Barry Klatt

Barry Klatt

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Three charts to start your week

Lower rates for longer

The Bank of Canada is less likely to pull the trigger on an interest-rate hike this year because of a risk-filled economic environment, TD Economics chief economist Craig Alexander says.

The world economy has simply not made as much progress as had been anticipated in getting past the legacies of the financial crisis and recession, Mr. Alexander writes in a recent report.

Among the reasons cited for a stand-pat stance are low inflationary expectations, the negative impact on Canada and the U.S. of deepening financial instability in Europe, the high loonie’s impact on exports and uncertainty over the strength of the recovery in the United States.

“The reality is that we are not really out of the financial crisis,” he writes.


There is a strong case to be made that an accommodative monetary policy will continue for some time throughout the world, according to Mr. Alexander.

The central bank may well wait until January before moving to raise rates, he says.

“We think they could raise rates from 1 per cent to 2 per cent and then stop again to assess how the economy responds and how international events are unfolding. Such a pause would last several months.”

Taking a spin on the commodity wheel

The slump in commodity prices shows no signs of letting up any time soon.

Leading economic indicators published by the Organization of Economic Co-operation and Development suggest that a sluggish commodity price profile will stretch into the second half of the year, writes Myles Zyblock, chief institutional strategist and director of capital markets research at RBC Dominion Securities Inc.

Investors have put downward pressure on prices as concerns mount that the global economic recovery is sputtering.


Mr. Zyblock points out that industrial metals tend to be more sensitive to economic volatility. While they usually outperform energy and gold in periods of economic expansion, a peak in corporate utilization rates often signals the end of industrial metals’ price leadership, he argues.

“These commodities typically underperform energy and gold as the pace of economic activity slows,” he writes.

“Metals prices and their related equities are most susceptible to the expected growth slowdown. Favour energy and gold over metals in this environment.”

The U.S. dollar could also have an impact on commodity prices, since energy is likely to outperform industrial metals when the greenback is rising, while industrial metals gain the most from dollar depreciation.

Depressing U.S. housing crash

The housing crash in the United States is proving to be larger and unfolding at a quicker pace than the one that occurred in the Great Depression.

The 1.9-per-cent drop in U.S. house prices in the first quarter meant that house prices have plummeted by 33 per cent since the beginning of 2006, eclipsing the 31-per-cent drop in the late 1920s and early 1930s, says Paul Dales, senior U.S. economist at Capital Economics.


He predicts that prices are likely to fall by another 3 per cent this year, resulting in a 5-per-cent drop over the year as a whole.

That means the bargains just keep getting more attractive.

“The continued fall in mortgage rates has further boosted affordability and valuations have become even more favourable, especially to some overseas buyers,” Mr. Dales wrote in a recent research report.

“Thanks to the fall in the [U.S.] dollar, U.S. housing appears even more undervalued to some overseas buyers,” he says.

Valuations are very attractive in Florida, a favoured winter destination for tens of thousands of Canadians. Home prices in that state have slipped even further than the national average.


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