President Obama’s budget proposal came and went yesterday with little fanfare, seen as a formality already predicated by his state of the union speech and more politicking, as anything the Democratic President brings forward is sure to be voted down in the Republican run House. While this is something to focus on later this election year, it begs the question of how we can expect government to work when it takes a whole year to hold an election. That’s 25% of a Presidents term.

The Bank of Japan surprised markets and eased policy today, boosting its asset purchase plan by 10 trillion Yen and setting an inflation target of 1%. This news sent the JPY lower against 15 of its 16 major currency pairs and through 78 against the USD for the first time since Jan 25.

Moody’s rating agency has followed S&Ps lead and downgraded six European countries including Italy, Spain and Portugal. “Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London.   Moody’s also warned that it may cut the triple-A ratings of France, Britain and Austria. London has never had its prestigious triple A rating tarnished before.

European share markets continue to advance as German investor confidence rose to a ten month high. Analysts predicted the ZEW would rise to negative 11.8, down from January’s -21.6 reading. The actual number came in at +5.4, which is a very good sign from Europe’s largest economy. China’s Premier Wen Jiabao has also vowed to help the eurozone get through their debt issues with no specifics mentioned and no talk of any giant Pandas.

On this side of the pond investors are waking up to stock futures in positive territory and commodity futures in a bit of a mixed bag. We have retail sales and business inventories out of the US today. With only minor reports out of Canada we will continue to watch developments out of the Mediterranean for guidance.

If you live to be a hundred, I want to live to be a hundred minus one day so I never have to live without you.

A. A. Milne

The Convention facilitates international co-operation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers.

In signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which was developed by the OECD and the Council of Europe in 1988, India joins thirty-one other signatories, including Canada, in allowing tax officials from one country to enter another country to conduct investigations into citizens’ tax compliance, including interviewing and examining tax records. It explicitly provides for the exchange of information in criminal cases involving tax. The information is also used to combat money laundering.

Under the terms of the convention, the rights of taxpayers are protected. The convention is set up so that if personal data are provided by one state to another, “the Party receiving them shall treat them in compliance not only with its own domestic law, but also with the safeguards that may be required to ensure data protection under the domestic law of the supplying Party (Article 22).”

The convention was last amended at the June, 2011 meeting of the G20.

European stock markets are painted green this morning, giving a lift to North American stock and commodity futures. The risk trade is back on early this morning after the Greek parliament passed its latest austerity plans in return for the needed €130bn bailout from the IMF and ECB.

Japan’s economy contracted 0.6% in the fourth quarter, blamed on the global economic slowdown that has affected many countries and corporations in the fourth quarter.

President Obama will propose his election year budget today. Of particular interest to markets will be his deficit projections, which are based on growth forecasts that will be released along with the budget at 11:15 EST.

There are no other economic releases today for North America, but it will be a week filled with data. Almost 10% of the S&P will report earnings along with some of the biggest commodity names here on the TSX. Highlighted US economic releases this week include retail sales, business inventories, housing starts, CPI, PPI and the minutes from the previous FOMC meeting. Canadian economic data slated for release this week include manufacturing survey, international transactions in securities and consumer price index.

Everything happens to everybody sooner or later if there is time enough.

George Bernard Shaw

Clark is quoted as saying that they did it—beat the skeptics and succeeded in not only breaking into the market but flourishing—by sticking to consumer lending and staying away from subprime mortgage loans. TD posted profits of close to $3 billion in US consumer banking over the last three years, at the same time that banks like Bank of America and Citigroup were being bailed out by the government.

In the five years ending December 31, 2011, shares in TD had gained 42 per cent, beating all other Canadian banks. Bank of America has seen a drop of 87 per cent over the same period, according to Bloomberg.

Clark takes a hands-on approach to banking and says it’s important for a CEO to understand all aspects of the institution he runs. The hands-on approach and keeping a narrow focus have paid off.

By Tim Harling, European and Asian share markets are down after a chinese report that showed both their exports and imports were down showing proof of the global slowdown, the first drop in exports in 2 years.

ECB president Mario Draghi had some stern words for both bankers and Greek politicians yesterday. Firstly in response to some banker’s comments that accessing the ECB LTRO program carries a “stigma”, “There is no stigma whatsoever on these facilities,” Draghi said at a press conference in Frankfurt yesterday. “Some have made some sort of statements that I would call statements of virility, namely it would be undignified for a bank, a serious bank, to access these facilities. Now let me say that the very same banks that made these statements access facilities of different kinds -- but still government facilities.” Secondly, with the latest round of ‘promises of austerity’ out of Greece, Draghi said the ECB will not give the funds to Greece based on promises as done in the past but will based on implementation.

