These are stories Report on Business is following Friday, Oct. 12, 2012.
RBC sees surprises
Relax. At least for a little bit. And at least for now.
Royal Bank of Canada has something known as a composite surprise index, and, according to the bank, it’s at its best level in about three months.
“With the leaves turned and morning frosts pending, we are firmly in the grips of autumn,” said Mark Chandler, chief of fixed income and currency research at RBC Dominion Securities in Toronto.
“A chill in the economy is, however, not quite as obvious,” he said in the bank’s latest report, released late yesterday.
Mr. Chandler’s colleague, fixed income strategist Ian Pollick, noted the “stark improvement in the stock of data surprises” over the past two weeks.
Chief among them, the way I see it, at least, was Statistics Canada’s report last Friday, which showed a stunning 52,000 jobs created in September. Mr. Pollick cited other indicators, as well.
“The Canadian economic backdrop still remains mired in a slightly-below-trend pace of growth, though one would not pick up on this fact looking at the stock of forecast errors alone,” he said.
“The monstrous employment report last week, combined with better-than-expected housing and trade numbers over the past two days, have pushed the level of our index into the highest territory since mid-July,” he said, referring to a report that showed construction starts in Canada at an annual pace of 220,215 in September and another showing the country’s trade deficit narrowing in August to $1.3-billion, from a record just a month earlier.
All three reports were surprises in that they came in better than economists had projected, based on their consensus.
“Importantly, this is occurring at a time where the forward-looking consensus has not yet downshifted expectations meaningfully, putting more credibility in the latest move,” Mr. Pollick added.
That’s not to suggest all is smooth ahead, Mr. Chandler said, citing the most recent outlook from the International Monetary Fund, which forecast economic growth in Canada at only 1.9 per cent this year and 2 per cent next.
For example, the trade deficit may have eased, but it’s still a deficit, and still shows that Canada is “quite vulnerable.”
The strength of the Canadian dollar, Mr. Chandler added, is causing trouble.
“Other potential hiccups in the Canadian growth story have been well advertised of late: High household debt burdens, possibly heavy-handed at attempts at cooling the nation’s housing market and a business sector that hasn’t contributed as much investment as necessary (or as hoped for in Ottawa).”
Economic growth will probably “muddle through” at about 2 per cent over the second half of the year, Mr. Chandler projected, while the challenges facing policy makers over the medium term.
“Fiscal and monetary policy must address the growing imbalance between the surging resource-based sectors of the economy (and those benefiting from ultra-low interest rates) and struggling sectors elsewhere.”
For the bank’s research, see the accompanying graphic or click here.
JPMorgan, Wells Fargo rise
JPMorgan Chase & Co. kicked off the quarterly earnings season among the major U.S. banks with a report today that topped the estimates of analysts and called the bottom of the housing market.
“Importantly, we believe the housing market has turned the corner,” chief executive officer Jamie Dimon said as he reported a record third-quarter profit of $5.7-billion (U.S.) or $1.40 a share, up from $4.3-billion or $1.02 a year earlier.
“In our mortgage banking business, we were encouraged that credit trends continued to modestly improve, and, as a result, the firm reduced the related loan loss reserves by $900-million,” he said in a statement.
“Despite this improvement, the absolute level of charge-offs remains elevated. We also expect to see high default-related expense for a while longer.”
Wells Fargo & Co. also reported a jump in profit – to $4.9-billion or 88 cents a share diluted, compared to $4.1-billion or 72 cents - and also cited improvements to the housing market. WFC
“Underlying credit quality continued to show improvement in the third quarter, as the over all financial condition of businesses and consumers strengthened, the housing market in many areas of the nation improved, and we continued to work to reduce problem assets and make new, high quality loans,” chief risk officer Mike Loughlin said in a statement.
- JPMorgan posts record profit, says U.S. housing market has 'turned the corner'
- Wells Fargo profit climbs 22% on strong mortgage lending
Yuan hits high
China’s currency has hit its highest level in almost two decades, a good sign for President Barack Obama as he heads into the final stretch of the U.S. presidential race.
“Does it work in Obama’s favour?” said senior currency strategist Camilla Sutton of Bank of Nova Scotia. “Absolutely.”
Some see the move by the People’s Bank of China as a gift of sorts to the president during the campaign, but it’s also in Beijing’s interests.
There have been long-running currency tensions between the United States and China, and Republican contender Mitt Romney has warned he would peg China a currency manipulator should he win the presidential race.
"A stronger yuan is positive for Obama during the debate season, while it might also ease Romney’s rhetoric on deeming China as a ‘currency manipulator’," Ms. Sutton said.
At the same time, noted Ms. Sutton, Mr. Obama could point to the rising yuan if asked about China in the crucial debates.
The yuan closed today at 6.2672 against the U.S. dollar, Reuters reported, its highest since 1994. It's up 0.2 per cent from yesterday and 0.5 per cent over two days, Ms. Sutton noted.
Canada’s national statistics agency has revised more than three decades worth of productivity data, unfortunately showing that Canadians were actually even less productive than believed.
Not by much, but it won’t help ease the continuing complaints over Canada’s lagging productivity.
The “slight downward revision” showing an average annual decline of 0.1 of a percentage point in labour productivity from initial measures, to 1.3 per cent from 1.4 per cent, calculated from revisions to economic growth and hours worked, was released today by Statistics Canada. Most of the revisions involved the early years.
- Barrie McKenna's Economy Lab: Canadians even less productive than thought over past 30 years
- Canada revises down second-quarter productivity, first quarter up
Oxford proposes new project
Oxford Properties Group is proposing a $3-billion-plus development project, including a casino, on the southern end of downtown Toronto.
This would be one of the largest urban redevelopment projects in North America, Oxford, which is the real estate arm of the Ontario Municipal Employees Retirement System, said today, The Globe and Mail’s Tara Perkins reports.
- Developers propose casino as part of Toronto convention centre expansion
- Convention centre development project could include a casino
Why the EU won the Nobel Peace Prize
Because the Economics Prize was really a long shot.
In Home Cents today, The Globe and Mail's Claire Neary advises renters of how to make the most of it.
- Kevin Carmichael's Economy Lab: Carney, British official spar over bank reform
- Apple to reveal iPod mini on Oct. 23: reports
- IMF and Germany play down tensions over debt crisis
- Euro zone's strong factory output surprises in August
- U.S. producer prices rise on surging gasoline costs