These are stories Report on Business is following Thursday, July 11, 2013.
Bernanke boosts markets
U.S. stocks surged to record closing levels today amid a global rally sparked by Ben Bernanke’s stimulus pledge.
Some commodities and currencies, such as the Canadian dollar, went along for the wild ride a day after the Federal Reserve chairman reassured investors that the U.S. central bank would not pull back from stimulus measures before the economy is ready for that.
The S&P 500 and the Dow Jones industrial average bested their previous closing highs. Toronto's S&P/TSX composite broke no records but still joined the rally that began in Asia and carried through into Europe and North America.
The S&P 500 gained almost 1.4 per cent to close at 1,675.02, topping the previous record of 1,669.16 reached in May. The Dow gained 1.1 per cent to reach 15,460.92, besting its May record of 15,409.39. Toronto stocks climbed 1.5 per cent to 12,493.26.
The loonie was up by more than a penny at one point today as the U.S. currency weakened, though pulled back somewhat.
“The U.S. Federal Reserve’s chairman Ben Bernanke did a stellar job in taming the recent downside bias that came from the volatility in equity markets,” said chief market strategist David Jones of IG in London.
“The mere phrase that we would see ‘a highly accommodative policy’ for the foreseeable future gave relief to investors, and was sufficient to charge risk sentiment and send indices rocketing up sharply.”
The Fed and Mr. Bernanke did a two-step yesterday, calming investors who have been fretting over the possibility that the central bank could begin to pull back before the economy and the markets can stand on their own without that support.
At issue, The Globe and Mail’s Kevin Carmichael reports, is when the Fed will begin to ease its exceptional asset-buying stimulus program known as quantitative easing, or QE.
The betting had been that the central bank would start in the fall to cut back from monthly purchases valued at $85-billion (U.S.) and end the program completely next year.
But minutes of the Fed’s last meeting, released yesterday afternoon, showed members of the central bank’s policy-setting group divided on the timeline. They’re waiting to see a significant change in the outlook for the jobs market.
Then, after markets closed, Mr. Bernanke suggested that the central bank won’t begin to “taper,” which is now the watchword among investors, until the economy recovery is strong enough.
What’s more, he urged investors not to confuse any pullback in the QE strategy with an end to this era of emergency low interest rates. The Fed’s benchmark rate is now effectively at zero, and that’s not going to change any time soon.
That’s just what investors wanted to hear. Stocks and commodities shot up, as did certain currencies as the U.S. dollar weakened, said chief currency strategist Camilla Sutton of Bank of Nova Scotia. Consider that last month, Mr. Bernanke had triggered a market rout when he raised the prospect of the pullback.
“The reaction to chair Bernanke’s comments played out relatively violently in currency markets, with the USD weakening against all the majors,” Ms. Sutton said of today's action, and referring to the U.S. dollar by its symbol.
“The dramatic USD drop highlights how one sided (USD bullish) the market had become and how quickly traders raced to close out long USD exposures.”
At one point today, the Canadian dollar was up by more than a penny from yesterday’s close of 95.56 cents U.S., climbing as high as 96.84 cents before pulling back somewhat. QE, which is meant to bolster the economy, is negative for the U.S. dollar.
“There seems to be a broad consensus that this is a correction/position squeeze rather than a major reassessment of future Fed policy, and we agree,” said senior currency strategist Elsa Lignos of RBC Europe, referring to the erosion of the U.S. currency.
But here’s the thing: Investors still have no clear signal on when the QE program will begin to wind down.
“If markets were hoping for any clearer idea about the Fed’s future plans with respect to a tapering program from … Fed minutes they would have found themselves reaching for the medication, as the minutes seemed to show the committee completely divided on the timing of any pullback,” said senior analyst Michael Hewson of CMC Markets in London.
“As for me I found myself reaching for the whisky bottle as it became apparent that we are still nowhere none the wiser as to the possible timing of a program,” he added in a research note, referring to the split among policy members, as illustrated by the minutes.
To further cloud the picture the Fed Chairman deviated quite strongly from his previous rather hawkish tone in May by expressing concerns about the resilience of the U.S. labour markets saying that he felt the unemployment rate understated the true level of unemployment, while saying that fears about low inflation suggested that further stimulus was needed,” Mr. Hewson added.
