These are stories Report on Business is following Tuesday, Feb. 4, 2014.
North American stocks recovered some of the ground lost in yesterday’s rout, while European markets largely came off their lows today. But analysts are wary.
“It’s turnaround Tuesday, so the FTSE has managed to trim some of its losses by bouncing mildly off its intraday lows,” IG’s chief market strategist Brenda Kelly said of the London market.
“Given that we saw a similar bounce in a predominantly risk-off environment this time last week, investors now need only ask one question: Do they feel lucky?”
Tokyo's Nikkei and Hong Kong's Hang Seng tumbled, while, in Europe, London's FTSE 100 and Germany's DAX slipped. The Paris CAC 40, however, gained.
As did the S&P 500 and Dow Jones industrial average, though Toronto's S&P/TSX composite was little changed.
“We’ve seen a predominantly weaker session in Europe today, not altogether surprising given yesterday’s heavy sell-off in U.S. markets, but we have managed to close well off the lows of the day even venturing into positive territory at one point, as some buying interest returned to the market after several days of losses,” said chief analyst Michael Hewson of CMC Markets in London.
As The Globe and Mail’s Tim Shufelt reports, markets tumbled yesterday with the help of a weak reading on the U.S. manufacturing sector, the S&P 500 sinking by 2.3 per cent and Toronto’s S&P/TSX composite losing 1.5 per cent. This comes amid a global backdrop of troubles in emerging markets and ongoing concerns related to U.S. fiscal issues.
Here’s what analysts are saying today after an ugly start to 2014:
“So, we’re just over a month into 2014 and there’s a sea of red on the global market leaderboard. Japan, which was the star last year, has quickly shed 14 per cent; France, Germany and the U.K. are down almost 5 per cent each; while the S&P 500 has given back almost 6 per cent. Interestingly, the TSX is the relative outperformer, down only a modest 1 per cent after largely watching last year’s big rally from the sidelines.” Robert Kavcic, senior economist, BMO Nesbitt Burns
“The recent sell-off both in emerging and developed equities has a wide range of drivers, including worries about Fed tapering and the perceived risks of a ‘hard landing’ in China. Nonetheless, our sense is that the worst of the markets fears are overdone and that equities will recover and rally further over the remainder of the year.” Julian Jessop, chief global economist, Capital Economics
“Stocks are offside, but holding up relatively well considering the massive selloff in Japan overnight as fears over emerging-market exposure echoed around the world. Traders are treading lightly, not wanting to get stung if there is a sudden exodus from equities into cash or bonds. The U.S. debt-ceiling deadline is approaching again and, as on the past two occasions, dealers are anticipating downgrade speculation and a slide in stocks.” David Madden, market analyst, IG
“Traders have clearly been very risk averse so far this year, with capital flight in emerging markets, a disappointing start to earnings season and poor economic data for the months of December and January all contributing. That said, I don’t think this is the start of a longer term bearish move in the markets as none of the above are likely to be major issues in the months to come. Things are likely to calm down in emerging markets, although I imagine there will be a few more smaller flare-ups this year, corporate earnings over the last week have shown a significant improvement and the poor data is largely driven by unusually poor weather in the U.S. and is therefore only likely to be temporary. Investors know all this, which is why I think all of these are simply being used as an excuse to lock in profits following such an incredible year for equity markets and allow the long awaited correction to happen.” Craig Erlam, market analyst, Alpari
“There is certainly an argument for thinking that the recent cold weather in the U.S. may well have affected yesterday’s numbers, and while this recent data weakness is worrying it’s also not altogether surprising. The biggest concern could be if these numbers mark the beginning of a lower rate of trend growth for the U.S. economy, which would spell trouble for valuations given recent complacency in the recent run up in stock markets, but for now it’s probably too early to tell. In any case investors don’t appear in any mood to wait to find out.” CMC's Mr. Hewson
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Microsoft taps Nadella
Microsoft Corp. today tapped Satya Nadella as its chief executive officer to succeed the retiring Steve Ballmer.
