Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Week In Review

Exports and housing: Stephen Poloz's 'two-edged sword' Add to ...

These are stories Report on Business followed this week.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

The two-edged sword
Governor Stephen Poloz surprised the markets mid-week as the Bank of Canada abandoned its long-held signal that the next move in interest rates will be up, putting the central bank stuck between something of a rock and a hard place.

Or, as Royal Bank of Canada put it, between the export market and the housing market, the former weak and the latter red hot.

To recap, as The Globe and Mail's Barrie McKenna reports, Mr. Poloz and his colleagues released their rate announcement and monetary policy report on Wednesday, cutting their economic forecasts and dropping what had been language, known as their bias, that suggested an increase in their benchmark overnight rate somewhere down the road.

They also warned of the risk, albeit an extreme one, of a correction in property values, which they described as stretched in some areas. While Canadians are indeed taming their big appetite for debt, the central bank nonetheless noted the "renewed momentum" in the housing market.

As The Globe and Mail's Tara Perkins has chronicled, the housing market rebounded smartly after the slump deliberately sparked by Finance Minister Jim Flaherty in the summer of 2012 as he sought to head off a bubble with another round of mortgage restrictions.

Economists had expected a rate increase late next year, but, given the central bank's latest statement, have now pushed that out to early 2015.

"Today's [monetary policy report] highlights the bank's growing anxiety about the slow pickup in global demand for Canadian exports and supports the case for the current, highly stimulative monetary policy stance to remain in place," said assistant chief economist Dawn Desjardins.

"However, the recent rebound in housing market activity highlights that the persistence of a low interest rate environment is a two-edged sword supporting housing affordability even as prices rise," Ms. Desjardins added in a research note.

"The decision to remove the bias statement (albeit a weak one) raises the prospect of the recent run-up in housing market activity continuing as households and businesses expect the extraordinarily low interest rate environment to persist even longer."

BBM a hit
If you waited hours to use BBM on your iPhone or Android device, you know what I'm talking about: BlackBerry Ltd. has a hit on its hands.

Unfortunately I'm not talking about the Z10, but rather BlackBerry's hugely popular chat app and free service, which until this week was restricted to BlackBerry users.

After an earlier problem, BlackBerry restarted its rollout of BBM for iPhones and Android-powered wireless devices. Within 24 hours, there were more than 10 million downloads, with millions of people in an online lineup waiting to use it.

Not only did previous BBM users return to the fold, but, as assistant marketing professor Tandy Thomas of the Queen's School of Business put it, other who were lured by the "forbidden fruit" nature of what is deemed a superior chat service.

“There’s no secret that it’s a good product and users have raved about it for years and years,” she said. “Suddenly it’s open to everyone.”

As The Globe and Mail's Sean Silcoff reports, though, it's not clear how BlackBerry will make money off the widespread use of BBM.

Others in the industry have jumped ahead in instant messaging, though, as Ms. Thomas noted, it's an "interesting marketing/PR move."

BlackBerry is in the midst of an auction for all or part of the company, and has signed a letter of intent to be taken private for $4.7-billion (U.S.) by a consortium led by Canada's Fairfax Holdings Ltd.

Several other potential suitors are also interested, including BlackBerry co-founders Mike Lazaridis and Doug Fregin, private equity firm Cerberus, and former Apple Inc. chief John Sculley.

The Maple Leaf 'bake sale'
Maple Leaf Foods Inc. is - sorry for this one - slicing off its Canada Bread Co. business. Which raises the prospect of a breakup of Canada's biggest food processor.

As The Globe and Mail's Eric and Atkins report, Maple Leaf announced plans Monday to shed its 90-per-cent stake in Canada Bread.

But at the same time, potential suitors are interested in its meat division, which boasts Schneiders and Shopsy's, which the company has to date been loathe to sell because it believes such a deal would undervalue the business in the midst of a five-year revamp.

"We're in the process of looking for alternatives for our bakery business," said chief executive officer Michael McCain.

"That is absolutely not the case in our protein [meat] business."

Maple Leaf, which reports quarterly results next week, could still decide to keep the bakery business if it can't fetch the price it wants, but analysts believe a sale is likely.

"We view a sale as the very likely outcome, and expect this prize asset to fetch a premium multiple on trailing earnings that do not reflect the upside from recent capital investment," said analyst Mark Petrie of CIBC World Markets.

"The sale of CBY is surprising to us, and marks the second major divestiture for MFI in the last two months," he added, referring to Canada Bread and Maple Leaf by their stock symbols.

"But with this plan in motion, we believe it sets the stage for a sale of the prepared meats business, potentially within the next six to eight months, ahead of 2014's execution risk."

The week in Business Briefing

The week in Streetwise (for subscribers)

The week in Economy Lab

The week in ROB Insight (for subscribers)

Required reading
A hefty drop in corn prices has farmers looking for ways to cut costs, weighing carefully purchases of new machinery and renegotiating land leases signed when prices were high, Eric Atkins reports.

J. Michael Evans, the most senior Canadian on Wall Street, is retiring from the firm that some believed he had a chance to lead, Joanna Slater reports from New York.

Amid fierce competition and a product line too profitable to mess with, Apple is betting on a strategy. Omar El Akkad looks at how the tech giant is selling hardware at a premium and giving software away free.

Spain has emerged from more than two years of recession. But, our European correspondent Eric Reguly writes, the gain was so weak that the jobless rate isn't expected to fall to pre-recession levels for years.

Companies operating in the oil sands face new pressure to assess and disclose long-term risks to the value of their reserves amid a global effort to address climate change, Shawn McCarthy reports.

 
  • BBRY-Q
  • MFI-T
  • CBY-T
  • TSX-I
  • SPX-I
  • DJIA-I
  • CADUSD-FX
  • GC-FT
  • CL-FT
Live Discussion of BBRY on StockTwits
More Discussion on BBRY-Q
Live Discussion of MFI on StockTwits
More Discussion on MFI-T
Live Discussion of CBY on StockTwits
More Discussion on CBY-T
Live Discussion of TSX on StockTwits
More Discussion on TSX-I
Live Discussion of SPX on StockTwits
More Discussion on SPX-I
Live Discussion of DJIA on StockTwits
More Discussion on DJIA-I
Live Discussion of CADUSD on StockTwits
More Discussion on CADUSD-FX
Live Discussion of GC on StockTwits
More Discussion on GC-FT
Live Discussion of CL on StockTwits
More Discussion on CL-FT

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories