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Markets on the rise
World stock markets are on the rise as fears over Europe's debt crisis take a back seat to encouraging economic signs from Europe. European markets rose, followed by the Dow Jones industrial average , S&P 500 and S&P/TSX composite . The euro rose, as did the Canadian dollar . The more optimistic mood in the markets so far this morning was sparked by the latest manufacturing data from Europe, which showed industrial production among the 16 countries that share the euro rose 0.8 per cent in April, better than expected and a showing that suggests the debt crisis is not derailing economic growth.
"It seems the recent declines in the euro could well help the single currency in this respect making it easier for them to get through their current problems by enhancing growth prospects by making their exports cheaper," said CMC Markets analyst Michael Hewson. "However given the recent flakiness of the data and economists propensity to get their forecasts wrong it won't take much to stop the current recovery in its tracks and for the risk trade to be quickly reversed."
The Canadian dollar was up sharply at 97.75 by late morning, putting parity in sight again. The loonie has bounced around tremendously of late, driven up or down by investor sentiment over Europe's debt crisis and prospects for economic growth. "The fundamentals support parity," said Scotia Capital currency strategist Camilla Sutton, adding the loonie could hit par with its U.S. counterpart as early as this week if "risk aversion" doesn't get in the way.
Canada among least exposed to fiscal shocks
The global economy will be rocked by "rolling fiscal shocks" over an extended period, but Canada stands "far apart" from other countries in terms of external debt exposure, Scotia Capital says. Economists Derek Holt and Gorica Djeric used World Bank data for measurements in five areas, including outstanding gross external debt as a share of GDP, foreign reserves as a share of the economy relative to total external debt, share of external debt owning to markets, and the "rough" maturity profile of external debt outstanding. Also studied were "future oriented views," given the increasing sensitivity to interest rate hikes among countries that need constant access to markets.
Canada, the economists found, is among the least exposed to shocks among the major industrialized nations: "Its external debt to GDP ratio stands at 70 per cent and toward the bottom of the list of the diverse set of countries for which we have data. The sovereign share of Canada's external debt position is also tiny at 15 per cent of GDP and among the lowest in the sample of countries. Canada also ranks favourably in terms of a low share of bank financing of external debt, a modest share of short-term external debt, and relatively high foreign reserves relative to the size of its economy."
Who holds what in European debt
A lengthy report by the Bank for International Settlements today notes that French and German banks are the most heavily exposed to the troubled economies of Portugal, Ireland, Greece and Spain. Among the findings of the international banking group:
- Banks headquartered in the euro zone, which include the 16 countries that share the currency, account for 62 per cent of all global bank exposure to those countries, collectively holding $727-billion (U.S.) in exposure to Spain, $402-billion to Ireland, $244-billion Portugal and $206-billion to Greece.
- French and German banks held $493-billion and $465-billion, respectively, in exposure to those economies, or 61 per cent of all exposure among banks in the euro zone. "French and German banks were not the only ones with large exposures to residents of euro countries facing market pressures," the report said. "Banks headquartered in the United Kingdom had larger exposures to Ireland ($230-billion) than did banks based in any other country."
- Government debt accounted for a smaller portion of the exposure among euro zone banks than did claims on the private sector.
Group sees lower telecom profits
Profits among Canada's telecommunications companies are expected to fall modestly this year before recovering in 2011, hampered by heightened competition and weak pricing in the sector, the Conference Board of Canada forecast today.
"Over the next few years, most of the [revenue]growth is expected to come from rising unit sales, as prices will continue to grow well below the rate of inflation," the organization said in a report. "The ongoing fight between wired, wireless, and cable companies for market share will continue to limit price appreciation over the forecast period, as will the arrival of new wireless competitors in major markets." Among its findings: