The big picture

Consumer confidence up, home prices down

President Barack Obama on Wednesday marked 100 days since signing his US$787-billion economic stimulus package, saying it’s created or saved more than 150,000 jobs, and unveiling funding for two energy projects. “From where we stand today, the road to economic recovery is still long. And the road to a new, clean energy economy is even longer. But after four months of this administration and one hundred days of the Recovery Act, we have carved out a path toward progress,” Obama said.

According to the U.S. Conference Board, consumer confidence leapt to its highest level in eight months in May. In the past, such increases have indicated that a recession-plagued economy is about to recover. However, the S&P/Case-Shiller national home-price index fell 19.1% in the first quarter versus a year earlier—the steepest decline in its 21-year history. In addition to aggravating mortgage problems, the decline in home prices means continuing pressure on family balance sheets.

The number of Canadians receiving jobless benefits surged 10.6% in March from the previous month, the biggest increase since the labour market started to weaken last October. Canada’s employment rate is running at a seven-year high of 8% and the economy has shed 321,000 jobs since October, Statistics Canada said earlier this month.

The markets

Oil and dollar continue to rise

Oil hit a new high of US$66.47 for the year this week despite expectations that OPEC will not cut production and more bad news from the auto industry. Indeed, GM’s race to restructure before a government-imposed Monday deadline was set back this week when bondholders rejected its offer to exchange US$27 billion in unsecured debt for 10% of the company’s stock. Higher oil prices continued to spur the loonie, which reached a new seven-month high above US$0.91 on Friday.

On Tuesday, financial stocks surged 4.3% as Bank of Montreal’s healthy profit report and rising consumer confidence spurred optimism that the worst of the recession is over. The S&P 500 added 2.6%, while the Dow advanced 2.4%. Markets declined sharply Wednesday in reaction to rising bond yields, but came storming back Thursday with more triple-digit point gains.

Stress test results revealed

On Thursday evening, the U.S. government’s long-awaited “stress-test” results revealed that 10 of the 19 largest U.S. banks would need a total of about US$75 billion in new capital to withstand losses if the recession worsened. Officials hope the tests will restore investors’ confidence that not all banks are weak, and that even those that are can be strengthened.

The findings show that the financial system, like the overall economy, is healing but not yet healed. Further evidence of economic healing this week included a Department of Commerce report of increased U.S. construction spending, a 3.2% rise in pending home sales and, according to ADP Employer Services, a decline in private-sector job loss.

On Wednesday, Bank of Canada Governor Mark Carney reassured a Senate committee that further stimulus measures would not be required. He predicted that, barring any economic “shocks,” growth will commence by year-end, and accelerate in 2010.

Thursday, the European Central Bank cut interest rates a quarter-point to 1%, and announced plans to buy US$80.2 billion in euro-denominated bonds in a bid to stimulate credit. The Bank of England held rates at 0.5%, but said it would step up its efforts to increase the money supply by US$75.4 billion.  

The markets

Markets hit six-month highs

The S&P 500 surged 3.4% Monday, for a total increase of 34% since March 9, putting the index back in positive territory for 2009. Markets continued to charge ahead Tuesday and Wednesday, and the TSX moved above 10,000 for the first time in six months. The Canadian dollar also hit a six-month high, trading at US$85.42. 

With a dramatically culled product line, food manufacturer Kraft posted a 10% profit in the first quarter, and said it is expecting to eat up more market share. Meanwhile, Canadian wireless leader Research In Motion announced an alliance with HP to expand functionality for its BlackBerry smartphones. In other news, Wal-Mart staked a claim in one of the world’s fastest-growing retail markets with a pilot program to open convenience stores in China.

The big picture

Glimmers of hope continue to shine

Despite a 6.1% contraction in U.S. real gross domestic product (GDP) in the first quarter, encouraging signs have emerged this week. Tuesday’s Conference Board index revealed U.S. consumer confidence is at its highest since November, while on the same day, Standard & Poor’s Case-Shiller home price index reflected an increase in stability of U.S. housing prices. Meanwhile, the U.S. Federal Reserve announced no further changes to monetary policy following its meeting, indicating that the pace of economic contraction is continuing to slow and suggesting that the worst now may be behind us.

Mindful of our southern neighbour’s missteps, on Tuesday Bank of Canada Governor, Mark Carney, cautioned the House of Commons to remain prudent, saying that crises are very difficult to predict, and warning that “One should never assume that because it hasn’t happened that it won’t happen.”

The markets

Swine upsets bull

Fears of a global swine flu outbreak took its toll on markets this week, dragging the TSX down a couple hundred points over Monday and Tuesday. The impact was also felt across everything from livestock futures to the Mexican peso to airline stocks, as traders worried that consumers would rein in spending on travel and food perceived to be less safe because of the outbreak.

Shoppers Drug Mart reported a strong 6.1% boost in first quarter profit, attributing it to a boom in prescription sales. Other companies posting first quarter profits included Bristol-Myers, Whirlpool and Corning. Meanwhile, Bombardier Inc. won a $1.2-billion contract to build 204 streetcars for the City of Toronto. The order is expected to have a substantial positive impact on employment for workers at the Thunder Bay, Ontario, plant.

Chrysler became the first-ever major U.S. automaker to file for bankruptcy protection. The company announced it will temporarily halt most of its vehicle production while it completes a deal with Italian carmaker Fiat designed to revive its tattered fortunes. The Canadian government, along with the province of Ontario, will provide $2.42 billion in financing to assist with the restructuring process.