Calgary Alberta Mortgage and Real Estate News

Just before the high-tech bubble burst, a colleague hurried into the office declaring excitedly to all within earshot that she was now in the stock market. Having tired of listening to everybody else’s endless chatter about stocks and the profits they were claiming on a daily basis, she decided that it was time for her to be involved.

Oh, Lord, I thought, here comes the elevator boy, harkening back to the legendary tale of the Wall Street financier who got out of the market just before the October 1929 crash after the elevator boy gave him a stock tip. That was a realization the market was riding a speculative bubble.

Some say the financier was Bernard Baruch. Others that it was J.P. Morgan and a shoeshine boy. No matter. Whenever speculative motives enter the investment equation, the risk increases. There’s no question that the climate in today’s stock market differs notably in one respect from the situation at the height of the high-tech mania. These days, there isn’t the feverish day-trading that accompanied the high-tech meltdown.

But there are other concerns. Core inflation is running at 2.5 per cent, and while we dodged a bullet on Tuesday when the Bank of Canada held its key overnight rate steady at 4.25 per cent, a rate hike seems inevitable in the “near term,” those words accompanying the bank’s decision to hold for now.

An anticipated rate cut that we have been living with since last September is now nowhere to be seen and no one expects it to materialize.

The worst of the scenarios comes from Toronto-Dominion Bank economists, who forecast that Bank of Canada Governor David Dodge will raise the key rate by 25 basis points in July and by another 25 basis points in September to bring the overnight rate to 4.75 per cent.

“Given the fact that core inflation has consistently been at or above the target of two per cent for the past 11 months, the odds of higher rates are tilted toward the upside now,” TD senior economist David Tulk told me.

The Bank of Canada’s concession that “some increase in the target for the overnight rate may be required in the near-term to bring inflation back to target,” confirms this.

The message for mortgage hunters or those making a purchase that requires credit is to lock in now, because interest rates are heading upward.

The benchmark S&P/TSX composite may have priced-in some of those increases, but that hasn’t tempered the chances of a pullback.

Short-selling — the practice of borrowing a stock and selling it in anticipation that it will fall, and then buying it back at a lower price, a dangerous practice, at best, because historically stocks go up — is at its highest level ever.

The short interest on the NYSE is 11.76 billion shares, which represents 3.1 per cent of all outstanding shares.

In Canada, short-selling activity is highest in the IT sector, where 6.5 per cent of all outstanding shares have been shorted, notes National Bank Financial market strategist Pierre Lapointe.

The IT companies and the percentage of their outstanding shares shorted are Celestica (12.8 per cent), CGI Group (9.7), Cognos (9.4), and Research in Motion (6.7).

The most heavily shorted stock in all sectors is Norbord (13.8 per cent), followed by CanWest Global Communications (13.4), Northern Orion Resources (12.9), Cott Corp. (12.4), Saskatchewan Wheat Pool (11.2), Gildan Activewear (10.9), Abitibi-Consolidated (10.4) and Angiotech Pharmaceuticals (10).

“Given the adverse market conditions that short-sellers face, we regard these short-sold companies as red flags,” says Lapointe. “Even the raging bull market hasn’t stopped many investors from betting that these stocks will fall. Short-sellers clearly see something negative that merits investigating.”

Barring a severe decline today, most investors will have recorded remarkable returns during May. The S&P/TSX has so far gained 665 points for a return of 4.9 per cent. The Dow Jones Industrial Average is up 4.3 per cent and the S&P 500 index 3.2 per cent.

It is worth noting that Canada’s inflation now exceeds U.S. core inflation for the first time in three years and the possibility that the Federal Reserve will ease its Fed Fund rate, although slim, is still greater than the chances of it happening here.

The only saving grace for Canada is that the anti-inflation lobby is running full steam in Washington where the word is that core inflation at two per cent is not good enough. The Fed wants it down to 1.5 per cent and that could mean higher interest rates for Americans and a tighter spread, now at a full percentage point, between the two central banks.

A spread wider than that would catapult the dollar even closer to parity and cause all sorts of trouble for Canada’s manufacturing sector, export industries and equity markets.

The Bank of Canada on Tuesday maintained its target for the overnight rate at 4.25%, but suggested that future rate hikes might be needed to contain inflation.

In an accompanying statement, the central bank said information received since the April Monetary Policy Report indicates that economic growth and inflation in Canada in the first part of this year have been “stronger” than the bank was expecting.

