• TSX -9.66 Stock markets are expected to remain volatile in the shortened trading week ahead of Christmas, as investors clean up their books before the start of the new year.
• DOW +20.63
• Dollar +.38c to 93.81cUS
• Oil +$.71 to $73.36US per barrel. the Iraqi government said that an oil well had been taken over by a group of armed Iranians, which sent the prices up slightly in the final hours of trading.
• Gold +$4.00 to $1,110.80USD per ounce
• On the economic front, Canadian retail sales numbers for October will be released on Monday, with consensus forecasts predicting a 0.8 per cent rise month-over-month.
• On Wednesday, Canadian real GDP numbers for October will be released with consensus predictions targeting a modest 0.3 per cent gain for the month, on stronger manufacturing and housing market activity.
• Also, U.S. personal income and consumer spending will be released on Wednesday, and is expected to show that personal consumption was up 0.8 per cent for November, despite the economy
Canadian housing market sound, fears of consumer debt exaggerated: economists
December 18, 2009
Julian Beltrame, THE CANADIAN PRESS
The Canadian Press, 2009
OTTAWA - Canada's hot housing market received a clean bill of health from a major Canadian bank Friday, dismissing concerns voiced by the Bank of Canada that consumers may be taking on too much debt.
In a report on house and stock market rallies, economists with CIBC World Markets argue that the central bank's concerns are exaggerated, even though the bank was justified in raising them.
"Canada is not doomed to see a U.S.-style housing and mortgage blow-up," wrote CIBC's chief economist, Avery Shenfeld.
"The lessons for the U.S. were not that an extended period of low rates caused a mortgage and housing blow-up. It was a massive failure to supervise the worst excess of the American mortgage market that caused the trouble."
Last week, the Bank of Canada called record household debt the top risk facing the country's financial system, a warning repeated in Toronto earlier this week by the central bank's governor, Mark Carney.
The central bank did note that the risk to Canada's banking system was small, but worried that when interest rates rise to normal levels, up to 10 per cent of households could face difficulties in meeting monthly payment requirements.
Fresh data released Friday showed that spending by Canadian households averaged $71,360 last year, two per cent more than in 2007, with shelter representing about 20 per cent of the load.
Others have also expressed concern about consumer debt levels. In a note Friday, Bank of Montreal economist Sal Guatieri said at current rates the debt burdens being piled on by Canadians could reach American and British levels "just before they keeled over."
CIBC's Shenfeld and Benjamin Tal say their analysis shows that there is basis for the concern, but there are also critical factors that make the Canadian situation different.
By their calculation, the current $350,000 average selling price for a home in Canada is about seven per cent too high.
But they also say that with housing starts on the rise, thereby increasing the supply, the price of housing in Canada will moderate, not collapse.
And Canadian households are not exposed as their southern neighbours were to a market collapse.
Some have substantial equity in their homes and could downsize. Others, about 40 per cent of mortgage holders, have high debt payments because they are making accelerated pay-downs on principal, which they could suspend.
They note that while mortgage interest rates average about 4.4 per cent, payments as a share of after-tax income are higher - at the level they would be if rates were effectively six per cent.
And "history suggests many will jump into fixed mortgages" once variable rates come under upward pressure.
"The Bank of Canada was justified in raising these concerns, but once you get into the details, some of those threats don't appear quite as ominous," Shenfeld explained in an interview.
The CIBC economists agree with Carney that interest rates will rise, likely starting in the second half of next year, but "we don't see that as endangering a bubble either in the mortgage market or the equity market."
In a separate analysis, Shenfeld, Peter Buchanan and Krishen Rangasamy, all of CIBC, judged that the equity markets in Toronto still have room to grow even if some analysts believe stocks are overpriced already.
And they predict the Canadian dollar will average $1.05 US next year.
Monday, December 21, 2009
Friday, December 18, 2009
Financial Update For Dec. 18, 2009
• TSX -163.98
• DOW -132.86
• Dollar -.87c to 93.43cUS
• Oil -$.01 to $72.65US per barrel.
