Default Will The Canadian Dollar Approach Parity Or Break Trend Next Week?

New Housing Price Index (APR) (12:30 GMT)
Capacity Utilization Rate (1Q) (12:30 GMT)
Expected: 0.3%
Expected: 83.3%
Previous: 0.3%
Previous: 82.5%



How Will The Markets React?
The Canadian markets were in for a wild ride Friday. A global rush of risk aversion and a full economic calendar stoked volatility but did little for providing any definite direction for the markets going into the week. Looking over the charts, it was clear fundamental traders started stirring in the overnight, leading both government bonds and equities to gap lower on the open. Shading action for the Canadian session before local traders even came to their screens, the Asian and European markets were extending their three-day losses and in turn fueling fears that risky and mature trades like long equities and long carry were a thing of the past. When Canada?s fully stocked economic calendar finally came online, the first indicator effectively dulled action for the rest of the day. Statistics Canada?s labor indicators for May crossed the wires largely in line with expectations. Employers took on 9,300 new workers - restoring a seven-month positive trend that was put off by April?s contraction. Though there was a lot of stock behind an employment surprise, the later reported housing starts and trade figures helped to restore confidence in the Canadian economy. The physical trade report printed a sixteen-month high, C$5.8 billion surplus despite the national currency?s steady march to new highs. The other report to cross the wires was the better-than-expected housing starts number for May. Accelerating nearly 18,000 to a 229,700-annual pace, the starts number helps set the scene for next Monday?s report. The New Housing Price Index for April is balancing on expectations of a repeat 0.3 percent increase. This opens the door for a sharp reaction after a surprise. The related building permits gauge for the same period is guiding expectations to a slight decline since residential filings cooled 1.4 percent following a record jump in March. Recently, the BoC said it expects homebuilding to detract from growth in 2007, shaving 0.1 percent points from GDP. This could jeopardize rate hike.
Bonds - 10-Year Canadian Government Bond Futures
Canadian government bond yields were able to finish the day off in positive territory, though an early morning rebound erased a lot of the gains early. Initially, the market opened with a clear agenda - extending Thursday?s sharp sell off. In fact, futures on the ten-year bond opened 72 points below the previous day?s close. The low was quickly put into place though, when a supportive economic calendar helped to soothe the rapid rally in yields. Looking ahead to Monday, the direction and intensity for price action will hinge on any lingering sentiment of risk aversion. Should fears not carry over the weekend; the market will then turn to the docket?s housing data. Should housing prices contribute to inflation, it would offer another boost to hike expectations that have grown in recent weeks.







FX - USD/CAD
This week will serve as a major test for USDCAD, as thin data flow could leave Loonie to flounder. New Housing Prices are estimated to grow 0.3 percent once again in the month of April, though USDCAD reaction will be mild given the release?s low market-moving status. At the same time, the Capacity Utilization Rate is predicted to edge higher. Thought to be a leading indicator of inflation, the announcement may give Loonie a brief boost - albeit a small one. Nevertheless, regardless of the scheduled releases this week, markets have little reason to sell-off the Canadian dollar considering that oil prices remain lofty, CPI is still above 2.0 percent, and exports are holding up well. All of these factors underpin the case for a hike by the Bank of Canada in July, and with the US Fed likely to remain on hold throughout the year, shifting interest rate differential are slowly working in the favor of Loonie. As a result, markets should remain cautious of trying to capture a turn in USDCAD, as there is little fundamental basis for a full turnaround and the pair could indeed continue to plow down through 1.0550.







