CanWest News Service
Published: 2:32 amOTTAWA
- The Canadian dollar and stock markets on both sides of the
Canada-U.S. border rebounded somewhat Wednesday with the announcement
of a co-ordinated strategy by North American and European central banks
to inject billions of dollars of liquidity into financial markets to
ease the global credit crunch.
"This is the biggest act of global
economic co-operation since Sept. 11," said BMO Capital Markets chief
economist Sherry Cooper, noting the action followed the U.S. Federal
Reserve's failure to allay recession concerns with this week's
quarter-point rate cut.
"These actions will help to alleviate the credit squeeze," she said.
Markets
seemed to agree. Bay Street's benchmark S&P/TSX Composite Index
gained about 85 points and Wall Street's bluechip Dow Jones Industrial
Average just over 40 points higher.
John Johnston, chief
strategist with RBC's The Harbour Group, noted that the action by the
central banks is just the latest in a series of steps they have taken
to deal with the global credit squeeze.
"In total, these actions
are quite significant and pave the way for a much better end to 2008
than we are seeing to 2007," Johnston said.
The loonie and Canadian stocks got a bit of an extra boost from news of a stronger-than-expected trade surplus.
"Canadians
shopped till they dropped for ever-cheaper imports in October and
managed to spend less while buying more," CIBC World Markets economist
Avery Shenfeld said after Statistics Canada reported the country posted
a $3.3-billion trade surplus in October, which not only was more than
expected, but was also up from an upwardly revised $2.8 billion in
September.
However, analysts warned that trade will still be a
drag on overall economic growth this quarter, as it was in the summer
quarter. "It appears as if the Canadian dollar has left a big, ugly
footprint on the international trade data," said TD Securities
economist Jacqui Douglas, noting that thanks to the strength of the
currency, spending on imports continues while exports struggle.
Imports
fell two per cent to $34 billion, while exports edged down 0.5 per cent
to $37.4 billion. But once the impact of prices is stripped out, the
volume of imports rose 2.7 per cent, outpacing the 1.9-per-cent gain in
exports.
Still, the trade surplus was surprisingly resilient in
October even as the loonie rose to new highs, said BMO Capital Markets
economist Benjamin Reitzes.
The co-ordinated response of central
banks was to deal with the credit crunch resulting from the recession
in the U.S. housing market and its spillover to the $300 billion in
asset-backed commercial paper, including $35 billion in Canada, which
has been tainted with holdings of U.S. subprime mortgages.
The
Bank of Canada, in announcing its role in the effort, said it would
expand the list of securities that it would accept in exchange for cash
injections into credit markets, "offsetting the anticipated seasonal
increase in the demand for bank notes," the bank said.
The bank
announced it will buy $2 billion of securities today and sell them back
on Jan. 10, and then another $1 billion at least will be purchased Dec.
18 and sold back on Jan. 4. It also announced a longer-term measure to
provide support for high-quality types of asset-backed commercial paper.
The
Fed also announced measures -- co-ordinated with the Bank of Canada,
Bank of England, European Central Bank and Swiss National Bank -- to
allow for injections of cash into the international financial system.