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Monday, August 22nd, 2016

Canadian wealth rebounding at a faster pace than in U.S.

How wealth is rebounding


Wealth among Canadians has rebounded at a faster pace than that of our American cousins, buoyed by a strong real estate market and stronger stocks pumped up by commodities prices.

“The rollicking stock market helped boost the net worth of American households in [the fourth quarter], though they remain nearly $9-trillion (or 13 per cent) poorer than before the credit crisis because of depressed home values and the almost $2-trillion loss in equity values,” economist Sal Guatieri of BMO Nesbitt Burns said in a research note.

“Conversely, Canadian household wealth continues to scale new heights on the back of record house prices and a near-full recovery in equities (thanks to the commodities boom.”

Mr. Guatieri was referring to figures released yesterday by the Federal Reserve that showed household wealth in the United States rose by $2.1-trillion in the final quarter of last year. That brought the total to $56.8-trillion, the central bank said. At the same time, Americans continued to cut back their debt levels.

Mr. Guatieri was comparing the U.S. fourth-quarter data to third-quarter numbers in Canada.

BMO more confident


Sherry Cooper is growing more confident about the North American recovery, even in the face of higher commodity costs, though sharply higher, and sustained, oil prices (CL-FT100.95-0.47-0.46%) could stall the rebound.

“While we were cautiously optimistic about the economic outlook at the turn of the year, we now believe the odds have increased for a self-sustaining expansion in North America through this year and next despite the recent surge in commodity prices,” the chief economist at BMO Nesbitt Burns said in a report.

“Job growth has finally picked up in the U.S. and business spending is rising. Consumers are more confident, opening their wallets for the best Christmas season in four years.”

Ms. Cooper noted that both the Canadian and U.S. economies now depend much less on crude than they once did, with consumption down almost 7 per cent since 2005 and more use of natural gas.

“To be sure, however, if oil prices rise to around $130 to $150 a barrel and stay there, overall economic activity will slow and possibly head into reverse,” Ms. Cooper said.

“It is unlikely, however, that policy makers would just stand by and watch it happen. Monetary and fiscal stimulus, as well as releases from the U.S. Strategic Petroleum Reserve, would likely ensue. Consequently, a full-blown recession is unlikely.”

ECB move won’t hurt gold


The European Central Bank’s expected move on interest rates shouldn’t take the shine off gold (GC-FT1,418.9014.701.05%), UBS AG says.

The gold market seems ready to “ignore” a tighter policy in Europe, and with good reason, says analyst Dominic Schnider.

ECB chief Jean-Trichet has signalled a possible rate hike, as early as next month, and markets now expect a cumulative increase of a full percentage point in the key lending rate by the end of the year, from its current 1 per cent, as the central bank moves to stop inflation in its tracks.

“So far, the ECB rhetoric has had little to no impact on the gold price, unlike in January when it fueled a sharp liquidation of long positions in gold futures,” Mr. Schnider said in a research note.

“But aren’t higher interest rates poison for gold? In essence, yes, but the question relates to the degree of monetary tightening. Here, we expect the ECB to disappoint market expectations. At best, we expect interest rates to rise by 75 [basis points]. This should not be enough to bring the real interest rate in the euro zone into positive territory. Headline inflation is likely to stay above 2.2 per cent.”

While higher rates won’t solve the debt problems in Europe, they should buoy the euro could be a “catalyst” for broader weakness in the U.S. dollar. With the U.S. dollar slipping, and the debt troubles remaining unsolved, the central bank’s “hawkishness” isn’t yet a threat to bullion.

“It will be important to watch the Fed, which has reiterated its stance to keep interest rates unchanged and not to react on oil and food price inflation,” Mr. Schnider added. “Thus, we remain confident that investment demand in the developed world will remain upbeat and supportive of a higher gold price.”

Canada creates less jobs than expected

The Canadian economy disappointed on the jobs front in February, creating a smaller than expected 15,100 new jobs that included an outright decline in the important full-time work category, The Globe’s Tavia Grant reports this morning.

The tiny pick-up in jobs over all, all part time, was below the consensus expectations of as many as 25,000 new jobs, but large enough to keep the unemployment rate at 7.8 per cent.

Canada’s job growth slow

 

Earthquake in Japan roils markets

A major earthquake in northeastern Japan hit stocks round the world Friday but the yen proved resilient to one of the bigger tremors the country has suffered.

The quake, which struck towards the end of the Asian trading session, prompted a renewed bout of selling in stock markets and a kneejerk selloff in the yen. However, the Japanese currency recovered somewhat, thanks to its status as a safe haven for international traders.

With tsunami alerts in place all round the Pacific Rim, from Australia all the way up to the west coast of the U.S. and Canada, investors are clearly on edge over the potential fallout.

“At this point we would assume that there will be no major economic repercussions from this earthquake although we will have to watch how events unfold over the coming hours,” said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ. “Of course the initial uncertainty that could prompt risk aversion may in fact help lift the yen in the short-term.”

Japanese stocks, though, were hit hard and the benchmark Nikkei 225 index closed down 1.7 per cent at 10,254.43.

Japan quake hits stocks


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