• Gold -$28.90 to $1,106.80USD per ounce
New survey finds Canadians spending more this holiday season than last year TORONTO — Canadian shoppers are opening their wallets a lot wider this year than last despite concerns over the economy, according to a new survey that tallies retail sales.
Moneris Solutions Corp., a debit and credit card payments processor, says its figures show sales are up sharply leading into the last weekend before Christmas. The Moneris survey, released today, tracks national sales in the final five weekends of the pre-holiday season. It says that in the first weekend of December, shoppers spent five per cent more overall, with department stores the clear winner as their sales shot up 12.8 per cent.
Clothing stores saw a 5.4 per cent increase in sales in the Dec. 4-6 weekend, while drugstores reported a 3.8 per cent increase. Last weekend, Dec. 11-13, it was the turn of apparel retailers as they rang in an 11.4 per cent increase in sales amid an overall six per cent jump compared with 2008.
“As the Canadian economy begins a trend toward recovery, the increase in pre-holiday spending is a clear indication of renewed consumer confidence,” said David Ades, Moneris’ senior vice-president, sales and marketing.
“Canadians are clearly more optimistic about the future this year than they were during this time last year, and retailers are capitalizing on this by using creative marketing tactics to draw them in early and often,” Ades said.
With both debit and credit card options in their wallets, consumers had been showing a slight preference for debit cards earlier this year.
“(But) credit card transactions saw a resurgence as the economy recovered,” Moneris said in a news release.
The 2009 pre-holiday spending data compared national retail sales over the past five weekends with the same period last year. The data covers all merchant categories and tallies the dollar value as well as the number of transactions made on Moneris debit and credit card terminals across the country.
The Canadian Press
Rates not expected to rise as consumer prices rise Canadian Press OTTAWA – Canadians are again starting to pay more for most things they consume as the inflation rate jumped to one per cent in November, the second straight month prices have risen sharply.
While higher gasoline prices were mostly to blame, Statistics Canada said the advance was broad-based. Prices rose in seven of eight major components tracked by the agency, and in all 10 provinces.
As well, the month-to-month index was higher with prices rising 0.5 per cent from October.
The last two months have seen a complete reversal in the inflation story in Canada, which previously was one of falling prices and negative inflation.
But a rapid decline in gas prices from record highs in July 2008 has reversed the trend, the agency said.
“Prices at the pump are now exerting upward pressure on the Consumer Price Index after an extended period in which they were the main contributors to year-over-year declines in overall consumer prices,” the agency explained.
In November, gas prices were 14.1 per cent higher than at the same time last year and 13.1 per cent lower in October from the previous year.
Other components pushing prices higher were food, transportation, household operations, and furniture and equipment.
In addition, consumers paid 7.8 per cent more for car insurance and 3.2 per cent more for health and personal care.
Meanwhile, the cost of passenger vehicles fell six per cent, and shelter costs declined 1.7 per cent as natural gas prices were almost 30 per cent lower this year than last. The mortgage interest costs were also well below last year by four per cent.
Overall, the trend of inflation is unlikely to worry the Bank of Canada as most price increases remain tame. Food, which had been a major driver of price increases, gained only 1.7 per cent in November, the smallest increase since April 2008.
Core inflation, which the central bank closely tracks because it represents underlying inflation pressures, was actually lower in November at 1.5 per cent, compared to 1.8 per cent in October. That is still well below the central bank’s two-per-cent target.
Regionally, the largest increases in annual inflation occurred in New Brunswick, with a 2.2-per-cent rise. The rate rose 1.9 per cent in Prince Edward Island, and by 1.7 per cent in both Nova Scotia and Quebec.
• DOW -132.86
• Dollar -.87c to 93.43cUS
• Oil -$.01 to $72.65US per barrel.
• Gold -$28.90 to $1,106.80USD per ounce
New survey finds Canadians spending more this holiday season than last year TORONTO — Canadian shoppers are opening their wallets a lot wider this year than last despite concerns over the economy, according to a new survey that tallies retail sales.