The bank judges that “there is an increased risk that future inflation will persist above the 2% inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target,” according to the statement.

“With this statement, the [Bank of Canada] has signaled it is prepared to hike interest rates by [a quarter percentage point] at its next meeting on July 10,” said Michael Woolfolk, senior currency strategist at The Bank of New York.

Woolfolk said the Canadian dollar could “easily reach 1.05″ against the U.S. dollar in the second half of this year.

The Canadian dollar, also known as the loonie, rallied on the news, last trading up 0.7% at C$1.0721 vs. the greenback.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 4 1/4 per cent. The operating band for the overnight rate is unchanged, and the Bank Rate remains at 4 1/2 per cent.Information received since the April Monetary Policy Report (MPR) indicates that economic growth and inflation in Canada in the first part of this year have been stronger than the Bank was expecting. In April, both total CPI inflation, at 2.2 per cent, and core inflation, at 2.5 per cent, were above expectations. On the basis of available information, the Canadian economy is likely to have grown at an annual rate of about 3 1/2 per cent in the first quarter of this year - a full percentage point higher than was estimated in the MPR. The Bank now judges that there is somewhat greater excess demand in the economy than was thought to be the case in April. U.S. economic activity has come in largely as expected and continuing robust growth outside North America has maintained the global demand for, and high prices of, many commodities produced in Canada. Against this overall backdrop, the Canadian dollar has risen appreciably above the range assumed in the Bank’s April projection.

On balance, the Bank judges that there is an increased risk that future inflation will persist above the 2 per cent inflation target and that some increase in the target for the overnight rate may be required in the near term to bring inflation back to the target.

An updated analysis of the Bank’s outlook for growth and inflation, including economic and financial developments, trends, and risks, will be set out in the Monetary Policy Report Update, to be published on 12 July 2007.

Information note:
The Bank of Canada’s next scheduled date for announcing the overnight rate target is 10 July 2007.

After leaving its key interest rate unchanged for the last year, the Bank of Canada could be about to signal that higher rates are on the way, some analysts are forecasting.

The central bank will release its next interest rate policy announcement at 9 a.m. ET Tuesday.

While no one is expecting a rate hike on Tuesday, some rate watchers say the central bank and its governor, David Dodge, could lay the groundwork for the overnight lending rate to jump as early as the following meeting on July 10.

The key overnight rate has been stuck at 4.25 per cent since May 2006. Any change in this interest rate triggers an immediate change in rates charged for variable mortgages and many demand loans and lines of credit.

TD Economics, for one, thinks the next rate hike could be as early as July, with another hike to follow in September. “The inflation backdrop has become troubling enough, in our view, to fully justify the bank finally moving off the sidelines,” said TD Securities chief economist Marc Lévesque in a commentary.

BMO Capital Markets agrees that the Bank of Canada will move off the sidelines, but not before the fall. “We judge that that Canadian dollar appreciation … and the prospects for continued slow growth will likely keep Dodge & Co. on the sidelines, at least through the summer,” wrote BMO senior economist Michael Gregory.

But he said his firm was “pulling forward our forecast for a first [central bank] rate hike into late 2007 from early 2008.”

RBC Economics also expects a later 2007 rate hike.

“With the core inflation rate well above the two per cent target and the domestic economy gaining steam, the odds of a significant slowing in price pressures are waning, making a very strong case for a policy interest rate increase later this year,” says RBC senior economist Dawn Desjardins.

Markets gird for rate increase
The markets are now fully pricing in at least one rate hike before the end of the year. Mortgage rates have already begun to head up as bond yields have risen in anticipation of higher rates. 

The mere prospect of higher interest rates has helped to boost the Canadian dollar to a 30-year high near the 93-cent US level.

The C.D. Howe Institute asked its nine-member monetary policy council to weigh in on what they think the Bank of Canada should do, as opposed to what they think the bank will do.

Their verdict? The majority think the central bank should raise its key overnight rate right away from the current 4.25 per cent to 4.50 per cent. “Both headline and core inflation are running ahead of the bank’s target,” the council said in a statement.

The core inflation rate — which excludes volatile items such as gasoline and fresh fruit and vegetables — surged to a four-year high of 2.5 per cent in April.

