• TSX +10.29rallied late in the day as financial shares pared losses after initially dropping on debt concerns, while a weaker U.S. dollar spurred mining shares higher.
• DOW +51.08
• Dollar +.84c to 94.83cUS
• Oil -$1.95c to $70.67US per barrel.
• Gold -$22.50 to $1,120.50USD per ounce
Ontario passes bill to create HST
The Canadian Press
Legislation to create a single 13 per cent sales tax in Ontario passed third and final reading Wednesday despite strong objections and delaying tactics by the Opposition.
Finance Minister Dwight Duncan told the legislature that blending the five per cent GST with the provincial tax will lower costs for businesses, allowing them to lower prices for consumers and hire more staff.
“Doing nothing is not an option (and) the status quo is just absolutely the wrong thing,” Duncan said in third reading debate.
“This package will create jobs.”
The government estimates the HST will help create almost 600,000 jobs in Ontario over the next decade.
In an interview from Mumbai, India, Premier Dalton McGuinty said he is convinced the HST is critical to help reposition Ontario as it comes out of a recession in which the province lost hundreds of thousands of jobs.
“I think people understand in their heart of hearts that our world has changed and the old world is not coming back,” said Mr. McGuinty.
“There are a number of things that we need to do to adjust to the new reality and secure a better future for our families, and one of those is to put in place a modern, competitive tax system.”
The opposition parties failed to convince the government to hold public hearings on the HST bill across the province, and accused the Liberals of being afraid to face a voter backlash against the new tax.
The Liberals used their majority “to ram through the HST bill as quickly as possible and with little debate as possible,” said NDP Leader Andrea Horwath.
The Progressive Conservatives reluctantly admitted defeat after weeks of trying to block the HST, including a 44-hour occupation of the legislature by two Tories, asking for frequent votes to delay proceedings, and repeatedly calling Mr. McGuinty a liar.
“When the Liberals walked out of committee hearings, they hammered home their contempt of those in this chamber, and in the public, who dared to get in the way of their rush to whatever is left in our wallets,” Opposition critic Lisa MacLeod told the legislature.
“Some may talk about antics, they may disparage stunts and they may even dismiss this fight against the HST, for them I feel regret.”
The legislation also includes cuts to corporate and income taxes that take effect Jan. 1, and one-time rebates of up to $1,000 for some families to offset the impact of the HST, which takes effect July 1.
The Tories call the HST a greedy tax grab and complain it will apply to many items exempt from the PST, including gasoline, home heating fuel and cable TV bills.
British Columbia is also set to merge its provincial sales tax with the GST on July 1, something Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador have already done.
British bankers' pain may be Canada's gain
John Greenwood, Financial Post with files from Reuters
A tax on banker bonuses introduced by the U.K. government has been sharply criticized by financial industry officials, but observers say it could help bolster Canada's position as a global financial services centre.
"Tax is a very blunt instrument to use," said Rick Waugh, chief executive of the Bank of Nova Scotia and a senior official with the Institute of International Finance, a leading lobby group for global banks.
Speaking to reporters in Washington, Mr. Waugh said the tax could have the unintended consequence of making banks in less regulated jurisdictions more competitive.
Under the U.K. rule, any bank that pays a 2009 bonus of more than 25,000 pounds will pay a 50% tax on the money.
Because companies will pay the tax rather than employees, it will have a direct impact on corporate profitability.
Business leaders in Britain worry that it will further weaken U.K. banks, which received more than a trillion pounds of bailout money, much of which has yet to be paid back.
"They are killing the golden goose that is the financial system," Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. told Bloomberg. "This is unprecedented. We expect to see a further exodus of financial institutions abroad to more tax-friendly environments."
Nearly all the major Canadian banks have operations in London but observers say Royal Bank of Canada will likely be most affected due to its substantial presence.
A spokesman for RBC declined to comment.
Meanwhile, some observers speculate the new tax could strengthen Canadian firms by making them more competitive compared with their U.K. peers.
"Absolutely, it will help," said Don Drummond, chief economist at TD Bank Financial Group. According to Mr. Drummond, the tax is another in a series of measures being taken by major economies around the world in the wake of the financial crisis.
