This page has been archived and commenting is disabled.
Will Canada Lead G7 Rate Hikes?
Reuters
reports, World
trade growth slows in 1st qtr:
Global trade
volumes in the first three months of this year were 5.3 percent higher
than in the previous quarter, representing slightly slower growth than
in recent months but still a healthy rebound from the crisis, data from
the Dutch CPB institute showed on Monday.
The CPB, whose data
are used by the European Commission and World Bank, said world trade
in the three months ended February had grown by 5.8 percent over the
previous three months and grown 6.0 percent in the last quarter of
2009.
Trade growth remained
strongest in Asia and Latin America, but was relatively low in the
euro area, it said in its latest monthly world trade monitor.
On the more volatile monthly figures, world trade volumes were 3.5
percent higher in March than in February, when they grew 1.7 percent.
Trade volumes grew worldwide except
for Japanese imports, and both imports and exports in the euro area
were strong.
World trade in March was 4 percent below
the peak reached in April 2008 and 21 percent above the trough seen in
May 2009.
The CPB
report also showed a pickup in world industrial production:
On
the basis of preliminary data, world industrial production grew by
0.2% in March 2010, following an unrevised 1.0% increase in February.
Production continues to grow in all regions, emerging Asia excepted. In
March, industrial production was 1.9% below the peak level reached in
March 2008. It has risen by an accumulated 12% from the March 2009
trough. In the first quarter of 2010 production was up by 10.9% on year
ago, the highest such value in our series (which start in 1991).
Robust
global trade helped Canada register a record
6.1% gain in Canadian GDP during Q1. Phred Dvorak of the WSJ
reports, Canada's
Growth Sets Stage for Rate Increase:
Canada's
economy grew at the fastest pace in more than a decade during the
first quarter of this year, a stronger-than-expected performance that
cemented expectations of an interest-rate increase on Tuesday.
Gross
domestic product rose an annualized 6.1% during the three months
ended March 31, fueled by continued growth in consumer spending and
manufacturing, Statistics Canada said. That growth was more than double
what the U.S. economy reported during the same period, and stronger
than both the Bank of Canada and analysts' consensus forecasts of 5.8%.
It contrasts sharply with an annualized contraction of 7% a year
earlier, in the first quarter of 2009.
The strong performance
highlights how Canada's healthy financial system and relatively
unscathed consumers have underpinned a fast rebound from the downturn of
the past two years. Consumer price levels, job creation and housing
sales are all rising in Canada, pointing to a solid recovery, even as
peers like the U.S. see falling inflation and uncertain consumer
demand.
The robust economic growth
also sets the stage for what is expected to be the first interest-rate
increase among the Group of Seven wealthy nations following the
financial crisis. The Bank of Canada is widely expected to say at its
Tuesday policy announcement that it is raising its target overnight
interest rate by 25 basis points, or hundredths of a percentage point,
to 0.5%. Many expect that tightening to continue, raising the
overnight rate to 1.5% by the end of the year, according to a survey
of economists by Dow Jones.
Some central bank watchers warn
there are risks to tightening interest rates in Canada now. The
situation in Europe remains volatile after fears of a Greek debt
default prompted a bailout from the European Union, followed by credit
downgrades of countries such as Spain and Portugal. Banks report that
credit is tightening again and global equity markets have weakened.
"Even
though the lagging economic data have improved measurably, there has
already been enough of a tightening of economic conditions to allow
the bank to sit back and assess how the debt crisis unfolds," says
David Rosenberg, chief economist at wealth manager Gluskin Sheff &
Associates Inc. in Toronto.
Mr.
Rosenberg warns that if the Bank of Canada raises rates and global
credit markets weaken further, it may have to reverse course, as it
did in 2002—the last time it raised rates ahead of the U.S. Federal
Reserve.
Most economists also expect Canada's growth to cool
down on its own. Some measures that the government implemented to
boost consumption—including a popular tax break on home
renovations—have expired. Roaring housing sales are slowing as
mortgage rates and prices rise. Canada is unlikely to sustain the
rapid inventory buildups and high levels of consumer demand that
characterized the first quarter, says Douglas Porter, an economist at
BMO Capital Markets in Toronto, who is forecasting GDP growth of 3.4%
for all of 2010.
Mr. Porter, though,
still expects the Bank of Canada to start raising rates on
Tuesday—even if it pauses later in the year.
