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McLeans Market musings for August 1

Blog by Nick Swinburne | August 1st, 2013

The European Central Bank kept interest rates unchanged and indicated that it will likely be a long time before there is any move upwards. The ECB even went as far to say that additional rate cuts might be possible as Europe continues to wait for economic growth to reach sustainable levels.  Positive manufacturing data from Europe has some believing that the end of the European recession may be in sight although significant gains will be required before the reduction of any stimulus measures occurs.  Manufacturing numbers in the UK were particularly strong, leading to an increase in the relative value of the British pound sterling.

China saw a slight improvement in manufacturing activity, a driving force for one of the world’s biggest economies.  China’s economy continues to mature as the middle class grows in size, shifting from a mainly manufacturing economy to one where the service sector increases to meet the new needs of a wealthier population.

In the US, the Federal Reserve stated that stimulus measures are still required and will keep the status quo until employment numbers improve significantly.  There are minimal concerns about the current low level of inflation and the Federal Reserve is unlikely to raise rates until inflation increases to above 2.5%.  Some pundits see the reduction of stimulus measures not occurring until the fourth quarter of the year.  However, it should be noted that any reduction in the quantitative easing program will rock the markets and cause bond yields to spike, leading to higher mortgage rates.

Canada’s economic growth has taken a few hits recently with the Alberta floods as well as the drama surrounding the potash cartels in Russia.  One of the main potash producers in Russia has indicated it will leave an organization that helped control the price of potash.  This Russian based cartel, along with a similar cartel in North America, controls about 80% of the world’s production.  Potash is a main ingredient on many fertilizers.  This event may significantly reduce the price of potash on global markets.  Saskatchewan has about 45% of the world’s reserves and this price drop could significantly cut into Saskatchewan’s economic growth.  However, if fertilizer prices drop significantly, we may see lower food prices eventually which will in turn eventually reduce inflation in Canada, and possible on a global scale.

Bond yields have remained steady for the past few weeks and fixed term mortgage rates should remain unchanged for the short term.   The main threat to the current low rates is the potential for the US Federal Reserve to reduce stimulus measures, which will cause a spike in bond yields and rates.  This is not expected for a few months but it is a reason for consumers to obtain rate holds in order to lock in great financing terms for purchases, refinances and renewals.

Please remember that 80% financing is available for qualified US residents for most Phase 1 and regular residential properties!



Jason McLean   BSc, AMPThe Mortgage Centre: Garibaldi Mortgage
fax: 604-905-3801
cell: 604-935-9190