July 2010 Canadian Economic Fundamentals

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#2
Home prices rise in Canada`s biggest cities

OTTAWA -- Home prices in some of Canada`s biggest cities rose 0.8% in April, according the latest Teranet-National Bank house-price index released Wednesday.

That followed a 0.3% rise for March, and marked the 12th straight month that prices have risen.

"At the national level, April continues the best string of consecutive monthly price increases since September 2006," Marc Pinsonneault, economist with National Bank Financial, wrote in a report. "Home prices are now 2.9% above their recession peak, a situation that contrasts with the one prevailing in the U.S., where prices are down 30% from their peak."

The index takes into account price trends in six urban areas. Prices in Halifax were up 1.9% for the month, Montreal and Ottawa home prices were ahead 1.1%, Toronto was up 0.6%, and Calgary and Vancouver were both ahead 0.8%.

It marked the first time in five months all local areas saw monthly gains. Calgary, however, remains the only area among the six still short of its pre-recession high, which it achieved in August 2007.

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April GDP numbers don`t tell whole story

Compositeleading index is keeping pace


There`s a current of pessimism these days that seems to affect everything we hear about the economy.

The European credit crisis just won`t go away, some jittery types are worried about a new downturn in the U.S. economy and global stock markets have been feeling much gloomier.

And now, we learn that the economy of Canada, one of the strongest in the world, has stalled.

It`s sort of true, but with the significant exception that nothing of the kind has really happened.

It`s sort of true because this past week`s report on the broadest month-to-month measure of our economy, gross domestic product, did show growth slowing to a halt in April (the figures are always a couple of months behind). And while this doesn`t really mean that economic growth just stopped, it could signal the possibility that it`s slowing.

The arithmetic worked like this: even though most industries kept on growing, one big one, retailing, suffered a big reversal, shrinking by a whopping 1.7 per cent.

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More bitumen, fewer emissions

Climate Change and Emissions Management Corp. funds projects out of fines


EDMONTON — Projects that eliminate natural gas and steam from heavy-oil extraction and provide a gateway to billions of barrels of previously inaccessible resource were among recipients of $28 million in government funding Wednesday.

E-T Energy received $6.8 million from the Climate Change and Emissions Management Corp. for its process of extracting bitumen with electro-thermal heating, which will potentially open up about 190 billion barrels of bitumen too deep to mine and too shallow for steam-assisted gravity drainage (SAG-D) extraction.

The ESEIEH Consortium received $16.5 million for a four-year pilot project that uses electro-magnetic power to heat in situ bitumen, which is then diluted with a solvent to bring it to the surface.

Four other groups split $4.8 million to fund research in carbon capture.

The grants announced Wednesday were the third in a series this month that provided $71 million to 16 proposals from a fund generated by levies on carbon emitters.

E-T Energy CEO Bruce McGee said its process has already been proven in remediation of contaminated soil and groundwater in the United States.

"The technology does work, and we believe we`re one technology push away from economic viability in the oilsands."

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Two views on the debt problem
For years, Bob Farrell ranked among Wall Street`s most influential voices. As Merrill Lynch chief market strategist from 1967 to 1992, he formulated 10 market rules that are still essential reading for new entrants to the investment industry.

Number nine on his list: "When all the experts and forecasts agree, something else is going to happen."

Coming out of the G8 and G20 meetings, there was near universal agreement on the need for developed economies to tackle deficits.

There`s been lots of attention to the impact on anyone relying on government spending – less attention has been paid to the negative implications for growth in economies and stock markets.

Ken Rogoff`s view


In March, the International Monetary Fund issued a warning about debt levels in the world`s advanced economies. This year, the ratio of debt to gross domestic product in the United States, Japan and Europe is forecast to reach the same level as was seen in 1950; even with a reduction in fiscal stimulus programs, that ratio is expected to reach 110 per cent by the end of 2014, up from 75 per cent in 2007.


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A stock market forecast that says `take cover`

With the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there`s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.

Prechter is convinced we have entered a market decline of staggering proportions – perhaps the biggest of the last 300 years.

In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory – a technical approach to market analysis that he embraces with evangelical fervor.

Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or "fractals," in the stock market of the 1930s and `40s, the theory suggests that an epic downswing is underway, Prechter said. But he argued that even skeptical investors should take his advice seriously.

"I`m saying: `Winter is coming. Buy a coat,`" he said. "Other people are advising people to stay naked. If I`m wrong, you`re not hurt. If they`re wrong, you`re dead. It`s pretty benign advice to opt for safety for a while."

His advice: Individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, "the decline will lead to one of the best investment opportunities ever," he said.

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Week Ahead: Canada expected to see job growth

OTTAWA — Unlike in the United States, June is not expected to have brought Canada its first month of job losses this year.

Statistics Canada`s labour force survey, due Friday, is the highlight of this coming week`s economic data for this country. It will come exactly a week after it was learned the U.S. lost 125,000 jobs last month, putting into question the strength of the economic recovery there.

