Market chaos “beyond volatile” Carl Weinberg, Chief Economist High Frequency Economics
· TSX -37.26pts (Reuters) A see-saw session saw the main index slump to hit a 4-year low and then bounce back in a late-session rebound that could lead to a strong opening on Monday.
· Dow -312.30pts if ever a 300 pt loss was a good thing, it was Friday as emergency trading halts were considered, as in Russia, where authorities closed the stock exchanges until Tuesday
· Dollar -1.08c to $78.56US.
· Oil -$3.69 to $64.15US per barrel. Canada's currency is headed for its worst monthly fall since at least 1950 (FP)
· Gold +15.80 to $729.10US per ounce
Monday, October 27, 2008
Friday, October 24, 2008
Financial Update
· TSX +94.47pts (Reuters) Late day buying saved the day after a seesaw volatile session that saw the TSX swing nearly 580 points from trough to peak
· Dow +172.04pts closed higher as investors wrestled with fears about the economy but also hunted for bargains after 2 days of selling
· Dollar -.06c to $79.64US.
· Oil +1.09to $67.84US per barrel.
· Gold -20.50 to $714.70US per ounce
(Reuters)Finance Minister Jim Flaherty announced the creation of the Canadian Lenders Assurance Facility, guaranteeing wholesale borrowing by the country's banks.
Flaherty said the temporary program will support the banks "on commercial terms so there is no expected cost to Canadian taxpayers," while stressing that Canada's lending institutions are solid and "the Canadian housing market is sound."
'The sky is not falling,' says BOC governor
Declines in housing market and commodities more rapid than expected
Jacqueline Thorpe, Financial Post
The Bank of Canada continues to believe Canada can avoid a recession this year and next, despite the protracted three-quarter recession it forecasts for the U.S. economy into 2009, a "mild" global recession, and "the deepest, broadest and most persistent financial crisis" the world has faced in decades.
The central bank forecasts real gross domestic product will expand 0.8% in the third quarter, followed by a contraction of 0.4% in the fourth quarter. Growth is expected to be flat in the first quarter of 2009 and to pick up to 0.8% in the second quarter.
Two successive quarters of contracting activity is technically considered a recession.
The bank believes Canada is starting from a better position of strength than many other countries going into the downturn, with a stronger labour market and better household and corporate balance sheets providing some support.
The "sky is not falling," bank governor Mark Carney said at a news conference after the document's release.
Still, it forecasts the economy will not do much better than flatline over the next couple of quarters as the global credit crisis will resolve slowly, putting the economy under strain.
Despite of the "healthy" position of Canadian financial institutions, the intensification of the global financial crisis has led to a "substantial" tightening of credit conditions in Canada, the bank said.
"Given the high degree of volatility and risk aversion in recent weeks, there is considerable uncertainty around any assessment of current credit conditions in Canada," the bank said. "In particular, it is difficult to measure the non-price factors that may limit the availability of credit."
Credit spreads between borrowing rates for financial institutions across curve and the expected overnight Bank of Canada interest rate spiked to around 200 basis points in early October.
While strong actions taken by central banks and governments to support financial institutions have lowered those spreads, the bank said they are likely only to recede slowly as confidence is gradually rebuilt.
Effective borrowing rates for financial institutions have, in fact, eased somewhat since August, thanks to the 225 basis points of cumulative interest rate cuts the bank has already implemented, the bank said.
"These indicative borrowing costs likely do not, however, adequately take account of the decreased availability coming from illiquid and risk-averse interbank markets," the bank admitted.
Non-financial firms, meanwhile, have had difficulty getting access to both short-term and long-term markets.
"Indeed, corporate debt and equity issuance have effectively stopped," the bank said.
The bank pointed out, however, that credit growth for Canadian households has slowed only slightly in recent months and there was little evidence terms or conditions have tightened significantly for household borrowers.
Still it sees growth of consumer spending receding after robust gains in recent years as real income declines with commodity prices, and household net worth takes a hit from sliding equity markets and a projected "modest" decline in house prices.
While it has been predicting a slowdown in housing activity and price gains for some time, the bank now says housing investment is declining more rapidly than it had expected. But it does not anticipate the same type of sharp housing contraction experienced by the United States.
The sharp decline in commodity prices has, like many, caught the Bank of Canada off-guard, and it is basing its projections on oil futures prices of US$81 to US$88 per barrel, though it projects a further 10% drop in non-energy commodity prices from current levels.
