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3 words that drove U.S. stocks to record highs: ‘Await more evidence’ Add to ...

These are stories Report on Business is following Wednesday, Sept. 18, 2013.

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Fed holds firm
The Federal Reserve chose today to do absolutely nothing, a decision that buoyed investors and drove U.S. stock prices to record highs.

Everyone had believed that the U.S. central bank would announce plans to cut back on its massive asset-buying program, known as quantitative easing or QE, but chairman Ben Bernanke held the line instead, The Globe and Mail’s Kevin Carmichael reports.

The Fed has been buying $85-billion (U.S.) a month in assets to help bolster the economy and ease unemployment, still stubbornly high five years after the onset of the financial crisis.

Investors, expecting the central bank to pare those monthly purchases to about $75-billion, have been on edge, not wanting the Fed to go too far too fast lest such a move impair the recovery and hurt the markets.

They got more than they bargained for when the Federal Open Market Committee, the central bank’s policy-making group, chose not to act, putting off a decision to a later day and driving up the S&P 500, the Dow Jones industrial average and Toronto’s S&P/TSX composite.

“Taking into account the extent of federal fiscal retrenchment, the committee sees the improvement in economic activity and labour market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy,” the central bank said.

“However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

The S&P 500 gained 1.2 per cent and the Dow almost 1 per cent, both hitting fresh highs, while the Toronto market climbed 0.8 per cent.

"The market got a huge sugar rush," said Kit Juckes, the chief of foreign exchange at Société Générale.

"On the downside we are going to have to do it all over again soon. The sooner taper starts the sooner the world can move on. But, for now, bad for the dollar, good for risk."

Fed policy makers also slightly scaled back their economic outlook for the year, though they said some indicators of the jobs market had improved.

“Against a backdrop of a gradually declining unemployment rate and limited inflation pressures, we expect the Fed to start to taper its monthly bond purchase program with an eye to ending the program in the spring of 2014,” said assistant chief economist Dawn Desjardins of Royal Bank of Canada.

“The Fed funds rate target will, however, likely remain in the current range of 0.00 per cent to 0.25 per cent until 2015, at which time both the unemployment and inflation rates will closer to the thresholds set out by policy makers.”

Canada on the rebound, Poloz says
Bank of Canada Governor Stephen Poloz beat his U.S. counterpart to the podium today, telling a Vancouver audience that Canada is on its "way home" to more natural economic growth as central banks prepare to pull back from nearly six years of remarkably low interest rates.

Making just his second public speech since taking over from Mark Carney in June, Mr. Poloz said the key pieces of a more normal and self-sustaining economy are falling into place, The Globe and Mail's Barrie McKenna reports.

“We are now close to the tipping point from improving confidence into expanding capacity,” Mr. Poloz said in notes prepared for a speech to members of the Vancouver Board of Trade.

Most economists don’t expect the Bank of Canada to start raising its key overnight rate -- fixed at 1 per cent since September 2010 -- until late 2014 or even 2015.

But the only hint from Mr. Poloz on the timing of eventual higher rates here came when he said the economy can support much stronger activity “without stoking inflation,” given the slack in the labour market. That suggests, the bank could be on hold for some time.

BlackBerry to shed more jobs
BlackBerry Ltd., the embattled smartphone maker now on the auction block, is poised to cut up to 40 per cent of its work force by the end of this year, The Wall Street Journal reports.

Several thousand of its employees will probably be affected, the news organization said, citing sources.

Layoffs will come across all of BlackBerry’s operations, and will be staggered.

This comes amid fierce competition with the likes of Apple Inc. and its wildly popular iPhone, the Samsung Galaxy and smartphones using Google Inc.’s dominant Android system.

BlackBerry is now in the midst of an auction for all or part of the Canadian company, which once ruled its industry but whose market share has eroded dramatically.

The company reports its latest quarterly results next week.

“It suggests that the company is finding few strategic options for many of its component pieces and any plans to refashion itself will be as a much smaller organization,” said principal analyst Charles Golvin of Forrester Research.

