The Canadian dollar gained 0.41 cents today jumping to 101.38 cents US on rising oil prices and a growing appetite for risk pushing commodity prices higher. There is some concern however that the European debt crisis is about to take center stage again in the wake of yesterday’s resignation of Portugal’s Prime Minister. The resignation was in response to growing opposition of the government’s plans to curb spending.
One estimate suggests Portugal is likely to require up to 70 billion euros (US$99 billion) to meet its debt obligations.
Australian banks will weather the financial damage from natural disasters that struck the nation this year and face a period of slower growth as borrowers show restraint, the central bank said in a twice-yearly report.
While the floods and cyclone in Queensland state “could impinge on banks’ asset quality to some extent,” the impact should be limited given the affected regions account for a small share of total lending, the Reserve Bank of Australia said in its financial stability review released today in Sydney.
“Banks’ domestic growth opportunities are likely to be more limited in the future” as the expansion prior to the global financial crisis was partly fueled by financial deregulation and a shift to low inflation, the RBA said. “It appears unlikely that credit growth will return to very high rates that were sustained in the pre-crisis period.”
Bloomberg
It appears that as the euro struggled last year in the face of the European debt crisis, China increased its US holdings to avoid euro losses. Already the largest foreign holder of US debt, China increased it US dollar assets to a record $1.75 trillion in October. With $882.3 billion, Japan remains the second largest holder of US debt.
Source: Bloomberg
The fourth quarter of 2010 proved to be a strong revival for the Canadian economy and has observers betting that the Bank of Canada will resume interest rate hikes sooner than previously expected. Overall growth expanded by an annualized rate of 3.3 percent and Stats Canada even revised its Q3 growth rate higher to 1.8 percent from 1.0 percent.
An increase in exports is being heralded as the primary driver and this helped close Canada’s trade deficit from a record C$16.98 billion in Q4 2009 to C$11.05 in Q4 2010.
“It’s a stunning gain in exports,” said Sal Guatieri, senior economist at BMO Capital Markets. “It’s a fairly solid report and (there’s) plenty of momentum heading into the new year, given the strong gain in December.”
Source: Reuters
The dollar gained for the sixth straight day as optimism grows that the recovery strengthened in the past month. The euro meanwhile, faces downwards pressure as fears grow of another sovereign debt crisis in Portugal.
Source: Bloomberg
Speculation that Portugal could be the next European nation to require emergency funding pushed the yield on Portuguese bonds higher. Rumors also persist that France and Germany have both urged Portugal to accept aid from the IMF.
Portugal meanwhile – and sounding very much like Ireland before it finally admitted defeat and turned to the EU for help – still claims it will not require outside financial assistance.
Source: The Canadian Press
Referring to the ongoing debt crisis for several European Union members including Greece and Ireland, the EU Council President said the very existence of the EU was at risk if the euro failed.
In order to progress beyond the debt crisis noted Herman Van Rompuy, “we all have to work together in order to survive with the eurozone, because if we don’t survive with the eurozone we will not survive with the European Union.”
Source: BBC News
Fears that Ireland’s debt crisis could worsen have forced the yield on 10-year bonds to a record high of 8.16 percent. Analysts believe the likelihood that Ireland will require emergency funding to meet debt obligations has increased and is now all but a certainty.
Source: The Associated Press
Global stock markets went into decline after the US Federal Reserve issued a “cautious” assessment of the state of the European debt crisis. The Fed noted that “financial conditions have become less supportive of economic growth” and this could impact and even slow the pace of the US recovery.
Source: `Source: Associtaed Press
Suggesting that the European debt crisis could trigger a second “double-dip” recession, China’s Premier Wen Jiaboa warned it is too early to wind down government stimulus spending.
“The world economy is stable and beginning to revive, but this revival is slow and there are many uncertainties and destabilizing factors,” the Premier cautioned. “I believe that we can’t say with absolute certainty, so we must undertake close observation and act to prevent it.
Source: Reuters
