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How the yield curve shows 12.4% chance of double dip Add to ...

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What the yield curve shows While not one of the more highly publicized measures, the yield curve, which plots bond yields against their corresponding maturities, suggests a 12.4-per-cent chance of a double-dip recession by next June, according to research from the Federal Reserve Bank of Cleveland. That's up from 9.9 per cent in May and 7.1 per cent in April.

Joseph Haubrich and Kent Cherny wrote in a report that the difference between long and short rates, illustrated by the slope of the yield curve, has "achieved some notoriety as a simple forecaster of economic growth. The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year, and yield curve inversions have preceded each of the last seven recessions ... In particular, the yield curve inverted in August, 2006, a bit more than a year before the current recession started in December, 2007. There have been two notable false positives: an inversion in late 1966 and a very flat curve in late 1998." Read the report


U.S. service sector growth dips The Institute for Supply Management's non-manufacturing index, a measure of the U.S. service sector, dipped in June to 53.8 from 55.4. The 50 marks separates contraction from expansion, so the sector is still growing. "The slowdown appears to reflect deterioration in global economic conditions rather than a weakening in domestic sales," said Paul Ashworth of Capital Economics. "... In general, the survey supports our long-held view that GDP growth will slow in the second half of the year." Read the story

Rogoff sees China property 'collapse' Harvard University professor Kenneth Rogoff is warning of a collapse in China's property market that will spread to its banks. China has moved recently to cool the overheated market, and, the former chief economist of the International Monetary Fund told Bloomberg Television, there are going to be "bumps" as China's economy develops.

"You're starting to see that collapse in property and it's going to hit the banking system," Mr. Rogoff said. "They have a lot of tools and some very competent management, but it's not easy."

Scotia Capital noted today that Mr. Rogoff's comments had a muted impact on financial markets.

AgBank to price IPO As The Wall Street Journal puts it, Beijing is betting investors will see the masive initial public offering of Agricultural Bank of China as a proxy for China's future growth. The IPO is expected to be priced as early as today, and could break records by bringing in more than $22-billion (U.S.) with its Hong Kong and Shanghai share sale.

Markets settling down Global stock markets are calmer, and higher, today, though traders aren't entirely sure of what comes next. Helping the markets along were comments from Australia's central bank, which held interest rates steady today and noted that growth in China was "starting to moderate to a more sustainable rate."

"In isolation this all looks very positive - however, many traders are still cautious at the moment and not quite believing this strength is the start of a real recovery," said Mr. Jones of IG Index. "The Chinese stock market set 15 month lows yesterday and it is not unusual for a sharp gain by mining stocks to boost the FTSE only to see it all taken away again the next day."

Added chief economist David Rosenberg of Gluskin Sheff + Associates: "There is certainly nothing on the fundamental front to elicit a rally at the current time as double-dip risks continue to rise; at a minimum a growth slowdown of significance... The reason why everyone bought into the V-shaped recovery view was because the equity market told them that this must be the case. Now, we have a situation where $1.6-trillion of wealth has been wiped off the books in the past three months from the stock market setback and so it's no coincidence that at the margin, question marks are surfacing over the longevity of the recovery - if not the longevity, then certainly its veracity."


Vancouver, Calgary home sales slow Home sales in Vancouver and Calgary, among the first to report numbers, slowed in June, evidence that the real estate market is beginning to cool after its sharp post-recession runup. Observers have been projecting a slower market, though not one that will come crashing down, in the face of higher mortgage rates and tighter mortgage rules.

The Real Estate Board of Greater Vancouver reported yesterday that home sales fell 30.2 per cent in June from the inflated levels of a year earlier, and 5.8 per cent from May. New property listings rose 1.2 per cent from May and 32 per cent from a year earlier.

The Calgary Real Estate Board reported earlier that sales of single family homes fell 16 per cent in June from May and 42 per cent from June of 2009, while condo sales fell 14 per cent from a month earlier and 40 per cent from a year earlier. Notable is that sales of high-end properties worth $1-million or more are rising, the group said.

"We are seeing continued moderation in Calgary's home sales in the face of higher mortgage rates, increased inventory levels and a decreasing number of fist-time home buyers entering the market," the group's president, Diane Scott, said. Read the story

Building permits fall Building permits in May also show a slowing in the construction sector, according to Statistics Canada data released today. The number of permits issued by municipalities across the country fell far more than expected, by 10.8 per cent to $6-billion. Both residential and non-residential permits dipped, residential by 5.3 per cent. Institutional permits declined 21.6 per cent and those in commercial construction 35.2 per cent. The permit numbers are traditionally volatile. Read the story

Jean Coutu warns of potential hit Jean Coutu (PJC) Inc. warned today that its results could be hit if Quebec goes through with adopting reforms to drug prices similar those implemented in Ontario. The changes in Ontario, the pharmacy chain said as it reported first-quarter results, will have little impact given the amount of business it does there.

"As for the reduction in the price of generic drugs announced by the minister of health and social services of Quebec, we will make representations for the company and the pharmacist owners affiliated with the PJC Jean Coutu network through the associations involved," said chief executive officer Francois Coutu. "We strongly believe that the government of Quebec must recognize that a reduction in the price of generic drugs must be adopted concurrently with measures in order to assist market participants with the transition to lower generic drug prices."

Coutu also reported strong quarter results, as profit jumped to $43.2-million or 18 cents a share from $10.3-million or 4 cents a year earlier, and revenue rose to $642.9-million from $619.3-million.

BP shares rise Even as the damage from the oil spill in the Gulf of Mexico spreads to new shores, shares of BP PLC are rising after the energy giant quashed speculation of a share issue and talk of an investment by sovereign wealth funds heightened. It has now been more than 75 days since the disaster began with the explosion on the Deepwater Horizon drilling rig, and BP shares have lost billions of dollars in value. Today, Reuters reports said BP executives have talked with several sovereign wealth funds in Abu Dhabi, Kuwait, Qatar and Singapore.

"Today's report that BP won't be issuing any more shares has calmed any nerves that its value would be diluted and kept the bargain hunters happy," said IG Index chief market strategist David Jones.


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