They are partly aimed at putting limits on the way banks operate, but with public debt growing explosively in so many countries, such levies are increasingly seen as a way for governments to bail themselves out of their financial troubles -- which is why observers such as Mr. Drummond predict we will see more of them.
The United States and Britain "have much more serious fiscal problems than Canada does and they don't have an awful lot of options and those seem to be the areas that they are going to lean towards."
Unlike most other major countries, Canada did not have to bail out its banks and insurance companies, because they mostly didn't get caught up in subprime investments. Canadian banking regulations are among the toughest in the world, and many analysts believe financial institutions in this country will only be modestly affected by the introduction of new global regulation.
Canada's major banks and insurers recently joined forces to work toward building Toronto as a major global financial centre, as a way to take advantage of the strong position of the country's financial system.
Mr. Drummond said the U.K. bonus tax and other measures like it will make Canada "more attractive to high priced talent."
Thursday, December 10, 2009
Wednesday, December 9, 2009
Financial Update For Dec. 9, 2009
• TSX -120.70 slid to its lowest level in more than a week as a drop in commodity prices shook the resource-heavy index. The TSX is still up 52% from the 5-year low it fell to in March.
• DOW -1.04.14
• Dollar -.99c to 93.99cUS
• Oil -$1.31c to $72.62US per barrel.
• Gold -$20.60 to $1,143.00USD per ounce bullion extended its decline from last week's record high due to a stronger greenback, which dents gold's appeal and makes dollar-priced commodities more expensive for holders of other currencies.
•
Bank of Canada expected to hike interest rates in mid-2010
Email the author
TORONTO — The Bank of Canada repeated its pledge Tuesday to keep interests rates at historic lows until the middle of next year to stimulate growth and a sense of stability in the midst of a slow economic recovery.
But, economists are calling for rate hikes as much as a full percentage point or more later next year, and say the bank’s commitment to keep its key rates at 0.25 per cent creates a false sense of security in borrowers who have taken on debts larger than they could normally afford.
The C.D. Howe Institute’s 12-member monetary policy council’s median target for the overnight rate was for one per cent in the second half of 2010.
The council said the central bank should give a strong signal that when the overnight rate moves up, it may be quick and large. They also suggested the bank rein in the housing market by raising the required down payment on government-insured mortgages.
C.D. Howe president and CEO William Robson says a rapid rise in interest rates expected late next year could prove devastating for homeowners who have not evaluated their ability to carry their mortgage at a higher interest rate.
The central bank announced Tuesday the global economy has been slightly more positive than it was at the time of the bank’s October pronouncement, but added “significant fragilities remain.”
The economy grew less than analysts expected in the third quarter and inflation has been slightly higher than the central bank expected.
Diana Petramala, an economist at TD Bank, said as long as those fragilities remain, the Bank of Canada will not be swayed to move quickly with interest rate hikes.
She said TD believes there is more risk associated with the combination of a mild U.S. recovery and strengthening Canadian dollar than the central bank has outlined.
Petramala said the bank’s projection for three per cent growth in 2010 is slightly more optimistic than TD’s forecast of 2.7 per cent growth, adding that she believes the Bank of Canada’s first rate hike will not come until the fourth quarter of next year.
Dawn Desjardins, assistant chief economist at RBC Economics, said still volatile markets and global market uncertainties suggest a significant change to the central bank’s policy is premature.
Given the still-fragile global economy, she said, Canada’s growth rate in 2010 will likely fall short of those recorded during the early stages of past recoveries.
Desjardins added that if the economy continues to build momentum by next summer, the bank will likely hike the rate by one percentage point for the second half of next year.
Michael Gregory, a senior economist at BMO Capital Markets, said there was a faintly more hawkish tone in the bank’s announcement.
“The combination of higher-than-projected global growth and domestic core inflation is a shade more hawkish no matter what prism you’re looking through,” he said.
“The bank is on hold until the end of June, but come next Canada Day the bank will be hoisting its hawkish colours amid all the Canadian flags.”
The Canadian Press
• DOW -1.04.14
• Dollar -.99c to 93.99cUS
• Oil -$1.31c to $72.62US per barrel.
• Gold -$20.60 to $1,143.00USD per ounce bullion extended its decline from last week's record high due to a stronger greenback, which dents gold's appeal and makes dollar-priced commodities more expensive for holders of other currencies.
