TSX+43.83
DOW -14.81
Dollar +1.39c to 89.26USD
Oil +$.62 to $61.67US per barrel
Gold +$7.70 to $958.50USD per ounce
Canadian 5 yr bond yields +.01bps to 2.27
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
Bear Market
A market in which stock prices are falling. The rule of thumb seems to be at least 20%. However, a lot depends on how long the drop lasts. The quicker the rebound, the less likely that investor psychology will turn from optimism to the pessimism that usually accompanies a bear market.
Bull Market
A market in which stock prices are rising for a length of time. Prices need not rise continuously. There can be days, weeks and even months in which prices fall. What matters is the long-term trend. When it comes to people, bullish describes one who is optimistic
Interesting article below on credit and interest rate costs
Banks walk tightrope while hoping to cushion profit fall
Bulls believe earnings season will signal turning point for industry, but the bears are still urging caution
RITA TRICHUR
BUSINESS REPORTER TORONTO STAR
Swollen loan losses, soaring writedowns and slumping profits – it's enough to make even seasoned bank shareholders run for cover.
But with Canadian bank stocks on a rebound since March, wary investors are wondering whether it would be wise to hang on for the long-term or head for the exits while the getting is still good. Analysts appear divided on the hold `em or fold `em debate, but surmise that next week's round of second-quarter earnings should provide some sense of direction.
Banks, meanwhile, are facing a delicate balancing act for the remainder of fiscal 2009. In order to stay profitable, they have to keep loans flowing, while boosting some rates because the recession is rife with risk. At the same time, they must sop up climbing credit losses and maintain plump capital cushions – all without jeopardizing the sanctity of their dividends.
While acknowledging that the economic outlook remains murky, bank bulls argue this earnings season marks a turning point for the industry. For the first time in about 18 months, those much-maligned capital markets-related writedowns are not expected to eclipse the earnings parade.
The running tally of those charges hit $20.24 billion for the "Big Six" at the end of January. While more writedowns are anticipated for the February-to-April quarter, some analysts suggest this batch of reports could signal those charges are on the wane. With capital markets on the mend, many are also betting that results from the banks' trading businesses could even surpass expectations.
Another plus, rebounding stock prices have taken the banks' dividend yields out of the danger zone, which has dampened speculation of cuts to those sacred payouts. In fact, Michael Goldberg of Desjardins Securities is actually expecting "minimal dividend growth" for the second half of fiscal '09.
Those in the bear camp, however, are advising investors to be extremely cautious because bank stocks remain fraught with risks. In short, "the economy still sucks," observed John Aiken of Dundee Capital Markets in a research note to clients. He has a majority of "sell" ratings on Canadian banks, most because they are bracing for more bad loans as the economy sheds jobs and consumer bankruptcies soar.
Provisions for credit losses, the money banks set aside to cover bad loans, have been rising in recent quarters. Craig Fehr, an analyst with Edward Jones, predicts credit conditions will worsen for the rest of this year.
"We are seeing some of the pressures that have existed for the last year or so, largely on the capital markets side, are starting to subside. And we're exchanging that a bit for the pressures that are coming from good old-fashioned credit deterioration – higher loan losses," Fehr said in an interview.
"I think that we are going to see pretty substantial year-over-year increases in provisions across the board – for all the banks. We're talking about 50 to 100 per cent increases in provisions year over year."
The key trouble spots are likely defaults in credit-card lending, while commercial mortgages are also expected to show increasing signs of stress. The Canadian Imperial Bank of Commerce administers Canada's largest credit-card portfolio. It began curbing lending during the second half of fiscal 2008 but remains at risk of more losses, Fehr said.
Toronto-Dominion Bank, meanwhile, has large exposures to the hard-hit U.S. commercial real-estate sector and the sputtering Ontario economy, suggesting its "results might disappoint," said André-Philippe Hardy of RBC Capital Markets. His research also proposes that results from the Bank of Nova Scotia could miss expectations because it "is also exposed to rising credit losses in Latin America and the Caribbean."
While all banks are expected to pad their provisions, it appears to be "less of a negative" for Bank of Montreal, while National Bank of Canada is "least exposed to deteriorating credit quality near term" because of its regional concentration in Quebec, Hardy said.
Royal Bank of Canada, meanwhile, is facing its own challenges south of the border. Last month, RBC pre-announced an $850 million (U.S.) goodwill impairment charge for its international banking business. "The impairment charge is the result of the prolonged economic difficulties in the U.S., in particular the deterioration of the U.S. housing market, and the decline in market value of U.S. banks," noted Scotia Capital's Kevin Choquette.
