March 2010

[Ally]

1.6 Per cent inflation rate provides `nasty` surprise for bank of Canada

OTTAWA — Inflation data for February came in much stronger than expected, Statistics Canada reported Friday, with the key core rate — watched closely by the Bank of Canada — posting a surge beyond the key two per cent threshold in what analysts describe as a "nasty" surprise.

Statistics Canada said consumer prices rose 1.6 per cent year-over-year in February, following a 1.9 per cent increase in January. For the month, prices rose 0.4 per cent. Market expectations were for a year-over-year rise of 1.4 per cent.

Meanwhile, the core rate, which strips out volatile-priced items such as food and energy, advanced 2.1 per cent year-over-year in February. It had risen two per cent in January. Market expectations were for core inflation to decline, to 1.7 per cent year-over-year.

The consumer price data, combined with robust retail sales figures for January, has likely set off alarm bells at the Bank of Canada, economists say, as to whether the central bank can keep its conditional pledge to maintain its target rate at 0.25 per cent until July.

However, analysts note the inflation data come with a caveat, as the Winter Olympics in Vancouver drove up prices in some key categories.

Read the full article here.

 

[Ally]

Canadian Dollar heads to parity with Greenback

Canadian businesses should prepare to live with the "new normal" of a strong dollar.

The dollar broke through 99 cents U.S. Wednesday, hitting its highest level in 20 months, and parity with its U.S. counterpart is in sight. The currency retreated only somewhat later in the day, closing just below the 99-cent mark, at 98.98 cents, having shot higher for 12 of the past 13 trading days.

Analysts credit Canada`s faster-than-anticipated recovery that has included earlier job creation than in other countries, the Harper government`s pledge to wipe out most of the country`s budget deficit within five years, firm commodity prices and expectations that the Bank of Canada will raise borrowing costs before the U.S. Federal Reserve, which pledged again Tuesday to hold its benchmark rate near zero for an "extended period."

Some economists believe the dollar will hover at or close to parity for the foreseeable future, what David Watt, senior currency strategist at RBC Dominion Securities, said could be the "new normal."

Read the full article here.

 

[Ally]

Bank of Canada ignores Fed at its peril

There is some expectation that the U.S. Federal Reserve`s policy-making committee will drop or change the words "exceptionally low" and "extended period" when it issues today`s statement on interest rates.

My hunch is that the Fed will do the right thing and refrain from making significant changes to its wording - the recovery is still far too fragile and reliant on government-applied steroids. It would be a mistake, in my view, to prep the markets for an early rate hike. Of course, that didn`t stop the Bank of Canada from doing that very thing in its last statement.

With barely more than three months left before the apparent expiry date on a policy that had been in place for almost a year, it was time for Canada`s central bank to either brace the markets for the possibility of a no-move beyond June or start ratifying what investors have been discounting for some time now.

The bank chose the latter, and this means that we have to pay heed - the odds of higher short-term rates (not good news for domestic retailers), a flatter yield curve (not good news for banks) and a stronger loonie (not good news for exporters) ahead have taken a giant leap forward.

But consider for a moment: The Bank of Canada has never successfully embarked on a tightening course in advance of the Fed.

Read the full article here.

 

[Ally]

Foreign demand for bonds cuts Ottawa some slack on finances

Fierce demand for Canadian bonds promises to hold down Ottawa`s borrowing costs and help the country finance years of expected deficits as global investors seek low-risk returns.

The scramble by foreign investors for federal and provincial debt comes as other governments, notably in Europe and the U.S., struggle to get out from under increasingly hefty obligations that are spooking global markets.

Foreigners bought a net $11.8-billion of Canadian stocks and bonds in January, according to a Statistics Canada report Thursday. That includes $10-billion of bonds, about two-thirds of which were issued by the federal government to finance spending aimed at boosting the economic recovery. It was the third straight month of huge purchases of Canadian securities by international investors, who in 2009 bought a total of $110-billion of Canadian securities including a record amount of bonds.

Demand is so high both from abroad and within Canada that money managers are "starved for product," said David Baskin of Toronto`s Baskin Financial Services. The attraction among investors to Canada could stay red-hot, he added, as long as it appears the Canadian dollar will gain or hold firm against other currencies.

Foreign investors in particular are eyeing Canada, though the country is not as dependent on investment from abroad to meet its financing needs as other nations are. In the United States, almost half the bonds available to non-government investors are held by people in other countries, such as China and Japan.