The bank has also revised down its estimate of Canada's potential output -- or the rate the economy can grow without generating inflation -- to 2.3% for 2008 and 2.4% in 2009.
The bank said it was encouraged by the loosening in global financial conditions in recent days. While one of the main risks to its outlook was that full recovery would take longer than expected, there is now the chance that measures governments and central banks have taken to restore liquidity and confidence will improve prospects more rapidly.
For the year as a whole, the bank repeated its Tuesday forecast that growth will average just 0.6% in 2008 and 0.6% in 2009 before picking up speed to 3.4% in 2010.
While the big jump in growth forecast for 2010 might seem sharp, it is not unusual by historical standards to see economies start to gain steam quickly once the worst of a crisis has past.
· Dow +172.04pts closed higher as investors wrestled with fears about the economy but also hunted for bargains after 2 days of selling
· Dollar -.06c to $79.64US.
· Oil +1.09to $67.84US per barrel.
· Gold -20.50 to $714.70US per ounce
(Reuters)Finance Minister Jim Flaherty announced the creation of the Canadian Lenders Assurance Facility, guaranteeing wholesale borrowing by the country's banks.
Flaherty said the temporary program will support the banks "on commercial terms so there is no expected cost to Canadian taxpayers," while stressing that Canada's lending institutions are solid and "the Canadian housing market is sound."
'The sky is not falling,' says BOC governor
Declines in housing market and commodities more rapid than expected
Jacqueline Thorpe, Financial Post
The Bank of Canada continues to believe Canada can avoid a recession this year and next, despite the protracted three-quarter recession it forecasts for the U.S. economy into 2009, a "mild" global recession, and "the deepest, broadest and most persistent financial crisis" the world has faced in decades.
The central bank forecasts real gross domestic product will expand 0.8% in the third quarter, followed by a contraction of 0.4% in the fourth quarter. Growth is expected to be flat in the first quarter of 2009 and to pick up to 0.8% in the second quarter.
Two successive quarters of contracting activity is technically considered a recession.
The bank believes Canada is starting from a better position of strength than many other countries going into the downturn, with a stronger labour market and better household and corporate balance sheets providing some support.
The "sky is not falling," bank governor Mark Carney said at a news conference after the document's release.
Still, it forecasts the economy will not do much better than flatline over the next couple of quarters as the global credit crisis will resolve slowly, putting the economy under strain.
Despite of the "healthy" position of Canadian financial institutions, the intensification of the global financial crisis has led to a "substantial" tightening of credit conditions in Canada, the bank said.
"Given the high degree of volatility and risk aversion in recent weeks, there is considerable uncertainty around any assessment of current credit conditions in Canada," the bank said. "In particular, it is difficult to measure the non-price factors that may limit the availability of credit."
Credit spreads between borrowing rates for financial institutions across curve and the expected overnight Bank of Canada interest rate spiked to around 200 basis points in early October.
While strong actions taken by central banks and governments to support financial institutions have lowered those spreads, the bank said they are likely only to recede slowly as confidence is gradually rebuilt.
Effective borrowing rates for financial institutions have, in fact, eased somewhat since August, thanks to the 225 basis points of cumulative interest rate cuts the bank has already implemented, the bank said.
"These indicative borrowing costs likely do not, however, adequately take account of the decreased availability coming from illiquid and risk-averse interbank markets," the bank admitted.
Non-financial firms, meanwhile, have had difficulty getting access to both short-term and long-term markets.
"Indeed, corporate debt and equity issuance have effectively stopped," the bank said.
The bank pointed out, however, that credit growth for Canadian households has slowed only slightly in recent months and there was little evidence terms or conditions have tightened significantly for household borrowers.
Still it sees growth of consumer spending receding after robust gains in recent years as real income declines with commodity prices, and household net worth takes a hit from sliding equity markets and a projected "modest" decline in house prices.
While it has been predicting a slowdown in housing activity and price gains for some time, the bank now says housing investment is declining more rapidly than it had expected. But it does not anticipate the same type of sharp housing contraction experienced by the United States.
The sharp decline in commodity prices has, like many, caught the Bank of Canada off-guard, and it is basing its projections on oil futures prices of US$81 to US$88 per barrel, though it projects a further 10% drop in non-energy commodity prices from current levels.
