Has Canada slipped into recession without anyone noticing? (CP below)
· TSX Big gains in the financial sector helped recover half of yesterdays plunge.+146.24
· Dow +276.74 (Reuters)lower oil prices helped New York indexes close sharply higher as investors also took in some rare good news from the financial sector as the Banks had their best day in 16 years. Wells Fargo, the 5th biggest bank in the US, beat market expectations, despite a 22% decline in 2nd-quarter profit as more customers failed to pay back their loans. But the bank raised its dividend at a time when many other financial institutions are slashing their payouts, and its shares jumped by $6.72
· Dollar flat +.01c to $99.78US
· Oil dropped sharply for a 2nd day in a row-$4.144 to $134.60US per barrel. after a U.S. government report showed a surprise increase in inventories and continued weak demand in the world's top consumer nation. Oil's 6-year rally has also been driven partly by ballooning demand from developing economies such as China and India.· Gold down sharply–$15.90 to $961.80US per ounce as speculators booked profits after the metal hit a 4-month high near $1,000 an ounce the previous day
No housing bubble in Canada: Flaherty
Carrie Tait, Financial Post
CALGARY - Federal Finance Minister Jim Flaherty shrugged off housing worries in Canada Wednesday, saying there is no bubble and that the subprime-mortgage woes crippling financial institutions in the United States are not threatening banks north of the border.
"There is no bubble in the Canadian housing sector," he told reporters after speaking to roughly 400 people at a Calgary Chamber of Commerce event. "That's not been our concern. Our concern has been a tendency for longer amortization periods, like 40 years, and for purchasers putting very little money down. We've seen nothing in Canada like the U.S. subprime situation."
The comments came a day after the Canadian Real Estate Association said the average June resale price for homes was down 0.4% from a year earlier, the first decline in almost 10 years.
Mr. Flaherty reminded the audience that the government last week introduced plans to ditch government-backed mortgages with amortization periods longer than 35 years, and require that down payments total at least five per cent of the purchase price on these types of mortgages.
Despite tightening the rules on mortgage lending, Mr. Flaherty said he is not fretting about the health of Canada's banks, even as subprime mortgage woes hammer financial institutions in the United States.
Canadian analysts, however, continue to speculate on what may happen if the crisis continues to pinch banks -- particularly Canadian Imperial Bank of Commerce -- in this country.
"Our banks are well capitalized in Canada," Mr. Flaherty said. "I'm satisfied they are well capitalized in accordance with the requirements."
He said he has been in contact with bank CEOs and regulators since the subprime problems began to sweep the market last August.
This comes as California-based IndyMac Bancorp Inc. customers have been lining up to yank their money out of the bank, prompting U.S. regulators to take it over last week. And Fannie Mae and Freddie Mac, two major U.S. mortgage institutions, are now being backstopped by the government there.
John Aiken, an analyst at Dundee Capital Markets, speculated this week on what may happen to CIBC should its slide, fuelled by credit exposure, continue to inflict pain.
"Should the regulator become concerned with its capital position and the bank is unwilling or unable to tap the market for incremental equity, CIBC could be forced into the hands of another financial institution as the best solvency alternative," he wrote in a note to clients.
"We believe that the possibility of financial services consolidation is closer than most investors would allow and significantly closer than it was even three months ago."
Mr. Flaherty, however, reiterated the Conservatives' stance on reopening the bank merger debate. "Bank mergers have not been a priority for our government and that remains the case," he said. Further, while he acknowledged that the economy is going through "turbulent times," it remains healthy. "Our economy is strong," he told the audience.
Has Canada slipped into recession without anyone noticing?
By Julian Beltrame, The Canadian Press
OTTAWA - Canada is within a hair's breadth of slipping into a technical recession, economists said Wednesday, a day after the outlook for the North American economy soured sharply.
But they add that it won't seem like recessions of the past. In fact, says University of Toronto economist Peter Dungan, Canadians may already have lived through a technical recession - two quarters in a row of a shrinking economy - and not noticed.
"Our forecast is there's a recession now," Dungan said. "There may be a slight revision to the first quarter, but the second (which ended June 30) is almost certainly negative. "This is nothing like the recessions we had in the early '90s and early '80s, however, when we had serious recessions and serious unemployment," he added.
The early '80s recession came after two major oil price shocks in the 1970s that battered the North American economy and led to a restructuring of heavy industry, especially steel and autos, with the loss of millions of jobs. The early 1990s recession produced widespread bankruptcies in real estate and retail before growth resumed a few years earlier.
Speaking in Calgary, Finance Minister Jim Flaherty expressed confidence that the economy would stay on the positive side of the ledger and insisted Ottawa won't fall into a deficit as a result of the slowdown.
"We are on track in terms of our budget in Canada, that we will continue to run a surplus," he said, adding that the country's "strong fundamentals" and status as an emerging energy superpower will keep it in better shape than the United States, although not immune to a global economic slowdown.
"Canada is not an island," Flaherty said earlier in a speech to a Calgary Chamber of Commerce luncheon. "We are going through turbulent times. I want to assure you that Canada's economic future is bright and I say that based on the economic fundamentals of this country, which are solid."
Following a first quarter contraction that saw gross domestic product fall 0.3% and continuing signs of stress, economists and policy makers have been routinely revising their growth projections for the year, all trending downward.
In the last week, Canadians have been hit by a series of bad news announcements. Employment fell in June for the first time this year and full-time employment tumbled for the second straight month. Average home sale prices edged down during the month, the first year-over year price decline in nearly a decade. And General Motors Corp. announced plans to lay off 20% of its white collar staff in North America, a further cut of thousands of jobs.
