These are stories Report on Business is following Friday, Oct. 11, 2013.
Yesterday’s optimism is carrying over into today amid hopeful signs of a truce in the U.S. fiscal war.
Markets are up so far this morning, though nowhere near the surge of yesterday, but the more buoyant mood is holding after the House Republicans proposed a way out of the crisis, and talks are continuing on this, Day 11 of the U.S. government’s partial shutdown.
“The proposal for a temporary increase in the debt ceiling that is being discussed by political protagonists in Washington has given an impressive boost to investor confidence overnight,” said Kit Juckes, the chief of foreign exchange at Société Générale.
“The general consensus is that a deal will be done, that it represents de facto capitulation by the Republicans as a result of voters ‘blaming’ them for the stalemate, and that the temporary deal will become permanent before Thanksgiving [in the United States].
As our Washington correspondent Kevin Carmichael reports, the Republicans yesterday proposed a short-term lift to the U.S. government’s debt limit, which is up against what the Treasury Department says is an Oct. 17 drop-dead date, after which it will be tapped out. The stalemate has sparked fears in the markets of a failure to meet the deadline and, further, the potential for a debt default.
One of the issues with the Republican proposal is that it wouldn’t end the shutdown. And, of course, it would only put the bigger issue over to another date.
For now, however, investors are welcoming the tentative signs of peace.
“There will be further twists and turns because this deal doesn’t resolve long-term issues surrounding fiscal policy in the U.S., but the [fourth-quarter] risk rally is now here,” said Mr. Juckes.
Asian markets followed yesterday’s North American rally as Tokyo’s Nikkei gained 1.5 per cent today, and Hong Kong’s Hang Seng 1.2 per cent.
In Europe, the Paris CAC 40 was down 0.1 per cent by about 9 a.m. ET, while Germany’s DAX and London’s FTSE 100 were up by between 0.2 per cent and 0.6 per cent.
Dow Jones industrial average and S&P 500 futures were also up.
“On the positive side of things the fact that the two sides are talking to each other is progress and as we know, jaw-jaw is better than war-war,” said senior analyst Michael Hewson of CMC Markets in London.
He warned, however, that a political pact to extend the debt ceiling deadline “only serves to shift the debate nearer to the [U.S.] Thanksgiving break, which would obviously mean potentially another six weeks of this political nonsense.”
- Kevin Carmichael: Obama and Republicans meeting raises hopes of end to impasse
- Follow our Inside the Market blog
- How the U.S. stalemate could hit Canada, from the mild to the brutal
- Kevin Carmichael: U.S. budget showdown drives up borrowing costs
- Failure to raise U.S. debt limit would spark global recession: OECD
- The Doomsday scenario of a U.S. default
- Things you can't do amid U.S. shutdown (But spies laid off so 'sext' away)
Unemployment rate eases
Do we need to revise what we consider to be full employment?
Economist Douglas Porter raised that question today as the unemployment rate slipped below 7 per cent for the first time in nearly five years, with 11,900 new jobs in September.
Looking deeper into the numbers, you find that the drop in the jobless rate matched the decline in the rate of participation in the labour force, which means whether or not you’re counted in the Statistics Canada survey. Which means the jobless rate may be falling at least partly for the wrong reason.
That pace dipped because of a “decline in job-hunting” among young people, noted chief economist Avery Shenfeld of CIBC World Markets.
“That suggests that students or recent grads were less eager to work at the start of the school year than seasonals expect,” he added.
The jobless rate among young people now stands at 12.9 per cent, compared to 14.1 per cent in August, as youth jobs rose in September by almost 16,000.
Chief economist Douglas Porter of BMO Nesbitt Burns noted that the participation rate, down to 66.4 per cent, is now the lowest since 2002.
"While much of the improvement reflects cooler labour force growth (it's up just 0.8 per cent year-over-year, while employment is up 1.2 per cent year-over-year), the drooping participation rate may force a rethink on what constitutes Canada's natural rate of unemployment," he said, adding that the drop may simply have been on demographic factors given an aging workforce.
He was referring to what would be considered full employment, or the lowest the rate can be with little in the way of wage pressure. And remember, the jobless rate was down in the 6-per-cent range before the financial crisis.
"The rule of thumb used to be 6.5 per cent, but it’s now likely lower than that - we’re already at 6.9 per cent with no sign of wage pressures," Mr. Porter added.
Shares of BlackBerry Ltd. are gaining in premarket action as the co-founders of the company plot their comeback.
The shares were up by 0.4 per cent about a half-hour before the Nasdaq open, at $8.23 (U.S.), still well below the takeout price of $9 proposed by Fairfax Financial Holdings Ltd.
The auction of BlackBerry got a whole lot more interesting yesterday on word that co-founders Mike Lazaridis and Doug Fregin are considering a bid for the troubled smartphone maker.
As The Globe and Mail’s Sean Silcoff and Jacquie McNish report, they control 41.7 million shares, or 8 per cent, of BlackBerry, and have hired Goldman Sachs Group Inc. and Centerview Partners LLC to help them plot what to do with it. That includes “a potential acquisition,” according to a regulatory filing.
Fairfax, in turn, which holds about 10 per cent proposes to lead a consortium that would acquire BlackBerry for $4.7-billion and has signed a tentative deal with the company.
Other interested parties include U.S. private equity firm Cerberus and industry players such as Google Inc., Cisco Systems Inc. and SAP AG.
- Complete coverage of BlackBerry
- Sean Silcoff and Jacquie McNish: BlackBerry co-founders weigh bid for company
- Read the SEC document
- Boyd Erman in Streetwise (for subscribers) Lazaridis, Fairfax and BlackBerry: quick thoughts on an unlikely team
- BlackBerry in sale talks with Cisco, Google, SAP: sources
- Tara Perkins, Sean Silcoff and Jacquie McNish: Fairfax submits draft BlackBerry offer as spectre of rival bid looms
- Sean Silcoff, Jacquie McNish and Steve Ladurantaye: An exclusive report on the fall of BlackBerry
- How BlackBerry lost World War Z
Shares of Potash Corp. of Saskatchewan are sinking in the premarket hours after the company cut its outlook for third-quarter profits.
Potash said late yesterday it expects earnings per share in the quarter of about 41 cents, down from a range of 45 cents to 60 cents projected earlier.
The downgrade reflects a potash market in turmoil in the wake of the decision by OAO Uralkali a few months ago to quit a joint trading venture with its Belarusian rival and to plan on boosting output, The Globe and Mail’s Bertrand Marotte reports.
Potash’s “revised guidance reflects the acute market uncertainty and lingering turmoil battering global potash markets,” Raymond James analyst Steve Hansen said in a research note.
U.S. banks report
Some bad and some good as U.S. banks began today to report quarterly earnings.
JPMorgan Chase & Co. sank to a loss in the third quarter of $380-million (U.S.) or 17 cents a share from a profit a year earlier of $5.7-billion or $1.40. Excluding certain items like legal costs - remember those setbacks? - JPMorgan's profit was $5.8-billion or $1.40.
Wells Fargo & Co., on the other hand, posted a nice jump in third-quarter profit to $5.32-billion or 99 cents from $4.7-billion or 88 cents.
- JPMorgan swings to first quarterly loss under Dimon
- Wells Fargo profit rises 13% after cutting reserves for bad loans
Streetwise (for subscribers)
ROB Insight (for subscribers)