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Report on Business

ROB Insight

Fresh, focused analysis of today's business news
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Entry archive:

Quebec’s child care program: How social innovation can create wealth


Over the past few years, a lot has been said about income inequality and the growing gap between the “one per cent” and the “99 per cent.”

There are many ways to address the problem of inequality head on through social programs, such as universal health care, social security, unemployment benefits and so on. Canada has done a better job than the United States in this area, redistributing wealth much more equally among its population. Within Canada, Quebec has been particularly successful: Its ratio of net after-tax income between the top 20 per cent and the bottom 20 per cent has remained practically unchanged since 1980, at 4.7, while it has risen to 7.7 from 6.2 in the U.S. during the same period.

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Prospects for business spending brighten on factory data


Canada’s surprisingly strong manufacturing report undeniably deserves a few asterisks. Yet it’s hard to dismiss the new life emerging from the country’s factory floors – and, perhaps, the growing case for Canada’s plant owners to (at long last) step up their investment in new capacity.

Statistics Canada reported Tuesday that manufacturing sales surged 1.4 per cent in February. That put sales at their highest level since July, 2008; after tumbling more than 20 per cent at the depths of the Great Recession, manufacturers have finally clawed their way back to pre-recession sales levels.

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Tax move would be hazardous to Walgreen’s health


Giant U.S. drugstore chain Walgreen Co. has become the latest North American corporation to weigh a tax-saving relocation of its headquarters to a friendly European jurisdiction. Even if Walgreen were keen on such a transfer – its top executives have been resisting demands from some key investors – the optics look bad. And the political flak is sure to be heavy.

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'Facebank' is here: Social network to handle payments, transfers


Those plastic cards in your wallet will soon be heading to the same junkyard as photographic film, cassette tapes and chequebooks. Cards are yesterday’s payment systems, reckons Mark Zuckerberg and if he has his way, Visa Inc. and MasterCard Inc. are doomed because Facebook Inc. is finally making its move into financial services. The social media company is about to get regulatory approval from the Central Bank of Ireland to become an e-money institution that will allow users to store money with Facebook, make payments and transfer cash to others.

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Inflation still the risk as U.S. job market tightens

Martin Hutchinson

Inflation looks quiescent, but it is still the risk in a tightening U.S. jobs market. Until wages start going up, serious inflation won’t take hold. A leading think tank, the American Enterprise Institute, is even still worrying about the danger of deflation. But there are early hints that employees are beginning to regain some bargaining power.

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Diageo faces stiff bar tab for growth in India


Diageo is engaging in some expensive empire-building in India. An underpowered tender offer meant an earlier attempt to take control of Vijay Mallya’s United Spirits was only partly successful. Now the world’s biggest spirits maker has more than doubled the price it is willing to pay, offering $1.9-billion (U.S.) to raise its stake to 54.8 per cent from 28.8 per cent.

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Ukrainian rate rise will do little to save teetering economy

Edward Hadas

The authorities in Kiev will struggle to avoid economic meltdown. The Ukrainian central bank can do little more than stave off disaster. Monday’s increase in the benchmark rate to 9.5 per cent from 6.5 per cent may stem the fall of the hryvnia currency. But little, if any, of the near-40-per-cent loss of value against the dollar since January will be reversed. And that is fuelling double-digit inflation rates in import-dependent Ukraine.

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Draghi pulls a U-turn on currency commitment

Swaha Pattanaik

European Central Bank President Mario Draghi’s promise to ease policy if the euro rises makes him the latest to flout big developed countries’ agreement not to use exchange rates as an economic tool.

Mr. Draghi said last weekend in Washington that any further strengthening of the euro would need to be met by additional monetary policy accommodation. While he has previously noted how much the euro’s gains have weighed on inflation, these comments were strikingly direct.

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Memo to India’s Modi: Get out of states’ way

Andy Mukherjee

Narendra Modi will have empty coffers greeting him.

If pollsters’ predictions come true and the opposition politician becomes India’s prime minister next month, he will have to contend with a grim fiscal situation. Total public expenditure is growing at an annual 15-per-cent pace, faster than the expansion in the nominal economy. Meanwhile, tax collections have increased only 10 per cent in the first 11 months of the fiscal year that ended in March.

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Don’t wait for rate hikes to bet on flatter bond yield curve


Spring has finally sprung in the economic data, but bond bears remain in hibernation, for now.

When it comes to any possible bearish sentiment, bond market investors are currently preoccupied with estimating the neutral policy rate for central banks, and how far long-term bond yields may or may not rise. At this point, however, there has very little focus on where the slope of the yield curve will be headed. History suggests it will get a lot flatter as we head toward the first Federal Reserve rate increase at some point in 2015; and Canada’s bond curve will follow suit.

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Internet provider mega-deal raises issue: What’s a utility?


Imagine Comcast’s $45-billion U.S. ($49.4-billion) plan to buy Time Warner Cable gets the utility treatment. It isn’t a big stretch these days to liken the pipes that bring the internet into homes to those carrying water or electricity. When power companies and the like merge, though, regulators want consumers to share the spoils.