Meanwhile, the Bank of Canada warned of rising inflation Tuesday while lowering its 2008 growth forecast from 1.4 per cent in April to one per cent. On Wednesday, the Conference Board of Canada downgraded its projection from 2.2% this spring to 1.7%. For both, it was the second downward revision so far this year.
Both are overly optimistic, says David Wolf, chief economist with Merrill Lynch Canada, who says gross domestic product increase will likely come in at a tepid 0.5 per cent this year, a statistical blip from recessionary times.
"Absolutely, by the informal definition of recession we could be in recession," agrees Global Insight economist Dale Orr, noting that nobody will know for sure until late in August, when Statistics Canada releases the second quarter growth tally. But Orr also points out that the Canadian economy still has some legs, particularly in the resource and oil and sector, consumer spending, and employment and housing that while slowing, are coming off record-setting years.
Even manufacturing showed signs of life in May. Statistics Canada reported Wednesday that manufacturing sales rose 2.7 per cent from April, the fourth increase in five months. The details behind the aggregate number were weaker as sales remain below last year's levels and most of the gain was due to higher prices, not increased production.
The strongest pillar remains high-priced commodities, particularly Alberta oil, which is bringing tremendous wealth into the country and helping grease the general economy through corporate profits, job creation, and higher government revenues that get passed along in lower taxes and higher spending.
"Perhaps the volume of what we produce is going down, but the wealth effect (from commodity exports) is very much there," said Pedro Antunes of the Conference Board.
"We often think that's beneficial for some regions and sectors, but there have been redistributive effects. The federal government has collected dividends that's been fanned out to all Canadians in the form of tax cuts, and the effect on stock prices, wages, employment have been distributed all over the country."
That has kept nominal gross domestic product growth - which measures the actual worth of what Canadians produce - above four per cent, as opposed to the flat performance in real growth, which measures the amount produced.
"The hurt in Canada is narrowly focused in the trade sector," Orr says. "If you are in Windsor, Ont., where unemployment is near 10 per cent and the value of your home is falling, or in the auto sector, or if you are in a forestry one-industry town in northern Ontario or Quebec or B.C., then you are really hurting."
But for most Canadians the slump has yet to register and likely won't if forecasts of a second-half improvement prove accurate. And for those who live off the resource sector, this is boom times, says Orr.
Dungan says another difference between today and recessions of the previous two decades is that inflation, while rising, remains relatively tame, and governments now have the wherewithal to stimulate the economy or at least not inflict further harm.
"The Bank of Canada is trying to keep inflation from rising, not reduce it, and generally speaking prevention is not as costly and not as unpleasant as cure," he explained.
"And our government balances are basically OK. It's not like 1991 when we had huge deficits and therefore you couldn't do anything, if anything you were trying to raise taxes to make those better, which only makes the downturn worse."
Thursday, July 17, 2008
Wednesday, July 16, 2008
Financial Update
Bank of Canada warns of inflation, slow growth, keeps interest rates at 3%
Home prices slip for first time in 9 years
· TSX fell drastically Tues -387.73 to 13,357.56 after a volatile session, squeezed by financial stocks with investors wary of more turmoil in the US and oil stocks which retreated on a drop in crude prices. "The tone of the market is very negative," said John Stephenson, portfolio manager at First Asset Funds Inc. "Financials have been a great trade to be in for most of the last 10 years, maybe 20. And it's hard for us to get our minds around the fact that that just isn't the case anymore."
· Dow -92.69 following downbeat congressional testimony by U.S. Federal Reserve chairman Ben Bernanke who said the U.S. economy confronts "numerous difficulties" including strains in financial markets, rising joblessness and housing problems. Rising prices for energy and food are elevating inflation risks - and lowering expectations for interest-rate relief.
· Dollar +.29c to $99.77US The closest its been to par in 6 weeks
· Oil, after hitting a record high Friday of $147.27 plummeted -$6.44 to $138.74US per barrel. The largest one day drop in over 17 years, as fears that record fuel prices are spreading broad economic pain led to the 3rd big sell-off in just over a week.· Gold –has been rising over the past week and hit $987.75,its highest level since March 19, before a drop in oil erased some of the gains to$978.80US per ounce
Ø DETROIT - Tom Krisher And Dee-Ann Durbin, The Associated Press General Motors Corp., struggling to survive, will slash jobs, cut production, sell assets and suspend its dividend for the first time in 86 years as it tries to ride out an unprecedented collapse of its core U.S. market.
Tuesday's actions, which the company said will save US$15 billion through 2009, carry a more urgent tone than past roadmaps to recovery. This time, GM is facing one of the most serious threats in its nearly 100-year history, with one analyst speculating that the world's largest automaker by sales could wind up seeking bankruptcy protection.
