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Canada economic activity heats up, raises focus on BoC easing bond purchases

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By Julie Gordon

OTTAWA (Reuters) – Canada‘s economic growth in the fourth quarter was stronger than expected and it likely rose again in January, boosting speculation that the Bank of Canada will reduce its bond purchases soon.

The economy grew at an annualized rate of 9.6% in the fourth quarter, beating analyst expectations of 7.5%, data from Statistics Canada showed on Tuesday. Real GDP likely climbed 0.5% in January, according to a preliminary estimate.

In response to the COVID-19 pandemic, the central bank last year slashed interest rates to near zero and introduced a large-scale bond buying program – known as quantitative easing – to ensure market liquidity.

“There had been speculation already that they (the Bank of Canada) would start to taper the quantitative easing purchases, at least announce that as soon as April. This just makes it more likely,” said Nathan Janzen, senior economist at RBC Economics.

Bank of Canada Governor Tiff Macklem reiterated last week that interest rates will stay at record low levels until into 2023. The next rate decision is on March 10.

Canadian mortgage rates are beginning to inch higher for the first time since before the COVID-19 pandemic, reflecting the spike in long-term bond yields.

But if economic growth remains robust and the output gap closes more quickly than expected, a rate change could also come sooner than 2023, said economists. Money markets see about 50 basis points of tightening already in 2022.

“I think they’ll find it difficult to stay on hold (with interest rates) as long as they are guiding,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank.

“Macklem just repeated that the output gap won’t close until 2023… We have (the output gap) closing by the end of this year or possibly early next year,” he added. “So that’s why we think the bank hikes in the second half of next year.”

The Canadian dollar was trading 0.1% higher at 1.2638 to the greenback, or 79.13 U.S. cents.

Economic activity edged up 0.1% in December, an eighth consecutive increase, but remained about 3.0% below February pre-pandemic levels, StatsCan said.

The Canadian economy posted its largest annual drop on record in 2020, down 5.4% on the year.

Canada has grappled with a harsh second wave of infections in recent months, with populous Ontario and Quebec both imposing strict restrictions in December and January to contain the spread. Those are now being loosened.

“This early read on January… is very good news,” said Doug Porter, chief economist at BMO Capital Markets. “It suggests that the economy is dealing with this second set of restrictions much better than I think most expected.”

 

(Reporting by Julie Gordon in Ottawa, additional reporting by David Ljunggren, Dale Smith, Fergal Smith, Jeff Lewis and Steve Scherer; Editing by Kirsten Donovan and Bernadette Baum)

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Britain is ‘bouncing back’ into the same old economy – The Guardian

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Britain is ‘bouncing back’ into the same old economy  The Guardian



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Economy

CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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