Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

too many new homes being built?
;)


Karim writes:

Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

  • Long expected but well overdue, Canadian FM Minister Flaherty announced yesterday a series of rule changes yesterday that tighten rules for home mortgages in Canada
  • The most significant is shortening the longest amortization period from 30yrs to 25yrs. In terms of monthly payments, this has the same impact as a 100bp rise in mortgage rates. About half of all mortgages have 30yr terms.
  • They also lowered LTV from 85% to 80% and tightened standards even more on mortgage loans in excess of $1mm.
  • This should definitely be viewed a form of tightening that will delay BoC rate hikes, and may even allow the Bank greater leeway to ease rates if they want to.
  • Standard behavior in the past is for borrowers to lock in terms before new rules go into effect. But with the broader message here that household debt levels are dangerously high, and more measures may be forthcoming to cool down the housing market, it wouldn’t be surprising if new mortgage activity isn’t as great as in years past.
  • The most basic market impact is for lower short-term rates and a weaker C$ based on likely narrower rate differentials to the U.S. going forward.

UK Daily | U.K. Manufacturing Demand Strengthened in June, CBI Report Shows

As suspected, signs that UK deficit spending is looking large enough to support a bit of growth. Now watch for the proclamations about how austerity works…

UK Headlines:
U.K. Manufacturing Demand Strengthened in June, CBI Report Shows

CML Says U.K. Gross Mortgage Lending Rose 24% in May From April

U.K. Retail Sales Rise More Than Forecast After April Slump

German, French private sector output data

With exports sagging it’s looking to me like:
Germany is going to need more public or private sector deficit spending to support sales and employment, while the French deficit may be large enough to stabilize their economy, albeit at far too low levels of output and employment.

Steepest drop in German private sector output for three years

June 21 (Markit) — Flash Composite Output Index at 48.5 in June from 49.3 in May, Flash Services Activity Index at 50.3 from 51.8, Flash Manufacturing PMI at 44.7 from 45.2, and Flash Manufacturing Output Index at 44.9 from 44.6. Reduced business activity reflected a marked fall in manufacturing production in June. Meanwhile, service sector activity was close to stagnation during the latest survey period. The latest drop in incoming new work reflected reductions in both the manufacturing and service sectors. Manufacturers indicated a steep and accelerated downturn in new export business during June, with the pace of reduction the fastest since April 2009.

Rate of decline in French private sector output eases in June

June 21 (Markit) — Flash Composite Output Index rises to 46.7 in June from 44.6 in May, Flash Services Activity Index climbs to 47.3 from 45.1, Flash Manufacturing PMI rises to 45.3 from 44.7, and Flash Manufacturing Output Index increases to 45.2 from 43.6. Slower falls in activity were recorded in both the manufacturing and service sectors during June. This mirrored similar moderations in the respective rates of decline in new business. Panellists indicated that clients remained hesitant in committing to new contracts amid an uncertain economic climate, although some respondents noted greater numbers of client enquiries and sales of new products.

EU Leaders Urged to Set Timetable for Action (Again)

Doesn’t seem to me ‘avoiding market turbulence’ is actually of any particular concern in the euro zone:

EU Leaders Urged to Set Timetable for Action (Again)

By Catherine Boyle

June 20 (CNBC) — Ahead of two key European policymaker meetings on the credit crisis Friday, politicians are yet again being urged to set out a clear timetable for action to avoid further market turbulence.

Romney’s fiscal message

And all evidence shows President Obama agrees.

FISCAL RESPONSIBILITY

The mission to restore America begins with getting our fiscal house in order. President Obama has put our nation on an unsustainable course. Spending is out of control. Yearly deficits are massive. And unless we curb Washington’s appetite for spending, the national debt will grow to the size of our entire economy this year.

As President, Mitt Romney will cut federal spending and bring much-needed reforms to entitlement programs. Mitt will work toward balancing the budget, reducing the size and reach of the federal government, and returning power to states and the people.


Policy

Exercise fiscal responsibility to restore economic opportunity.
Washington is addicted to deficit spending. As President, Mitt Romney will cut spending to finally move our nation toward a balanced budget.

During the Bush years, the nation’s deficit—the gap between what Washington collects and spends each year—hovered between 2 percent and 4 percent of GDP. These levels were already problematic and a cause for concern. During the Obama administration, however, the deficit exploded to 10 percent of GDP.

One major problem with sky-high deficit spending is that it necessarily leads to another practice that undermines the nation’s fiscal foundation: borrowing unhealthy sums to pay for what we already cannot afford. America is on an unsustainable path that, within just a few short years, will cripple the economy and foreclose any opportunity for recovery.

Mitt Romney will bring fiscal restraint to Washington by placing a hard cap on federal spending to force our government to live within its means and put an end to deficit spending.

