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Take Five: The R-word – World markets themes for the week ahead

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(Reuters) – Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.

FILE PHOTO: A street sign for Wall Street is seen outside the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S. December 28, 2016. REUTERS/Andrew Kelly/File Photo/File Photo

1/THE ‘R’ WORD

Warnings of a U.S. economic recession have been rife for months, but the greater risk could be that of a corporate trough on Wall Street first.

Expectations for first-quarter earnings per share on the S&P500 have gone negative, and average estimates are for a 0.3 percent year-on-year decline, according to I/B/E/S Refinitiv. That’s a big markdown from October forecasts of 8.2 percent and would be the first earnings contraction in three years.

Gloom is deep on the other side of the Atlantic too, with European earnings growth seen at the slowest rate in 18 months.

For the S&P500, Q2 still indicates a tentative return to growth. That would allow Wall Street to avoid technical recession — typically two consecutive quarters of decline. And analysts still project 4.2 percent full-year earnings growth.

U.S. comparisons with previous quarters are of course skewed by President Donald Trump’s generous tax breaks, which handed companies a big windfall in early 2018 but have now expired.

The swift pace and depth of cuts to estimates are raising concerns this may be the start of a trend, as companies struggle with margin squeezes and debt. After all, as recently as December, Q1 earnings were seen expanding by 5.3 percent.

Graphic: US earnings growth estimates over time Feb 15 (tmsnrt.rs/2TRqqof)

2/CROWDED HOUSE!

After a torrid 2018, a dovish turn by the U.S. Fed has brought investors back to emerging markets, with JPMorgan, Citi, Fidelity, BlueBay and others upping exposure and advising clients to do so. The result: emerging markets were crowned the most crowded trade by Bank of America Merrill Lynch’s monthly investor survey for the first time on record.

But that accolade has proved a mixed blessing in the past. After all, the only way one can go from the top is down. And those fiscal and geopolitical woes familiar to emerging markets may come back into play: Investors want to see what plans South Africa’s Finance Minister Tito Mboweni might outline in his budget on Wednesday to tackle suffocating debt at state utility Eskom. With power outages haunting the economy, Eskom developments have undermined the rand as well.

Another emerging economy, Russia, is reeling under the prospect of new U.S. sanctions. Turkish President Tayyip Erdogan whose policies helped trigger a currency crisis last year, wants to expand a scheme to sell cheap vegetables after March 31 local elections, in a move widely considered financially unsustainable.

Finally Brazil’s new government will put its pension reform bill to Congress. The critical overhaul is seen as a litmus test of the government’s ability to implement reform.

Graphic: EM flows – The Institute of International Finance (tmsnrt.rs/2TR6RMQ)

3/JOBS FOR ALL

Amid signals of weakening U.S. economic momentum, the bright spot is the job market – more than 300,000 jobs were created to kick off the New Year. But one labor market measure is showing cracks: first-time claims for unemployment benefits. A month ago, initial claims were at a 50-year low, but they have moved sharply higher since mid-January. And if the weekly series seems a bit noisy, look at the less-volatile four-week average of claims — these hit the highest in a year in the latest week.

The claims data is also a key component of Yardeni Research’s “Boom-Bust Barometer” – a reliable indicator for U.S. stocks. It divides the CRB industrial raw materials spot index by the four-week average of jobless benefits claims, on the premise that if raw materials prices rise and the job market is strong, then the outlook for economic growth and equities is constructive.

The basic materials index topped out in mid-2018 and the four-week average of jobless claims appears to have bottomed in September. As a result, the “BBB” is at its lowest since the fourth quarter of 2017. It’s diverged from the S&P500, which has snapped back from December’s rout.

So keep an eye on those claims numbers on Thursday.

Graphic: Boom-Bust Barometer (tmsnrt.rs/2TLuk2c)

4/FLASH IN PAN

As mentioned, the R-word frequently passes analysts’ lips these days. Could next week bring any relief?

On Thursday, we get a glimpse of the mood amongst purchasing managers when Japanese, U.S. and euro zone “flash” PMI data is released. They made for pretty gloomy reading last month — euro zone PMIs for instance, were barely above the 50-mark which separates contraction from expansion, pointing to Q1 growth of just 0.1 percent. In Asia, China’s factory activity shrank the most in almost three years, while Japanese factories were on the cusp of contraction.

