These are stories Report on Business is following Thursday, Nov. 14, 2013.
What they're saying
We’re getting used to the fact that Toronto’s Rob Ford is the world’s most famous mayor, making news across the globe and becoming a favourite on late-night TV.
But it says something, to the investment community anyway, when there he is, front and centre in one of the world’s leading business publications.
The Wall Street Journal today takes a look at Mr. Ford’s troubles amid the widening scandal. It’s not just that it’s a news story, it’s that the photo that graces the front page shows a troubled mayor wiping his forehead as he battles his City Hall opponents.
The business community overseas is watching, and, yes, having sport with it, though observers say the city can relax because, while a salacious story, it’s not likely to affect investment and location decisions where Toronto is concerned.
“They're talking about it, but not in terms of what it means for the currency, economy or policy,” said Kit Juckes, the chief of foreign exchange at Société Générale.
“We worry about commodities, trade, housing, etc., etc,, but the scandals affecting your politicians just give news readers something else to look at than the scandals of our own.”
Indeed, said senior market strategist Brenda Kelly of IG in London, “obviously it’s a little bit worse than the president who said he didn’t inhale, but I’m not certain that it’s going to affect any investment.”
She cited the scandals surrounding Italy’s former prime minister, Silvio Berlusconi, and how little they played into investment there.
“It’s getting great gas on Twitter, that’s for sure,” Ms. Kelly noted, however, though she added it would have been worse had Mr. Ford not admitted to having smoked crack.
There’s no question that the scandal is painting Toronto, the hub of Canadian finance, in a questionable light.
Cormex Research, for example, found an increasingly negative picture in a recent study based on 13 newspapers, social media, online news and U.S. television.
The initial coverage of the Ford scandal had a “negligible impact” in the spring, Cormex president Andrew Laing wrote in the study, but that has changed.
“The story comprises anywhere between 13 per cent in print outlets to date, to as much as 33 per cent of audience exposure on U.S. cable news,” Mr. Laing said.
“More importantly, it is affecting the city’s tone of coverage,” he added.
“Tone of coverage for Toronto has been deteriorating since we started the study 30 months ago, but it is accelerating as a result of the recent allegations. Over 22 per cent of coverage of the city to date this year has been negative in print outlets surveyed, compared to 12 per cent last year and only 3 per cent in the last six months of 2011 that we looked at.”
Mr. Ford represents 52 per cent of Toronto’s “negative print exposure,” though a terrorist story in the spring also had an impact. (As did crime stories and poor theatre reviews.)
As Mr. Laing noted, the impact is no doubt greater in the United States. But the mayor is still making waves overseas.
“U.K. politicians and celebs are not shy of a bit of controversy and our tabloids are never short of an opinion and trying to make a mountain from a molehill, but that said this really is quite a big story and the fact that he has drip-fed the truth has been particularly damning,” said Nick Dale-Lace of CMC Markets in London.
“I think although people here are aware of the story they have very little knowledge regarding who he is and what his position is and hence have no real grasp of his importance/power and because of this just view this as another political party member caught short.”
In fact, the news is far and wide.
“I was in Australia last week and in Japan earlier this week and local newspapers (Sydney Morning Herald, Nikkei, Asian edition of the WSJ) are all talking about Rob Ford,” said Charles St-Arnaud of Nomura in New York.
“I think the main reaction is disbelief that he is still clinging to his post. But I think investors see him more as a distraction than anything else.”
- Susan Krashinsky: U.S. airline Spirit invokes Ford scandal in ad campaign
- What could happen to his job if Rob Ford were a 'regular city employee'?
- Follow our ongoing coverage
Heinz shutting Canadian plant
Heinz is closing its plant in Leamington, Ont., in mid-2014, a move that will cost 740 jobs and end almost a century of ketchup making in the southern Ontario town, The Globe and Mail's Eric Atkins reports.
Heinz said today it's also shutting two other factories, in Florence, S.C., and Pocatello, Ind., and shedding a total of 1,350 North American jobs as it consolidates production of ketchup and sauces.
“Our decision to consolidate manufacturing across North America is a critical step in our plan to ensure we are operating as efficiently and effectively as possible to become more competitive in a challenging environment, and to accelerate the company’s future growth, said Heinz spokesman Michael Mullen.
Heinz was bought in June by Warren Buffett’s Berkshire Hathaway and Brazilian hedge fund 3G Capital for $28-billion (U.S.).
Heinz has three plants in Canada – the Leamington ketchup factory, a salad dressing plant in St. Marys, Ont., and a small plant in Toronto.
Five years after Lehman Bros. collapsed and plunged the world into crisis, global economies are still on the ropes.
There are pockets of hope, to be sure, but economic growth and jobs are coming in fits and starts, while monthly economic measures are volatile, at times sparking optimism, at others despair.
Unemployment, in particular, is a blight amid slow growth and a mighty effort by central banks and other policy makers to ease the plight of the millions affected.
In the European Union, where the jobless level is 11 per cent, almost 27 million people can’t find work. In the United States, where gains have unquestionably been made, unemployment is still at 7.3 per cent, and more than 11 million job seekers are still struggling.
Even in Canada, which has fared better than most and recovered all of the jobs lost to the recession, the jobless rate is 6.9 per cent, with 1.3 million people out of work.
In short, anything resembling a return to how things looked before the crisis appears not just elusive, but still far off.
Some snapshots from across the globe today:
As our European correspondent Eric Reguly reports from Rome, today’s numbers show a stalled recovery in the region.
The economy of the 17-member euro zone grew by just 0.1 per cent in the third quarter, with that of the wider 28-nation European Union only slightly better, at 0.2 per cent.
