These are stories Report on Business is following Thursday, June 7, 2012.
Central banks in focus
Both the European Central Bank and the Bank of England failed to give investors what they want yesterday and today, but China's central bank came through with a rate cut that is juicing markets today.
The People's Bank of China cut its benchmark rate by one-quarter of a percentage point, moving to boost flagging economic growth after a string of weaker-than-expected numbers.
"The move is clearly a response to a string of disappointing economic data and, in particular, the weakness of credit growth in the wake of government stimulus calls," said Mark Williams, chief Asia economist at Capital Economics in London.
"Many harbour doubts about the wisdom of another credit-fuelled stimulus, but the government’s overriding objective is to ensure that the economy is not too fragile in the final months before the leadership transition."
Markets have been hoping the world's major banks would unveil new stimulus measures amid the global turmoil. Indeed, markets rallied yesterday on speculation that the Bank of England could do something this morning, and that Federal Reserve Chairman Ben Bernanke might signal something fresh in congressional testimony later in the day.
Mr. Bernanke stuck to his script of late, saying the U.S. central bank stands ready to act if need be. He did not signal a new round of stimulus, dashing the hopes of some investors.
On Tuesday, the Bank of Canada did nothing. Yesterday, the ECB did nothing. And today, the Bank of England did nothing.
But China's central bank cut its key rate to 6.31 per cent. It's the first cut since 2008, and a sign of just how concerned Beijing is about growth after its fierce battle against inflation. Beijing is also allowing banks to offer a discount to the benchmark rate.
"Importantly, banks will be allowed to offer a 20-per-cent discount from the benchmark rate, a move that will help secure consumer and enterprise lending amidst concerns of a slowdown," said Ian Pollick and Mark Chandler of RBC Dominion Securities.
"For financial markets, this will be seen as a positive as one of the engines of global growth is provided with monetary accommodation at a time where global economies remain challenged. And, this has helped what was already a pretty decent showing for risky assets overnight, with the major Asian and European exchanges printing higher."
Markets had already been climbing before the move, and the announcement helped buoy stocks and commodities even more.
"Unfortunately, the rate cut suggests that China’s May economic data, scheduled for release on Friday night, will likely be weak," said Benjamin Reitzes of BMO Nesbitt Burns. "Even so, this is a clear sign that China is in stimulus mode and will do what’s necessary to keep growth from slowing sharply, which will dampen any potential negative reaction to the May data."
- China cuts key lending rate
- Bernanke offers few hints of Fed stimulus
- Bank of England keeps rate steady
Spain pays high price
Spain managed to sell sovereign bonds today despite Madrid’s warning earlier this week that the country was losing access to the debt markets.
But the €2-billion sale came at a big price, our European correspondent Eric Reguly reports.
Spain sold 10-year bonds at a yield of 6.04 per cent, up substantially from the 5.73 per cent in a similar sale in mid-April. It also sold bonds maturing in October, 2014, at a yield of 4.33 per cent and other bonds maturing in October, 2016, at 5.35 per cent. Demand for all the bonds was strong.
While bond investors demanded a higher price for the Spanish paper, they were apparently also somewhat soothed by the government’s efforts to fix its banking crisis before it spirals out of control. The government is asking European institutions to lend it money to bolster its banks’ capital. One big bank in particular, Bankia, requires €19-billion.
- Eric Reguly's Economy Lab: Spain pays big price at successful bond sale
- For Spain, a question of when, not if, it will need a bailout
Lululemon profit climbs
Lululemon Athletica Inc. today posted first-quarter gains in profit, revenue and same-store sales, but its shares are tanking on its outlook, and its inventory is swelling.
The yoga retailer earned $46.6-million (U.S.) or 32 cents a share in the quarter, up from $33.4-million or 23 cents a year earlier. Revenue climbed 53 per cent to $285.7-million from $186.8-million, and same-store sales, the key measure in retailing, rose 25 per cent.
Its cash holdings rose to $424.3-million, up from $260.9-million, and its inventory level reached $107.7-million, compared to just $64.4-million.
"Our strategy to increase inventory levels led to strong revenue growth and earnings performance in the first quarter as our guests responded well to our spring styles and colours," said chief executive officer Christine Day.
Lululemon also projected revenue of between $273-million and $278-million in the second quarter, and earnings per share of 28 cents to 30 cents. But it sees comparable store sales growth "in the low double digits."
For the full year, the company now forecasts revenue of $1.32-billion to $1.34-billion, and earnings per share of $1.55 to $1.60. In March, it had projected revenue of $1.3-billion to $1.33-billion, and earnings per share of $150 to $1.57.
Agrium hikes dividend
Agrium Inc. said today it is so confident in its outlook that it's more than doubling its dividend.
Its semi-annual dividend will climb by 27.5 cents to 50 cents.
"The further increase in our dividend is an indication of the strength in our earnings outlook across both our retail and wholesale operations and how our growth strategy has continued to deliver results for the benefit of shareholders," said Mike Wilson, chief executive officer of the agriculture giant.
Analyst John Hughes of Desjardins described the move as positive, as it illustrates the company's confidence.
"Agrium remains our preferred play in the fertilizers group," he said. "We view the company’s relatively diversified asset base - specifically, its exposure to non-commodity-related activities at the retail level (including crop protection products, seeds and merchandise) and to the advanced technologies group - as a positive."