Budget 2010: A second year of stimulus spending Canadians receive assurance of no tax increases compared to Greece who is facing an increase to their “GST” to 21% .
The day the retail world stood still
• TSX -27.88
• DOW +47.38 .
• Dollar +.13c to 97.03cUS closed higher for a 5th straight sessions showing little reaction to the release of the federal government's 2010-11 budget.
• Oil -$.66 to $80.21US per barrel.
• Gold -$10.10 to $1,132.60 USD per ounce
Canadian gold-medal wins spurred retail spending
No wonder spending was down last Sunday as 26million Canadians watched Canada win GOLD in men’s hockey
VANCOUVER (Reuters) - Canadian gold medals in the Vancouver translated into brisk business for merchants in the Olympic host city, except when consumers were too busy watching hockey, according to data released on Thursday.
Retail spending in Vancouver more than doubled the day skier Alexandre Bilodeau won Canada's first gold of the Games and jumped again when Tessa Virtue and Scott Moir won ice dancing, said credit card processor Moneris Solutions.
Spending in Vancouver and Whistler on items ranging from clothing to beer was 48 percent higher during the February 12 to 28 competition than it was the same period a year earlier, according to Canada's largest card transaction processor.
An exception came on the final Sunday when Canada's men's ice hockey team was on the ice winning gold against the United States. Sales dropped 41 percent compared with the same time slot in the five days leading up to it, the company said.
Canadians accounted for about 78 percent of the Olympic-spurred transactions during the Games, with the rest coming from international visitors to Vancouver and Whistler.
Chinese spent the most per transaction for the foreign visitors, with an average bill of C$423, while Russians were second with C$236. Russia will host the next Winter Olympics in Sochi.
Visa Inc, which has a sponsorship deal with Olympics organizers, estimated that its international card holders spent US$115.3 million in the host province of British Columbia during the 17 day event.
http://ca.news.finance.yahoo.com/s/04032010/6/finance-canadian-gold-medal-wins-spurred-retail-spending.html
Budget 2010: A second year of stimulus spending
Paul Vieira, Financial Post
OTTAWA -- The Conservative government sketched out on Thursday its initial plans to return to budget balance, by targeting cuts in the public service, a freeze on foreign aid, limited growth in military spending and higher EI premiums.
The spending restraint, outlined in its 2010 budget, would net $17.6-billion in savings over five years and bring the deficit down from a high of $53.8-billion this fiscal year, ending March 31, to a low of $1.8-billion by 2015.
Before the cuts kick in, however, the Conservative government said it was committed to spend $19-billion as part of year two of the two-year $47-billion stimulus package aimed at resuscitating the economy after the global financial crisis.
The 451-page budget sets out how the Conservatives plan to meet all its goals -- of creating jobs and bolstering Canada's long-term competitiveness, while at the same time returning to surplus without tax increases, nor cuts to transfers to provinces and individuals. The government also said it would go through with cuts to corporate income taxes, from 19% to 15% by 2012, despite calls from opposition politicians to cancel them and use the money to help seniors and the poor.
"We are building Canada's reputation as an investment-friendly country," Finance Minister Jim Flaherty said in his budget speech. "A country committed to free and open trade, unburdened by massive debts and [the] higher taxes of our competitors."
All the opposition parties vowed to vote against the budget -- although Liberal Leader Michael Ignatieff said his party would not bring down the government and force an election by withholding the number of Liberal MPs who show up to vote.
Even though Canada's economy is recovering at a rather robust clip of late -- 5% growth was recorded in the final quarter of 2009 -- Mr. Flaherty said following through with more stimuli is the right thing to do as the global recovery is in its nascent stages.
Measures linked with the stimulus plan will expire as of March next year, and with it comes a plan to return to budget balance.
Overall, analysts said the budget struck a fair balance between adding momentum to the recovery from a deep recession, and preparing the economy for fiscal restraint.
"It is not a dramatic change of course, and in uncertain economic times you want a steady hand. And we are getting a steady hand," said Craig Wright, chief economist with Royal Bank of Canada.