Moneris Solutions Corp., a debit and credit card payments processor, says its figures show sales are up sharply leading into the last weekend before Christmas. The Moneris survey, released today, tracks national sales in the final five weekends of the pre-holiday season. It says that in the first weekend of December, shoppers spent five per cent more overall, with department stores the clear winner as their sales shot up 12.8 per cent.
Clothing stores saw a 5.4 per cent increase in sales in the Dec. 4-6 weekend, while drugstores reported a 3.8 per cent increase. Last weekend, Dec. 11-13, it was the turn of apparel retailers as they rang in an 11.4 per cent increase in sales amid an overall six per cent jump compared with 2008.
“As the Canadian economy begins a trend toward recovery, the increase in pre-holiday spending is a clear indication of renewed consumer confidence,” said David Ades, Moneris’ senior vice-president, sales and marketing.
“Canadians are clearly more optimistic about the future this year than they were during this time last year, and retailers are capitalizing on this by using creative marketing tactics to draw them in early and often,” Ades said.
With both debit and credit card options in their wallets, consumers had been showing a slight preference for debit cards earlier this year.
“(But) credit card transactions saw a resurgence as the economy recovered,” Moneris said in a news release.
The 2009 pre-holiday spending data compared national retail sales over the past five weekends with the same period last year. The data covers all merchant categories and tallies the dollar value as well as the number of transactions made on Moneris debit and credit card terminals across the country.
The Canadian Press
Rates not expected to rise as consumer prices rise Canadian Press OTTAWA – Canadians are again starting to pay more for most things they consume as the inflation rate jumped to one per cent in November, the second straight month prices have risen sharply.
While higher gasoline prices were mostly to blame, Statistics Canada said the advance was broad-based. Prices rose in seven of eight major components tracked by the agency, and in all 10 provinces.
As well, the month-to-month index was higher with prices rising 0.5 per cent from October.
The last two months have seen a complete reversal in the inflation story in Canada, which previously was one of falling prices and negative inflation.
But a rapid decline in gas prices from record highs in July 2008 has reversed the trend, the agency said.
“Prices at the pump are now exerting upward pressure on the Consumer Price Index after an extended period in which they were the main contributors to year-over-year declines in overall consumer prices,” the agency explained.
In November, gas prices were 14.1 per cent higher than at the same time last year and 13.1 per cent lower in October from the previous year.
Other components pushing prices higher were food, transportation, household operations, and furniture and equipment.
In addition, consumers paid 7.8 per cent more for car insurance and 3.2 per cent more for health and personal care.
Meanwhile, the cost of passenger vehicles fell six per cent, and shelter costs declined 1.7 per cent as natural gas prices were almost 30 per cent lower this year than last. The mortgage interest costs were also well below last year by four per cent.
Overall, the trend of inflation is unlikely to worry the Bank of Canada as most price increases remain tame. Food, which had been a major driver of price increases, gained only 1.7 per cent in November, the smallest increase since April 2008.
Core inflation, which the central bank closely tracks because it represents underlying inflation pressures, was actually lower in November at 1.5 per cent, compared to 1.8 per cent in October. That is still well below the central bank’s two-per-cent target.
Regionally, the largest increases in annual inflation occurred in New Brunswick, with a 2.2-per-cent rise. The rate rose 1.9 per cent in Prince Edward Island, and by 1.7 per cent in both Nova Scotia and Quebec.
Thursday, December 17, 2009
Financial Update For Dec. 17, 2009
• TSX +96.02
• DOW -10.88
• Dollar +.08c to 94.30cUS
• Oil +$0.25 to $72.91US per barrel.
• Gold +$4.40 to $1,140.60USD per ounce
The bond yield was up 0.03% to 2.60%, dropping the Spread to 1.39%.
