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Canada's net worth rises Canadians are getting richer as stocks and house prices rise. Household net worth rose 1.3 per cent in the first quarter of the year, or $74-billion, to $6-trillion, Statistics Canada said today, as the value of assets eclipsed the rise in liabilities. "This follows a 1.8 per cent advance in the previous quarter," the federal statistics gathering agency said. "Gains in the value of financial assets, especially equities, as well as increases in residential real estate contributed to the advance in net worth."
Household debt also rose, particularly mortgages, Statistics Canada said. The ratio of household credit market debt-to-income now stands at 147 per cent, up from 144.9 per cent in the fourth quarter of 2009.
Separately today, the Bank of Canada cited as "an important source of risk" the proportion of households deemed vulenrable to wealth and income shocks, a level it said in a semi-annual review has increased in recent years. "In the event of a significant economic downturn, the credit quality of household loan portfolios could be undermined, prompting banks to tighten credit conditions and some households to reduce spending," the central bank said. "Ultimately, this could result in mutually reinforcing declines in real economic activity and in the health of the financial sector."
Read: Debt is central bank's biggest fear
Flaherty sees stronger growth Finance Minister Jim Flaherty today released a new survey of private economists that projects stronger-than-expected near-term growth and a gradual decline in unemployment. The survey of 14 forecasters now projects real gross domestic product will expand 3.5 per cent this year, up from 3.1 per cent in a March survey and 2.6 per cent in the last budget. From 2010 to 2014, the economy is projected to grow by 2.9 per cent, which is unrevised from previous forecasts.
While employment has been rebounding from the recession, and though the jobless rate has not come close to the 10 per cent projected at the height of the slump, today's survey still suggests a slow decline from the current level of 8.1 per cent. And even then, the jobless rate is not forecast to drop to the 33-year low of 5.8 per cent in the months before the recession. The recession forecasts a jobless rate of 8 per cent this year, 7.6 per cent next year, 7.2 per cent in 2012, 6.8 per cent in 2013 and 6.6 per cent in 2014. Read the story
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What will yuan reform achieve? China's surprise decision to allow the yuan to appreciate buoyed financial markets today, though the euphoria didn't last that long. Stocks initially surged, as did the Canadian dollar and commodities such as oil , but they later lost some of the enthusiasm. In the long run, what will the announcement by the People's Bank of China achieve? Here are comments from some observers today as China made good on its pledge and allowed the yuan to rise:
Mark Chandler and Kam Bath of RBC Dominion Securities: "The move may prevent an impending trade war, it may signal overall faith in a persistent recovery and it may signal other measures forthcoming to boost domestic demand and reduce global trade imbalances."
Sacha Tihanyi of Scotia Capital: "The decision ... will not only boost the domestic Chinese buying power for imports, having a direct impact on demand for Asia's exports to China, but also allow other Asian central banks to let their currencies appreciate more rapidly against the [U.S. dollar]"
Bart Melek of BMO Nesbitt Burns: "The expected gradual revaluation of the yuan (3-5 per cent annually over the next five years or so) should help commodity demand and prices, as China shares its economic growth with the rest of the world. Copper, which continues to be BMO Research's top commodity pick, is expected to be among the biggest beneficiaries, as it is forecast to post a material deficit next year."
Krishen Rangasamy of CIBC World Markets: "Chinese authorities could facilitate the rebalancing of the global economy by accompanying the yuan revaluation with further moves to develop a social safety net that would reduce the need for private precautionary savings, giving a nudge to the world's greatest hope, Chinese consumers."
David Rosenberg of Gluskin Sheff + Associates: "Rough estimates show that every 5 per cent yuan appreciation trims the U.S. trade deficit by just over $60-billion (so it would take something like a 35 per cent appreciation to eliminate the gap altogether - call us in 2020)."
Derek Holt and Gorica Djeric of Scotia Capital: "China is revaluing not because of foreign pressure. Rather, it's revaluing in an effort to have the nominal exchange rate serve the role of tightening policy in order to contain the importation of price pressures via real exchange rate dynamics. But the timing will let foreign sources of pressure lay claim to victory howsoever shallow in nature ...Yes, it could be a positive as a step for global rebalancing, depending upon when it gets enacted. But that process of rebalancing can carry hefty adjustments along the way that create an uncertain mixture of winners and losers, as regime shifts always do."
