These are stories Report on Business is following Thursday, April 25, 2013.
Predicting the markets
A new academic study suggests Google searches may signal which way the stock market will head.
The bottom line in the article published today is that surges in Google searches for financial terms will precede market drops, while a decline in searches points to stocks climbing.
The findings of the British and American researchers could help trading strategies.
“We suggest that within the time period we investigate, Google Trends data did not only reflect the current state of the stock markets but may have also been able to anticipate certain future trends,” they said in the piece published in the journal Scientific Reports.
“Our findings are consistent with the intriguing proposal that notable drops in the financial market are preceded by periods of investor concern,” said Tobias Preis of the Warwick Business School and Helen Susannah Moat and H. Eugene Stanley of Boston University.
“In such periods, investors may search for more information about the market, before eventually deciding to buy or sell. Our results suggest that, following this logic, during the period 2004 to 2011 Google Trends search query volumes for certain terms could have been used in the construction of profitable trading strategies.”
The researchers looked at 98 search terms, using a hypothetical investment strategy.
“Our empirical results so far are consistent with a two part hypothesis: namely that key increases in the price of the [Dow Jones industrial average] were preceded by a decrease in search volume for certain financially related terms, and conversely, that key decreases in the price of the DJIA were preceded by an increase in search volume for certain financially related terms,” they said.
“However, our trading strategy can be decomposed into two strategy components: one in which a decrease in search volume prompts us to buy (or take a long position) and one in which an increase in search volume prompts us to sell (or take a short position).”
The researchers noted that strategies based on U.S. Google searchers succeed more than those based on worldwide use, presumably because of a greater proportion of stock traders on American markets who use the Internet.
Britain's economy picks up slightly
As one observer put it today, the difference between no growth and low growth is “fairly trivial.”
As The Globe and Mail’s Eric Reguly reports, Britain managed to eke out first-quarter economic growth of 0.3 per cent, according to the latest measure from the Office of National Statistics, thus avoiding what would have been its third recession in five years.
That’s good news for the government, given that markets had feared the worst, but it’s no great shakes.
It highlights the troubles of this post-crisis era, particularly in Europe, parts of which are hobbled by recession and staggeringly high unemployment.
A new reading today in Spain, for example, showed unemployment at a record 27.2 per cent, with more than 6 million people out of work.
“It’s certainly nice to avoid a triple-dip recession although the difference between ‘no growth’ and ‘low growth’ is fairly trivial in reality,” said Guy Foster, the head of portfolio strategy at Brewin Dolphin.
“Consumption has been weighed down by deleveraging as households continue to pay down mortgage debt and boost savings in preference to spending,” he added in a research note.
- U.K. dodges triple-dip recession, but Spain unemployment tops 6 million
- Linda Nazareth's Economy Lab: Population drop in Spain a bad omen for Europe
Potash gives up on ICL
Not that it was going to win the fight, but Potash Corp. of Saskatchewan has officially abandoned its quest for Israel Chemicals Ltd.
Still, as The Globe and Mail’s Pav Jordan writes, things are looking up for the world’s biggest fertilizer company.
Political opposition to what would have been a huge takeover of ICL sent Potash Corp. packing, ironically just like BHP Billiton was sent packing in 2010 when it battled for control of the Canadian company.
Potash Corp. today also posted a first-quarter profit of $556-million (U.S.) or 63 cents a share, topping the $491-million or 56 cents of a year earlier.
Chief executive officer Bill Doyle was optimistic as he released the report:
“We had significant growth in our potash performance as global buyers returned to the market in earnest after taking a brief pause late in 2012. This environment enabled us to deliver earnings near the top end of our guidance and laid the foundation for what we believe will be a successful year.”
Precision Drilling profit slips
Precision Drilling Corp. posted a lower first-quarter profit today, with an earnings report that highlight the issues in Canada’s energy patch.
The company, a big provider to the industry, earned $93-million or 33 cents a share in the first quarter, compared to $111-million or 39 cents a year earlier, The Globe and Mail’s Bertrand Marotte reports.
Drilling activity slipped 23 per cent.
“North American drilling activity was down this quarter versus the prior year quarter as a result of continuing low natural gas prices, oil transportation bottlenecks resulting in regional oil price discounts, and general global economic uncertainty persisting for much of the quarter,” the Calgary-based company said.
Verizon said to eye control
Verizon Communications Inc. may be poised for a massive cash-and-stock bid that would see it gain full control of Verizon Wireless, the biggest such carrier in the United States.
Reuters reports today that Verizon has hired advisers on a potential $100-billion (U.S.) deal with Vodafone for the 45 per cent of the wireless carrier it doesn’t already hold.
Rosenberg on the loonie
David Rosenberg wants to set the record straight on why the Canadian dollar has “behaved” during the turmoil in the commodities markets.
In a note to clients of Gluskin Sheff + Associates today, the firm’s chief economists says many observers have been surprised by how the loonie, as the dollar coin is known in Canada, has held up.
There are several reasons, Mr. Rosenberg said, including the links to different economies, its fiscal outlook and the stability of the Bank of Canada.