•
Bank of Canada expected to hike interest rates in mid-2010
Email the author
TORONTO — The Bank of Canada repeated its pledge Tuesday to keep interests rates at historic lows until the middle of next year to stimulate growth and a sense of stability in the midst of a slow economic recovery.
But, economists are calling for rate hikes as much as a full percentage point or more later next year, and say the bank’s commitment to keep its key rates at 0.25 per cent creates a false sense of security in borrowers who have taken on debts larger than they could normally afford.
The C.D. Howe Institute’s 12-member monetary policy council’s median target for the overnight rate was for one per cent in the second half of 2010.
The council said the central bank should give a strong signal that when the overnight rate moves up, it may be quick and large. They also suggested the bank rein in the housing market by raising the required down payment on government-insured mortgages.
C.D. Howe president and CEO William Robson says a rapid rise in interest rates expected late next year could prove devastating for homeowners who have not evaluated their ability to carry their mortgage at a higher interest rate.
The central bank announced Tuesday the global economy has been slightly more positive than it was at the time of the bank’s October pronouncement, but added “significant fragilities remain.”
The economy grew less than analysts expected in the third quarter and inflation has been slightly higher than the central bank expected.
Diana Petramala, an economist at TD Bank, said as long as those fragilities remain, the Bank of Canada will not be swayed to move quickly with interest rate hikes.
She said TD believes there is more risk associated with the combination of a mild U.S. recovery and strengthening Canadian dollar than the central bank has outlined.
Petramala said the bank’s projection for three per cent growth in 2010 is slightly more optimistic than TD’s forecast of 2.7 per cent growth, adding that she believes the Bank of Canada’s first rate hike will not come until the fourth quarter of next year.
Dawn Desjardins, assistant chief economist at RBC Economics, said still volatile markets and global market uncertainties suggest a significant change to the central bank’s policy is premature.
Given the still-fragile global economy, she said, Canada’s growth rate in 2010 will likely fall short of those recorded during the early stages of past recoveries.
Desjardins added that if the economy continues to build momentum by next summer, the bank will likely hike the rate by one percentage point for the second half of next year.
Michael Gregory, a senior economist at BMO Capital Markets, said there was a faintly more hawkish tone in the bank’s announcement.
“The combination of higher-than-projected global growth and domestic core inflation is a shade more hawkish no matter what prism you’re looking through,” he said.
“The bank is on hold until the end of June, but come next Canada Day the bank will be hoisting its hawkish colours amid all the Canadian flags.”
The Canadian Press
Tuesday, December 8, 2009
Financial Update For Dec. 8, 2009
Economic recovery is 'solidly entrenched': BoC
Paul Vieira, Financial Post
OTTAWA -- After months of uncertainty, the economic recovery now appears to be "solidly entrenched," the Bank of Canada said Tuesday, indicating its forecast for growth should unfold as envisaged.
Still, in its latest interest rate announcement, the central bank reiterated, as expected, its conditional commitment to keep its key policy rate at a record low 0.25% until June 2010 as inflation is still not expected to hit its preferred 2% target until the second half of 2011.
Recent data – from retail sales to a stunningly strong jobs report for November -- have painted a mostly cheer picture of the Canadian economy, analysts say, even though third-quarter GDP growth of 0.4% annualized came in well below the central bank's 2% expectation.
Since the central bank's latest economic forecast in October, "global economic developments have been slightly more positive and the global outlook has improved modestly," the bank's governing council said in its statement, adding though that "significant fragilities" remain.
The central bank said the composition of economic growth is unfolding as expected, highlighted by a shift toward stronger domestic demand and less reliance on exports.
"The main drivers and the profile of the projected recovery in Canada remain consistent with the bank's [outlook]," it added. "The bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2% target in the second half of 2011."
According to the central bank's outlook, Canada is expected to grow 3.3% this quarter, followed by expansion of 3% next year and 3.3% in 2011. Predictions for strong growth gained steam late last week when data indicated the Canadian economy added 79,000 jobs in November.
Further, the central bank on Tuesday played down the impact of the stronger dollar, even though it acknowledged it remained a key risk to its forecast, and "could act as a significant further drag" on growth and inflation. The stronger loonie, which has advanced as much as 25% this year against its U.S. counterpart, led to a surge in imports in the third quarter – resulting in net exports acting as a drag on the economy of roughly 5.3 percentage points.
