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Finger pointing
I can't believe the nerve of Germany in criticizing Canada for not wanting to pump money into a European bailout.
Whether Prime Minister Stephen Harper and Finance Minister Jim Flaherty are right or wrong is beside the point. Germany itself has stood in the way of several proposals to aid the ailing euro zone, and has no right to point an accusing finger at anyone.
To recap, Canada has said repeatedly it will not put money into an International Monetary Fund effort to raise $430-billion (U.S.) that could be used to rescue its members, which in the modern era means the basket cases of the 17-member European monetary union. Other countries outside of Europe have pledged billions.
Germany's ambassador to Canada, Georg Witschel, is peeved about that, telling The Globe and Mail's Bill Curry this week the Canadian government must accept that the troubles in Europe threaten the global economy.
"We find it indeed somewhat irritating and somewhat disappointing that Canada is so adamantly refusing to help," the ambassador said. "A major problem in the euro zone would have major negative economic repercussions on Canada, so solidarity is needed. … We still hope that Canada would be ready to contribute more, like so many other partners."
Set aside the fact that Canada has its own troubles, notably a stubbornly high unemployment rate of 7.3 per cent, and is, like others, scrambling to cut its deficit.
Focus instead on the issues here.
Canada believes the troubled nations of Europe must work harder to find a solution. So does Germany. Canada believes there must be discipline. So does Germany.
What's irritating, to use Mr. Witschel's word, is the fact that he would dare point a finger when his Chancellor, Angela Merkel, has repeatedly rejected solutions that have been put forth.
She will not sign on to a proposal for a eurobond, and that may be understandable, given that such a measure would mean the weak countries could borrow on Germany's good name, while driving up its own borrowing costs. Nor will she sign on to a suggestion for a "banking union," which would spread the risk of failing banks throughout the group.
"This is still the only viable method of solving the crisis, but for some unfathomable reason the Germans aren't too keen on - as they must see it - throwing good money after bad," futures dealer Rupert Osborne of IG Index in London said recently, referring to the idea of the banking union.
"Unless they change their minds, this crisis is only going to end one way."
Mr. Osborne is not alone.
Kit Juckes, the chief of foreign exchange at Société Générale, did not cite Germany, but did point to the need for common action that Ms. Merkel has blocked.
"I fear that unless Europe's leaders accept the need for debt mutualization - i.e., issuing debt in common either through the front door (euro bonds) or back-door (with the help of the ECB) the euro won't survive," Mr. Juckes said recently. "But Europe's leaders are only going to react to crisis, not pre-empt it."
Germany has indeed been the paymaster throughout this affair, and I'm not saying Ms. Merkel is necessarily wrong in her approach.
What I am saying is that I find Mr. Witschel's comments somewhat irritating and somewhat disappointing.
- Harper's refusal to bail out Europe draws Germany's ire
- Spain: It's beginning to look a lot like ... Greece
- Spain may request EU bank aid
China cuts rates
Determined to promote stable economic growth as momentum slows, the People's Bank of China this week trimmed its key lending rate for the first time since 2008, by one-quarter of a percentage point.
The move sparked a temporary market rally - later doused by Federal Reserve Chairman Ben Bernanke, who failed to signal a new round of stimulus - highlighting the concern among investors over what has been the engine of global growth.
Despite the rate cut, Carolynne Wheeler reported from Beijing, authorities are stressing that China won't return to the stimulus-heavy days of the financial crisis.
"We anticipate more rate cuts ahead," said Qinwei Wang of Capital Economics in London. That said, the scale of the stimulus this year is likely to be smaller than in 2009 and should not lift price pressures much."
Barrick changes CEOs
Not at all happy with its share price, Barrick Gold Corp. made a key change at the top this week.
Out went chief executive officer Aaron Regent after not quite four years in the post, and in came Jamie Sokalsky, promoted from chief financial officer.
"We are fully committed to maximizing shareholder value, but have been disappointed with our share price performance," said Barrick founder Peter Munk.