Be ‘vigilant,' Carney warns on debt
‘When risks are still manageable is precisely the best time to act,' Bank of Canada Governor urges borrowers and lenders
Jeremy Torobin
Ottawa — Globe and Mail Update Published on Wednesday, Dec. 16, 2009 12:58PM EST Last updated on Wednesday, Dec. 16, 2009 5:24PM EST
Bank of Canada Governor Mark Carney again warned Canadians Wednesday not to borrow more than they will be able to handle when ultra-low interest rates
“When risks are still manageable is precisely the best time to act,” Mr. Carney said in the text of a speech he was delivering to a business audience in Toronto. “We must be vigilant, and all parties must fulfill their responsibilities.”
While saying lenders should “actively monitor risk” and not take “false comfort” from mortgage insurance and the past health of household credit, Mr. Carney implored Canadians to “ensure that in the future, when the recovery takes hold and extraordinary measures are unwound, they can still service their debts.”
Mr. Carney's remarks expand on the central bank's semi-annual review of the financial system
That review used a “stress test” to show rising interest rates
And as the Canadian economy – which resumed growth in the third quarter on the strength of domestic spending – picks up steam, Mr. Carney warned that Canadians may save too little and borrow too much.
Nonetheless, he hinted that he would not seek to rush a return to higher borrowing costs to rein in spending and that monetary tightening won't come until inflation is closer to the bank's 2 per cent target.
“Whatever happens, the bank's monetary policy reaction to consumer behaviour will always be driven by its implications – taken in conjunction with all other relevant factors – for inflation over the medium-term horizon,” he said.
The central bank has made a conditional commitment to keep interest rates on hold until at least the middle of next year.
With the Bank of Canada's benchmark policy rate at a record low 0.25 per cent since April, cheap mortgage rates, and fiscal incentives such as allowing first-time home buyers to use more of their registered retirement savings as a down payment, have fuelled buying in the housing market and elsewhere in the economy.
In the speech, Mr. Carney pointed to the U.S. subprime mortgage collapse and the subsequent meltdown of that country's financial system to remind Canadians that growing debt burdens, even if confined to a small slice of the population, can cause problems for the whole economy.
“A shock to economic conditions could be transmitted to the broader financial system through deterioration in the credit quality of loans to households,” Mr. Carney said. “In such an event, increased loan-loss provisions and reduced quality of the remaining loans could lead to tighter credit conditions more broadly.” He also repeated much of the data from his report last Thursday, including the fact that personal bankruptcies in Canada rose this year to the highest level since 1991. In his remarks, he also noted that even as real consumer credit, including home equity lines of credit, declined during the recessions of the early 1980s and 1990s, it's up 7 per cent in the past year.
In his report last week, Mr. Carney said household debt remains “a key vulnerability over time,” and in the stress test model the central bank assumed that the ratio of debt to income would rise from 1.42, or 1.42 per cent, in the second quarter of this year, to 1.60, or 1.60 per cent, by mid-2012.
To illustrate the point that Canadians' debt could become a bigger risk once policy makers lift the main interest rate, the bank showed the proportion of households with debt-service ratios higher than 40 per cent of income would rise to 8.5 per cent by the second quarter of 2012, assuming the central bank's rate is 3.2 per cent. That share would climb to 9.6 per cent assuming the central bank's rate is 4.5 per cent. The proportion of households with more than 40 per cent debt-service costs was 6.1 per cent over the past decade and peaked at 7.4 per cent in 2000.
The central bank's report said Canadian banks currently have more than enough capital on hand to absorb potential losses, suggesting that even the worst-case scenario in the stress test would fall short of risking a collapse of the financial system.
Addressing the personal savings rate, Mr. Carney said a savings rate at current levels, or slightly lower, is what the central bank is projecting as part of a consumer-led recovery.
When asked about the potential for a bubble in the housing market he reiterated that the central bank's core focus remains fixed on inflation. “Monetary policy in Canada doesn't target specific assets or asset prices,” he said. “It will be set to achieve the 2 per cent [inflation] target.”
• DOW -10.88
• Dollar +.08c to 94.30cUS
• Oil +$0.25 to $72.91US per barrel.
• Gold +$4.40 to $1,140.60USD per ounce
The bond yield was up 0.03% to 2.60%, dropping the Spread to 1.39%.
