Australia became the first G-20 nation to increase borrowing costs in more than a year while you were sleeping; Reserve Bank Governor Glenn Stevens shocked the world by announcing a 25-basis point increase in the Australian central bank’s benchmark interest rate to 3.25 percent.

Australia is experiencing an increase in hiring, retail sales and house prices, and surging business and consumer confidence support the central bank’s conclusion that the “basis for such a low interest rate setting has now passed.” Stevens also noted that it was now prudent to “begin gradually lessening the stimulus provided by monetary policy.”

Like Canada’s, Australia’s economy is heavily focused on natural resources. The Land Down Under also benefits from proximity to China and other emerging Asian economies. The Australian dollar has rallied over the last several months on speculation its central bank would act before its global monetary peers, but only one analyst of 20 surveyed by Bloomberg predicted a rate hike this soon.

The market is interpreting the move as a sign of confidence in the global recovery (Asian markets closed higher, and as of 11:43 am EST the S&P 500 is up 1.6 percent, the S&P/TSX Composite more than 2 percent), but our colleague George Kleinman issued an early caution this morning to his Futures Market Forecaster subscribers:

Overnight the Reserve Bank of Australia raised their cash rate from 3% to 3.25%, the first Group of 20 nation to raise rates in this cycle. This was taken as evidence the recovery is gaining momentum, and stocks around the world have rallied. However the USA is not Australia. Unemployment in Australia is 5.8% versus a stated 9.8% here (with the real numbers much higher). So I do not see the stock rally maintaining momentum here, however the trend of a weak dollar will.

George’s prompt and concise observations on the market alone are worth the price of admission, but he also provides stellar trading advice.

Of course, leverage to resource-rich countries such as Canada isn’t a bad way to go, either.

Paradoxes and Spirals

There is a simple problem to which any discussion about the global economic recovery must eventually return: too many Americans don’t have jobs. Consumer spending accounts for about 65 percent of the US economy. If people aren’t making money, they can’t spend it.

And though its efforts to engage emerging markets such as China and India are gaining traction, Canada is still attached to its southern neighbor. It’s no coincidence that the S&P/Toronto Stock Exchange Composite Index fell 3.4 percent from Sept. 18 through Oct. 2; a stream of weaker-than-forecast figures on US durable-goods orders, home sales, factory sales and, most critically, employment momentarily doused hopes of a quick, robust turnaround and with that investors’ risk tolerance.

The US Dept of Labor reported last week that US employers cut more jobs in September than in August, and unemployment reached its highest level since 1983. Payrolls fell by 263,000 following a 201,000 drop in August, while the jobless rate rose to 9.8 percent from 9.7 percent. The US has lost 7.2 million jobs since the recession began in December 2007.

Econbrowser proprietor and UCSD Professor James Hamilton dug into the jobs data (and provides pictures in the original):

Initial claims for unemployment insurance and number of hours worked are often viewed as leading economic indicators. Initial claims peaked in March, but have improved little since August…

Average hours per week in manufacturing fell back a bit last month, undoing some of the earlier rebound…

Hours worked for the broader economy remain at the low point for this cycle…

And total employment, generally regarded as a coincident economic indicator, continues to plummet, with a quarter million fewer Americans on payrolls in September compared with August. That this is not as rapid a decline as we saw at the start of the year can no longer provide much comfort to anyone.

Many of those fortunate enough to still be employed have nevertheless suffered large losses because of declining asset values–things like pensions, IRAs, 401Ks, houses. These folks should pay down debt and save more. But this instinct to save by cutting consumption eventually harms their neighbors and threatens even their own job as “the paradox of thrift” becomes a deflationary spiral.

That’s the fear, at least.

Stephen and Yo-Yo

If you appreciate interpretations of the Beatles–and you like to see politicians step outside (or be pushed from) their comfort zones–you’ll want to take a look at the highlight of last Saturday’s gala at Canada’s National Arts Centre.

Prime Minister Stephen Harper has hung on as long as anyone to leadership of a minority government, and now his endurance and the lessons he’s learned along the way could finally deliver him his coveted majority. Burdened for much of the early part of his tenure with his well-earned reputation as a partisan ideologue particularly suited to opposition, slowly Harper has matured into a pragmatic decision-maker and a halfway decent front-man.

Regarding matters of state, Harper has dispensed with the aggression on China’s human rights record. The minority government’s efforts this year are clear evidence Canada’s policy has shifted to one of engagement; Harper himself might still meet with his counterpart Chinese President Hu Jintao as soon as next month. The US will always be Canada’s primary trade partner, but prudence dictates Harper establish solid relations with what will soon be the world’s second-biggest economy.

At home, Harper is no longer the angry young man of the Reform Party of Canada. He plays hard, throws elbows and tries to get away with cheap shots, but this competitiveness actually looks good compared to the periodic manufactured outrage of inept opposition leaders.

Liberal leader Michael Ignatieff’s latest effort to obliterate any possible distinction between him and his predecessor has resulted in the predictable alienation of voters.

