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business briefing

These are stories Report on Business is following Thursday, July 4, 2013.

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Housing holds up
Canada's housing market continues to show signs of a soft landing, with recent sales that are "surprisingly resilient."

Two real estate markets that have been the source of angst among doomsayers – Vancouver and Toronto – are holding up at this point.

In Toronto, sales dipped less than 1 per cent in June compared to a year earlier, showing signs of stability after the rapid cooling in the housing sector. On a month-to-month basis, sales slipped in June from May, by about 11 per cent.

And, according to the Toronto Real Estate Board today, the average price rose 4.7 per cent to $531,000.

"The sales picture in the GTA improved markedly in the second quarter

"While the number of transactions was still down compared to 2012, rates

The overall numbers mask the differences among the types of homes, but still suggest a more stable market.

Sales of detached homes rose 0.5 per cent last month, on a year-to-year basis, while prices rose 5.2 per cent. The condo market was somewhat different, with sales slipping 3.5 per cent and prices just about flat.

"The short supply of low-rise home types in many parts of the [Greater Toronto Area] relative to the number of households looking to buy continued to prompt strong upward pressure on selling prices of singles and semis," Jason Mercer, the senior manager of market analyst at the realtors group, said in today's report.

"We have also seen enough buyers in the better-supplied condo apartment market to provide support for selling prices at current levels."

The Toronto numbers come just one day after a solid showing by the Vancouver market.

As The Globe and Mail's Brent Jang reports, sales in the Vancouver area rose by almost 12 per cent in June, chalking up their biggest gain in two years.

Vancouver sales may have climbed, but were still more than 22 per cent lower than the 10-year average. New listings were 11.5 per cent lower

In Victoria, sales jumped 6.6 per cent, while in Calgary they climbed 5.5 per cent.

"The initial readings for June home sales from some of Canada's major cities are solid," said chief economist Douglas Porter of BMO Nesbitt Burns.

The Canadian government has attempted to engineer a soft landing, with four rounds of mortgage restrictions, the latest about a year ago.

That indeed cooled the market, but led to fears of a meltdown.

Of course, we've yet to see how the real estate sector fares with the recent rise in mortgage rates. And concerns over Toronto's condo market remain.

"If these results are at all indicative, it looks like Canadian home sales remained surprisingly resilient again in June," Mr. Porter said, referring to the sales figures from Vancouver, Victoria and Calgary.

"A bigger test may lie ahead, with longer-term mortgage rates having backed up notably in recent weeks."

Carney makes his mark
Mark Carney's debut across the pond was dramatic, to say the least.

With Mr. Carney at the helm, the Bank of England's policy statement today helped drive down the pound and boost stock prices on suggestions that rate hike expectations are overdone.

As The Globe and Mail's Paul Waldie reports from London, the central bank held its benchmark rate steady at 0.5 per cent and kept its asset-purchase program unchanged.

But the comments had a big impact, and marked the first time that the Bank of England's rate announcement went beyond the simple decision.

The central bank pointed to risks ahead, and warned of the threat from higher market interest rates.

"In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time," the central bank said.

"At its meeting today, the committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May report," it added.

"The significant upward movement in market interest rates would, however, weigh on that outlook; in the committee's view, the implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy."

Mr. Carney, the former Bank of Canada governor, is the first foreigner to lead the British central bank in its 319-year history.

He has drawn wide attention on everything from his pay packet and his looks to the fact that much is riding on his tenure at the central bank.