Read the full article here.

 

[Ally]

Offshore investors respond to Northern Tiger`s roar

The Northern Tiger is back, as a Canadian economic recovery more rapid and vibrant than forecast increasingly wins favour with offshore investors.

That term was coined by then-federal finance minister John Manley during the most recent Canadian boom, the likes of which most experts thought we wouldn`t see again for many years after the devastating global economic meltdown of 2008-09.

Yet improbably, given continued Canadian export reliance on a weak U.S. economy, Canada is already on the mend. Canada has posted job gains in five of the past seven months. The loonie has soared to a 20-month high and is expected to break through its 2007 record of $1.10 (U.S.) this summer.

And in this next period of Canadian prosperity, there`ll be no need for Canada-boosters such as Manley to tout Canada`s favourable conditions to foreign investors.

Canada`s attractive record in job creation, GDP growth and comparative fiscal strength is well known to foreign institutional investors and central banks, which have been snapping up the loonie, federal and provincial bonds and Canadian corporate debt securities.

You could call it "Canada`s moment," a chapter in history that finds the Canadian economy outperforming expectations while major foreign economies are in distress.

Read the full article here.

 

[Ally]

High Canadian dollar gives Mark Carney wiggle room

Bank of Canada Governor Mark Carney won`t be losing sleep over the Canadian dollar`s latest rush toward parity with the U.S. dollar as he charts a steady course toward interest rate hikes later this year.

In contrast to the central bank`s alarm a few months ago when the Canadian dollar (CAD/USD-I0.98-0.002-0.19%) shot up sharply and markets speculated at some form of intervention, the bank can be more sanguine now, even though the currency has appreciated 6 per cent in less than six weeks to near 20-month highs.

Mr. Carney looks able to comfortably keep his promise to hold interest rate at an all-time low of 0.25 per cent until the end of June, provided inflation stays tame.

Market players had begun to price in an earlier rate hike as the economy heated up fast after the recession. The very prospect of Canada raising borrowing costs ahead of the United States lured in foreign investors and bolstered the currency, which was already riding high on commodity prices.

But analysts said the strong currency could have the same effect as a rate hike and dampen inflation.

Read the full article here.

 

[Ally]

Days of rock-bottom interest rates are numbered

The clock is ticking on Canada`s record-low borrowing costs, as inflation continues to move at a faster rate than the central bank had expected.

The hot reading on inflation issued by Statistics Canada Friday is raising expectations that the Bank of Canada could lift interest rates as early as June.

Economists, meanwhile, rushed to boost their growth forecasts as the country`s economic rebound gathers steam.

The inflation figures, along with a report that showed retailers are benefiting from higher prices, pushed the Canadian dollar well past 99 U.S. cents Friday morning, before it fell back to close at 98.39 U.S. cents.

Consumer prices climbed 1.6 per cent in February, a slower pace than the 1.9 per cent in the previous month, according to Statscan. But the core rate – which strips out volatile items such as fuel – rose to 2.1 per cent from 2 per cent.

The Bank of Canada is guided by the core rate. Policy makers hadn`t expected the core rate to reach the central bank`s 2-per-cent target until the third quarter of 2011.

Read the full article here.

 

[Ally]

CREA fails to go far enough: watchdog

TORONTO -- The Competition Bureau vowed to continue its fight with the Canadian Real Estate Association even after the industry group unanimously voted in Ottawa Thursday to overhaul its rules.

"There is nothing in these proposals that we haven`t seen before and they do not solve the problem," said Melanie Aitken, the competition commissioner. "They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences."

The two sides have been battling over access to the Multiple Listing Service system, which is owned in Canada by CREA and responsible for about 90% of residential property sales.

The watchdog says the association`s new measures do not go far enough, although they ultimately give consumers some ability to decide how much they use a realtor on a deal and allow consumers to conduct parts of a transaction without using a realtor.

"The amendments do not remove the existing roadblocks to real estate agents who list properties on the MLS from offering innovative services and pricing options to consumers," the bureau said.

A key sticking point in the negotiations, which was included in what was passed in Ottawa, was a stipulation allowing local boards to install their own set of regulations on realtors.

Read the full article here.

 

[Ally]

Competition Bureau Responds to Revised Real Estate Rules

OTTAWA, March 22, 2010 – The Competition Bureau said today that it will continue with its challenge to anti-competitive rules imposed by the Canadian Real Estate Association (CREA).

