These are stories Report on Business is following Tuesday, Oct. 15, 2013.
Optimism gave way to concern today as Washington’s warring parties failed to strike a fiscal deal that would end the partial government shutdown and lift the legal debt limit.
Investors aren’t in panic mode – save that until Thursday if there's still an impasse – but are clearly worried by developments (or lack thereof) in the fiscal crisis.
Asian and European markets started the day in fine form on signs that a truce was emerging, but New York stocks slipped as it failed to materialize.
The S&P 500 lost 0.7 per cent, or more than 12 points, while the Dow Jones industrial average shed 0.9 per cent, or about 133 points. Toronto's S&P/TSX composite, however, gained 0.3 per cent.
“After a four-day rally we have finally seen the U.S. markets lose value as the impending debt crisis gets ever closer amid constant rhetoric that all is well and a deal will be thrashed out ‘shortly’ and the debt ceiling raised,” said senior sales trader Nick Dale-Lace of CMC Markets.
This is all playing out amid harsh warnings of what could happen if the debt limit isn’t raised by Thursday, after which the U.S. Treasury Department says the government can’t meet its obligations.
The biggest fear is that the U.S. could default, though that’s the extreme scenario.
As The Globe and Mail’s Kevin Carmichael reports, the signals coming from the Republicans are mixed, leaving investors to wonder just where things stand.
Fitch Ratings, meanwhile, put America's triple-A rating on "rating watch negative," noting as well that the impact "risks undermining confidence in the role of the U.S. dollar as the pre-eminent global reserve currency, by casting doubt over the full faith and credit of the U.S."
Such "faith," the agency said, "is a key reason why the U.S. triple-A rating can tolerate a substantially higher level of public debt than other triple-A sovereigns."
Standard & Poor's stripped the U.S. of the coveted rating earlier.
The Treasury Department would retain "limited capacity" to pay its debts after Thursday, but "would be exposed to volatile revenue and expenditure flows," Fitch said.
"The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so," the agency added, though it still believes a deal will be reached.
"The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens - all of which would damage the perception of U.S> sovereign creditworthiness and the economy."
- Kevin Carmichael: Confusion reigns as Republicans send mixed signals on fix to fiscal impasse
- Follow our Inside the Market blog
- The Doomsday scenario of a U.S. default
Citigroup Inc. posted a rebound in third-quarter profit today, but, hurt by bond trading, missed analysts' estimates.
The giant U.S. bank posted a profit of $3.2-billion (U.S.) or $1 a share, compared to $468-million or 15 cents a year earlier. Revenue climbed to $17.9-billion from $13.7-billion.
Citi was hurt by a slip in bond trading, citing a 26-per-cent slump in revenue from fixed income. And, when you strip out all the unusual items, earnings per share slipped to $1.02 a share from $1.06.
“We performed relatively well in this challenging, uneven macro environment,” said chief executive officer Michael Corbat.
“While many of the factors which influence our revenues are not within our full control, we certainly can control our costs, and I am pleased with our expense discipline and improved efficiency year-to-date.”
Home sales rise
With the government’s mortgage restrictions now far in the rear-view mirror, and potential buyers concerned about rising mortgage rates, Canada’s housing market continues to post impressive gains.
Home sales across the country climbed 0.8 per cent in September from August, and 18.2 per cent from a weak September last year, just after Finance Minister Jim Flaherty moved to tame the market.
Average sale prices rose 8.8 per cent from a year ago, The Globe and Mail’s Tara Perkins report, while the MLS home price index gained 3.1 per cent.
“While the momentum for sales activity began improving a few months ago, it may be losing steam after having only just climbed back in line with an average of the past 10 years,” said Gregory Klump, the chief economist of the realtors’ group.
Apple up, Burberry down
Shares of Apple Inc. gained today as Angela Ahrendt decided to leave the lap of luxury to join the fold.
Ms. Ahrendts is quitting her job as chief executive officer of Burberry Group PLC for a new post as Apple’s retail chief, sparking a drop in shares of the British luxury retailer.
Analysts say Ms. Ahrendts, who will be succeeded by chief creative officer Christopher Bailey, is leaving Burberry at a crucial time.
Burberry posted a strong gain in its latest report on sales in the first half of the year, but still fell shy of analysts’ estimates.
"This is the biggest of a number of recent high profile departures, and the decision to place Christopher Bailey in sole custody of both CEO and chief creative officer has led to concerns over the burden placed on one pair of shoulders, especially given his lack of experience for at that level," said senior sales trader Toby Morris of CMC Markets in London.
Caisse buys Manhattan tower
Ivanhoé Cambridge, the real estate arm of the Caisse de dépôt et placement du Québec, is boosting its presence in the New York City market with an $850-million (U.S.) deal to buy a majority stake in a 45-storey office tower on the city’s “Corporate Row.”
Ivanhoé said today it has bought a 51 per cent managing member interest in 1211 Avenue of the Americas from an affiliate of Beacon Capital Partners LLC, The Globe and Mail's Bertrand Marotte reports.
The building is a Class A trophy asset, located between 47th and 48th streets, adjacent to iconic Rockefeller Center on a strip known as “Corporate Row.”
The transaction is the latest in Ivanhoé’s U.S. forays.
Where the loonie stands
The Canadian dollar is overvalued by more than 10 per cent, a new measure shows.
Still, that pales in comparison to several other countries, according to the October reading from World Economics today.
The group’s World Price Index, which recently added the Canadian dollar to the mix, looks at the value of currencies against the U.S. greenback based on a basket of goods and services at purchasing power parity.
The loonie, as the dollar coin is known in Canada, is overvalued by 10.1 per cent this month, the group said.
That’s about the same as the euro in Italy, though the overvaluation is far greater in Spain and France, according to the measure.
Japan’s yen is overvalued by 25.6 per cent, Brazil’s real by 22.5 per cent, and the British pound by 13.4 per cent, it added.
On the other side of the ledger, India’s currency is 45.5 per cent below value, Mexico’s 23.4 per cent, China’s 12.9 per cent, and Russia’s 8.1 per cent.
Many economists expect the loonie to dip somewhat going forward. Bank of Nova Scotia, for example, projects the dollar will stabilize in the 93-94-cent area next year.
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