Today's top stories from Report on Business:
Markets speculate on rate hikes
The Bank of Canada held its benchmark overnight rate at its historic low of 0.25 per cent, but noted this morning that the economy is growing faster and inflation running hotter than originally projected. That prompted more speculation as to whether Governor Mark Carney might move up his best-before date on when to begin raising interest rates, pushing up the Canadian dollar in turn. The central bank said again in its statement that it would not hike interest rates before the end of June, depending on the outlook for inflation. On the inflation front, it said: "On the upside, the main risks are stronger-than-projected global and domestic demand. On the downside, the main risks are a more protracted global recovery and persistent strength of the Canadian dollar. The Bank judges that the main macroeconomic risks to the inflation projection are roughly balanced."
Here's what some economists said on the rate outlook:
"The Bank of Canada has walked a fine line with its latest decision, though overall it is undeniable that the risks to Canadian monetary policy are starting to tilt upwards. Our house view remains that the Bank of Canada will first hike in October, but it is hardly inconceivable that this could now come a touch sooner, in September or possibly even July." Eric Lascelles, chief economics and rates strategist, TD Securities
"The output gap appears to be closing faster than the bank expected, driven by vigorous (low-interest-rate-stoked) domestic demand. This, in turn, seems to be applying more upward pressure on inflation than the bank expected. I suspect Carney and Co. are starting to feel the urge to tighten, not a strong urge now, but an urge nevertheless. We still judge that the bank will hike rates 25 [basis points]on July 20, with rising risks that this and/or subsequent moves could be in larger increments." Michael Gregory, senior economist, BMO Nesbitt Burns
"By staying committed to a pledge made a year ago during the worst credit conditions since the 1930s, the Bank of Canada seems to be downplaying the very significant improvement in financial conditions and its impact on the real economy. By doing so, the [central bank]is setting itself up for more aggressive rate hikes should its 2010 economic projection prove to be yet again too soft. Even if today's press release shows no intent to raise the policy rate in the coming weeks, we are not ruling out that bank's views will evolve significantly between now and its next Monetary Policy Report at the end of April. Accordingly, we are calling for the first rate hike by the Bank of Canada to occur on June 1 rather than April 22. Paul-André Pinsonnault, senior fixed income economist, National Bank Financial
Related : Canada's prospects outshine realities challenging U.S.
Australia's central bank did the expected and continued to march to its own drummer, raising its benchmark rate by another quarter of a percentage point and signalling more to come. The Reserve Bank of Australia has now hiked rates four times over the course of five meetings, bringing its key rate to 4 per cent. Read the story
Greece plans new austerity measures
Greece's Prime Minister primed the pumps today for a fresh round of austerity measures, warning that the embattled country is fighting to stave off bankruptcy. Greece's troubles have rattled financial markets, pressuring the euro and stocks. In a speech to his ruling socialist party, George Papandreou said he would "fight to save the fatherland from whatever the nightmare possibility of bankruptcy might entail."
The clock is ticking in Greece as the government races to assure markets it can resolve its debt crisis. Reports from Athens today said the government is expected tomorrow to unveil austerity measures to the tune of about €4-billion, which would be followed by a bond issue aimed at raising up to €5-billion. Markets are closely watching the runup to the bond issue, which will test the country's ability to raise funds. So far, Greece has raised about €14-billion of €54-billion needed this year. "We need to go to the market very soon with the 10-year note because we risk ending up with no money," one government official told Dow Jones Newswires.
Greece faces not only credibility issues in the market, but growing unrest inside its borders. After a massive strike last week, taxi drivers protested today, and public sector workers plan another day-long walkout in mid-March. Read the story
Debt issues hound Europe
Debt issues among the so-called PIGS of Europe - Portugal, Ireland, Greece and Spain - have unsettled markets for weeks and driven down the euro, which climbed back somewhat today on word of the new Greek plan. Yesterday, markets went after the pound, both over its fiscal troubles and fears that Britain's upcoming election will result in a government without the heft or desire to bring in tough austerity measures as the Greeks have.
