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Today's top stories from Report on Business :

Canadian dollar pushes higher

The Canadian dollar pushed higher today amid projections it could soon reach parity again with its U.S. counterpart. The loonie, which closed just slightly higher today at 97.48 cent U.S., is an attractive currency, given Canada's economic position and projections that the Bank of Canada will raise interest rates well before the Federal Reserve. CIBC World Markets said in a report today that the dollar will top parity with the greenback by summer. CIBC's chief economist, Avery Shenfeld, projected the dollar would hit $1.02 (U.S.) by September, though drop to 97 cents by the end of the year. "Indeed, we've already seen the Canadian dollar gain several cents in recent weeks as the market begins to firm up expectations for a July hike, even against the backdrop of U.S. dollar strength," Mr. Shenfeld said. "But it's easy to see the [Canadian dollar]running a few cents through parity after the first hike as the market prices in an even wider short-rate differential vs. the U.S." Read the story


CIBC warns on government debt

CIBC World Markets also issued a warning today about rising government debts, raising the question of whether a "ticking time bomb" looms as interest rates are set to climb. Writes economist Warren Lovely:

"Burgeoning debt levels and rising interest rates are not a friendly combination. In Canada, risks of excessive household borrowing in a rising rate environment have caught the attention of policy makers and market players alike. But consider recent developments in the government sector, where debt is piling up due to the recession's fallout and ongoing stimulus … With economic recovery only now taking root, and governments committed to stimulus programs, debt levels continue to shoot higher. Ottawa's recent budget shows more than $100-billion being added to the federal debt in the two years to 2010-11. Over the same two-year period, we estimate the combined provincial deficit at roughly $70-billion, which translates into an even larger increase in debt, given elevated infrastructure-related borrowing."

Rising debt would be trouble enough in normal times, when interest rates are stable," Mr. Lovely noted, but consider that the Bank of Canada is expected within months to begin hiking rates from their historic lows. "The structural decline in interest rates that characterized the past 20 years is history," he said. "Governments had benefited handsomely from that one-way street for rates. Aided by outright debt reduction, debt servicing costs have consumed an ever smaller share of the government revenue dollar since the mid-1990s … But again, all that is ending."

Mr. Lovely, noting more erosion at the provincial level, said markets should not worry overly about federal debt, but provincial finances are another matter. "While most provincial governments maintain a fair degree of fiscal flexibility, eroding debt affordability is an unwelcome development for a sector that faces considerable long-term funding pressure from an aging population," he said. "On average, 9 cents of every revenue dollar is needed to cover provincial interest charges, rising in 2009 for the first time in more than a decade."

Ottawa's fiscal policy has been praised as the best among its peers, notably as debt fears rise in Europe and the United States, and Canada is seen as solid credit. Indeed, Mr. Lovely said today, "if the investing world starts looking for a place to park capital in the wake of deteriorating sovereign credits then Canada would look very attractive."

Canada, he added, as others have recently, "is one of the few remaining AAA credits with a healthy outlook and the Canadian dollar could benefit from a switch trade out of weak sovereign names to Canada."

U.S. runs up massive deficit

The U.S. government marked a milestone today, reporting the largest monthly deficit in its history and keeping the country on pace to eclipse an annual record set last year. The U.S. Treasury Department reported the deficit in the month widened by 14 per cent to almost $221-billion (U.S.), bringing the total for the first five months of the fiscal year to almost $652-billion. The deficit is so fat because of the vast sums spent by the administration to fight the recession. With the economy still soft, though rebounding, and with unemployment at almost 10 per cent, the trend is expected to continue. Read the story

Portugal raises almost €1-billion

If Europe's PIGS are in such deep trouble, why are their bond issues so oversubscribed? The PIGS - Portugal, Ireland, Greece and Spain - have sparked extreme market concerns over their burgeoning debts. This has pressured the euro and global markets. Yet last week, after it announced another round of austerity measures, a widely watched bond issue by Greece was a huge success. And today, Portugal said it brought in €990-million in an oversubscribed bond issue. This, too, followed a new fiscal blueprint. While the troubles among the PIGS have sparked on-and-off concerns, the success of the two bond issues indicates that fears of sovereign defaults may be easing as the ailing governments outline the measures they're taking to deal with their fiscal woes.

Related: U.S. resists pressure for curb on swaps

China bubble fears mount

Concern is rapidly mounting that China may be headed for a property bubble. Property prices rose almost 11 per cent in February from a year earlier, the government reported today, adding to recent fears that the market is not sustainable. The government's numbers come as many in China find prices out of their range. "I sigh at every fancy apartment building I see on the way to work every day, but that won't change anything," Yang Xuhua, a prospective buyer, told The Associated Press. "My salary increases but it can't catch up with rising housing prices." Read the story

China trade booming

Global trade with China, the world's biggest exporter and third-largest economy, is surging. Both exports from and imports to China rose more than projected in February, yet another illustration of how the country's economy is booming. Exports rose almost 46 per cent and imports almost 45 per cent, both following strong numbers in January. Economists said this bolsters the arguments in favour of Beijing allowing its currency to rise, which many of the country's trading partners are urging. "Obviously, it will translate into stronger pressure for exchange rate reform and it will also add inflationary pressure to the domestic economy, because when exports recover, prices tend to go up," Jun Ma, Deutsche Bank's chief China economist in Hong Kong, told the Reuters news agency. "It will reinforce the argument for further policy tightening." Read the story

In Germany, the world's second-biggest exporter, January trade numbers released today were somewhat disappointing, down 6.3 per cent from December, though up 0.2 per cent from a year earlier. While the numbers were disappointing for Europe's biggest economy, ING economist Carsten Brzeski said "today's drop in exports was the first decline since August and should only be a temporary correction," according to The Associated Press.

Quebecor rebounds

Quebecor Inc. rebounded to a fourth-quarter profit of $73.8-million, or $1.15 a share, from a loss of $343.6-million, or $5.34 a share, a year earlier, driven by its telecommunications business, Vidéotron Ltée, and recovery in its media divisions. Analysts expect aggressive pricing and bundling of wireless services with other products when it launches cell phone operations. Said Desjardins Securities analyst Maher Yaghi: "A maturing product market will cause growth to decelerate over time within core cable operations, but should be offset by wireless, which will provide the next leg of growth for the company." Read the story

Viterra posts quarterly profit

Viterra Inc. , the biggest grain handler in the country, bounced to a first-quarter profit of $10.7-million, or 3 cents a share, from a loss of $33-million, or 14 cents, a year earlier. The Saskatchewan-based agriculture company, created through the merger of the Saskatchewan Wheat Pool and Agricore United, boosted sales in the quarter to $1.8-billion from $1.4-billion, pushed by its takeover of Australia's ABB Grain Ltd. last fall. Viterra also announced it is acquiring Dakota Growers Pasta Co. Read the story

From today's Report on Business

Ottawa leans toward Amazon plan

Canada's banks set sights on growth

Air Canada calls Emirates plan 'subterfuge'

Vox: Imax surges but plot line looks predictable

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