March 2010

[Ally]

China to lead oil demand growth as OECD struggles

HOUSTON - China`s hunger for oil is set to drive global demand in the coming years as consumption in industrialized countries may not regain pre-economic crisis levels, experts say.

"Chinese demand will continue to grow at a relatively high rate," said Kefeng Yang of research firm IHS CERA, the organizer of an energy conference this week in Houston in the heart of the U.S. oil industry.

The U.S. Energy Information Administration (EIA), a government agency, projects Chinese demand for oil will rise more than five per cent in 2010 and 2011, when consumption is expected to top nine million barrels a day — still only half as much as U.S. demand.

But in the United States, the world`s largest energy consumer, and other industrialized economies, demand remains weak amid a fragile recovery from the worst global economic slump since the Second World War.

Some experts said that with the changing shape of globalization, demand in the advanced economies may not recover to pre-crisis strengths.

Read the full article here.

 

[Ally]

Canada`s economy to expand by 3.1% in 2010: RBC

OTTAWA — After surging back to life with an annualized GDP of five per cent in the fourth quarter of 2009, all signs are pointing to Canada`s economy growing another 3.1 per cent in 2010, according to an RBC Economics report released Thursday.

"An economic recovery is solidly taking root in Canada with the full impact of stimulus spending, historically low interest rates and improved credit markets all taking effect this year," Craig Wright, senior vice-president and chief economist at RBC, wrote in the report.

Unemployment rates are expected to average 8.4 per cent in 2010 before falling to 7.7 per cent in 2011. Consumer spending is expected to expand in both 2010 and 2011 by 2.8 per cent. Business investment is set to rise by more than seven per cent. "This should result in Canada`s GDP expanding by an even greater 3.9 per cent in 2011," according to the report.

According to the report, economic growth in 2010 will be boosted by gains in Newfoundland and Labrador (4.1 per cent), Saskatchewan (3.6 per cent), B.C. (3.4 per cent) and Ontario (3.3 per cent). Growth in Alberta will rise only 2.5 per cent this year, but strengthen to 4.4 per cent in 2011.

The unexpectedly strong growth in the fourth quarter of 2009 reported last week has prompted traders to conclude the Bank of Canada will soon raise interest rates to keep the economy from overheating, sending Canada`s dollar surging against the U.S. greenback. Early Thursday, the Canadian dollar was at 97.44 cents U.S., flirting with highs seen five months ago.

Read the full article here.

 

[Ally]

Home resales decline in February, with the biggest drop in Vancouver

OTTAWA — Home resales in Canada fell in February from the previous month, with the biggest drop recorded in Vancouver, the Canadian Real Estate Association said Monday.

The February declined in Vancouver was offset by "an equally large gain" in Toronto, CREA said.

The industry group said 42,799 units sold on a seasonally adjusted basis in February, down 1.5 per cent from the previous month, reflecting how "national sales activity has slowed while new listings continue to rise, resulting in a more balanced national resale housing market."

Meanwhile, the average resales price of homes rose 18.2 per cent in February from a year earlier to $335,655, it said.

"The Olympic Winter Games may have impacted February sales activity in British Columbia, so activity for the province in March will be closely watched," said CREA president Dale Ripplinger.

"Activity is expected to remain elevated in Ontario and British Columbia over the first half of the year, with buyers looking to beat the introduction of the HST (harmonized sales tax) and expected interest rate hikes."

Read the full article here.

 

[Ally]

Consumer index back to normal: TD Economist

Canada`s consumer price index -- thrown out of whack by the economic downturn -- may have fallen back in line in February, reflecting the country`s "true state of affairs."

The consensus among economists is that Friday`s inflation report will show that overall annual inflation rate fell to 1.4% last month, and that the core rate -- which strips out volatile items such as energy and food -- dropped to 1.6%. In January, headline inflation was 1.9% and core inflation was at 2%.

Eric Lascelles, chief economics and rates strategist with TD Securities, said this is not necessarily indicative of weaker inflation trends, but a result of a higher comparison base.

