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Whither Europe As David Rosenberg sums it up today, the embattled euro zone is looking at a "potent brew" of insolvency, fragility and instability.
Uncertainty reigns in the wake of the French and Greek elections Sunday and the erosion of the 'Merkozy' austerity drive in key regions of the 17-nation monetary union.
"In less than two years, we are now up to a total of seven European leaders or ruling parties that have been forced out of office, courtesy of the spreading government debt crisis - tack on France now to Ireland, Portugal, Greece, Italy, Spain and the Netherlands," said Mr. Rosenberg, the chief economist at Gluskin Sheff + Associates.
"Even Germany's coalition is looking shaky in the aftermath of the faltering state election results for the CDU's (Christian Democratic Union) Free Democrat coalition partner," he said in a report.
"This is quite a potent brew - financial insolvency, economic fragility and political instability."
For the people, Sunday's elections marked a backlash against harsh austerity measures that have exacerbated problems in Europe's ailing economies. For the markets, they marked the dawn of new uncertainty in the long-running European debt crisis.
Many have argued that, amid soaring levels of unemployment and crippling recessions in some countries, European leaders need to focus more on growth and less on cutbacks that have led to widespread social unrest.
With the Socialist victory of François Hollande over Nicolas Sarkozy in the French presidential run-off vote Sunday, the 'Merkozy' era of ultraharsh cutbacks is now at an end.
That was the nickname given to Mr. Sarkozy's partnership with Germany's Angela Merkel. Together, the two drove Europe's actions in the crisis.
Ms. Merkel said today she would welcome Mr. Hollande "with open arms," and warned that a renewal of co-operation is "essential" for Europe.
That came after Mr. Hollande said that austerity is not "inevitable" and that he sees his mission as one of giving "European construction a growth dimension."
He hasn't spelled that out, however, though he is not expected to kill the austerity push. He is expected to ease the drive, however, having to answer to both the people and the markets. The question is whether he will push to renegotiate Europe's grand fiscal pact.
"All assume he will open the debate with Merkel about slowing the austerity drive, most assume his policy bite won't be as bad as his electioneering bark," said Sebastien Galy, senior currency strategist at Société Générale.
"Personally, I think we need to distinguish between the direction of policy and the macro impact of policy," Mr. Galy said in a report today.
"What bothers many about French fiscal policy is the sheer size of the government in the economy overall. But the structural need to nurture the private sector and limit the power of the state isn't at all the same as needing permanent austerity and economic misery. This is only important now because to argue for more austerity in Europe is just plain silly - the sort of siliness that could bring the whole thing crashing down."
The political process still has to play out in France, in legislative elections in June.
"If the left wins it will control all branches of government," noted Mark Chandler, chief of fixed income and currency research at RBC Dominion Securities.
"If the right retains its majorty, Hollande will be forced to appoint a PM representing the right (as the PM must have the confidence of Parliament). The key question now boils down to what a Hollande-Merkel relationship will look like within the context of his precedecessor's 'special relationship' with the German Chancellor."
In Greece, the poster child of Europe's meltdown, everything old is new again, including where its bailouts stand and whether, as some believe, it will leave the monetary union. Today, there is political deadlock .
"Over all the breakdown in the political process may bring threats of a messy euro zone exit back into market focus," said senior currency strategist Elsa Lignos of RBC in London.
"Popular support for [the euro]remains high and most parties identify themselves as pro-European (albeit anti-bailout) but the coming months look set to be a turbulent time for Greek politics, even by the standards of the last two years."
As in France, it's far from clear what happens next in Athens, meaning the uncertainty still has a way to go
"With both of the main parties searching to cement their would-be powers, the next steps is whether or not a 'grand coallition' could be created, but the willingness of other parties to go down that route looks low so Greece could actually be back at the polls next month - not the reduction to uncertainty required for sanguine markets," said RBC's Mr. Chandler.
