These are stories Report on Business is following Monday, Jan. 16, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Housing market cools Canada's housing market is cooling, as many have suggested.
Sales of existing homes rose 1.8 per cent in December from November, bringing annual gains for last year to 2.2 per cent, or 456,749 homes sold. New listings also rose in December, by 3 per cent. Prices rose 7.2 per cent over the year, but were clearly slowing by the end of 2011, according to data today from the Canadian Real Estate Association.
In a measure that is not seasonally adjusted, the real estate group noted that the average price in December, $347,801, marked an increase of only 0.9 per cent from a year earlier. That, CREA said, marks the slowest gain since October of 2010.
“Momentum for national sales activity and average price remains positive but is slowing, which suggests that the continuation of low interest rates is not causing the Canadian housing market to overheat,” CREA's chief economist, Gregory Klump, said in a statement.
“High-end home sales seem unlikely to spike again in the first quarter like they did at the beginning of 2011, so national average price momentum may wane further over the next few months. With interest rates widely expected to remain low throughout 2012, homeownership will remain affordable, and continue to support home sales activity.”
Many observers have projected a slowdown in the real estate market, though few are calling for a U.S.-style crash.
"The Canadian housing market showed distinct signs of moderation in late 2011, with even some of the hottest of the hot cities simmering down," said deputy chief economist Douglas Porter of BMO Nesbitt Burns.
"Debt-heavy households are expected to curb their appetite for mortgages, pointing to some further moderation in housing in 2012. We look for both sales and prices to be roughly flat this year," Mr. Porter added. "That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices."
Mr. Porter expects a so-called soft landing for the real estate market overall, though perhaps Vancouver could see something worse.
"That's not unusual," he said. "Vancouver has been through heavy cycles before.
Even a 20-per-cent dip from the peak would still leave Vancouver prices above $600,000, he added, and "that would still leave it as the most expensive city in the country."
Salses in Vancouver fell 4.1 per cent in December, and prices 2 per cent. In Toronto, where there are concerns about the condo market, sales climbed 1.8 per cent and prices dipped 2.3 per cent.
"Activity in the Vancouver area has essentially mirrored the national market as prices have fallen by 10 per cent since April, while sales are down by more than 28 per cent since February," said Toronto-Dominion Bank economist Francis Fong.
Mr. Fong expects a "bumpy" year in the real estate market overall, with a greater pullback at the beginning but improvement in the second half.
"In general, the persistence of a low interest rate environment through 2012 should help keep the housing market aloft as buyers continue to take advantage of fresh lows in mortgage rates," he said. "However, this will only delay the inevitable as the normalization in interest rates in 2013, which will lead to a more sustained correction in both sales and prices."
- Home sales rise 1.8% in December
- Bank chiefs sound alarm over housing market
- Toronto's real estate market 'the hottest': BMO
Markets take downgrade in stride European stock markets took the euro downgrades in stride, but I wouldn't read anything into that.
Tokyo's Nikkei slipped 1.4 per cent, and Hong Kong's Hang Seng 1 per cent. But in Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 0.4 per cent and 1.3 per cent. U.S. markets were closed, and Toronto's S&P/TSX composite rose.
"Those hoping for sound and fury this morning as markets get their chance to react to Friday’s S&P downgrade of most of the euro zone have been sorely disappointed," said David Jones, chief market strategist at IG Index in London.
Scotia Capital today lists five reasons for why stock and bond markets aren't reacting violently:
1. The European Central Bank is reported to be buying Italian and Spanish bonds, helping to hold down yields.
2. Some markets had the opportunity to react on Friday.
3. Investors had been expecting the move, and, while France lost its triple-A rating, it was only downgraded by one notch.
4. U.S. markets are closed today.
5. There may be "misplaced optimism" on what's in store given some issues, such as the impact on the euro zone's bailout fund, are still uncertain.
What's key for markets While euro zone leaders scramble to contain the damage from the raft of downgrades Friday, at least two crucial issues remain: Where Greece ends up in talks with creditors, and the impact of the downgrades on the monetary union's bailout fund.
First, talks between Athens and bondholders broke down on Friday, and it's getting uncomfortably close to a March payment for that to happen.
"At this point, it’s difficult to tell if the break down of negotiations is for real, or if it’s just political posturing by both sides in advance of a well understood deadline," said Derek Holt of Scotia Capital.
"Greece has until March 20 when it faces a €14.5-billion bond payment and by which another round of financing by the EU and IMF will be required, such that a deal on restructuring is needed in advance," Mr. Holt said as fears mounted that Athens could face a disorderly default.
"Further, both sides wish to have a deal in place before the EU summit a week from today. With such deadlines looming, Greece’s private creditors that are being represented by the IIF know that they hold the bargaining chips against Greece’s attempts to impose stiffer haircuts through the dispute over the coupon payments particularly as they pass thinly veiled threats against an involuntary agreement that most – Germany and the ECB included – know full well could have harsh market and economic consequences. Thus, I’m not sure that I buy the argument that Greece faces imminent hard default given the looming deadlines and the likely political pressure that Merkel and others will be applying in the days ahead."
S&P cut the long-term ratings on Italy, Portugal, Spain and Cyprus by two notches, and those of France, Austria, Malta, Slovakia and Slovenia by one notch. The ratings on Germany, Finland, Belgium, Estonia, Ireland, Luxembourg and the Netherlands were affirmed. France and Austria were stripped of their triple-As.
Today, S&P also downgraded the rating of the euro zone's bailout fund.
- S&P downgrades euro zone bailout fund
- EU considers tough curbs on ratings after S&P downgrade
- Competitive divide key to Europe's woes, S&P says
- Beleaguered France gets lift from Moody's
What it means to Canada, others As downgrades come fast and furious, there's an impact on countries, like Canada, still rated triple-A. Canada's bonds look better, as does the Canadian dollar .
