- advertisement -



Home > Consumer Banking >

Hopes rise after Quebec election

A funny thing happened after voters said no to Pauline Marois' Parti Quebecois in Quebec's elections earlier this month: Both Canadian stocks and the dollar shot up, as markets demonstrated tangible relief that the separatist threat had, as pundits were saying, been "put to bed" for some time.

Although both indicators pulled back in subsequent days, the initial positive relief provides an excellent reminder of the premium that investors put on uncertainty (even here in Canada, which has been dealing with the separatist threat for almost four decades).

Jobs increase
The defeat of the Parti Quebecois coincided with several other positive indicators that bode well for the Canadian economy. For one, the country created an impressive 43,000 jobs during March, which brought the unemployment rate down to just 6.9 per cent. The United States, the biggest buyer of Canadian export goods, also did well, adding 192,000 posts. This performance, which comes on top of a strong January (+144,000) and February (+197,000), suggests American consumers will have more money available to spend, which in turn should provide further strength to Canadian businesses.

Stock market up
As if that were not enough, the Toronto Stock Exchange benchmark index gained an impressive 5.6 per cent during the first quarter, before dividends. This increase was due in large part to a rebound in commodity prices, particularly gold, because Canadian equities indices are heavily natural resources weighted. This rise in raw materials prices also boosted businesses' revenues and earnings, driving up the loonie by almost four cents, which, in turn, boosted Canadians' buying power even more.

Many Canadians barely cast a sideways glance at rising stock prices having left the markets following the crash of 2008 to 2009. However, recent strength in equities has major, though largely hidden, benefits.

- advertisement -

That's particularly true for the pension plans of many Canadians. The market downturn had thrown many of those plans into deficit. As a result, based on projections back then, they lacked sufficient funds to pay out the benefits promised. Recent rebounds in prices put many of those plans back in the money.

That's particularly true for the pension plans of many Canadians. The market downturn had thrown many of those plans into deficit. As a result, based on projections back then, they lacked sufficient funds to pay out the benefits promised. Recent rebounds in prices put many of those plans back in the money.

Central bank lowers GDP expectations
The recent good news could not have come at a better time. In mid-April the Bank of Canada revised downwards its 2014 Canadian gross domestic product growth projection, due in part to weather related issues. The central bank also kept its policy rate at an extra low 1.0 per cent to further stimulate economic activity.

As for the separation issue, the longer-term news may not be as good as some analysts think. Although the Parti Quebecois did record its worst voter percentage in almost 40 years, the lost votes did not go to federalist alternatives. Most went to the Quebec Solidaire party, which is even more hard line on separation. And, swing votes went to the highly nationalist Coalition Avenir Quebec. In short, there remains a strong latent contingent of nationalist and separatist voters available to coalesce around a winning cause or issue.

So while investors can rejoice and put this issue to bed for now, over the longer term it may pay to sleep with one eye open.

Peter Diekmeyer is Bankrate.ca's economics columnist. He can be reached at peter@peterdiekmeyer.com

-- Posted April 21, 2014
See Also
Revised jobs report clears up U.S.-Canada conundrum
Was it the weather?
Canada's housing market shrugs off U.S. tapering efforts
More Everyday Economic stories
Rates
Overnight Averages* +/-
Variable open mtg 3.85%
48 month new car loan 8.48%
1 yr redeemable GIC 0.90%
Compare rates in your province
Auto loans
Chequing accounts
Credit cards
GICs
Home equity loans
Mortgages
Personal loans
RRIF GICs
RRSP GICs
Savings Accounts
What Bankrate Readers
are reading
Buying a vintage car
Selling and buying a home by auction
How to stop worrying about money
Common-law vs. marriage rights
Pay-what-you-want
Paying for school
Switching auto insurance can be a smooth ride
Calculators
Credit and Debt
Mortgage
Savings
More
top of page
 
- advertisement -