Bank of Canada cuts rates, cites U.S. economy

Bank of Canada cuts rates, cites U.S. economy

Tuesday, March 04, 2008

The Bank of Canada lowered its key interest rate by half of a percentage point (or 50 basis points) on Tuesday morning, bringing the rate to 3.5 per cent and in line with expectations. It also means that the central bank is using the same game plan as its counterpart in the United States – putting concerns about economic growth ahead of concerns about rising inflation.
The U.S. Federal Reserve has slashed its key interest rate aggressively this year, cutting it by 50 basis points at the end of January, which followed an emergency 75 basis-point cut on January 22. The rate now stands at just 3 per cent, and many observers believe there is more cutting to do.

In its statement on Tuesday, the Bank of Canada said that economic growth in 2007 was broadly in line with expectations, with “buoyant” domestic demand and high employment. However, they did note that Canada’s net exports weakened in the fourth quarter, thanks to the slowing U.S. economy and the strong Canadian dollar.

“At the same time, there are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected in January,” the Bank said in its statement. “The deterioration in economic and financial conditions in the United States can be expected to have significant spillover effects on the global economy. These developments suggest that important downside risks to Canada’s economic outlook that were identified in the MPRU [Monetary Policy Report Update] are materializing and, in some respects, intensifying.”

“The Bank now judges that the balance of risks around its January projection for inflation has clearly shifted to the downside, and, as a result, the Bank is lowering the target for the overnight rate. Further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to achieve the 2 per cent inflation target over the medium term.”

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And This:

Get bearish. Please

Tuesday, March 04, 2008

If capitulation on the part of stock market strategists is the ultimate “buy” signal, investors who are sitting on the sidelines are going to have to stay patient. Even as major stock market indexes move toward their January lows and economists turn up the volume on recession warnings, strategists remain upbeat about the market’s prospects, partly out of faith that substantially lower interest rates will light a fire under the U.S. economy in the second half of the year.

According to Bespoke Investment Group, the consensus among Wall Street strategists calls for the S&P 500 to hit 1591 by the end of the year, implying a rise of about 20 per cent from current levels. The index traded at 1325 on Tuesday morning.

The consensus was even more bullish at the start of January, before strategists began to trim some of their more enthusiastic estimates. Bear Stearns, for example, slashed its forecast for the S&P 500’s year-end level to 1550, from 1700.

Bespoke noted on its blog that Merrill Lynch was the least bullish among the Wall Street shops, but even it is forecasting an 11 per cent gain for the S&P 500, with a year-end level of 1475. Goldman Sachs is at the other end of the bullish spectrum, forecasting a rise of about 26 per cent, with a year-end level of 1675.

“If investors are looking for excessive bearishness from analysts as a contrarian buy signal, they’re nowhere close to it right now,” Bespoke said.



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