Brexit-battered UK also stalled and even U.S. PMIs hinted at slowdown, though in much better shape than others.

It is unlikely markets’ mood will be much improved by the PMIs. But China’s latest trade data offered a glimmer of hope, showing that in January, exports surged and imports fell much less than in previous months. Whether that will show up in sentiment surveys elsewhere remains to be seen.

Graphic: Euro zone PMI weakest in two years (tmsnrt.rs/2TPVIvV)

5/SANCHEZ SNAP IN SPAIN

There’s nothing like an election and post-vote jostling to unnerve investors. So after last year’s turmoil in Italy, could it be Spain’s turn? Prime Minister Pedro Sanchez has called snap elections for April 28 and opinion polls show no single party would win enough votes to govern. Coalition scenarios point to lengthy negotiations between various parties – potentially including the far-right Vox.

Shades of Italy? Investors don’t seem to think so and Spanish bonds and equities have not reacted much to the news. But plenty can happen in 2-1/2 months — again demonstrated by the aggressive horsetrading over Italy’s budget.

The countries are different. Spain may no longer be growing at 3 percent, and three years without a majority government have hindered progress on reform. But the country has done much of the painful stuff Italy hasn’t and ergo, it has a growing economy. When investors fled Italy last year, Spain was the destination of choice. Political deadlock may spell bad news for their money.

Graphic: Italy/Spain 10-year bond yield spread (tmsnrt.rs/2TRTYSK)

Reporting by Sujata Rao, Karin Strohecker, Josephine Mason and Virginia Furness in London; Dan Burns in New York; Editing by Hugh Lawson

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Majority of Canadian workers willing to take less pay for a workplace pension plan: survey

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A majority (70 per cent) of Canadians say they’re willing to forgo a higher salary in exchange for a workplace pension plan, according to a new survey for the Healthcare of Ontario Pension Plan by Abacus Data.

The survey, which polled more than 2,000 Canadian adults in April, signals an opportunity for employers to build back the post-coronavirus pandemic working landscape better by expanding access to good retirement plans — whether they’re defined benefit, defined contribution or group registered retirement savings plans, says Steven McCormick, senior vice-president of plan operations at the HOOPP.

According to the survey, a secure retirement remains of greater concern for Canadians than concerns about their health, debt load and job security. McCormick says this has been a consistent worry the HOOPP has seen in survey results over the past couple of years. Nearly half (48 per cent) of respondents said they’re very concerned about having enough money in retirement, while 31 per cent were highly concerned about their personal debt load and 26 per cent cited their job security. Close to half of respondents expressed high concerns for their physical (43 per cent) and mental (40 per cent) health.

In addition, the pandemic has harmed the finances of more than half (52 per cent) of Canadians’ surveyed and it’s had a particularly disproportionate affect on the finances of younger adults. Adults aged 44 and younger said they’re twice as likely (25 per cent) to have had their finances greatly harmed, compared to those over the age of 60 (12 per cent).

Generally, younger adults tend to work in roles that may have been impacted most by the pandemic, says McCormick, whether in service industries that were shut down or frontline health care that have been busy but don’t always come with access to a pension plan. “Affordability is an issue, so I think their worries increased during this time.”

And while almost half (46 per cent) of Canadians surveyed said they’ve saved more money than they would have since the onset of the pandemic, among these respondents, over half (52 per cent) didn’t put any of their savings toward their retirement. Overall, most (63 per cent) Canadians surveyed haven’t set aside or saved anything for retirement in the past year, a five-point increase since 2019.

McCormick says this may be due to uncertainty or hesitancy about whether people’s immediate needs outweigh longer-term needs. And with 55 per cent of respondents noting they were very concerned about the cost of day-to-day living, he adds that rising prices have fuelled insecurity and worries so people are creating their own emergency funds right now.

While there’s a segment of the population who’ve saved more and, for them, the pandemic has created wealth, he doesn’t see this as a common narrative in the survey data. “If you don’t have access to a workplace pension or the opportunity to have things like automatic enrolment, the uncertainty of the time may have you holding onto money,” says McCormick. “In Ontario, we’re more optimistic about the pandemic than we were maybe a month ago, but there are still people worrying about whether there’ll be a fourth wave.”

