After the weekend elections in Greece and France, the markets have reacted less than expected but they are still wary of potential future complications to the European Economic Union.  The election in France did not have much of an effect on the markets as the new leader, Francois Hollande, is considered to have fairly reasonable economic policies.  This may represent the end of the austerity movement to control the debt crisis but it seems that austerity driven economics was strangling any potential for economic growth.

The greater concern is the Greek government, or lack thereof, since no single party won enough seats to govern.  A coalition would require a few political parties to compromise on some principles and that does not appear likely at this time.  Greece appears headed towards another bailout or removal from the EEU.  Although Greece’s problems have already been factored in by the markets, this new development has refocused attention on the larger potential problems in Spain and possibly Italy.

These events will add to the list of external forces that the Bank of Canada will have to consider when deciding to increase the Prime rate.  If all other factors remain constant, the reoccurrence of the European debt problem should make the Bank of Canada wait longer than expected before increasing interest rates.   Although some pundits predict a 0.25% Prime rate increase this September, current events make a rate increase unlikely to happen until early 2013.

Fixed rates remain tremendously low with 5 year fixed terms around 3.29% for most Whistler properties and 10 year terms at 3.95% for most unrestricted properties.

The Canadian dollar slipped to just below par as the markets reacted to the European elections.  If the markets become convinced that the European debt crisis will return to previous crisis levels, the Canadian dollar could decrease significantly over the short term.  Investors will flee most currencies to buy up the US dollar currency to avoid being caught with devaluing currencies.  This fear driven flight to US dollars will cause the Canadian dollar to decrease over the short term.  This will provide non-resident buyers with an excellent opportunity to purchase Canadian assets at a discount, assuming that the buyers already hold US cash.  Long term prospects for the Canadian dollar remain strong.

Jason McLean  BSc, AMP
jason@garibaldimortgage.com