Read
- Markets rally as China unleashes yuan
- China pre-empts critics with currency pledge
- China's yuan move eases political pressure
- Kevin Carmichael: China heads into G20 with some moral authority
Take advantage of yuan reform, BMO says The move in the yuan today was modest, and the decision was seen among observers as a small but important step in the escalating battle over China's currency.
"While this weekend's announcement from China is a small step and likely aimed at keeping the pressure off during the G20 meeting and to avoid being labelled a currency manipulator by the U.S. Treasury next month, it is still significant step to a slowly appreciating [yuan]this year," said BMO Nesbitt Burns senior economist Jennifer Lee. "The [yuan]has already appreciated considerably versus the [euro]so far this year so a more rapid pace of strength versus the [U.S. dollar]will likely not take place until next year, when the global economic recovery is more sturdy."
For Canada, said BMO Nesbitt Burns economist Benjamin Reitzes, the immediate impact of the currency reform will be small, though it will affect stocks and the Canadian dollar, which is already playing out in global markets this morning. "In the near-term, the macroeconomic impact will be minimal," said Mr. Reitzes. "However, TSX and the [Canadian dollar]will get a solid boost, with commodities rallying and the [U.S. dollar]falling on the announcement. A stronger yuan makes foreign goods less expensive in China and should help tilt growth more towards domestic demand. Increasing Chinese consumer demand is an opportunity that Canadian firms must take advantage of."
Whitney projects 'double dip' in U.S. housing Meredith Whitney, the well-known U.S. bank analyst, believes America's housing market is headed for another recession, which will mean higher loan loss provisions for the country's banks. "Most investors are not baking in a double-dip in housing," Ms. Whitney, who runs New York-based Meredith Whitney Advisory Group, told CNBC today. "You're going to see banks post additional reserves associated with this double-dip in housing, and that means weak performance going forward."
Ms. Whitney said some consumers are still paying off their credit card and other debts rather than paying down their mortgages.
Biovail in reverse takeover Biovail Corp. , the drug company founded and made famous by Eugene Melnyk, has agreed to a reverse takeover bid from its U.S. rival Valeant Pharmaceuticals International . Under the deal, shareholders of Canada's biggest public drug company will hold 50.5 per cent of the merged company, while Valeant investors hold 49.5 per cent. But the stock swap will see the new entity run by executives of California-based Valeant, which will also become the name of the merged group, Streetwise columnist Andrew Willis reports. The deal features two cash dividends, sweeteners for the company's owners.
The marriage of the two companies will create a sizeable concern in specialty drugs. "Valeant and Biovail believe the new Valeant's scale, financial strength and complementary product lines will enable it to pursue substantial growth opportunities," the companies said in a statement. "The combined company will have a significantly expanded presence in North America and operations in eight other countries, working across four growth platforms. The new Valeant will be able to leverage its complementary product lines and operations in specialty Central Nervous System (CNS), Dermatology, Canada and emerging markets/branded generics."
BP Gulf costs continue to mount BP PLC said today it has now spent $2-billion (U.S.) dealing with the massive oil spill in the Gulf of Mexico, caused by the explosion on the Deepwater Horizon drilling rig in April. BP's statement came as markets were also digesting weekend reports of an internal BP document that showed its worst case scenario of the spill: 100,000 barrels of oil a day. The document was released by a U.S. politician, and, according to a BP spokesman, applied only to a scenario under which a blowout preventer is removed. "Since there are no plans to remove the blowout preventer, the number is irrelevant," he told Reuters.
Separately today, Kenneth Feinberg, President Barack Obama's point man on the $20-billion fund set up by BP, told CNN that the fund might not be big enough to handle all the claims. "The president made it clear he wants full compensation," Mr. Feinberg said. "The $20-billion might not be enough, maybe it will. Whatever it takes, these individuals and businesses must get paid."
Related: Cleanup falls to those who know gulf coast best
Adidas boosts footie forecast The World Cup is boosting the fortunes of Adidas AG. The company, the second biggest sports equipment manufacturer in the world, said today its soccer-related revenue this year will be higher than expected, given an already strong showing for sales of team jerseys. Soccer sales this year will be at least €1.5-billion, compared to what had been a record €1.3-billion in 2008, chief executive officer Herbert Hainer told reporters today. Adidas sponsors 12 teams in the World Cup.
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