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Russia eyes Canadian dollar, Germany benefits from crisis

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Germany benefiting from crisis? The debt crisis sweeping across Europe appears to be actually helping Germany, the continent's economic powerhouse, boosting stocks, pushing down bond yields and generally acting as a beneficial force.

"While it may seem odd, Germany appears to be benefiting from the European sovereign debt turmoil," said BMO Nesbitt Burns economist Benjamin Reitzes, who tracked the performance of German stocks and bonds since the beginning of the year.

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Germany has become a driving force during the debt crisis, which has sidelined Greece and Ireland, and now threatens to engulf Portugal and Spain, pushing up borrowing costs and forcing harsh austerity measures.

"Weakness in peripheral Europe drives money into Germany, a safe haven, lowering German yields and stimulating the economy," Mr. Reitzes said.

"Another side effect of the crisis is a weaker euro, which benefits German exporters. No wonder Germany's economy is outperforming and the DAX is among the top performing stock markets in 2010. (+14 per cent year to date)."

German Chancellor Angela Merkel and French President Nicolas Sarkozy are scheduled to speak by phone later today to discuss the crisis, and may issue a statement.

Markets still stronger Global stock markets are mixed, but generally still rallying this morning, though they will be without the benefit of U.S. exchanges, which are closed today for Thanksgiving.

Shanghai's composit climbed 1.3 per cent, Japan's Nikkei 225 0.5 per cent and Hong Kong's Hang Seng 0.1 per cent. London's FTSE 100 and Germany's DAX gained 0.4 per cent and 0.2 per cent, respectively, by about 6:30 a.m. ET, though the Paris CAC 40 dipped marginally.

"U.S. markets are, of course, closed today for Thanksgiving, and overseas markets are generally quiet with a small upside tilt," said BMO Nesbitt Burns deputy chief economist Douglas Porter.

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"The exceptions are the European peripherals, as bond spreads are widening yet again - Spanish yields are up 12 basis points versus a 1-basis-point rise in German 10-year yields. Still, the euro is only marginally softer, while the Canadian dollar is basically unchanged at 99 cents on the button."

Russia eyes the loonie Russia has made good on its plan to add the Canadian dollar to its reserves, and may in time add more, the country's central bank says.

So far, the Canadian portion is tiny but "there's perhaps potential for increasing our holdings," the central bank's first deputy chairman, Alexei Ulyukayev, told Bloomberg News.

"Within several months we may be able to speak about more substantial volumes and any changes in the structure," he said.

The loonie now ranks behind China and Japan in Russia's allocation. The currency has been on a roll, though bounced around by global developments.

"Why has [the Canadian dollar]been able to put such a solid performance in place over the past week and even month?" Scotia Capital currency strategist Sacha Tihanyi said today. "Certainly it is a result of better economic data out of both Canada and the U.S., and the problems in the euro zone which are helping the currency retain a safety bid."

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Japan's export growth slows The stronger yen is is biting into Japan's exports, a hit to the economy given its reliance on the sector and the heavy-hitting Japanese companies that are so well known around the globe.

Exports rose 7.8 per cent in October from a year earlier, or roughly half the growth of the previous month.

"This is the eighth straight month that the pace of growth in exports has decelerated, pressured by a stronger yen," said Scotia Capital economists Derek Holt and Gorica Djeric. "Only exports to China picked up."

Japan's trade surplus still widened, to ¥821.9-billion, but the numbers for both exports and imports were considered a disappointment.

China surplus swells China's current account surplus continues to swell, more than doubling in the third quarter to over $102-billion (U.S.). In the first nine months of the year, the surplus, the measure of trade, surged 30 per cent, according to data released today.

According to The Wall Street Journal, the third-quarter figure represents 7.2 per cent of GDP, well above U.S. Treasury Secretary Timothy Geithner's call for surpluses or deficits to be held to a 4-per-cent swing.

"China was making the argument that since the current-account surplus was falling as a percent of GDP, that indicates the yuan isn't undervalued," economist Tom Orlik of Stone & McCarthy Research Associates told the newspaper. "Now that it is rising again, it puts them in a difficult position."

More signs of labour market strength There are yet more signs today of the rebound in Canada's jobs market from the depths of the recession.

Average weekly earnings among Canadian workers climbed 4.3 per cent in September from a week earlier, marking the second month in a row that that figure has topped 4 per cent.

That's a sign of both more people working, given that Canada has recouped the jobs lost to the slump, and of longer hours worked.

"The remainder of the increase reflects a number of other factors, including changes in the composition of employment by industry, changes in occupations within industry, job experience, as well as wage growth," Statistics Canada said.

"The pace of growth in earnings has been increasing in recent months. September marked the sixth consecutive month in which the year-over-year increase surpassed 3 per cent. In contrast, year-over-year growth was below 2 per cent for most of 2009."

While that's not at this point a red flag for the Bank of Canada in terms of inflationary pressures, it does indicate there's little risk of deflation, said BMO Nesbitt Burns deputy chief economist Douglas Porter.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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