A spokesman for the company would not comment on the report, thought said that "as previously stated, we are in the second phase of our transformation plan. Organizational moves will continue to occur to ensure we have the right people in the right roles to drive new opportunities in mobile computing.”

The Wall Street Journal report came as BlackBerry launched a new flagship smartphone, the Z30, The Globe and Mail's Omar El Akkad reports.

The touchscreen device comes with myriad new features, including stereo speakers, a 1.7-gigahertz processor and “priority hub” software that learns a user’s most important contacts and conversations and collects them in one place.

BlackBerry will begin rolling out the Z30 next week through its global carrier partners, starting in the United Kingdom and the Middle East and expanding to other markets in the lead-up to the holiday season.

The Z30 “rounds out the BlackBerry 10 portfolio and is designed for people looking for a smartphone that excels at communications, messaging and productivity,” said Carlo Chiarello, executive vice-president for products at BlackBerry.

Apple launches new operating system
Users of everything "i" get their hands on a new operating system today with a big overhaul of Apple Inc.'s iOS.

The Financial Times reports that iOS7 will be "more radical, with a new overall look and feel," which some believe could spark an initial "backlash" among users of iPhones and iPads.

The revamped iOS7 comes just after the introduction of two new iPhones earlier this month, the 5S and the lower-end 5C.

Starbucks pleads for no guns
Starbucks Corp. is asking its customers in the United States not to bring guns into its coffee shops.

Chief executive officer Howard Schultz, however, stressed in an open letter last night that he’s not banning firearms.

“Today we are respectfully requesting that customers no longer bring firearms into our stores or outdoor seating areas – even in states where ‘open carry’ is permitted – unless they are authorized law enforcement personnel,” Mr. Schultz said in the letter posted on the chain’s website.

“This is a request and not an outright ban,” he added.

“Why? Because we want to give responsible gun owners the chance to respect our request – and also because enforcing a ban would potentially require our partners to confront armed customers, and this is not a role I am comfortable asking Starbucks partners to take on.”

Mr. Schultz said Starbucks has been “thrust unwillingly” into the gun control debate given its policy to allow its customers to simply follow firearm restrictions in various jurisdictions.

Thus the reference to “open carry,” the phrase for state laws that allow Americans to open carry guns.

“We have chosen this approach because we believe our store partners should not be put in the uncomfortable position of requiring customers to disarm or leave our stores,” Mr. Schultz said.

“We believe that gun policy should be addressed by government and law enforcement – not by Starbucks and our store partners.”

He bemoaned the fact, however, that the gun control debate has become “increasingly uncivil and, in some cases, even threatening,” given recent events by the pro forces in what Mr. Schultz said were “misleading called ‘Starbucks Appreciation Days’ that disingenuously portray Starbucks as a champion of ‘open carry.’”

Today, an organization known as Moms Demand Action For Gun Sense In America took credit for pressuring the coffee chain into acting, citing a campaign it launched in July.

“This is a huge win for American moms who fought for this policy change, which will make Starbucks customers safer,” the founder of the group, Shannon Watts, said in a statement.

“Because Starbucks is a business icon, this policy change represents a sea change in American culture, which is finally shifting away from guns in public places.”

FedEx profit climbs
FedEx Corp. gave the markets an upbeat view today, with stronger first-quarter profit and a forecast that it still believes it will meet its earlier projections despite the uncertain economic outlook.

FedEx profit climbed to $489-million (U.S.) or $1.53 a share from $459-million or $1.45 a year earlier, while revenue increased by 2 per cent to $11-billion.

The global courier also held to its outlook for full-year better earnings per share to the tune of 7 per cent to 13 per cent, depending on fuel prices, projected U.S. economic growth of 2.1 per cent and forecast global growth of 2.6 per cent.

"FedEx Express remains focused on reducing costs while facing challenging global economic conditions,” said chief executive officer Frederick Smith.

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