The Bank of Canada (BoC) held its target overnight interest rate at 0.25 percent today. Although the statement accompanying the rate announcement acknowledged improvement in economic conditions since the October Monetary Policy Report, the BoC also maintained its conditional commitment to keep the benchmark steady through the first half of 2010.

Whether the central bank moves before July of next year depends on what happens with inflation; the BoC sees inflation risk still “tilted slightly to the downside.”

The BoC softened its wording on the impact of a rising Canadian dollar. In its last rate statement the BoC warned that the strong loonie would “more than offset” emerging signs of economic recovery; today, the risk is that currency’s relative strength “could act as a significant further drag on growth.”

Both the BoC and the US Federal Reserve are holding benchmark overnight rates as low as they can possibly go. Major differences in Canada include the fact that its unemployment rate is lower and consumer debt isn’t as burdensome.

Canadian employers added five times more jobs than analysts expected in November; meanwhile, and the US Labor Dept reported last week that employers trimmed 11,000 jobs in November. While American employers are still cutting positions, this the fewest since the recession got underway in December 2007 and a hopeful sign that US demand for Canadian goods will pick up.

Relatively healthy Canadian consumers are taking advantage of record-low mortgage rates to buy new homes. Sales of existing houses rose 74 percent in October from the January low, with prices up 21 percent from a year ago to a record CAD341,079. Mark Carney is the only G20 central banker to set an end date for this period of cheap money, providing consumers a clear signal that this opportunity to attain cheap funding isn’t open-ended.

The CD Howe Institute, a Toronto-based think tank posited in a December 3 comment by its Monetary Policy Council that a “possible unintended effect” of Carney’s conditional commitment is “the buoyancy of mortgage lending, particularly variable-rate mortgages, and the housing market.”

Statistics Canada reported yesterday that the value of building permits rose 18 percent in October to CAD6.1 billion, mainly a result of gains in the value of non-residential permits and in construction intentions for single-family dwellings. This is the highest reading since September 2008.

The No. 1 priority for Carney and the BoC is to get–and keep–the economy growing again. Whatever bubbles inflate will be dealt with later.

Bank Earnings

Canada’s Big Five banks saw reasonable credit performance, gains in their investment-banking platforms and improvements in wealth management in the fiscal fourth quarter ended October 31.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) today became the last of Canada’s major banks to report earnings for the quarter ended October 31, its solid numbers providing a nice bookend for an encouraging reporting season for the group. As did its peers, Scotiabank benefited from higher trading fees and increased equity sales. Domestic banking was also strong, showing an 8 percent increase in net income.

Profit increased nearly three-fold as the investment banking results overcame lackluster growth in net interest income. But even better news lay deeper: Defaults in Scotiabank’s loan portfolio are leveling off. Provisions for credit losses–money set aside for loans that may not be repaid–were CAD420 million, up from CAD207 million a year ago but down from CAD554 million in the preceding quarter.

Bank of Montreal (TSX: BMO, NYSE: BMO) got things rolling last week by reporting a 16 percent increase in net income, driven its domestic consumer operations.

Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM) handily exceeded analyst expectations, posting a 48 percent increase in quarterly profit.

CIBC’s cash earnings–a figure that excludes all one-time items–were CAD1.41 a share, compared with a consensus forecast of CAD1.33. The bank reported lower loan losses than most analysts expected. Another positive: No news from CIBC’s structured-credit operations, the source of earlier writedowns.

Canadian consumer lending and wealth management drove a 10 percent profit increase for Royal Bank of Canada (TSX: RY, NYSE: RY). Provisions for bad loans increased 43 percent to CAD883 million. Personal loans, residential mortgages and deposits all increased. Royal Bank’s international operations, including US-focused RBC Bank, recorded a sixth straight quarterly loss on increased loan-loss provisions.

Toronto-Dominion Bank (TSX: TD, NYSE: TD) beat expectations with its CAD1.46 per share in cash earnings, but its future depends heavily on what happens in the US. TD management’s outlook was more cautious than those of other banks because of its US exposure.

The Big Five’s generally solid results underscore the findings of a recent assessment by Standard & Poor’s of global banks’ risk-adjusted capital (RAC), a more demanding, more precise measure of a bank’s capital base than the commonly referenced Tier 1 capital.

According to S&P, Toronto-Dominion is in the top quintile, while Bank of Nova Scotia, Royal Bank and Bank of Montreal are in the second quintile.

Strong Loonie = Strong Hockey

The relative strength of the loonie is an unequivocal positive if you’re a fan of Canada-based National Hockey League teams.