Several European governments have toppled during the debt crisis, making the situation increasingly difficult for Germany and Ms. Merkel, and the ability to carry through on a common strategy. It becomes even more touchy now.
"I fail to see how any country is going to be able to 'grow' their way out of their deficits, barring [European Central Bank]debt monetization or via German acceptance of a common fiscal policy, which would then allow profligate sovereigns to ride off of Germany's strong balance sheet," said Mr. Rosenberg.
"The problem is that the German economy is starting to soften, and along with that I expect polls to start showing lesser support for providing backstops to the periphery. And from a geopolitical standpoint, an ever-isolated Germany spells even more instability."
- Barrie McKenna's Economy Lab: Why Europe's era of austerity could be over
- Regime change in France signals wider shift in European outlook
- Austerity-weary voters punish Greece's mainstream parties
Teachers' backs dissidents Ontario Teachers' Pension Plan, an influential voice in Canadian markets, will vote in favour of the shakeup at Canadian Pacific Railway Ltd. that has been proposed by activist investor Bill Ackman, The Globe and Mail's Tim Kiladze reports.
"CP has failed to persuade us that Mr. Harrison [Mr. Ackman's proposed chief executive officer]would be a liability for CP. We believe that CP's multiyear plan (MYP) is similar to those previously executed by Mr. Harrison and that a change in management would not imperil the success of executing the MYP," the pension fund said.
BMO opens in UAE Canada's Bank of Montreal is expanding in the Middle East with the opening of a representative office in the United Arab Emirates, which will oversee investment banking and asset management services for clients, The Globe and Mail's Grant Robertson reports today.
The office, in Abu Dhabi, makes BMO the first Canadian bank with a representative office in the capital city of the UAE. Several Canadian banks have banking relationships across the Middle East, including Royal Bank of Canada, which operates a representative office for RBC Wealth Management in Dubai, the country's largest city.
Building permits climb Is homebuilding slowing down?
The trends aren't exactly clear, but the issuance of building permits suggests that may be in the works.
Building permits increased in March by 4.7 per cent, but that was all driven by non-residential construction. In the residenttial sector, permits fell for the third month in a row.
The institutional side drove the increase in March, according to Statistics Canada today, largely because of permits for government and medical buildings in Ontario.
"Although housing starts data have been buoyant lately, the recent softening trend in residential permits suggests that the pace of homebuilding may slow in the months ahead," said Emanuella Enenajor of CIBC World Markets.
What to watch for this week The key report this week comes Friday morning with Statistics Canada's reading of the labour market in April.
Economists expect the report to show that between 7,000 and 10,000 jobs were created last month, with the unemployment rate holding at 7.2 per cent, though it could inch up as more people join the labour force.
"After a wild outburst saw more than 82,000 jobs added in March, we look for a subdued 7,000 increase in April," said Benjamin Reitzes of BMO Nesbitt Burns.
"With the economy expected to expand 2 per cent this year, don't expect much pickup in employment trends," he added.
In the markets, several companies will be reporting quarterly results, including Kinross Gold, Molson Coors Brewing, Toshiba, Walt Disney, Agrium, Cisco, Enbridge, AOL, News Corp., Quebecor, Rona, Sony, Telus, Tim Hortons, Bombardier, Canadian Tire, Cineplex, Magna International, Sun Life Financial and TMX Group.
"The Q1 earnings season is now largely in the bag, with about 85 per cent of S&P 500 companies reporting," said Robert Kavcic of BMO Nesbitt Burns.
"Overall, results look quite sturdy, with just over 70 per cent of S&P 500 companies beating expectations, a modest improvement over the prior quarter and somewhat better than the historical norm," he said in a research report.
"Consumer services, technology and industrials were the real winners this quarter, posting the biggest share of results that topped the consensus call. Meantime, about 57 per cent of TSX companies have topped expectations, also a modest improvement over the prior quarter. Over all, it appears that we are well into a more mature phase of the cycle, with the days of significant across-the-board earnings surprises behind us."
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