These are stories Report on Business is following Monday, June 23, 2014.
Squeezing the shorts
The Canadian dollar powered through the 93-cent mark today, following on Friday’s run and squeezing speculators who have been betting against the currency.
This all began Friday after Statistics Canada’s report on consumer prices showed the annual pace of inflation speeding up to 2.3 per cent in May, bringing into question the Bank of Canada’s neutral stance on interest rates.
The bottom line is that while the central bank is giving no signal on where its benchmark rate is headed, or when, suggestions of a pickup in inflation raise the bets on a hike, though no one sees that happening any time soon.
For its part, the Bank of Canada believes this is fleeting, driven by temporary factors.
But building on the inflation report today was a better-than-expected reading of China’s factory sector that may suggest it has bottomed, a good sign for commodities and, thus, commodity-linked currencies like the Canadian dollar.
The loonie, as Canada’s dollar coin is known, touched the 93-cent level on Friday after the inflation report, and continued its winning ways today, striking as high as 93.30 cents U.S. before pulling back to sit at 93.24 cents by late afternoon.
“If China’s growing at a faster-than-anticipated pace, that’s likely good for commodities,” said chief currency strategist Camilla Sutton of Bank of Nova Scotia, noting the currency is now at a five-month high.
What does that mean going forward?
“Obviously the upward trend in CAD is strong, but I do think there are limits,” said Ms. Sutton, referring to the currency by its symbol.
Part of the fallout, Ms. Sutton said, will “absolutely” be on speculators who have stubbornly held to their bets against the currency.
“Some of those must be capitulating at this point,” she said.
The last report from the U.S. Commodities Futures Trading Commission, released on Friday but based on where things stood last Tuesday, showed short positions in the loonie easing only slightly, still holding at almost $2-billion.
“CAD’s move is the striking one, having started with CPI and retail sales Friday and me, at least napping,” Kit Juckes, the chief of foreign exchange at Société Générale, said today.
He was referring to the Statistics Canada consumer price index report and a separate one the same day showing Canadian shoppers picking up the pace.
“Last week’s CFTC data show a small fall in CAD shorts, a fall that will have continued in the week up to tomorrow, but all the other ‘risk-on’ currencies in the CFTC data are longs,” Mr. Juckes said, citing the Australian, New Zealand, British and Mexican currencies.
“There’s room for the squeeze to go further, methinks,” he added.
His colleague at Société Générale, senior currency strategist Sébastien Galy, said the “search for yield” is generally supporting commodity-linked currencies.
“With Canadian data recently more encouraging and housing not yet in consolidation, the break of [the U.S. dollar to the loonie] below its support of the past few months is leading a squeeze on bearish CAD positioning.”
- China, Japan manufacturing grows again, euro zone falters
- David Parkinson in ROB Insight (for subscribers): Poloz can no longer play down inflation fears
- Inflation tops Bank of Canada target, drives loonie near 93 cents
- Canadian April retail sales rise to record high
SNC-Lavalin in deal
Canada’s SNC-Lavalin Group Inc., on the rebound from some troubled times, has struck a $2-billion deal for a major oil and gas services company.
SNC-Lavalin is offering £9.35, or $17.13, a share for Britain's Kentz Corp. under the deal unveiled today, The Globe and Mail's Jacqueline Nelson reports.
“The proposed acquisition of Kentz is fully aligned with SNC-Lavalin’s strategy of becoming a global Tier-1 engineering and construction (E&C) services firm,” the Montreal-based company said in a statement.
“The addition of Kentz’s capabilities will make SNC-Lavalin a leading global E&C player in the oil and gas sector, with a greater presence in key growth regions, including the Middle East, North America and Asia Pacific, with a significant presence in Australia,” it added.
“The acquisition also meets the strategic priority of balancing the company’s risk profile by significantly raising the percentage of revenues it derives from services.”
Kentz employs some 14,500 people in 36 countries.
CPPIB in India deal
The Canada Pension Plan Investment Board has agreed to invest $332-million (U.S.) in a subsidiary of India’s largest engineering and construction company, saying it sees India’s infrastructure sector as a long-term growth market.
CPPIB said today it will make its first investment in India’s infrastructure sector with an initial $166-million investment in L&T Infrastructure Development Projects Ltd., a subsidiary of engineering firm Larsen & Toubro Ltd. that develops highways and other major infrastructure assets. CPPIB has committed to a second investment of $166-million in 12 months, The Globe and Mail's Janet McFarland reports.
The pension fund manager, which invests $219-billion in assets for the Canada Pension Plan, has increasingly been making investments in emerging markets.
Shares of Lululemon Athletica Inc. rallied today after word that Chip Wilson is poised to go to the mat to shake up the company he founded.
As The Globe and Mail’s Marina Strauss reports, Mr. Wilson, who was unsuccessful in his attempt to unseat the chairman and another director, is now considering his options for his 28-per-cent stake.
Most importantly, he’s working with Goldman Sachs Group Inc. on those options, which could include anything from selling his interest to mounting a takeover bid with the aid of a private-equity firm.
Streetwise (for subscribers)
ROB Insight (for subscribers)
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- Investors shrug as BNP faces potential $9-billion fine from U.S.
- American Apparel board rejects demand to meet Charney
- Augusta agrees to sweetened HudBay takeover offer
- Honda, others recall another 2.9 million vehicles over air bag flaw
- Wisconsin Energy buying Integrys for $5.7-billion