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The Week

'The equities gods are angry' Add to ...

These are stories Report on Business followed this week.

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Markets sink
For investors, this is probably a week best forgotten.

Stocks tumbled as weak economic readings piled up, climaxing with the ugly Canadian and poorer-than-expected U.S. jobs reports on Friday. Adding fuel to that fire was a separate report showing Canada's trade deficit swelling in February to $1-billion.

Canada lost 54,500 jobs in March, while the United States created just 88,000, according to Friday's reports, bringing the jobless rate in Canada up to 7.2 per cent and unemployment in the U.S. down to 7.6 per cent.

"The equities gods are angry," said chief economist Avery Shenfeld of CIBC World Markets.

Stock markets were reacting to the U.S. news, while the Canadian dollar tumbled Friday on the Canadian jobs data and other news.

The S&P 500 lost 1 per cent, and Toronto's S&P/TSX composite almost 3.5 per cent.

"Stocks had a rough week as investors, who had earlier been fed a diet of steady good news on the U.S. economy, were forced to digest some much less encouraging signals about where it stood in March."

While investors shouldn't rush out and sell their stocks, Mr. Shenfeld added, "it's worth maintaining cautious weights on the types of equities most sensitive to global growth."

Senior economist Robert Kavcic of BMO Nesbitt Burns noted a trend: Expectations rise early in the year, followed by a letdown later.

"Bloomberg's economic surprise index has followed a consistent pattern of weakness during the spring and summer since the recession, while sentiment (as measured by the Investors' Intelligence Survey) has rolled over from lofty levels in each of the past three years, only to bottom around late summer with the broader market," he said in a research note.

"So, seasonal quirks with the data or not, it's hard to ignore how the market's mood has shifted with the seasons in recent years - especially given how this April has started."

Bank of Japan in massive stimulus
The new governor of the Bank of Japan proved true to his word - and then some - as he unveiled massive stimulus for an ailing economy.

The question now, Brian Milner reports, is whether it will work.

At his first policy meeting on Thursday, Haruhiko Kuroda and his colleagues announced plans for a huge injection of quantitative easing, among other measures, an attempt to juice a flagging economy and end about 15 years of deflation.

“Japan’s economy has stopped weakening and has shown some signs of picking up,” the central bank said in its announcement.

“With regard to the outlook, it is expected to return to a moderate recovery path against the background of firm domestic demand and a pick-up in growth rates of overseas economies,” it added in its statement.

“On the price front, the year-on-year rate of change in the CPI (all items less fresh food) has recently been slightly negative, but some indicators suggest a rise in inflation expectations.”

TD names new chief
Ed Clark is handing an “opportunity” to his successor.

The question among analysts is what Bharat Masrani will do with it when he takes over Toronto-Dominion Bank next year.

As The Globe and Mail’s Grant Robertson reports, Mr. Clark announced Wednesday he would retire, at 67, in November, 2014. The TD board tapped Mr. Masrani, 56 and head of the bank's U.S. commercial banking unit, to succeed him, becoming, for now, chief operating officer.

"We view positively the board of directors’ choice of Mr. Masrani as successor because of his diverse background at the bank and his strong understanding of the U.S. market, which is central to TD’s long-term growth strategy," said analyst Peter Routledge of National Bank.

"The overriding question now turns to what Mr. Masrani will do with the opportunity bequeathed to him by Mr. Clark," he added in a research note.

"On the conference call today, he hewed close to the party line, which prioritizes organic growth in the U.S. over acquisitions. But longer-term, TD will find itself in the middle ground in the U.S. The U.S. bank, as it is currently structured, remains outside of the bulge-bracket category populated by banks with national banking platforms (e.g., Wells Fargo, Bank of America, and JPMorgan).

"Nor does the bank fit into a niche category, as a small bank executing a profitable, defensible niche strategy. Rather, TD is in a middle realm of 15-20 super-regional banks whose present size may ultimately leave them competitively challenged in the U.S. marketplace."

Lululemon design chief leaves
Lululemon Athletica Inc. lost a "strong creative asset" this week when the company announced chief product officer Sheree Waterson is leaving in mid-April.

Her departure comes following the fiasco involving the Vancouver-based group's troubles with see-through pants, though the announcement didn't tie it to that. Rather, it said, as The Globe and Mail's Marina Strauss reports, it's part of a broader reorganization.

The pants issue led to a recall, and will cost the company an estimated $67-million (U.S.) this year.

"Ms. Waterson has been at the company since 2008, and, in our view, has been a strong creative asset," RBC analyst Howard Tubin said as he downgraded Lululemon to "sector perform" from "outperform" and cut his price target on the stock to $70 from $80.

"We believe she was instrumental in the design process for the last five years and was also a strong creative leader," Mr. Tubin added in a research note.

"While we continue to believe Ms. Waterson has a solid design team in place, the loss of her creative leadership adds a new level of uncertainty to the story."

According to the RBC analyst, the "impact of new design leadership" may not be seen until mid-2014.

Lululemon also said in a separate announcement that the company is looking at all of its Luon products, and has put its own employees in factories to test them.

"While the fabric involved may have met testing standards, it was on the low end of Lululemon's tolerance scale and we have that our testing protocols were incomplete for some of the variables in fabric characteristics," the company said.

"When combined with subtle style changes in pattern, the resulting end product had an unacceptable level of sheerness."

Business Briefing this week

Streetwise (for subscribers)

Economy Lab

ROB Insight (for subscribers

Required reading
The issue of autos is holding up a long-sought deal with South Korea, and it has plagued the tricky final negotiations toward a sweeping free-trade agreement with the EU, Barrie McKenna writes.

The forestry sector is pushing ever taller, highlighting its desire to diversify and create new demand for customized products, Brent Jang reports.

The shrinking spread between benchmark and Canadian prices is giving a reprieve to energy companies producing heavy oil in western Canada, Carrie Tait, Guy Dixon and Shawn McCarthy report.

Companies are taking advantage of record-low interest rates and strong demand for corporate bonds to bulk up their growing piles of cash, Barrie McKenna and Richard Blackwell write.

Low interest rates have failed to jump-start the housing market, as sales in major Canadian cities fell sharply in March from a year earlier, Tara Perkins and Brent Jang report.

Facebook Inc. has devised an elegant strategy for trying to leapfrog Google Inc. in the smartphone wars: Use the company's own software against it. Omar El Akkad reports.

Alberta has quietly presented a proposal to boost levies on carbon production and force big oil industry producers to cut greenhouse gas emissions, Shawn McCarthy and Nathan VanderKlippe report.

Follow on Twitter: @michaelbabad

 

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