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What higher rates could mean The Bank of Canada set the stage for higher interest rates this week, prompting speculation Governor Mark Carney could act either later this year or early next.
Mr. Carney and his colleagues held their benchmark overnight rate steady at 1 per cent, but sent a signal to markets that they're thinking about the next move up.
They also sent another message to those consumers who have loaded up on cheap debt, citing particular concern about home equity lines of credit, which have ballooned, and warning they expect the debt burden among households, already at record levels, to fatten further still.
Not everyone expects rates to rise that early - and when they do, they will be mild - but the message is clear nonetheless. Rates are inevitably going up, and consumers should act fast to get their finances in order. The good news is that the bank is acting on a better economic outlook.
Rate hikes will, of course, play out across the economy.
"With the Bank of Canada tightening policy before the Fed, the interest rate spreads between the two countries will likely put upward pressure on the Canadian dollar and shorter-term bond yields," said Dina Cover of Toronto-Dominion Bank.
"For consumers, the rate hikes would lead to tighter lending conditions, which should help curb growth in household debt - not necessarily a bad thing, as this is an area that the central bank cites as the number one risk to the Canadian economy and has shown a willingness to lean against," she added.
Ms. Cover's colleagues at TD, Craig Alexander and Leslie Preston, noted in a separate report that rate hikes will come at about the same time the banks tighten their policies, and that the real estate industry will feel the impact of both.
"Ultimately, moving the timetable for higher interest rates forward adds to our conviction that home sales and home prices are headed for a correction in 2013," they said.
All of this comes as the Canadian Real Estate Association reports that the overall housing market is tame, though Vancouver is slowing and Toronto is sizzling.
- Speedy economic recovery has Carney hinting of a rate rise
- Bank of Canada warns on home equity lines of credit
- Canada should be firing on all cylinders by next year, report says
- How much over asking would you bid on a house?
- Canadian real estate market a tale of two cities
- Canadian economy sideswiped by high world oil prices: Bank of Canada
- Stephen Gordon's Economy Lab: Why on earth was Bay St. surprised by rate signals?
- Deal quickly with your debt: Mark Carney's serious now
- Household debt is 'biggest domestic risk': Bank of Canada
Carney and the Bank of England Mark Carney's name is also popping up in connection with a race for the next governor of the Bank of England.
Both Mr. Carney and the Bank of Canada denied it, but the Financial Times reported that he had been approached informally about taking over from Mervyn King when he retires.
Mr. Carney, who is respected around the world, said he has two jobs on which to focus, at the Bank of Canada and as chief of the global Financial Stability Board.
Still, this issue dogged him throughout the week.
The word from London is that some politicians want to shake up the central bank in the wake of the financial crisis, and Mr. Carney's name was mentioned more than once this week.
He knows London, too, having worked there for Goldman Sachs Group Inc., and his wife is British.
And because I'm keeping a running watch, I'll share that bookies are still giving him 10-1 odds on the job, despite his protestations.
- Bank of England talk dogs Mark Carney: 'Not a foreigner - he's Canadian'
- 12 reasons why Mark Carney should stay put in Canada
Couche-Tard in megadeal Quebec's Alimentation Couche-Tard Inc. struck a transformational deal this week that puts its growth prospects in Europe.
The convenience store king agreed to pay $2.8-billion to the retail arm of Norwegian oil giant Statoil ASA, getting its hands on a retailer with more than a century in the region and giving it an immediate footprint in Scandinavia, the Baltic region and Poland.
Some analysts believe the deal will juice the company's per-share earnings by almost 20 per cent next year, The Globe and Mail's Sean Silcoff reports.
Couche-Tard already has more than 5,800 outlets in Canada and the United States. With Statoil Fuel & Retail ASA, it will get 2,300 European gas stations.
The deal will see Couche-Tard, which has over 5,800 stores in Canada and U.S. under the Mac's, Couche-Tard and Circle K brands, purchase Statoil Fuel & Retail ASA, which operates a network of 2,300 gas stations in six Scandinavian and Baltic nations, as well as Poland.
