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(June 22, 2006) RBC Financial Group says Canada’s economic growth will accelerate to 3.3% in 2006, up from 2.9% in 2005, before pulling back to that same rate in 2007.

RBC also expects growth in Canada to outperform the U.S., thanks to rising business investment, and despite inflation concerns, tight labour markets and higher interest rates. “Rising wages and a diminishing drag from net exports are helping to sustain growth in Canada and the U.S. this year,” says Craig Wright, vice president and chief economist at RBC.

In the U.S., RBC is calling for 3.3% growth in 2006, down slightly from the 3.5% in 2005, before slowing even further to 2.7% in 2007. Forecasters also say they expect to see one more interest rate hike to 4.5% in Canada this year.

Wright says “with Canadian interest rates increasing more slowly than U.S. rates, some of the momentum in the Canadian dollar will be removed. Combined with the recent price declines of key commodities for the Canadian economy we expect the Canadian dollar to weaken to 85.5 US cents by the end of 2006 and to 81 cents by the second half of 2007.”

Meanwhile, National Bank released its own economic forecast Thursday, projecting solid worldwide GDP growth of 4.5% this year. “However, the current synchronized monetary tightening by central banks worldwide should lead to a deceleration in economic activity as of 2007,” added analyst Clément Gignac.

Despite the upbeat economic predictions, Gignac does not expect financial markets to perform as well this year, compared to 2005. “The potential for further market growth is limited in the short term,” he explained, maintaining a target of 10,500 for the TSX by the end of the year.

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Physical gold buyers sit on the sidelines

(June 22, 2006) ScotiaMocatta, the precious metals division of Scotiabank, says recent pullbacks in the price of gold has failed to attract those buying the metal, with volatility in the market causing many to wait for lower prices or further evidence of consolidation.

In May, the price of gold reached 25-year highs before pulling back sharply. Geopolitical and economic uncertainty drove gold prices as high as $730 an ounce before correcting and dropping back to $545 within a month. The introduction of exchange traded funds has also added to the market’s volatility — the recent launch of the iShares silver ETF, for example, has resulted in heavy demand for the metal as the trust’s holdings grew from zero to more than 70 million ounces in less than two months.

“Throughout the Middle East, where large drops in the gold price typically trigger heavy demand for the metal there has been no such activity,” says Bernard Hunter, director of ScotiaMocatta. “A possible explanation for this lack of buying interest is reduced cash flow caused by the panic buying over $700, margin calls against outstanding loans and large declines in regional stock markets. A further factor is the speed of the decline from $731 which has prompted many to expect further losses in the near term.”

He says physical buyers who have provided support for the market in the past seem more prepared to let the market run its course to the downside. “There is a general feeling that the volatility in the market caused by the large speculative players needs to be addressed before the true buyers can return.”

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Manitoba credit unions to merge

(June 22, 2006) Three of Manitoba’s credit unions: Assiniboine, Astra and Vantis have announced plans to join forces.

The merger, involving 25 branches and more than 500 employees, would create the second largest credit union in the province and the 10th largest in Canada.

If the 100,000 members who own the three credit unions approve the merger in meetings this fall, the new entity would operate under the Assiniboine name starting next year.

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Insurance and Aeroplan Miles?

(June 22, 2006) Aeroplan and Sun Life Financial have reached a national, multi-year agreement to offer Aeroplan members the opportunity to earn Aeroplan Miles through a variety of offerings the companies will be establishing in the coming months.

The companies are being tight lipped about the details except to say the program will likely launch in September. “We are excited about the creative opportunities this marketing relationship will offer,” says Ray Kong, vice president of individual market at Sunlife.

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