“Don’t Find Fault, Find A Remedy” -Henry Ford
TSX Ends Higher Friday On U.S. Data, Oil Prices
Canada’s main stock index reached its highest level in a week on Friday as positive U.S. economic data and a rise in oil prices boosted the energy sector. The TSX jumped 174.71 points to 14,227.68, as traders bought up stocks badly beaten down over the course of a string of market jolts. There was also speculation that the U.S. Federal Reserve might extend a key stimulus program.
Data showing that U.S. housing starts and permits rose in September signaled the economic recovery might be on track. Upbeat quarterly earnings from major U.S. banks fueled the positive sentiment further. Stock markets have been in a corrective phase over the past month, weighed on by worries over global economic growth, oil demand and the direction of U.S. Federal Reserve policy.
U.S. stocks climbed more than 1% on Friday, with the S&P 500 posting its biggest gain in over a week as earnings offset concerns about the impact of weak global demand on corporate America. The Dow Jones industrial average rose 263.1 points, or 1.63%, to 16,380.34, the S&P 500 gained 23.98 points, or 1.29%, to 1,886.74 and the Nasdaq Composite added 41.05 points, or 0.97%, to 4,258.44.
Canadians Are Paying Down Mortgages At a Fast Rate
Canadians are paying down their mortgages at a record rate, significantly lowering the risk of default should interest rates rise, finds a new report from CIBC World Markets. “Canadian households did not only resist the temptation of low rates, they used those low rates to pay down debt at a pace not seen before,” says Benjamin Tal, Deputy Chief Economist, CIBC. “Despite a lethargic labour market and an unemployment rate that is still too high for the Bank of Canada’s liking, debt service performance in Canada has almost never been better.”
Homeowners are taking advantage of prolonged low interest rates to pay off their mortgages by accelerating their principal payments. In effect, they are voluntarily shortening their amortization periods. As a result, Mr. Tal estimates the average amortization period in the Canadian mortgage market is now closer to 20 years rather than the implicit assumption of 25 years the Bank of Canada uses in its calculations. Instead of spending their disposable income, Canadians are making sacrifices, choosing to make extra payments on their mortgage to get out of debt faster. This ultimately makes Canada’s mortgage market more stable because in the event of a rate hike, homeowners would simply return to their regular amortization period, he says.
“Canadian households are paying back an additional $11 billion a year in principal that’s not being officially recognized,” says Mr. Tal. “That extra cushion is sufficient to absorb the first 100 basis point increase in the effective mortgage rate, with households simply re-amortizing to offset the payment increase.”
Market Update As of October 17 2014
The TSX closed at 14228, up 1 points or 0.01% over the past week. YTD the TSX is up 4.45%.
The DOW closed at 16380, down -164 points or -0.99% over the past week. YTD the DOW is down -1.19%.
The S&P closed at 1887, down -19 points or -1.00% over the past week. YTD the S&P is up 2.11%.
The Nasdaq closed at 4258, down -18 points or -0.42% over the past week. YTD the Nasdaq is up 1.94%.
Gold closed at 1239, up 16.00 points or 1.31% over the past week. YTD gold is up 2.91%.
Oil closed at 82.96, down -2.57 points or -3.00% over the past week. YTD oil is down -15.87%.
The USD/CAD closed at 1.127825, up 0.0067 points or 0.60% over the past week. YTD the USD/CAD is up 6.08%.
Sources: Bloomberg; CIBC; Investment Executive; advisor.ca