Despite those economic hurdles, some analysts contend the Canadian banks' penchant for being "boring" retail lenders is standing them in good stead for longer-term profit growth.
While the banks' net interest margins – the difference between the money they make on interest and their own interest expenses – are being squeezed because of historically low interest rates, that pressure is expected to ease going forward for a number of reasons.
First, banks have taken action to hike their rates on popular consumer loans such as personal lines of credit and float-rate mortgages. "Banks have repriced some of their mortgages and we believe banks are now charging a premium of about 75 to 100 basis points over prime on a five-year variable mortgage versus a discount of 75 to 100 basis points before the crisis," Hardy said.
Moreover, the banks' key short-term funding costs have fallen in recent months. Medium-term funding is also down from crisis levels, while longer-term funding remains elevated. Banks are also benefiting from a surge of new deposits as their customers hoard cash.
Fehr said those various factors have created a wider spread between short-term and longer-term interest rates, which suggests that banks are poised to reap profits from interest income in the not-too-distant future. That's because banks tend to borrow "cheap" short-term funds to make longer-term loans that feature higher interest rates, he said.
"As we reprice on the long end and keep the short end very cheap, that spread will increase for the banks. And it will actually be a very strong driver of profits for them going forward," Fehr said.
"There's no doubt in my mind that (loan) volumes will slow relative to peak years. The idea here is that the profitability of each loan they make now has the potential to be higher. So, net interest margins, in my mind, will probably increase as we move throughout the year."
Retail sales rise for third-straight month
THE CANADIAN PRESS
OTTAWA–Retail sales increased for the third straight month in March in a further evidence of a stabilizing Canadian economy or at least a slowing of the torrid pace of decline experienced early this year.
And economists say the data, one of the last major pieces of information left that make up the first quarter gross national product reading, suggests the first three months of 2009 might not be as bad as some feared.
"I think we've put to bed the notion that the first quarter hit could be as large as nine or 10 per cent (contraction), which was some of the scare talk earlier in the year," said Derek Holt, vice-president of economics with Scotia Capital.
"Now we're only looking at about 6.5 per cent contraction."
That would still be the biggest quarterly decline in GDP since records began being kept in 1961, beating the 5.9 per cent fall-off in the early 1990s.
The actual retail sales pickup of 0.3 per cent in March, to $33.9 billion, was smaller than some economists had hoped. But it also obscures the better 0.7 per cent increase in the volume of sales.
That suggests Canadian were buying again, but partly because they were taking advantage of bargains, particularly large rebates at car dealerships.
Bank of Montreal economist Douglas Porter said after the sizable decline in retail sales last fall and over the holiday season, the modest bounce-back is at least partly pent-up demand and likely does not signal a major and lasting change of sentiment among consumers.
"It's nice to see three modest gains in the row, but we have to take into context that they took an absolutely massive step backward last year. We're only just beginning to recover," he said.
Statistics Canada noted the three consecutive months of gains in retail sales have not completely offset the sharp declines reported in November and December.
The agency says March's retail sales were 6.3 per cent lower than their peak in September 2008, and the volume of sales were down 2.6 per cent.
The main contributor to the rise was a six per cent volume increase in new vehicles, while the automotive sector as a whole increased by 0.5 per cent.
Holt cautioned that the new figures already show the gain in March auto sales won't be repeated when the April numbers are released next month, as "we already the volume of new vehicle sales was flat in April over March."
As well, higher food prices boosted sales at food-and-beverage stores, which rose 0.9 per cent, their third straight increase.
The largest drop in the four sectors that registered sales declines came at miscellaneous retailers where sales fell 0.7 per cent. The sector includes sporting goods stores and office supply stores.
Sales increased in seven provinces in March, led by a third straight month of rising sales in Quebec, at two per cent, and Ontario, at 0.6.
The largest sales decline in March was a 1.8 per cent drop in Alberta, coming on the heels of a 1.5 per cent decrease in February.
Monday, May 25, 2009
Friday, May 22, 2009
Financial Update May 22, 2009
TSX-282.85 the index is still up about 30 % from its March lows.
DOW -129.91 A possibility of a rating downgrade of British government debt and renewed worries about an American economic recovery sent stock markets down sharply
Dollar +.18c to 87.87USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil -$.99 to $61.05US per barrel
Gold +$13.80 to $951.20USD per ounce
Canadian 5 yr bond yields +.11bps to 2.25- Unexpected with the drop in TSX. Four weeks ago it was 1.94.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
A couple of articles which may mistakenly seem conflicting on Canadian Banks. One says due to the strength of the Canadian banking system, Canadian Banks will be the first to recover. The other announces a drop in bank ratings, however although it agrees Canadian Banks are still strong, it advises Canadian banks are still heavily influenced by U.S. and global economic trends.