CREA members voted today to amend rules to the Multiple Listing Service (MLS) that will protect CREA`s ability to impose and enforce anti-competitive rules that deny consumer choice and stifle competition. The amendments do not remove the existing roadblocks to real estate agents who list properties on the MLS from offering innovative services and pricing options to consumers.

“There is nothing in these proposals that we haven`t seen before and they do not solve the problem,” said Melanie Aitken, Commissisoner of Competition, “They are a step in the wrong direction. These amendments amount to a blank cheque allowing CREA and its members to create rules that could have even greater anti-competitive consequences.”

In February, the Competition Bureau filed a challenge to CREA`s rules regarding the use of the MLS. The Bureau has concluded that these rules restrict the ability of consumers to choose the real estate services they want, forcing them to pay for services they do not need. The rules also prevent real estate agents from offering more innovative service and pricing options to consumers.

"We have repeatedly advised CREA`s leadership that these amendments do not solve our ongoing competition concerns and I reiterated this directly to CREA as recently as last week in a letter to the President," the Commissioner said.

For more information, please consult the Bureau news release <http://competitionbureau.gc.ca/eic/site/cb.../eng/03196.html>. A copy of the Bureau&#96;s application is available on the Competition Tribunal Web site <http://www.ct-tc.gc.ca/Home.asp>.

The Competition Bureau is an independent law enforcement agency that contributes to the prosperity of Canadians by protecting and promoting competitive markets and enabling informed consumer choice.

 

[Ally]

Higher interest rates could be coming sooner, says Bank of Canada governor

OTTAWA - Bank of Canada governor Mark Carney gave his most explicit warning to date that higher interest rates are coming, and perhaps sooner and higher than previously thought.

The bank governor has always maintained that his promise to keep interest rates at historic lows was contingent on inflation remaining tame, but Wednesday issued a clear alarm that he is worried about prices.

And in a speech before the Ottawa Economic Association, he underlined just how qualified his commitment to keeping the policy rate at 0.25 until at least July has become.

"This commitment is expressly conditional on the outlook for inflation," he stressed.

Carney also noted that core inflation, the measure the bank uses to judge underlying price pressures, has been "slightly firmer" than projected.

Last week`s Statistics Canada report that core inflation - which excludes volatile items such as energy - had peeked above the bank`s two-per-cent target to 2.1 in February likely was the last piece of evidence Carney needed to start publicly worrying about inflation.

Read the full article here.

 

[Ally]

Door open to interest rate hike

OTTAWA -- Canadians could face higher interest rates within the next few months, Bay Street economists said Wednesday after Bank of Canada Governor Mark Carney said inflation is "slightly firmer" than expected and that the promise to hold rates at record lows until July was only conditional.

Mr. Carney`s comments during an Ottawa luncheon speech — in particular how he emphasized, against a backdrop of improving economic conditions, that his rate commitment was "expressly conditional" — led analysts to revisit their rate outlook, and pencil in the possibility of a move as soon as June.

The central bank`s next rate announcement is April 20, followed two days later by its updated economic forecast. After that, there are rate announcements June 1 and then July 20.

The consensus among private-sector economists was for the central bank to honour its pledge and begin rate hikes in July. Now, some aren`t sure. Bond traders, meanwhile, Wednesday pushed up yields on two-year notes in anticipation of rate hikes in the coming months.

The governor`s remarks "failed to quell the market`s speculation that a June rate hike may be in the cards," said Eric Lascelles, chief economics and rates strategist at TD Securities. "In fact, [Carney] goes to quite some length to emphasize the conditionality of the commitment not to raise rates before mid-2010, damning it with faint praise."

Read the full article here.

 

[Ally]

Loonie pares losses after BoC speech

TORONTO -- The Canadian dollar fell on Wednesday in a general shift out of risky assets in favour of the U.S. dollar, but it cut losses after a speech by Bank of Canada Governor Mark Carney was perceived as slightly more hawkish on raising interest rates.

Pressured by lower oil and equity prices as well as heightened investor worries about sovereign debt in Greece, Portugal and others, the Canadian dollar dropped as low as C$1.0282 to the U.S. dollar, or 97.26 U.S. cents, its lowest point in two weeks.

It pared losses as Mr. Carney said the bank is monitoring firm inflation numbers, and said that higher than expected consumer prices in Canada have been the result of both transitory factors and underlying economic strength. He also put extra emphasis on the conditionality of the bank`s commitment to current ultra-low rates in language not used before.