The Royal Bank of Canada, the nation’s largest bank by assets, forecasts the Canadian dollar will strengthen 2 percent to C$1.08 by the end of the third quarter, on expectations the country’s benchmark interest rate will increase this year to curb inflation while the U.S. Federal Reserve stays on hold. The outlook was revised higher last week from the firm’s previous forecast of C$1.13, according to Monica Fan, global head of foreign-exchange strategy at RBC in London. The currency will drop back to C$1.10 by the end of the fourth quarter, stronger than the firm’s previous estimate of C$1.12, Fan said. The Canadian dollar is nearing a 28-year high of 91.44 cents, matched on May 31, 2006. Futures traders last week placed the largest bet for the Canadian dollar to rise since the week ended Oct. 6, further adding to the currency’s momentum, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Canadian dollar compared with those on a drop — so-called net longs — was 8,851 on May 1, compared with net shorts of 1,631 a week earlier. Largest Bet The data shows a reversal from bets on the Canadian dollar to fall, according to CFTC data. Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of May 1. Interest-rate futures traders have increased bets for a Bank of Canada rate increase later this year. Policy makers kept the benchmark lending rate at 4.25 percent on April 24 for a seventh straight meeting. The yield on the September bankers’ acceptances futures contract has gained 41 basis points, or 0.41 percentage point, since March 5 to 4.46 percent on the Montreal Exchange. Bankers’ acceptances futures have settled at a three-month lending rate averaging 16 basis points above the central bank’s rate target since Bloomberg started tracking the difference in 1992. Fed Cut Foreseen The Federal Reserve will lower its benchmark lending rate between banks by 25 basis points to 5 percent by the end of the year to stimulate a slowing U.S. economy, according to the median of 71 economists polled by Bloomberg on April 9. The yield on Canada’s benchmark 10-year bond maturing June 2016 fell a second day by 2 basis points to yield 4.19 percent. The price, which moves inversely to yield, gained 16 cents to C$98.65. The yield premium, or spread, between the 10-year U.S. Treasury and its Canadian counterpart narrowed to 45 basis points, near a 12-month low reached May 4.

The Canadian dollar was slightly
higher versus the U.S. currency on Thursday but further moves
were expected to be limited given the lack of any significant
domestic data and ahead of a key U.S. jobs report due on
Friday.
 Domestic bond prices were slightly lower, handing back a
portion of recent gains fueled by the diverging monetary policy
risks between Canada and the United States.
 At 9:15 a.m. (1315 GMT), the Canadian unit was at C$1.1073
to the U.S. dollar or 90.31 U.S. cents, up from C$1.1087 to the
U.S. dollar, or 90.20 U.S. cents, at Wednesday’s close.
 With no key Canadian data to consider, currency traders
were expected to stick close to the sidelines until details of
the U.S. jobs report surface.
 Any weakness in the U.S. labor market could further boost
the case for interest rate cuts by the U.S. Federal Reserve
while the Bank of Canada is widely expected to keep interest
rates unchanged for the foreseeable future.
 ”I think the market is fairly stable ahead of tomorrow’s
key U.S. payrolls report and I don’t think we are going to see
a big move ahead of that critical number,” said Doug Porter,
deputy chief economist at BMO Capital Markets.
 ”If it’s a very weak report then I think there will be some
questions raised over whether Canada’s economy will also
succumb to some U.S. weakness.”
 But Porter said if the report is “a bit below” forecasts
then it could be ideal for the Canadian dollar because it could
open the door for Fed easing while the U.S. economy would not
undercut commodity prices.
 Wednesday’s testimony before a Senate banking committee by
Bank of Canada Governor David Dodge and Senior Deputy Governor
Paul Jenkins after the market closed did not spark any sharp
moves for the Canadian currency.
 Dodge said the central bank would not consider currency
intervention even if the Canadian dollar rises as high as 92.5
U.S. cents. He also said it was too soon to determine whether
the 4-percent rise in the currency against the U.S. dollar over
the past four weeks would require a change in interest rates.
 Stronger economic data in Canada, higher commodity prices,
and takeover interest in Canadian companies have fueled the
currency over the past six weeks.
 Merger-related interest in the Canadian currency could
continue as Swedish specialty steel maker SSAB (SSABb.ST: Quote, Profile, Research said
it had made a recommended cash offer for Ipsco (IPS.TO: Quote, Profile, Research that
values the firm at $7.7 billion.
 BONDS SLIDE
 Bond prices were lower as the absence of any key Canadian
data forced it to follow the drop in the bigger U.S. treasuries
market.
 Data that showed Canadian foreign reserve holdings rose by
$874 million in April to $40.18 billion, did little to spur a
move in the bond market.
 The two-year bond eased 2 Canadian cents to C$99.13 to
yield 4.192 percent, while the 10-year bond retreated 9
Canadian cents to C$98.46 to yield 4.206 percent.
 The yield spread between the two-year and 10-year bond
moved to 0.3 basis points from 0.8 at the previous close.
 The 30-year bond fell 35 Canadian cents to C$123.60 to
yield 4.245 percent. In the United States, the 30-year treasury
yielded 4.822 percent.
 The three-month when-issued T-bill yielded 4.17 percent,
down from 4.18 percent at the previous close.