New federal credit card rules give clearer info, minimum 21-day grace period
By The Canadian Press
TORONTO - The countless Canadian consumers willing to pay the often hefty price of relying on a credit card are getting a break from federal Finance Minister Jim Flaherty - although some critics aren't convinced that it's much of a reprieve at all.
Flaherty unveiled new rules Thursday that will cost banks and other credit-card issuers "tens of millions of dollars," requiring clearer information and a minimum 21-day interest-free period on new purchases made with plastic.
However, Flaherty has no intention of limiting card interest rates, which range from about nine per cent to twice that much for bank-issued cards, and typically from 19 to 28 per cent for cards from big department stores and other retailers.
The banks and other credit card issuers have come under fire during the recession from ordinary consumers, businesses and critics worried about a clampdown on credit, more restrictions on card use, rising penalties and sky-high interest rates at a time when the global credit crunch has squeezed their ability to get financing.
Thursday's changes, Flaherty told a news conference in Toronto, will improve a well functioning financial system that already provides adequate choice for consumers.
"There are dozens and dozens of options for consumers - some credit cards with higher interest rates offer more frills and benefits and points and various things," he observed.
"Our concern is to make sure that consumers have easily available, clear information so that they can make informed choices."
NDP Leader Jack Layton jibed that Flaherty's changes merely mean consumers will be told a bit more about how they're going to be gouged.
"Today was a day when the banks won," Layton said.
He called for legislation requiring banks to provide no-frills low-interest cards, saying the choice consumers have now is that "they can be gouged, or they can be gouged more deeply."
However, Bruce Cran, president of the Consumers' Association of Canada, said consumers should be pleased.
"All of the things that he's done in there are actually just what we asked for," Cran said from Washington, where the U.S. Congress has approved a bill that prohibits card companies from arbitrarily raising interest rates on existing balances, bans a variety of fees and restricts access to cards for people younger than 21.
The Americans "have got a range of different problems to what we have in Canada," Cran said, "but I think Mr. Flaherty has done a much better job of addressing the real problems that we've encountered."
As for the level of card interest rates, "these things take care of themselves," Cran said. "We do have 300 card issuers, and if there's demand for that sort of (low-interest) card, it should gain a place in the marketplace without having to legislate it."
In Ottawa, Liberal finance critic John McCallum - a former chief economist at the Royal Bank - said Flaherty's moves are "not a bad start, but they have not finished the job."
The new framework - particularly the 21-day grace period on all new purchases when cardholders pay the monthly balance in full by the due date - "was resisted by financial institutions," Flaherty declared.
"It is a major change; it will cost financial institutions tens of millions of dollars," he said.
"Right now the situation is that credit cards offer 15-to 24-day grace periods with most offering 21 days. However, many cards also charge consumers interest that accrues during that period, even if they pay their balance in full that month," Flaherty said.
"Moreover, if a consumer carries a balance from one month to another, some cards essentially give that consumer no grace period on new purchases."
Under the new regulations, the 21-day grace period on new purchases applies even if an outstanding balance is carried forward from the previous month, as long as the full balance is paid by the current month's deadline.
The new regulations will also require that credit card applications and contracts feature a simple summary box of "all salient information, such as interest rates, grace periods and fees."
Additionally, monthly statements will have to show how long it would take to pay off a balance by making only minimum payments. This will give consumers a truer picture of their debt load, Flaherty said.
The regulations, open for comment until June 13, also include:
-Notice on monthly statements if interest rates are going to increase during the next statement period;
-Express consent from the consumer for credit limit increases;
-Prohibition of some debt-collection practices, such as contacting clients later than 9 p.m. on weekdays or Saturdays, and after 5 p.m. on Sundays.
Flaherty noted that about 25 million Canadians have credit cards and most pay their monthly balances in full, "which is a great credit to how prudent Canadians are generally."
But Layton said financial institutions are encouraging consumers to use credit cards to buy groceries, and he meets people who are using cards to meet mortgage payments.
"In other words, they're up against the wall with a gun to their head," the NDP leader said, "and the banks refuse to give really fair interest rates to people like that, and the government is backing the banks."
The Consumers' Association's Cran commented that low introductory card rates "tend to take advantage of people that don't fully understand what's going on," and "we do object to some of the high penalty rates - I just can't see the point of penalizing people who can't pay."
