These are stories Report on Business is following Wednesday, Sept. 5, 2012.

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Bank warns on real estate

Société Générale believes Canada still doesn't have a handle on a frothy real estate market.

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Senior foreign exchange strategist Sébastien Galy today cited the risks associated with a protracted period of low interest rates. This has, of course, been the case in Canada, highlighted again by the Bank of Canada's decision this morning.

As expected, the central bank held its benchmark rate steady at 1 per cent, where it has been for two years, and suggested the next move in rates would be up. The timing of a rate hike, however, is a complete unknown, with some observers suggesting we won't see one until late next year.

The Bank of Canada has been concerned about consumer debt, as has the federal government, which has moved several times to cool down the mortgage market.

Because the government acted, the central bank didn't have to. Or so the theory goes.

"The change of tone is likely to be subdued as the housing bubble is not yet under control and the BoC is starting to be under fire for its ultra loose stance," Mr. Galy said before the Bank of Canada statement.

Rates are low in Canada, he said, and a long time timeline can have "unintended consequences."

"Canada is tackling this risk by dealing with a known problem with administrative measures, such as countercyclical buffers in its mortgage market," Mr. Galy said.

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"It is noteworthy that this housing and commercial real estate bubble is developing in Toronto, even with an ultra conservative financial system," he added in a research note, though he told me later that it goes beyond just Canada's biggest city.

"Commercial real estate in Canada is only a small fraction of that of the U.S. as they never went through a consumer-led boom. This suggests that the BoC will need to see the impact of the administrative measure to be reassured."

So Canada is now seeing "localized bubbles in some housing sectors," Mr. Galy told me, and he had some interesting observations.

"Administrative measures as adopted in China may well prove effective (change in mortgage rules), but they indicate an inadequate policy stance from the point of view of the internal equilibrium of the Canadian economy," he said.

"From an external point of view it is more justified given global risks, but that stance is similar to what many Asian economies would take in their choice between inflation and growth. In Canada, the CPI basket only gives a very partial impression of inflation, paying your rent gives a more vivid impression. This suggests that the BoC will tend to maintain a more hawkish stance than would be justified just looking at domestic economic prospects."

As The Globe and Mail's Kevin Carmichael reports, the central bank today did cite the uncertain global outlook, with a slow recovery in the United States, a recession in Europe, and slower-than-expected growth in emerging markets such as China.

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As for consumers, by the way, the Bank of Canada noted "tentative signs" that spending is slowing, though household debt burdens continue to rise.

This came as Fitch Ratings, affirming Canada's triple-A standings, projected a "soft landing" in the housing market amid tighter rules.

Still, it said, household debt is still the country's primary risk, making the economy more vulnerable to shocks.

"Excessive borrowing by individuals is, to a great extent, a by-product of low interest rates, a legacy of the monetary response to the financial crisis," Fitch said.

"Yet, an imminent normalization of monetary conditions seems unlikely as long as global uncertainty continues, the Fed is on hold and inflation is well behaved. However, well coordinated efforts among federal financial agencies aimed at slowing further household indebtedness should reduce the pressure on Bank of Canada to tighten monetary policy."

Tensions run high in auto talks

The Canadian Auto Workers union told its members today that they need to be prepared to shut down the Canadian operations of all three Detroit auto makers, The Globe and Mail's Greg Keenan reports.

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The union accused the three companies of a "co-ordinated effort" that insists any additions to hourly labour costs in Canada will have to be offset by savings elsewhere.

The three auto makers, all of which reported profits in the second quarter and for the first half of 2012, have maintained that they need to reduce or eliminate the gap in labour costs between their U.S. and Canadian operations, which ranges from about $2 an hour to about $8 an hour.

Shell launches project

Royal Dutch Shell PLC has begun construction on a $950-million project to capture and bury greenhouse gas emissions, the first of its kind to sequester carbon from Canada's oil sands, The Globe and Mail's Nathan VanderKlippe reports.

The project, technically led by industry but largely funded by the Alberta and federal governments, will see Shell grab the carbon emissions from its Scotford bitumen upgrading operations near Fort Saskatchewan, Alta., and bury them in a deep reservoir 80 kilometres to the north.

The Quest project, as it is called, will capture some 35 per cent of the carbon from the Scotford upgrader, burying 1.1 million tonnes of carbon per year – an amount that reduces by 15 per cent the emissions per barrel produced, but not refined, from Shell's oil sands operations.

Study refutes Carney

Most of Canada's publicly traded companies are not sitting on "dead money," as Bank of Canada chief Mark Carney suggested last month, but are actually doing a good job of returning cash to shareholders or funding growth and acquisitions, according to a new analysis by National Bank Financial.

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The bank screened all 327 companies followed by its 27 analysts, and discovered that they hold more than $55-billion in cash. But more than 55 per cent of these firms are already returning capital to investors through dividends or other distributions, and more than 20 per cent have share buyback programs in place, The Globe and Mail's Richard Blackwell writes.

Business shrugs off PQ win

Canada's business community is concerned about the long-term implications of a separatist government in Quebec, but executives expect little immediate fallout.

"The business community needs to be reassured right now," one executive said. "There has been talk in some quarters of – not stopping – but slowing down investments in the event of a PQ win."

Martine Hebert, the Quebec representative of the Canadian Federation of Independent Business, expressed concern over the fact that a minority government will be formed, Richard Blackwell and Bertrand Marotte report.

"A minority government is not the ideal situation for stability," she said. "We're hoping that all the political parties will work together so Quebec can be adequately governed."

As Canadian industry has shifted much of its focus internationally, provincial politics is less crucial than it was back in the mid 1970s when the PQ first took power in Quebec, said Bruce Catoen, chief technology officer at Mold-Masters Ltd., an Ontario company that builds equipment used by makers of plastic parts.

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The election of a minority government had little impact on Canada's currency, which has been affected more by the price of oil. But, said senior currency strategist Camilla Sutton of Bank of Nova Scotia, "the new government brings new risks, which could ultimately prove a small weight on [the Canadian dollar]."