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Why Canada is deemed a 'bastion' Economist David Rosenberg describes Canada as the True North strong and "free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world." In a report today, the chief economist of Gluskin Sheff + Associates cites seven reasons behind the fact that Canada "has basically been re-rated coming out of the credit crisis as a bastion of stability in an increasingly unstable world."
- The federal government "actually deserves" its Triple-A credit rating.
- No Canadian bank failed.
- Canadian banks did not cut dividends, and as a group have a dividend yield just shy of 4 per cent, compared to less than 1 per cent in the U.S.
- The Bank of Canada is raising interest rates given the stronger economy, while its U.S. counterpart is on hold, meaning a yield premium over U.S. alternatives for investors wanting to park funds in liquid short-term securities.
- Top marginal tax rates are already higher in New York City than in Toronto.
- Real estate in Toronto, Montreal and Vancouver is cheap on a global comparison.
- It's not just about oil anymore, but also natural gas, where prices have hit bottom, and precious metals that account for 13 per cent of the TSX market capitalization.
"It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety," Mr. Rosenberg said. "That is a far cry from the correction down to 78 cents following the Lehman aftershock."
Fed strikes cautious tone The U.S. Federal Reserve held its benchmark Federal funds rate steady, as expected, today, and sounded a cautious note on Europe's debt crisis, though it believes the economic recovery will remain on track. The central bank did not name Europe but noted troubled financial conditions "largely reflecting developments abroad."
"The statement made clear that the Fed is in no hurry to raise rates," said Toronto-Dominion Bank deputy chief economist Beata Caranci. "... We don't anticipate the Fed will raise rates until the first quarter of 2011 and even when it does finally get the ball rolling, cautiousness and restraint will continue to be exerted with a fed funds rate ending the year at just 1.5 per cent." Read the story
Shoppers 'down but not out' Retail sales in Canada fell 2 per cent in April from a month earlier, driven down largely by a pullback in car and parts sales and partly on lower pump prices. Excluding that, noted Toronto-Dominion Bank deputy chief economist Derek Burleton, sales fell a "more muted" 1 per cent from a strong showing in March. "April's data suggest that real consumer spending growth tapered is likely to moderate to some extent in [the second quarter]following an oversized gain of 4.4 per cent in [the first quarter]" he said. "Keep in mind that we're still early in the quarter and that retail sales only captures part of the consumer spending envelope (services are a bigger component). What's more, March's blockbuster gain generated a good hand-off for sales in the April-June period. In sum, we're still confident that real consumer spending activity is on track for another strong expansion of about 3.5 to 4 per cent in [the second quarter]as a whole."
BMO Nesbitt Burns deputy chief economist Douglas Porter had a slightly different take: "There have been recent rumblings that Canada's previously impressive domestic spending revival was losing steam, and the sharp drop in April retail sales is the loudest warning shot yet. While the setback appears to be a simple case of a reversal of the weather-related jump in the prior month, the fact is that the days of easy gains are over for spending."
The poor reading on sales helped push down an already slumping Canadian dollar to well below 97 cents U.S. Read the story