But overall, "I've got to congratulate Mr. Flaherty."
"The proposed regulations are too little, too late to stop gouging of financial consumers by credit card companies," countered Duff Conacher, head of the Canadian Community Reinvestment Coalition.
The bank-accountability citizen group is calling on Flaherty to require credit card companies to undergo independent audits "to determine if they are reaping excessive profits."
In addition to not addressing interest rates, the rule changes do not deal with credit card interchange fees levied on merchant transactions.
Flaherty noted that parliamentary committees have been looking at the issue.
Credit Suisse chops ratings on Canada banks
John Greenwood, Financial Post
Canadian bank stocks are headed for a second wave of trouble, a Bay Street analyst warned Thursday.
James Bantis, an analyst at Credit Suisse, chopped his ratings on Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada and Bank of Nova Scotia on concern the recent run-up in share prices fails to take into account the impact the recession will continue to have on bank revenues.
Mr. Bantis forsees rising loan loss provisions and pressure on retail margins, as the second round effects of the credit crunch and recession set in.
"We believe the severity of the economic slowdown in Canada is still in early days and earnings challenges remain ahead, not behind the banking sector," Mr. Bantis said in the note, titled "Green Shoots or Green Weeds."
Many of the threats that emerged at the height of the financial crisis late last year such as the risk of depression and possible systemic failure of global credit markets have abated, but Canadian banks are still heavily influenced by U.S. and global economic trends, most of which suggest tough times well into 2010.
But according to Mr. Bantis, this possibility is not reflected in current bank share prices.
Since its February low, the S&P/TSX Bank index has moved up 58%.
"Time to sell into strength," Mr. Bantis said.
Thursday he cut his ratings on CIBC and Bank of Montreal to "Underperform" from "Neutral," and lowered Royal and Scotia to "Neutral" from "Outperform."
The comments come about a week before the banks are set to report financial results for the second quarter.
On Friday, Scotia Capital analyst Kevin Choquette predicted an 8% decline in second quarter bank earnings compared to the same period in 2008 because of a doubling of loan loss provisions.
But he said results would be buoyed by a falling Canadian dollar and improving wholesale banking margins.
Mr. Choquette did not change any of his ratings at the time.
Calling their share prices "compelling," Mr. Choquette said Canadian banks "are well capitalized, with high-quality balance sheets, a diversified revenue mix [and] a solid long-term earnings growth outlook."
"The reduced fear about the collapse of the U.S. banking system has taken a lot of pressure off Canadian bank stocks that have been suffering from valuation contagion compounded by aggressive investor views that the Canadian system has massive leverage," he said.
Despite share price declines they suffered in the financial crisis -- the sector lost more than half its value -- Canadian banks for the most part steered clear of the kind of investments in credit derivatives that destroyed Lehman brothers and brought so many global banks to their knees.
As a result they are now widely recognized as among the safest in the world, which has attracted a lot of interest from foreign investors as well as governments.
But while the effects of the credit crunch appear to be subsiding, the Canadian economy has suffered a blow from the declining global economy and the collapse of the commodities market, and the impact is starting to manifest itself in the form of slumping corporate profits and rising unemployment.
Canada, Australia, the U.K. seen first to recover from recession
Alia McMullen, Financial Post
Canada, with Australia and the United Kingdom, is expected to be among the first of the advanced economies to emerge from recession, close its output gap and return to a normal rate of economic growth. But it will likely be close to a decade before conditions normalize in the mega economies of the United States, Europe and Japan, a report says.
By analyzing business new orders data, a key indicator of growth, Goldman Sachs economists Peter Berezin and Alex Kelston said Canada, Australia and the U.K. would likely return to their long-term trend rate of economic growth sometime in the second half of 2010 or early 2011.
Their output gaps -- the difference between actual and potential output -- would likely close between 2013 and 2015.
On the other hand, the United States and Europe were not expected to return to trend growth until 2011, with output likely to run under capacity until 2017. Japan, while returning to a trend rate of growth sooner, was not expected to close its output gap until 2019.
Not all believe the U.S. juggernaut will lag others in recovery. Bill Cheney, the chief economist at MFC Global Investment Management in Boston said the U.S. was the first to fall into recession and it would likely lead the world back out.
Nariman Behravesh, the chief economist at IHS Global Insight said China and the U.S. would likely lead the world out of recession, with Europe lagging behind.
This sentiment falls in line with U.S. government expectations. Douglas Elmendorf, the director of the Congressional Budget Office said in a testimony to the House Budget Committee on Thursday that the economy's output gap would average 7% of gross domestic product, equivalent to about US$1-trillion, in 2009-10. However, he said the U.S. would close this output gap by 2013.