Today's statement was seen as "dovish," prompting several comments from economists and other observers. Here's a sampling:

"From Canada with dove."
Jeremy Cook, chief economist at World First, via Twitter

"Mr. Carney, your honeymoon is over! Tough crowd."
David Jones, chief market strategist, IG, via Twitter

"The MPC under Mark Carney is likely to focus more on communication, restraining the rise in the expected path for future policy rates but with less emphasis on gilt purchases."
Jens Larsen, chief European economist, RBC

"This is pretty aggressive stuff that has prompted a sharp move lower in sterling and suggests that Carney is very much in the dovish camp."
James Knightley, ING Bank

"Carney was imported to deliver, in the chancellor's words, 'monetary activism' and he has not been slow to act. The MPC could not have put it any more clearly. It will introduce forward guidance at the August meeting. This is a change of forecast."
Brian Hilliard, Société Générale

Central banks dovish
As one commenter put it today on social media, who let the doves out?

The comment referred not just to the Bank of England, but also the European Central Bank, which also held its benchmark rate steady.

But the ECB also began giving so-called forward guidance, something the Bank of Canada and the Federal Reserve have done for some time now.

This came in ECB chief Mario Draghi's comments in a press conference, when he said that the central bank's policy-setting  group "expects the key ECB interest rates to remain at present or lower levels for an extended period of time."

Mr. Draghi, whose meeting today came on the heels of a fresh political crisis in Portugal, said the outlook is clouded by risks, but the situation has certainly improved.

"Recent developments in cyclical indicators, particularly those based on survey data, indicate some further improvement from low levels," Mr. Draghi said.

"Looking ahead to later in the year and to 2014, euro area export growth should benefit from a gradual recovery in global demand, while domestic demand should be supported by the accommodative monetary policy stance as well as the recent gains in real income owing to generally lower inflation," he said in his opening statement.

"Furthermore, notwithstanding recent developments, the overall improvements in financial markets seen since last summer should work their way through to the real economy, as should the progress made in fiscal consolidation."

An interesting market reaction given that neither central bank actually did anything.

"Neither the Bank of England nor the ECB cut rates," said Kit Juckes, the chief of foreign exchange at Société Générale.

"Nor did they increase their bond purchases," he said in a research note.

"But both engineered lower yields and weaker currencies. Transatlantic monetary policy divergence could not be any clearer. The Fed is at the start of a very long drawn-out process of normalization and the ECB and MPC are both still thinking about easing further and clearly discomforted by the recent back-up in rates."

Markets climb
Global markets climbed today, buoyed by the central bank comments and easing tensions in Portugal and Egypt.

"While interest rates and broader central bank policy was left unchanged by both the Bank of England and the European Central Bank today, the shift in tone in terms of communication appears to have caught markets completely off guard, with the result that equity markets have kicked sharply higher, while the pound and the euro have slumped sharply," said senior analyst Michael Hewson of CMC Markets in London.

Stock, bond and commodities markets were roiled Wednesday on a combination of political turmoil in Portugal, mounting unrest in Egypt, and investor angst over China's economy.

The troubles in Portugal, where two key ministers resigned, reminded investors that the euro crisis may have settled, but that huge risks remain.

The unrest in Egypt, which culminated in a coup, drove up oil prices amid worries over what that could mean to shipments through the crucial Suez Canal.

Today, however, Egypt has a new interim president, while Portuguese politicians are trying to settle their differences, which sparked renewed troubles in the embattled euro zone.

"That being said, I think tensions are still high in Portugal and Egypt," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.

While U.S. markets are closed, others are mixed, though generally stronger, amid "this kind of sense of calm," as Ms. Sutton put it.

Tokyo's Nikkei dipped 0.3 per cent, while Hong Kong's Hang Seng climbed 1.6 per cent.

In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 2.1 per cent and 3.1 per cent.

Target to open more stores
Target Corp. plans to open 20 more Canadian stores this month after its initial rollout of 48 outlets earlier this year, The Globe and Mail's Bertrand Marotte reports today.

The total count of 68 locations so far lifts the company past the halfway mark in its plans to open 124 stores in Canada by the end of the year.

The 20 new stores -- in British Columbia, Alberta, Saskatchewan and Ontario – are to open between July 16 and July 30.

The new batch of stores includes the first Targets in Saskatchewan, the U.S. discount chain said in a statement.

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