"I have a lot of
empathy for how hard the decision is," he says. "But I think the
domestic case is so strong that they should be raising interest rates."
I
think Mr. Porter is right, the Bank of Canada will likely raise rates
on Tuesday. I met up with one of the best economists in Canada during
lunch on Monday and he told me that he sees the Bank raising rates as
well.
As far as the US is concerned, he told me that strong
productivity growth is allowing the Fed to remain on the sidelines "till
September", but after that they too will start raising rates.
In
fact, he told me that policy rates around the world "are way too
accommodative" and that too many bears are focused on events in Europe
without understanding the improving fundamentals in the US. He's waiting
for a payroll figure of over 500,000 on Friday, and I think it might
even be higher.
Anyway you slice it, fundamentals are improving,
and rate hikes need to take place to remove some of the excess stimulus
that was put in place to fight off the recession. It looks like Canada
will be the first among the G7 to start hiking rates. It will be
gradual, but expect more rate hikes ahead in Canada and elsewhere.
»
- advertisements -
American sheeple = rocks?
Watch the jobs report. Looks like Census hiring in May was 417K. Each of these is an anti-job. We may as well hire them to count rocks.
So we'll see a -650k in the fall when the people counters get let go? I wonder if they'll qualify for another 18 months of unemployment.
Wow, that's so bullish I can't wait to buy stocks tomorrow morning.
Yes
Canada has already indicated that it is raising rates in June (old news)
This does not mean that the US is well along into economic recovery. It isn't.
Raising interest rates will cripple this economy. Maxed out LOC's, credit card debt, and max mortgage debt will spill a lot of blood. Just keep whistling past the graveyard Leo.......
No, I do not think so, no rate hikes this year.
Maybe not this year, but soon there'll be.
In Canada, Australia, Brazil CB's already raised rates.
ECB and FED -> will be the last ones.
"Anyway you slice it, fundamentals are improving..."
They aren't. Jobs and more jobs cut, foreclosures at record levels, countries CDS' also at record levels.
We'll see in a couple of months the result of the stimulus.
But a raise in rates are needed. First, to tell people that the economy is okay (more one lie). Second, because money is needed. There's no escape. The FED, Europe, everyone is trapped in the system. It's a matter of time.
Rate hike in Canada. Canadian banks posting ever bigger profits. Unlike Americans, the Canadians are not understanding the role between banks and government. Also, the level of state induced propaganda in Canada is nauseating. "Great economy" and everything is great, greater, greatest. Only the people can't keep up. Less money in their pockets, higher taxation coming and higher overall cost of living. Just wait. 2011 will be the eye-opener. Canada is not an island.
Central bank rate matches 3-mo treasury yield, but my feeling is that this is a token gesture. You simply can't argue against the Canadian panglossian outlook, so its better off that rates take a small bump, thus everything is right with the world.
Otherwise face death.
Canadians love SIMPLY LURVE to throw in the world "global" as if all is right with the world when the great mass of speculative fervor is throwing money into the futures markets and bidding up commodities and their houses. That is likely to change to "gullible."
Bloomberg today was talking about commodities declines, yet Canadians lap up the press notion that a recovery is in order.
Still, this is in keeping with banking tradition, play up expectations as long as you can offload liabilities. So today, the transports are getting rave reviews.
The BOC did as expected. The loonie would have had a huge sell-off if they had not raised rates 25bp as the BOC had given no indication they would do anything but raise. Still the statement is somewhat half-hearted. Don't count on this being the first in a long series of raises.
Yes a global recovery is underway and most coincident indicators I look at are moving in the right direction. But the recovery still feels fairly uncertain. I dont think central banks have to worry about being behind the curve at this point.
Speaking to a realtor in Vancouver yesterday and she says "the bottom has fallen out of the market." There is a ton of supply and pent-up demand has run out.
Bank of Canada hikes overnight target rate to 50 basis points:
FOR IMMEDIATE RELEASE1 June 2010 CONTACT: Jeremy Harrison
613 782-8782 Bank of Canada increases overnight rate target to 1/2 per cent and re-establishes normal functioning of the overnight market
OTTAWA – The Bank of Canada today announced that it is raising its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly raised to 3/4 per cent and the deposit rate is kept at 1/4 per cent, thus re-establishing the normal operating band of 50 basis points for the overnight rate.