He pointed out that in February 2009, there were exceptionally strong month-to-month price gains. The economy had fallen off the rails in late 2008, which had a chilling effect on inflation for a few months. That February marked a return to more normal pricing, Mr. Lascelles said.

"I would say that [this February`s] annual [inflation] figure will be much more representative of the true state of affairs for Canada," he said.

Read the full article here.

 

[Ally]

Interest-rate hike in July, investors bet

Investors are betting Mark Carney, the Bank of Canada governor, will move earlier than previously thought to raise borrowing costs, pushing rates on derivatives linked to monetary policy to the highest in more than a year.

The bank kept its key policy rate at 0.25% on March 2 and repeated it won`t raise rates before July unless the "current" inflation outlook shifts. The employment report, which showed the economy created 20,900 jobs in February, as well as data on faster-than-expected growth and inflation released over the past month, all signal a quickening recovery.

The one-year overnight index swap rate, a security based on what investors expect the central bank`s rate will average over that period, advanced four basis points, or 5.8%, to 0.7250 on March 12, after a better-than-expected jobs report last week solidified bets for the first central bank move in July.

"It`s all reflective of the mentality that the bank will be raising rates after the conditional commitment expires," said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce.

The employment report "is one more piece of evidence" that the central bank will have to raise its rate in July, said Roger Quick, a fixed-income strategist with Scotia Capital.

Elsewhere in credit markets, the three-month Canadian dealer offered rate, or CDOR, a proxy for the cost of bank funding over that period, climbed to 0.470% on March 12, the highest since April 21, the day Mr. Carney cut the bank`s overnight rate to a record-low 0.25% and pledged to leave it there for a year depending on inflation.

Read the full article here.

 

[Ally]

CIBC upgrades Canadian economic forecast

CIBC World Markets upgraded on Monday its 2010 economic-growth projections for Canada to 2.7 per cent from 2.3 per cent. This follows the recent release of data that showed GDP surged five per cent on an annualized basis in the final three months of 2009.

Read the full article here.

 

[Ally]

Provincial Real GDP Forecast

Click here to see the stats

 

[Ally]

Rise in housing starts will keep lid on prices in 2010: CMHC

OTTAWA -- Housing starts will rise in 2010, putting a lid on home prices this year following their 19 per cent surge in 2009, the Canada Mortgage and Housing Corporation said Tuesday.

Between 152,000 to 189,300 housing starts are expected in 2010, up from 149,081 units last year, the national housing agency said.

Describing the current state of affairs as a sellers` market, CMHC said the relative lack of new listings for existing homes has pushed some of the demand into the new home market, which helps explain the forecast for higher housing starts activity in 2010," CMHC said.

But it added that it expects prices to remain stable in 2010 around the Multiple Listing Service average reached in January this year of $328,537, as the new housing stock brings balance back to the market.

As well, tighter requirements for mortgage lending recently imposed by Ottawa as fears of a housing bubble mounted "will help moderate housing activity as some potential buyers will have to save a larger down payment or consider a less expensive home," said CMHC chief economist Bob Dugan.

Read the full article here.

 

[Ally]

Canada housing starts jump 6.1% in February, driven by Ontario numbers

OTTAWA — New home construction rose to almost 200,000 units in February, a light at the end of the tunnel for buyers seeking relief from a red-hot sellers` market, analysts say.

Canada Mortgage and Housing Corporation reported Monday that housing starts climbed 6.1 per cent in February to a seasonally adjusted 196,700 units, the highest level since October 2008, driven largely by a spike in Ontario, where starts soared 28.6 per cent from the month before.

Home builders in Ontario and British Columbia, are racing to put supply on the market before the harmonized sales tax kicks in on July 1, said economist Pascal Gauthier, of TD Economics.

Added pressure is coming from buyers concerned about tighter qualifying standards on mortgages, which take effect April 19, and higher borrowing costs expected in the second half of the year.

But February`s housing starts show that supply is finally firming up at the same time that demand is poised to ease, Gauthier said.

Read the full article here.

 

[Ally]

Housing affordability slipped in late 2009: RBC

OTTAWA — The cost of owning a home increased slightly in the final quarter of 2009, according to an RBC report on housing affordability released Monday.

