Paul Vieira, Financial Post Published: Friday, March 19, 2010
Reuters The consumer price data, combined with robust retail sales figures for January, has likely set off alarm bells for Bank of Canada Governor Mark Carney, left, and Senior Deputy Governor Paul Jenkins.
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 2% threshold in what analysts describe as a “nasty” surprise.
Statscan said consumer prices rose 1.6% year-over-year February, following a 1.9% increase in January. For the month, prices rose 0.4%. Market expectations were for a year-over-year rise of 1.4%.
Meanwhile, the core rate, which strips out volatile-priced items such as food and energy, advanced 2.1% year-over-year in February. It had rose 2% in January. Market expectations were for core inflation to decline, to 1.7% 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% 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.
Still, markets initially pushed up the value of the Canadian dollar, which was already flirting with parity, on the basis of a possible rate hike starting in June. The central bank sets its benchmark rate to achieve inflation of 2%, and so far inflation is ahead of the central bank’s expectations.
“Canadian consumer prices came in higher than expected in February, with a particularly nasty high-side surprise on core inflation — with an asterisk,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “While the bank will not overreact to the persistent high-side surprises just yet, rate hikes are coming up fast on the near-term horizon, with or without the U.S. Federal Reserve in tow.”
In trading Friday, the Canadian dollar surged well passed the 99 US cent mark, to as high as 99.30 US cents, before paring back most of the gains. As of 10:15 am ET, it was trading in the 98.80 US cents range. The dollar’s gain is based on rate hikes in Canada before the United States, which attracts investors looking for richer short-term yields.
Besides the inflation data, retails sales numbers for January also indicated that the economy is exceeding even the most bullish of expectations. Statscan said retail sales jumped a higher-than-expected 0.7% for the month. Analysts add that excluding automobiles, sales surged by a “towering” 1.8% in January – which was more than triple the consensus call and the biggest gain since November 2007. Part of the surge was attributed to homeowners buying building supplies just before the one-time home renovation tax credit expired.
The retail data, coupled with other strong indicators released this week such as manufacturing shipments and wholesale trade, prompted BMO Capital Markets to upgrade on Friday its first-quarter GDP growth forecast for the Canadian economy, to 4.7% annualized from its previous 3.7% expectation.
Michael Woolfolk, senior currency strategist at BNY Mellon in New York, said the inflation and retail data released Friday makes it a “foregone conclusion” that the Canadian dollar will reach parity, and likely trade above the US$1 mark. Further, he reckoned the Bank of Canada would likely tolerate gains in the Canadian dollar against the major currencies, of up to 5%, “before officials begin railing against undue currency volatility.”
In terms of headline inflation, gasoline prices exerted the most upward pressure in February, for a fourth consecutive month, as pump prices were 15.3% higher than they were in February 2009. Also affecting the inflation data was prices for travel accommodation, which rose 16% in February — although that was largely skewed due to the Winter Olympics in Vancouver.
Overall, six of the eight major components of the CPI recorded price increases in the 12 months to February, with the exceptions in housing, and clothing and footwear.
“[This] report must be turning heads at the Bank of Canada,” said economists Derek Holt and Karen Cordes Woods at Scotia Capital. “While the details are mixed on the underlying components, it is pretty difficult to argue that emergency rates in Canada [of 0.25%] are still warranted.”
Statscan said February’s increase in core inflation was due primarily to price increases for passenger vehicles, as well as for traveller services — which climbed a whopping 17.9% month-over-month, largely due to the Olympics.
In the Bank of Canada’s last economic outlook, tabled in January, it envisaged core inflation to average 1.6% in the first quarter and 1.7% in the second quarter.
Still, economists at TD Securities said the Olympic impact on the inflation data should be taken into account. “Don’t expect the Bank of Canada to lose sleep over this report, as one-off factors are well identified,” they said in a note to clients.
Found at http://www.nationalpost.com/news/story.html?id=2701613
Read more: http://www.nationalpost.com/news/story.html?id=2701613#ixzz0iwbFWEkO
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Vancouver Mortgage Broker Vancouver Mortgage Broker Vancouver Mortgage Broker Vancouver Mortgage
Here is some great stats about the ammount of people that use mortgage brokers. I think it is clearly an under used service and under-rated way to get your mortgage done.