While some countries are expected to take longer than others to make a full recovery, Mr. Berezin and Mr. Kelston said it appeared almost all major economies had already experienced their worst quarter of GDP in either the fourth quarter of 2008 or the first quarter of this year.
"This is important in as much as our research suggests that equity markets tend to bottom and equity volume tends to peak around the time when growth is at its worst," they said. "This supports our strategists' view that equities should continue to grind higher in the months ahead."
The report predicted the time taken for countries to return to their trend rate of growth and close their output gap would have a huge bearing on asset prices.
"Countries that are among the first to close their output gaps are also likely to experience foreign exchange appreciation," the Goldman economists said.
Emerging market economies were likely to return to trend growth an average six months before advanced economies. These countries are also expected to close their output gaps almost two years before developed nations.
However, conditions across the emerging markets will differ. For example, Asian economies are expected to rebound before those in Eastern Europe, while Latin America will likely recover before Mexico.
DOW -129.91 A possibility of a rating downgrade of British government debt and renewed worries about an American economic recovery sent stock markets down sharply
Dollar +.18c to 87.87USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil -$.99 to $61.05US per barrel
Gold +$13.80 to $951.20USD per ounce
Canadian 5 yr bond yields +.11bps to 2.25- Unexpected with the drop in TSX. Four weeks ago it was 1.94.
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise
A couple of articles which may mistakenly seem conflicting on Canadian Banks. One says due to the strength of the Canadian banking system, Canadian Banks will be the first to recover. The other announces a drop in bank ratings, however although it agrees Canadian Banks are still strong, it advises Canadian banks are still heavily influenced by U.S. and global economic trends.
New federal credit card rules give clearer info, minimum 21-day grace period
By The Canadian Press
TORONTO - The countless Canadian consumers willing to pay the often hefty price of relying on a credit card are getting a break from federal Finance Minister Jim Flaherty - although some critics aren't convinced that it's much of a reprieve at all.
Flaherty unveiled new rules Thursday that will cost banks and other credit-card issuers "tens of millions of dollars," requiring clearer information and a minimum 21-day interest-free period on new purchases made with plastic.
However, Flaherty has no intention of limiting card interest rates, which range from about nine per cent to twice that much for bank-issued cards, and typically from 19 to 28 per cent for cards from big department stores and other retailers.
The banks and other credit card issuers have come under fire during the recession from ordinary consumers, businesses and critics worried about a clampdown on credit, more restrictions on card use, rising penalties and sky-high interest rates at a time when the global credit crunch has squeezed their ability to get financing.
Thursday's changes, Flaherty told a news conference in Toronto, will improve a well functioning financial system that already provides adequate choice for consumers.
"There are dozens and dozens of options for consumers - some credit cards with higher interest rates offer more frills and benefits and points and various things," he observed.
"Our concern is to make sure that consumers have easily available, clear information so that they can make informed choices."
NDP Leader Jack Layton jibed that Flaherty's changes merely mean consumers will be told a bit more about how they're going to be gouged.
"Today was a day when the banks won," Layton said.
He called for legislation requiring banks to provide no-frills low-interest cards, saying the choice consumers have now is that "they can be gouged, or they can be gouged more deeply."
However, Bruce Cran, president of the Consumers' Association of Canada, said consumers should be pleased.
"All of the things that he's done in there are actually just what we asked for," Cran said from Washington, where the U.S. Congress has approved a bill that prohibits card companies from arbitrarily raising interest rates on existing balances, bans a variety of fees and restricts access to cards for people younger than 21.
The Americans "have got a range of different problems to what we have in Canada," Cran said, "but I think Mr. Flaherty has done a much better job of addressing the real problems that we've encountered."
As for the level of card interest rates, "these things take care of themselves," Cran said. "We do have 300 card issuers, and if there's demand for that sort of (low-interest) card, it should gain a place in the marketplace without having to legislate it."
In Ottawa, Liberal finance critic John McCallum - a former chief economist at the Royal Bank - said Flaherty's moves are "not a bad start, but they have not finished the job."
The new framework - particularly the 21-day grace period on all new purchases when cardholders pay the monthly balance in full by the due date - "was resisted by financial institutions," Flaherty declared.
"It is a major change; it will cost financial institutions tens of millions of dollars," he said.
"Right now the situation is that credit cards offer 15-to 24-day grace periods with most offering 21 days. However, many cards also charge consumers interest that accrues during that period, even if they pay their balance in full that month," Flaherty said.
