By Julian Beltrame        OTTAWA — Canada’s business leaders are turning bullish about the economy after a year of doom and gloom, a new survey suggests.

The Conference Board of Canada’s fall business confidence survey finds corporate leaders believe the recession is finally over and that the economy will rebound in the next six months.

The mood of confidence is particularly strong considering that recent indicators, particularly gross domestic product data for July and August, were disappointing.

Yet 63 per cent of business leaders surveyed said they expect the economy to improve over the next half-year, as opposed to only seven per cent who thought it will deteriorate.

Significantly, about a year ago the responses were almost exactly reversed.

The 16-point surge in the fall survey brought the confidence index to 97.8, the highest level since 2007.

The survey of about 2,000 representative firms from across the country was conducted between Sept. 14 and Oct. 22.

“After a year of despondency, Canadian business leaders are sensing an end to the deepest recession in a generation,” the Conference Board said about the results.

“Respondents appear very encouraged by signs of nascent recovery. More than half the respondents believe the present is a good time to expand their stock of machinery and equipment.”

Despite the apparent optimism, business still said they were concerned about under-utilization in their production levels, with 29 per cent describing their operations as substantially below capacity.

As well, leaders said they were concerned about the impact a strong dollar will have on their sales, the still weak demand, and about the ease of obtaining financing.

But it is in the forward indicators that business leaders were decidedly optimistic.

Almost 61 per cent said they expected their financial position to improve in the next six months, and more than half expect better profitability.

As well, more than half said it was a good time to expand, with 16 per cent saying they expected to increase their level of capital spending by more than 20 per cent in the next six months.

The Conference Board’s survey is roughly in line with results obtained by the Bank of Canada in September. The central bank’s survey of businesses showed 69 per cent of large firms optimistic their sales would increase in the coming year, and 42 per cent saying they expected to shift to hiring.

The Canadian Press

Fed creates ‘sweet spot’ for markets

Paul Vieira, Financial Post  – Equity markets, which have been on the ropes as of late, might have been given a second wind Wednesday as the U.S. Federal Reserve declared its easy-money strategy was here to stay for the foreseeable future.

“What the Fed has done is create a sweet spot for the equity market,” said Andrew Pyle, wealth advisor and markets commentator at ScotiaMcLeod. “What has happened to date can continue in an environment where rates are not going to be pushed up. It has given the equity market a lot more room to play with.”

Stock markets in Canada and the United States ended up with small gains following the release of the Fed statement, which acknowledged improvements in the U.S. economy such as an expansion in consumer spending and stable financial markets. But it reiterated that record low interest rates would remain in place for an extended period, as inflation expectations are expected to remain subdued “for some time.”

As a result, market players can continue to borrow short-term cash at very low rates to invest in higher-yielding assets. Low rates are also likely to be a boost to future corporate earnings, as borrowing costs remain cheap.

Keith Summers, chief investment officer and portfolio manager for Tricoastal Capital Management Ltd., said the Fed statement has removed the risk of a significant market correction.

“The result of what they are saying, which is easy money is here for the foreseeable future, is going to reassure people that the market is not going to be abandoned to its own devices,” Mr. Summers said. “Because of that there will be a bias toward buying as opposed to selling.”

Benchmark indexes in Toronto and New York have surged more than 50% from 52-week lows hit in March, as investors bet on an economic recovery. In recent weeks market indexes have shed some of the gains, as investors engaged in profit-taking on the belief that the market has fully priced in the recovery story.

The Fed statement offered some guidance as to when it might begin raising rates. In the only significant change from previous statements, the U.S. central bank said its record-low rate policy would continue due to “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.” Should those elements change, then all bets are off, analysts said.

“This appears to spell out the Fed’s criteria for beginning rate normalization,” Michael Woolfolk, senior currency strategist at Bank of New York Mellon, said. “While the language was subtle, the clear message is to keep inflationary concerns to a minimum and to curb talk of higher rates.”

But analysts such as Mr. Pyle said the guidelines provided are somewhat vague because they don’t indicate, for example, how much slack has to be removed from the economy before a rate hike is warranted. In contrast, the Bank of Canada said it is prepared to keep its key benchmark rate at the record-low level of 0.25% until June 2010, conditional on inflation remaining subdued.

“The longer you keep this low interest-rate environment going, the greater the shock will be for households, businesses and investors when someone is forced to change the environment. We are setting ourselves up for a huge risk,” he said.

One factor that could force the Fed to move is further deterioration in the U.S. dollar, Mr. Pyle added. The U.S. dollar lost ground following the Fed decision, on improved risk appetite. Mr. Woolfolk said the U.S. dollar could lose further ground against major currencies, such as the euro, unless job data due out on Friday is worse than expected.