In addition, more than two-thirds (67 per cent) of respondents said a retirement crisis is looming and 65 per cent said saving for retirement is prohibitively expensive. It’s a common and shared dream for many people in looking forward to a secure retirement, says McCormick, noting for many, making that dream a reality remains elusive.

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What Canadians need to know about moving to the U.S. for more affordable real estate

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Like many real estate markets around the world, U.S. home prices have run up during the pandemic to the point of some saying it’s in bubble territory.

But the whole time and for years before, Canada has said “hold my beer” as prices rocket through the stratosphere in a number of major markets.

The discrepancy really jumps off the page in comparisons of the most recent benchmark prices and household income. As the chart below from Karl Schamotta, chief market strategist at Cambridge Global Payments, comparing Canada to the U.S. shows, a picture paints a thousand words, especially when it’s presented as an exploding gif.

Jessy BainsThu., June 24, 2021, 6:43 p.m.·9 min read

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012. President Barack Obama said on Monday the U.S. housing market was
Home prices have run up in the U.S. but are mostly more affordable than major Canadian markets.(REUTERS)

Like many real estate markets around the world, U.S. home prices have run up during the pandemic to the point of some saying it’s in bubble territory.

But the whole time and for years before, Canada has said “hold my beer” as prices rocket through the stratosphere in a number of major markets.

The discrepancy really jumps off the page in comparisons of the most recent benchmark prices and household income. As the chart below from Karl Schamotta, chief market strategist at Cambridge Global Payments, comparing Canada to the U.S. shows, a picture paints a thousand words, especially when it’s presented as an exploding gif.https://platform.twitter.com/embed/Tweet.html?creatorScreenName=JessySBains&dnt=true&embedId=twitter-widget-0&features=eyJ0ZndfZXhwZXJpbWVudHNfY29va2llX2V4cGlyYXRpb24iOnsiYnVja2V0IjoxMjA5NjAwLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X2hvcml6b25fdHdlZXRfZW1iZWRfOTU1NSI6eyJidWNrZXQiOiJodGUiLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X3R3ZWV0X2VtYmVkX2NsaWNrYWJpbGl0eV8xMjEwMiI6eyJidWNrZXQiOiJjb250cm9sIiwidmVyc2lvbiI6bnVsbH19&frame=false&hideCard=false&hideThread=false&id=1388165660598063104&lang=en&origin=https%3A%2F%2Fca.finance.yahoo.com%2Fnews%2Fwhat-canadians-need-to-know-about-moving-to-the-us-for-more-affordable-real-estate-131344769.html&sessionId=06d9c3e7619ac1c3744b64cd9cc60845665a4a57&siteScreenName=Yahoo&theme=light&widgetsVersion=82e1070%3A1619632193066&width=550px

The situation has gotten so bad for first-time buyers that many may have given up. Ontario is home to markets with the biggest recent run-ups. A survey by Right at Home Realty found 74 per cent of younger Ontarians aged 18 to 34 say they may never be able to afford a home where they currently live.

Michelle Makos, broker-owner at Royal Heritage Realty, sells real estate for a living but doesn’t like what she’s seeing, especially after a conversation with her recently engaged daughter who wants to buy a first home.

“She made a comment that they may have to move to the United States to find something they can afford and truly I would hate to lose my children simply because they feel like the housing situation here is out of their reach,” Makos told Yahoo Finance Canada.

“Being in real estate, it just made me realize, the one thing I love doing is the one thing that could cost me my daughter, if she were to leave.”

So she took to Twitter to see if other Canadians were feeling the same way as her daughter. She conducted a Twitter poll that showed many were in the same boat.

She was flooded with messages from frustrated Canadians who were seriously considering leaving the country because of high home prices and shared many of them on Twitter. She eventually put a selection of the messages she received in a handy document for everyone to see.

Jessy BainsThu., June 24, 2021, 6:43 p.m.·9 min read

A U.S. flag decorates a for-sale sign at a home in the Capitol Hill neighborhood of Washington, August 21, 2012. President Barack Obama said on Monday the U.S. housing market was
Home prices have run up in the U.S. but are mostly more affordable than major Canadian markets.(REUTERS)

Like many real estate markets around the world, U.S. home prices have run up during the pandemic to the point of some saying it’s in bubble territory.