North American equity futures are down as investors go into a ‘risk off’ mode. Markets get US and Canadian trade numbers out this morning which could get an initial positive reaction, but under the larger cloud of Europe today it will most likely be short lived.

Expected Range: 1.0005 – 1.0090

A laugh is a surprise. And all humor is physical. I was always athletic, so that came naturally to me.

Chevy Chase

China’s inflation rate unexpectedly accelerated in January, showing a rise in CPI of 4.5% vs. expectations of a 4% increase. This was partially accounted for by a jump in consumer spending over the Chinese New Year. In Japan, machinery orders plunged 7.1%, attributed to a strong Japanese Yen and ongoing concern over global economic slowdown. Finally, New Zealand’s unemployment rate fell further than expected, from 6.6% to 6.3%. 

European equity markets are up slightly, as the Bank of England left rates unchanged at 0.5% and decided to raise their asset purchase target by £50bn, bringing the total amount to £325bn. The European Central Bank has also left rates unchanged at 1.0% as widely expected. Their focus remains on the Greek debt crisis and any possible role it may have to play in helping them avoid an impending default. 

Greek debt talks are moving back to Brussels after more marathon sessions in Athens, with no decision on a deal at press time. The IMF continues to push the ECB to take part in any haircut deal that Greece and the private sector might agree upon as the timeframe for any such deal to be done is rapidly closing. 

USD/CAD remains in a sideways trading mode as we come to the end of a week that was and is light in North American economic data. Canada releases its new housing price index today and out of the US we get initial jobless claims as per usual on this fine Thursday. 

A man who dares to waste one hour of time has not discovered the value of life.

Charles Darwin 

Markets continue to be range bound searching for direction. Not much to speak of over night, Germany’s trade surplus rose to €158bn in 2011 after record exports that rose 11.4%, exceeding €1tn for the first time in its history.

Canada’s Prime Minister Stephen Harper is in China discussing trade with Chinese Premier Wen Jiabao. Mr. Harper seems to have found success in getting his top priority, an investment protection agreement, signed on the first day of his trip clearing the way further trade agreement discussions. “Investment flows between Canada and China are at an all-time high, contributing significantly to jobs and economic growth in both countries,”Mr. Harper said in a prepared statement.

Greece may or may not have an announcement today on a debt swap deal as Mr. Papademos may or may not meet with coalition leaders to discuss a propossed deal as the missed another deadline to secure a second aid package.

There has been a clear crisis of confidence that has seriously aggravated the situation. Measures need to be taken to ensure that this vicious circle is broken. 

Christine Lagarde 

Mr. Bernanke did an excellent job of depressing markets yesterday when he testified to the House Budget Committee on how slowly the economy is recovering and all that over hangs it. Markets closed yesterday pretty much where they opened.

This morning’s Canadian unemployment numbers where disappointing, +2.3k vs. +24k expected. This pushed the unemployment rate up to 7.6% a nine month high and unfortunately continuing the trend of losing fulltime jobs and creating part time jobs.

The big news event this week is finally upon us in the form of US unemployment analysts are expecting a net increase of 140k jobs and for the unemployment rate to remain unchanged at 8.5%. The risk will be found in any revisions to previous numbers.

Now that Greek fatigue has set in we can focus on Iran and the possibilities of a military strike there as tensions are building in the region. Commodity markets will be paying particular attention to developments there. With Canada being a commodity based currency we will also be watching.

If football taught me anything about business, it is that you win the game one play at a time.

Fran Tarkenton

Documents made public this week from the Office of the Superintendent of Financial Institutions (OSFI) indicate that the regulator is concerned that Canada’s banks are becoming too loose in their lending requirements for mortgages and home equity lines of credit (HELOC) in order to be competitive. OSFI is increasing its scrutiny of the housing sector, informing the banks that it will now monitor their practices with regard to HELOC on a quarterly basis. OSFI is particularly concerned about the activities of speculators in the Toronto and Vancouver housing markets, saying that “additional work is needed here” to quantify the presence of “pure speculators” in the market.

Minister of Finance Jim Flaherty, as quoted in the Globe and Mail, seemed to be downplaying the matter, while at the same time saying that he shared the OSFI’s concerns. “I was informed of what their assessment showed with respect to a few financial institutions, which is a matter of concern that is being corrected.”