The bank has also revised down its estimate of Canada's potential output -- or the rate the economy can grow without generating inflation -- to 2.3% for 2008 and 2.4% in 2009.
The bank said it was encouraged by the loosening in global financial conditions in recent days. While one of the main risks to its outlook was that full recovery would take longer than expected, there is now the chance that measures governments and central banks have taken to restore liquidity and confidence will improve prospects more rapidly.
For the year as a whole, the bank repeated its Tuesday forecast that growth will average just 0.6% in 2008 and 0.6% in 2009 before picking up speed to 3.4% in 2010.
While the big jump in growth forecast for 2010 might seem sharp, it is not unusual by historical standards to see economies start to gain steam quickly once the worst of a crisis has past.
Thursday, October 23, 2008
Financial Update
Corporate earnings, tumbling oil prices give stock markets another pounding
Finance Minister Jim Flaherty is holding a press conference this morning before the markets open, announcing further steps to help Canada's banks weather the financial crisis, a package that's likely to include a pledge to backstop lending between financial institutions.
· TSX -558.92pts (Reuters) closed nearly 6% lower as resource issues sank along with commodity prices on concerns that a global economic slowdown will slash demand.
· Dow -514.45pts stocks tumbled to 5-year lows on recession fears after a run of disappointing profits and outlooks from major U.S. companies
· Dollar -2.69c to $79.70US A number of factors combined to push the Canadian dollar below 80 cents US for the first time in more than 3 years, but experts say it could actually help Canada weather a global economic slowdown. Canada's manufacturing sector suffered as the dollar soared above parity with the U.S. greenback over the past year, making Canadian goods more expensive for other countries and hurting export-based industries, the auto sector in particular.
· Oil -5.43to $66.79US per barrel.
· Gold -32.80 to $733.30US per ounce
(Reuters)NEW YORK -- Shares of Fannie Mae and Freddie Mac dove to their lowest levels in more than 18 years on mounting fears of a government bailout that would wipe out shareholders of the two U.S. housing finance giants. Freddie Mac executives are due to meet Treasury officials, possibly to get clarity about how the government will support the company and to reassure investors, according to The Wall Street Journal.
Fears the companies will need to be bailed out forced Freddie Mac to pay record high yield premiums on a US$3 billion debt sale on Tuesday. Freddie Mac's share slumped more than 24% to US$3.15, the lowest since 1990, and Fannie Mae shares slid more than 21% to US$4.74, the lowest since 1989.
Weakness in Canadian economy helping homebuyers
Garry Marr, Financial Post
There is some good news in the falling housing market, affordability is improving.
Desjardins Economic Studies says that after eight years of rising prices, housing costs are going down. "For the second quarter in a row we have had an increase in affordability," said Hélène Bégin, senior economist with Desjardins.
However, she warned consumers should not get too excited about the market conditions because affordability is still very close to the all-time low reached in 1990.
The Desjardins Affordability Index is calculated by determining the ratio between average household disposable income and the income needed to obtain a mortgage on an average-priced home, known as the qualifying income.
The report from Desjardins said its affordability index climbed to 110.7 last quarter after dropping close to 100 at the end of 2007. In the early 1990s, the affordability index was as low as 93.6. Desjardins says that affordability has increased by about 10% in the past two quarters because of falling home prices and lower mortgage rates.
The Canadian Real Estate Association said last week that the average price of a home sold in the country's major markets was $327,020, a 3.6% increase from a year ago. It was the second consecutive month prices had dropped on a year-over year basis.
Statistics Canada also said last month new homes prices grew only by 3.5% in June from a year earlier. It was the slowest rate of growth since March, 2002.
Desjardins noted that in the first half of the year, existing home prices rose by 4.4% compared to 10% a year earlier. The posted rate on a one-year mortgage also fell from 7.25% in March to 6.3% by the end of June. The posted rate on a five-year mortgage fell from 7.15% to 7.1% during the same period.
"House prices are just not going up as strongly as before and in some places in Western Canada, like Calgary, we have had some price drops. With the kind of return we have in Calgary, it has a big impact on affordability," said Ms. Bégin.
Prices in Calgary fell 7.8% in July from a year earlier, according to CREA. They were off 5.8% in Edmonton during the same period. Desjardins says affordability in Calgary improved by 7.5% over the last three months.
Even with the improved conditions, affordability is still off almost 30% from the peak reached in late in 2001. Long-term Desjardins thinks affordability will continue to improve. "Prices are going to go up slowly," said Ms. Bégin. "Out west we've seen a turning point where prices are going down."
