January 2011 Canadian Economic Fundamentals

[Ally]

Corporate tax relief no 'magic' solution: Ignatieff





OTTAWA ` Liberal Leader Michael Ignatieff tried to debunk Wednesday findings from the Canadian manufacturing lobby on the positive impact corporate tax cuts would have on employment levels and business investment, saying tax relief does not represent a `magic` solution.







Cutting business taxes would do nothing more than fatten corporate profits, he told reporters on Parliament Hill ahead of a tour of 20 ridings he is set to visit, with the hopes of winning those seats in a coming election, whenever that may be. He was reacting to analysis released by the Canadian Manufacturers and Exporters that called on Ottawa to press ahead with corporate tax cuts as planned because the measures stand to create in 2012 alone 49,000 jobs, spur new investment of roughly $3-billion and add $440 to individuals` wallets.







`Corporate tax cuts don`t necessarily create jobs. They add to [corporate] bottom lines and don`t necessarily create investment,` Mr. Ignatieff said, adding later tax cuts are no `magic` job creator.




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[Ally]

Oil surges 2% to top $91 on supply concerns






NEW YORK - U.S. oil prices jumped two per cent to top $91 a barrel on Tuesday as the shutdown of two oilfields in the North Sea stoked supply concerns for markets already on edge from the closure of Alaska`s main crude pipeline.




Further support came from forecasts for stronger heating demand this week as the U.S. Northeast, the world`s biggest heating oil market, prepared for another snowstorm.




Oil got an early boost after Norway`s Statoil said it shut about 157,000 barrels per day (bpd) of crude oil production due to a gas leak at the offshore Snorre and Vigdis fields and did not know when they would be restarted.




The disruptions came amid efforts to restart the Trans Alaska Pipeline System`s main oil pipeline, which was closed on Saturday by a leak and forced the shutdown of over 600,000 bpd of output, nearly 12 per cent of U.S. domestic oil output.




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[Ally]

National housing starts slow in December





OTTAWA ` Housing construction slowed by a more-than-expected 13.5 per cent in December, led by a decline in multiple-unit activity in Ontario, according to Canada Mortgage and Housing Corp.





The seasonally adjusted annual rate of housing starts totalled 171,500 units during the month, following a upwardly revised 198,000 units in November, CMHC said Tuesday.





"Housing starts moved lower in December due to the multiple starts segment, especially in Ontario," said CMHC's chief economist Bob Dugan. "Single-detached starts were also down, but minimally."





Economists had expected about 180,000 housing starts in December.





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[Ally]

Canada gets 'emerging' label from Merrill Lynch





There is a dichotomy to the analysis of world economies these days. On one hand, there are the struggling developed economies of the West, on the other, ascendant emerging markets, now including Canada.




When examining Canada's growth prospects, the country might better be lumped in with emerging market economies rather than its traditional economic peers, said Sheryl King, head of Canada economics and strategy at BofA Merrill Lynch Global Research.




She points to some shared characteristics: financial systems that weathered the economic downturn relatively well, relatively high economic growth, the outperformance of equities to Western benchmarks, massive capital inflows, and concerns about inflation.




"The inflation risks are more elevated in Canada than any other developed market," Ms. King said, speaking at the bank's global macro conference.



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[Ally]

Canada's mortgage hazard







In a year-end interview, Finance Minister Jim Flaherty noted, "I find it just strange that I get some of the financial institutions telling me to mind my own business on regulatory matters -- and then we have some worries about the level of consumer debt, and the banks are saying the government needs to move in and tighten standards." The minister's remarks followed calls by some bank CEOs for the government to tighten lending standards for residential mortgages, such as a reduction in amortization periods.




The debate over whether lending standards need to be tightened has gained attention over concerns about rising household debt. Mark Carney, the Bank of Canada governor, continues to flag the escalation of household debt as a risk to financial stability if interest rates rise. The International Monetary Fund also weighed in last December, when it flagged stretched household balance sheets as a near-term risk to Canada's financial system.