The Roundup

Atlantic Power Corp (TSX: ATP, OTC: ATLIF) is now trading under the Toronto Stock Exchange symbol ATP and the US over-the-counter (OTC) symbol ATLIF. If you use Google Finance, “ATP” and “ATLIF” will work; use “ATP.TO” and “ATLIF.PK” if you prefer Yahoo! Finance. Prices and yields in the CE Portfolio tables and in How They Rate are updated every 15 minutes.

The share price took a big hit today after the Caisse de depot et placement du Quebec, which manages provincial public pension plans, sold its 11,497,000 common shares at CAD10.60 per. The stock gapped down off the open and traded below CAD10.60 throughout the day.

The Caisse, the largest pension fund in Canada, is in the midst of a massive overhaul in the wake of a terrible 2008. The CAD120 billion pension fund had a lot of exposure to asset-backed commercial paper as well as to high-risk derivatives, real estate and the private equity sector.

This could also be an attempt to dress up 2009 numbers as we approach the end of the year.

That the Caisse was able to place such a large number of shares is a sign of the positive view of Atlantic Power among institutions. Make no mistake: This deal is more about the Caisse than it is about Atlantic Power.

Atlantic Power Corp is a buy up to USD11.

Conservative Holdings

Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF), through YPG Holdings, issued on a bought-deal basis (a syndicate of underwriters purchased the securities for resale to the public) 5 million cumulative rate reset preferred shares for gross proceeds of CAD125 million.

Yellow Pages Income Fund Series 5 Preferred will pay CAD1.725 per share per year on a quarterly basis, equal to a yield of 6.9 percent, until June 30, 2015. The dividend rate will be reset on June 30, 2015 and every five years thereafter at a rate equal to the five-year Government of Canada bond yield plus 4.26 percent. The preferred is redeemable by Yellow Pages on or after June 30, 2015.

Yellow Pages will use the proceeds to pay down debt and for general corporate purposes. Yellow Pages Income Fund is a buy up to USD8.

Aggressive Holdings

Daylight Resources Trust (TSX: DAY-U, OTC: DAYUF) became the latest Canadian company to issue new convertible debt last week, selling CAD150 million in five-year, 6.25 percent bonds on a bought-deal basis through a syndicate of underwriters led by CIBC World Markets and GMP Securities. The bonds convert at CAD12 per share, 30 percent above Daylight’s current trading price.

Convertibles are an increasingly popular way for energy trusts and other companies to raise capital because they’re less dilutive than straight equity issues. Daylight Resources Trust is a buy up to USD11.

Oil and Gas

EnCana Corp (TSX: ECA, NYSE: ECA), now a pure play natural gas company, is trading separately from Cenovus Energy (TSX: CVE, NYSE: CVE), which now comprises the oil assets of the old EnCana.

Common shareholders of the old EnCana will own one new EnCana common share, which will continue to be represented by existing EnCana common share certificates, and will receive one common share of Cenovus for each EnCana common share held on Dec. 7, 2009, the anticipated distribution record date.

Cenovus and post-separation EnCana shares began regular trading on the Toronto Stock Exchange on December 3, 2009; they’ll debut on the New York Stock Exchange on December 9. Hold EnCana Corp; Cenovus Energy is also a hold.

NAL Oil & Gas Trust (TSX: NAE-U, OTC: NOIGF) closed a bought-deal offering of CAD115 million of 6.25 percent convertible unsecured subordinated debentures. NAL Oil & Gas Trust, which will use the proceeds from the debenture offering to pay down existing debt, is a buy up to USD12.

Gas/Propane

Parkland Income Fund (TSX: PKI-U, OTC: PKIUF) closed the bought-deal issuance of CAD97.75 million of 6.5 percent convertible unsecured subordinated debentures. Parkland will use net proceeds of approximately CAD93.8 million to pay down credit-facility debt. Parkland Income Fund is a buy up to USD12.

Natural Resources

Cameco Corp (TSX: CCO, NYSE: CCJ) boosted its dividend 17 percent from CAD0.24 per share per year to CAD0.28. The company will make a final quarterly payment of CAD0.06 per share on Jan. 15, 2010, to shareholders of record on Dec. 31, 2009. Cameco Corp is a buy up to USD30.

Transports

Aeroplan Group (TSX: AER, OTC: GAPFF) has been dropped from the S&P/Toronto Stock Exchange 60 Index because of the split-up of EnCana into oil-focused EnCana Corp and natural gas-focused Cenovus Energy. Aeroplan Group is a sell.