The global economic recovery is proceeding but is increasingly uneven across countries, with strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe. The required rebalancing of global growth has not yet materialized.
In most advanced economies, the recovery remains heavily dependent on monetary and fiscal stimulus. In general, broad forces of household, bank, and sovereign deleveraging will add to the variability, and temper the pace, of global growth. Recent tensions in Europe are likely to result in higher borrowing costs and more rapid tightening of fiscal policy in some countries – an important downside risk identified in the April Monetary Policy Report (MPR). Thus far, the spillover into Canada from events in Europe has been limited to a modest fall in commodity prices and some tightening of financial conditions.
Activity in Canada is unfolding largely as expected. The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed. Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery.
CPI inflation has been in line with the Bank’s April projections. The outlook for inflation reflects the combined influences of strong domestic demand, slowing wage growth, and overall excess supply.
In this context, the Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market.
This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery.
Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments.
Information note:
The next scheduled date for announcing the overnight rate target is 20 July 2010. A full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR on 22 July 2010.
Who is next in your judgment?
The Fed will move, probably by September.
I bet you 10 drachmas there is no way the Fed raises rates in September, or October, or November, or December.
I second that. No way in hell. It goes against their charter.
Thank you. Good of you to go on the line.
I think it was good of Leo to put this up here as a topic of discussion; I agree that most central banks haven't learned a damn thing from the last time a prominent central bank bumped up interest rates from mid 2004 - mid 2007, and therefore the BoC will probably start bumping up their interest rates to "cool off the red hot economy!"
"fundamentals are improving"
This is the reason why they keep fucking up.
As with most of the world, Canada is in the unenviable position of importing US inflation. They dont have a choice, and its not that big a surprise that they did raise rates, given that housing is over-heating there: www.crackshackormansion.com
having said that, there is zero chance of rates being raised anywhere else in G-7, given none of them are commodity producers. Leo, you understand that they are ALL doing QE because rates cant go any lower?
and i ve had this conversation with so many people: the US is NOT getting better in real life. Only the concocted econ numbers the government and trade associations put out with all their crazy-ass adjustments are.
Very nice call!
Rating ***** five stars to Leo.
US improving fundamentals? Which ones exactly?
DavidC
Shocking. An economist who says the fundamentals are improving while being cautiously optimistic. Blah blah.
ZERO chance of a rate hike by the Bank of Canada.
Don't bet your dental restoration money on that, my friend!
+25 bps hike.
http://preview.bloomberg.com/news/2010-06-01/canada-first-in-g-7-to-raise-interest-rates-amid-uneven-global-recovery.html
24 out of 26 on Bloomberg agree in a 25bp hike.
All i can say if there is a rate hike, i blame the jews! :-)
CC,
Good one..............LOL
LMAO!
It never ceases to amaze me how super intelligent Jewish people are (and I mean that, no sarcasm) and yet they are no better than the Chinese in their inability to separate people's dislike and criticism of the Israel national policy with criticism of their ethnicity. Or maybe they DO KNOW, and just like to cry "foul".
These rate hikes will still keep rates below inflation which is hyperinflationary
There's no way that they could hike rates. This is a "no exit" type situation.
I mean... technically they could hike rates. But it'd be shooting themselves in the face much faster than they would be otherwise.
"it'd be shooting themselves in the face"
haha, good analogy. they should raise them.
go on, i dare you.
Rate hikes coming in June!
June 2018, that is....
or was it 2081... whatever! Any date beyond 2012 is meaningless! :)
Increase in the money supply has been higher overall in Canada due to excessive money printing yoy to the tune of 12% since 2000. But these statistics are hard to come by. Housing prices are set to come off since sellers have invaded the markets. The export surplus that was leading to a higher loonie may also see some serious problems with a decline in oil and base metals prices.
We always hear the suggestion that the Bank Of Canada do this or that thing, but they adhere to the bond markets.
http://www.bankofcanada.ca/en/rates/monmrt.html
Why there is a possible incremental rate hike suggestion here is short term treasuries have been selling off, I think this is because of the reversal of the loonie vs. the buck:
http://www.bankofcanada.ca/en/rates/tbill.html
More than likely if real estate prices come off this time, it will result in some very strong downward pressure on yields, the yield curve is comparatively flat overall considering long term yields. Interesting to see that Swiss rates are as low as Japan's. Canada could soon follow in their footsteps.