But the whole time and for years before, Canada has said “hold my beer” as prices rocket through the stratosphere in a number of major markets.

The discrepancy really jumps off the page in comparisons of the most recent benchmark prices and household income. As the chart below from Karl Schamotta, chief market strategist at Cambridge Global Payments, comparing Canada to the U.S. shows, a picture paints a thousand words, especially when it’s presented as an exploding gif.https://platform.twitter.com/embed/Tweet.html?creatorScreenName=JessySBains&dnt=true&embedId=twitter-widget-0&features=eyJ0ZndfZXhwZXJpbWVudHNfY29va2llX2V4cGlyYXRpb24iOnsiYnVja2V0IjoxMjA5NjAwLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X2hvcml6b25fdHdlZXRfZW1iZWRfOTU1NSI6eyJidWNrZXQiOiJodGUiLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X3R3ZWV0X2VtYmVkX2NsaWNrYWJpbGl0eV8xMjEwMiI6eyJidWNrZXQiOiJjb250cm9sIiwidmVyc2lvbiI6bnVsbH19&frame=false&hideCard=false&hideThread=false&id=1388165660598063104&lang=en&origin=https%3A%2F%2Fca.finance.yahoo.com%2Fnews%2Fwhat-canadians-need-to-know-about-moving-to-the-us-for-more-affordable-real-estate-131344769.html&sessionId=06d9c3e7619ac1c3744b64cd9cc60845665a4a57&siteScreenName=Yahoo&theme=light&widgetsVersion=82e1070%3A1619632193066&width=550px

The situation has gotten so bad for first-time buyers that many may have given up. Ontario is home to markets with the biggest recent run-ups. A survey by Right at Home Realty found 74 per cent of younger Ontarians aged 18 to 34 say they may never be able to afford a home where they currently live.

Michelle Makos, broker-owner at Royal Heritage Realty, sells real estate for a living but doesn’t like what she’s seeing, especially after a conversation with her recently engaged daughter who wants to buy a first home.

“She made a comment that they may have to move to the United States to find something they can afford and truly I would hate to lose my children simply because they feel like the housing situation here is out of their reach,” Makos told Yahoo Finance Canada.

“Being in real estate, it just made me realize, the one thing I love doing is the one thing that could cost me my daughter, if she were to leave.”

So she took to Twitter to see if other Canadians were feeling the same way as her daughter. She conducted a Twitter poll that showed many were in the same boat.https://platform.twitter.com/embed/Tweet.html?creatorScreenName=JessySBains&dnt=true&embedId=twitter-widget-1&features=eyJ0ZndfZXhwZXJpbWVudHNfY29va2llX2V4cGlyYXRpb24iOnsiYnVja2V0IjoxMjA5NjAwLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X2hvcml6b25fdHdlZXRfZW1iZWRfOTU1NSI6eyJidWNrZXQiOiJodGUiLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X3R3ZWV0X2VtYmVkX2NsaWNrYWJpbGl0eV8xMjEwMiI6eyJidWNrZXQiOiJjb250cm9sIiwidmVyc2lvbiI6bnVsbH19&frame=false&hideCard=false&hideThread=false&id=1395756831100882947&lang=en&origin=https%3A%2F%2Fca.finance.yahoo.com%2Fnews%2Fwhat-canadians-need-to-know-about-moving-to-the-us-for-more-affordable-real-estate-131344769.html&sessionId=06d9c3e7619ac1c3744b64cd9cc60845665a4a57&siteScreenName=Yahoo&theme=light&widgetsVersion=82e1070%3A1619632193066&width=550px