The Canadian dollar extended its recent charge to close at its highest level in 4-1/2 months against the U.S. currency on Thursday, helped partly by a rise in oil prices and foreign interest in Canadian companies.Domestic bond prices turned lower alongside the bigger U.S. treasuries market, but the move was limited ahead of Canadian trade data on Friday and more key data next week.

The Canadian dollar closed at C$1.1345 to the U.S. dollar, or 88.14 U.S. cents, up from C$1.1398, or 87.73 U.S. cents, at Wednesday’s close.

The resource-linked currency, which has recorded sharp gains all week to return to levels not seen since last November, took advantage of a slew of Canadian dollar-positive events, most notably a 3 percent jump in oil prices.

“It’s the rising energy prices … continued news on the M&A activity which is bullish for the Canadian dollar and the U.S. dollar itself was a little weaker,” said Carlos Leitao, chief economist at Laurentian Bank of Canada.

“The trend right now is very strong and the (Canadian) dollar doesn’t seem to want to come down so it’s going up.”

The latest report of potential foreign interest in Canada involved steelmaker Ipsco Inc. (IPS.TO: Quote), which has a market capitalization of about C$7.8 billion, and said on Thursday it was in discussions that could lead to a sale of the company.

The Canadian dollar had little reaction to a report showing new housing prices rose 0.5 percent in February from January, as analysts said last week’s strong jobs data and signs of building inflation were still driving the currency.

Recent strong data has quieted previous talk of Bank of Canada interest rate cuts, and prompted analysts to start speculating about the timing of possible rate hikes, which would raise the yield on Canadian investments and boost the currency.

In a speech in Montreal, Bank of Canada Deputy Governor Sheryl Kennedy did not talk about the country’s economic outlook or the central bank’s upcoming rate decision.

The Canadian dollar jumped
against the greenback on Thursday, reaching a 3-1/2 month high,
after a surprisingly powerful March employment report suggested
to some that the Bank of Canada will eventually hike interest
rates.

 The currency closed at C$1.1506 to the U.S. dollar, or 86.91 U.S. cents, up from C$1.1592, or 86.26 U.S. cents, at Wednesday’s close.
 The Canadian economy added a whopping 54,900 jobs in March, blowing past forecasts for a 15,000-job gain, while the unemployment rate stayed unchanged at a 31-year low of 6.1 percent.
 The stronger than expected report was the latest in a string of robust monthly jobs reports, and pushed the currency as high as C$1.1487, or 87.05 U.S. cents, a level it has not touched since late December. The Canadian unit eased slightly in the afternoon, as market participants drifted away for the Friday Easter holiday.
 ”The employment rate, arguably the best measure of labor-market strength, is at a record high,” at 63.5 percent, said Warren Lovely, senior economist with CIBC World Markets in Toronto.
 ”Tightness in the labor market is going to prevent the Bank of Canada from entertaining easier (monetary) policy and the Canadian dollar is reacting as you might expect, it’s getting a bit of a bid,” Lovely said.
 The Ivey Purchasing Managers Index, also released on Friday, painted an upbeat picture as well. It rose to 67.3 in March, the highest result since last June. An index reading above 50 indicates an increase in purchasing activity.
 Market talk continued to shift away from expectations of interest rate cuts and towards the timing of a possible hike, which would raise yields on Canadian investments and boost the Canadian dollar.
 However, analysts expect the central bank to hold rates steady at its next decision date of April 24.
 Canadian markets will be closed on Friday, when the U.S. March non-farm payrolls data is due for release. The market is anticipating about 120,000 new jobs. U.S. financial markets will close early, and thinly staffed desks often exaggerate price moves.
 BONDS EDGE LOWER
 Bond prices retreated on the jobs data, even though moderate wage growth suggested to some that the Bank of Canada will not have to raise rates in the near future to stave off inflation. U.S. treasuries also moved lower.
 The Bank of Canada’s overnight rate stands at 4.25 percent.
 The two-year bond fell 11 Canadian cents to C$99.42 to yield 4.033 percent, while the 10-year bond fell 23 Canadian cents to C$98.93 to yield 4.142 percent.
 The yield spread between the two-year and 10-year bond moved to 10.9 basis points from 13.3 at the previous close.
 The 30-year bond slid 40 Canadian cents to C$124.30 to yield 4.208 percent. In the United States, the 30-year treasury yielded 4.876 percent.
 The three-month when-issued T-bill yielded 4.18 percent, unchanged from the previous close.