Barrick made a bold move into the copper market last year with its $7.3-billion deal for Equinox Minerals Ltd., but the deal alienated many investors who saw it as an expensive departure from the company's focus on gold.
In the markets
What China giveth, Ben Bernanke taketh away.
The People's Bank of China put a spark in global markets Thursday, announcing a quarter-point cut in its benchmark lending rate. That lasted just about as long as it took the Federal Reserve chairman, in congressional testimony, to warn of global threats but hint at no new emergency measures.
Investors had been looking for a signal that the U.S. central bank was prepared to act again, but Mr. Bernanke gave nothing away in the run-up to the next Fed meeting.
"In contrast to the argument that additional Fed easing would spark reduced global market confidence because of Fed confirmation of challenges to the outlook, we're seeing that what equities are emphasizing is their addiction to Fed stimulus," Derek Holt and Dov Zigler said Friday as markets sank. "Don't provide it, and the risk trade sells off. "
Toronto's S&P/TSX composite index under-performed most of the world's major markets this week, gaining just 1.2 per cent, noted Robert Kavcic of BMO Nesbitt Burns.
"Canadian energy stocks also continue to languish, now down 20.4 per cent in the past year versus a more modest 11.4-per-cent decline for their U.S. counterparts," he said.
What to watch for next week
If there's anything that's a hot topic in Canada these days, it's the housing market.
So watch late next week when the Canadian Real Estate Association releases its report on resales for May. Economists at BMO Nesbitt Burns expect the report to show sales up 7 per cent from a year earlier, and prices up 3 per cent.
"Led especially by Toronto, the overall Canadian housing market looked to have remained buoyant in the key May sales season (often the busiest month of the year for home sales)," said deputy chief economist Douglas Porter.
"Early returns show that sales in Toronto rose a solid 11 per cent from year-ago levels, and that strength was reinforced by double-digit gains in Calgary (up 35 per cent), Ottawa and Victoria," he said in a research note.
"Where Toronto has been especially hot this year is prices, although the city saw somewhat cooler gains of 6.5 per cent last month. Similar to 2011, Vancouver is the distant outlier - it was incredibly strong last year, but ice cold this year, with sales down 15 per cent year over year and average transaction prices off almost 6 per cent year over year in May. The fade in Vancouver will restrain national sales gains to about 7 per cent year over year, and should keep Canada-wide price increases calm at 3 per cent year over year. While a growing cadre of pundits wait breathlessly for a Canadian housing crash, the market just keeps grinding ahead amid still exceptionally low borrowing costs"
Investors will also get a fresh reading on the state of Canada's factories, which have been chugging along.
Economists expect to see a another pickup in sales when Statistics Canada reports sales among manufacturers in April on Friday, though short of the healthy 1.9-per-cent gains of March.
Also on tap is a U.S. report Thursday on consumer prices in May, which could show the first decline in two years. Economists expect to see a monthly decline of 0.2 per cent and an annual inflation rate of 1.8 per cent.
"Consumer prices should fall for the first time in two years during May, fuelled by an abnormally large drop in gasoline prices (raw prices fell 4.3 per cent)," said senior economist Michael Gregory of BMO Nesbitt Burns. "Flagging the start of the traditional 'summer driving season,' gasoline prices tend to motor higher in May, which will magnify the impact of any seasonally unusual decline on the headline CPI."
Required Reading this week
Christine Day's mission to move beyond yoga pants to bikinis and bike shorts is raising questions about how far she can stretch Lululemon Athletica Inc.'s business without pinching profit margins too much, Marina Strauss writes.
Canada faces a potato shortage, mainly because of poor growing conditions last summer, Paul Waldie reports. That has sent wholesale prices for some spuds soaring and forced processors such as McCain Foods Ltd. to temporarily close some plants.
The Detroit Three auto makers have fired an early salvo at their Canadian work force, warning they are determined to hold the line on wages and other fixed costs in contract negotiations that begin next month, Greg Keenan reports.
In an age of austerity and heated competition, retailers are courting their premium customers like never before. Marina Strauss looks at the issue.
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