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Loonie up on stronger economy The Canadian dollar was a hair's breadth away from 3 cents above parity with its U.S. counterpart late today, up almost three-quarters of a penny, buoyed by market expectations that the Bank of Canada will raise interest rates sooner rather than later.
Already supported by high oil prices and other factors, a stronger-than-expected reading of Canada's economy in the fourth quarter led to speculation over the timing of the next interest rate increase, said Kam Bath, fixed income strategist at RBC Dominion Securities in Toronto.
Bank of Canada Governor Mark Carney and his rate-setting colleagues announce their latest decision tomorrow. While they're not expected to boost the benchmark rate from its low of 1 per cent, markets are looking for signals for the road ahead.
"With growth handily outpacing the Bank of Canada's expectations, this upbeat report begins to tip the balance back in favour of earlier rate hikes," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "We had been looking for the bank to wait until their July meeting before restarting the rate hike process, and are still comfortable with that call. But, if there is a surprise to our rate call, it now looks like the bank would go earlier, rather than wait longer."
Mr. Porter's colleague at BMO, Benjamin Reitzes, said the conditions for further gains in the dollar are "ripe," noting higher oil prices and the expectations that the Bank of Canada will move before the Federal Reserve.
The heightened speculation over the Bank of Canada came after Statistics Canada reported today that the economy ended 2010 on a firmer-than-anticipated note, driven by the biggest increase in exports since 2004.
The economy grew by 0.5 per cent in December, The Globe and Mail's Tavia Grant reports. In the fourth quarter, gross domestic product increased at an annual rate of 3.3 per cent. Both readings were better than economists expected, with December's pace the best in nine months. Statistics Canada also revised its reading for the third quarter, bringing the pace to 1.8 per cent from its earlier estimate of 1 per cent.
Consumer spending also helped pump up the economy in the fourth quarter, according to the federal statistics gathering agency.
"All told, the last quarter of the year erased the disappointment of a sluggish summer, and points to a healthy start to the new year," said CIBC World Markets chief economist Avery Shenfeld. "Look for a more hawkish line from the Bank of Canada tomorrow that sets the stage for a rate hike in [the second quarter] Bearish for bonds, bullish for the [Canadian dollar]"
Statistics Canada also reported that the current account deficit, which marks the broadest measure of trade, narrowed to $11-billion from a record $17-billion.
Economists believe the stronger showing at the end of the year sets the stage for a solid first half of this year, at least, and are again questioning the timing of the Bank of Canada's next rate hike.
"Real GDP growth in the fourth quarter of 2010 beat the Bank of Canada's January forecast by a full percentage point," said Toronto-Dominion Bank economist Diana Petramala.
"If Canadian real GDP growth continues at this pace, the economy will be operating at full capacity by the end of this year - slightly ahead of when the Bank of Canada predicted back in January. There are signs that this pace of growth will continue, at least through the first half of 2011."
Added Mr. Porter: "Looking ahead, net exports and business investment are likely to take a more assertive role in leading growth in 2011, with a rebound in inventories adding a helping hand. While consumer spending and government outlays will moderate, neither is expected to be a significant drag on the economy this year. Over all, GDP growth will likely come in just shy of last year's 3.1-per-cent pace for all of 2011, but should surpass the Bank of Canada's most recent call of just 2.4 per cent."
Economist David Madani of Capital Economics, however, sees growth slowing: "Without a doubt, fourth-quarter national accounts confirm that underlying economic growth has picked up. Still, we expect growth to settle back down to around 2 per cent this year, as U.S. economic growth slows and a slump in the housing market constrains household spending and residential investment."
Waugh books 10-per-cent raise The chief executive officer of Bank of Nova Scotia made $10.7-million last year, booking a 10-per-cent raise in total compensation as the bank had a record year.
Rick Waugh, the head of Canada's third-largest bank, was paid a $1.2-million base salary, along with a $1.6-million annual incentive award, and $7.9-million in equity compensation, Scotiabank said Monday in its annual management proxy circular.
OMERS confirms it's eyeing AECL The Ontario Municipal Employees Retirement System is looking at partnering with SNC-Lavalin Group Inc. in a bid for part of Atomic Energy of Canada Ltd., the pension fund's chief executive confirmed Monday.
"We are working with SNC right now," Michael Nobrega told The Globe and Mail's Tara Perkins.
How to cut spending Canadians have been warned for months now to prepare for the inevitable rise in interest rates by cutting back on borrowing and boosting their savings. CIBC World Markets says consumers can do that by spending less on clothes, gambling, smoking and drinking.
"How much sacrifice does it take to reach the 6 per cent savings rate threshold?" deputy chief economist Benjamin Tal asked in a new report?
Having relied overwhelmingly on their homes to build personal wealth, the report says the average Canadian consumer now socks away considerably less than their U.S. neighbours, and will have to start saving more as housing prices moderate, Globe and Mail banking writer Grant Robertson reports.
"Based on Statistics Canada's Household Expenditures Survey, the average annual expenditures of a Canadian household is just over $71,000. Out of this amount close to $11,000 is spent on clothing, personal care, recreation, games of chance, tobacco products and alcoholic beverages. All other things being equal, cutting spending on those categories by only 10 per cent will raise the savings rate from the current 4.2 per cent to 6 per cent."