Among the major countries, the French economy contracted by 0.1 per cent, as did Italy’s. Even Germany, continental Europe’s powerhouse, eked out an expansion of just 0.3 per cent.
“Slow growth, high unemployment rates and the threat of deflation will remain unwanted features of the euro zone economy for the next little while, regardless of how many ‘the worst is behind us’ speeches are delivered by European politicians,” said senior economist Krishen Rangasamy of National Bank of Canada.
“We expect some growth in Q4, albeit not enough to prevent the zone’s GDP to contract roughly 0.4 per cent this year,” he added in a research note.
“Note that despite the end of the recession in the technical sense, the euro zone economy’s output remains 3 per cent below its 2008 [first-quarter] peak. Excluding Germany, the zone’s GDP is 5 per cent below its 2008 peak … highlighting the devastation caused by austere policies which, by the way, are slated to extend into next year.”
‘Abenomics’ was to have been Japan’s saviour. But it’s a tough slog.
Today’s report from Japan’s Cabinet Office showed the economy expanded at an annual pace of 1.9 per cent in the third quarter, far slower than the 3.8-per-cent rate in the second three months of the year.
The latest measure marks a setback for Prime Minister Shinzo Abe, whose team made the economy a priority.
This doesn’t mean Abenomics isn’t working, only that it’s a long road ahead.
“Considering that Japan’s potential growth is around 0.75 per cent, the Q3 result is still well above it,” Takuji Aida and Kiyoko Katahira of Société Générale said in a research note.
“It also shows that the Japanese economy is on the right track, boosted by ‘Abenomics’ policies.”
The incoming chief of the Federal Reserve is highlighting the economic troubles of the world’s biggest economy as she appears today at a confirmation hearing in Washington.
As our Washington correspondent Kevin Carmichael writes, Janet Yellen spelled it out for the Senate banking committee: The U.S. economy has come far, but has far further to go.
“Unemployment is down from a peak of 10 per cent, but at 7.3 per cent in October, it is still too high, reflecting a labour market and economy performing far short of their potential,” Ms. Yellen says in prepared remarks to the panel.
Last week, U.S. government departments showed more than 200,000 jobs were created in October, while the economy expanded at a decent pace of 2.8 per cent in the third quarter.
But, of course, budget issues and squabbling between the Democrats and Republicans still loom large after the government shutdown and temporary agreement.
Canada is still running a trade deficit with the rest of the world, though far smaller in September compared to August.
Canadian exports climbed 1.8 per cent in September while imports rose just 0.2 per cent, Statistics Canada said today, slimming the deficit to $435-million from August’s $1.1-billion.
Energy exports led the way.
Exports from Canada to its biggest trading partner, the United States, rose 4.2 per cent, largely on exports, while those to other countries gained by a far greater 4.2 per cent.
“On the surface, today’s trade number provides somewhat better news for the Canadian economy,” said chief economist Douglas Porter of BMO Nesbitt Burns.
“The downside is that trade gains continue to have an outsized reliance on energy (and domestic oil prices have slipped worryingly again in recent weeks), and net trade was still a heavy drag on growth for all of Q3 due to weakness in the first two months of the quarter.”
Exports, of course, are key to Canada’s economy, and that they’re lagging is an issue for the Bank of Canada, among others.
“Canada’s economy has yet to rotate away from domestic-led growth and toward exports,” BMO Nesbitt Burns says in a new forecast.
“But resilient consumers and homebuyers, along with an upturn in energy production, should fuel growth of 2 per cent in the second half of the year, close to potential.”
- Eric Reguly: European recovery falters as German economy slows, French GDP falls
- Kevin Carmichael: Yellen backs Fed's low rate policies, says economy 'not there yet'
- Kevin Carmichael: U.S. economic headwinds ease, but Washington still a trouble spot
- Eric Reguly: Germany's export success failing to ripple over to its EU partners
- Linda Nazareth in Economy Lab: Canada's jobs recovery tilts toward the low earners
- Higher exports help slash Canada's September trade deficit
- U.S. trade gap widens as imports approach one-year high
- Paul Waldie: Carney stands by forward guidance policy
- ECB takes 'peashooter to a war'
- Eric Reguly: ECB rate cut leaves Draghi in bind in bid to stave off deflation
- Euro zone jobless rate holds at record high
Ottawa cracks down
The federal government is cracking down on telecom carriers that hoard valuable spectrum licences as an industry battle heats up over the future of those publicly-owned assets, The Globe and Mail's Rita Trichur reports.
Industry Minister James Moore announced today that Ottawa will reclaim spectrum in the 2300 and 3500 megahertz bands from carriers that have held those licences for years but failed to use them.
Spectrum refers to the invisible radio waves that telecoms use to provide a variety of services, including cellphone and Internet access for consumers. Those finite resources are owned by the Canadian public and controlled by the government on their behalf.
Mr. Moore’s announcement signals the Conservative government will no longer turn a blind eye to carriers that sit on fallow spectrum to the detriment of rural consumers – a move that is bound to resonate with a huge swath of the party’s voter base.
RBC sees charge
Royal Bank of Canada says it anticipates booking a charge of about $160-million in its insurance unit, The Globe and Mail's Bertrand Marotte reports.
The bank said today that the charge - $118-million after-tax - is the result of proposed federal legislation that would have an impact on policyholders’ tax treatment of certain types of individual life-insurance policies.
The bill was tabled in the House of Commons for first reading on Oct. 22 and the charge is based on current estimates and could change, RBC said. Any changes will be reflected in the results of the fourth quarter ending Oct. 31.
Under Canadian International Financial Reporting Standards, the existing value of the expected profit for a life policy is booked at the time of sale, but after that changes in assumptions resulting from updated experience or new regulations having an impact on life-insurance policies are recognized in net income as they occur, the bank said.
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