It's another big leap for Couche-Tard, which began in Laval as just one outlet about three decades ago.
In the markets Stock markets climbed overall this week, though still haunted by the euro zone debt crisis, whose focus shifted to Spain. Corporate results in the United States, however, helped move things along.
Toronto's S&P/TSX composite climbed by just shy of 1 per cent, while the S&P 500 moved up 0.6 per cent.
"That ends a run of seven straight weekly declines for Canadian stocks, which are now up a modest 1.6 per cent on the year, the worst performing major global market outside of France, which was rumoured to face a credit rating downgrade this week," said Robert Kavcic of BMO Nesbitt Burns.
"The read so far on Q1 earnings has generally been positive," Mr. Kavcic added.
"While it's still early with less than 20 per cent of the S&P 500 reporting, a solid 85 per cent have beaten expectations, with most of the disappointments coming from the financial sector. Still, despite the solid results, equity markets have had a hard time finding much traction given the softer tone to the U.S. economic data."
Required reading this week Canadian gold miner Iamgold is now the biggest private employer in Burkina Faso, despite the security risks, Geoffrey York reports.
The new chief of the World Bank has to pacify emerging markets, whose grumbles about the institution's resistance to change are growing louder, Kevin Carmichael writes.
The Canadian Auto Workers is gearing up to win new investment for Canadian plants, setting up a battle with auto makers determined to hold the line on labour costs, Greg Keenan writes.
Amid vitriolic attacks, Arthur Berman remains defiant in questioning the viability of a shale-gas revolution. David Parkinson reports.
WestJet Airlines Ltd. faces a tough decision for its new regional fleet: Fast planes made in Canada, or fuel-sipping foreign models. Brent Jang examines the issue.
What to watch for next week The Federal Reserve is scheduled to meet, with a policy statement Wednesday followed by a news conference with Chairman Ben Bernanke. But don't expect too much. The U.S. central bank, which has been holding back on further stimulus, has said the economy is growing at a modest pace, but that the jobs market remains a real trouble spot. It's likely to hold to that line next week.
"The minutes from the last meeting revealed little appetite among Fed officials for a new round of asset purchases," said Paul Dales of Capital Economics.
"The weaker-than-expected non-farm payroll figures in March won't have dramatically changed that assessment. The Fed's best option is to stay on the sidelines waiting to see which way the recovery breaks."
A couple of days later, on Friday, markets will get a picture of how the U.S. economy fared in the first quarter. It's believed to have grown at an annual pace of 2.2 per cent to 2.5 per cent, marking the 11th quarter in a row of expansion.
"It's been a rocky quarter, but we expect that the economy continued to grow at the start of 2012, but at a slower pace," said senior economist Jennifer Lee of BMO Nesbitt Burns.
"A stronger job market helped keep consumer spending steady, even in the face of high gasoline prices," she added. "Slowly improving housing activity and net exports also contributed to growth, while spending cuts at all levels of government held the public sector back."
In Canada, we'll get a sense of how the country's retailers fared in February, with a Statistics Canada report Tuesday morning. Economists expect to see an increase of up to 0.7 per cent, but a weaker number when autos are factored out.
"Retailers got off to a mixed start in 2012, with the month's weak underlying retail sales momentum paired with a robust boost in auto sales," said Emanuella Enenajor of CIBC World Markets.
"An easing in model shortages in January saw consumers head to dealer lots in droves that month, but with that temporary factor out of the way, we don't expect an extended bout of buying in February."
In the markets, earnings season kicks into much higher gear, with quarterly reports from the likes of Canadian National Railway, Rogers Communications, Teck Resources, Cenovus Energy, Encana, Goldcorp, Nexen, Imperial Oil, Potash Corp., Precision Drilling, Shoppers Drug Mart, TransAlta and TransCanada.
Major U.S. companies reporting include Xerox Corp., Apple Inc., AT&T Inc., Boeing Co., Caterpillar Inc., Amazon.com and Chevron Corp.