As European debt concerns continue to hang around, Greece is seemingly meeting new hurdles at every turn as they try to get more debt relief.   Like the boy that cried wolf, nobody really believes that Greece will be able to keep the austerity promises since their record on fiscal responsibility has been dubious at best.  Italy and Spain saw slightly increased bond yields, although not yet in the extreme danger zone, as the markets are once again showing concern that the debt crisis will spread further.

The increasing tensions about Iran is causing oil prices to increase as markets worry about potential supply shocks.  Although Iran produces around 5% of the world’s oil, the greater concern may lie in the chance of any conflicts spreading throughout the Middle East and disrupting supply channels.    Higher oil prices will cause a barrier to economic recovery as it represents a major cost for most industries.    Although this would initially keep interest rates low, any prolonged increase in oil prices would eventually result in higher inflation as the increased cost makes it way to the consumers of the end products.  Increasing inflation would lead to higher interest rates as the Bank of Canada would try to keep inflation in check by tightening the availability of cheap money. This situation with Iran is worth watching for the foreseeable future.

Some lenders began raising rates last week.  Most of the remaining lenders are increasing rates slightly this week.  Fixed rates are still extremely low and the current environment represents an excellent time to lock in borrowing costs for the long term.   

Since Monday is President’s Day for the US, please remember that for qualified US clients, financing is available at up to 80% (for the first $750k) at excellent rates.    The last few days have seen an increased volatility in the value of the Canadian dollar.  These movements in the dollar will provide opportunities for non-residents to purchase Canadian dollars at good value if the currency rates are watched closely.

Variable rates are still available at around Prime less 0.20% but for most clients, fixed rates are a much better choice since the spread between fixed and variable is so small.

 Jason McLean BSc, AMP
jason@garibaldimortgage.com 

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The Greek weeble continues to wobble but does not want to fall down.  Greece finally agreed to undertake even more austerity measures to satisfy the conditions of the most recent bailout terms.  The financial markets were unmoved by this seemingly positive move and  Germany even stated that the measures may not be enough.  In other European news, the Bank of England will spend $50 billion in a new wave of quantitative easing.  Although inflation seems to be waning in the UK, measures like this will eventually bring inflation to the forefront.  As with all the industrialized nations, the governments are walking a fine line between austerity that may improve short term cash flows but hurt economic growth, and stimulus to improve economic growth.    

US job numbers were up this week and slightly positive US economic growth has some people predicting an earlier end to the current economic doldrums.  The US is still in a huge deficit hole but any positive US is always good for Canada since the US is our largest trading partner and the largest customer for all that we sell.  Despite the trend to diversification of our global trading partners, we will be somewhat chained to the US markets for a long time to come.   The Canadian dollar improved slightly this week on this positive US economic news. 

This positive news from the US has also caused Canadian bond yields to increase this week and we may see a few banks remove their super low “special” rates for the time being.  However, fixed rates remain at historical lows and should stay in the current neighborhood for quite a while.  

Variable rates are still available at around Prime less 0.20% but for most clients, fixed rates are a much better choice since the spread between fixed and variable is so small.

Jason McLean   BSc, AMP
jason@garibaldimortgage.com  

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