The question is, why don't banks set their own tighter credit standards? The answer is, because they are protected by government-backed mortgage insurance, which is mandatory for all mortgages with a loan-to-value ratio in excess of 80%. The government backing is provided through either the Crown-owned Canada Mortgage and Housing Corporation (CMHC) or a private mortgage insurer that has been extended a government guarantee. Hence, the conventional incentive for banks to set their own underwriting standards and monitor risk exposure has simply been washed away. Rather than screening mortgage applications for risk, bank staff simply tick the boxes required by government. At most, banks have an indirect interest in assessing credit risk since households with too much mortgage debt may be more at risk of defaulting on other loans such as credit cards.



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[Ally]

Beware of prognisticating pundits





The predictions of pundits are plentiful in January. You don't have to go far to find forecasts about what will happen to gold, oil, the Canadian dollar, stocks and the economy.







But how reliable are these predictions? How much attention should be paid when it comes to managing our personal finances and investments?







There's insight in a new book, Future Babble: Why Expert Predictions Fail - and Why We Believe Them Anyway, by Dan Gardner, a columnist with the Ottawa Citizen.







He says people want to know what's happening now and what will happen in the future. Admitting we don't know can be profoundly disturbing. So we try to eliminate uncertainty however we can.





Read the full article here.

 

[Ally]

New home prices in Canada up more than expected in November






OTTAWA ` New-home prices were up more than expected in November, according to data released by Statistics Canada on Wednesday.







The new-housing price index rose 0.3 per cent that month, beating economists' expectations for a 0.1 per cent gain, which would have matched the rise in October.







Some of the biggest gains in particular cities were 4.2 per cent in St. John's, 1.6 per cent In Ottawa-Gatineau and 1.2 per cent in Halifax.







Higher costs for labour and materials were cited as some of the main causes of higher new-home prices in November, and for St. John's in particular, bigger development fees.








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[Ally]

China slowdown not the end of the world, economist says




Would the world`s economies fall flat if China experiences a sharp slowdown in growth?




Most economists say yes.




Kip Beckman, economist at the Conference Board of Canada, disagrees.




Case in point: Japan.


Twenty years ago, Japan had captured the world`s imagination and 20 per cent of its commerce. The Asian powerhouse was poised to overtake the U.S. as the world`s largest economy.



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[Ally]

Rise and Rise of the Canadian dollar




Watch the country cousin come to town. For years, the Canadian dollar has lived in the shadow of its U.S. counterpart. Like Canada itself, it was the tag-along currency driven largely by its all-powerful southern neighbor.




Now, though, as the global economy recovers from the financial crisis, the Canadian currency is coming into its own.




The Canadian dollar is being seen as an alternative to the U.S. dollar because it doesn`t have the problems of the U.S. banks; as an alternative to the Australian dollar because it doesn`t have the floods; and as an alternative to the euro because it doesn`t have sovereign-debt problems.




With its triple-A credit rating and an economy showing one of the most sure-footed returns from the financial crisis, Canada is increasingly being seen as an attractive destination for the international investor. The Canadian dollar has already risen sharply in the last month or two, with the U.S. dollar falling to a 2.5 year low this week.



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[Ally]

Canadian housing starts confirm 'soft landing'





Canadian new-home construction in 2010 finished 29% ahead of the previous year's pace but the "soft landing" many in the industry have been been predicting appears to have arrived, based on data from Canada Mortgage and Housing Corp. Tuesday.




The Crown corporation said December starts were 171,500 on a seasonally adjusted annualized basis, down from 198,200 a month earlier. CMHC would not provide annual statistics for 2010 because the numbers will be revised this month, but economists pegged homes built in 2010 at about 192,500.




"It's a pretty big increase," said Bob Dugan, chief economist of CMHC, comparing the 2010 starts to the 149,081 in 2009. "It was a pretty strong recovery and was kind of expected once the economy recovered and the jobs were being created again. There was a certain amount of pent-up demand."




