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US stimulus to turbocharge world economy as Europe lags: OECD – BNN

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A U.S. recovery turbocharged by President Joe Biden’s stimulus package will help power a faster than expected global economic upswing that risks leaving Europe behind, according to OECD forecasts.

The Paris-based organization said it now expects global output to rise above pre-pandemic levels by mid-2021 after major economies showed greater resilience at the end of 2020, and as evidence of vaccine efficacy grows and governments add extra demand stimulus.

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It raised its world growth forecast for 2021 to 5.6 per cent from 4.2 per cent and more than doubled its prediction for the U.S. to 6.5 per cent. OECD models indicate that Biden’s measures will raise output around 3 to 4 per cent on average in the first full year of the package and add a full percentage point to world economic output.

“This will not only boost the U.S. economy, but it will fuel global growth through increased demand in the U.S. and from the U.S. to the rest of the world,” OECD Chief Economist Laurence Boone said at a presentation in Paris.

The sharp upward revisions show the enormous uncertainty surrounding the rebound from the worst economic slump in living memory. U.S. borrowing costs and oil prices have returned to pre-crisis levels in recent weeks, sending ripples across global markets.

As a consequence, rising inflation expectations are putting pressure on central banks as they seek to ensure a smooth recovery with prolonged loose policies.

Stronger Growth

Adding to the difficulties, there’s a growing divergence between sectors and geographies. As the U.S. surges ahead with a 2021 growth rate closer to China’s 7.8 per cent than the euro area’s 3.9 per cent, the OECD expects positive spillovers for some other economies, particularly Canada and Mexico.

But Europe is on a more gradual path with ongoing government restrictions and total discretionary stimulus set to be “relatively mild,” it said, slightly lowering the outlook for France and Italy for 2021.

The OECD forecasts for this year and next suggest that some European economies, including Italy, Spain and the U.K., won’t make up lost GDP in 2022.

Separately, euro-area GDP data on Tuesday showed the 19-member region contracted 0.7 per cent in the final three months of 2020, 0.1 percentage points more than initially reported.

Job Risks

The OECD said there are “sizable risks” to the outlook as faster vaccine deployment could further boost spending and confidence, but virus mutations could also thwart the battle against the pandemic, causing larger job losses and more business failures.

That makes producing and deploying vaccines the “top policy priority,” the OECD said. According to Boone, Europe is suffering from poor public health management and more fiscal stimulus without vaccinations would not be effective.

“Countries need to accelerate their vaccination programs to reopen faster their economies — if we are at war against a virus we need to get on a wartime footing,” Boone said in an interview with Bloomberg Television.

The uncertainty means fiscal policies will need to be contingent on the state of economies and more targeted. But the OECD also repeated a warning that governments must err on the side of caution and not tighten policies too fast, as happened in the wake of the global financial crisis.

Central banks should keep extraordinarily accommodative policies in place, even if headline inflation overshoots targets temporarily, the OECD said. For the Federal Reserve, that means it should use its new flexible average inflation-targeting framework to avoid immediate increases in rates, it said. It estimates the lasting impact on inflation from the stimulus plan will be “modest” beyond 2022.

–With assistance from Tom Keene, Lisa Abramowicz, Jonathan Ferro and Caroline Connan.

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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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Canadian dollar rebounds from one-week low ahead of jobs data

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) -The Canadian dollar strengthened against its U.S. counterpart on Thursday, recovering from a one-week low the day before, as the level of oil prices bolstered the medium-term outlook for the currency and ahead of domestic jobs data on Friday.

The Canadian dollar was trading 0.4% higher at 1.2560 to the greenback, or 79.62 U.S. cents. On Wednesday, it touched its weakest intraday level since March 31 at 1.2634.

“We have seen partial retracement from the decline over the last couple of days,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.

“With oil prices where they are – let’s call WCS still at roughly $49 a barrel – I still think CAD has room to strengthen over the medium term and even over a one-week horizon.”

Western Canadian Select (WCS), the heavy blend of oil that Canada produces, trades at a discount to the U.S. benchmark. U.S. crude futures settled 0.3% lower at $59.60 a barrel, but were up nearly 80% since last November.

The S&P 500 closed at a record high as Treasury yields fell following softer-than-anticipated labor market data, while the U.S. dollar fell to a two-week low against a basket of major currencies.

Canada‘s employment report for March, due on Friday, could offer clues on the Bank of Canada‘s policy outlook. The central bank has become more upbeat about prospects for economic growth, while some strategists expect it to cut bond purchases at its next interest rate announcement on April 21.

On a more cautious note for the economy, Ontario, Canada‘s most populous province, initiated a four-week stay-at-home order as it battles a third wave of the COVID-19 pandemic.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year fell 3.3 basis points to 1.469%.

(Reporting by Fergal Smith;Editing by Alison Williams and Jonathan Oatis)

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