U.S. consumers pull it in U.S. consumers are feeling the pinch of higher energy and food costs.
Personal spending in the United States increased 0.2 per cent in January as consumers put their focus on paying down their credit cards after Christmas.
Incomes rose on tax cuts and wage gains, but spending on food and at the gas pump dipped.
"American consumers took a step back at the start of the year, as rising food and fuel costs drained purchasing power. Real spending likely slowed to a 2.5-per-cent annualized rate in [the first quarter]after surging the most in nearly five years (4.1 per cent) in [the fourth quarter] However, stronger job growth should support spending going forward."
What a tangled web we weave The web in the mining sector is getting awfully tangled.
As Globe and Mail mining writer Brenda Bouw reports today, Australian copper miner Equinox Miners Ltd. has launched a hostile bid for Canada's Lundin Mining Corp. , which itself is poised to merged with Inmet Mining Corp.
With everything in such flux, it will be fascinating to watch this one play out. UBS Securities Canada analyst Onno Rutten said today he sees "a high probability of success" for Equinox's $4.8-billion cash-and-stock offer because Inmet appears to have "limited ability" to match it.
And here's a twist, according to Mr. Rutten: "Given the magnitude of the transaction, we therefore believe that the offer for Lundin could result in Equinox itself becoming 'in play.'"
For Equinox, Mr. Rutten added, it's eat or be eaten. And, he said, "the most probable outcome of our scenario analysis is that the current Equinox bid succeeds, without the need for a bump." Given that, he boosted his price target on Lundin stock by 10 per cent to $8.10.
- New bid for Lundin sets stage for three-way copper fight
- Lukas Lundin looks to the summit of base metals
RBC boosts potash outlook RBC Dominion Securities today boosted its outlook for Canada potash producer, raising its price targets on the stocks of Potash Corp. of Saskatchewan and Agrium Inc. .
For Potash, analyst Fai Lee boosted the price target to $222 (U.S.) from $204, or to $74 from $68 after a stock split, and for Agrium to $110 from $106. Also revised up was the target for The Mosaic Co. , to $109 from $102.
RBC now expects higher potash prices for 2012.
Aeroplan flying higher Desjardins Securities today boosted its price target on shares of Groupe Aeroplan Inc. to $15 from $14 after the company's fourth-quarter earnings last week.
"While there was some disappointing news in Aeroplan's 2011 guidance, such as lower-than-expected free cash flow, the stronger-than-expected revenue growth in the quarter bodes well for 2011," said analyst Martin Landry.
"We believe Aeroplan is the worldwide leader in loyalty programs, given its wide geographic coverage, technological strength and experienced management across its divisions. The global loyalty business is expected to reach $100-billion by 2015, and we believe the company is well-positioned to leverage its strengths and gain market share in an expanding industry. The company expects to continue repurchasing its shares, which should support the stock price."
Oscars ratings dip Last night's Academy Awards show drew about 37.6 million watchers, according to reports, down from last year's 41.7 million.
According to Nielsen Co., the show, now famous for Melissa Leo's swearing episode, had a rating of 24.6 per cent in the biggest markets in the United States, down from 26.5 last year.
But the addition of young stars James Franco and Anne Hathaway appears to have had some success, with ratings in the 18-to-49-year-old demographic slipping only to 14.5 from 14.8, The New York Times said.
Boyd Erman's Morning Meeting First it was Brookfield Asset Management and Canada Pension Plan Investment Board. Now it's Blackstone Group. U.S. shopping malls are drawing interest from big real estate investors with a value bent, Streetwise columnist Boyd Erman reports today.
In Economy Lab today
The federal government's deficit is - or should be - the focus of the upcoming budget. One theme pervading the public debate posits that the size of the federal government has grown to an all-time high, so the solution to its deficit problem lies in reducing its operating expenses. But this view is mistaken, on at least two counts, economist Stephen Gordon writes today.
Today's U.S. economic indicators support the view that the Federal Reserve will complete its plan to purchase $600-billion (US) of Treasury securities by June, Globe and Mail Washington correspondent Kevin Carmichael reports.
In Personal Finance today
A new report warns that treating our homes as piggybanks is no longer an option as the property market moderates, Grant Robertson reports.
Starting early is key to helping children become financially literate adults, Dianne Nice writes.
Always read the fine print before you buy an online coupon. Some deals may include month-long waiting lists, added tax and expiry dates.
From today's Report on Business
- Barrie McKenna: Health care costs our single most pressing budget item
- Taking Stock: In emerging markets, political risk is here to stay
- At The Top: John Sleeman
- Crude Oil Front Month Futures$48.59-1.03(-2.08%)
- Bank of Nova Scotia$75.30-2.11(-2.73%)
- Snc-Lavalin Group Inc$53.69-1.00(-1.83%)
- Lundin Mining Corp$7.29-0.23(-3.06%)
- Potash Corporation of Saskatchewan Inc$23.34+0.68(+3.00%)
- Agrium Inc$129.61+3.21(+2.54%)
- Mosaic Co$27.63+0.21(+0.77%)
- Updated April 27 10:20 AM EDT. Delayed by at least 15 minutes.