"There are two cautions drawn from the PIGS' troubles and yesterday's collapse in pound sterling on fears that the upcoming election could return a majority to Labour versus the appeal of the Conservative Party's greater perceived fiscal discipline," Scotia Capital economists Derek Holt and Karen Cordes said today.
"One is that judging fiscal prudence by political stripes is dicey to say the least, but markets didn't care on the day's trade. Two is to get used to it. Enormous levels of global liquidity and flighty, hot money in search of chase-for-yield bets after most of the truly easy money was made last year will keep volatility in the hot seat. Yesterday it's Greece and the euro, today it's sterling, tomorrow could be U.S. Treasuries. Sustained one-way bets will be difficult as big money teases really big money into action through co-ordinated central bank intervention, should it go too far. But forget the fundamentals as that's the subplot. We're in a run-and-gun trading environment with the potential for shadow banking to resurrect itself much more aggressively than expected as leverage gets compounded upon volatile plays through efforts to replace the back-up-the-truck trades of last year that simply bought distressed assets and followed what governments and central banks were doing."
Related
Some in Europe relieved by euro's decline
Short sellers take aim at pound
BMO profit jumps
Canada's banks continue to top earnings projections. Bank of Montreal today reported that first-quarter profit jumped to $657-million from $432-million a year earlier, and, like its peers that have reported so far, it beat analysts estimates. Cash earnings per share rose to $1.13 in the quarter from 73 cents a year earlier. Canadian business and consumer lending contributed the bulk of profits, while earnings from its lending operations in the United States sank 43 per cent. RBC Capital Markets analyst Andre-Philippe Hardy said in a note to clients that the amount the bank set aside this quarter for soured loans was lower than he expected, helping it to beat expectations. Read the story
Related : Takeovers grow more difficult for banks
Auto recalls mount
General Motors Co. has now joined the recall rush. GM said late yesterday it's recalling 1.3 million compacts in North America to fix a power steering issue. Several accidents have been linked to the problem, and just one injury, and GM said the cars in question can still be operated safely, though that requires harder work at low speeds. Toyota Motor Corp. TM-N, which has been hammered for weeks over recalls of more than 8-million vehicles, is now fixing more than 1.6 million autos for possibly leaky oil hoses.
Read
GM to recall compact cars in North America
Toyota fixing leaky hoses in U.S., Japan
Goldman sees heady days
There's something so Darwinian about the performance of Goldman Sachs Group Inc. GS-N. Goldman, the fittest of Wall Street's survivors, made at least $100-million (U.S.) in net trading revenues 131 times last year, the Financial Times reported today. That's the equivalent of once every other trading day, the newspaper said, citing a filing with the Securities and Exchange Commission. This came even amid greater trading risks last year, the financial daily said. Read the FT story
CMHC sees prices moderating
Canada Mortgage and Housing Corp. expects new home construction to pick up this year and next, though it projects that increase will temper the rise in house prices. The national housing agency projected today that housing starts will jump to between 152,000 and 189,300 this year, and to between 156,400 and 205,600 in 2011. That compares to 149,081 in 2009. Read the story
The odds on bookmaking profits
Bookmakers have some unique financial issues. Like most companies, Ireland's Paddy Power PLC was hit by the recession, but also by "an adverse swing in the run of sporting results," as the bookmaker noted in its earnings report today. Bloomberg News noted that the bookmaker was hurt by Irish horses winning races at Cheltenham and major English soccer teams winning more games. Despite a 17-per-cent drop in annual profit, chief executive Patrick Kennedy still sees it as a good showing: "Despite the economic problems, 2009 was a cracking year for Paddy Power punters on two fronts. The year saw a slew of punter friendly sporting results which was the exact opposite to the experience of the prior year. Also, Paddy Power once again invested heavily in bringing unsurpassed value to our customers through a range of 'stand out' offers." What were the odds of boosting profit in a recession anyway?
From today's Report on Business
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