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McLean's market musings for April 18

Blog by Nick Swinburne | April 18th, 2013

Lower than expected growth in China caused markets to reduce positions in commodity heavy countries, such as Canada, earlier this week.  While the latest numbers showed growth in China at 7.7%, which is still very high compared to most industrialized nations, this is a lower number than expected for a country that is one of the global economic drivers.

The US economy remains on track with positive growth in many sectors.  Recent negative job numbers have worried some that current growth is not sustainable but it is more likely that the latest numbers are just a bump in a road to recovery.  This road to recovery will have a few ups and downs but it still seems headed in the direction of strong economic growth and the return of the US to the position of a global economic leader.

This week the Bank of Canada kept the Prime rate unchanged and indicated that the Canadian economy will take longer to improve than previously expected.  Many analysts are now extending the timeline for the next interest increase to the end of 2014 or even the middle of 2015.  This is the 22nd consecutive time, over 31 months, that the key interest rate has been left unchanged.   Household debt levels remain a concern  but this problem has subsided slightly in the past few months.   Inflation, which is one of the main factors that influences decision by the Bank of Canada, remains quite low and early 2013 numbers showed core inflation below 1% for the first two months of the year.  If the Canadian economic growth turns negative, the Bank of Canada may be forced to actually reduce the Prime rate slightly to provide additional economic stimulus but the household debt concerns means that GDP would have to worsen significantly for this to happen.

Canadian bond yields continue to creep downwards and this will keep mortgage rates extremely low for the foreseeable future.

The Canadian dollar decreased against both the US dollar and the Euro over the past week.   The disappointing Chinese GDP numbers, along with the reduced growth prospects for the Canadian economy caused the dollar to lose over one cent against both major currencies this week.  As the price of gold recoups some earlier losses, the loonie should bounce back a bit but the volatility will likely continue for the next few months.  The dollar should not see significant long term changes in value but day to day volatility will provide opportunities to get relatively better exchange rates for those who are patient.

Please remember that 80% financing is available for qualified US residents at great rates!

Jason McLean   BSc, AMP
The Mortgage Centre: Garibaldi Mortgage
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