Latest Mortgage Broker StatisticsCMHC says 27% of Canadians use mortgage brokers, according to their latest mortgage consumer survey.
This number differs, however, from a recent CIMBL survey–which pegs the number at 31%.
More amazing was the finding that only 43% of mortgage seekers “shopped for several proposals.” The fact that this was not closer to 100% means that tens of thousands of people overpaid for their mortgage in 2006. (There is little excuse not to utilize a mortgage broker to pit multiple lenders against each other for your benefit.)
CMHC also found that…
•71% of people refinanced before their mortgage term was up.
•The number of people using mortgage brokers to shop for mortgage renewals jumped from 8% to 13% this past year.
The National Post had a few words about CMHC’s survey as well. They noted that 81% of people renewed their mortgage with their existing lender. This was largely due to “convenience” (read laziness).
Moreover, many people seem to fear an onerous re-application process. That is a misconception since the renewal application process is actually a breeze if you let a mortgage broker do the legwork.
One of the major inroads for mortgage brokers in 2006 was with “refi’s.” According to the National post, 65% of people stayed with their current lender when refinancing in 2006. This fell sharply from 83% the prior year, as brokers steered more and more clients into lower cost alternatives.
Found at: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2007/02/latest_mortgage.html
The Canadian dollar (CAD/USD-I0.990.0050.49%) cracked the 99-cent U.S. mark Wednesday, inching ever closer to parity with the U.S. currency as traders bet on a strong Canadian recovery and continued fiscal prudence from the Harper government.
“Wayne Gretzky would be proud,” said Eric Lascelles, chief Canada macro strategist at TD Securities, referring to The Great One’s hockey jersey number.
The loonie, which climbed past 99 cents and then fell back slightly, has now shot higher in 12 of the last 13 trading days.
Economists credit the economy, Ottawa’s fiscal projection and firm commodity prices for the attractiveness of the loonie. Also at play are expectations in the markets that the Bank of Canada
will hike interest rates before the Federal Reserve, which pledged again Tuesday to hold its benchmark rate at its historic low near zero for an extended period.
The dollar is on its way to parity with the greenback, said Scotia Capital currency strategist Sacha Tihanyi, but just when that happens “depends on whether we get that speculative push.”
For businesses that must factor in costs, the dollar is effectively there, added Beata Caranci, director of economic forecasting for Toronto-Dominion Bank.
With parity in sight, the question now becomes whether it can last. When the dollar last eclipsed the U.S. currency a few years ago, it hit $1.10 (U.S.) in September, 2007, before tumbling back down and hovering around parity for around 10 months. It hasn’t hit parity since July, 2008. How long will it last this time?
Scotia Capital, for one, forecasts that the dollar will hit parity by June – the end of the second quarter this year, climbing to about $1.02 by the end of the third quarter, about $1.03 by the end of the year and about $1.05 by the end of 2011, assuming the U.S. economy rebounds robustly in the next two years and commodity prices remain firm.
“Certainly I think it’s a little more sustainable now than in the past,” Mr. Tihanyi said, though that depends on sustained foreign demand, particularly in the United States.
Canada’s “fundamentals” support that view, he said, citing stronger domestic demand in Canada, recovering exports, better employment prospects, the attractiveness of Canadian assets and a fiscal regime that is “the envy of the G7.”
Some other observers, while agreeing with the attractiveness of the economy and the world view of Canada, don’t believe parity can last beyond a matter of months.
“Parity is still a bridge too far, at least, to last,” said Mr. Lascelles of TD Securities , noting that oil prices (CL-FT82.781.081.32%) aren’t as high as in the past and, even if the Bank of Canada boosts rates before the Fed moves, it will not remain ahead for too long.
It’s a challenge to peg the fair value of a currency, Mr. Lascelles added. And based on purchasing power parity, “for prices to be equivalent between Canada and the U.S., 85 cents is your actual exchange rate, but in a world of imperfect trade, it’s quite possible for other factors to dominate, and that’s what’s happening right now.”