"While home affordability deteriorated at the national level in the fourth quarter of 2009, the change was relatively modest overall," Robert Hogue, senior economist at RBC said in the release. "The effect of higher prices was largely mitigated by a small decline in mortgage rates and continued gains in household income."

The RBC Housing Affordability study measure represents the proportion of pre-tax household income needed to service the costs of owning a home; the higher the measure, the more difficult it is to afford a home. For example, an affordability reading of 50 per cent means that home ownership costs, including mortgage payments, utilities and property taxes, take up 50 per cent of a typical household`s monthly pre-tax income.

Nationally, the detached bungalow benchmark inched 0.3 per cent higher to 40.6 per cent, the standard townhouse rose by 0.2 percentage points to 32.9 per cent, the standard condominium climbed by 0.1 per cent up to 28 per cent and the standard two-storey home increased by 0.3 percentage points to 46.7 per cent. "Despite the recent increase, all affordability measures remain well below their levels from a year ago," the report said.

For the average price of a detached bungalow, Vancouver was the least affordable at 69 per cent (up 1.4 percentage points), Toronto was at 49.1 per cent (up 0.1 percentage point) and Ottawa was the third least affordable at 40.4 per cent (down 0.3 percentage points). Next was Montreal at 39.1 per cent (up 0.9 percentage points), then Calgary 37.1 per cent (up 0.1 percentage point) and Edmonton at 32.9 per cent (down 0.4 percentage points).

Read the full article here.

 

[Ally]

Canada`s hot housing market now cooling off

OTTAWA — The once red-hot housing market — which several observers warned last month was in danger of turning into a bubble — is showing signs of losing steam as new listings climb and affordability begins to tighten, data released Monday indicate.

Concern that real estate prices were entering dangerous territory — spurred by record-low interest rates — prompted the federal government to introduce new rules last month governing mortgage eligibility, intended to target "reckless" speculators. The rules are set to kick in April 19, but it appeared a cool-down in real estate activity has already begun, data from the Canadian Real Estate Association suggested.

Sales of existing homes declined for a second straight month, with a 1.5 per cent month-over-month drop in February on a seasonally adjusted basis. This followed a 3.8 per cent decrease recorded in January. A heavy drop in British Columbia, which coincided with the Winter Olympics in Vancouver and Whistler, was partly offset by a robust activity in Toronto.

Meanwhile, the number of new listings — an indication that homeowners are looking to capitalize on demand — climbed 2.4 per cent, marking the fifth straight month that housing supply grew. The amount of housing inventory in February stood at 5.2 months, well below where it was a year ago, at 8.8 months, but on par with 2008 levels.

"Headline price increases are drawing new supply to the market, and so that`s taking some steam out of the market," said Gregory Klump, CREA`s chief economist.

Read the full article here.

 

[Ally]

Devon Energy Corp and BP team up on oil sands revival

U.S.-based Devon Energy Corp. (DVN-N67.59-1.14-1.66%) is deepening its commitment to the resurgent oil sands sector, bringing its operating know-how to a joint venture with giant BP PLC (BP-N57.080.500.88%) to develop the British multinational`s long-dormant Kirby project.

The oil sands venture is part of a $7-billion (U.S.) deal in which Devon is selling its international and offshore oil assets to BP, while spending $500-million (U.S.) to buy a half-stake in the promising Kirby acreage, which is thought to contain up to 1.5 billion barrels of accessible bitumen.

Devon is currently doubling the capacity of its 30,000-barrel-a-day Jackfish property, and has another expansion planned for the coming years. It boasts that Jackfish is one of the industry`s lowest-cost projects, using steam-assisted gravity drainage (SAGD) technology to recover the bitumen from underground.

"Given our extensive knowledge of the area, and our view of the potential of the Kirby leases, it`s an asset we`ve been interested in for some time," David Hager, Devon`s vice-president exploration and production, said Thursday. "So we view this as an exciting opportunity."

Oil sector analysts say the deal makes sense for both companies.

Read the full article here.