Globe and Mail -Canadian home prices fell in June for the first time since January, 1999, as the number of houses for sale remained at record levels. The average price of an existing home fell 0.4 per cent in June to $341,096, compared with $342,615 the year before, according to statistics released Tuesday by the Canadian Real Estate Assoc
Markets with the greatest year-over-year decrease in unit sales in June
-Greater Vancouver - down 42.9 per cent
-Regina - down 33.8 per cent
-Saskatoon - down 32.7 per cent
-Victoria - down 24.4 per cent
Markets with the highest year-over-year increase in unit sales in June
-Trois-Rivieres - up 29.8 per cent
-Saguenay - up 11 per cent
-Saint John - up 4.2 per cent
-Ottawa - up 2.6 per cent
Markets with the greatest year-over-year price increases in June
-Regina - up 43.2 per cent
-Saskatoon - up 23 per cent
-Sudbury - up 20.6 per cent
-Saguenay - up 18.1 per cent
Markets with greatest year-over-year price declines in June
-Edmonton - down 2.6 per cent
-Calgary - down 2 per cent
-Victoria - down 1.1 per cent
-Windsor-Essex - down 0.5 per cent
Markets with the greatest year-over-year increase in listings in June
-Saskatoon - up 48.8 per cent
-Sudbury - up 45.1 per cent
-Regina - up 40.5 per cent
-St. Catharines & District - up 20.4 per cent
Markets with the greatest year-over-year decline in listings in June
-Edmonton - down 19.1 per cent
-Calgary - down 8.4 per cent
-Thunder Bay - down 7.1 per cent
-Windsor-Essex - down 7.1 per cent
OTTAWA – Assoc Press-The Bank of Canada expects inflation will rise above its target range early next year and peak at 4% but kept its key interest rate unchanged Tuesday over concerns the economy is slumping deeper than previously thought.
Predicting inflation will rise past its 1-3% range, while growth will slow to 1% this year - both sharp revisions from its last Monetary Policy Report in April - the central bank kept the benchmark overnight interest rate at 3%.
And bank governor Mark Carney gave no hints that he would move off that position in the foreseeable future, saying the risks to the Canadian economy, while "significant," were balanced equally on the downside and upside. The combination of slow growth and high inflation is a difficult puzzle for policy makers because battling one ailment exacerbates the other.
"That's the dilemma that rapidly rising high oil prices create for central banks everywhere. It boxes them in," said Douglas Porter, deputy chief economist with BMO Capital Markets. "It has the nasty side-effects of crimping growth and driving up inflation. This is like a mini-version of what central banks faced in the 1970s when oil prices spiked."
That era was marked by what's been called stagflation - a persistent period of economic stagnation and high inflation.
Porter called the bank's doubling of its inflation forecast to 4% since April "staggering," adding that he believes Carney is anxious to tackle prices, but cannot without risking sending the economy tumbling further.
Another factor is that the central bank is calling Canada's inflation spike "temporary," predicting price hikes will cool to the official target of two per cent by the end of 2009.
The bank is holding out some good news on growth as well, although recovering from the current slump will take longer. It said the economy would edge back up to 2.3 per cent growth next year, and fully rebound in 2010 to 3.3 per cent growth.
"The message from the bank is hold tight for a year and we'll come out of this," said Dale Orr, managing director of Global Insight Canada.
"But I don't want to underplay this. We're going through a difficult situation and there's nothing the bank is going to do about it. Inflation is getting in the way of the bank doing what they normally would do if they look at that kind of growth forecast." Orr said he agrees with the bank that inflation will not be a long-term problem. The slowing economy is building excess capacity, which will drive prices down, he explained. As well, a significant part of Canadian inflation peaking in early 2009 is based the dollar and the GST-cut effects, both of which will have run their course next year.
The Bank of Canada highlighted 3 major factors rocking Canada's economy - protracted weakness in the United States, ongoing financial markets turmoil and sharp increases in commodity prices, particularly oil.
"This has led to further increases in Canada's terms of trade and real national income, and has altered the outlook for global and domestic inflation."
The bank's new assessment of the economy is considerably more pessimistic than it was at the beginning of the year, when it was expecting 2008 growth to average 1.8 per cent - almost twice the current expectation.
The United Steelworkers, one of several labour groups that have urged Carney to stimulate the economy by reducing borrowing costs, said Tuesday the bank was exaggerating inflation fears. It notes that May's inflation was still only 2.2 per cent and that while it may rise, even the bank says the spike will be temporary.
Meanwhile, Canadian interests rates remain higher than those in the United States, keeping the Canadian dollar strong and harming the country's export-based manufacturing sector, said Steelworkers economist Erin Weir. Noting the economy shed 39,000 full-time jobs in June, "the Bank of Canada ... should have lowered interest rates to stimulate the business investment and consumer spending needed to mitigate this economic downturn," Weir said.
While many economists have predicted the bank's next move will be to raise interest rates, Carney did not tip off any bias in Tuesday's announcement.
Tuesday's neutral statement suggests the bank could stay on the sidelines for some time. The bank's next scheduled announcement on interest rates will be Sept. 3.
Sombre President George W. Bush sees 'difficult time' ahead for Americans
By Terence Hunt, The Associated Press
WASHINGTON - This is hardly the way he wanted to go out.
President George W. Bush found few encouraging things to say Tuesday as he assessed a grinding list of problems for his final six months in the White House. It runs from soaring gas prices, falling home values and anxieties about bank safety to un-won wars in Iraq and Afghanistan, genocide in Sudan and friction with Moscow and Beijing.
He bounded onstage for a news conference in the White House press briefing room with a smile and a quick good morning, but the next words out of his mouth were a recognition of pocketbook anxieties.
"Its been a difficult time for many American families who are coping with declining housing values and high gasoline prices," the president said.
Over the next 42 minutes Bush repeatedly found fault with the country's direction and the government's failure to solve problems in the 7.5 years that he has been in office.
He said Americans were "rightly concerned" about gas and home prices, that "there's a lot of nervousness" about the stability of banks, that the economy is "not as good as we'd like" and there is "no short-term solution" to the energy problem.