The Bank Of Canada has a serious problem on its hands having sold off all of its gold in 1994.
I'm thinking that Canada will be one of the first G7 to implement a negative repo rate as they had done in Sweden, given the huge provincial balance sheet liabilities. Canadians are about to get a very bitter lesson in the term 'credit default swaps.'
Yes sir, 38 Billion worth.............GOLD=GONE.
Bank of Canada pretty much just follows 3 month T-bill rate historically (.43 on May 26 vs .15 US). But BOC top dog Mark Carney is ex goldman sachs (12 years), so he might have to call someone a little further south of Ottawa or even Canada to find out if he is allowed to play.
Damn it - are looking behind the numbers and official forecasts? You know you're not allowed to do that, get back around the front of the screen!!
Statement of Aus RBA Governor:
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per cent.
Since the Board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial markets. Investors have generally displayed a good deal more caution. As a result, equity prices have fallen and long-term government bond rates have declined outside of the countries most affected by the sovereign concerns. The Australian dollar fell sharply as part of this adjustment. Commodity prices have also softened, though those important for Australia remain at very high levels.
delayedAds.push(function(){ FD.addExternalReferralsAd($merge(FD.baseAd, { id: "adspot-300x250-pos-3", iframeId: "adspot-300x250-pos-3-iframe", params: $merge($merge(FD.baseAd.params, { pos: 3, aamsz : "300x250" }),getAdParams("300x250")) ,addSmall: true ,smallText: "Advertisement: Story continues below" }) ); } );European policymakers have responded by assembling a large package to provide financing for the relevant countries for a period of time, stabilise bond markets and provide liquidity. They have also committed to action to bring budget deficits down and stabilise debt over time.
The effects of these various factors on the world economy will need to remain under review. At this stage, global growth is still expected to be at about trend pace in 2010. Conditions in Europe overall have been relatively weak, and the foreshadowed budgetary tightening will probably mean that this will continue, but growth is becoming more established in North America. In Asia, growth has continued to be quite strong and may need to moderate in the year ahead.
In Australia, with the high level of the terms of trade expected to add to incomes and demand, output growth over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Inflation appears likely to be in the upper half of the target zone over the next year.
Consistent with that outlook, and as a result of actions at previous meetings, interest rates to borrowers are around their average levels of the past decade, which is a significant adjustment from the very expansionary settings reached a year ago. Taking all the available information into account, the Board views this setting of monetary policy as appropriate for the near term.
"Since the Board last met, concerns about sovereign creditworthiness in several European countries have been a focus of financial markets"
Like all great policymakers they only notice something is amiss with their forecasts after the fact.
Australia just announced interest rates unchanged after successive monthly increases.
I suspect the next move here will be V
Absolutely. I said at the time that Stevens would be the first clown to LOWER rates when the double-dip nails the world economies.
Looks like Glenno is preparing the KY for this one.....
One reason the BoC might be thinking of raising rates is the implementation of the "harmonized sales tax" which they think will add .6 to the inflation side, which will put pressure on their mandate to manage inflation.
Taxes are in fact deflationary.
well actually , they price it in to the customers so it's inflatory.
You point is that it presses down the purchasing power and creates lower volumes and is bad bad bad for trade.
I wonder what the fuel tax will do for the US. Here in Europe we've seen a 14% drop in oil consumption when prices went up.
Almost every transportation sector is near bankrupt.
Food prices are way higher in europe because of higher transportation costs...
It's a dangerous cycle.
When the Consumer Price Index is calculated, taxes are not part of the equation so aren't considered part of inflation even though they can be a key driver of added costs. Governments everywhere have become very cagey in how they figure inflation. The price of things you use on a regular basis is rising at about 6% while the declared CPI rise is 2%.
I am not sure that governments have become very cagey in how they figure inflation.
However, clearly, you might be on the wrong side of inflation. It's been years I computed my own inflation rate (rather easily as I buy the same items over and over) One semester showed a 12pc inflation, way beyond the 1.ish it was relayed to be.
Many reasons to it.
One for example is that very often, CPIs rely on the best offer and not a particular offer. When you buy that particular brand of chocolate cookies, a CPI might rely on the cheapest brand of chocolate cookies etc...
Leo, you are a glutton for punishment. And you'll get your fill with this one.
I'm not smart enough to argue the rate hike situation in Canada, but the world is in a currency race to the bottom.
Thanks for the valiant attempt.