Canada’s Macklem Curbs Growth Forecast On Elusive Exports

CANADA STOCKS- TSX drops as U.S. gridlock drags on

We need a rotation in demand toward exports and business investment, Macklem said. Unfortunately, this rotation has proven elusive. After an initial burst following the recession, Canadas economy began to slow last year amid weak global demand for its goods and a slump in business capital spending . Until today, the central bank had predicted a recovery in exports would help fuel a rebound starting in the second half of this year, which would eliminate slack in the nations economy by 2015 and lead to higher policy interest rates. Investors are betting Governor Stephen Poloz will extend a three-year pause, the longest since the 1950s, by keeping his 1 percent benchmark interest rate unchanged until at least the end of next year. Monetary policy remains highly stimulative to provide time for the recovery in exports and investment to take hold, Macklem said today. Dollar Weakens The Canadian dollar extended declines following release of the speech, dropping as far as 0.3 percent to C$1.0337 per U.S. dollar . It traded at 1.0328 per U.S. dollar at 1:21 p.m. in Toronto. One Canadian dollar buys 96.82 U.S. cents. Macklem declined to forecast the exchange rate during a question-and-answer session after the speech, saying policy makers have monitored its appreciation in recent years, which was triggered by a relatively robust economy and by foreign investors buying Canadian securities. Clearly Canada is in a privileged global position — strong fiscal policy, sound monetary framework, we have abundant commodities, he said. We have from time to time seen capital flows and theres no doubt that they also tend to boost the currency, Macklem said.

Investors also had an eye on BlackBerry, which is the focus of a $4.7 billion bid from a consortium led by Fairfax Financial. Data showed rising demand caused activity in China’s services sector to expand at the fastest pace in six months in September but failed to lift sentiment. The focus of the market remained the U.S. government shutdown, which highlighted the political gridlock in Washington over the debt crisis and the uncertainty investors are facing as no immediate resolution seemed in sight. “Who knows what’s going to happen or how long it’s going to drag out,” said Sal Masionis, stockbroker at Brant Securities. “You just stay away and do nothing, and have a little cash on the side.” Investor confidence in Canada and the United States has taken a beating, he said, adding that the uncertainty could drag on until the end of the month. Volumes on the benchmark Canadian index were sluggish. About 56 million shares changed hands on Thursday at mid-morning, compared with an average daily volume of 304 million shares in September, according to market operator TMX Group. The Toronto Stock Exchange’s S&P/TSX composite index was down 49.74 points, or 0.39 percent, at 12,789.26. The TSX could lose ground before the end of the year due to the U.S. debt and budget troubles, Masionis said. Eight of the 10 main sectors on the index were in the red on Thursday. Suncor Energy Inc lost 1.1 percent to C$36.40 and had the biggest negative influence on the market. Canadian Natural Resources Ltd gave back 0.3 percent to C$32.13.