She was flooded with messages from frustrated Canadians who were seriously considering leaving the country because of high home prices and shared many of them on Twitter. She eventually put a selection of the messages she received in a handy document for everyone to see.https://platform.twitter.com/embed/Tweet.html?creatorScreenName=JessySBains&dnt=true&embedId=twitter-widget-2&features=eyJ0ZndfZXhwZXJpbWVudHNfY29va2llX2V4cGlyYXRpb24iOnsiYnVja2V0IjoxMjA5NjAwLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X2hvcml6b25fdHdlZXRfZW1iZWRfOTU1NSI6eyJidWNrZXQiOiJodGUiLCJ2ZXJzaW9uIjpudWxsfSwidGZ3X3R3ZWV0X2VtYmVkX2NsaWNrYWJpbGl0eV8xMjEwMiI6eyJidWNrZXQiOiJjb250cm9sIiwidmVyc2lvbiI6bnVsbH19&frame=false&hideCard=false&hideThread=false&id=1397895446048169985&lang=en&origin=https%3A%2F%2Fca.finance.yahoo.com%2Fnews%2Fwhat-canadians-need-to-know-about-moving-to-the-us-for-more-affordable-real-estate-131344769.html&sessionId=06d9c3e7619ac1c3744b64cd9cc60845665a4a57&siteScreenName=Yahoo&theme=light&widgetsVersion=82e1070%3A1619632193066&width=550px

“We as a country can do better,” said Makos.

But not so fast if you’re like any of these people and thinking of moving across the border. There are a number of things to consider.

Immigration rules for moving from Canada to the U.S.

The first thing to consider is immigration laws. If you work from home, you can’t just grab your laptop and start working from the U.S.

Sara Herbek, managing partner at Global Immigration Associates, says you need a U.S. employer to sponsor you and be qualified for a TN or L-1 visa.

“If a Canadian employer has a U.S. entity, this could potentially be another option, however, it depends on the visa category,” Herbek told Yahoo Finance Canada.

It’s the same deal if you plan to work for a U.S. employer.

“Canadians are able to present TN and L-1 visa petitions at the border (now by air is recommended versus by land),” said Herbek.

“In other visa categories, the employer would need to file the visa petition with United States Citizenship and Immigration Services (USCIS) and obtain approval first.”

Herbek says it’s important to have all of the correct paperwork when entering the U.S. to avoid being turned away.

“They should ensure they have original documents when appearing at the border: approval notice, as applicable, educational documents, birth or marriage certificates,” said Herbek.

Mortgage rules for buying a home in the U.S.

Unless you’re lucky enough to be able to buy a home outright, you’ll need a mortgage and things are mostly similar to obtaining a mortgage in Canada if you’re moving to the U.S. permanently, but with some key differences.

Rob Mclister, mortgage editor at RATESDOTCA says one of them is proof of income.

“It may be harder to prove income to the U.S. lender’s satisfaction if you have already moved to the U.S. before applying for a mortgage,” Mclister told Yahoo Finance Canada.

“That’s because most mainstream U.S. lenders generally want to see at least two years of U.S. tax returns. If this is the case, find a good broker in the U.S. to advise you.”

If you plan to buy before your immigration and job situation are sorted out, Mclister says most lenders will want 20-25 per cent down instead of the 5 per cent minimum in Canada.

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Canadian Mortgage Debt Hits $1.69 Trillion, Fastest Rate of Growth Since 2010

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Canada is experiencing a real estate boom, and it’s fueled by a flood of cheap mortgage debt. Bank of Canada (BoC) data shows mortgage credit reached a record high in April. That’s no longer a surprise since it’s a regular occurrence, but the rate of growth is noteworthy. Canadians added the equivalent of 6% of GDP to mortgage debt over the past year. It’s now growing at the fastest rate in a decade, as people scramble to buy as much house as possible. 

Canadian Mortgage Debt Hits $1.69 Trillion, After Growing 6% of GDP

Canadian mortgage debt reached a record high, adding a massive amount in just a short period. The balance reached $1.69 trillion in April, up 1.06% ($17.74 billion) from the month before. The annual increase works out to 7.80% ($122.25 billion), which is just a mind-blowing number. For context, $122.25 billion is the size of ~6% of the country’s GDP. With this kind of scale, it shouldn’t be a surprise how dependent the economy is on real estate. 

Canadian Residential Mortgage Debt

The outstanding dollar amount of residential mortgage credit held by Canada’s instituional lenders.

Canadian Mortgage Debt Is Growing At The Fastest Rate Since 2010

The rate of mortgage growth isn’t just high for this period — it’s high by historical standards. The annual rate of growth is the largest seen since 2010. For the month of April, you need to go a little further back — to 2009. Usually, during a recession, it’s difficult to get households to borrow. In Canada, households ramped up the borrowing and purchases of expensive goods.

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