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Markets plunge Global stock markets plunged today after Greece again came up short - the math is enough to make Hypatia roll over in her grave - and fears of a default mounted.
As The Globe and Mail's Nicolas Johnson writes, Canada's benchmark index officially entered bear market territory, with the S&P/TSX composite down by more than 20 per cent from its 52-week high in April.
The Toronto Stock Exchange wasn't alone. Asian stocks sank, as did European markets, followed by the Canadian market, the Dow Jones industrial average and the S&P 500 .
"The Dow plunged 2.4 per cent on the day or 260 points, the largest one-day decline since Sept. 22 and marking an over 16-per-cent drop in equities since July 21," said Derek Holt and Karen Cordes Woods of Scotia Capital. "Canadian equities also plunged almost 3.2 per cent on the day, pushing the S&P/TSX into a bear market with losses at just over 15 per cent since mid-July or over 20 per cent since the recent peak in April."
The draft budget unveiled in Athens today illustrates the extent to which Europe's leaders have blown the Greek crisis, and why today's meeting of euro zone finance ministers was, arguably, an exercise in futility. And why investors have lost faith, fearing a disorderly default.
Prime Minister George Papandreou's government admitted yesterday and today that it won't meet its budget targets either this year or next, and it forecast a continuing recession and a devastating jobless rate. This came a day after Greece passed fresh austerity measures aimed at securing €8-billion more in bailout money this month to avert a default.
Greece was supposed to cut its deficit to 6.5 per cent of gross domestic product next year, but said today it can only get it down to 6.8 per cent. Its overall debt next year is forecast to come in at almost 173 per cent of GDP. For this year, it expects a deficit of 8.5 per cent of GDP, compared to earlier forecasts of 7.8 per cent.
Greece still wants its money, of course, and pledges to do better. Define dicker. And, for that matter, where Europe's leaders are concerned, dither. Euro officials again today rejected suggestions of Greece defaulting.
It would have been much better had the euro zone managed a default, fears of which were again roiling the markets today. Such a move would have saved months of uncertainty, allowed the 17-member monetary union to protect its banks, and, it is to be hoped, stopped the virus in its tracks in Athens.
This may yet happen in December, according to CMC Markets analyst Michael Hewson, but severe damage has already been done. Europe's policy makers have been unable to halt the spread of fear, despite many attempts, while Greece subjects its people to death by a thousand cuts.
"The EU is behind the curve on this so a default now has the risk of being messy," Mr. Hewson said today.
"It seems likely that the latest tranche will be paid irrespective of whether they meet the criteria. This will then give policy makers more time to formulate a plan to recapitalize the banks and ring-fence the fallout by the time the next tranche is due in December," he added.
"The reality is we'll probably see more fudge. The pros of getting a default out of the way is, it removes the uncertainty and speculation - the cons of course is how leaders manage any contagion and that's the big unknown."
Not only are the finance ministers meeting today, but all of this is also building up to a mid-October leaders session that will also tackle the issue of an enhanced bailout fund for the euro zone, known as the EFSF. Most of the region's parliaments have already passed the measure, and three more are yet to come, including Slovakia, which is, to put it mildly, not keen.
"This week, the voting on expanding the EFSF's powers continues, with Malta and the Netherlands on deck," said senior economist Jennifer Lee of BMO Nesbitt Burns.
"Slovakia had been a roadblock to the EFSF's passage (since it requires every country to okay it), but PM Radicova said late last week that they will likely ratify the deal by Oct. 14, in time for the next European Union leaders' summit on Oct. 17 and 18. (This is a good time to cave in to peer pressure.) "
It's interesting that so much of what could happen comes down to Slovakia, one of the smaller members of the region.
"Today's meeting of EU finance ministers will continue to delay the inevitable and look at ways and means of avoiding a Greek default, as ministers look to persuade Slovakia to ratify the recent EFSF changes," said Mr. Hewson. "There is concern that Slovakia could scupper the whole process due to a significant euro sceptic element in their parliament."
Dexia sinks European banks are again in the eye of the storm, notably Dexia, which Moody's Investor Service singled out today for a downgrade watch, sending its shares plunging.