"Moreover, if a consumer carries a balance from one month to another, some cards essentially give that consumer no grace period on new purchases."
Under the new regulations, the 21-day grace period on new purchases applies even if an outstanding balance is carried forward from the previous month, as long as the full balance is paid by the current month's deadline.
The new regulations will also require that credit card applications and contracts feature a simple summary box of "all salient information, such as interest rates, grace periods and fees."
Additionally, monthly statements will have to show how long it would take to pay off a balance by making only minimum payments. This will give consumers a truer picture of their debt load, Flaherty said.
The regulations, open for comment until June 13, also include:
-Notice on monthly statements if interest rates are going to increase during the next statement period;
-Express consent from the consumer for credit limit increases;
-Prohibition of some debt-collection practices, such as contacting clients later than 9 p.m. on weekdays or Saturdays, and after 5 p.m. on Sundays.
Flaherty noted that about 25 million Canadians have credit cards and most pay their monthly balances in full, "which is a great credit to how prudent Canadians are generally."
But Layton said financial institutions are encouraging consumers to use credit cards to buy groceries, and he meets people who are using cards to meet mortgage payments.
"In other words, they're up against the wall with a gun to their head," the NDP leader said, "and the banks refuse to give really fair interest rates to people like that, and the government is backing the banks."
The Consumers' Association's Cran commented that low introductory card rates "tend to take advantage of people that don't fully understand what's going on," and "we do object to some of the high penalty rates - I just can't see the point of penalizing people who can't pay."
But overall, "I've got to congratulate Mr. Flaherty."
"The proposed regulations are too little, too late to stop gouging of financial consumers by credit card companies," countered Duff Conacher, head of the Canadian Community Reinvestment Coalition.
The bank-accountability citizen group is calling on Flaherty to require credit card companies to undergo independent audits "to determine if they are reaping excessive profits."
In addition to not addressing interest rates, the rule changes do not deal with credit card interchange fees levied on merchant transactions.
Flaherty noted that parliamentary committees have been looking at the issue.
Credit Suisse chops ratings on Canada banks
John Greenwood, Financial Post
Canadian bank stocks are headed for a second wave of trouble, a Bay Street analyst warned Thursday.
James Bantis, an analyst at Credit Suisse, chopped his ratings on Canadian Imperial Bank of Commerce, Bank of Montreal, Royal Bank of Canada and Bank of Nova Scotia on concern the recent run-up in share prices fails to take into account the impact the recession will continue to have on bank revenues.
Mr. Bantis forsees rising loan loss provisions and pressure on retail margins, as the second round effects of the credit crunch and recession set in.
"We believe the severity of the economic slowdown in Canada is still in early days and earnings challenges remain ahead, not behind the banking sector," Mr. Bantis said in the note, titled "Green Shoots or Green Weeds."
Many of the threats that emerged at the height of the financial crisis late last year such as the risk of depression and possible systemic failure of global credit markets have abated, but Canadian banks are still heavily influenced by U.S. and global economic trends, most of which suggest tough times well into 2010.
But according to Mr. Bantis, this possibility is not reflected in current bank share prices.
Since its February low, the S&P/TSX Bank index has moved up 58%.
"Time to sell into strength," Mr. Bantis said.
Thursday he cut his ratings on CIBC and Bank of Montreal to "Underperform" from "Neutral," and lowered Royal and Scotia to "Neutral" from "Outperform."
The comments come about a week before the banks are set to report financial results for the second quarter.
On Friday, Scotia Capital analyst Kevin Choquette predicted an 8% decline in second quarter bank earnings compared to the same period in 2008 because of a doubling of loan loss provisions.
But he said results would be buoyed by a falling Canadian dollar and improving wholesale banking margins.
Mr. Choquette did not change any of his ratings at the time.
Calling their share prices "compelling," Mr. Choquette said Canadian banks "are well capitalized, with high-quality balance sheets, a diversified revenue mix [and] a solid long-term earnings growth outlook."
"The reduced fear about the collapse of the U.S. banking system has taken a lot of pressure off Canadian bank stocks that have been suffering from valuation contagion compounded by aggressive investor views that the Canadian system has massive leverage," he said.
Despite share price declines they suffered in the financial crisis -- the sector lost more than half its value -- Canadian banks for the most part steered clear of the kind of investments in credit derivatives that destroyed Lehman brothers and brought so many global banks to their knees.
As a result they are now widely recognized as among the safest in the world, which has attracted a lot of interest from foreign investors as well as governments.