More optimistic news out of Greece overnight coupled with a rise in China’s manufacturing index against the headwinds of a slowing global economy, has pushed European and Asian share markets higher. This in turn is pushing up the futures in US equities who are already in a good mood in advance of the Facebook IPO announcement expected later today. Markets will get some US manufacturing and employment data this morning and Mr. Bernanke is testifying before the House Budget Committee. There is no data out of Canada today.
 
Gold $ 1,749
Oil $ 99.04
 
Expected Range: 0.9955 – 1.0045
 
USD/CAD 0.9988
EUR/USD 1.3187
EUR/CAD 1.3172
AUD/CAD 1.0693
GBP/CAD 1.5837
 
 
If it doesn't matter who wins or loses, then why do they keep score?
Vince Lombardi

BMO report predicts that Canada's housing market, though somewhat overvalued, will not experience a major correction, but a cooling down in 2012.

Reprinted with permission from Condo.ca

A new report from BMO’s Economic Research department seeks to shed some cooler light on the heated debate about real estate in Canada. “Cool” is the operative word in this report, authored by BMO’s Dr. Sherry Cooper, Chief Economist, BMO Financial Group.

“In our view, the housing boom will more likely cool than correct, even in condo-driven Toronto,” says Cooper.

The facts, according to Cooper, don’t support the more pessimistic view that the housing market is in a bubble and a major correction, if not collapse, imminent. For the most part, housing prices in the country are only “moderately high.” Low interest rates will continue to positively affect affordability, and this will allow incomes to “catch up” with higher housing prices and restore “proper” valuations.

You miss 100% of the shots you don't take.
Wayne Gretzky

USD/CAD traded higher overnight because of negative comments from the IMF’s Lagarde and weaker than expected UK GDP. The UK economy shrank by 0.2% in the 4th quarter of 2011, after a rise of 0.6% in the previous quarter, edging it towards recession. This prompted the Bank of England Governor Mervyn King to say that slowing inflation gives room for further bond purchases, which will help to prevent the economy from falling into a "renewed severe downturn."
 
Japan has announced its first trade deficit in 30 years, this contrasts their history of being one of the world’s largest exporters of cars and electronics. Most of this swing can be directly attributed to the tsunami disaster back in March, as Japanese infrastructure continues to be rebuilt and exporters struggle with a rising JPY and damaged manufacturing facilities.
 
The Australian dollar rose after inflation there came in unexpectedly higher lowering the chances of an expected rate cut. It has since come off to trade below 1.05 against the USD.
 
The ECB has reiterated that it remains opposed to any restructuring of its Greek bond holdings as the debt was required for monetary policy purposes. This was in response to pressure for it to join the private-sector investors in taking a haircut on their holdings.
 
Today’s market highlight will be the first time that the FOMC releases its own forecasts for the benchmark interest rate.
 
And in case anyone missed it last night President Obama is in fact running for reelection.
 

“As a nuclear power—as the only nuclear power to have used a nuclear weapon— the United States has a moral responsibility to act.”

Barack Obama

Expected Range: 1.0085 – 1.0155
Gold $1668.3
Oil $99.33
 
USD/Cad is a bit higher overnight as the overall ‘risk’ trade softens. The Euro is being whipsawed as markets are sensitive to further delays in the Greek debt talks, while getting strong economic data in the form of higher than expected PMI numbers across the board (save France). Overseas equity markets are down and the trend is continuing across time zones to North America.
The IMF President Christine Lagarde was in the press yesterday telling Germany that she needs to give more € to the ESFS and back down from its position of more aggressive and continued austerity on the debt laden countries. She also pointed out that the IMF will not be giving any money to Europe as it has enough money sloshing around the Euro zone to fix their own debt problems, as the IMF’s funds are needed to help other nations around the world dealing with economic shocks that are out of their control.
In other news Greece has published a list of some 4,000 alleged tax evaders. The top offender owing nearly €1 billion, the list seems to be comprised of mostly owners of business’ that have gone out of business. I wonder if it was their intention to show that this Greek issue of debt nonpayment really is a Greek phenomenon that starts at the top and goes all the way down the line. Somebody pass the Ouzo.
Today marks the start of the FOMC’s two day meeting, markets will also be watching tonight’s State of the Union speech from President Obama.
This morning’s Canadian retail sales are expected to be up +.02%, this isn’t expected to move markets as our Loonie is at the mercy of larger global macro issues at the moment.
 
 
I can resist everything except temptation.
Oscar Wilde