In a news conference after his speech, however, Mr. Carney appeared to seek to dampen any market expectations that he would raise borrowing costs as early as June.

"Fundamentally nothing has changed for Canada. It continues to be a coveted currency and Carney`s comments today didn`t really change any attitudes towards Canada," said Jack Spitz, managing director of foreign exchange at National Bank Financial.

Read the full article here.

 

[Ally]

Text of the Bank of Canada Governor`s speech

Following is the text of a speech given by Bank of Canada Governor Mark Carney on Wednesday:

The Virtue of Productivity in a Wicked World

It is either brave or foolhardy of the Ottawa Economics Association to organize another conference around Canada`s perennial challenges of demographics, productivity, and potential growth. The cognoscenti wearily deride these shortcomings even while they acknowledge their importance. After all, who really wants to talk about getting old? Similarly, the subject of productivity is described as too dull, or worse, too threatening for Canadians. It is said to imply working harder, not smarter, or to promote job losses rather than income gains. These debates are thus thought best confined to the policy wonks, in order that our diagnoses and prescriptions can occur in a parallel, forgotten universe. However, one wonders, who would not want to be productive in their work? Is there a child whom we do not want to reach his or her full potential? Could what Canadians expect of their economy be so very different from what they expect of themselves? Our ambitions for the Canadian economy should be bold. We are a country of immense strengths and, as demonstrated during the recent crisis, considerable resilience. Yet Canada does underperform. We are not as productive as we could be. Our potential growth is slowing. Moreover, this is occurring as the very nature of the global economy, in which we previously thrived, is under threat. This debate can no longer be avoided. What, then, must be done? There are two imperatives-one domestic, one international-to secure strong, sustainable, and balanced economic growth for Canada. Both recall Aesop`s fable of the ant and the grasshopper, the moral of which can be best summed up as "idleness brings want." In short, in a wicked world, Canada needs productive virtue.

Read the full article here.

 

[Ally]

Royal, TD raise mortgage rates in sign era of historically low rates ending

TORONTO - Two of Canada`s biggest banks are increasing some of their residential mortgage rates effective Tuesday in the latest sign that the era of historically low rates could soon come to an end.

The changes affect closed mortgages with terms of three, four and five years at RBC Royal Bank (TSX:RY) and TD Canada Trust (TSX:TD). Rates for mid-term mortgages like these tend to reflect the banks` borrowing costs on bond markets.

The biggest increase announced Monday affects five-year mortgages. Both banks are hiking their posted rate by six-tenths of a per cent to 5.85 per cent from 5.25 per cent.

A homeowner taking on a mortgage of $250,000 at the new rate of 5.85 per cent over a 25-year amortization period would pay $1,577 per month. Prior to Tuesday`s hike, that mortgage would have cost $1489 a month, or $88 less.

The Bank of Canada is expected to begin raising lending rates this summer as it moves to fight growing inflationary pressures in the economy. The bank has kept its key overnight rate at a historic low of 0.25 per cent for more than a year to help stimulate the economy.

CIBC (TSX:CM) chief economist Avery Shenfeld said the central bank begins to step on the brake when it sees overheating in the economy, and economic growth in the first quarter has outperformed the central bank`s forecast.

CIBC has lifted its own growth outlook for the first quarter of the year to over five per cent, due to strong indicators of recovery.

Read the full article here.

 

[Ally]

U.S. Home sales dip in February, credit-related surge eyed

WASHINGTON -- Sales of previously owned U.S. homes fell for a third straight month in February and the supply of unsold houses on the market surged, showing the housing market was struggling to find its feet.

Existing home sales dipped 0.6% month-over-month to an annual rate of 5.02 million units, the National Association of Realtors said on Tuesday. The drop last month was a touch less than market expectations for a fall to 5.0 million units.

The data showed weakness at a crucial time for the housing market with the Federal Reserve due to wind-up its program to buy mortgage-related securities. The program pushed home loan rates to record lows and helped the market slowly recover from a three-year slump.

Analysts were disturbed by the first rise in inventories in seven months and the jump in the months` supply to its highest level since August.

"It says to me not to expect significant price gains in the near term. We are looking at flat house prices this year on average, not every month, part of it is this overhang of supply," said Craig Thomas, senior economist at PNC Financial Services in Pittsburgh.

Read the full article here.