 

[Ally]

Alberta cuts royalties to lure investors back

The Alberta government is rolling back a royalty regime loathed by the province`s all-important energy industry, in a bid to revive its political fortunes and lure oil and gas investment back into the province.

After months of feeling the wrath of an industry chafing under a year-old royalty hike intended to give Albertans a greater share of windfall profits, Premier Ed Stelmach`s government is now reversing course and almost completely abandoning the increases.

It is slashing the highest royalty rates – those designed to kick in only when energy prices are high and profits are surging – on oil and gas wells.

The province is also moving to cut industry red tape, promising a new report to speed regulatory processes within 90 days.

It is a dramatic reversal from a premier who just two years ago trumpeted the need to deliver Albertans a "fair share" of oil and gas profits that were pouring in as crude-oil prices soared into the triple digits.

But by the time the royalty hike came into effect on Jan. 1, 2009, the world was suffering through a financial and economic crisis, and crude prices were tumbling toward $35 (U.S.) a barrel. Drilling rigs went idle and energy projects and deals went cold, while an eagerness for higher royalties had been replaced by concern for the survival of Alberta`s bedrock industry.

Read the full article here.

 

[Ally]

Will oil hit $200 a barrel after all?

What ever happened to $200-a-barrel oil?

Maybe it`s just been delayed in transit. A recession in the world`s developed economies can do that.

Remember Arjun Murti`s time in the sun when, in May 2008, the analyst at Goldman Sachs predicted that oil would soon hit $200 a barrel? A number of other prognosticators weren`t far behind. T. Boone Pickens predicted in 2008 that oil would hit $150 before the year was out. Some guy named Jim Jubak in April 2008 called for $180 a barrel within two years.

In case you haven`t noticed, all of us were wrong. Oil peaked at $147 a barrel in summer 2008 and then plunged to $35 a barrel by June 2009.

Let me rephrase that: We weren`t wrong; we were early. (All financial fortune-tellers are told over and over again in their training at the Frogwarts School for Financial Wizards that you never, never, never forecast both a price and a date. One or the other. Never both.)

Read the full article here.

 

[Ally]

New Mortgage rules leave homebuyers confused

Frank and Susan Williams bought a house near Hamilton, Ont., this month, they followed a time-honoured tradition of using leveraged financing.

With mortgage insurance they only had to put down 5% of the $270,000 purchase price. They went with a closed variable rate at 2.25% and amortized the loan over 35 years. The deal was initiated with a mortgage broker, with Bank of Nova Scotia providing the financing.

"It`s a three-bedroom bungalow. That was attractive to us. We have a dog and we like to do things in the backyard. We did not have the type of money we thought we`d have to put into a house. We said let`s just bite the bullet and get this over with," Ms. Williams says.

And getting it over with was probably a good idea. First, they were in a rent-to-own arrangement and had to exercise their option to buy before August 2010. And second, based on pending federal rules for government-backed insured mortgages that come into effect on April 19, the Williams (not their real name) would probably not have qualified for the variable-rate mortgage. In fact, as recent arrivals from the United States and its housing crisis, their credit history might not have passed any stress test.

"We really came from the United States with nothing. Everything we had disappeared with the housing crisis. In areas that had bad loans all the houses just hit bottom. We were expecting US$250,000 out of our house but we got nothing," Ms. Williams says. They walked away from the whole mess.

Read the full article here.

 

[Ally]

Wholesale sales rise at the fastest rate in 3 years

OTTAWA - Wholesale trade surged 3% in January to $44.4-billion, the biggest increase in three years, with autos leading gains in every major category, Statistics Canada reported Wednesday.

The monthly totals far outstripped analysts` projections of a 0.5% gain on the month.

Sales in automotive products advanced for the fourth straight month, up 4.8% to $7.8-billion over the month before.

All seven categories covered in the report advanced.

Four, including autos, accounted for 80% of the gains, the federal agency said. Wholesale sales of building materials rose 4.2% to $6-billion, coinciding with an increase in housing starts. Machinery and electronic equipment rose 2.6% to $9-billion, and "other products" gained 4.1% to $5.5-billion, largely as a result of a surge in agricultural chemicals.

Read the full article here.

