These are stories Report on Business is following Tuesday, Oct. 22, 2013.
Concerns over frothy house prices are spreading around the world, highlighted today by the latest measure in China.
Five years after the financial crisis, there are now concerns over inflated property values in Britain, Germany, China and Canada.
In Britain, the fears centre on the London area, where, according to Reuters, the year-over-year jump in prices is now almost 14 per cent.
Just yesterday, Germany’s central bank warned that “housing prices in German cities have been rising so strongly since 2010 that a possible overvaluation cannot be ruled out.”
According to the Bundesbank, house and apartment prices have gained more than 8 per cent in the past three years. In cities, prices may be up by 10 per cent, the central bank said, and by as much as 20 per cent in “the attractive large cities.”
It added it expects no decline in the short-term.
“The price hikes are being driven by the strong demand for property, which has been greater than would generally be expected during a period of economic recovery,” the central bank said.
“In addition to the improved economic outlook, the Bundesbank says that the impact of the financial and sovereign debt crisis has also played a role in this development,” it added.
“The German property market, for example, which had thus far been calm became more attractive to international investors after the property market price bubble in the U.S. and in a number of European housing markets burst.”
Of course, interest rates are also exceptionally low as the European Central Bank sets policy for the entire 17-member euro zone, which, as a group, has been hobbled by a debt crisis.
Today, numbers from China suggest trouble amid a fight by authorities to keep the property market in check. According to the National Bureau of Statistics of China, new home sales climbed in 69 cities and dipped in one, rising over all at 9.1 per cent in September from a year earlier, with the fastest at almost 21 per cent.
In the resale market, the fastest pace was almost 18 per cent.
“China has massive [foreign exchange] reserves so the issue is not likely to be one of external imbalances impinging upon the economy’s success,” said Derek Holt and Dov Zigler of Bank of Nova Scotia.
“Rather, internal imbalances via a runaway domestic credit and property price cycle are what could be significantly destabilizing,” they said in a research note.
“That prompts us to be cautious toward views that China is out of the woods simply because Q3 growth accelerated by a few tenths to the 7.8 per cent mark.”
In Canada, of course, the government has moved repeatedly to prevent a bubble, though the impact of its latest move, of more than a year ago now, has faded.
To some observers, Canadian prices are among the most inflated in the world, though most economists believe the market is in for a soft landing.
Credit Suisse, however, warned just last week that, where Canada is concerned, “it is not clear whether the final landing will be hard or soft.”
- China September home price growth adds to government dilemma
- Carl Mortished in ROB Insight (for subscribers): Skyrocketing London real estate lifts IPO
- No housing bubble, but Bank of England says it is watching closely
- Tara Perkins: September home sales soar
- Credit Suisse on Canada’s housing market: ‘Not clear whether the final landing will be hard or soft’
- Bundesbank on German property values
U.S. jobs report disappoints
American employers add 148,000 jobs in September, a disappointing figure that could persuade the Federal Reserve to leave its aggressive stimulus policy in place until next year, The Globe and Mail's Kevin Carmichael writes.
Wall Street analysts already were skeptical the Fed would alter its quantitative-easing program this year because of the partial government shutdown, which ended last week after 16 days.
The latest batch of hiring data will harden those expectations, though it's worth noting the jobless rate dipped to 7.2 per cent.
The government shutdown undeniably hurt economic growth, although the extent to which it weighed on the recovery remains to be seen. The weaker-than-expected hiring number from September will deepen worries about the effect of the shutdown because it appears the economy had little momentum heading into October.
- Kevin Carmichael: U.S. job growth disappoints, adds fodder to keep stimulus in place
- Tavia Grant: Report overturns conventional view of Canadian job markets
Analysts are clearly divided over the the outlook for shares of Netflix Inc.
(Everyone else is doing this so me, too: Is the stock the next black, or a house of cards?)
The stock climbed, then sank by midday today, on the heels of strong subscriber growth in the third quarter.
After markets closed yesterday, Netflix posted a jump in third-quarter profit and revenue, and gains in the number of subscribers to 1.3 million in the United States and 1.4 million in other markets.
The Internet video concern, which now boasts more than 40 million users in total, unveiled a gain in profit to $32-million or 52 cents a share, from $8-million or 13 cents a year earlier, and in revenue to $701-million from $556-million.
It also projected its members would number up to 33.5 million in the U.S. and as many as 10.9 million in other countries in the fourth quarter.
All of which raises questions about where the stock, which has gained dramatically over the past year, could be headed.
As The Globe and Mail’s Steve Ladurantaye reports, even chief executive officer Reed Hastings is twitchy when people talk about the share price.
“Every time I read a story about how Netflix is the highest appreciating stock in the S&P 500 it worries me,” he told analysts yesterday.
“We have a sense of momentum investors driving the stock price more than we might normally.”
Some analysts are twitchy, too, wondering if Netflix can keep up that momentum. Others, however, believe the company’s on track and will see further gains.
As The Globe and Mail’s Darcy Keith notes, at least 12 brokerages boosted their price targets after the earnings report.
Royal Bank of Canada analysts Mark Mahaney and David Bank hiked their price target on Netflix shares to $440 from $300, citing “a variety of high-level factors at play – strong execution (especially in international markets), rising customer satisfaction trends, a larger installed base in terms of Internet-connected devices, the lack (so far) of a compelling direct alternative in almost every market, and the positive impact of original content series.”
In terms of its shares: “We believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t currently reflected in its stock price.”
On the other side of the ledger, Jefferies & Co. analysts warned that “we find it difficult to justify this valuation given the risks of rising content costs, heavy competition and the Likelihood NFLX may need to raise additional capital to fund operations.
According to Reuters, Jefferies increased its price target by $55 to $215.
- Darcy Keith in Inside the Market (for subscribers): Today's analyst upgrades and downgrades
- Steve Ladurantaye: Netflix chief sounds cautious warning after second-quarter earnings surge
Retail sales edge up
Canadian shoppers are still digging deeper. A little bit, at least.
Retail sales across the country inched up 0.2 per cent in August, Statistics Canada said today, pushed partly by food and beverage stores.
Six of 11 groups measured – or 56 per cent of all studied – posted gaines.
Grocery sales climbed 1.1 per cent, and beer, wine and liquor sales 2.1 per cent.
Clothing and accessories shops also chalked up gains.
On tap today
It’s all about tablets today.
As The Globe and Mail’s Omar El Akkad reports, Apple Inc. is poised to unveil the latest in its iPad line, while Nokia Corp. today took the wraps off its first tablet.
Microsoft Corp., which is acquiring Nokia’s handset operations, also started sell its Surface 2 and Surface Pro 2 devices today.
- Omar El Akkad: What to expect from Apple’s iPad announcment
- Nokia launches tablet to join Microsoft gadget push
- BlackBerry restarts rollout of BBM for iPhone, Android
Streetwise (for subscribers)
ROB Insight (for subscribers)
- Saks reaches truce with shareholders who objected to HBC takeover
- BHP raises iron ore target as Australian expansions accelerate
- Whirlpool profit more than doubles due to cost cuts