These are stories Report on Business is following Thursday, Jan. 3, 2013.
On (sober) second thought
Yesterday’s “irrational exuberance” has given way to sober second thought as investors turn their attention from the fiscal cliff to the fiscal hills still ahead.
Markets rallied on the first trading day of 2013, but struggled today on warnings that the warring factions in the United States, while settling some differences, still have to grapple with the U.S. debt ceiling and some $110-billion (U.S.) in spending cutbacks that were delayed in the New Year’s deal.
Both will come to a head again in two months, and some observers suggest the issues of last year will again plague investors this year.
“As we head into a new year it seems most likely that the same factors that have driven market moves in 2012 will also do so in 2013, with political factors once again likely to remain the focus of most investment decisions,” said senior analyst Michael Hewson of CMC Markets in London.
“The partisan actions, or inaction, of politicians on both sides of the Atlantic is once again likely to be partially offset by supportive central bank policies designed to protect markets from the worst of this political paralysis and stupidity,” Mr. Hewson said in a research note today.
“While equity markets celebrate the fact that U.S. politicians decided not to commit an act of self-harm to the U.S. economy, there does appear to be an element of irrational exuberance to the markets sharp rally, given that a number of significant factors remain unresolved, not least that the matter of $110-billion of spending cuts has merely been delayed a couple of months, while the subject of an increase to the debt ceiling also needs to be addressed. As such we could well see a drift back lower to fill the gap seen between last year's close and this year’s open as the New Year hangover starts to kick in.”
As The Globe and Mail’s Kevin Carmichael reports, global markets surged yesterday after U.S. politicians averted the combination of tax hikes and spending cuts that threatened to drive the country back into recession.
This is not to suggest that U.S. politicians haven’t made headway, only that some key issues have been left unresolved. Indeed, some observers believe that the fiscal cliff deal has set the stage for continued, if muted, recovery.
“The debt ceiling and spending negotiations need to be negotiated and will no doubt cause plenty of angst and headlines,” said Kit Juckes, the chief of foreign exchange at Société Générale.
“There folks out there who think there's a huge train wreck coming,” he said in a research note.
“But assuming that even with the help of a bit more 'cliff-dancing' the mini-deal is the basis for fiscal policy in 2013, the key takeaway is that there is less fiscal restraint this year than expected and as a result more growth.”
Today’s pullback went beyond stocks, also sidelining commodities and currencies.
“The [U.S. dollar] index is stronger this morning, with most major currencies weaker against the greenback, as markets are looking ahead to the challenges still facing U.S. policy makers following yesterday’s big rally,” said Benjamin Reitzes of BMO Nesbitt Burns.
“The overnight data were mixed. China and Japan remain closed on holiday. Commodity prices are generally lower: WTI crude is down 0.6 per cent to $92.60, Brent crude is down 0.6 per cent to $111.80, gold is down $4 to $1,683, base metals are mostly stronger (Comex copper is up 0.2 per cent), while the grains are softer as well.”
- Follow our Inside the Market blog
- Despite 'fiscal cliff' deal, U.S. braces for next fight over spending
- 'Cliff' deal is no panacea for market
Pershing, Brookfield settle fight
Bill Ackman`s heated battle with Brookfield Asset Management Inc. over the fate of one of the biggest shopping mall companies in the U.S. appears to be over, The Globe and Mail's Tara Perkins reports today.
Mr. Ackman`s hedge fund, Pershing Square Capital Management, is selling warrants that carry the right to buy more than 18.4-million shares of General Growth Properties Inc. to Brookfield for about $271.9-million. Mr. Ackman, a well known activist investor, still owns nearly 8 per cent of General Growth Properties, but has agreed for the next four years to put limits on its ownership and ability to team up with others to push for change.
Meanwhile, Brookfield has agreed that for the next four years it will limit its right to vote shares in excess of 38.2 per cent of General Growth`s stock, and that it will not exceed a 45-per-cent ownership cap.
Brookfield is giving General Growth`s board of directors 30 days to buy the warrants that it just bought from Pershing Square, at the same price that it paid.
The truce comes after an increasingly acrimonious battle that began this summer when Mr. Ackman – who, among other things, successfully pushed for a new CEO and directors at Canadian Pacific Railway Ltd. earlier this year – accused Brookfield of trying to win General Growth by way of a creeping takeover.
Spam and peanut butter sandwich, anyone?
Unilever PLC is selling its iconic Skippy peanut butter business to Hormel Foods Corp. for $700-million (U.S.).
The business includes plants in Little Rock, Ark., and Weifang, China, the companies said today.
Skippy now joins the Hormel family of Spam and other brands.
“Skippy is an iconic brand with presence all around the world,” said Kees Kruythoff, chief of Unilever’s North American operations.
“As we continue to sharpen our portfolio to deliver sustainable growth for Unilever, we believe that the potential of the Skippy brand can now be more fully realized with Hormel Foods.”
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