 

[Ally]

More Canadian banks raise mortgage rates

OTTAWA — The Bank of Nova Scotia has joined the parade of Canadian banks raising mortgage rates, saying late Tuesday that it would match increases announced by CIBC and National Bank earlier in the day.

Scotiabank announced its five-year, fixed-rate closed-term mortgage rate would rise by 60 basis points to 5.85%, matching the rate increase posted on Tuesday by CIBC, National Bank, and on Monday by Royal Bank of Canada, Toronto-Dominion Bank and Laurentian Bank.

Scotiabank is raising its four-year closed-term mortgage by 40 basis points to 5.34%, which is also in line with the other banks, but a 20 basis point increase to its three-year closed-term mortgage brings that rate to 4.5%, higher than the five other banks, but lower than the 4.7% offered by Canada Trust.

As with the increases announced Tuesday by CIBC and National Bank, Scotiabank`s mortgage rate increase will take effect Wednesday.

Meanwhile, National Bank, which lowered its five- and four-year fixed rates earlier this month, announced Tuesday that it would raise its five-year variable-rate, closed-term mortgage to 5.85%.

On Monday, the Royal Bank of Canada, Toronto-Dominion Bank and Laurentian Bank all raised their benchmark five-year mortgage rate by 60 basis points to 5.85%, effective Tuesday.

Read the full article here.

 

[Ally]

Our unstoppable housing market may have met its match

Canada`s unstoppable housing market faces a challenge. To stay unstoppable, it needs mortgage rates to remain low and affordable. But to keep setting new sales records, it also needs more people to land more jobs so they can afford to buy more homes.

The problem is it`s next to impossible for the economy to produce both these happy outcomes. Interest rates usually stay low only if unemployment remains high. Once jobless numbers start falling, mortgage rates typically shoot upward. Hoping for both low interest rates and lots of jobs is like a farmer praying for both dazzling sun and buckets of rain.

Whatever happens over the months ahead, the real estate market will face resistance from either higher rates or continued unemployment. If you`ve been betting on continued strong increases in home prices, it may be time to take a moment and ponder what you would do if home prices went sideways for a while - perhaps for a very long while.

A sign of what is in store came Monday, when Royal Bank of Canada and Toronto-Dominion Bank announced that they were raising interest rates on some fixed-rate mortgages. The hikes are small -- the equivalent of an extra $70 a month on a $200,000 five-year fixed mortgage -- but they look to be the first move toward more painful increases.

You can blame the pain on the surprising strength of Canada`s economic recovery, which has removed the case for keeping the bank rate at the lowest levels in Canadian history. Mark Carney, the governor of the Bank of Canada, is expected to start raising rates this summer.

Read the full article here.

 

[Ally]

Affordable Housing in Canada a struggle

Twenty per cent of Canadian households have trouble finding the money to live in their homes because of a lack of affordable housing, the Conference Board of Canada says.

In a study released Tuesday, the think-tank estimates 75 per cent of Canadian families can comfortably afford their homes — meaning that housing costs consume no more than 30 per cent of their pre-tax incomes.

Another five per cent live in subsidized rental housing. That leaves 20 per cent struggling with mortgage or rent payments that eat up more than 30 per cent of their incomes.

For that 20 per cent, it means making sacrifices in other areas, such as buying less food. As a result, the Conference Board says health suffers, productivity and competitiveness are reduced and the cost of health care and welfare is indirectly increased.

The report found that private-sector developers have tended to focus on building homes that are aimed at higher income Canadians. That leaves a wide swath of the market underserved.

But it is the private sector that has the efficiency and expertise in innovation that can best help to close the housing affordability gap.

Read the full article here.

 

[Ally]

Mortgage brokers taking a closer look at who is buying

The Bank of Canada warned in late 2009 up to 10 per cent of Canadian homeowners might be in danger of losing their homes when interest rates started to rise from today`s historic lows.

Is Canada heading down the same path as our neighbours to the south? Are we looking at a mortgage meltdown somewhere down the road? The answer from mortgage lenders and brokers is short and unequivocal: No.

A very small percentage of borrowers might be in danger, they say. But these are likely people who borrowed at rock bottom rates in the 18 months leading up to the start of the global recession in 2008.

"Two years ago, lenders were much more liberal when it came to qualifying people for mortgages," says Paul Grewal, president of lender Street Capital Financial Corp. "Then if you had a solid credit score and appeared to have the income to make the payments, any lender would take you on.

"Today the lending rules are very different."

Read the full article here.