These are stories Report on Business is following Tuesday, June 25, 2013.
Central bank officials are out in force, trying to calm market waters after the turmoil of the past few days.
It appears to be working, too, as stocks are on the mend so far this morning amid reassuring statements from officials of the U.S., British and Chinese central banks.
Markets have been batted around of late, first by Federal Reserve plans unveiled last week, to begin winding down some stimulus measures later this year, and then by financial troubles in China.
An official of the People’s Bank of China, however, said today that the central bank would guide interest rates there to “a reasonable range,” comments that eased a stock rout.
That followed comments made yesterday by Richard Fischer, head of the Federal Reserve’s regional Dallas bank, who told The Financial Times in an interview that “feral hogs” in the markets were trying to force the U.S. central bank to put its plans on hold.
Then today, outgoing Bank of England Governor Mervyn King told a parliamentary committee that “people have rather jumped the gun” on the Fed’s thinking.
In fact, Fed chairman Ben Bernanke said last week that the central bank could begin pulling back on the extraordinary stimulus policy known as quantitative easing, an asset-buying program dubbed QE. Observers believe the Fed may trim its $85-billion (U.S.) in monthly bond buying to about $65-billion in the fall, and then quit the program completely next year.
That doesn’t, however, mean that the Fed is near raising its benchmark interest rate from where it effectively stands now, at zero.
“The view that we are definitely at the beginning of the end, that we are definitely at the point where we need to raise interest rates, I think is a premature judgment about where we are, and no central bank has moved rapidly down that course,” Sir Mervyn said, according to Reuters.
Investors seem to be listening to the central bankers.
“Markets are in a better mood this morning, with Chinese equities rebounding from early-session declines on expectations that recent volatility in the country’s money markets is about to ease - the PBoC’s deputy director mentioned that recent volatility would be ‘temporary’ and that the bank would guide rates to a ‘reasonable range,’” said Robert Kavcic of BMO Nesbitt Burns.
“Fed officials are also working overtime to clarify their message to the market.”
While Asian markets were mixed, European stocks are up and New York appears headed for a stronger open.
“‘Feral hogs’ - as the flamboyant Dallas Fed President Richard Fisher disdainfully calls them – are hungry this morning,” said Derek Holt and Dov Zigler of Bank of Nova Scotia.
“They are buying up just about every component of every asset class.”
Tokyo’s Nikkei lost 0.2 per cent, while Hong Kong’s Hang Seng gained 0.2 per cent. The Shanghai composite, which plunged yesterday, dipped a further 0.2 per cent today.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 1.3 per cent and 1.8 per cent. North American stocks also rebounded at the open.
“It seems that the rush for the exits has come to a halt for now, but, like the proverbial parrot, this bout of risk aversion may not be dead, but just resting,” said futures deal Rupert Osborne of IG in London.
“It is still a struggle to work out the real outlook for markets, since the dust kicked up by last week’s Fed meeting will take weeks to settle. The Fed might be supposed to remain aloof from market panic, but it cannot have escaped them that the reaction to their upcoming policy changes has been less than positive.”
- Follow our Inside the Market blog
- Tim Kiladze in Streetwise (for subscribers): Bond losses could hit hundreds of billions: BIS
- China's clampdown on credit, shadow banking, roils markets
Alberta, Quebec take hits
The economies of Quebec and Alberta are being hit by issues both man-made and natural.
The focus is on Alberta, where floods are causing damages pegged at up to $5-billion, and some 25 per cent of that is believed to be uninsured.
Premier Alison Redford yesterday unveiled an initial $1-billion relief program that will, not surprisingly, affect the province’s target of a balanced budget, The Globe and Mail’s Josh Wingrove and Kelly Cryderman report.
In Quebec, a construction strike is taking its toll.
“While Alberta is deservedly getting the attention, and the economic impact of the flood is still being assessed, let’s not forget that Quebec’s economy is also undergoing some turmoil of its own,” said Robert Kavcic of BMO Nesbitt Burns, referring to the strike by 175,000 construction workers who walked off the job after contract talks collapsed.
“Not that 175,000 makes up about 65 per cent of Quebec’s total construction employment, in a sector that accounts for almost 7 per cent of the province’s economy output (or about 1.3 per cent nationally,” Mr. Kavcic said in a research note today.
“This will compound the impact on June GDP growth of Calgary’s flood, and is not good news for a provincial economy that we judge is on pace to grow just 1.3 per cent this year.”
- Alberta pledges $1-billion in flood relief for families and municipalities
- 25% of Alberta flood damage likely not covered by insurance: BMO
- Calgary's business core goes dark
Home building projected to rise
With sales of existing homes now showing momentum in the wake of a slump, construction of new homes should also pick up modestly later this year or in 2014, Canada Mortgage and Housing Corp. predicts.
CMHC now forecasts that housing starts this year will come in between 173,300 to 192,500 units, and has pegged its point forecast at 182,900 units, well below the 214,827 homes that were built last year. Starts are expected to rise to 188,900 units next year, still shy of last year’s level, The Globe and Mail's Tara Perkins reports.
It predicts that the average MLS price will come in between $359,400 and $380,000 this year, and between $362,400 and $392,200 next. Its point forecast is calling for a 1.6 per cent increase in the average sales price this year, to $369,700, and a further 2.1 per cent gain next year, to $377,300.
Fitting the bill
Mark Carney is heading into a raging British controversy over the images on banknotes.
It’s an issue that could resonate in Canada, as well.
The debate playing out in Britain relates to the Bank of England’s decision to replace the image of Elizabeth Fry with that of Winston Churchill on the £5 banknote beginning in 2016, as The Globe and Mail’s Paul Waldie reports.
Mervyn King, the outgoing governor of the central bank, has been forced to defend the move amid demands from members of both Parliament and the House of Lords and an online campaign with a petition that now numbers some 30,000 names.
When the image of the social reformer disappears, there will be no women on British banknotes, with the exception of the Queen.
And she doesn’t count because she’s there as a monarch.
The only other woman to have ever graced a British banknote was Florence Nightingale, whose image was on the £10 bill for almost 20 years until 1994.
“Our banknotes acknowledge the life and work of great Britons,” Sir Mervyn said in a statement when he announced the move a couple of months ago.
“Sir Winston Churchill was a truly great British leader, orator and writer. Above that, he remains a hero of the entire free world. His energy, courage, eloquence, wit and public service are an inspiration to us all. I am proud to announce that he will appear on our next banknote.”
Those who oppose the decision aren’t suggesting that’s not true, but that many British women also fit the bill, as it were.
“With all the amazing women in the course of our history who have made such a huge contribution to society, the economy, scientific knowledge and politics, then we should have proper representation of women on our banknotes,” MP Liz Kendall told the BBC.
As The Financial Times now notes, Mr. Carney will inherit an “awkward issue” when he takes over as Bank of England governor next week.
It’s interesting to note that in Canada, Mr. Carney oversaw the introduction of new notes that, aside from the Queen on the $20 bill, all carry images of men.
Here are some good choices for Canada: Agnes Macphail, Canada’s first woman MP, War of 1812 heroine Laura Secord, activist Jane Jacobs, authors Lucy Maud Montgomery and Margaret Atwood and astronaut Roberta Bondar.
- Carney's pound problem: Jane Austen or Charles Darwin on £10 notes
- Bank of England announcement
- Financial Times: Sorry Winston, it’s time for a woman
- The Telegraph: Politicians join fight to keep women on British banknotes
- BBC: ‘Women on banknote’ campaign backed by MP
- Bank of Canada’s new notes
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