For borrowers, that's good news. For savers, not so much, notes senior currency strategist Camilla Sutton of Scotia Capital.
The S&P decision to whack nine of the euro zone countries leaves just 11 nations still rated triple-A among all major ratings agencies. And among those that remain, Canada has the third-biggest bond market.
Because the demand for triple-A paper rises, Canadian yields will be held lower. As more money floods in, the loonie will rise higher, Ms. Sutton said. A triple-A rating holds government bonds down. And as most borrowing costs are linked to a spread over those securities, other yields are held in check as well.
Of course, there's more to the outlook than just a rating, said CMC Markets analyst Michael Hewson. And that's an issue for a country like Canada, whose fortunes are tied to its resources.
"Markets tend to worry more about an economy's susceptibility to the economic cycle, especially where countries have a large reliance on commodity prices," Mr. Hewson said.
"Canada, even though it has a triple-A rating, is very much exposed to the commodity price cycle due to its large mining and oil and gas sector. If matters deteriorate further in Europe, which seems likely, the Canadian dollar may continue to rise in the longer term, but in the short-term economic slowdowns could impact profit margins for Canadian companies and see the Canadian dollar fall, especially against the U.S. dollar, which tends to benefit more from safe haven flows than the Canadian dollar."
WestJet eyes regional airline Canada's WestJet Airlines Ltd. plans to launch a short-haul regional carrier for flights to and from smaller Canadian cities next year by acquiring 40 turboprops, marking the company's first move away from Boeing 737 jets, The Globe and Mail's Brent Jang reports.
WestJet chief executive officer Gregg Saretsky called it a crucial decision for the airline, which launched operations in 1996.
Mr. Saretsky said in an interview last month that WestJet is considering acquiring the 70-seat Bombardier Q400 turboprop, though the ATR 72 turboprop is also a possibility.
Pembina to acquire Provident Canada's Pembina Pipeline Corp. has struck a deal for Provident Energy Ltd. , which it says will create one of the biggest publicly traded pipeline companies in the country.
Pembina is offering 0.425 of a share in the all-stock deal, the company said today. The combined group would have a market capitalization of almost $8-billion.
“The proposed transaction integrates our energy transportation and gas processing businesses with Provident’s suite of services including natural gas liquids (NGL) extraction, fractionation, storage, transportation and logistics, and will significantly accelerate our growth capital plans for these business segments," said chief executive officer Bob Michaleski.
"Our expanded footprint will provide greater access to natural gas liquids markets across North America , and will allow us to offer customers a significantly expanded spectrum of energy services.”
The deal comes amid a weak outlook for natural gas prices.
What to watch for this week Mark Carney returns to centre stage with the Bank of Canada's rate announcement tomorrow and its monetary policy report on Wednesday. Mr. Carney and his colleagues won't be changing interest rates from their low levels, but markets will be watching for what they say.
"We believe that the BoC will keep its policy rate unchanged at 1 per cent at its 17 January meeting, as the downside risks and uncertainty over the situation in Europe remains very high," said Charles St-Arnaud of Nomura in New York.
"The January meeting coincides with the release of the monetary policy report in which we expect the BoC to increase its growth expectations for 2011, but to lower them for 2012 because of prospects for weaker global economic and weaker momentum in the Canadian economy. We think that the BoC will remain on hold until the second half of 2012."
In the markets, fourth-quarter earnings season picks up this week, with reports from many major companies, including Citigroup Inc., Goldman Sachs Group Inc., American Express Co., Google Inc., Intel Corp., IBM Corp., Microsoft Corp., Morgan Stanley and General Electric Co.
"The recent strength in equities will now be put to the test as earnings reports ramp up in the coming weeks. Expectations for Q4 S&P 500 profit growth have been ratcheted down to less than 7 per cent year over year from 15 per cent year over year in early October, as negative preannouncements have been curiously high in recent months," said Robert Kavcic of BMO Nesbitt Burns.
"While the expectations bar is now that much lower, this week’s results were not exactly a ringing endorsement that upside surprises are on the way. Most notably, JPMorgan missed the mark as investment banking earnings were down sharply amid a rocky capital markets environment, even though retail and small business profit saw decent growth."
In Canada, Viterra Inc. posts its quarterly results. Last week, Viterra said the end of the Canadian Wheat Board monopoly on wheat and barley in western Canada would bump up its profits, beginning in the fourth quarter of this year.
- Saudis target 'triple-digit' oil price for the first time
- Conoco seeks buyer for half-stake in oil sands assets
- Carnival stock falls 18% in wake of cruise ship disaster
- Iamgold fourth-quarter gold production down 20%
- Quadra 2011 copper output falls
In Economy Lab It may be politically attractive to talk about taxing corporations and high earners, and there may be advantages for doing so that have nothing to do with revenue generation. But the effects of these measures on the budget balance are being greatly overestimated, Stephen Gordon writes.
In International Business Investment bankers may be feeling hard done by this January. But they’re not doing as badly as their shareholders, writes Margaret Doyle of Reuters.
In Globe Careers In an article in Leadership Excellence , Robert Vetere, president of the American Pet Products Association, notes that about 67 per cent of CEOs own dogs, and that an early relationship with dogs can be a learning ground for teamwork and collaboration. Harvey Schachter reports.
From today's Report on Business
- Sides entrench in battle over future of Canadian Pacific
- Lego, Mega Brands face off in court
- Barrie McKenna: In Canada, unlike the U.S., the American dream lives on
- Analysts backpedal on outlook for U.S. banks