He blamed the Democratic Congress for failing to deal with the issues.
On the bright side, Bush said the banking system is "basically is sound" and the administration has taken steps to help stabilize housing and financial markets and increase confidence in mortgage giants Fannie Mae and Freddie Mac.
He urged Congress to quickly pass legislation to prop up both institutions.
The president tried to reassure people who are alarmed by pictures of anxious depositors lined up outside troubled banks.
"Take a deep breath," he said, because deposits are insured by the government up to $100,000.
As of Tuesday, Bush had 189 days before he walks out of the Oval Office for the last time. His term is ending with Americans on edge, the mood of the country sour.
Just 16 per cent said the U.S. is moving in the right direction in an Associated Press-Ipsos poll released Tuesday.
That's the lowest reading of public sentiment since the poll started in December 2003. Bush's approval was at 28 per cent, which ties the all-time low he hit in AP-Ipsos polling in April.
When a reporter reminded him of an embarrassing moment in February, when he said he hadn't heard forecasts of $4-a-gallon gasoline, Bush interrupted to say: "Aware of it now."
He called on Congress to follow his example and lift a ban on offshore drilling to help increase domestic oil production.
"I readily concede ... it's not going to produce a barrel of oil tomorrow, but it is going to change the psychology that demand will constantly outstrip supply," the president said.
Sensitive to his portrayal as a lame duck, Bush said: "People say, 'Aw, man, you're running out of time, nothing is going to happen.' I'll remind people what did happen."
He pointed to recent congressional approval of a bill to broaden the government's eavesdropping power and a war-funding bill that increases college aid for military service members and veterans who served after Sept. 11, 2001.
He said Congress should pass legislation dealing with housing, energy and trade.
It was Bush's first White House news conference since April 29, and it was announced about 90 minutes before it began.
The timing clashed with a major speech on Iraq by Democratic presidential candidate Barack Obama, who delayed his remarks a half hour for Bush's news conference.
Obama said overall U.S. interests have been hurt rather than helped by Bush's decision to increase troop strength in Iraq 18 months ago, and he vowed to stick to his plan to withdraw combat troops within 16 months of becoming president.
The global stage offers little relief for Bush.
He said he was "displeased" that China and Russia blocked new UN sanctions against the government of President Robert Mugabe of Zimbabwe, who was has retained power in an election the U.S. and many other countries call a sham.
Bush said the growing strength of extremists flowing from Pakistan into Afghanistan and the deteriorating security situation was troubling.
"Obviously it's still a tough fight there," said Bush, who will meet at the White House this month with Pakistan's prime minister, Yousuf Raza Gilani.
Bush said both Iraq and Afghanistan are important fronts in the war on terror.
"The question really facing the country is, will we have the patience and the determination to succeed in these very difficult theatres."
He ended the news conference with a wave and a smile.
"OK, I've enjoyed it. Thank you very much for your time. Appreciate it."
Home prices slip for first time in 9 years
· TSX fell drastically Tues -387.73 to 13,357.56 after a volatile session, squeezed by financial stocks with investors wary of more turmoil in the US and oil stocks which retreated on a drop in crude prices. "The tone of the market is very negative," said John Stephenson, portfolio manager at First Asset Funds Inc. "Financials have been a great trade to be in for most of the last 10 years, maybe 20. And it's hard for us to get our minds around the fact that that just isn't the case anymore."
· Dow -92.69 following downbeat congressional testimony by U.S. Federal Reserve chairman Ben Bernanke who said the U.S. economy confronts "numerous difficulties" including strains in financial markets, rising joblessness and housing problems. Rising prices for energy and food are elevating inflation risks - and lowering expectations for interest-rate relief.
· Dollar +.29c to $99.77US The closest its been to par in 6 weeks
· Oil, after hitting a record high Friday of $147.27 plummeted -$6.44 to $138.74US per barrel. The largest one day drop in over 17 years, as fears that record fuel prices are spreading broad economic pain led to the 3rd big sell-off in just over a week.· Gold –has been rising over the past week and hit $987.75,its highest level since March 19, before a drop in oil erased some of the gains to$978.80US per ounce
Ø DETROIT - Tom Krisher And Dee-Ann Durbin, The Associated Press General Motors Corp., struggling to survive, will slash jobs, cut production, sell assets and suspend its dividend for the first time in 86 years as it tries to ride out an unprecedented collapse of its core U.S. market.
Tuesday's actions, which the company said will save US$15 billion through 2009, carry a more urgent tone than past roadmaps to recovery. This time, GM is facing one of the most serious threats in its nearly 100-year history, with one analyst speculating that the world's largest automaker by sales could wind up seeking bankruptcy protection.