Shares of Microsoft Corp. rose today as the software giant unveiled an overhaul it says will allow to “innovate with greater speed, efficiency and capability in a fast changing world.”
Microsoft will collapse divisions and create new ones, the idea being to operate as one.
“Other companies provide strong experiences, but in their own way they are each fragmented and limited,” chief executive Steve Ballmer said in a memo to staff.
“Microsoft is best positioned to take advantage of the power of one, and bring it to our over 1 billion users.”
Higher oil costs loom
The deadly train disaster in Lac-Megantic, Que., is sure to trigger tough new regulations on moving crude oil by rail, a major credit-rating agency warned today.
That threatens to raise costs for railroads and their oil-company shippers, which have vastly expanded the practice as proposals to build major new pipelines have dragged, The Globe and Mail's Jeffrey Jones reports.
The highest cost from increased government scrutiny will be borne by oil producers with operations in in the Bakken region, which is centred in North Dakota and extends into southern Saskatchewan
BlackBerry loses two
Two more key managers have left the ranks of BlackBerry Ltd.,
The recent resignations of T.A. McCann and Marc Gingras come as BlackBerry struggles to get its mojo back with the launch of its new BB10 devices and a bleak outlook for profits.
Mr. McCann headed social networks, while Mr. Gingras was involved with an overhaul of BlackBerry’s calendar and contacts apps.
Both joined BlackBerry when their companies were acquired in 2011.
- Two BlackBerry executives exit company
- BlackBerry's Heins tells investors their patience will be rewarded
BoJ sees better times
The Bank of Japan today painted a brighter economic picture as it left its policy unchanged, though questions remain.
“With regard to the outlook, Japan’s economy is expected to recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies,” the central bank said after its two-day meeting.
“Regarding risks, there remains a high degree of uncertainty concerning Japan’s economy, including the prospects for the European debt problem, developments in the emerging and commodity-exporting economies, and the pace of recovery in the U.S. economy,” it added.
The Bank of Japan and the country’s new government have moved forcefully to put a spark in the economy and end a lengthy bout of deflation, with the central bank forecasting today that the consumer price index “is likely to turn positive” on a year-over-year basis.
Some observers question that.
“While the BoJ’s monetary policy was unchanged in its statement today (and is unlikely to change for some time), it noted a ‘recovery’ in aspects of the Japanese economy and proudly emphasized that the trend in CPI is towards a reading of zero, as opposed to deflationary negative readings,” said Derek Holt and Dov Zigler of Bank of Nova Scotia.
“We would caution against taking any victory laps here, as the trend in core Japanese CPI, which excludes the costs of commodity-dependent prices that have been driven up by the [yen] depreciation, remains at -0.4 per cent year-over-year, despite the improvement in headline CPI.”
It took 319 years, but the Bank of England finally has an app.
It’s kind of cool, too, because it takes you on a “virtual tour” of the Old Lady of Threadneedle Street, as it’s known, including what the central calls a “rare view” of its gold vaults.
The vault, the Bank of England said, is one of the world’s biggest, with more than 400,000 bars.
Founded in 1694, but only on Threadneedle Street since 1734, the Bank of England is a storied institution, to say the least. (And it’s now headed by a Canadian. Just sayin’.)
“App users can also explore the Garden court – an oasis at the heart of the building – which is planted with mulberry trees, the material that was used to make the first paper money in 10 century China; and can learn the gruesome tale of the ‘Bank Giant’ – a 2-metre tall former clerk whose body was buried in the garden in 1798 to protect it from grave-snatchers,” the central bank said today.
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- S&P 500 INDEX2,126.41-6.63(-0.31%)
- Dow Jones Industrials18,161.19-8.49(-0.05%)
- S&P/TSX Composite14,785.29-48.46(-0.33%)
- Canadian Dollar / US Dollar FX Spot Rate0.7468-0.0001(-0.01%)
- Crude Oil Front Month Futures$48.65-1.07(-2.15%)
- Gold Front Month Futures$1,276.00+7.80(+0.62%)
- Microsoft Corp$59.87-0.23(-0.38%)
- Updated October 28 4:00 PM EDT. Delayed by at least 15 minutes.