Coach handbagsCharla Jones/The Globe and Mail
Stories Report on Business is following today:
Bank of Canada signals rate hike
The era of cheap money is over.
The Bank of Canada this morning left its benchmark lending rate at an historic low but signalled that interest rates will soon rise as the economy rebounds and inflation remains hotter than expected. Economists have expected this, and have been pondering whether Governor Mark Carney will move on rates at the central bank's next policy meeting in June, or wait until July. Mr. Carney and his colleagues at the Bank of Canada gave no hints this morning, but removed from their statement their commitment to stay the course until mid-year. That means the central bank could hike its overnight rate as early as the beginning of June, and some economists believe it will, though others still believe it will take the extra insurance and wait until July.
In its statement today, the central bank said its extraordinary measures during the financial crisis, when it cut its benchmark rate to just 0.25 per cent, have achieved their goals, as cheap money spurred borrowing and spending.
"This unconventional policy provided considerable additional stimulus during the period of very weak economic conditions," the central bank said. "With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus."
"A June rate hike is now likely as the bank is clearly much more concerned about the recent overshoot in inflation than previously indicated, and is much more upbeat on growth than consensus," said BMO Nesbitt Burns deputy chief economist Douglas Porter.
While most western central banks are in no rush to tighten monetary policy, others, whose economies are far stronger, are moving to keep inflation in check. The Reserve Bank of India today boosted its key rate by one-quarter of a percentage point, to 5.25 per cent from 5 per cent, and hiked cash reserve requirements for banks. The latest projection by the central bank suggests Asia's third-largest economy has expanded by 7.5 per cent in the latest fiscal year, and will surge by 8 per cent this year.
The Canadian dollar surged in response.
Read: Mark Carney signals interest rates to rise
Related: Canada's brewing debt storm
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IMF warns governments on debt
Government debts that surged in the financial crisis now risk hobbling the economic recovery, the International Monetary Fund warns in a report today. The IMF says the global financial system is in better shape now but sovereign debt is the new risk, given the massive amounts governments spent to fight a complete economic meltdown last year. Government debt is already haunting financial markets as crises play out in countries such as Spain, Portugal and Italy. "The deterioration of fiscal balances and the rapid accumulation of public debt have altered the global risk profile," the IMF warns. "Vulnerabilities now increasingly emanate from concerns over the sustainability of governments' balance sheets." Read the story
Goldman profit surges amid new probe
Goldman Sachs Group Inc. may be facing civil fraud charges in the United States, but investors can't argue with its financial strength. The Wall Street powerhouse this morning posted a first-quarter profit of $3.46-billion (U.S.) or $5.59 a share, far surpassing analysts' projections and well up from earnings of $1.81-billion or $3.39 a share a year earlier. Revenue surged 36 per cent to almost $12.8-billion, results that chief executive officer Lloyd Blankfein said reflect fresh signs of economic growth.
Mr. Blankfein's comments came after Britain's bank regulator, the Financial Services Authority, said it was launching an investigation into the banking giant and would work closely with the SEC, which accused Goldman of selling mortgage-based securities without disclosing to investors that a hedge fund was at the same time betting against them.
On a conference call with analysts, the bank's co-general counsel, Greg Palm, stressed that Goldman acted properly and that "we would never intentionally mislead anyone." He rebutted other allegations as well.
Read
British regulator begins Goldman probe
Boyd Erman: Investors' short memories permit Wall Street scandals
Goldman hardens stance with SEC
Greece crisis deepens
Greece's embattled government managed to raise new funds today, but at a high cost. As borrowing costs spiked again in Greece on investor fears over whether it can manage its debts, the country attracted solid demand of €1.95-billion of 13-week T-bills, but at what reports said was the highest cost in the history of the euro, at 3.65 per cent, compared to just 1.67 per cent in mid-January. Also unnerving investors today were comments by a member of the European Central Bank's governing council, Axel Weber, reported by Reuters, that Greece could require up to €80-billion in time to stave off a credit default. According to the Wall Street Journal, Mr. Weber also said the debt crisis was deepening, and "numbers are changing all the time."
"It looks like the T-bill sale was quite successful in terms of them having raised more than they initially planned," one analyst told Reuters. "But the borrowing cost was quite high. Greece won't be able to cover its financing needs with T-bills." Read the story
Airline troubles remain
More airline fights were allowed in parts of Europe today, but some airspace still remained closed, raising greater fears of economic troubles. The damage is widespread, going well beyond Europe as supply chains are disrupted and, according to the Reuters news agency, losses for airlines and cargo companies could reach $3-billion (U.S.). Reuters said several companies in Asia were scrambling because deliveries were stalled, affecting everything from cars to mobile phones and luxury goods.
Related
Fuming airlines demand compensation
Europe tallies economic damage
Privacy watchdogs slam Google
Several privacy watchdogs around the world have criticized Google Inc. over the recent launch of its Buzz service, which aims to challenge Twitter's micro-blogging nature and is embedded into the Internet search giant's Gmail application. Critics have complained that Buzz gave away too much too much personal information by default, without give users the proper guidance. Google has changed the service's default settings. A letter written by Canada's privacy commissioner, Jennifer Stoddart, and co-signed by her counterparts in nine countries, said they are "increasingly concerned that, too often, the privacy rights of the world's citizens are being forgotten as Google rolls out new technological applications."
Google said in response that "we try very hard to be upfront about the data we collect, and how we use it, as well as to build meaningful controls into our products." Read the story
Bling is back
Bling is back and the wealthy are spending again.
Coach Inc. today reported its third-quarter profit surged 37 per cent to $157.6-million (U.S.) or 50 cents a share from $114.9-million or 36 cents a year earlier, topping projections and providing new signs that wealthy shoppers are opening their wallets. Coach, known for its high-priced luxury handbags, said revenue jumped 12 per cent to $830.7-million. The company also doubled its annual dividend.
Separately today, Burberry, the 154-year-old luxury goods chain, said its 2009-2010 profit will come in above what investors expect, with even better times next year. And last week, LVMH, the biggest luxury goods company in the world, topped analysts' estimates for sales in the first quarter.
From today's Report on Business