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Housing starts sink
Softening prices and sales in the market for resale homes are starting to filter through to the new housing market, economists said today after Canada Mortgage and Housing Corp. reported that housing starts fell to an annual rate of 189,100 units from 201,800 a month earlier.
"Builders are responding to shifting resale market conditions, which help to determine the relative demand and pricing for new homes," said Adrienne Warren of Bank of Nova Scotia. "While resale markets remain quite healthy, they have nonetheless become much better balanced this year alongside some softening in demand and a sharp rise in listings. Some centres, including Vancouver and Calgary, are already beginning to favour buyers over sellers, while others such as Toronto are becoming far less competitive."
Ms. Warren expects the "cooling off trend" to continue into next year, with housing starts moving back toward an annual pace of 175,000 units.
"Today's data suggest that the rebound in homebuilding activity from last year's recession is quickly running out of steam," added TD deputy chief economist Derek Burleton, adding the bank expects housing starts to moderate even further in the second half of the year.
"Part of the coming moderation reflects the impact of the implementation of the harmonized sales tax (HST) in Ontario and Quebec on July 1, which almost certainly brought some building activity forward to late 2009 and the first half of 2010," he said. "A bigger culprit, however, is easing price conditions in the broader housing markt, as sales continue to come off the boil and more listings make their way onto the market. Over the next four to five quarters, TD Economics anticipates average resale home prices in Canada to decline on the order of 6 to 7 per cent. Accordingly, the incentive to feed the market with more units than the replacement rate can support will continue to diminish." Read the story
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Impact of debt crisis spreads
The sovereign debt crisis that began with a spark in Dubai and a fire in Greece, fanning out to a wildfire in southern Europe, is spreading again. And its impact is being felt far and wide.
Fitch Ratings today warned Britain's new Prime Minister David Cameron to quickly get his fiscal house in order, saying its challenges are "formidable" and require faster cuts to the budget deficit. "The scale of the United Kingdom's fiscal challenge is formidable and warrants a strong medium-term consolidation strategy - including a faster pace of deficit reduction than set out in the April 20 budget, Fitch said.
The impact of the debt troubles have now also spread far beyond the initial impact on the euro, the currency shared by 16 European countries. It has roiled markets for weeks now, as investors react to every twist and turn and downgrade, and today the People's Bank of China warned that its economic growth, too, will be affected as governments cut their stimulus spending.
Separately, nervous investors pushed the price of gold to a record above $1,250 (U.S.) an ounce as the turmoil played out. "It is mainly the fear of another slide into recession which is seeing demand for gold as a safe haven," Commerzbank analyst Daniel Briesemann told Reuters. "Gold is currently rising in dollars and in euros. There is a lack of confidence, given the uncoordinated measures against the sovereign debt crisis, which is obviously (affecting) both currencies."
And, noted Scotia Capital currency strategist Sacha Tihanyi: "The now more than month-long bout of risk aversion and risk asset weakness, driven by the sovereign risk tremors in the European economies, has persisted to such a degree that we are now seeing the impact radiate further than just typical financial assets, to those that have a high degree of correlation with global growth prospects. Take copper for example, the 'only commodity with a PhD in economics.' Copper is in the midst of recording its seventh consecutive day of losses which has seen the metal lose nearly 12 per cent of its value ... This provides an excellent summary of the degree to which sovereign risk issues have impacted the global growth outlook. Crude oil is showing similar weakness, though remains above key support at $65 a barrel (a level briefly violated in May however). "
Related: Canada the teacher as U.K. prepares for budget
G20 gathering fast becoming Austerity Summit
Kevin Carmichael's G8/G20 Global View summit blog
Obama lashes out on Gulf spill
U.S. President Barack Obama says he's looking for "whose ass to kick" over the Gulf of Mexico oil disaster. In an interview with NBC that was broadcast today, the president said he has spoken with many people affected by the spill that was caused by the explosion on the Deepwater Horizon drilling rig several weeks ago, so he can learn who is responsible. And of BP PLC chief executive officer Tony Hayward, related to the CEO's comments about his own life, he "wouldn't be working for me," Mr. Obama said.
"The fact of the matter is there is going to be a thorough review, and I don't want to prejudge it, but the initial reports indicate there may be situations in which not only human error was involved, but you also saw some corner cutting in terms of safety," the president said. Read the story
Related: BP lacks capacity to handle full stream of leaking oil
UBS cuts Shoppers price target
UBS Securities Canada today cut its 12-month price target on Shoppers Drug Mart Corp. on the Ontario government's final drug reform measures. UBS cut its outlook to $40 a share from $42, citing the fact that the final regulators largely follow its original proposals. "We were looking for a more balanced position on private label drugs, which did not manifest," UBS analyst Vishal Shreedhar said in a research note. "... We maintain our Buy rating given supportive valuation and our view that [Shoppers]wil adjust its business model over time, including higher potential private fees."
Among Ontario's measures is a reduction in the cost of generic drugs to 25 per cent of the price of an original brand name, down from 50 per cent.
Added Desjardins analyst Keith Howlett: "Retail pharmacy profitability will decline on a constant script volume basis. We expect a two- to four-year transitional period as the Ontario pharmacy industry further consolidates, with independent pharmacies exiting the industry and Shoppers Drug Mart, Loblaw, Walmart, Costco and Katz Group (Rexall Pharmaplus) gaining market share."
Honda feeder plant hit by strike
Another Chinese feeder plant supplying Honda Motor Corp. has been hit by a strike as labour demands grow in the fast-growing economy. The plant produces exhaust systems and, reports said today, Honda was forced to plan another temporary shutdown at two auto plants because of the disruption. The move comes amid increasing demands by labour in one of China's primary manufacturing regions, and follows the settlement of a walkout at another feeder plant.
Related: China's low-cost workers have richer days ahead
Alleged rogue trader on trial
Jerome Kerviel, the trader accused of losing billions in rogue trades at Societe Generale, told a Paris court today that he "lived to meet my targets," working 15-hour days, holidays included. Mr. Kerviel is on trial charged with forgery, breah of trust and unathorized use of computers. Mr. Kerviel, who made headlines around the world over allegations of risky bets in the markets, will argue that he was made a scapegoat, and that risky trades were common, reports from Paris say. He also maintains his superiors were aware of his actions. No charges have been proven. Read the story
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