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[Ally]

Rate hikes unlikely following two Bank of Canada surveys





Two surveys and a speech from the Bank of Canada haven`t changed the conviction of Bay Street economists that the central bank is unlikely to hike interest rates next week.







The Bank of Canada`s released the latest results of both its business outlook survey and its senior loan officer survey on Monday. BMO Capital Markets says that the former survey `showed little net change on the economic outlook`, with the balance of firms expecting higher sales and investment slipping modestly, while hiring intentions rose.







`The survey was conducted just as views on the U.S. outlook for 2011 were beginning to turn higher, and the results may only partially capture that improving tone,` BMO notes.







BMO says that capacity pressures remain modest, as do inflation expectations, and credit conditions continue to normalize. This improvement in credit conditions was echoed in the senior loan officer survey, BMO adds.







TD Economics says that the two surveys confirm that while the recovery has moderated, `it remains well-entrenched and the Canadian economy is well-placed for more balance growth in the coming quarters.`





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[Ally]

Economic divide: How the west will win




Fiscal restraint, stronger commodity prices and a powerful Canadian dollar (CAD/USD-I1.01-0.0001-0.01%) will lead western provincial economies to outperform those of central and eastern Canada this year, a new forecast shows.




"All of these factors appear to favour growth in western Canada over central and Atlantic Canada, and while we're a long way from the commodity-boom days of 2007, the regional growth divide should assert itself in the coming year," economists Michael Gregory and Robert Kavcic of BMO Nesbitt Burns said in their report.




"Growth is expected to top 3 per cent in western Canada, led by 4-per-cent growth in Saskatchewan as the agriculture sector bounces back from a flood-ravaged 2010."




That compares to BMO's projections of 2.6-per-cent growth in Ontario, 2.5 per cent in Quebec, and 2 per cent in the eastern provinces, except for Newfoundland and Labrador.



Read the full article here.

 

[Ally]

New home prices top pre-recession peak





OTTAWA ` New-home prices were up more than expected in November, according to data released by Statistics Canada on Wednesday.




The new-housing price index rose 0.3% that month, beating economists` expectations for a 0.1% gain, which would have matched the rise in October.




The latest data shows new-home prices have more than fully recovered from losses sustained during the recession.




Some of the biggest gains in particular cities were 4.2% in St. John`s, 1.6% in Ottawa-Gatineau and 1.2% in Halifax.




Higher costs for labour and materials were cited as some of the main causes of higher new-home prices in November, and for St. John`s in particular, bigger development fees.




Read the full article here.

 

[Ally]

With Target, Canada's retail landscape set for massive makeover




Less than three years after Richard Baker bought a struggling Hudson`s Bay Co. from the widow of its former owner, the New York investor is set to pocket close to $2-billion in a deal that accelerates Target Corp.`s entry into Canada.




HBC sold the bulk of its weakest chain, Zellers Inc., to the U.S. retail giant. Target will assume control of up to 220 Zellers stores and said it will spend more than $1-billion to convert 100 to 150 of them to its own banner within the next two to three years.



Read the full article here.

 

[Ally]

Xceed posts loss, won't accept new mortgages






Xceed Mortgage Corp. (XMC-T0.65-0.02-2.99%) said it would no longer accept new mortgage applications after posting an annual loss of $17.6-million, focusing instead on managing the $1.6-billion of loans already on its books.




The company also said it would replace chief executive officer Ivan Wahl with Michael Jones, who was already the company`s president. Mr. Wahl will remain as chairman.



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[Ally]

Canada apple of investor's eyes





MONTREAL - In the world of global politics, Canada suffered a major embarrassment when it was beat out for a United Nations Security Council seat last fall by Portugal -- the first time in 50 years it lost a campaign for a temporary council position.