For some, such as the NDP, there wasn't enough money to help the unemployed or the poor. Others said there wasn't enough on the spending-cut side.
"A plan to balance the budget should actually balance the budget and this doesn't do that," said Kevin Gaudet, federal director of the Canadian Taxpayers Federation. "Restraint delayed is restraint denied. Taxpayers have heard similar promises of restraint before. Canadians will believe it when they see it."
There were some new spending measures, although minor, such as extending a work-sharing program at a cost of over $100-million, and eliminating all tariffs on imported industrial inputs at cost of $1.2-billion over five years.
According to the government's plan, the $53.8-billion deficit will be cut in half in two years time, and by two-thirds in three years. Much of that will be due to allowing the stimulus plan, and its associated measures, expire in March 2011.
The government envisages robust growth in revenue, starting in the 2010-11 fiscal year, and will grow thereafter based on, among other things, four consecutive years of higher Employment Insurance premiums, which business leaders describe as a payroll tax.
Economists at Toronto-Dominion Bank have calculated that EI premiums will rise from the present $1.73 level to $2.33 by 2015, in an effort to return the EI account to balance. As a result, that will contribute nearly one quarter to the overall improvement to federal revenue over the next half decade, they said in a note.
On spending, the government will introduce legislation to freeze the salaries of all MPs and Senators for the next three fiscal years.
Also, Ottawa is eyeing $6.8-billion in savings through containing the operating costs of federal departments. Departments' operating budgets will be frozen in 2011 and 2012 at 2010 levels. Further, a 1.5% wage increase owed to unionized workers in 2010, at a cost of $300-million, has to be funded through cuts within departments.
The government also plans to cap growth in defence spending, which doubled to $20-billion in the previous decade. Restraint doesn't begin until 2012, and the efforts aim to achieve savings of $2.5-billion by 2015. Meanwhile, foreign aid will reach $5-billion this coming fiscal year, and increase no further, and be subject to review on a year-by-year basis.
Overall, after the stimulus package expires, program spending is set to increase at on an annual basis of between 1.5% and 2.5%. This could be quite the feat, as prior to the recession program spending grew at roughly 6% to 7% a year.
Douglas Porter, deputy chief economist at BMO Capital Markets, said the government's plan is banking on a well-entrenched U.S. and global economic recovery as of next year to smooth the way toward stimulus removal.
"The big question mark is whether the economy can withstand the abrupt removal of stimulus a year from now," he said. "To me, that's the real test."
The budget's underlying forecast envisages economic growth of 2.6% this year (below the Bank of Canada's forecast), 3.2% in 2011 and 3% in 2012.
At a media conference during a lockup for reporters, Mr. Flaherty said if the economic growth projections fell short, his government was prepared to "do more" in terms of spending restraint. http://www.financialpost.com/news-sectors/story.html?id=2636923
Budget Highlights
Projected deficit for current year (2009-10): $53.8-billion
• Deficit for 2010-11: $49.2-billion
• Total spending: $280.5-billion
• Program expenses: $249.2-billion (an increase of 4.7% over 2009-10)
• Debt charges: $31.3-billion
• Total infrastructure project spending: $7.7-billion
• Elderly benefits: $36.7-billion
• EI benefits: $22.6-billion (compared with $16.3-billion in 2008-09)
• Health and social transfers to provinces: $37.1-billion
• Transfers to municipalities: $2-billion
• Total federal debt: $566.7-billion
• Personal income tax to be collected: $117-billion
• Personal income tax cuts: $3.18-billion
• Corporate income tax to be collected: $22.3-billion
• Total excise duties and GST to be collected: $188.9-billion
• Savings from "containing administrative cost of government": $300-million
• Administrative savings, 2011-12: $900-million
• Savings from "closing tax loopholes": $355-million
• Total increase in funding for scientific research and post-secondary education: $1.88-billion
Friday, March 5, 2010
Thursday, March 4, 2010
Financial Update For March 4, 2010
• TSX +24.54
• DOW -9.22 .