Mitt will also curb federal spending by repealing Obamacare, the federal takeover of health care that is scheduled to cost taxpayers one trillion dollars over the next ten years. He will also focus on eliminating wasteful government spending and right-sizing the federal government to save taxpayer dollars.

Mitt Romney’s goal is to put the federal government on a course toward a balanced budget and true fiscal responsibility.

Reform entitlement programs to keep them solvent and put America on a path to prosperity.
Federal spending on entitlement programs like Medicaid, Medicare, and Social Security has not only spiraled out of control, but has placed their very solvency in danger. Unfortunately, President Obama has failed in his fundamental responsibility to articulate a serious vision and plan for the future of these programs. At present, the total cost of U.S. entitlement programs accounts for more than half of all federal spending. Combined with interest payments on the national debt, so-called “mandatory” spending is over 60 percent of all federal spending.

Many of our fellow citizens have no idea that our growing entitlement spending has created a looming crisis. This is because politicians have a habit of hiding our country’s long-term liabilities. Mitt Romney believes that the federal government should publish a balance sheet each year—just as it requires public companies to do—so that Americans can understand the burden that future entitlement spending will place on our budget and economy. Over the course of his campaign, Mitt will propose the specific steps he will take as President to ensure the long-term solvency of Medicare and Social Security. While reforms are needed, Mitt also believes that these changes should not reduce benefits for current seniors or break the promises they have relied upon for their economic security in retirement.

Mitt knows that our economic future—along with the future of entitlement programs—depends on fundamental reform. If we wisely begin to reform entitlements and commit to live within our means, we can bestow on the next generation an America that is stronger and even more prosperous than the one we know today.

Greece after math

Looking like it was another ‘buy the rumor sell the news’ near term.

After you do the maths it still doesn’t add up.

It can’t add up.

Ever.

Given today’s institutional structures- pension funds, insurance reserves, etc.- that include massive, tax advantaged, demand leakages where private sector credit expansion is bound to periodically fall short full employment levels. And with the private sector necessarily pro cyclical, counter cyclical fiscal adjustments are, for all practical purposes, entirely in the realm of the issuer of the currency- the ECB, and not the users of the currency- the euro member nations.

In other words, as previously discussed, the maths can’t add up without the ECB, directly or indirectly, writing the check.

And that includes the banking system, which, to serve public purpose, requires credible deposit insurance, again meaning support from the issuer of the currency.

The last few weeks have demonstrated that the ECB does ‘write the check’ for bank liquidity even though it’s not legally required to do that,(and even though some think it’s not acting within legal limits) but it won’t just come out and say it.

And, apart perhaps from the Greek PSI (100 billion euro bond tax), which they still call ‘voluntary’, no government has missed a payment, also with indirect ECB support either through bond buying or via the banking system, but, again, it won’t just come out and say it’s an ongoing policy.

So while the ECB can and has ‘written the check’ as needed, there has been no formal proclamation of any sort that it will continue to do so. Nor does it look like there will be any such over policy announcement for a considerable period of time.

This means any manager of ‘other people’s money’ with any fiduciary responsibility will continue to remain on the sidelines.

And even as markets fluctuate, and then some, underneath it all payments are met on a timely basis and the banking system continues to function to service deposits and loans.

And budget deficits will continue to be deemed too large, (at least until private sector credit expansion exceeds the ‘savings desires’/demand leakages) ensuring the maths don’t ever add up without the assumption of the ECB writing the check.

One last thing.

Publicly, at least, they all still think the problem in the euro zone is that the public debts/deficits are too high. And to reduce debt the member nations need to cut spending and/or hike taxes, either immediately or down the road.

A good economy with rising debt and ECB support to keep it all going isn’t even a consideration.

They’ve painted themselves into an ideological corner.

And deficit spending, exacerbated by austerity, may nonetheless be high enough for it all to muddle through at current (deplorable) levels of economic performance.

This economic ‘torture chamber’ of mass unemployment can, operationally, persist indefinitely, even as, politically, it’s showing signs of coming apart.

The founders of the euro believed a single currency would work to prevent a third great war. So they did what it took politically to get the consensus needed to create the euro. Ironically not realizing what they created to promote unity has turned out to be the instrument of social disintegration.

HOLLANDE SAYS BANKING LICENSE WOULD GIVE ESM `GREATER POWER’

Yes, a banking license means unlimited ECB support.
The ‘talk’ continues to move in the right direction.