 

[Ally]

Canada factory sales jump 2.4% in January

OTTAWA -- Manufacturing sales rose much more than expected in January, led by primary metals, and petroleum and coal products.

Statistics Canada reported Tuesday that sales were up 2.4% during the month to $44.6-billion, marking the fifth straight monthly gain.

Most economists had expected sales to rise by between 0.5% and 0.6% during the month.

Seventeen of 21 industries reporting higher sales in January, with strong gains in British Columbia, Quebec and Ontario.

Read the full article here.

 

[Ally]

Surge to parity transforming economy

MONTREAL - The era of fearing Canada`s high-flying loonie might finally be passed.

Trading at US98.62¢, the dollar is now the closest it`s been to one-on-one status with the U.S. greenback since July 2008. And Jim Flaherty, Canada`s Finance Minister, isn`t flinching.

"We see where it`s at now and it`s competitive," Mr. Flaherty said of the currency`s impact on the Canadian economy in an interview on Bloomberg Television. The economy could be at risk if the loonie rose to an uncompetitive level but that is not expected to happen, the Minister said.

There was a time not so long ago that a loonie edging closer to parity with the U.S. dollar would trigger hoots of outrage from business leaders and federal opposition ranks alike, demanding the Canadian government do something to tame the bird or face ballooning welfare rolls and corporate bankruptcies. Just last summer, Mr. Flaherty himself expressed worry about the loonie`s quick rise.

But the country has now lived with a Canadian currency that has stayed above US90¢ for much of the past year after hitting a high of US$1.10 in 2007. And today, that indignation may be over amid a raft of data suggesting Canada`s economy is surging back to life.

Read the full article here.

 

[Ally]

Carney`s conundrum

It wasn`t so long ago that Bank of Canada governor Mark Carney warned about the dangers of "persistent strength" in the Canadian dollar, and left open the possibility of foreign-exchange intervention to cool the currency`s rise.

But that was when the recession`s impact was beginning to ebb, and the recovery was in its infant stages. Now, a string of indicators suggest Canadian economic growth is robust, and gaining strength. And in the United States, there`s even talk of consumers reaching into their pockets again to spend.

So, even though the dollar is roughly a cent away from parity with the U.S. currency, analysts say that won`t likely stop the Bank of Canada from raising rates starting this summer, once the conditional pledge to keep its benchmark rate at 0.25% expires in June. The market has anticipated as much, pushing up the loonie more than US3¢ after the central bank`s last interest-rate statement on March 2, in which it adapted a more hawkish tone.

"The Bank of Canada has had ample opportunity to talk the money markets out of pricing in a series of interest rate hikes beginning this summer," said David Rosenberg, chief economist at Gluskin Sheff + Associates Inc.

The strong Canadian dollar should remain a concern, he said, as it will keep a lid on price increases -- thereby potentially keeping inflation from hitting the central bank`s preferred 2% target--and dampen exporters` ability to sell their goods abroad.

Read the full article here.

 

[Ally]

Pine Beetle epidemic will have continent-wide economic impact: report

VANCOUVER — Interior sawmills will start running out of good timber within three to five years because of the mountain pine beetle epidemic according to a comprehensive report on the beetle`s economic impact.

The report by the International Wood Markets Group describes the beetle infestation as one of North America`s largest-ever natural environmental disasters. It will have a continent-wide economic impact, shutting an estimated 16 Interior sawmills and removing up to half of Canada`s share of the U.S. lumber market`

The pine beetle is expected to kill a billion cubic metres of B.C. timber and while an intense salvage program has been underway for 10 years, the end of sawlog quality wood is now in site, says the report.

"After some expected gains in the lumber markets between 2010 and 2013, the B.C. Interior lumber industry will need to begin reducing production and/or closing mills, and this impact on the U.S. market will soon be profound," Russell Taylor, President of Wood Markets Group said in a news release.

"Sawlog shortages caused by the mountain pine beetle could trigger the permanent closure of about 16 large primary sawmills and/or plywood production facilities within the B.C. Interior by 2018," said Jim Girvan, one of the study authors.

Read the full article here.