"In Moody's view, Dexia has experienced further tightening in its access to market funding – even to short-term unsecured funding – since the most recent rating action on 7 July," Moody's said of the bank owned by the French, Belgian and Luxembourg governments.
- British PM Cameron calls for ugent action to fix European bank, debt problems
- Europe's banks get a lifeline - for now
- Moody's downgrades two of France's top banks
Ottawa pushes Carney Finance Minister Jim Flaherty says he's actively pushing for Mark Carney to be the next chief of the Financial Stability Board, a group of global regulators that, among other things, is advising the G20 on new banking rules.
"I would hope that that would happen," Mr. Flaherty said today, as The Globe and Mail's Jeremy Torobin and Bill Curry report.
"Mark's highly qualified. I certainly support, and have taken steps to encourage this to happen, and we'll see what happens."
The current chief of the FSB, the Bank of Italy's Mario Draghi, moves in November to head up the European Central Bank.
What Arab Spring could mean The Arab Spring has the potential to markedly boost the region's economy, primarily in Egypt, Morocco and, to a lesser extent, Saudi Arabia, a new report finds.
The report by Said Hirsh, the Middle East economist at Capital Economics, said the reforms following the uprisings and protests could lift regional growth to about 5 per cent annually over the next two decades, up from 4 per cent over the past 20 years.
"Moreover, the new consumers in the poor Arab countries could help to boost world demand by $500-billion [U.S.]in 2030, equivalent to around 0.3 per cent of global output," Capital Economics said.
There are many misconceptions about the economics, Capital Economics said. First, when you factor out East Asia, the Arab region has already outperformed other emerging economies recently, though many of ifs citizens haven't seen the benefits.
"Unlike Eastern Europe in 1989 or China in 1978, most Arab countries are already market economies," it said today.
"And in contrast to Latin America in the late 1980s, they are financially stable and do not suffer from a debt overhang. Finally, the Arab World is a diverse region. Incomes in the hydrocarbon-rich Gulf States are already comparable to those in advanced economies, but the resource-scarce Arab countries are poorer than those in Latin America and Central and Eastern Europe and the quality of institutions and the business environment are worse."
If the Arab economies indeed expanded at an average annual pace of 5 per cent, their output would top $10.5-trillion by 2030, making them bigger than Germany and France combined.
The challenges differ throughout the region, however.
"In the resource-poor countries, corruption is rife, education levels are low, and the business environment is poor."
U.S., Canadian PMIs pick up North American factories are showing signs of life.
The RBC Canadian Manufacturing Purchasing Managers Index, done with Markit, inched up to 55 in September from 54.9 in August. It was the highest since April, RBC said today, and "reflected further expansions of both output and new orders."
That, said the bank's chief economist Craig Wright, bodes well for the manufacturing sector to show a rebound for the third quarter, which just ended.
The 50 mark in such indexes is the dividing mark for whether a sector is contracting or expanding.
In the United States, the Institute for Supply Management's widely watched manufacturing index, also released today, came in much better than expected, at 51.6. New orders, however, continued to sag.
Europe's manufacturing sector continues to contract, with purchasing managers indexes below the key 50 mark in many countries.
- U.S. factory growth accelerates
- Canadian manufacturing activity advances
- Europe, Asia factory activity slumps to crisis-era lows
Valeant likely winner Valeant Pharmaceuticals International Inc. has emerged as the likely winner in the bidding war for Cold-FX maker Afexa Life Sciences Inc. after rival bidder Paladin Labs Inc. dropped out of the fight, The Globe and Mail's Richard Blackwell reports.
Valeant's offer of 85 cents a share for Afexa stock remains the only one on the table after Paladin said today that it will not follow through with its last bid, which was at 81 cents a share.
Awaiting the iPhone This is yet another key week for Apple Inc. .
The maker of all things "i" is expected tomorrow to unveil a ramped-up version of its wildly popular iPhone, more than a year after the launch of its iPhone 4.
Notable, too, is that Steve Jobs probably won't be overseeing this one, having resigned as CEO, but rather his successor Tim Cook.