But while the effects of the credit crunch appear to be subsiding, the Canadian economy has suffered a blow from the declining global economy and the collapse of the commodities market, and the impact is starting to manifest itself in the form of slumping corporate profits and rising unemployment.
Canada, Australia, the U.K. seen first to recover from recession
Alia McMullen, Financial Post
Canada, with Australia and the United Kingdom, is expected to be among the first of the advanced economies to emerge from recession, close its output gap and return to a normal rate of economic growth. But it will likely be close to a decade before conditions normalize in the mega economies of the United States, Europe and Japan, a report says.
By analyzing business new orders data, a key indicator of growth, Goldman Sachs economists Peter Berezin and Alex Kelston said Canada, Australia and the U.K. would likely return to their long-term trend rate of economic growth sometime in the second half of 2010 or early 2011.
Their output gaps -- the difference between actual and potential output -- would likely close between 2013 and 2015.
On the other hand, the United States and Europe were not expected to return to trend growth until 2011, with output likely to run under capacity until 2017. Japan, while returning to a trend rate of growth sooner, was not expected to close its output gap until 2019.
Not all believe the U.S. juggernaut will lag others in recovery. Bill Cheney, the chief economist at MFC Global Investment Management in Boston said the U.S. was the first to fall into recession and it would likely lead the world back out.
Nariman Behravesh, the chief economist at IHS Global Insight said China and the U.S. would likely lead the world out of recession, with Europe lagging behind.
This sentiment falls in line with U.S. government expectations. Douglas Elmendorf, the director of the Congressional Budget Office said in a testimony to the House Budget Committee on Thursday that the economy's output gap would average 7% of gross domestic product, equivalent to about US$1-trillion, in 2009-10. However, he said the U.S. would close this output gap by 2013.
While some countries are expected to take longer than others to make a full recovery, Mr. Berezin and Mr. Kelston said it appeared almost all major economies had already experienced their worst quarter of GDP in either the fourth quarter of 2008 or the first quarter of this year.
"This is important in as much as our research suggests that equity markets tend to bottom and equity volume tends to peak around the time when growth is at its worst," they said. "This supports our strategists' view that equities should continue to grind higher in the months ahead."
The report predicted the time taken for countries to return to their trend rate of growth and close their output gap would have a huge bearing on asset prices.
"Countries that are among the first to close their output gaps are also likely to experience foreign exchange appreciation," the Goldman economists said.
Emerging market economies were likely to return to trend growth an average six months before advanced economies. These countries are also expected to close their output gaps almost two years before developed nations.
However, conditions across the emerging markets will differ. For example, Asian economies are expected to rebound before those in Eastern Europe, while Latin America will likely recover before Mexico.
Thursday, May 21, 2009
Financial Update May 21, 2009
New numbers give hope for early recovery
TSX+131.49
DOW -52.81
Dollar +1.21c to 87.69USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$1.94 to $62.04US per barrel
Gold +$10.70 to $937.40USD per ounce
Canadian 5 yr bond yields -.01bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
New numbers give hope for early recovery
JULIAN BELTRAME
THE CANADIAN PRESS
OTTAWA -- The hair-raising plunge in the world and Canadian economies this winter is showing signs of levelling off as new evidence emerged yesterday pointing to improving conditions.
Economic growth is still months away, say economists, but with each "less bad'' indicator that is posted, fear of continued free-fall is being replaced by cautious optimism.
"I'm in the glass half-full camp,'' said Bank of Montreal deputy chief economist Douglas Porter. "The way the financial markets are going, I think it's quite possible we'll see a recovery sooner than the end of the year. It seems the optimism is becoming more infectious around the world, and that's a good thing.''
The glass half-empty camp argues that financial markets, while much improved, remain risk adverse and that the recovery may be too dependent on temporary massive government stimulus to be sustained.
Yesterday saw more reasons to support a growing consensus that sees global economies starting to come out of the nightmare of the past few months.
* Canada's inflation rate fell to a near 15-year low of 0.4 per cent in April, a clear signal of economic weakness but because the plunge was due to a single-factor -- lower gasoline prices compared to last year -- the steep drop was not worrisome.
* The country's leading indicator of future economic activity rose 0.5 per cent last month over March, the first sign of life in eight months.
* As significant, a survey of 220 fund managers by Bank of America-Merrill Lynch showed the bulls are waking from their slumber, with 57 per cent of managers forecasting a stronger global economy in the next 12 months.
"The unrelenting gloom of a mere three months ago has been replaced by a fairly typical early-cyclical sentiment, with the only hint of potential irrational exuberance in emerging markets,'' the global investment bank said.