Canada’s economy expanded for a fourth-straight month in January, led by a rebound in energy production.The economy grew 0.1 percent during the month, from a pace of 0.4 percent in December, Statistics Canada said today in Ottawa. Economists had forecast 0.2 percent growth, according to the median of 26 estimates in a Bloomberg News survey.

The Canadian dollar is poised for its biggest monthly gain since August, amid evidence the nation’s economy is rebounding from a fourth-quarter slowdown. Canada’s pace of expansion, at a three-year low of 1.4 percent in the fourth quarter, may have doubled that rate in the first quarter, economists say.

“Moderate further gains in February and March should give us a 3 percent rate for the first quarter,” said Ted Carmichael, chief Canadian economist for J.P. Morgan Securities Inc. in Toronto.

Investors and economists have been trimming bets for an interest-rate reduction. The yield on the banker’s acceptance contract due in September was trading at 4.31 percent in Montreal today, suggesting some investors are speculating the central bank will raise its 4.25 percent benchmark rate. That yield has risen from as low as 4.05 percent three weeks ago.

The Canadian dollar has gained 1.5 percent this month, trading at 86.71 U.S. cents at 11:06 a.m. in Toronto. The currency has gained 27 percent against the U.S. dollar over the past four years.

Job Gains

Canadian employers have added workers for six consecutive months, including more than 100,000 new jobs in the first two- months of this year, a trend that likely continued into March, according to a survey of economists by Bloomberg News. Canada’s March jobs report is scheduled for release on April 5.

The country’s core inflation rate, the measure most closely monitored by the Bank of Canada and which excludes volatile goods such as gasoline, rose 2.4 percent in February from a year ago, the fastest pace since March 2003, Statistics Canada said last week. The Bank of Canada, which has warned that the economy is at full capacity, sets borrowing costs to keep inflation at 2 percent, and the core rate has been at or above that target since July.

To be sure, the higher Canadian dollar and slowing U.S. growth continue to weigh on the nation’s economy. Factories cut production by 1 percent in January, led by a 12 percent decline by automakers, the statistics agency said today.

Activity by wholesalers and retailers also was tepid in January. Output generated by the nation’s wholesalers rose 0.1 percent, while retailers reduced by 0.2 percent, Statistics Canada said.

U.S. Housing

Bank of Canada Governor David Dodge said yesterday the U.S. housing market’s slump is lasting longer than the central bank had forecast. Canada sends more than 80 percent of its exports to the U.S., including lumber and other building supplies.

Still, construction, one of the main drivers of the nation’s expansion in recent years, remains buoyant, according to today’s report. Construction advanced for an eighth straight month, gaining 0.5 percent in January, today’s report said.

Energy companies, which generate 5.7 percent of the nation’s economic output and have been one of the main job creators in recent years, also rebounded in January with a 1.5 percent increase in production.

With the “economy operating at its capacity limits, core inflation running above target, and the economy likely to expand close to its potential rate in the first quarter, the odds remain heavily tilted towards the Bank remaining firmly on the sidelines,” Marc Levesque, chief economics strategist at TD Securities in Toronto, said in a note to investors.

Bank of Canada Governor David Dodge said on Thursday the central bank had been surprised by the rise in Canada’s core inflation to 2.4% in February from 2.1% in January, but cautioned against putting too much emphasis on data from one month.”Obviously it was more than most economists, including ourselves, were expecting,” said Dodge, who uses core inflation to guide the bank’s interest rate policy.

“There could well have been some special factors in that, and we’re going to have to evaluate, when we get a little more, whether there’s any change there or not,” he added.

He also told a news conference that the Bank of Canada did not see any extra stimulation from this month’s federal budget than what was originally envisaged in the bank’s forecasts.