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U.S. banks to raise the bar for European rivals


Europe’s banks have lost their cover on the leverage ratio. European lenders used to contend that American rivals had an easier ride on newly vogue-ish equity-to-asset yardsticks. New rules published on April 8 mean they can carp no longer.

Federal Reserve banking tsar Daniel Tarullo had flagged in advance that the absolute equity-to-assets level for U.S. banks to meet would be 6 per cent, with a lesser 5 per cent for their holding companies. What wasn’t so obvious was that the Federal Deposit Insurance Corporation would propose aligning its rules so closely with international standards laid out by Basel in January.

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Banks still too big to fail, and getting bigger


In the immediate wake of the worst global financial crisis in decades, political leaders everywhere vowed to do whatever was necessary to rein in risk-taking incentives and prevent system-wide meltdowns.

To call the pace of that reform over the past five years plodding is an insult to turtles.

“Plainly, there is unfinished business,” says Andrew Haldane, the Bank of England’s executive director for financial stability. “Whether in structure or incentives, we have not seen very much repaired. …We are seeing almost no valuable reformation of the system we inherited.”

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Economy Lab Roundup: ECB’s currency option for QE


A European Central Bank version of quantitative easing (QE) could look very different from the now-familiar model used by the U.S. Federal Reserve Board, economist Carl Weinberg says. To wit, the ECB’s asset purchases might not be in the form of government bonds at all – but rather, gold and currencies.

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Currency market tightens screws on Draghi


Mario Draghi avoided a euro breakup in 2012 without actually doing anything. Judging by comments at the International Monetary Fund’s latest meeting in Washington, the European Central Bank president may be hoping that words rather than actions will solve 2014’s major policy headache. But defeating deflation could require more than talk.

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Gazprom to Ukraine: Pay up or else


We now know the price for the West’s continuing political influence in Ukraine: $2-billion (U.S.). The Russian president has made that clear in a letter to Europe’s leaders: Russia will stop supplying Ukraine with gas if the country fails to settle its unpaid fuel bill, outstanding since August last year. There are Russian tanks parked on the Ukrainian border playing an elaborate diplomatic game of “chicken,” but those are probably a distraction. Though there could well be a Russian incursion into Ukraine, the weapon is more likely to be a bailiff’s writ, demanding the seizure of thousands of miles of steel pipe in lieu of payment for gas.

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Canada’s best-kept secret: Our entrepreneurial spirit


Canadians aren’t accustomed to overachieving in global comparisons. Our national personality type tends to direct our focus on those rankings in which Canada is the lowly, loveable underdog. When we placed a meagre 14th in the most recent ranking of business competitiveness, for example, we gave ourselves a collective “Oops, sorry.”

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Asian bond demand signals worries over deflation


The Asian bond market is sizzling. But that doesn’t mean investors are being reckless. Rather, it might reflect growing worries that the global economy is fizzling into deflation.

So far in 2014, companies and governments in the region have raised $50-billion U.S. ($54.8-billion) by selling debt denominated in U.S. dollars, euro and yen. That exceeds the $49-billion they had raised in hard currency by the same point in 2013, according to data compiled by Reuters.

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JPMorgan legal woes fade, but trouble remains


JPMorgan Chase & Co.’s clean sheet already looks off-white. For the first time in years, its quarterly earnings weren’t cluttered with special items like whale-trade losses or legal costs. The U.S. mega-bank’s $5.3-billion ($5.81-billion) profit in the three months to March fell short of expectations anyway.

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Hold the phone: BlackBerry’s Chen hasn't given up on handsets – yet


It appears BlackBerry Ltd. CEO John Chen said something Wednesday that didn’t quite come out right. That doesn’t mean he was wrong to say it. But it does speak to how tricky the rookie executive’s task is in communicating to two key audiences with different priorities – his customers on the one hand, and investors on the other.

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Why no one’s a diversified investor any more


A general hunt for yield is causing many asset classes to move in a more synchronised way. That’s a problem for investors trying to construct a portfolio ready for tougher times.

It’s a version of the pattern established after the financial crisis, when investors basically divided assets into two classes: risk-on and risk-off. For years, careful analysis of different securities became almost irrelevant. But then, abundant central bank liquidity and recovering economies helped re-introduce more differentiated movements between and within markets.

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Heartbleed exposes cheapskate cybersecurity budgets


It’s called the Heartbleed bug and it’s as awful as it sounds – at least when it comes to the enormous risks posed to supposedly safe and encrypted data.

The problem is so serious that it prompted the Canada Revenue Agency to temporarily shut down online services for taxpayers at the height of tax-filing season to ensure “the private information of Canadians remains safe and secure.”

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Scott Barlow

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW).

Follow Scott on Twitter @SBarlow_ROB

Brian Milner

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports.

Dave Morris

Dave Morris joined the Globe and Mail in 2010 as Associate Editor of Report on Business Magazine.

Carl Mortished

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K.

David Parkinson

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000.

Sean Silcoff

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine.

About ROB Insight

Presenting a selection of exclusive analysis from Report on Business and Reuters Breakingviews.

Reuters Breakingviews delivers agenda-setting financial insight. Every day, a global team of 30 correspondents comments on the big financial stories as they break.

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