The Globe and Mail
Published Wednesday, Jul. 17 2013, 9:55 AM EDT
Last updated Wednesday, Jul. 17 2013, 3:43 PM EDT
These are stories Report on Business is following Wednesday, July 17, 2013.
Bank of Canada sees soft landing in housing
The Bank of Canada added its voice today to the growing chorus of observers who see a “sustainable path” for the housing market, helped along by higher mortgage rates
In its monetary policy report, the central bank noted the pickup in home sales and building, and how house prices are still holding up a year after the Canadian government brought in its fourth round of mortgage restrictions in an attempt to prevent a bubble.
By most accounts, Canada’s housing market is experiencing a soft landing, rather than any U.S.-style crash. Home sales did plunge after Finance Minister Jim Flaherty’s new mortgage rules last July, though prices continued to climb in most regions, albeit at a slower pace.
The effects of that now appear to be easing.
“Residential investment is projected to decline further from historically high levels … reflecting lower rates of new construction as previous overbuilding is addressed … thus contributing to a more sustainable path for the housing sector,” the Bank of Canada said.
“Recent increases in fixed-term mortgage rates will also provide a degree of restraint,” it added.
The central believes consumers will continue to be cautious, and hold the line on spending, though it sees the possibility of Canadians ramping up their purchases amid still-low interest rates.
“The rebound in the housing market in recent months, which can be seen across the indicators for new construction, resale activity and house prices, reinforces this possibility – although some variation around the trend is to be expected amid a constructive evolution of household imbalances.”
That last bit is the Bank of Canada’s way of saying that Canadians are getting a handle on their record high debt levels.
As The Globe and Mail’s Sean Silcoff reports, the Bank of Canada’s new governor also oversaw his first policy statement today. And while he changed the language somewhat, he didn’t change the meaning.
All of which still points to the next move in interest rates being up, not down.
“As long as there is significant slack in the Canadian economy, the inflation outlook remains muted, and imbalances in the household sector continue to evolve constructively, the considerable monetary policy stimulus currently in pace will remain appropriate,” governor Stephen Poloz and his colleagues said as they held their benchmark overnight rate steady at 1 per cent.
“Over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2-per-cent inflation target.”
The central bank also warned in the monetary report that the recent floods in Alberta and a huge construction strike in Quebec will have a “choppy” impact on the economy this year, forecasting second-quarter economic growth of just 1 per cent, with a strong pickup in the current quarter to 3.8 per cent.
- Bank of Canada warns Alberta flood, Quebec strike to hit economy
- Home sales below year-earlier levels in June, prices rise 4.8%
- Rule changes may have knocked 10% of home buyers out of market
- A funny thing happened on the way to the housing crash (It didn't crash)
- Building permits jump 4.5 per cent, mark fifth month of growth
- Vancouver real estate: The $1-million white picket fence
- Doug Porter's version of The Rant: 'We flatly reject' sell-Canada narrative
- Toronto housing sales fall slightly in June, prices jump 4.7% year over year
- Greater Vancouver housing market shows signs of revival
- Toronto’s soaring condo market ignites fears of a U.S.-style crash
- Sheryl King in Economy Lab: Prognosis grim for Toronto condo investors
- Rob Carrick: How risky is the Toronto condo market?
- Canadian housing market defies doomsayers with spring surge
Bernanke moves to end any confusion
Ben Bernanke spelled it out for the markets today, stressing that any “tapering” of the Federal Reserve’s exceptional stimulus program will depend on the economic outlook.
Markets have been bouncing around on the question of when the central bank will begin to pull back from its huge asset-buying program, known as quantitative easing or QE, which involves purchases of $85-billion (U.S.) a month.
Investors want to be certain that the economy and the markets can withstand any easing of the policy.
In congressional testimony today, Mr. Bernanke said the Fed’s policy-setting group could begin to cut back later this year, and end altogether next year, if economic conditions go as expected and the recovery pick up.
But QE is “by no means on a preset course,” he said in his prepared remarks, The Globe and Mail's Kevin Carmichael reports.