Ms. Caranci noted that the last time the dollar topped the greenback, the move hurt exports, in turn dampening economic growth prospects and knocking the currency down again. So, she added, parity this time around might last a couple of quarters, but likely not longer.
Krishen Rangasamy, an economist with CIBC World Markets Inc. in Toronto, said while the loonie is clearly rising now because of favourable economic conditions, his firm doesn’t see it reaching parity until September, or a couple of months after the Bank of Canada is expected to start raising interest rates.
That’s because, in the short term, the U.S. dollar could appreciate in early April if a Labor Department report indicates the employment picture is brightening.
“That could show the first addition of jobs in a long time, so the U.S. dollar could revert to its near-term appreciating trend, and other currencies including the Canadian dollar could lose some steam as a result,’’ Mr. Rangasamy said in an interview.
The loonie would then “hold firm’’ until “the Bank of Canada starts sounding a little bit more hawkish’’ about borrowing costs, he said.
The next interest-rate decision is scheduled for April 20, and Governor Mark Carney releases a new economic forecast two days later.
Once it hits parity, the currency won’t stay at that level for long because the U.S. economy will slip later this year, slowing Canada’s growth too, he said. Mr. Rangasamy said CIBC believes the loonie will finish the year around 97 cents U.S.
Meanwhile, David Watt, a senior currency strategist at RBC Dominion Securities, said the loonie won’t shoot much beyond parity, but once it reaches that plateau it will be there, more or less, for a long time.
“We don’t sort of see it blowing through parity and continuing to run, but we do see parity as a `new normal’ for the Canadian dollar,’’ Mr. Watt said in an interview. “We don’t necessarily see it surging to $1.10 like it did in September 2007, but we certainly see it lingering around parity for a longer period of time than it did back then.’’
When the U.S. Federal Reserve Board eventually starts to lift borrowing costs, the greenback will rally on a “short-term’’ basis, he said.
As for the loonie, “we think maybe later in 2010 it’ll be somewhat below parity, and then through 2010 we see the Canadian dollar as one of the top-performing currencies overall amongst the majors, so that leaves us lingering around parity through 2011 and probably after that,’’ Mr. Watt added.
Found at: http://www.theglobeandmail.com/report-on-business/economy/canadian-dollar-nears-parity-but-can-it-last/article1502963/
RPT-UPDATE 4-Canada posts firm job growth;
currency rallies
Fri Mar 12, 2010 11:00am EST
* Economy adds 21K jobs, jobless rate drops to 8.2 pct
* Most details show broad recovery in job market
* Weakness in private sector hiring, youth employment
* Data raises interest-rate hike expectations
* Flaherty calls report positive, downplays soft spots (Adds comments by finance minister, analyst)
By Louise Egan
OTTAWA, March 12 (Reuters) – Canada posted firmer than expected jobs growth in February, confirming economic recovery is taking hold and sending its currency to its highest level since July 2008 as interest-rate hike expectations rose.
Canada’s unemployment rate fell to 8.2 percent in February from 8.3 percent in January as 20,900 more people found work in the month, Statistics Canada said on Friday.
All the employment gains came from full-time jobs and the hard-hit manufacturing sector bounced back from January, when it lost nearly 16,000 jobs. However, the private sector overall shed workers in the month, and the public sector did most of the hiring.
Men aged 55 years or older filled vacancies, while the jobless rate for youth aged 15 to 24 was nearly twice the national average at 15.2 percent.
Commenting on the report, Finance Minister Jim Flaherty downplayed the weaknesses, calling the figures “positive” and proof the fragile economy was headed in the right direction. “A job is a job,” he told reporters in Toronto.
Although the net job gain was less than half the increase of 43,000 jobs in January, it helped boost the total of new jobs added in the economy to 159,000 since July 2009. That helped erase some of the 417,000 jobs lost between October 2008 and July.
Economists surveyed by Reuters had forecast 20,000 net jobs in February and an 8.3 percent unemployment rate.
“This report confirms that Canada’s labor market has healed and is starting to generate the jobs that will sustain the economic recovery going forward,” said Sal Guatieri, senior economist at BMO Capital Markets.