But it can take solace in the sober substance of economics. While the European nation is a financial basket case that needs an estimated $20-billion ($26.42-billion) to stay afloat this year, Canada is in many ways the object of the world's desire, the popular girl with attractive assets and prudent fiscal policy everyone wants to dance with.




Barely two weeks into 2011, our frosty country has been swept up in a wave of mergers, foreign investment and international attention as the prices of commodities soar, the loonie jumps above US$1 and the economic recovery gathers steam.




Big money is moving to park in Canada. And not for the short term.



Read the full article here.

 

[Ally]

Recession short, but still painful






History suggests the recent recession was short, but still severe: Statistics Canada's conventional measures such as employment and real GDP suggest the recession of 2008-09 was less severe and shorter than previous deep downturns in the early 1980s and 1990s. But in a new paper published Thursday, Philip Cross, chief economic analyst at Statistics Canada, said this does not capture how painful an impact the financial crisis had on the Canadian economy. And it shows how difficult it is to say one recession was less painful than another. "Indeed, both output and employment in the early stages of the [2008-09] downturn contracted at the fastest rate of any post-war recession," Mr. Cross said.





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[Ally]

Pop goes the housing bubble





At a recent dinner party with a group of fellow boomers, the conversation turned to our homes. Most of us live in relatively large ones on big lots, with all the attendant headaches.




Our yard is graced with a dozen towering cedars that packed quite an appeal when we first saw them. They`re still beautiful, but also a royal pain. Each spring, I`m forced onto the roof to scrape off the moss they generate. The shedding they do in the fall fills dozens of large refuse bags over multiple weekends.



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[Ally]

Housing sales activity higher than expected: CREA





OTTAWA ` The Canadian Real Estate Association says a strong fourth quarter resulted in a better resale market last year than anticipated -- although volume was still below 2009.



About 447,000 homes traded over CREA's Multiple Listing Service last year, down 3.9 per cent from 2009.




Actual sales last month were down 14.4 per cent compared to the record-setting December 2009, but still slightly ahead of the 10-year average.




Canadians rushed into the market in late 2009 and early 2010 to take advantage of historic interest and mortgage rates, then plunged to a trough in last summer.



Read the full article here.

 

[Ally]

A week in global macro - inflation concerns are back





This is the second in a series of weekend comments on what I have learned in the past 7 days about the global economy and financial markets. This week, there has been a notable rise in inflation concerns as higher food and energy prices start to impact consumer prices. There have been signs that European governments are discussing a more comprehensive package to address the sovereign debt crisis. And China has continued down the path of gradual monetary tightening. Next week, Mr Hu visits Washington, Ecofin meets to discuss sovereign debt, and China publishes its macro data for December.




This week, I have learned that:






1. Inflation concerns are back on the agenda. Consumer price figures published on Friday showed 12-month headline inflation in the Eurozone rising to 2.2 per cent, while in the US it rose to 1.5 per cent. In both cases, higher energy prices were the main culprit. However, the response from policy makers on either side of the Atlantic was quite different. Jean Claude Trichet deliberately sounded hawkish at his press conference on Thursday, reminding everyone that the ECB had raised interest rates to control inflation in July 2008, when the world was on the brink of its deepest recession since the 1930s. The ECB President does not seem to share the widespread view that this was a mistake. In the US, on the other hand, noises emanating from the Fed remain dovish. Boston Fed President Eric Rosengren (admittedly a proven dove) said that higher energy prices were unlikely to feed through to underlying inflation, but would act as a tax on households and businesses which might weaken the economy and actually reduce core inflation. The first graph shows monthly annualised inflation, ex food and energy, smoothed to capture underlying trends. In the US, there is no sign of any rise in core inflation, which remains worryingly low. And although Eurozone inflation rates have risen slightly since mid 2010, the underlying rate remains below target. Nevertheless, the ECB is clearly beginning to think that unconventional monetary policy should end fairly soon, which raises complications for sovereign debt (see below).



Read the full article here.