THE GOOD NEWS
Flight of the loon
It’s been a rough year for the Canadian dollar, but things are looking up. The loonie hit a 10-week high above US82 cents this week, up 7.6 per cent since February. And while most analysts say the rise is due to weakness in the U.S. dollar, UBS strategist George Vasic thinks investors may finally be realizing that the Canadian economy isn’t just about rocks and trees. With a strong banking sector and our enviable fiscal position, our dollar is finally beginning to reflect “Canada the good,” Vasic says. It’s about time, too.
The dragon’s alive
China’s economy appears to be pulling out of its nosedive. Imports of iron, coal and oil rose last month, as did sales of homes and cars.
Clearance!
U.S. manufacturers have struggled all year with a glut of unsold goods sitting in warehouses, but that problem may be easing. Several companies, including Alcoa and Goodyear Tire, are reporting sharp cuts in inventories recently.
If you build it . . .
Construction of new homes in Canada soared by 13.7 per cent in March, halting a six-month slide. But don’t get too excited: the number is still 36 per cent below last year, and most say it was due more to good weather than rising demand.
THE BAD NEWS
The axe keeps falling
Canadian employers slashed another 61,300 jobs in March, driving the unemployment rate to a seven-year high of eight per cent. In all, 387,000 full-time jobs have disappeared since October—the sharpest drop since the recession of 1982.
Retail Sales
Retail sales in the U.S. took an unexpected fall last month, sliding 1.1 per cent. Anemic demand for cars, appliances and clothing led the declines. The optimists note that the past three months as a whole were better than the last three months of 2008. But with job losses mounting, consumers are paying down debt and building up savings accounts, not filling out their summer wardrobes.
The money hole
The U.S. government’s budget deficit is growing even faster than expected. Uncle Sam is already US$1 trillion in the red, and we’re only halfway through the fiscal year. In fact, the deficit was US$192 billion for the month of March alone. Canada’s budget shortfall is now projected to come in at a comparatively modest (but still record) $39.2 billion this year.
Running on fumes
Oil prices retreated below US$52 a barrel this week as the International Energy Agency projected that global demand will fall by 2.4 million barrels a day this year. That means cheaper fill-ups for commuters, but more pain for oil exporters like Canada.
SIGNS OF THE TIMES
- One of the oldest truisms in investing is that grocery stores and drug makers are recession-proof. After all, people have to eat, and people have to take their medication, right? Well, it turns out meds are a luxury for some cash-strapped Americans. According to one medical tracking form, Americans failed to fill 6.8 per cent of their doctors’ prescriptions in the final three months of 2008—an increase of more than a fifth from a year earlier.
- A recession, it seems, is no time for ballet. The National Ballet of Canada indefinitely postponed its five-city tour of Western Canada “in order to avoid undue financial risk.” Despite attracting good audiences in Ontario this year, the company is facing a deficit and decided it couldn’t take on the expense of a western tour.
- The economy is so dire in the United States, it has driven desperate Americans to drink domestic beer. U.S. beer imports dropped 19 per cent in the first two months of this year. The hardest-hit brands were Mexico’s Corona, and Heineken, the bestselling Dutch brew. Sales figures suggest domestic brands like Coors Light are benefiting from the import slump. God help them.
- These are tough times to be a car dealer, but in Britain there is no job tougher than being a used car salesman. New figures from the U.K. show that several dealers, including Vauxhall (owned by General Motors) and Mazda, are selling new cars for less than the same pre-owned model. Dealers say vicious competition for sales has driven prices down to unsustainable levels.
LATEST INTELLIGENCE
First, Wells Fargo & Co. projected it would turn a US$-billion profit this year. Then, Goldman Sachs announced better-than-expected earnings and plans to repay the government’s emergency loans. Now, all eyes are focused on the quarterly earnings reports that will come over the next couple of weeks. Can companies produce more positive surprises, like Wells Fargo did? If not, will the market plunge again?
“The very dramatic declines in corporate earnings forecasts seem to have ended.” —Abby Joseph Cohen, senior investment strategist at Goldman Sachs
“What we see is a lot of hope in the market that this quarter will finally show some legitimate bottom-line results above and beyond what we saw last quarter. It’s more a function of hope rather than any evidence that that is going to happen.”—Jason O’Donnell, senior bank analyst at Boenning & Scattergood Inc.
“You have essentially a government that gives financials free money at the expense of the taxpayer. With this free money, they may actually have decent earnings in the near future.” —Marc Faber, publisher of the Gloom, Boom and Doom report
“The worst of the post-Lehman panic appears to have passed.” —Brad Hintz, a securities industry analyst at Bernstein Research
“The [bank] CEOs have taken a stand and expectations have been raised . . . They could get slammed if they don’t perform.” —Frank Barkocy, director of research at Mendon Capital Advisors
“First-quarter 2009 earnings season may have more head fakes and rebounds than the NCAA basketball finals . . . We anticipate that first-quarter 2009 will be a head fake, with negative fundamentals returning in second-quarter 2009.”—analysts at Keefe, Bruyette & Woods
THE WEEK AHEAD
Thursday: StatsCan will release Canadian manufacturing shipments for the month of February. Judging by the number of manufacturing jobs lost in the past few months, you can expect that shipments were lousy. The U.S. will report housing starts for March.
Friday: The Canadian consumer price index is expected to show that inflation remains the least of our problems for the time being.
Tuesday: The Bank of Canada will make its monetary policy announcement. With rates at 0.5 per cent, there’s not much left to cut.
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