Canada, however, is expected to have seen its sixth straight month of job growth in June, leaving the track record for 2010 unblemished. Economists anticipate that 20,000 people joined the ranks of the employed last month, following May`s gain of 24,700. The unemployment rate is expected to have stayed at 8.1%.

Millan Mulraine, senior strategist with TD Securities, is expecting 30,000 job gains for June, noting that has been the average over the previous 10 months.

"All of the job gains are expected to come from the service-producing side of the economy, with a temporary boost expected to come from hiring related to G20 and G7 activities during the month," Mulraine said in a research note.

He agreed that the jobless rate likely stayed at 8.1% due to more people looking for work, but added that "brisk" job gains in the months ahead should help unemployment "revert to its downward trajectory."

The Canadian unemployment rate has been as high at 8.7% in August 2009 and as low as 5.9% in February 2008.

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April GDP numbers don`t tell whole story

Compositeleading index is keeping pace


There`s a current of pessimism these days that seems to affect everything we hear about the economy.

The European credit crisis just won`t go away, some jittery types are worried about a new downturn in the U.S. economy and global stock markets have been feeling much gloomier.

And now, we learn that the economy of Canada, one of the strongest in the world, has stalled.

It`s sort of true, but with the significant exception that nothing of the kind has really happened.

It`s sort of true because this past week`s report on the broadest month-to-month measure of our economy, gross domestic product, did show growth slowing to a halt in April (the figures are always a couple of months behind). And while this doesn`t really mean that economic growth just stopped, it could signal the possibility that it`s slowing.

The arithmetic worked like this: even though most industries kept on growing, one big one, retailing, suffered a big reversal, shrinking by a whopping 1.7 per cent.

Any single report, however, can`t paint an accurate picture of the whole economy.

Read full article here
 

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#9
Economy is far from stalled

There`s a current of pessimism these days that seems to affect everything we hear about the economy.

The European credit crisis just won`t go away, some jittery types are worried about a new downturn in the U.S. economy and global stock markets have been feeling much gloomier. And now, we learn that the economy of Canada, one of the strongest in the world, has stalled.

It`s sort of true, but with the significant exception that nothing of the kind has really happened.

It`s sort of true because last week`s report on the broadest month-to-month measure of our economy, gross domestic product, did show it slowing to a halt in April (the figures are always a couple of months behind). And while this doesn`t really mean that economic growth just stopped, it could signal the possibility that it`s slowing.

The arithmetic worked like this: even though most industries kept on growing, one big one, retailing, suffered a big reversal, shrinking by a whopping 1.7 per cent.

Any single report, however, can`t paint an accurate picture of the whole economy.

If the economy had really stalled, for example, why is it that we saw a stunning 109,000 new jobs created in April? That was the biggest jump since 2002, and was no fluke. It was followed by another respectable gain of 25,000 jobs in May.

And if the economy was really grinding to a halt, why is it that Statistics Canada`s composite leading index, our best guide to where the economy is heading in coming months, kept growing in May at about the same pace it`s shown over the past year?

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Bank of Montreal lowers mortgage rates

The Bank of Montreal on Monday reduced its mortgage rates for the second time in less than two weeks.

It reduced the rate on a number of its mortgage categories by 10 basis points, including its benchmark five-year closed rate, putting it at 5.79 per cent.

The rate change takes effect today.

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Bedbugs a potential deal breaker for real estate transactions in Toronto

It`s an occupational hazard Barry Lebow would rather do without.

Before entering a home to inspect it, the veteran real estate appraiser typically gives the butt of his jeans a quick dousing of bug spray.

"I promised myself that I wouldn`t bring home bedbugs again — that stuff is murder," says Lebow of Lebow, Hicks Ltd. "We didn`t sleep for three weeks."

Lebow says he once inspected a home in the Toronto area and ended up bringing home some of the tiny bugs. He ended up with welts all over.

Global travel and the reduction in the use of pesticides means bedbugs have made a resurgence worldwide.

The tiny pests are non-life threatening, but they can make life miserable for home owners.

In June, the William Osler Health Centre hospital reported a limited infestation with bugs found in the staff lounge and in parts of the emergency department. The report brought alarm from some patients worried they would end up taking the pests home with them.

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First-time homebuyers want new, detached homes but expect a deal: TD Bank survey

A majority of Canadians who just bought or are about to buy their first home expect to pay less than the asking price and prefer newer and detached homes over older and semi-detached homes or condos, according to a TD Bank survey.

But the report questioned whether the homebuyers had unreasonable expectations, considering that nine out of 10 took out or expect to take out a mortgage for their home.

"It`s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford," said Farhaneh Haque, a mortgage specialist at TD Canada Trust.

Six in 10 first-time homebuyers said they were worried about being able to afford their home should interest rates rise — a scenario that economists say is inevitable after an era of historically low rates sparked a rush into the housing market.