Mr. Nadella, who has been with the tech giant since 1992 and most recently headed up its cloud computing business, had been expected to get the job.
He takes over immediately, Microsoft said today.
“The opportunity ahead for Microsoft is vast, but to seize it, we must focus clearly, move faster and continue to transform,” Mr. Nadella said in a statement.
“A big part of my job is to accelerate our ability to bring innovative products to our customers more quickly."
At the same time, Bill Gates is stepping away from his chairman’s role to become “technology advisor,” to be replaced by director John Thompson.
Mr. Ballmer, who unveiled his plans to retire in the summer, once his successor was appointed, will stay on the board.
U.S. deficit to shrink
America’s budget shortfall is on track to shrink to $514-billion (U.S.) this year, or about 3 per cent of the economy, a level many economists equate with fiscal stability, our Washington correspondent Kevin Carmichael reports.
The Congressional Budget Office’s latest fiscal outlook could change the political narrative in Washington, where resurgent Republicans have had success pushing an austerity agenda because the federal budget was left in such a mess by the financial crisis and the recession that followed.
For years, the state of the U.S. government’s finances has ranked among the bigger risks facing the global economy and financial stability, in part because Democratic and Republican politicians repeatedly entered into nerve-rattling budget showdowns.
It now will be harder to make the case that the U.S. deficit is a present threat to the economy. As a percentage of economic output, the U.S. budget shortfall is on track to narrow to about the same size as Canada’s deficit in 2013. The non-partisan CBO predicted the U.S. deficit will shrink to 2.6 per cent of gross domestic product in 2015.
Goldcorp, Barrick sell stakes
Goldcorp Inc., in the midst of a $2.6-billion hostile bid for Osisko Mining Corp., is selling its joint-venture interest in a Nevada gold mine, The Globe and Mail’s Bertrand Marotte reports.
Vancouver-based Goldcorp and Barrick Gold Corp. said today they’re selling their combined interests in the active Marigold mine for $275-million in cash to Silver Standard Resources, also of Vancouver.
“This transaction is consistent with Goldcorp’s ongoing strategy of disciplined portfolio management with an emphasis on creating value for shareholders through the focus on core assets,” said chief executive officer Chuck Jeannes.
WestJet raises payout
WestJet Airlines Ltd. has a gift for shareholders today, hiking its dividend and posting a jump in fourth-quarter profit.
Canada’s second-biggest airline boosted its quarterly dividend to 12 cents from 10 cents as it also projected “continued strong traffic and revenue growth” in the current first quarter and “continued earnings growth” this year.
Fourth-quarter profit climbed to $67.8-million, or 52 cents a share, from $60.9-million or 46 cents a year earlier.
WestJet also said it raised fares 2 per cent last week to help compensate for the decline in the Canadian dollar, The Globe and Mail's Greg Keenan reports.
Suncor hikes dividend
Suncor Energy Inc. also boosted its dividend, by 15 per cent, after posting a rebound in profit but a dip in its operating numbers.
The Canadian energy giant, raising its quarterly payout to 23 cents from 20 cents, posted a profit of $443-million, or 30 cents a share, in the fourth quarter, compared to a loss of $574-million or 38 cents a year earlier.
Operating profit slipped to $973-million or 66 cents from $988-million or 65 cents.
Suncor also cut its forecast for total production this year to between 525,000 and 570,000 barrels a day, from an earlier 565,000 to 610,000 barrels a day.
“The company has temporarily suspended its guidance on production from Libya due to continued political unrest in the country,” it said in a statement.
Currency boosts Toyota
A weak yen is doing wonders for Toyota Motor Corp.
The Japanese auto maker today again boosted its profit forecast for the fiscal year to ¥1.9-trillion, or about $19-billion (U.S.), with revenue expected to come in at ¥25.5-trillion.
“Our upwardly revised forecast is due to progress in our recent profit improvement activities through cost reduction and
marketing efforts, in addition to the change in our assumption of foreign exchange rates to reflect the depreciation of the yen,” said managing officer Takuo Saskaki.
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