WRAPUP 1-Canada trade surplus narrows, new home prices up

* Trade surplus falls on energy prices

* New home prices continue steady rise

By Ka Yan Ng

TORONTO, May 12 (BestGrowthStock) – Canada’s trade surplus fell
sharply and unexpectedly in March due to a drop in prices for
energy exports, while new home prices continued their steady
rise.

Statistics Canada said on Wednesday the trade surplus
shrank to C$254 million ($249 million) in March from C$1.15
billion in February. Analysts surveyed by Reuters had expected
the surplus to rise slightly to C$1.55 billion, forecasting
modest gains in both exports and imports.

Canada’s trade surplus had been larger than expected in
both January and February. [ID:nN12146780]

Statscan also said on Wednesday that the price of new homes
in Canada edged up 0.3 percent in March, matching expectations,
following a 0.1 percent increase in February.

The rise continued an upward trend that began in July 2009,
and is in line with other recent housing data, including a 1.3
percent rise in April housing starts to more than 200,000
units. [ID:nN10199655]

Analysts said trade’s diminished contribution to overall
first-quarter economic growth is unlikely to derail
expectations that the Bank of Canada will raise interest rates
next month to cool the economy down a bit.

“The recovery’s growth momentum and supercharged increase
in employment in April sets the stage for the Bank of Canada to
temper the current highly stimulative level of monetary policy
support with the first move likely to be announced at the June
1 fixed action date,” said Dawn Desjardins, assistant chief
economist at Royal Bank of Canada.

The Canadian dollar pared gains following the data, while
bonds were relatively steady in negative territory. The market
view of the probability of an interest rate increase in June,
as measured by yields on overnight index swaps, dipped slightly
and was sitting near a 50/50 chance after the trade figures
were released. (BOCWATCH: )

The Bank of Canada took a first step toward tightening
monetary policy last month by ending its commitment to keep
rates at a rock-bottom 0.25 percent until the end of June.

After six months of gains, exports declined 0.7 percent in
March to C$33.53 billion, largely because of lower prices for
crude oil and natural gas. Machinery and equipment exports also
fell.

The value of imports jumped 2 percent to C$33.28 billion.

Economists were encouraged by the contribution of
non-energy groups to exports as well as by rising volumes in
both imports and exports.

“Outside of energy the picture is stronger,” said Jonathan
Basile, vice president of economics at Credit Suisse.
“Non-energy exports rose 1.3 percent, the fourth straight gain
and the eighth rise in the last 10 months. The import
improvement was broad based, a reflection of the strength of
the domestic economy.”

HOUSING MAY WEAKEN

Housing has been a particularly buoyant sector of the
Canadian economy even during the recession. Observers continue
to forecast a shift to a more balanced market after the spring,
while the Bank of Canada expects housing investment to “weaken
markedly” for the remainder of the year and well into 2011.
[ID:nN18184642]

Posted mortgage rates increased several times in the past
month at Canadian banks, though a few banks pared rates this
past week after government bond yields fell in the wake of the
Europe debt crisis.

Investment Basics

($1=$1.02 Canadian)
(Reporting by Ka Yan Ng; editing by Peter Galloway)

WRAPUP 1-Canada trade surplus narrows, new home prices up