Globe and Mail -Canadian home prices fell in June for the first time since January, 1999, as the number of houses for sale remained at record levels. The average price of an existing home fell 0.4 per cent in June to $341,096, compared with $342,615 the year before, according to statistics released Tuesday by the Canadian Real Estate Assoc
Markets with the greatest year-over-year decrease in unit sales in June
-Greater Vancouver - down 42.9 per cent
-Regina - down 33.8 per cent
-Saskatoon - down 32.7 per cent
-Victoria - down 24.4 per cent
Markets with the highest year-over-year increase in unit sales in June
-Trois-Rivieres - up 29.8 per cent
-Saguenay - up 11 per cent
-Saint John - up 4.2 per cent
-Ottawa - up 2.6 per cent
Markets with the greatest year-over-year price increases in June
-Regina - up 43.2 per cent
-Saskatoon - up 23 per cent
-Sudbury - up 20.6 per cent
-Saguenay - up 18.1 per cent
Markets with greatest year-over-year price declines in June
-Edmonton - down 2.6 per cent
-Calgary - down 2 per cent
-Victoria - down 1.1 per cent
-Windsor-Essex - down 0.5 per cent
Markets with the greatest year-over-year increase in listings in June
-Saskatoon - up 48.8 per cent
-Sudbury - up 45.1 per cent
-Regina - up 40.5 per cent
-St. Catharines & District - up 20.4 per cent
Markets with the greatest year-over-year decline in listings in June
-Edmonton - down 19.1 per cent
-Calgary - down 8.4 per cent
-Thunder Bay - down 7.1 per cent
-Windsor-Essex - down 7.1 per cent
OTTAWA – Assoc Press-The Bank of Canada expects inflation will rise above its target range early next year and peak at 4% but kept its key interest rate unchanged Tuesday over concerns the economy is slumping deeper than previously thought.
Predicting inflation will rise past its 1-3% range, while growth will slow to 1% this year - both sharp revisions from its last Monetary Policy Report in April - the central bank kept the benchmark overnight interest rate at 3%.
And bank governor Mark Carney gave no hints that he would move off that position in the foreseeable future, saying the risks to the Canadian economy, while "significant," were balanced equally on the downside and upside. The combination of slow growth and high inflation is a difficult puzzle for policy makers because battling one ailment exacerbates the other.
"That's the dilemma that rapidly rising high oil prices create for central banks everywhere. It boxes them in," said Douglas Porter, deputy chief economist with BMO Capital Markets. "It has the nasty side-effects of crimping growth and driving up inflation. This is like a mini-version of what central banks faced in the 1970s when oil prices spiked."
That era was marked by what's been called stagflation - a persistent period of economic stagnation and high inflation.
Porter called the bank's doubling of its inflation forecast to 4% since April "staggering," adding that he believes Carney is anxious to tackle prices, but cannot without risking sending the economy tumbling further.
Another factor is that the central bank is calling Canada's inflation spike "temporary," predicting price hikes will cool to the official target of two per cent by the end of 2009.
The bank is holding out some good news on growth as well, although recovering from the current slump will take longer. It said the economy would edge back up to 2.3 per cent growth next year, and fully rebound in 2010 to 3.3 per cent growth.
"The message from the bank is hold tight for a year and we'll come out of this," said Dale Orr, managing director of Global Insight Canada.
"But I don't want to underplay this. We're going through a difficult situation and there's nothing the bank is going to do about it. Inflation is getting in the way of the bank doing what they normally would do if they look at that kind of growth forecast." Orr said he agrees with the bank that inflation will not be a long-term problem. The slowing economy is building excess capacity, which will drive prices down, he explained. As well, a significant part of Canadian inflation peaking in early 2009 is based the dollar and the GST-cut effects, both of which will have run their course next year.
The Bank of Canada highlighted 3 major factors rocking Canada's economy - protracted weakness in the United States, ongoing financial markets turmoil and sharp increases in commodity prices, particularly oil.
"This has led to further increases in Canada's terms of trade and real national income, and has altered the outlook for global and domestic inflation."
The bank's new assessment of the economy is considerably more pessimistic than it was at the beginning of the year, when it was expecting 2008 growth to average 1.8 per cent - almost twice the current expectation.
The United Steelworkers, one of several labour groups that have urged Carney to stimulate the economy by reducing borrowing costs, said Tuesday the bank was exaggerating inflation fears. It notes that May's inflation was still only 2.2 per cent and that while it may rise, even the bank says the spike will be temporary.
Meanwhile, Canadian interests rates remain higher than those in the United States, keeping the Canadian dollar strong and harming the country's export-based manufacturing sector, said Steelworkers economist Erin Weir. Noting the economy shed 39,000 full-time jobs in June, "the Bank of Canada ... should have lowered interest rates to stimulate the business investment and consumer spending needed to mitigate this economic downturn," Weir said.
While many economists have predicted the bank's next move will be to raise interest rates, Carney did not tip off any bias in Tuesday's announcement.
Tuesday's neutral statement suggests the bank could stay on the sidelines for some time. The bank's next scheduled announcement on interest rates will be Sept. 3.
Sombre President George W. Bush sees 'difficult time' ahead for Americans
By Terence Hunt, The Associated Press
WASHINGTON - This is hardly the way he wanted to go out.
President George W. Bush found few encouraging things to say Tuesday as he assessed a grinding list of problems for his final six months in the White House. It runs from soaring gas prices, falling home values and anxieties about bank safety to un-won wars in Iraq and Afghanistan, genocide in Sudan and friction with Moscow and Beijing.
He bounded onstage for a news conference in the White House press briefing room with a smile and a quick good morning, but the next words out of his mouth were a recognition of pocketbook anxieties.
"Its been a difficult time for many American families who are coping with declining housing values and high gasoline prices," the president said.
Over the next 42 minutes Bush repeatedly found fault with the country's direction and the government's failure to solve problems in the 7.5 years that he has been in office.
He said Americans were "rightly concerned" about gas and home prices, that "there's a lot of nervousness" about the stability of banks, that the economy is "not as good as we'd like" and there is "no short-term solution" to the energy problem.
He blamed the Democratic Congress for failing to deal with the issues.
On the bright side, Bush said the banking system is "basically is sound" and the administration has taken steps to help stabilize housing and financial markets and increase confidence in mortgage giants Fannie Mae and Freddie Mac.
