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Squeeze out more yield

Call it the fixed-income quandary. Your investment-grade fixed income doesn’t yield much anymore. And the capital gains you enjoyed when interest rates were falling have pretty much dried up. But you still need a sizeable load of them for the stability it provides your portfolio. Think of it as the ballast in the hold of your equity-powered racing schooner that will help keep it from capsizing during the next storm.

To read more of this article please click on the link below:
http://www.moneysense.ca/save/investing/gic/how-to-squeeze-out-more-yield-from-your-fixed-income/

Canadian investors seeking safer investments

“The volatile state of equities markets has almost half (44%) of Canadians looking for safer investments to pull them through this unpredictable period and 30% of Canadians checking their portfolios more often, according to a new poll from Toronto-based Bank of Montreal (BMO) released on Tuesday.

The research also found that 53% of survey respondents believe that current market volatility will remain the same or even worsen in 2016.” – Investment Executive

To read full article please click on the link below:
http://www.investmentexecutive.com/-/canadian-investors-seeking-safer-investments

The BoC’s reduced economic forecast for 2016 remains shockingly positive

SCOTT BARLOW
13:07 EST Wednesday, Jan 20, 2016

Bank of Canada governor Stephen Poloz held rates unchanged in what appears to be an effort to calm both currency markets and nervous Canadians.
The Canadian dollar jumped 0.8 of a cent in the minutes after the announcement, and there’s no doubt this was part of Mr. Poloz’s plan. The loonie had dropped 5 per cent in the first three weeks of 2016 – a remarkably short period of time that provided little chance for domestic consumers or businesses to adjust to the change. Furthermore, a cut in interest rates would have caused further declines in the Canadian dollar, with the risk of a subsequent rout that could have become severe as selling in currency markets gained more momentum downwards.
The Bank’s Monetary Policy Report accompanying its decision noted that economic growth had “stalled” in Canada during the fourth quarter – Canadians can expect growth domestic product growth at zero or below for the period – and a “softening” of U.S. economic growth.
Despite the North American slowdown at the end of 2015, the forecast for 2016 Canadian economic growth remains, while reduced, shockingly positive:
“Tthe Bank now expects the economy’s return to above-potential growth to be delayed until the second quarter of 2016. The protracted process of reorientation towards non-resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions.”
Bank of Montreal economist Douglas Porter’s reaction to the forecast was published immediately after the announcement:
“Unfortunately, we suspect that they are still a bit too optimistic on the growth outlook, given the relentless drop in commodity prices and a darkening global backdrop. Accordingly, we continue to believe that they will eventually trim rates further, revisiting the record low of 0.25% on the overnight rate. The most likely time for a move would be at the April 13th meeting.”
Mr. Porter would not be predicting an April reduction in central bank rates if he believed the domestic economy would “return to above potential growth” in the near term.
Much depends on U.S. demand for Canadian exports. The Bank noted that during the fourth quarter of 2015 “weaker-than-expected U.S. industrial production likely weighed on Canadian exports [but] many subcategories of non-energy-commodity and non-commodity goods exports— such as potash, seafood products, and ships, locomotives and rapid transit equipment—showed sizable gains during 2015.”
Despite the weak loonie, however, domestic factory activity is showing few signs of recovery. National Bank senior economist Matthieu Arseneau, writes that while November factory data was stronger than expected, “ it was the first increase in 4 months and sales remains down 3.1% since the start of 2015. … Despite November’s rebound in volume sales, the previous month’s weakness means that manufacturing is so far a drag on economic growth in Q4.”
Through no fault of his own, Mr. Poloz’s attempt to calm the waters was poorly timed – the 2016’s sharpest sell-off in global markets made success unlikely. In the next few weeks we will see if the efforts to focus on the positive bear fruit.

Loonie nears 13-year low on bets rate cut still ahead

Ari Altstedter
10:13 EST Wednesday, Jan 20, 2016

The Canadian dollar held near an almost 13-year low on speculation the nation’s central bank will reduce interest rates in coming months after keeping the benchmark unchanged in the face of sinking oil prices.
The loonie reached the cheapest level since 2003 as the Bank of Canada held its benchmark at 0.5 per cent Wednesday and said stronger U.S. demand, a weaker currency and last year’s rate cuts are leading the economy out of an oil slump. Policy makers also said the latest leg down in commodity prices was a “setback.” Traders assign about a 50 per cent chance of a reduction by April, according to data compiled by Bloomberg.
The Canadian dollar has slumped this month against most major peers as the price of crude oil, one of the country’s major exports, slid amid a global supply glut. Crude is down more than 25 per cent this year amid volatility in Chinese markets, falling close to $27 a barrel, the lowest since 2003.
“With oil at $27 a barrel it’s a really easy story to say: They didn’t cut today, they’ll have to cut later,” said Andrew Kelvin, senior fixed-income strategist at Toronto-Dominion Bank. “That’s why we haven’t seen the loonie just completely soar.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the $1 coin, weakened about 0.1 per cent to $1.4586 per U.S. dollar at 11:21 a.m. in Toronto. The currency briefly gained after the rate decision, before surrendering the advance as traders speculated the central bank will cut rates in coming months. One Canadian dollar buys about 68.50 cents (U.S.).
Traders had assigned better than a 50 per cent chance of a cut to Wednesday’s meeting.
Wednesday marked the loonie’s 14th straight daily decline, the longest losing streak since the country ended its currency’s peg to the greenback and let it trade freely in 1971.
Prices of crude oil, until last year Canada’s largest export, reached a 12-year low Wednesday on signs global oversupply won’t ease any time soon while demand may stay muted as worldwide economic growth slows.
The Bank of Canada cut interest rates twice last year, saying the economy needed help as it transitioned to non– commodity exports from oil as its main driver. A three– year slide in the loonie has helped, though the country’s manufacturing capacity still remains below its heyday as it faces stiffer competition from the likes of Mexico and China.
“The protracted process of reorientation towards non– resource activity is underway, helped by stronger U.S. demand, the lower Canadian dollar, and accommodative monetary and financial conditions,” policy makers led by Governor Stephen Poloz said in a statement.

Bank of Canada keeps interest rate unchanged

Mark Spowart / THE CANADIAN PRESS
There’s an argument to be made that Bank of Canada Governor Stephen Poloz has done enough, having already lowered the benchmark rate twice last year, in January and July, and now it’s the government’s turn to ramp up spending.
By: Canadian Press Published on Wed Jan 20 2016
OTTAWA—The Bank of Canada is holding its benchmark interest rate at 0.5 per cent even as it downgrades its growth outlook for an economy hit by falling commodity prices.
The central bank made the scheduled announcement today as the country adjusts to a complex mix of sliding resource prices, a falling Canadian dollar and weaker business investment.
There were some expectations that Bank of Canada governor Stephen Poloz would cut the rate given the poor economic forecasts.
The bank says it maintained the already-low rate because the key indicator in its decision — inflation — has been unfolding as expected within its ideal target range.
The Bank of Canada lowered its economic growth forecast — as measured by real gross domestic product — to 0.3 per cent for the final three months of 2015.
That’s down from its October estimate of 0.7 per cent.
It also downgraded its 2016 growth projection to 1.4 per cent from its fall forecast of 2 per cent.
The bank expects the economy to eventually rebound and see growth of 2.4 per cent in 2017.
The central bank says it anticipates economic benefits from the federal government’s promise to spend billions of dollars on infrastructure — but it won’t factor in the potential impact of the measures until the details have been announced.
— with a file from Bloomberg


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