Canadian economic analysis for the week of June 20, 2005

Canadian economic analysis for the week of June 20, 2005

Canada’s Standard & Poor’s/TSX Composite Index has plumped 7.7% so far this year and is approaching the 10’000 mark for the first time in five years. The S&P/TSX continues to flirt with 10’000, briefly skirting the mark before receding just below it for the past two days. Since it sagged to a four-year low in October 2002, the index has recouped 76% of its previous record high. By way of comparison, the US stock markets have performed rather poorly this year where the S&P 500 has lost about 6%; the Dow Jones Industrial Average, 1.8%; and the Nasdaq has shed over 4%. The news was not all rosy as Canadian steelmakers saw their shares slip after Nucor lowered its earnings forecast on scrap steel price declines. Meanwhile the Canadian dollar continues to surge against the US dollar after a better-than-expected retail sales report. It has recorded it fifth rise in six days increasing to just over $0.81 per dollar and has risen over 3% since hitting a yearly low in May. Retail sales grew 1.5% in April. A meager 0.6% was expected. Overall sales, minus motor vehicles, recorded a 0.8% rise, besting an average 0.2% for the past 12 months. The excellent sales report is fueling speculation that the Canadian central bank will most likely raise its target interest rate, currently 2.5%, to better match the US Federal Reserve’s rate which currently stands at 3%. The bank next meets on July 12 and three more times in 2005 thereafter so there will be ample opportunity to decide what its next move will be. Overall the news for the Canadian economy is excellent and it seems to be motoring along nicely. Auto sales rose 3% and new car sales were 3.8% in April while reports indicate that persistently low interest rates are allowing Canadian consumers to buy on credit at record highs. According to some reports the amount of credit cards and lines of credit sought by consumers has doubled from six years ago while personal income has only increased by a third of that. Analysts, however, believe that there is no reason to panic as they say it is merely indicative of many Canadian citizens retiring and drawing upon their savings while the low interest rates are giving them little incentive to save.