“There is more confidence that Canada’s economic recovery will be sustained than the U.S. recovery will be, given that the U.S. is still losing workers,” he said.
The Canadian dollar rose as high as C$1.0160, or 98.43 U.S. cents, its strongest level since July 2008, after the report from C$1.0234, or 97.71 U.S. cents earlier.
Yields on overnight index swaps, which trade based on expectations for the Bank of Canada’s key policy rate, edged higher, showing the market saw credit tightening as slightly more likely than before the data.
The market suggests there are high expectations the interest rate will be around 0.50 percent in July and 1 percent by October. BOCWATCH
Most analysts say the Bank of Canada will not start raising its key interest rate until the second half of the year, following through on a conditional pledge to hold rates at a rock-bottom 0.25 percent until the end of June.
“We already felt that the risks are rates rise more quickly than the market currently expects. This kind of reinforces that view,” said Adam Cole, global head of foreign exchange strategy at RBC Capital.
The jobs report also put inflation-watchers on the alert, showing an average wage increase of 2.5 percent year-over-year in February, up from 2.2 percent in January.
Goods-producing industries added 17,800 jobs, mainly in manufacturing and natural resources. The service sector saw a net increase of 3,100 jobs.
The Olympics in Vancouver in February were expected to give an artificial bump up to employment in the month, but the actual impact appeared muted. (Additional reporting by Ka Yan Ng, Scott Anderson and Jennifer Kwan in Toronto; editing by Peter Galloway)
THe following was found at http://www.google.com/hostednews/canadianpress/article/ALeqM5hyg2axlsAN4o7Y7P7e5WQeTNr6Yg
Economy improving, but interest rates to stay at historic lows for now
By Julian Beltrame (CP) – 2 days ago
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.
The dollar gained about half a cent Tuesday after advancing a cent on Monday, closing at 96.48 cents US.
But most economists agreed Carney is unlikely to act on interest rates until July, noting that Tuesday’s announcement repeats the conditional commitment to keep rates at the historic low until the third quarter.
Raising interests would make it more expensive for businesses and consumers to borrow, slowing economic activity and inflation, but likely giving a boost to the already high-flying loonie.
Bank of Montreal economist Michael Gregory said he expects Carney to hike rates by 0.25 per cent in July, and the TD Bank’s Francis Fong agreed modest rate hikes can wait until the second half of the year.
“The recovery here in Canada, and indeed around the globe, yet remains heavily dependent on extraordinary monetary and fiscal stimulus, so early rate hikes such as seen in Australia this morning and over the past few months, would need to be warranted by a rapidly overheating economy,” said Fong.
There was no sign of that, despite the greatly improved fourth-quarter gross domestic product numbers. The bank also threw up a few red flags against expecting too much of the economy too soon.
“At the same time,” it said, “the persistent strength of the Canadian dollar and the low absolute level of U.S. demand continue to act as significant drags on economic activity in Canada.”
That is the message Canadians are likely to hear in Thursday’s federal budget as well, when Finance Minister Jim Flaherty is expected to say that Ottawa will carry on with the second year of its stimulus spending plans.
On the economy, the bank listed the underlying factors supporting the recovery as policy stimulus, increased confidence, improved financial conditions, global growth and higher terms of trade.
Meanwhile, it said the global recovery is being boosted by domestic demand in emerging markets such as China, and in advanced economies, by “exceptional” monetary and fiscal stimulus.
That would all point to ongoing need for the stimulus for at least the first half of this year, according to many economists.
But hawkish observers pointed to what the bank had said in previous reports, and pointedly did not repeat this time, as an indication it is feeling nervous about the inflationary impact of emergency low interest rates.
Holt noted that the governing council did not give an estimate on when the economy would return to full capacity, when previously it had pegged the third quarter of 2011. And for the first time in almost a year, the council did not stress that it retains flexibility even at near-zero rates, suggesting it no longer considers there is a realistic risk the economy could again dip.
Copyright © 2010 The Canadian Press. All rights reserved.
Monday March 22, 2010
Cody Sjogren 