• Dollar +.42c to 96.90cUS The Canadian dollar shot up against the U.S. dollar for a fourth straight session as positive U.S. economic data, a spike in oil prices and debt-tackling steps by Greece boosted appetite for risk, stemming flows into the safe-haven greenback
• Oil +$1.19 to $80.87US per barrel.
• Gold +$5.90 to $1,103.30 USD per ounce
In contrast to the US who had 140 banks close in 2009, Canada had good news as more bank earnings rolled in. RBC earned a $1.5-billion profit, up 35 per cent from a year before, with provisions for credit losses reduced by 37 per cent, falling to $493 million.
Laurentian Bank of Canada said its profit was up 28 per cent from a year ago to $32 million
• DOW -9.22 .
• Dollar +.42c to 96.90cUS The Canadian dollar shot up against the U.S. dollar for a fourth straight session as positive U.S. economic data, a spike in oil prices and debt-tackling steps by Greece boosted appetite for risk, stemming flows into the safe-haven greenback
• Oil +$1.19 to $80.87US per barrel.
• Gold +$5.90 to $1,103.30 USD per ounce
In contrast to the US who had 140 banks close in 2009, Canada had good news as more bank earnings rolled in. RBC earned a $1.5-billion profit, up 35 per cent from a year before, with provisions for credit losses reduced by 37 per cent, falling to $493 million.
Laurentian Bank of Canada said its profit was up 28 per cent from a year ago to $32 million
Wednesday, March 3, 2010
Financial Update For March 3, 2010
Australia central bank raises interest rates article below is an interesting read on interest rates in Australia, as the Australian market resembles the Canadian mortgage market in many ways.
Economy improving, but interest rates to stay at historic lows for now
• TSX +100.25 as commodity prices rallied and impressive quarterly results from Bank of Montreal lifted the index's heavily weighted financial sector.
• DOW +2.19 .
• Dollar +.47c to 96.48cUS
• Oil +$.98 to $79.68US per barrel.
• Gold +$19.10 to $1,16.90 USD per ounce
By Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada is keeping interest rates at historic lows for a few more months, while sending out signals that the economy is rebounding strongly and could trigger inflationary pressures.
The central bank's more positive take on the economy followed a Statistics Canada report Monday of a surprising five per cent growth spurt in the fourth quarter of 2009 and sent a strong loonie even higher.
"The level of economic activity in Canada has been slightly higher than the bank had projected in January," the bank said Tuesday morning before markets opened.
"The economy grew at an annual rate of five per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports."
"Slightly higher" may be an understatement, as the bank had projected growth of only 3.3 per cent for the last three months of 2009.
The bank also noted that "core inflation" has been slightly firmer than projected, although it added that some of the price increases were due to transitory factors.
The governing council continued to reiterate that despite the improved conditions, they would likely leave the overnight rate where it has been since last spring - at 0.25 per cent - until at least July.
But some economists weren't buying it and the reaction of money markets suggested that there may be some pressure on governor Mark Carney to move on interest rates ahead of schedule.
"They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital.
"I think they are priming the markets for a second-quarter hike."
The next interest rate announcement comes in April, but June would be a more likely time to move, said Holt, if indeed the bank is preparing to act. http://ca.news.finance.yahoo.com/s/02032010/2/biz-finance-economy-improving-interest-rates-stay-historic-lows.html
Australia central bank raises interest rates
Wayne Cole, Reuters
SYDNEY-- Australia's central bank raised its benchmark interst rate by 25 basis points to 4.0% on Tuesday and flagged further hikes ahead, saying a surprisingly strong recovery allowed it to move policy toward more normal settings.
Interest rate futures slid as investors priced in further gradual hikes from the Reserve Bank of Australia (RBA). A rise in April was seen as unlikely but the odds of an increase in May were evenly split and almost fully priced in for June.
"It is very likely the RBA will hike again in the next three months," said Rory Robertson, interest rate strategist at Macquarie. "It's a ‘normalisation' of policy given the economy has performed better than anyone dreamed a year ago."
This was the fourth increase in five policy meetings, putting Australia far ahead of most other rich nations where rates are at 1% or less.