As The Globe and Mail's Omar El Akkad reports today, there's a lot of speculation over the specs. Many observers believe the new phone will come with a four-inch touch screen and an eight-megapixel camera. The high-end device, which will probably sell for more than $600 (U.S.), will also almost certainly have a more powerful processor and slimmer frame than its predecessors.
Occupy ... the art gallery? This is not to comment on the spreading "Occupy" protest movement, only the choice of venue in Vancouver.
This all began with the Occupy Wall Street protest that has gathered steam and, on the Brooklyn Bridge on the weekend, led to more than 700 arrests.
As The Globe and Mail's Kim Mackrael reports, protests are now planned for several cities, including Toronto, Vancouver, Victoria, Calgary, Ottawa and Montreal.
I get Occupy Wall Street. And I get Occupy Toronto, where protesters plan to move into the heart of the financial district at Bay and King streets Oct. 15. To some extent, I even get that the Vancouver protesters plan to pitch their tents at the Art Gallery, often the place where protesters gather, as a staging point for nearby Howe Street.
But I'm not sure that "Thousands demonstrate at Vancouver's Art Gallery" makes as good a headline as "Thousands occupy Wall Street" or "Thousands storm Toronto's financial district."
I, too, had my share of protests, notably against the Vietnam War. But they took place outside the U.S. consulate, not the Royal Ontario Museum.
- Canadian version of Wall Street occupation planned
- More than 700 Wall Street protesters arrested on Brooklyn Bridge
U.S. firm finds treasure A U.S. exploration company is making news after announcing the discovery of a British cargo ship torpedoed and sunk by a German U-boat in 1941. What's particularly interesting is that the SS Gairsoppa is believed to be sitting at the bottom of the North Atlantic with a huge silver treasure on board.
Odyssey Marine Exploration Inc. said last week the ship is sitting 4,700 metres under water about 300 miles off the Irish coast.
"Contemporary research and official documents indicate that the ship was carrying £600,000 (1941 value) or 7 million total ounces of silver, including over 3 million ounces of private silver bullion insured by the U.K. government which would make it the largest known precious metal cargo ever recovered from the sea," the company said in a statement.
"In 2010, the U.K. Government Department for Transport awarded Odyssey, through a competitive tender process, the exclusive salvage contract for the cargo of the SS Gairsoppa. Under the salvage agreement Odyssey will retain 80 per cent of the net salved value of the silver bullion recovered under the contract."
Bankruptcies decline Bankruptcies in Canada - both for businesses and on a personal level - continue to decline.
The number of insolvencies fell in July by 17.4 per cent from June, the Office of the Superintendent of Bankruptcy Canada reported today. That's more than 15 per cent fewer than a year earlier. In that same period, business insolvencies are down by more than 20 per cent, and consumer insolvencies by 15 per cent.
Insolvencies include both bankruptcies and proposals, the latter being agreements with creditors.
Headlines of note
- Shoppers names new CEO
- AMR shares plunge on bankruptcy fears
- Group charges e-amils show cozy ties between TransCanada, diplomat
- PetroBakken eyes steps to shore up balance sheet
- Paladin Labs pulls out of bidding for Afexa
- Strike averted at St. Lawrence Seaway
- Qatar takes stake in Whitehorse-based European Goldfields
In Economy Lab No sensible government ever makes policy on the basis of a few bad days or weeks on the market, because financial markets are a notoriously unreliable predictor of the real economy, Stephen Gordon writes.
In International Business If as Albert Einstein observed insanity is "doing the same thing over and over again and expecting different results," then the latest proposal for resolving the euro zone debt crisis requires psychiatric rather than financial assessment, Satyajit Das writes.
In Globe Careers Canadian executives have sharply downgraded their expectations for the North American economy, but they are in a state of watchful waiting regarding their own companies, reluctant to cut staff or take other remedial measures, but prepared to pull the trigger if necessary.
In Personal Finance Advisers get more for investments in stocks than in bonds or cash, so their bias can be toward stocks.
From today's Report on Business