These are stories Report on Business is following Wednesday, May 29, 2013.
Bank of Canada to stand pat
Mark Carney oversees his last interest rate decision this morning, but he won’t be making waves.
The Bank of Canada was never expected to hike its benchmark rate from its emergency low of 1 per cent. The question is whether it will change the language that accompanies the decision at 10 a.m. ET.
The central bank has for some time now indicated that the next move in the overnight rate will be up, not down, no matter how far off that may be.
Some observers, however, believe it’s time to drop that signal given such tame inflation, now at just 0.4 per cent, but a still uncertain outlook.
That’s not expected to happen, though, in the last decision under Mr. Carney as central bank governor.
“Given this mix of subdued inflation and strengthening economic growth, we expect the bank to maintain its mild tightening bias especially given that this will be the last meeting before Stephen Poloz takes over as head of the central bank,” said assistant chief economist Paul Ferley of Royal Bank of Canada.
“To that end we look for the bank to hold the overnight rate at 1 per cent, and reiterate that rates are likely to stay low for ‘a period of time,’ after which ‘some modest withdrawal of stimulus will likely be required.”
The central bank’s policy statement this morning, added Derek Holt and Dov Zigler of Bank of Nova Scotia, will probably “draw a balance” between caution over such low inflation and optimism over what’s believed to have been stronger-than-expected economic growth in the first quarter of the year.
Economists expect a report from Statistics Canada Friday to show that gross domestic product expanded at an annual pace of 2.3 per cent to 2.5 per cent in the first three months of the year.
They also don’t expect any change in interest rates until late next year or early 2015.
The Organization for Economic Co-operation and Development today projected that the Canadian economy will pick up steam this year and next, juiced by business investment, commodity prices that remain elevated, and heightened confidence.
In its latest global outlook, the OECD projected Canada’s economy would expand by 1.4 per cent this year and 2.3 per cent this year.
Unemployment is forecast to remain at about the 7-per-cent mark through the end of next year, with annual inflation at just 1.3 per cent this year and 1.7 per cent in 2014.
- With Carney set to leave, calls grow for shift in rate stance
- Economy Lab: With a new boss coming, will the Bank of Canada change its tune?
- David Parkinson in Economy Lab: Sluggish profits might lead Bank of Canada to reconsider its outlook
- Christopher Ragan in Economy Lab: Bank of Canada’s growth view is clouded with hazy thinking
- Economy to pick up in first quarter before braking again
- OECD cuts world growth forecast despite improving U.S., rebounding Japan
Why do investors love Tuesdays (and what does that mean for today)?
BMO Nesbitt Burns has noticed what’s “probably the quirkiest stat of 2013,” that being the rise of the Dow Jones industrial average every Tuesday for 20 weeks.
That happened yesterday, too, when the U.S. index gained more than 100 points, or 0.7 per cent.
“Given the latest Tuesday romp, that day alone has seen the Dow rise a massive 1,521 points, accounting for two-thirds of the entire year’s advance,” said BMO chief economist Douglas Porter.
“Historically speaking, Tuesday has been positive, but unexceptional,” he added in a research note.
“Friday has likewise been very kind to equities this year, while Wednesday and Thursday have been decent, but not special. Meantime, as has so often been the case over many years, investors don’t like Mondays … even in a market as strong as this year’s.”
For now, global markets are mixed this morning, troubled somewhat but the latest outlook for China.
Tokyo’s Nikkei eked out a gain of 0.1 per cent, while Hong Kong’s Hang Seng slipped 1.6 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.2 per cent and 1.5 per cent by about 9 a.m. ET.
Dow Jones industrial average and S&P 500 futures also slipped.
“Market participants today are more focused on the future of the world’s second-biggest economy that is China,” said senior market strategist Brenda Kelly of IG in London.
“Weak global economies and lower exports as a result has seen the International Monetary Fund reduce its 2013 growth forecasts for China to 7.75 per cent from 8 per cent.”
BMO profit dips
Bank of Montreal posted a dip in second-quarter profit today, slipping more than analysts had expected, The Globe and Mail’s Tim Kiladze reports.
That included a restructuring charge of $82-million.
BMO profit fell to $975-million or $1.42 a share, from $1.03-billion or $1.51 a year earlier.
Adjusted profit rose to $997-million or $1.46.
”Looking forward, we have an advantaged business mix and are well-positioned for the current environment given our footprint in an improving U.S. Midwest economy, combined with our strength in commercial banking, capital markets and wealth,” said chief executive officer Bill Downe.
“These are important differentiators. At the same time, we continue to focus on what’s necessary to support future growth, and are confident that the value we create for customers will translate into financial performance for the bank.”
Chinese firm bids for Smithfield
A major Chinese meat company plans to buy Smithfield Foods Inc. in a $4.7-billion (U.S.) deal guaranteed to catch the eye of American regulators.
Shuanghui International Holdings Ltd. has made various pledges in terms of management, workers and union contracts, but this would reportedly mark the biggest takeover of a U.S. company by a Chinese firm.
Shuanghui is bidding $34 a share, and comes amid a push from one activist shareholder to break up Smithfield.
The Wall Street Journal says the deal will probably get a heavy going over by U.S. regulators. Other proposed deals by Chinese companies have been nixed and, the newspaper said, food security matters could also play a role.
Smithfield took steps to address this, saying in a statement today that “we have established Smithfield as the world's leading and most trusted vertically integrated pork processor and hog producer, and are excited that Shuanghui recognizes our best-in-class operations, our outstanding food safety practices and our 46,000 hard-working and dedicated employees.”
Smithfield, the biggest pork company in the United States, would get a big leg up in China.
“Smithfield is a leader in our industry and together we will be able to meet the growing demand in China for pork by importing high-quality meat products from the United States, while continuing to serve markets in the United States and around the world,” said Shaunghui chairman Wan Long.
Streetwise (for subscribers)
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ROB Insight (for subscribers)
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