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Canada's Finance Minister Joe Oliver poses for a portrait in the Canadian High Commissioner's official residence in London June 23, 2014. Oliver warned on Monday that investors could be mispricing risk as they hunt for better investment returns, and said policymakers should keep the issue under close review. (NEIL HALL/Reuters)
Canada's Finance Minister Joe Oliver poses for a portrait in the Canadian High Commissioner's official residence in London June 23, 2014. Oliver warned on Monday that investors could be mispricing risk as they hunt for better investment returns, and said policymakers should keep the issue under close review. (NEIL HALL/Reuters)

Business Briefing

Joe Oliver’s ‘irrational exuberance’ moment Add to ...

These are stories Report on Business is following Tuesday, June 24, 2014.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Oliver's warning
Consider this Joe Oliver’s ‘irrational exuberance’ moment.

In Europe, Canada’s still-new Finance Minister is warning of an exceptionally risky climate, and warning investors to be cautious as they seek stronger returns.

“We’ve said again and again … that international financial markets are still fragile,” Mr. Oliver told Reuters in an interview in London yesterday.

“If it looks like there’s such a desire for yield that [investors] overlook the risk … that is something that can be a concern,” he added, citing not just the economic issues at play, but also the geopolitical ones.

Mr. Oliver is hardly the only one out there warning of risks to investors. While he was referring to the debt markets, others have pointed to risks in general, particularly as stock markets touch repeated highs of late, in an environment that is still uncertain almost six years after the collapse of Lehman Bros. plunged the world into crisis.

Specifically, the finance minister was talking about narrowing yields.

But his comments to Reuters reporter David Milliken reminded me, nonetheless, of former Federal Reserve chairman Alan Greenspan’s famous warning of “irrational exuberance” and asset valuations during the dot-com boom of the late 1990s.

Many analysts, too, have raised red flags over high stock valuations and, more recently, the potential for geopolitical issues to catch investors unaware.

Having said that, the issues are keeping investors on their toes somewhat.

Just today, for example, analyst Jasper Lawler of CMC Markets, in London, cited the troubles in Iraq. And while he didn’t cite the Ukraine tensions this time, others have added that into the mix, too.

“With no military intervention from either the U.S. or the UN, the situation in Iraq is giving the impression of being uncontained, and this adds uncertainty for investors,” Mr. Lawler said.

“Crude oil is currently pricing a potential supply-shock; further increases in crude would come if there is an actual disruption in supplies. The longer militants are left unchecked, the more likely and actual supply-shock becomes and this is starting to weigh on stock markets.”

BMO Nesbitt Burns also notes today that the U.S. oil benchmark has climbed 8 per cent this year, while Brent crude topped $115 (U.S.) a barrel.

This is just one of the issues weighing.

The economic world, too, is highly uncertain, with markets moving on every piece of data.

Today, markets were mixed, though under pressure in Europe and North America.

“U.S. markets are seeing a low-volume levitation … putting the Dow Jones back on course for 17,000 and seeing the S&P 500 push towards 1970,” said market analyst Alastair McCaig of IG in London.

“The market, bolstered by the Federal Reserve, seems content to ignore weaker U.S. data and Iraq, putting off the day of reckoning yet again. New-home sales are surging once again, as the market continues the trick of focusing on one piece of good news to the exclusion of others.”

Correction: This blog has been updated to make clear that Joe Oliver was referring to debt markets when he warned of a risk to investors and narrowing yields.

 

U.S. home price growth slows
House price gains in the United States are slowing down.

According to the S&P/Case-Shiller home price index released today, average prices rose just 1.1 per cent in April from March in 20 cities measured.

On an annual basis, that slowed the rate of increase to 10.8 per cent from April of last year, or the weakest showing in over a year.

That was less than analysts had expected, but observers see a return to a more sustainable housing market, rather than a cause for concern.

“Buying activity remains well below last year’s highs, and the moderate increase in supply we have seen in recent existing home sales report could be limiting upward pressure on prices from restrained supply,” said economist Andrew Grantham of CIBC World Markets, also citing a second, separate report on the U.S. housing sector.

“The figures simply show house price inflation is easing to more sustainable levels,” he added.

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