A Strategic Counsel poll for The Toronto Globe and Mail and CTV found Conservative support has risen six points in a month to 41 percent. The Liberals dropped two points to 28 percent. The New Democratic Party held its 14 percent support.

Outside Quebec, the Ignatieff’s Grits are off more than seven points to 26 percent. In the province that will determine whether Harper wins his majority, Ontario, the Tories have jumped to a 16-point lead over the Grits, 46 percent to 30 percent.

The Liberals lone bright spot is Quebec, where they’ve gained significant ground at the expense of the Bloc Québécois. Ignatieff has sunk outside Quebec since May–the Grits lost 12 points over the summer in Ontario, seven points in Western Canada–but has gained 10 points to 33 percent in the French-speaking province.

Of course it helps to make your concert debut accompanied by a virtuoso, but Harper, with this latest touch, demonstrates he’s as skilled in his day job as Yo-Yo Ma is in his.

Bank Jobs

Canada’s Big Five banks haven’t made any headline-generating acquisitions in the aftermath of the financial crisis. Though their conservative lending practices, tighter capital requirements, and favorable regulatory environment position them to snap up assets at fire-sale prices, the Big Five have resisted urges to expand US operations, for example.

That doesn’t mean the Canadians are back on their heels. Rather than biting off big chunks of questionable digestibility, Royal Bank of Canada (TSX: RY, NYSE: RY), Canadian Imperial Bank of Commerce (TSX: CM, NYSE: CM), Bank of Montreal (TSX: BMO, NYSE: BMO) and Bank of Nova Scotia (TSX: BNS, NYSE: BNS) are importing Wall Street veterans from rivals such as Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America/Merrill Lynch (NYSE: BAC) and Citigroup (NYSE: C) and as well as refugees from collapsed Lehman Brothers. The Canadian banks are attractive right now because their relative strength means they can grow faster.

It’s a slower, more methodical way to build market share, but already RBC Capital Markets has hired an ex-Citigroup team to expand its financial institutions group. RBC has also started a new aerospace and defense group with new, experienced talent from outside.

BMO Capital Markets expanded investment-banking services for industries including health care, food and consumer, and energy. CIBC World Markets has added to its debt capital markets and business and added a former Lehman takeover specialist. Scotia Capital bought an energy trading business from UBS (NYSE: UBS) and boosted its US stock-lending business with the addition of five former Wells Fargo & Company (NYSE: WFC) employees.

Done Deal

Canadian Hydro Developers (TSX: KHD, OTC: CHDVF) has agreed to be acquired by TransAlta Corp (TSX: TA, NYSE: TAC) for the sweetened price of CAD5.25 per share. The two companies have executed a definitive pre-acquisition agreement on the transaction, which is valued at CAD1.6 billion including assumed debt. The boards of directors of both companies have unanimously endorsed the deal.

The combined company will have net generation capacity of 8,657 megawatts (MW) in operation, including a renewables portfolio of 1,900 MW in operation. In addition, there are 543 MW under construction and nearly 500 MW in advanced-stage development.

The purchase will be funded with new bank facilities underwritten by Royal Bank of Canada. TransAlta plans to replace this initial funding with permanent long-term debt and the issuance of CAD300 million to CAD400 million in new equity. Management notes that the transaction won’t impact its dividend policy.

The Roundup

We’re already a week into the fourth quarter, awaiting all-important third quarter earnings numbers. As for the broader market, investors are looking for actual revenue growth rather than simply numbers that beat expectations because of cost-cutting.

The market is hungry for signs of actual growth these days. Fortunately, the Canadian Edge coverage universe generated relatively strong top-line numbers during the second quarter, and we expect that to be the cast during this marking period as well.

Here are tentative earnings announcement dates for CE Portfolio recommendations, followed by the Roundup of news from How They Rate companies.

Conservative Holdings

• AltaGas Income Trust (TSX: ALA-U, OTC: ATGFF)–November 5*
• Artis REIT (TSX: AX-U, OTC: ARESF)–November 11
• Atlantic Power Corp (TSX: ATP-U, OTC: ATPWF)–November 12*
• Bell Aliant Regional Communications Income Fund (TSX: BA-U, OTC: BLIAF)–November 10
• Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF)–November 11*
• Brookfield Renewable Power Fund (TSX: BRC-U, OTC: BRPFF)–November 3*
• Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–November 10*
• CML Healthcare Income Fund (TSX: CLC-U, OTC: CMHIF)–November 5*
• Colabor Group (TSX: GCL, OTC: COLFF)–October 16*
• Consumers’ Waterheater Income Fund (TSX: CWI-U, OTC: CSUWF)–October 27*
• Innergex Power Income Fund (TSX: IEF-U, OTC: INRGF)–November 5*
• Just Energy Income Fund (TSX: JE-U, OTC: JUSTF)–November 6*
• Keyera Facilities Income Fund (TSX: KEY-U, OTC: KEYUF)–November 3
• Macquarie Power & Infrastructure Income Fund (TSX: MPT-U, OTC: MCQPF)–November 4
• Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–November 12
• Pembina Pipeline Income Fund (TSX: PIF-U, OTC: PMBIF)–October 29*
• RioCan REIT (TSX: REI-U, OTC: RIOCF)–November 4*
• TransForce (TSX: TFI, OTC: TFIFF)–October 23*
• Yellow Pages Income Fund (TSX: YLO-U, OTC: YLWPF)–November 5