*HOLLANDE SAYS BANKING LICENSE WOULD GIVE ESM `GREATER POWER’
*HOLLANDE SAYS MANY IDEAS ON TABLE TO COMBAT CRISIS
*HOLLANDE SAYS EUROPE CAN IMPROVE ITS CRISIS RESPONSE
*HOLLANDE SAYS EUROPE HAS THE MEANS TO CONTROL ITS FUTURE
*HOLLANDE SAYS EUROPE MUST SO ITS DUTY ON GROWTH FOR GREECE
*HOLLANDE SAYS GREECE HAS MADE ENORMOUS EFFORTS
*HOLLANDE SAYS ITALY UNJUSTLY ATTACKED BY FINANCIAL MARKETS
*HOLLANDE SAYS HE’S IN AGREEMENT WITH MONTI ON GROWTH MEASURES
*HOLLANDE SAYS EUROPE NEEDS MECHANISMS AGAINST SPECULATION
*HOLLANDE SAYS GROWTH IS NECESSARY FOR DEBT REDUCTION
*HOLLANDE SAYS HAS `GREAT CONSIDERATION’ FOR MONTI’S LEADERSHIP

Hollande Says Europe Needs Mechanisms Against Speculation

By Gregory Viscusi

June 14 (Bloomberg) — French President Francois Hollande said that Italy has been unjustly attacked by financial markets and that Europe needs mechanisms to counter speculation.

Speaking in Rome today at a joint press conference with Italian Prime Minister Mario Monti, Hollande said that both leadders agreed on measures to spur economic growth. Growth is necessary for debt reduction, he said.

Europe must do its duty in helping to deliver growth for Greece, which has made enormous efforts during its bailout program, Hollande said.

Europe can improve its crisis response, and has the means to control its fuuture, he said. Many ideas are on the table to combat the crisis, he said, citing a banking license for the permanent rescue fund, which would give it “greater power.”

Spanish Banks’ Net ECB Loans Jump to Record 288 Billion Euros

And no business disruption:

Spanish Banks’ Net ECB Loans Jump to Record 288 Billion Euros

By Charles Penty and Emma Ross-Thomas

June 14 (Bloomberg) — Spanish lenders’ net borrowings from the ECB jumped to a record 287.8 billion euros ($361.4 billion) in May, highlighting the thirst of the financial system for funding before the country’s banking bailout.

Net average ECB borrowings climbed from 263.5 billion euros in April, the Bank of Spain said on its website today. Gross borrowing was 324.6 billion euros in May, up from 316.9 billion euros in April.

Spain on June 9 became the fourth euro member to seek a bailout since the debt crisis began almost three years ago, asking for as much as 100 billion euros to rescue lenders pummeled by a real estate slump now in its fifth year.

The increase in ECB borrowings “conveys the severity of the predicament some banks found themselves in ahead of last week’s bailout,” Martin van Vliet, an economist at ING Bank in Amsterdam, said in an e-mailed comment. “Now that concerns about the solvency of Spain’s banks will be addressed, financing difficulties should gradually start to ease. But we should expect the Spanish banking system to remain heavily dependent on central bank funding for quite some time.”

The net amount subtracts the average amount parked by Spanish banks at the overnight deposit facility, van Vliet said.

Germany signals shift on 2.3 trillion redemption fund for Europoe

Getting there as previously discussed:

Germany signals shift on 2.3 trillion redemption fund for Europoe

By Ambrose Evans-Pritchard

June 13 (Telegraph) — The German government has begun opening the door to shared debts for the first time in a profound change of policy, agreeing to explore proposals for a €2.3 trillion (£1.9 trillion) stabilization fund in order to stop the eurozone’s crisis escalating out of control.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse. Photo: Alamy

Officials in Berlin say privately that Chancellor Angela Merkel is willing to drop her vehement opposition to plans for a “European Redemption Pact”, a “sinking fund” that would pay down excess sovereign debt in the eurozone.

“It is conceivable so long as there is proper supervision of tax revenues,” said a source in the Chancellor’s office. The official warned that there would be no “master plan” or major break-through at the EU summit later this month.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse.

Fast-moving events may have forced her hand. She is under immense pressure from the US, China, Britain, and Latin Europe to change course as the crisis engulfs Spain and Italy, threatening a global cataclysm.

U.K. Economy Barely Grew In Quarter Through May, Niesr Estimates

Another hint the austerity induced deficit may have gotten large enough to stabilize things and promote a bit of growth.

U.K. Economy Barely Grew In Quarter Through May, Niesr Estimates

By Svenja O’Donnell

June 12 (Bloomberg) — The U.K. economy barely grew in the quarter through May after contracting in the previous three months, according to the National Institute of Economic and Social Research.

Gross domestic product grew 0.1 percent in the period, after declining at the same rate in the three months through April, Niesr, whose clients include the Bank of England and the U.K. Treasury, said in an e-mailed statement in London today.

Data today showed U.K. manufacturing fell more than economists forecast in April, while industrial production was unchanged, pointing to continued weakness in the economy at the start of the second quarter. Britain has slipped back into recession and Bank of England policy makers have warned of threats to the economy from the euro-area crisis.

“Economic activity remains very weak,” the institute said. “We expect the U.K. economy to remain broadly ‘flat’ over the next six months.”

The U.K. economy is forecast to recover in 2013, Niesr said, though “significant downside risks persist.”