Indeed, RBA Governor Glenn Stevens flatly stated that lending rates were still below average and Tuesday's move was just a step toward getting back there.
"With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Stevens said in a statement.
Last month he estimated a more normal range for lending rates would be between 4.25 and 4.75%, and investors assume the bank will get to the top of that band by year-end.
Interbank futures are fully priced for a move to 4.25% by July, and then in stages to 4.75% by December. One-year swap rates edged up to 4.65%.
Reaction in the currency market was restrained as the Australian dollar had already risen sharply in recent days, hitting a record high on the euro and a 25-year peak on sterling.
Treasurer Wayne Swan spun the hike as a sign of Australia's relative strength. Rising mortgage rates are always unpopular in a country obsessed with home ownership.
"The economy is recovering and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world," Swan told reporters.
BACK TO GROWTH
His optimism should be supported by figures due on Wednesday which are expected to show the economy grew by a solid 0.9% in the fourth quarter of 2009, a marked step up from 0.2% the previous quarter.
Growth for the year is seen accelerating to around 2.4%, from a pedestrian 0.5% in the third quarter.
Some of that revival was courtesy of fiscal stimulus which saw public spending jump 3.8% last quarter, the biggest rise in a decade. That alone should add 0.9%age points to gross domestic product (GDP) in the quarter.
By concentrating on the labour-intensive building sector, the fiscal splurge also helped keep people in jobs and was one reason unemployment surprised everyone by falling late last year.
The drop in the jobless rate to just 5.3% in January from a high of 5.8% in October, is a critical plank in the case for higher interest rates.
And there was more evidence the revival had gathered steam this year. Data out Tuesday showed retail sales jumped 1.2% in January, well above forecasts for a 0.5% gain and a return to growth after December's 0.9% drop.
Retail sales account for around 23% of GDP and the sector is the biggest single employer.
"It all hints at a consumer little affected by higher borrowing costs and is spending without any fiscal assistance," said Su-Lin Ong, senior economist at RBC Capital Markets.
"The bottom line is that a 3.75% cash rate was too low for an economy that is returning to 3%-plus growth, underpinned by a recovery in the terms of trade, and with limited capacity in both goods and labour markets," she added.
The buoyant outlook for trade was underlined by the country's official commodities forecaster which predicted that exports of liquefied natural gas would nearly double by 2014/15, while exports of iron ore could rise almost 70%.
If correct, that would deliver a huge windfall to Australian profits, investment, wages and tax receipts and is a major reason the RBA is so bullish on the country's longer-term outlook.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2631549#ixzz0h3vSj2ws
Economy improving, but interest rates to stay at historic lows for now
• TSX +100.25 as commodity prices rallied and impressive quarterly results from Bank of Montreal lifted the index's heavily weighted financial sector.
• DOW +2.19 .
• Dollar +.47c to 96.48cUS
• Oil +$.98 to $79.68US per barrel.
• Gold +$19.10 to $1,16.90 USD per ounce
By Julian Beltrame, The Canadian Press
OTTAWA - The Bank of Canada is keeping interest rates at historic lows for a few more months, while sending out signals that the economy is rebounding strongly and could trigger inflationary pressures.
The central bank's more positive take on the economy followed a Statistics Canada report Monday of a surprising five per cent growth spurt in the fourth quarter of 2009 and sent a strong loonie even higher.
"The level of economic activity in Canada has been slightly higher than the bank had projected in January," the bank said Tuesday morning before markets opened.
"The economy grew at an annual rate of five per cent in the fourth quarter of 2009, spurred by vigorous domestic spending and further recovery in exports."
"Slightly higher" may be an understatement, as the bank had projected growth of only 3.3 per cent for the last three months of 2009.
The bank also noted that "core inflation" has been slightly firmer than projected, although it added that some of the price increases were due to transitory factors.
The governing council continued to reiterate that despite the improved conditions, they would likely leave the overnight rate where it has been since last spring - at 0.25 per cent - until at least July.