He urged Congress to quickly pass legislation to prop up both institutions.
The president tried to reassure people who are alarmed by pictures of anxious depositors lined up outside troubled banks.
"Take a deep breath," he said, because deposits are insured by the government up to $100,000.
As of Tuesday, Bush had 189 days before he walks out of the Oval Office for the last time. His term is ending with Americans on edge, the mood of the country sour.
Just 16 per cent said the U.S. is moving in the right direction in an Associated Press-Ipsos poll released Tuesday.
That's the lowest reading of public sentiment since the poll started in December 2003. Bush's approval was at 28 per cent, which ties the all-time low he hit in AP-Ipsos polling in April.
When a reporter reminded him of an embarrassing moment in February, when he said he hadn't heard forecasts of $4-a-gallon gasoline, Bush interrupted to say: "Aware of it now."
He called on Congress to follow his example and lift a ban on offshore drilling to help increase domestic oil production.
"I readily concede ... it's not going to produce a barrel of oil tomorrow, but it is going to change the psychology that demand will constantly outstrip supply," the president said.
Sensitive to his portrayal as a lame duck, Bush said: "People say, 'Aw, man, you're running out of time, nothing is going to happen.' I'll remind people what did happen."
He pointed to recent congressional approval of a bill to broaden the government's eavesdropping power and a war-funding bill that increases college aid for military service members and veterans who served after Sept. 11, 2001.
He said Congress should pass legislation dealing with housing, energy and trade.
It was Bush's first White House news conference since April 29, and it was announced about 90 minutes before it began.
The timing clashed with a major speech on Iraq by Democratic presidential candidate Barack Obama, who delayed his remarks a half hour for Bush's news conference.
Obama said overall U.S. interests have been hurt rather than helped by Bush's decision to increase troop strength in Iraq 18 months ago, and he vowed to stick to his plan to withdraw combat troops within 16 months of becoming president.
The global stage offers little relief for Bush.
He said he was "displeased" that China and Russia blocked new UN sanctions against the government of President Robert Mugabe of Zimbabwe, who was has retained power in an election the U.S. and many other countries call a sham.
Bush said the growing strength of extremists flowing from Pakistan into Afghanistan and the deteriorating security situation was troubling.
"Obviously it's still a tough fight there," said Bush, who will meet at the White House this month with Pakistan's prime minister, Yousuf Raza Gilani.
Bush said both Iraq and Afghanistan are important fronts in the war on terror.
"The question really facing the country is, will we have the patience and the determination to succeed in these very difficult theatres."
He ended the news conference with a wave and a smile.
"OK, I've enjoyed it. Thank you very much for your time. Appreciate it."
Thursday, July 10, 2008
Financial Update
Toronto stocks tumble into correction territory
Ottawa changes rules for government guaranteed mortgages
· TSX -198.93 A late day retreat pulled the TSX main index into an official correction. The index has tumbled 10.2% from the life high reached in the beginning of June, putting it in the general definition of a correction (a 10% fall from the peak level)
· Dow -236.77 On Wall Street, stocks were battered by credit loss worries, as well as falling tech shares after Cisco Systems' chief executive raised fears of a prolonged U.S. economic downturn.
· Dollar -.77c to $98.90US
· Oil + $.01 to $136.05US per barrel.
· Gold +$5.30US to $928.60US per ounce
Financials, energy send TSX down 199 points; mortgage sector worries depress NY
By Malcolm Morrison, The Canadian Press TORONTO - It was a volatile session on the Toronto stock market Wednesday, where a rally in energy and financial stocks fizzled, sending the TSX down sharply.
Financial sector concerns and a downgrade in the tech sector sent New York indexes packing despite a better-than-expected earnings report from aluminum giant Alcoa Inc.
Toronto's S&P/TSX composite index fell 198.93 points to 13,610.84 after running up as much as 171 points earlier in the session. New York's Dow Jones industrial average tumbled 236.77 points to 11,147.44.
The TSX had run ahead 97 points Tuesday - but that was preceded by two days of triple-digit losses that dipped the benchmark index into negative territory for the year.
"I think the pullback was warranted to a degree," said Gareth Watson, associate director and Canadian equity adviser at ScotiaMcLeod, who thinks the TSX will be limited to single-digit returns this year.
"You're going to see strength out of materials because I'm still a believer in the agriculture story, still a believer in the gold story for the second half, so I think materials will lead any type of increase here, potentially along with energy."
Canada Mortgage and Housing Corp. reported that the seasonally adjusted annualized rate of housing starts was 217,800 units in June, down from 227,700 in May. For the first half of 2008, starts were up 1.5 per cent from a year earlier.
A negative analyst note about Cisco Systems Inc. weighed on the technology sector. Cisco fell $1.30 to US$21.58 after an RBC Capital Markets analyst cut his price target on the network equipment maker. Cisco's CEO recently said technology spending will recover later than previously thought and its shares declined $1.30 to US$21.58.
The New York financial sector was sharply lower as U.S. government-sponsored lenders Freddie Mac and Fannie Mae continued their tumble. Freddie fell $3.20 to US$10.26, while Fannie fell $2.31 to US$15.31. The two companies have been dragging the broader market lower amid worries arose about their cash levels.
"As we go into earnings season, it's going to be much of the same as the first quarter," said Scott Wren, senior equity strategist at Wachovia Securities. "Financials are going to suffer the worst comparisons again."