Equities - S&P/TSX Composite Index
Canadian stocks rose for the first time in four days, helping to pare its biggest weekly loss in three months, which was originally touched off by concerns that inflation will lead the Bank of Canada to raise interest rates. The S&P/TSX added __ percent close out the week at 13,796.95. Financial shares rose after leading the S&P/TSX Composite Index lower all week, with Royal Bank of Canada, the country's largest lender by assets, up C$0.91 cents to C$56.80 while Bank of Montreal, the fourth-biggest, rose C$0.99 cents to C$69.59. Meanwhile, commodity producers made a comeback even as copper and crude oil prices dropped. Teck Cominco, a miner of zinc and copper, rose C$0.93 cents to C$45.41 after plunging 1.8 percent earlier in the session while Petro-Canada, the nation's third-biggest oil and gas producer, rose C$0.95 cents to C$53.96.
Canadian equity price action will likely remain contingent upon global stock market trends along with commodity prices, though major surprises in economic releases for the country could have an impact. Traders should be aware that New Housing Prices and the Capacity Utilization Rate for the first quarter are both scheduled to hit the tape Monday morning. The housing data is estimated to add to inflation concerns as it may to show that prices continue to rise throughout the sector, especially in the Alberta region where Canadians have moved to en masse to work on oil-sands projects. Meanwhile, an anticipated pick up in the Capacity Utilization Rate could also add to price worries and further underpin the case for a hike by the Bank of Canada in July. While this is all bearish for the S&P/TSX, the data will only really weigh on the index if equity prices are already soft and aren?t likely to turn share prices lower on their own.

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Analysis by DailyFX

UK quarterly GDP growth 0.8 pct in 3 months to May - NIESR

LONDON (Thomson Financial) - The UK's economic growth accelerated during the three months to May compared with the previous three months, a leading economic think-tank said.

The National Institute of Economic and Social Research (NIESR) estimates GDP growth over the period at 0.8 pct from the previous three months. In the three months to April, the growth rate was estimated at 0.7 pct.

"The underlying message is that the economy continues to grow at faster than its trend rate," the NIESR said in its monthly report for GDP estimates.

It noted these figures are not greatly affected by the most recent increases in borrowing costs, and that interest rates have only recently moved into a neutral range.

"Nevertheless it is likely that the Monetary Policy Committee will be looking for evidence of easing in the pace of economic growth and in its absence will face pressure for further interest rate increases," it said.

carlo.piovano@thomson.com

Euro Fell on ECB Trichet Comments

by Yan Xu

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The euro fell below 1.35 against the dollar after ECB President Trichet talked down the possibilities of further rate hikes in 2008.

The European Central Bank lifted interest rates from 3.75% to 4.00% as expected on its monetary policy meeting ended today. Trichet said on the post meeting conference that in medium term risks to prices are on the upside, reinforcing the expectations for two more rate increased this year. He added that the inflation is likely to fall in coming months and risks significantly towards end year. He also pointed out that inflation projections for the year 2008 remain unchanged, leading investors price down the likelihood of rate hikes in 2008 to 60% from 80% a day ago.

The dollar was supported after robust US data confirmed the view that the nation¡¯s economy is still in good shape. US productivity index fell from 1.7% to 1.0% in the first quarter. The labor cost rose from 0.6% to 1.8% in the first quarter, above the estimate of 1.2%.

UPDATE: CEOs' Energy Plan Calls For Efficiency, More Supply

Wed, Jun 6 2007, 21:55 GMT
http://www.djnewswires.com/eu

UPDATE: CEOs' Energy Plan Calls For Efficiency, More Supply

By Rex Nutting

WASHINGTON (Dow Jones) -- Chief executive officers of major U.S. corporations called Wednesday for a new energy policy based on increasing supply from domestic sources and reducing demand through greater efficiencies.

The heart of the plan is to set a goal of reducing energy intensity of the economy by 40%, using existing technologies. At the same time, the CEOs want increased diversity of energy sources and an expansion of domestic energy production.

Energy security is the major goal of the plan presented by the Business Roundtable, a group that represents the CEOs of 160 companies with 10 million employees and $4.5 trillion in annual sales. The plan would also reduce harmful environmental impacts, including global warming, the CEOs said.

"We cannot afford to ignore any pathway that will contribute to stable, clean and affordable energy supplies," said Michael Morris, CEO of American Electric Power Inc. (AEP) , who served as chairman of the energy task force for the Business Roundtable.

"Let's do what's achievable," Morris said. The goal of increasing the energy efficiency of the economy by 40% doesn't rely on the development of new technologies, or a shift away from the gasoline combustion engine, or a massive commitment to renewable energy sources, they said.

