Briefly: “Scotia’s commodity index rebounds” and more news

Scotiabank’s Commodity Price Index has posted another increase. The Index, which measures price trends in 32 of Canada’s major exports, posted another gain in August. It rose 1.6% month-over-month.

“The All Items Index is rebounding from last spring’s correction, triggered by the Euro-zone sovereign debt crisis,” said Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank. “While still below last April’s high-water mark for 2010, the All Items Index is 26.7 per cent above the cyclical low in April 2009.”

The big winner was the Metal & Mineral Index (+4.7 per cent m/m) with broad based gains in base and precious metals, molybdenum, sulphur and uranium. The Agricultural index also posted a modest gain of 0.3 per cent m/m, as the Canadian Wheat Board’s asking export price for wheat climbed 18.8 per cent above a year earlier.

According to the report, three developments have recently boosted gold prices: 1) concern over high government debt and deficits relative to GDP in both the United States and many Euro-zone countries, calling into question the integrity of paper currencies – in particular the two reserve currencies; grid-lock in the U.S. Congress has prevented addressing the fiscal imbalance; 2) expectations that the Federal Reserve may employ more ‘quantitative easing’, following the Fed’s September 21 statement that it is prepared to provide additional liquidity, if needed, to revive a lackluster U.S. economy and to stoke uncomfortably low inflation (tending towards deflation); and 3) general economic and financial market uncertainty. Gold prices will soon test the US$1,300-1,350 mark.

“Copper prices continue to outperform at a lucrative US$3.49 per pound in mid-September, yielding the highest profit margin for mining companies of the four key base metals,” continued Ms. Mohr. ”

The funds have recently re-established long positions in copper on fundamentally tight supplies and upward revisions to China’s copper demand growth to 13 per cent for 2010 and at least eight per cent in 2011, after an extraordinary 28 per cent gain in 2009, excluding any strategic stockpiling by China’s State Reserve Bureau or by Chinese fabricators. While China’s GDP growth will almost certainly slow in 2010:Q3, copper demand is expected to pick up again by late 2010. China largely drives the global copper market, accounting for almost 40 per cent of world demand compared with the United States’ 8.5 per cent.”

– John Powell.

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StatsCan: Leading indicators rise

Statistics Canada says its index of leading indicators of economic growth rose 0.5 per cent in August. This matches its average increase over the previous two months. The agency says manufacturing continues to push growth. Orders for durable manufactured goods rose 5.2 per cent, continuing growth which began last November. The housing index declined 4.0 per cent, which in turn pushed furniture and appliance sales down for a second straight month. Spending on other durable goods rebounded one per cent after five straight monthly decreases.

– Canadian Press.

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Retail sales dip in July

Retail sales took a pounding in July in three provinces that increased their sales tax, driving the sector into negative territory countrywide. Statistics Canada reported Wednesday that retail sales fell 0.1 per cent to $35.9 billion across Canada in July. That was far weaker than the consensus prediction of a 0.6 per cent gain, as Canadians spent less on furniture, home furnishings, electronics and appliances.

But the surprising weakness was only registered in Ontario and British Columbia, which introduced the new harmonized sales tax on July 1, and Nova Scotia, which hiked its HST by two percentage points. Nova Scotia sales were down 5.3 per cent, the largest decline of any province, B.C. was off 0.4 per cent and Ontario sales dipped 0.3 per cent. Excluding those three provinces, sales were actually up 0.5 per cent in the rest of the country. The agency said overall retail sales in volume terms edged down 0.2 per cent.

But while the HST-effect was important, analysts note that consumer spending has been cooling with Statistics Canada revising its positive June reading into a small drop as well. On a deeper level, July’s retreat by the consumer sector, which had been the main driver of Canadian economic growth, means gross domestic product likely contracted during the month. That would be the first setback since August 2009, when the economy was just beginning to come out of the recession.

“Much like the United States, the momentum in the broad cross-sections of the Canadian economy has been lost in the last month or two, and that’s disconcerting,” said Derek Holt, vice-president of economics with Scotia Capital.

Not only retail sales, but employment, manufacturing shipments, wholesale sales, net exports, and housing starts all were down in July.

“That’s a lot of negatives,” said economist Douglas Porter of BMO Capital Markets. “It looks like the economy has gone from fourth gear to second or possibly first.”

Holt said his bank’s forecasting unit will issue a new projection Friday predicting growth will be negative for the month. Statistics Canada will release its GDP report next week. There was one bright spot on the economic horizon Wednesday _ Statistics Canada said leading indicators for August were positive at 0.5 per cent. Analysts also note that retail sales do not include consumer spending on services, which represent 60 per cent of the sector. As well, anecdotal evidence suggests the mining sector had a good month, along with utilities, due to heavy air conditioning usage.

But July’s retail data is consistent with a general trend pointing to subdued economic activity in the past several months that could see growth dip to about 1.5 per cent in the third quarter _ the July-September period. CIBC issued a new forecast for the country suggesting the sluggish pace will continue into next year, with the economy advancing by a mere 1.9 per cent in 2011. That’s a full point below the Bank of Canada’s official estimate. The details of the retail report shows losses were isolated, but deep. Furniture and home furnishing sales dropped 8.4 per cent, the largest decline in the 11 sectors surveyed. Sales at home furnishings stores alone were off 15 per cent. Sales were down 4.9 per cent at electronics and appliance stores.

On the other hand, general merchandise stores saw sales rise 2.4 per cent after three months of decreases. Motor vehicle and parts sales increased one per cent, while new car sales rose 1.1 per cent. Gas station sales rose 0.7 per cent after three consecutive monthly declines. Sales at clothing and clothing accessories stores rose 0.9 per cent.

– Canadian Press.

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SEC: We have toughened enforcement efforts

The Securities and Exchange Commission’s chief enforcement official says the agency has toughened its efforts to shut down financial misconduct after failing to act quickly in the cases of Allen Stanford and Bernard Madoff.

SEC Enforcement Director Robert Khuzami says in testimony prepared for a Senate hearing that “we have moved aggressively” to put in place reforms recommended by the SEC inspector general. The IG found that the SEC knew since 1997 that Stanford likely was operating a Ponzi scheme but waited 12 years to bring fraud charges against the billionaire. Khuzami also tells the Senate Banking Committee the SEC is working to provide “maximum recovery” to investors hurt in Stanford’s alleged US$7-billion fraud.

– Associated Press.

(09/22/10)