“On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly,” he said.
“On the other hand, if the outlook for employment were to become relatively less favourable, if inflation did not appear to be moving back toward 2 per cent, or if financial conditions - which have tightened recently - were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.”
The Fed is looking for lower unemployment, with still-tame inflation. And, today, he bent over backwards to ensure that investors understand where he may or may not be headed.
“Over all, this was just another opportunity for Gentle Ben to calm the nerves of the bond market, and seems to be working in that direction,” said chief economist Avery Shenfeld of CIBC World Markets.
Forget about the royal baby. Based on some of the comments this morning about how Mark Carney has united the Bank of England, some wags would like to see him become king.
Mr. Carney, who left the Bank of Canada for the British central bank, pulled off a unanimous vote at the Bank of England’s last meeting, according to the minutes released today.
“In what might be viewed as a snub to former governor Sir Mervyn King, the entire committee voted to keep the asset purchase policy unchanged, with the two remaining doves flocking to the hawkish camp,” said market analyst Chris Beauchamp of IG in London.
As our European correspondent Paul Waldie reports from London, the minutes of from the meeting of the central bank’s monetary policy committee highlighted the shift.
In each of the five prior meetings, the vote was 6-3 against boosting the central bank’s asset-buying program, known as quantitative easing or QE, with Sir Mervyn among those three.
This time, however, the vote was unanimous, with Mr. Carney seemingly bringing policy makers Paul Fisher and David Miles onside.
“Markets have taken this as a sign of intent from incoming governor Carney and a clean break from Mervyn King, and shows the influence he has already had in shifting the votes of Miles and Fisher away from more QE,” said senior sales trader Toby Morris of CMC Markets in London.
Some observers took to social media today to praise Mr. Carney for pulling that off.
Is Canada losing its appeal?
Foreign investors appear to be losing their appetite for Canadian government bonds, raising the question of whether the country is losing something of its safe-haven status.
Canada had been deemed an attractive destination for foreign money given its economic and fiscal outlook and its triple-A status.
But again in May, Statistics Canada reported today, foreign investors are tiring of Canadian government securities.
Foreign investment in debt securities slipped in May to $5.5-billion from $12.8-billion in April, largely because of bond purchases.
While May's results still marked the fifth consecutive month of gains, it was the lowest so far this year. And, notably, the investment was in corporate bonds amid divestment of government paper.
"Over all, the report suggests that, with big inflows into corporate securities, foreign investors continue their search for higher yields," said Charles St-Arnaud of Nomura Securities in New York.
"Moreover, the outflows from government bonds, which followed some weakness in recent months, signal that the ‘safe haven’ appeal of Canadian government bond is fading. We believe that inflows into Canadian assets should moderate as the economy is expected to underperform in coming months, which should put some downward pressure on the Canadian dollar."
Barbie sales slip
At 54, Barbie is showing her age.
Sales of the iconic doll have now declined for four consecutive quarters, according to Mattel Inc., the latest move being a sharp 12-per-cent drop in the second quarter of this year.
That followed declines of 2 per cent in the first quarter and 4 per cent in each of the third and fourth quarters of last year.
While Barbie may be losing out in the popularity contest, other Mattel brands are going strong, including American Girl, whose sales surged 14 per cent.
Over all, Mattel profit slipped in the latest quarter to $73.3-million (U.S.) or 21 cents a share from $96.2-million or 28 cents a year earlier. Sales climbed to $1.17-billion from $1.16-billion, though North American sales slipped while foreign sales rose.
Perhaps blue-haired Barbie might be next?
Bank of America profit surges
America’s big banks continue to come on strong.
Bank of America Corp. is the latest among its rivals to top analysts’ estimates, largely on trading profits.
The banking giant today posted a second-quarter profit of $4-billion or 32 cents a share, compared to $2.5-billion or 19 cents a year earlier.
Losses at its consumer real estate operations, however, deepened.
“We must keep improving, but with the consumer recovering and businesses strong, we have lots of opportunity ahead,” said chief executive officer Brian Moynihan.