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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.
»
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Rate hikes?
Thanks Leo, i needed a good laugh after catching up on peak oil today. Thanks again.
Perhaps you should learn a few things from an ex member of parliment:
http://www.greaterfool.ca/2010/05/31/the-message/
I'm sure that oil spill is going to do wonders for the employment and real estate situation in the gulf states.
garth has a great sense of humor. i'll have to send him leo's article.
The title of Garth Turner's blog "GreaterFool" is self-descriptive. This is the guy who told people the following in 1999 (and actually published them in a book; no memory hole for him!):
“10 years from now you should expect stock values to have at least doubled, if not quadrupled.”
“Financial markets in North America, Europe, Japan, and other places are headed vastly higher. The Dow at 10,000 is just a stepping stone to a market that could achieve 30,000 or even 50,000 by 2015.”
“The Canadian Peso: A steady slide over the last 15 years. There is little reason to believe this trend will stop, increasing the argument for putting more of your wealth into something more stable, like the U.S. dollar.”
“Stocks will be higher in a decade than they are today. Between 1990 and 2000 the Dow went up 500%. Do you really think that between 2000 and 2010 it will go down?”
In fact, Garth is an even better "fade" bet than Cramer.
Thanks for the historical info. I have never really agreed with his stock market analysis, but with respect to Canadian housing situation - I think he is bang on. The spillover effects of a housing meltdown will have very negative consequences.
hahaha good one leo!
"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"
Kool Aide Rules
http://www.youtube.com/watch?v=cnFSaqFzSO8
El Hoser, quick question for you smartass: what % of global GDP is made up of Eurozone? US? Asia? Come back to me when you've got the answer.
Leo,
Tell me what percentage of US GDP is made up of "creative accounting"? Its all smoke and mirrors. Tell me Leo, how is the 63 Trillion ( and counting ) in US unfunded liabilities going to affect growth in the future?