On the financials, I think the outlook is still relatively neutral at this stage," said Watson. "But depending on what we see in the next quarter coming up, if in fact we can start to get a better gauge as to whether we have hit an inflection point, and that perhaps if the global economy starts to pick up some steam going in the fourth quarter . . . that could be a source of some strength for the Toronto market."
After the market closed, the federal Finance Department announced it's tightening the rules for government-backed mortgages. The maximum amortization will be limited to 35 years and the minimum deposit will be 5%. (see Article Below).
Ottawa changes rules for government guaranteed mortgages
By Craig Wong, The Canadian Press
OTTAWA - Ottawa is tightening the rules for government-guaranteed mortgages that will limit the maximum amortization period to 35 years and require a minimum down payment in a bid to prevent a meltdown like the one in the U.S. subprime mortgage market.
The Finance Department said Wednesday it will no longer guarantee 40-year mortgages and will require a minimum down payment of 5% of the value of a home.
Government-backed insurance is currently available on mortgages where the loan-to-value ratio is up to 100 per cent - in other words the buyer has borrowed all the money to buy a home and then gets insurance coverage on the whole amount.
The changes announced Wednesday will cut this ratio to 95%. Borrowers may still borrow the 5% down payment, but it will not be insured under the new scheme.
Finance spokesman Jack Aubry said the moves will strengthen the Canadian housing market and reduce the risk of a housing bubble.
"Limiting the use of 40-year mortgages and requiring a minimum downpayment will help ensure that people build real equity in their home faster," Aubry said.
The new limits, which are set to take effect Oct. 15, will affect only new government-backed insured mortgages.
Canadians who already hold mortgages won't be affected by the changes.
In April, Bank of Canada governor Mark Carney raised his concerns about the loosening standards in the Canadian mortgage system, particularly the growing popularity of mortgages amortized over a 40-year period.
In other words, mortgages that are designed to take 40 years to fully repay if the borrower sticks to the regular schedule of installment payments.
Carney told a Commons committee that the central bank was watching developments in the mortgage lending sector closely to ensure that the abuses seen in the U.S. subprime market do not occur in Canada.
In the United States, imprudent lending by banks and financial companies to high-risk borrowers at low rates created a housing bubble that eventually exploded when mortgages renewed at higher rates and borrowers couldn't pay and defaulted.
In Canada, defaults of bank-originated mortgages are extremely low - well below one per cent of the total, according to figures compiled by the Canadian Bankers Association.
The collapse in the U.S. housing market led to broader troubles in the U.S. economy, reducing demand for Canadian exports such as lumber and autos. It also led to a corporate and consumer credit crunch that is still being felt by ordinary Americans and companies.
In Canada, the government said Canadian banks and other lenders have not written many government-backed mortgages to borrowers with low credit scores, but to ensure this continues the changes will establish a credit score floor of 620.
Economists have noted a cooling in the Canadian housing in recent months after several years of strong growth. Higher loan-to-value ratios and longer amortization periods are believed to have prolonged the cycle by opening the market wider.
Scotiabank senior economist Adrienne Warren called it a "modest tightening in credit conditions" could exclude a few people at the margins from buying a house.
"We were already in a process of where we're seeing things cool off and I think this will just reinforce that," she said.
Warren added that most Canadian lenders have been more conservative than their counterparts in the United States.
"It's essentially a sort of cautious move and reaction to the difficulties we're seeing in the global housing market and particularly in the U.S.," she said.
Jason Scott, a mortgage associate with Urban Mortgage in Edmonton, said the changes will make it more difficult for younger buyers who are looking to get into the market.
"Reducing the maximum amortization is going to put people who are at the fringes of affordability out, 40-year amortization has been very popular with younger people who are purchasing their first home," he said.
The changes Wednesday also set a maximum of 45 per cent for the proportion of gross income that is spent on debt servicing and housing-related fixed or essential payments.
And mortgages that begin with "interest-only" payments and home equity lines of credit will also not be covered by the government guarantees. Ottawa noted that reducing amortization from 40 years to 35 years on a $200,000 mortgage with a 6% interest rate would increase the borrower's monthly payment by $41. The borrower would also save $49,000 in interest payments
Ottawa changes rules for government guaranteed mortgages
· TSX -198.93 A late day retreat pulled the TSX main index into an official correction. The index has tumbled 10.2% from the life high reached in the beginning of June, putting it in the general definition of a correction (a 10% fall from the peak level)
· Dow -236.77 On Wall Street, stocks were battered by credit loss worries, as well as falling tech shares after Cisco Systems' chief executive raised fears of a prolonged U.S. economic downturn.
· Dollar -.77c to $98.90US
· Oil + $.01 to $136.05US per barrel.
· Gold +$5.30US to $928.60US per ounce
Financials, energy send TSX down 199 points; mortgage sector worries depress NY
By Malcolm Morrison, The Canadian Press TORONTO - It was a volatile session on the Toronto stock market Wednesday, where a rally in energy and financial stocks fizzled, sending the TSX down sharply.
Financial sector concerns and a downgrade in the tech sector sent New York indexes packing despite a better-than-expected earnings report from aluminum giant Alcoa Inc.
Toronto's S&P/TSX composite index fell 198.93 points to 13,610.84 after running up as much as 171 points earlier in the session. New York's Dow Jones industrial average tumbled 236.77 points to 11,147.44.
The TSX had run ahead 97 points Tuesday - but that was preceded by two days of triple-digit losses that dipped the benchmark index into negative territory for the year.