Since the last rate announcement, however, the dollar has on average traded a couple of cents below the central bank's working assumption of a US96¢ loonie.
Most analysts were looking for any change in nuance in the bank's statement – in particular a hint or two that it might move before its conditional pledge to keep rates at a record low until June 2010 given the surge in domestic consumption as households take advantage of record low borrowing costs.
Instead, the central bank reiterated that its target rate of 0.25% "can be expected" to remain intact until the end of the second quarter of next year. The pledge is conditional on inflation hitting the 2% target in the third quarter of 2011, as the bank expects.
The last time the bank raised its key policy rate, to 4.5%, was in July of 2007 – and shortly afterward the first signs of the credit crisis emerged.
Some economists, such as Ryan Brecht of Action Economics, expect the central bank to begin hiking its policy rate, and aggressively, starting in the second half of next year.
In a note released Tuesday morning, Mr. Brecht, the firm's senior North American economist, said he envisaged the Bank of Canada raising its target rate by 175 basis points before December of 2010, for a policy rate of 2%, or "more normal levels." Still, that would be below the 3% level in September of 2008, when Lehman Bros. collapsed, or the 4.5% peak hit more than two years ago.
Financial Post
Paul Vieira, Financial Post
OTTAWA -- After months of uncertainty, the economic recovery now appears to be "solidly entrenched," the Bank of Canada said Tuesday, indicating its forecast for growth should unfold as envisaged.
Still, in its latest interest rate announcement, the central bank reiterated, as expected, its conditional commitment to keep its key policy rate at a record low 0.25% until June 2010 as inflation is still not expected to hit its preferred 2% target until the second half of 2011.
Recent data – from retail sales to a stunningly strong jobs report for November -- have painted a mostly cheer picture of the Canadian economy, analysts say, even though third-quarter GDP growth of 0.4% annualized came in well below the central bank's 2% expectation.
Since the central bank's latest economic forecast in October, "global economic developments have been slightly more positive and the global outlook has improved modestly," the bank's governing council said in its statement, adding though that "significant fragilities" remain.
The central bank said the composition of economic growth is unfolding as expected, highlighted by a shift toward stronger domestic demand and less reliance on exports.
"The main drivers and the profile of the projected recovery in Canada remain consistent with the bank's [outlook]," it added. "The bank continues to expect economic growth to become more solidly entrenched over the projection period and inflation to return to the 2% target in the second half of 2011."
According to the central bank's outlook, Canada is expected to grow 3.3% this quarter, followed by expansion of 3% next year and 3.3% in 2011. Predictions for strong growth gained steam late last week when data indicated the Canadian economy added 79,000 jobs in November.
Further, the central bank on Tuesday played down the impact of the stronger dollar, even though it acknowledged it remained a key risk to its forecast, and "could act as a significant further drag" on growth and inflation. The stronger loonie, which has advanced as much as 25% this year against its U.S. counterpart, led to a surge in imports in the third quarter – resulting in net exports acting as a drag on the economy of roughly 5.3 percentage points.
Since the last rate announcement, however, the dollar has on average traded a couple of cents below the central bank's working assumption of a US96¢ loonie.
Most analysts were looking for any change in nuance in the bank's statement – in particular a hint or two that it might move before its conditional pledge to keep rates at a record low until June 2010 given the surge in domestic consumption as households take advantage of record low borrowing costs.
Instead, the central bank reiterated that its target rate of 0.25% "can be expected" to remain intact until the end of the second quarter of next year. The pledge is conditional on inflation hitting the 2% target in the third quarter of 2011, as the bank expects.
The last time the bank raised its key policy rate, to 4.5%, was in July of 2007 – and shortly afterward the first signs of the credit crisis emerged.
Some economists, such as Ryan Brecht of Action Economics, expect the central bank to begin hiking its policy rate, and aggressively, starting in the second half of next year.
In a note released Tuesday morning, Mr. Brecht, the firm's senior North American economist, said he envisaged the Bank of Canada raising its target rate by 175 basis points before December of 2010, for a policy rate of 2%, or "more normal levels." Still, that would be below the 3% level in September of 2008, when Lehman Bros. collapsed, or the 4.5% peak hit more than two years ago.
Financial Post
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