The drop in prices is good news for home builders, according to the chief operating officer of the Canadian Home Builders' Association.
"If you were sitting in my chair what you would be experiencing is one very busy housing industry from coast to coast," said John Kenward. "There has been a slowing down in certain markets and builders in those market say it's a return to a more normal market place."
Finance Minister Jim Flaherty is holding a press conference this morning before the markets open, announcing further steps to help Canada's banks weather the financial crisis, a package that's likely to include a pledge to backstop lending between financial institutions.
· TSX -558.92pts (Reuters) closed nearly 6% lower as resource issues sank along with commodity prices on concerns that a global economic slowdown will slash demand.
· Dow -514.45pts stocks tumbled to 5-year lows on recession fears after a run of disappointing profits and outlooks from major U.S. companies
· Dollar -2.69c to $79.70US A number of factors combined to push the Canadian dollar below 80 cents US for the first time in more than 3 years, but experts say it could actually help Canada weather a global economic slowdown. Canada's manufacturing sector suffered as the dollar soared above parity with the U.S. greenback over the past year, making Canadian goods more expensive for other countries and hurting export-based industries, the auto sector in particular.
· Oil -5.43to $66.79US per barrel.
· Gold -32.80 to $733.30US per ounce
(Reuters)NEW YORK -- Shares of Fannie Mae and Freddie Mac dove to their lowest levels in more than 18 years on mounting fears of a government bailout that would wipe out shareholders of the two U.S. housing finance giants. Freddie Mac executives are due to meet Treasury officials, possibly to get clarity about how the government will support the company and to reassure investors, according to The Wall Street Journal.
Fears the companies will need to be bailed out forced Freddie Mac to pay record high yield premiums on a US$3 billion debt sale on Tuesday. Freddie Mac's share slumped more than 24% to US$3.15, the lowest since 1990, and Fannie Mae shares slid more than 21% to US$4.74, the lowest since 1989.
Weakness in Canadian economy helping homebuyers
Garry Marr, Financial Post
There is some good news in the falling housing market, affordability is improving.
Desjardins Economic Studies says that after eight years of rising prices, housing costs are going down. "For the second quarter in a row we have had an increase in affordability," said Hélène Bégin, senior economist with Desjardins.
However, she warned consumers should not get too excited about the market conditions because affordability is still very close to the all-time low reached in 1990.
The Desjardins Affordability Index is calculated by determining the ratio between average household disposable income and the income needed to obtain a mortgage on an average-priced home, known as the qualifying income.
The report from Desjardins said its affordability index climbed to 110.7 last quarter after dropping close to 100 at the end of 2007. In the early 1990s, the affordability index was as low as 93.6. Desjardins says that affordability has increased by about 10% in the past two quarters because of falling home prices and lower mortgage rates.
The Canadian Real Estate Association said last week that the average price of a home sold in the country's major markets was $327,020, a 3.6% increase from a year ago. It was the second consecutive month prices had dropped on a year-over year basis.
Statistics Canada also said last month new homes prices grew only by 3.5% in June from a year earlier. It was the slowest rate of growth since March, 2002.
Desjardins noted that in the first half of the year, existing home prices rose by 4.4% compared to 10% a year earlier. The posted rate on a one-year mortgage also fell from 7.25% in March to 6.3% by the end of June. The posted rate on a five-year mortgage fell from 7.15% to 7.1% during the same period.
"House prices are just not going up as strongly as before and in some places in Western Canada, like Calgary, we have had some price drops. With the kind of return we have in Calgary, it has a big impact on affordability," said Ms. Bégin.
Prices in Calgary fell 7.8% in July from a year earlier, according to CREA. They were off 5.8% in Edmonton during the same period. Desjardins says affordability in Calgary improved by 7.5% over the last three months.
Even with the improved conditions, affordability is still off almost 30% from the peak reached in late in 2001. Long-term Desjardins thinks affordability will continue to improve. "Prices are going to go up slowly," said Ms. Bégin. "Out west we've seen a turning point where prices are going down."
The drop in prices is good news for home builders, according to the chief operating officer of the Canadian Home Builders' Association.
"If you were sitting in my chair what you would be experiencing is one very busy housing industry from coast to coast," said John Kenward. "There has been a slowing down in certain markets and builders in those market say it's a return to a more normal market place."
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