Be ‘vigilant,' Carney warns on debt
‘When risks are still manageable is precisely the best time to act,' Bank of Canada Governor urges borrowers and lenders
Jeremy Torobin
Ottawa — Globe and Mail Update Published on Wednesday, Dec. 16, 2009 12:58PM EST Last updated on Wednesday, Dec. 16, 2009 5:24PM EST
Bank of Canada Governor Mark Carney again warned Canadians Wednesday not to borrow more than they will be able to handle when ultra-low interest rates
“When risks are still manageable is precisely the best time to act,” Mr. Carney said in the text of a speech he was delivering to a business audience in Toronto. “We must be vigilant, and all parties must fulfill their responsibilities.”
While saying lenders should “actively monitor risk” and not take “false comfort” from mortgage insurance and the past health of household credit, Mr. Carney implored Canadians to “ensure that in the future, when the recovery takes hold and extraordinary measures are unwound, they can still service their debts.”
Mr. Carney's remarks expand on the central bank's semi-annual review of the financial system
That review used a “stress test” to show rising interest rates
And as the Canadian economy – which resumed growth in the third quarter on the strength of domestic spending – picks up steam, Mr. Carney warned that Canadians may save too little and borrow too much.
Nonetheless, he hinted that he would not seek to rush a return to higher borrowing costs to rein in spending and that monetary tightening won't come until inflation is closer to the bank's 2 per cent target.
“Whatever happens, the bank's monetary policy reaction to consumer behaviour will always be driven by its implications – taken in conjunction with all other relevant factors – for inflation over the medium-term horizon,” he said.
The central bank has made a conditional commitment to keep interest rates on hold until at least the middle of next year.
With the Bank of Canada's benchmark policy rate at a record low 0.25 per cent since April, cheap mortgage rates, and fiscal incentives such as allowing first-time home buyers to use more of their registered retirement savings as a down payment, have fuelled buying in the housing market and elsewhere in the economy.
In the speech, Mr. Carney pointed to the U.S. subprime mortgage collapse and the subsequent meltdown of that country's financial system to remind Canadians that growing debt burdens, even if confined to a small slice of the population, can cause problems for the whole economy.
“A shock to economic conditions could be transmitted to the broader financial system through deterioration in the credit quality of loans to households,” Mr. Carney said. “In such an event, increased loan-loss provisions and reduced quality of the remaining loans could lead to tighter credit conditions more broadly.” He also repeated much of the data from his report last Thursday, including the fact that personal bankruptcies in Canada rose this year to the highest level since 1991. In his remarks, he also noted that even as real consumer credit, including home equity lines of credit, declined during the recessions of the early 1980s and 1990s, it's up 7 per cent in the past year.
In his report last week, Mr. Carney said household debt remains “a key vulnerability over time,” and in the stress test model the central bank assumed that the ratio of debt to income would rise from 1.42, or 1.42 per cent, in the second quarter of this year, to 1.60, or 1.60 per cent, by mid-2012.
To illustrate the point that Canadians' debt could become a bigger risk once policy makers lift the main interest rate, the bank showed the proportion of households with debt-service ratios higher than 40 per cent of income would rise to 8.5 per cent by the second quarter of 2012, assuming the central bank's rate is 3.2 per cent. That share would climb to 9.6 per cent assuming the central bank's rate is 4.5 per cent. The proportion of households with more than 40 per cent debt-service costs was 6.1 per cent over the past decade and peaked at 7.4 per cent in 2000.
The central bank's report said Canadian banks currently have more than enough capital on hand to absorb potential losses, suggesting that even the worst-case scenario in the stress test would fall short of risking a collapse of the financial system.
Addressing the personal savings rate, Mr. Carney said a savings rate at current levels, or slightly lower, is what the central bank is projecting as part of a consumer-led recovery.
When asked about the potential for a bubble in the housing market he reiterated that the central bank's core focus remains fixed on inflation. “Monetary policy in Canada doesn't target specific assets or asset prices,” he said. “It will be set to achieve the 2 per cent [inflation] target.”
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