Aggressive Holdings

• Ag Growth International (TSX: AFN, OTC: AGGZF)–November 13*
• ARC Energy Trust (TSX: AET-U, OTC: AETUF)–October 30*
• Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–November 4*
• Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF)–November 5*
• Enerplus Resources (TSX: ERF-U, NYSE: ERF)–November 13
• Newalta (TSX: NAL, OTC: NWLTF)–November 5*
• Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF)–November 6*
• Penn West Energy Trust (TSX: PWT-U, NYSE: PWE)–November 11*
• Peyto Energy Trust (TSX: PEY-U, OTC: PEYUF)–November 5*
• Provident Energy Trust (TSX: PVE-U, NYSE: PVX)–November 13*
• Trinidad Drilling (TSX: TDG, OTC: TDGCF)–November 4
• Vermilion Energy Trust (TSX: VET-U, OTC: VETMF)–November 10*

*Bloomberg estimate

Oil and Gas

Crescent Point Energy Trust (TSX: CPG, OTC: CSCTF) bought 32,166,667 shares of Reliable Energy through a private placement at a price of CAD0.15 per share; the total purchase price was CAD5.2 million.

Alberta-based Reliable Energy is currently working two areas in the Western Canadian Sedimentary Basin, one an unconventional play in the Bakken/Three Forks formation, the second a Devonian reef play. The company recently completed work on two wells in the Bakken, which generated initial production rates of approximately 69 and 49 barrels a day, respectively. Reliable has identified 15 more development drilling locations on its lands.

Crescent Point, which now owns 19.9 percent of Reliable, will hold the shares for investment purposes. Crescent Point Energy Trust is a buy up to USD34.

Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) announced a 30 percent distribution cut, a move it made to free up cash for development projects and to position itself for conversion to a corporation. Pengrowth plans to convert no later than 2013.

Pengrowth will cut its Nov. 16 distribution to CAD0.07 from CAD0.10. The Oct. 15 payment will be CAD0.10 per unit. Hold Pengrowth Energy Trust.

Progress Energy Resources (TSX: PRQ, OTC: PRQNF) has entered into an agreement with a syndicate of underwriters pursuant to which the underwriters will purchase CAD200 million principal amount of convertible unsecured subordinated debentures at a price of CAD1,000 per debenture.

The debentures are convertible at CAD18 a share and will mature on Oct. 31, 2014. Progress will use the proceeds of the offering for general corporate purposes, including its exploration and development program and reduction of outstanding bank debt. Progress Energy Resources is a buy up to USD10.

Electric Power

Boralex Power Income Fund (TSX: BPT-U, OTC: BLXJF) has reached a conditional agreement with AbitibiBowater (OTC: ABWTQ) on the temporary operation of the Dolbeau power station.

Under the agreement Boralex would operate its cogeneration plant at Dolbeau-Mistassini from Nov. 15, 2009, to April 15, 2010, and during that period it would produce electricity and the steam required to heat the Abitibi paper mill. In exchange for the steam, Abitibi would provide 75,000 dry tons of wood residue to Boralex for the duration of the agreement. Boralex Power Income Fund is a buy up to USD4.

Business Trusts

Bird Construction Income Fund (TSX: BDT-U, OTC: BIRDF) has executed a CAD84.7 million contract with Defence Construction Canada to build a new maintenance hangar at the Canadian Forces Base at Trenton, Ontario. Work on the project will begin immediately and is scheduled to be completed within two years. Bird Construction Income Fund is a buy up to USD30.

Natural Resources

Ag Growth International (TSX: AFN, OTC: AGGZF) is issuing on a bought-deal basis CAD100 million of aggregate principal amount of convertible unsecured subordinated debentures at CAD1,000 per. Ag Growth has granted to the underwriters an overallotment option to purchase up to an additional CAD15 million aggregate principal amount at the same price, exercisable in whole or in part at any time for a period of up to 30 days following closing of the offering.

Ag Growth will use the proceeds to repay debt and for general corporate purposes. The debentures will bear interest from the date of issue at 7 percent and will mature Dec. 31, 2014. Ag Growth International is a buy up to USD30.

Financial Services

CI Financial (TSX: CIX, OTC: CIFAF) reported assets under management grew for a seventh straight month in September, rising by CAD2 billion, or 3.2 percent, to CAD64.8 billion. Total fee-earning assets increased by CAD2.7 billion, 2.9 percent, to CAD93.8 billion.

Subsidiaries CI Investments and United Financial Corp reported combined retail gross sales of CAD654 million and net sales of CAD35 million, which consisted of net sales of CAD64 million in long-term funds and net redemptions of CAD29 million in money market funds. A single institutional investor accounted for CAD27 million of the money market redemptions.