"I think the pullback was warranted to a degree," said Gareth Watson, associate director and Canadian equity adviser at ScotiaMcLeod, who thinks the TSX will be limited to single-digit returns this year.
"You're going to see strength out of materials because I'm still a believer in the agriculture story, still a believer in the gold story for the second half, so I think materials will lead any type of increase here, potentially along with energy."
Canada Mortgage and Housing Corp. reported that the seasonally adjusted annualized rate of housing starts was 217,800 units in June, down from 227,700 in May. For the first half of 2008, starts were up 1.5 per cent from a year earlier.
A negative analyst note about Cisco Systems Inc. weighed on the technology sector. Cisco fell $1.30 to US$21.58 after an RBC Capital Markets analyst cut his price target on the network equipment maker. Cisco's CEO recently said technology spending will recover later than previously thought and its shares declined $1.30 to US$21.58.
The New York financial sector was sharply lower as U.S. government-sponsored lenders Freddie Mac and Fannie Mae continued their tumble. Freddie fell $3.20 to US$10.26, while Fannie fell $2.31 to US$15.31. The two companies have been dragging the broader market lower amid worries arose about their cash levels.
"As we go into earnings season, it's going to be much of the same as the first quarter," said Scott Wren, senior equity strategist at Wachovia Securities. "Financials are going to suffer the worst comparisons again."
On the financials, I think the outlook is still relatively neutral at this stage," said Watson. "But depending on what we see in the next quarter coming up, if in fact we can start to get a better gauge as to whether we have hit an inflection point, and that perhaps if the global economy starts to pick up some steam going in the fourth quarter . . . that could be a source of some strength for the Toronto market."
After the market closed, the federal Finance Department announced it's tightening the rules for government-backed mortgages. The maximum amortization will be limited to 35 years and the minimum deposit will be 5%. (see Article Below).
Ottawa changes rules for government guaranteed mortgages
By Craig Wong, The Canadian Press
OTTAWA - Ottawa is tightening the rules for government-guaranteed mortgages that will limit the maximum amortization period to 35 years and require a minimum down payment in a bid to prevent a meltdown like the one in the U.S. subprime mortgage market.
The Finance Department said Wednesday it will no longer guarantee 40-year mortgages and will require a minimum down payment of 5% of the value of a home.
Government-backed insurance is currently available on mortgages where the loan-to-value ratio is up to 100 per cent - in other words the buyer has borrowed all the money to buy a home and then gets insurance coverage on the whole amount.
The changes announced Wednesday will cut this ratio to 95%. Borrowers may still borrow the 5% down payment, but it will not be insured under the new scheme.
Finance spokesman Jack Aubry said the moves will strengthen the Canadian housing market and reduce the risk of a housing bubble.
"Limiting the use of 40-year mortgages and requiring a minimum downpayment will help ensure that people build real equity in their home faster," Aubry said.
The new limits, which are set to take effect Oct. 15, will affect only new government-backed insured mortgages.
Canadians who already hold mortgages won't be affected by the changes.
In April, Bank of Canada governor Mark Carney raised his concerns about the loosening standards in the Canadian mortgage system, particularly the growing popularity of mortgages amortized over a 40-year period.
In other words, mortgages that are designed to take 40 years to fully repay if the borrower sticks to the regular schedule of installment payments.
Carney told a Commons committee that the central bank was watching developments in the mortgage lending sector closely to ensure that the abuses seen in the U.S. subprime market do not occur in Canada.
In the United States, imprudent lending by banks and financial companies to high-risk borrowers at low rates created a housing bubble that eventually exploded when mortgages renewed at higher rates and borrowers couldn't pay and defaulted.
In Canada, defaults of bank-originated mortgages are extremely low - well below one per cent of the total, according to figures compiled by the Canadian Bankers Association.
The collapse in the U.S. housing market led to broader troubles in the U.S. economy, reducing demand for Canadian exports such as lumber and autos. It also led to a corporate and consumer credit crunch that is still being felt by ordinary Americans and companies.
In Canada, the government said Canadian banks and other lenders have not written many government-backed mortgages to borrowers with low credit scores, but to ensure this continues the changes will establish a credit score floor of 620.
Economists have noted a cooling in the Canadian housing in recent months after several years of strong growth. Higher loan-to-value ratios and longer amortization periods are believed to have prolonged the cycle by opening the market wider.
Scotiabank senior economist Adrienne Warren called it a "modest tightening in credit conditions" could exclude a few people at the margins from buying a house.
"We were already in a process of where we're seeing things cool off and I think this will just reinforce that," she said.
Warren added that most Canadian lenders have been more conservative than their counterparts in the United States.
"It's essentially a sort of cautious move and reaction to the difficulties we're seeing in the global housing market and particularly in the U.S.," she said.
Jason Scott, a mortgage associate with Urban Mortgage in Edmonton, said the changes will make it more difficult for younger buyers who are looking to get into the market.
"Reducing the maximum amortization is going to put people who are at the fringes of affordability out, 40-year amortization has been very popular with younger people who are purchasing their first home," he said.
The changes Wednesday also set a maximum of 45 per cent for the proportion of gross income that is spent on debt servicing and housing-related fixed or essential payments.
And mortgages that begin with "interest-only" payments and home equity lines of credit will also not be covered by the government guarantees. Ottawa noted that reducing amortization from 40 years to 35 years on a $200,000 mortgage with a 6% interest rate would increase the borrower's monthly payment by $41. The borrower would also save $49,000 in interest payments
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