Instead, the CEOs envision an energy future that isn't too different from present. They see a role for coal, including coal-to-liquid technologies. Nuclear energy has a place, as do biofuels such as ethanol. They think the idea of complete energy independence is ludicrous.

The main role for government in the new energy future is to get out of the way. The approval process for new power plants and refineries must be streamlined, they said.

The Environmental Protection Agency needs to speed up its new source review of upgraded power plants, said George Nolen, CEO of Siemens AG's American operations. Siemens (SI) is one of the largest producers of electric generating equipment.

"The report is geared to market-based solutions," said David O'Reilly, CEO of Chevron Corp. (CVX) , who complained of constraints on development of the nation's oil and gas reserves offshore, in Alaska and in the Rockies. Chevron is one of the largest energy companies in the world.

Government mandates, such as requiring a certain level of production for ethanol, "would be counter-productive," O'Reilly said.

Buildings consume 40% of the energy used in the United States, said Michael Thaman, chairman of Owens Corning Inc. (OC) , a major producer of building products. While retrofitting existing structures to make them more energy efficient might not make economic sense, there's no reason to put up new buildings that aren't efficient, he said.

(END) Dow Jones Newswires

June 06, 2007 17:55 ET (21:55 GMT)

Harper too busy to meet Bono on aid for Africa during G8 summit in Germany

By ALEXANDER PANETTA

KUHLUNGSBORN, Germany (CP) - Rock star Bono has been refused a meeting with Prime Minister Stephen Harper this week to discuss aid for Africa, sources close to the Irish singer said Wednesday.

"They made several requests," said the source, who has close ties to Bono's development work.

The U2 singer regularly discusses aid issues with world leaders.

He has already met the summit host, German Chancellor Angela Merkel, as well as U.S. President George W. Bush - who also met music producer Bob Geldof and Senegalese singer Youssou N'Dour. "Hanging out with good company, aren't I?" Bush remarked before retiring for the night.

But a spokeswoman for Harper said the prime minister is too busy to meet with Bono at the summit. She said the prime minister would be happy to speak with him at some later date.

"He's really busy, packed for time. He's meeting with world leaders and that's what the G8's all about," said Harper spokeswoman Sandra Buckler.

"Obviously the prime minister has a very full agenda for the next two days but after the G8 I see no problem with them having a chat."

She noted that the prime minister has spoken to Bono in the past.

Development groups say G8 countries are falling woefully short of the pledge they made in 2005 to increase foreign aid by $50 billion by the end of the decade.

Geldof called Canada a main culprit in trying to block the G8 leaders from making another specific aid pledge to Africa this week.

But the Canadian government has countered that it is leading the entire G8 in keeping promises made at the 2005 summit in Scotland and in 2002 at Kananaskis, Alta.

The group promised in 2002 to double aid by the end of the decade, and promised in 2005 to boost aid by $50 billion. Based on Canada's economic size, the non-government agency Oxfam calculates this country's share of the 2005 pledge to be about $2 billion.

"We are on track to meeting our commitment for doubling our aid to Africa," Buckler said.

"And we are doing it ahead of the rest of the G8."

Harper has promised that Canada's aid budget will reach the international average of donor countries as a percentage of GDP, and continue an eight-per-cent annual increase started under the Liberals.

He also recently pledged more than $100 million in conjunction with Microsoft founder Bill Gates to help find an AIDS vaccine.

But Oxfam says that even though Canada has raised its aid budget to $4 billion, it still lies about $1 billion shy of the target it set in 2005, and is much farther from achieving the international objective that Canada spearheaded in the 1960s.

The country remains less than half way to reaching an aid budget of 0.7 per cent of GDP, established as the international objective under a drive led by the late Lester Pearson.

Activists say that as one of the richest countries in the world, with arguably the healthiest public finances in the G8, Canada has no excuse for falling so short of that target.

Oxfam Canada spokesman Mark Fried is at the summit and says Canada isn't doing as badly as fellow G8 members like Italy and Germany, whose recent efforts he describes as "nothing" and "pitiful."

"But even if they meet the (G8) targets they'd still come up woefully short," Fried said.

"This is the bare minimum of what Canada should do."