central bank should make no change in rates.
The central bank is walking a tightrope, trying to jump-start economic growth while also confronting the risk that if it overdoes the credit easing it could make inflation worse down the road.
Many economists believe the country has fallen into a recession. However, the government reported Wednesday that the overall economy, as measured by the gross domestic product, managed to eke out a 0.6 per cent growth rate in the January-March quarter, barely in positive territory.
On the overall economy, Fed Chairman Ben Bernanke and his colleagues said in their statement explaining the decision that “economic activity remains weak” with subdued spending by businesses and households.
“Financial markets remain under considerable stress and tight credit conditions and deepening housing contractions are likely to weigh on economic growth over the next few quarters,” the Fed officials said.
While saying the central bank expected inflation to moderate in coming months, the Fed statement said that “uncertainty about the inflation outlook remains high,” adding that it would be necessary to “continue to monitor inflation developments carefully.”
The quarter-point move followed a string of more aggressive rate cuts ranging from a half-point to three-fourths-point in the first three months of this year as the central bank was battling to stabilize financial markets roiled by multibillion-dollar losses caused by rising mortgage defaults.
That turmoil claimed its biggest victim on March 16 when Bear Stearns came to the brink of bankruptcy and the Fed stepped forward with a $30-billion (U.S.) line of credit to facilitate a sale of the country's fifth largest investment bank to JP Morgan Chase.
However, credit markets, while not back to normal, have stabilized and many analysts believe the worst may be over — although they caution that this forecast could prove too optimistic if the housing slump deepens further, causing even more mortgage defaults than now expected.
Before the Fed made its first rate cut in September, the funds rate had stood at 5.25 per cent.
While many economists believe the country is in a recession, the expectation is that it will be a short one ending this summer. If that turns out to be correct, the Fed may hold rates steady for the rest of this year with the next move being a rate increase some time next year when the economy is on sounder footing.
· TSX +109.94 recovering nearly half of Tuesdays slide
· Dow -11.81 despite data showing the U.S. economy still registering some growth during
the first quarter while GM handed in a quarterly loss that was less than expected. ($3.3b)
The Fed's failure to deliver an unequivocal statement that the worst was over for the economy
caused investors to sell their best performers.
· Dollar +.47c to $ $99.29US
· Oil -2.17 to $113.46US per barrel contributing to plummeting sales of sport utility vehicles and
pickups and GMs huge quarterly loss
· Gold -11.40US to $862.80US
Bond Rates: http://www.bankofcanada.ca/en/rates/bonds.html <http://www.bankofcanada.ca/en/rates/bonds.html>
“Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than currently expected. Fed said it stood ready to “act as needed to promote sustainable economic growth and stability.” That phrase was seen as a signal that the Fed is as worried about weak growth as it is about the risk of higher inflation.”
Let the talk of Fixed Rate Mortgages begin again!!
________________________________
Fed cuts interest rates by a quarter point
MARTIN CRUTSINGER The Associated Press
April 30, 2008 at 2:37 PM EDT
WASHINGTON — The United States Federal Reserve has cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.
The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 per cent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.
The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.
The Fed move was in line with expectations.
The Fed devoted portions of its statement to both the threats of weakness and the threats that inflation could pose, likely reflecting the debate inside the central bank.
There were two dissents from the move, with both Richard Fisher, president of the Dallas regional Fed bank, and Charles Plosser, head of the Philadelphia Fed, arguing that the central bank should make no change in rates.
The central bank is walking a tightrope, trying to jump-start economic growth while also confronting the risk that if it overdoes the credit easing it could make inflation worse down the road.
Many economists believe the country has fallen into a recession. However, the government reported Wednesday that the overall economy, as measured by the gross domestic product, managed to eke out a 0.6 per cent growth rate in the January-March quarter, barely in positive territory.
On the overall economy, Fed Chairman Ben Bernanke and his colleagues said in their statement explaining the decision that “economic activity remains weak” with subdued spending by businesses and households.
“Financial markets remain under considerable stress and tight credit conditions and deepening housing contractions are likely to weigh on economic growth over the next few quarters,” the Fed officials said.
While saying the central bank expected inflation to moderate in coming months, the Fed statement said that “uncertainty about the inflation outlook remains high,” adding that it would be necessary to “continue to monitor inflation developments carefully.”
The quarter-point move followed a string of more aggressive rate cuts ranging from a half-point to three-fourths-point in the first three months of this year as the central bank was battling to stabilize financial markets roiled by multibillion-dollar losses caused by rising mortgage defaults.
That turmoil claimed its biggest victim on March 16 when Bear Stearns came to the brink of bankruptcy and the Fed stepped forward with a $30-billion (U.S.) line of credit to facilitate a sale of the country's fifth largest investment bank to JP Morgan Chase.
However, credit markets, while not back to normal, have stabilized and many analysts believe the worst may be over — although they caution that this forecast could prove too optimistic if the housing slump deepens further, causing even more mortgage defaults than now expected.
Before the Fed made its first rate cut in September, the funds rate had stood at 5.25 per cent.
While many economists believe the country is in a recession, the expectation is that it will be a short one ending this summer. If that turns out to be correct, the Fed may hold rates steady for the rest of this year with the next move being a rate increase some time next year when the economy is on sounder footing.
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