Bank of Canada Governor Mark CarneyCHRIS WATTIE
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Stories Report on Business is following today:
Markets sliding despite German vote
European markets are sliding again this morning despite the fact that Germany's parliament voted to approve their share of the $1-trillion euro zone bailout by the EU, the International Monetary Fund and the European Central Bank.
European stocks fell, and the Canadian dollar dipped again to open at about 93.5 cents U.S. Stock futures in New York, at about 8 a.m. ET, also pointed to an poor open. Dow Jones industrial average and S&P 500 futures were down about 1 per cent.
Some observers had counted on markets turning around on the German vote, easing investor fears over what Europe's debt crisis could mean to global economic growth.
"Passage of the Greece aid bill in Germany's lower house failed to ease concerns on sovereign debt (which has really morphed more into a concern about banking liquidity/funding and global growth)," said RBC Dominion Securities strategists Mark Chandler and Kam Bath. "With no risk-taking champions willing to pop their heads up from out of the ground, equity futures have slid some 1 per cent this morning, the Treasury curve has bull flattened yet again (yields down 1-4 basis points) and the trade-weighted dollar is up 0.3 per cent (after racking up losses of almost 2 per cent in the previous two sessions)."
Germany, in particular, spooked markets earlier in the week when it unveiled a surprise ban on naked short-selling of certain stocks, bonds and credit default swaps. While German Chancellor Angela Merkel said the ban was necessary to curb "destructive" behaviour in the markets, some observers wondered why Europe's largest economy took such a step. Other governments, such as France, also questioned the move.
"Investors are not being helped by the continued mixed messages coming out of Europe with Angela Merkel saying that the euro is in danger, while on the other hand Christine Lagarde, the French finance minister, [insists]that the euro is a credible currency, and not in any danger," said CMC Markets analyst Michael Hewson. "Well they can't both be right, so which is it? European leaders need to be sending a concerted united message and at no time during this crisis has this been the case."
Read
Merkel: Velvet Chancellor shows some iron
Inflation rate at 1.8 per cent
Overall consumer prices rose 1.8 per cent in April from a year earlier, picking up speed from the annual inflation rate of 1.4 per cent in March, Statistics Canada said today. The April rate was slightly higher than the 1.7 per cent economists expected.
The so-called core rate, which factors out volatile items and is the Bank of Canada's guide in setting monetary policy, rose to 1.9 per cent from 1.7 per cent. The rise in the core rate was largely due to higher prices for autos, auto insurance premiums, property taxes and restaurant food.
The inflation reading was higher than expected, and plays into whether Bank of Canada Governor Mark Carney will raise his benchmark lending rate when the central bank next meets June 1. Economists had largely expected he would boost the overnight rate from its historic low of 0.25 per cent, but that was before the recent turmoil in the markets, and some have changed their view.
"And so the plot thickens a bit further," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "The Bank of Canada's interest rate decision at the start of June will be driven by a solid recovery to-date and some underlying inflation pressure on the one side, and global financial market instability on the other. The bank still has more than a week to decide, and today's uptick in core inflation simply muddies the waters. While the economic data continue to lean heavily to a rate hike, the decision will ultimately be driven by just how intense the financial storm becomes."
Added Scotia Capital economists Karen Cordes Woods and Derek Holt: "This print is compatible with a June 1 hike. Seasonally adjusted core inflation on a month-over-month basis broke through the [Bank of Canada's]target and restored the pattern of firm inflation readings."
Toronto-Dominion Bank economist Grant Bishop believes Mr. Carney could still wait a month despite the April showing on the consumer price index: "The uncertainty of global economic conditions, with recent volatility in equity and commodity markets, adds to the possibility of a continued pause by the bank in June. Despite this CPI report supporting tightening, recent market movements may then stay the bank's hand, waiting for July for an initial hike of interest rates."
Adding to Mr. Carney's dilemma is a separate report from Statistics Canada this morning showing shoppers were out in force in March, driving retail sales up 2.1 per cent. That was the sharpest increase in five years and far surpassed what economists had expected. The report adds to a string of readings that show Canada's economy quickly rebounding. Read the story
Related: Stock slide offers breathing room for borrowers
How financial regulations could hit Wall Street
Some analysts believe the overhaul of financial regulations in the United States could slash earnings of big financial institutions by about 20 per cent. The U.S. Senate passed the sweeping bill last night and, while not yet a done deal, The Wall Street Journal noted that the Senate version of the regulations would hit Wall Street more than anticipated. While some observers don't expect a huge hit to Wall Street banks, but others believe the pain could be harsh, the newspaper said. Read the story
Japan holds line on rates
The Bank of Japan today held its benchmark rate steady at 0.1 per cent, where it has stood since the end of 2008, as it painted a brighter picture for the country's economy. The central bank also unveiled a loan plan for commercial banks. Bank of Japan Governor Masaaki Shirakawa said the world's second-largest economy must watch closely for the fallout from Europe's debt crisis but "we maintain the view that emerging economies will lead the global economy's recovery and that emerging economies will maintain strong growth based on domestic demand and the United States will continue to recover moderately."
Canada boosts competitiveness ranking
Canada has moved up a notch in a respected annual report on global competitiveness. Singapore, Hong Kong and the United States ranked first, second and third, respectively, in the IMD World Competitiveness Yearbook, while Canada jumped to seventh spot from eighth last year.
"Special attention should be paid to the good performance of Canada ... which relies on sound banking regulations and extensive commodity resources," IMD said in an accompanying statement. Read the story
Husky appoints new chief
Husky Energy Inc. named its new chief executive officer this morning, appointing Asim Ghosh to take over the helm at the beginning of next month. Mr. Ghosh is the former CEO of Vodafone Essar Ltd., a cellular phone group that Husky said grew under his leadership from a virtual startup in 1998 to one of the world's largest mobile companies by subscribers. Mr. Ghosh replaces John Lau, the Calgary-based energy company's long-time chief who is moving to Hong Kong to head up development of its Asia-Pacific operations.
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