In his words:
“First, oil and metals represent 20 per cent of Canada’s export base, not 80 per cent. Second, there are commodities that are not doing that badly, thank you very much, like natural gas and wood products – the latter are benefitting from the U.S. housing recovery. Chemicals and foodstuffs as well are a plus in a world where agriculture and farming are becoming increasingly important. And then tack on the rebound in the U.S. auto sector and keep in mind that this area is critical for Canada’s balance-of-payments situation.”
Referring to the Canadian dollar by its symbol, he added this:
“With all deference to the CAD-bear crowd, the reality is that close to half of Canada’s export base is actually doing just fine … It is hardly a total disaster just because oil and copper are well off their highs – natural gas exports are up more than 30 per cent from year-ago levels. On top of that, even as Canadians themselves seem to have become pessimistic on the loonie, foreign investors continue to see the country as a bastion of political, fiscal and central bank stability.”
The Canadian dollar, according to many observers, is projected to hover in the area of parity through next year.
- Speculative bets against Canadian dollar mount
- Shop while you can: Canadian dollar to dip to 90 cents over 5 years, BMO says
- Cross-border shopping: If Target's here, why are we going there?
U.S. Steel to lock out workers
United States Steel Corp. plans to lock out some 900 employees at its Lake Erie Works in Nanticoke, Ont., Sunday, The Globe and Mail’s Greg Keenan reports.
The company warned the United Steelworkers union under a provision that requires it to give 72 hours notice.
Workers have rejected a contract offer that their union says includes a three-year wage freeze and elimination of cost-of-living provisions.
Sears could sell more assets
Sears Canada Inc. is still looking at selling off non-strategic assets, The Globe and Mail’s Marina Strauss reports.
At the retailer’s annual meeting in Toronto today, chief executive officer Calvin McDonald said he has no plans to quit more store locations, but would certainly look if the opportunities to “create value” arose.
“We’re here to remain in Canada to trade and become a relevant retailer,” he said.
“In that there are non-strategic assets that we own today, if the opportunity is right to create value through those, we will explore those opportunities.
Apple vs. RIM
As investors focus on the declining fortunes of Apple Inc., Research In Motion Ltd. is making quiet gains on the back of strong reviews for its new BlackBerry models.
Apple shares closed just about flat yesterday after an up-and-down day driven by a first-quarter earnings report that marked the first year-over-year decline in profit in about 10 years.
The stock rose today, but that follows a rash of cuts to price targets by analysts.
That comes despite a 15-per-cent increase in its dividend unveiled with its results late Tuesday, and a boost to its stock buyback program to as much as $60-billion (U.S.).
Analysts at RBC Dominion Securities, for example, today cut their price target on Apple shares to $475 from $550.
“Bulls will point towards better capital allocation and new product launches, while bears will focus on declining gross margins and delays in new launches,” the RBC analysts said.
“We believe the stock is stuck in a trading range ($375-$425) til we witness the launches in ‘fall’ time frame.”
Apple shares have tumbled by more than 40 per cent since peaking last September at more than $700, posting a 52-week high of $705.07 and a 52-week low of $385.10, just shy of today’s mark.
RIM, which has rebranded itself as BlackBerry but whose legal name is still Research In Motion, is trying to regain its past glory, with new BB 10 models.
RIM shares closed yesterday at $14.90 on Nasdaq, up by 4 per cent, and rose up above $15 today before slipping marginally.
RIM stock, too, has bounced around, with a 52-week high of $18.32 in the U.S., but is now well above its 52-week low of $6.22.
The shares are up this week after good reviews for the new keyboard version of the latest BlackBerry. The touchscreen model has been out for a few months.
- Apple rolls out cash as profit sags, analysts cut targets
- Omar El Akkad's review: With near-perfect keyboard, Q10 a better BlackBerry than Z10
- Scott Barlow in ROB Insight (for subscribers): Four tech stocks without Apple's declining margin problem
Streetwise (for subscribers)
ROB Insight (for subscribers)
- Why Marchionne should fold Fiat into Chrysler
- Four tech stocks without Apple's declining margin problem
- Imperial Oil profit falls 21 per cent
- Shoppers Drug Mart sales grow on drug, food, cosmetics gains
- Facebook says six-month review shows privacy practices sufficient
- Colgate profit matches forecasts
- For Toronto office tenants, bidding wars increasingly common: report
- EU antitrust body seeks views on Google concessions
- Canadian Dollar / US Dollar FX Spot Rate$0.760.00(0.00%)
- Apple Inc$98.66-0.77(-0.77%)
- Precision Drilling Corp$5.95+0.08(+1.36%)
- Potash Corporation of Saskatchewan Inc$22.29-0.13(-0.58%)
- Verizon Communications Inc$56.10+0.73(+1.32%)
- United States Steel Corp$21.16+0.64(+3.12%)
- Sears Canada Inc$3.62+0.03(+0.84%)
- Updated July 22 3:59 PM EDT. Delayed by at least 15 minutes.