The May survey showed that fund managers are still reluctant to jump into the market with both feet as asset allocations remain underweight in securities by six per cent, but that is less than the minus-17 per cent number found in the April survey.
Merrill Lynch analysts said there is still a risk of "too much, too soon'' with the stock markets rally of the past two months, but noted that unlike last fall and early 2009, investors now appear willing to shrug off bad news in expectation the economy will indeed recover.
The past month has seen the emergence of a number of so-called "green shoots'' that point to an improving economic landscape.
After a correction last week, Toronto's stock exchange was back over the 10,000-point line this week.
More bad news is on the way as countries start reporting first-quarter gross domestic product retreats in the next few weeks.
Japan said yesterday its economy contracted a massive 15.2 per cent, the most since it began to keep records in 1955.
The Bank of Canada forecasts Canada's first quarter GDP contraction will top seven per cent when all the data is available in two weeks, also the worst performance since records began in 1961.
But these numbers represent a rear-view mirror of the economy, say analysts, something markets have already left behind.
Economists also judged that the Bank of Canada is now less likely to resort to extraordinary measures because the risk of further steep contraction has diminished.
In a speech Tuesday, Bank of Canada deputy governor John Murray said the bank's action of dropping the policy rate to 0.25 per cent -- and vowing to keep it there for the next year -- has succeeded in improving credit.
TSX+131.49
DOW -52.81
Dollar +1.21c to 87.69USD the strong performance on equity and commodity markets energized the Canadian dollar
Oil +$1.94 to $62.04US per barrel
Gold +$10.70 to $937.40USD per ounce
Canadian 5 yr bond yields -.01bps to 2.16
http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us
New numbers give hope for early recovery
JULIAN BELTRAME
THE CANADIAN PRESS
OTTAWA -- The hair-raising plunge in the world and Canadian economies this winter is showing signs of levelling off as new evidence emerged yesterday pointing to improving conditions.
Economic growth is still months away, say economists, but with each "less bad'' indicator that is posted, fear of continued free-fall is being replaced by cautious optimism.
"I'm in the glass half-full camp,'' said Bank of Montreal deputy chief economist Douglas Porter. "The way the financial markets are going, I think it's quite possible we'll see a recovery sooner than the end of the year. It seems the optimism is becoming more infectious around the world, and that's a good thing.''
The glass half-empty camp argues that financial markets, while much improved, remain risk adverse and that the recovery may be too dependent on temporary massive government stimulus to be sustained.
Yesterday saw more reasons to support a growing consensus that sees global economies starting to come out of the nightmare of the past few months.
* Canada's inflation rate fell to a near 15-year low of 0.4 per cent in April, a clear signal of economic weakness but because the plunge was due to a single-factor -- lower gasoline prices compared to last year -- the steep drop was not worrisome.
* The country's leading indicator of future economic activity rose 0.5 per cent last month over March, the first sign of life in eight months.
* As significant, a survey of 220 fund managers by Bank of America-Merrill Lynch showed the bulls are waking from their slumber, with 57 per cent of managers forecasting a stronger global economy in the next 12 months.
"The unrelenting gloom of a mere three months ago has been replaced by a fairly typical early-cyclical sentiment, with the only hint of potential irrational exuberance in emerging markets,'' the global investment bank said.
The May survey showed that fund managers are still reluctant to jump into the market with both feet as asset allocations remain underweight in securities by six per cent, but that is less than the minus-17 per cent number found in the April survey.
Merrill Lynch analysts said there is still a risk of "too much, too soon'' with the stock markets rally of the past two months, but noted that unlike last fall and early 2009, investors now appear willing to shrug off bad news in expectation the economy will indeed recover.
The past month has seen the emergence of a number of so-called "green shoots'' that point to an improving economic landscape.
After a correction last week, Toronto's stock exchange was back over the 10,000-point line this week.
More bad news is on the way as countries start reporting first-quarter gross domestic product retreats in the next few weeks.
Japan said yesterday its economy contracted a massive 15.2 per cent, the most since it began to keep records in 1955.
The Bank of Canada forecasts Canada's first quarter GDP contraction will top seven per cent when all the data is available in two weeks, also the worst performance since records began in 1961.
But these numbers represent a rear-view mirror of the economy, say analysts, something markets have already left behind.
Economists also judged that the Bank of Canada is now less likely to resort to extraordinary measures because the risk of further steep contraction has diminished.
In a speech Tuesday, Bank of Canada deputy governor John Murray said the bank's action of dropping the policy rate to 0.25 per cent -- and vowing to keep it there for the next year -- has succeeded in improving credit.
Subscribe to:
Comments (Atom)