Only 30 per cent said they plan to or already have more than a 20 per cent down payment, and the remaining 70 per cent will require mortgage insurance. Eight of 10 buyers reported putting down as much as they can afford.

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#13
Real estate market stalls as ING retreats with sale

When Summit REIT put its industrial properties on the block four years ago, one bidder blew away the competition with a stunning $2.1-billion cash offer.

The winner was a unit of Dutch financial giant ING Groep NV, and the deal for Summit`s 450 warehouses and factories across the country gave it a much-coveted foothold in Canada`s real estate market. But now the entire portfolio is on the market again, as ING looks to sell assets outside of its home market to bolster its balance sheet after the 2008 banking crisis shook it to its foundations.

The proposed Canadian sale is so big it has frozen other aspects of Canadian commercial real estate, as brokers and interested bidders around the country focus on getting a deal done.

Once a deal is done, other transactions are expected to follow. The sale, one of the largest of the past few years, is also being closely watched as a gauge of whether those in the industry have faith in an economic recovery that appears increasingly tired.

The company had hoped to close a sale by June, sources said, but the process is stretching into the summer as would-be buyers grapple with financing and try to decide on an eventual corporate structure.


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House prices and sales to decline, market survey says

OTTAWA — House prices continued to climb higher across Canada in the second quarter of 2010, but sales and prices are expected to fall in the coming months, according to a Royal LePage House Price Survey and Market Forecast released Wednesday.

In the second quarter of 2010, the average price of a detached bungalow in Canada was up nine per cent to $331,868 compared to a year ago. Two-storey homes rose 8.7 per cent to $367,835 and condominiums rose 7.3 per cent to $230,014. Average prices in Vancouver were up 16.6 to 19.1 per cent for the month while prices in Toronto rose by an average of 7.7 to 11.4 per cent.

The survey said by the end of 2010, home price appreciation will average 6.8 per cent year-over-year nationally, while home sales will increase by just over one per cent compared to 2009.

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Value of building permits plunges in May

OTTAWA — The value of building permits fell by a much-larger-than expected 10.8 per cent in May from April, slipping to $6 billion, Statistics Canada reported Tuesday.

Analysts polled by Bloomberg had called for a two per cent month-over-month drop.

The federal agency blamed decreases in both the residential and non-residential sectors for the decline.

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Unemployment probably peaked, OECD says

Unemployment has probably peaked in developed economies as renewed growth takes hold in the wake of a recession that destroyed jobs on a scale not seen since the 1973 oil crisis, the Organization for Economic Cooperation and Development said.

The jobless rate among OECD countries reached a postwar high of 8.7 percent in the first quarter, up from a 28-year low of 5.8 percent in 2007, the 31-member Paris-based organization said in a report today.

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#17
Loonie could fall to US87¢, top forecaster predicts

Shaun Osborne, chief foreign exchange strategist at TD Securities and the world`s top currency forecaster, according to Bloomberg News, said yesterday the loonie could slide to US87¢ by the end of the third quarter while the euro was headed for parity with the greenback by the end of 2011.

Meanwhile, investors brave enough to dip their toes in choppy U.S. stock markets might want to move quickly to take advantage a longer term upturn for the greenback, Mr. Osborne said.

The Canadian dollar has received a strong boost from the country`s robust economy in the first half of this year, accelerating rapidly coming out of the depths of 2009. But the snap back in the coming months could be more harsh and violent than anticipated, Mr. Osborne said.

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#18
YIELD CURVE SAYS NO SECOND DIP

OTTAWA - There has been much worry over the possibility of a double-dip recession in the United States but one long-trusted predictor of U.S. economic activity -- the yield curve -- suggests chances are still slim.

Still, debate is brewing about whether the bond curve can be a trusty gauge in a post-bubble, deleveraging environment that many key industrialized economies face.

The yield curve, or the spread between yields on short-term and long-term U.S. treasuries, has contracted through the recent market turmoil, beginning in April -- a sign, pundits argue, that the economy is beginning to price in a weaker economy.

But recent research from the U.S. Federal Reserve Bank of Cleveland, based on the yield curve, puts the chances of the U.S. economy falling back into recession at only 12.4%.

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#19
Drop in home sales may be sign of peak

Existing home sales dropped sharply in Canada`s two most expensive markets, a further indication that the real estate market may have peaked.

The Toronto Real Estate Board said sales in June were down 23% from a year ago, leaving activity for the quarter up 1% from the same period a year earlier.

"We experienced a record number of existing home sales during the first half of 2010 but these sales were weighted more towards the beginning of the year," said Bill Johnston, president of TREB.

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May was another good month for job postings, except in Saskatchewan

The number of job postings rose in May, the eighth increase in the past 10 months, and more people are taking that as a sign it`s time to enter, or re-enter, the workforce, a report released yesterday suggests.

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