But some economists weren't buying it and the reaction of money markets suggested that there may be some pressure on governor Mark Carney to move on interest rates ahead of schedule.
"They are getting ready to take away the punch bowl," said Derek Holt, vice-president of economics with Scotia Capital.
"I think they are priming the markets for a second-quarter hike."
The next interest rate announcement comes in April, but June would be a more likely time to move, said Holt, if indeed the bank is preparing to act. http://ca.news.finance.yahoo.com/s/02032010/2/biz-finance-economy-improving-interest-rates-stay-historic-lows.html
Australia central bank raises interest rates
Wayne Cole, Reuters
SYDNEY-- Australia's central bank raised its benchmark interst rate by 25 basis points to 4.0% on Tuesday and flagged further hikes ahead, saying a surprisingly strong recovery allowed it to move policy toward more normal settings.
Interest rate futures slid as investors priced in further gradual hikes from the Reserve Bank of Australia (RBA). A rise in April was seen as unlikely but the odds of an increase in May were evenly split and almost fully priced in for June.
"It is very likely the RBA will hike again in the next three months," said Rory Robertson, interest rate strategist at Macquarie. "It's a ‘normalisation' of policy given the economy has performed better than anyone dreamed a year ago."
This was the fourth increase in five policy meetings, putting Australia far ahead of most other rich nations where rates are at 1% or less.
Indeed, RBA Governor Glenn Stevens flatly stated that lending rates were still below average and Tuesday's move was just a step toward getting back there.
"With growth likely to be close to trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average," Stevens said in a statement.
Last month he estimated a more normal range for lending rates would be between 4.25 and 4.75%, and investors assume the bank will get to the top of that band by year-end.
Interbank futures are fully priced for a move to 4.25% by July, and then in stages to 4.75% by December. One-year swap rates edged up to 4.65%.
Reaction in the currency market was restrained as the Australian dollar had already risen sharply in recent days, hitting a record high on the euro and a 25-year peak on sterling.
Treasurer Wayne Swan spun the hike as a sign of Australia's relative strength. Rising mortgage rates are always unpopular in a country obsessed with home ownership.
"The economy is recovering and rate rises are an inevitable consequence of a recovering economy that is outperforming the rest of the world," Swan told reporters.
BACK TO GROWTH
His optimism should be supported by figures due on Wednesday which are expected to show the economy grew by a solid 0.9% in the fourth quarter of 2009, a marked step up from 0.2% the previous quarter.
Growth for the year is seen accelerating to around 2.4%, from a pedestrian 0.5% in the third quarter.
Some of that revival was courtesy of fiscal stimulus which saw public spending jump 3.8% last quarter, the biggest rise in a decade. That alone should add 0.9%age points to gross domestic product (GDP) in the quarter.
By concentrating on the labour-intensive building sector, the fiscal splurge also helped keep people in jobs and was one reason unemployment surprised everyone by falling late last year.
The drop in the jobless rate to just 5.3% in January from a high of 5.8% in October, is a critical plank in the case for higher interest rates.
And there was more evidence the revival had gathered steam this year. Data out Tuesday showed retail sales jumped 1.2% in January, well above forecasts for a 0.5% gain and a return to growth after December's 0.9% drop.
Retail sales account for around 23% of GDP and the sector is the biggest single employer.
"It all hints at a consumer little affected by higher borrowing costs and is spending without any fiscal assistance," said Su-Lin Ong, senior economist at RBC Capital Markets.
"The bottom line is that a 3.75% cash rate was too low for an economy that is returning to 3%-plus growth, underpinned by a recovery in the terms of trade, and with limited capacity in both goods and labour markets," she added.
The buoyant outlook for trade was underlined by the country's official commodities forecaster which predicted that exports of liquefied natural gas would nearly double by 2014/15, while exports of iron ore could rise almost 70%.
If correct, that would deliver a huge windfall to Australian profits, investment, wages and tax receipts and is a major reason the RBA is so bullish on the country's longer-term outlook.
Read more: http://www.financialpost.com/news-sectors/story.html?id=2631549#ixzz0h3vSj2ws
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