These are stories Report on Business is following Wednesday, April 24, 2013.
The fake tweet
The bogus tweet that sent markets plunging yesterday is raising serious questions about the vulnerability of social media and computer-assisted trading.
U.S. authorities are investigating in the wake of the fake tweet from hackers using the Twitter account of The Associated Press yesterday afternoon.
A group that calls itself the Syrian Electronic Army – it says it backs Syrian President Bashar al-Assad - claims it hacked the news agency and sent the tweet that falsely reported explosions at the White House had injured President Barack Obama.
This group has previously hacked others, such as CBS News.
While markets quickly recovered after the initial shock, U.S. stocks lost some $136-billion (U.S.), according to some calculations, commodities such as oil sank, and currencies like the Canadian dollar were briefly rattled.
"Who would think that social media would emerge as a market risk?" said chief economist David Rosenberg of Gluskin Sheff + Associates.
The Securities and Exchange Commission, the Federal Bureau of Investigation and the Secret Service are investigating.
As The Globe and Mail’s David Berman writes, the incident, reminiscent of the flash crash of 2010, sparked a lot of talk over the use of social media and computer-driven trading, particularly now, given the nervousness of investors and the decision by the SEC to allow major corporate announcements via Twitter and Facebook.
It’s interesting to note that market players were immediately dubious, but the machines took over.
“The 140-point lurch in the Dow will likely prompt a round of soul-searching about how markets can function in such an interconnected world,” said market analyst Chris Beauchamp of IG in London.
“Then again, rumour and counter-rumour have been part of financial markets since the Dutch traded tulip bulbs; Twitter is merely the latest incarnation of this.”
Barrick warns on Pascua-Lama
Barrick Gold Corp. warns it could suspend its flagship project in the southern Andes given a recent court ruling and a drop in gold prices.
Barrick, the world’s biggest gold miner, has been forced to delay work on the Pascua-Lama project, having been sidelined by a Chilean court over groundwater pollution issues that have not been proven.
“The company will continue to evaluate all alternatives, in light of the uncertainties associated with the legal and regulatory actions, and the current commodity price environment, including the possibility of suspending the project,” Barrick said today as it also posted a 22-per-cent drop in first-quarter profit.
Barrick earned $847-million (U.S.) or 85 cents a share in the quarter, down from $1.06-billion or $1.04 a year earlier. Its adjusted profit topped the estimates of analysts, The Globe and Mail’s Pav Jordan reports.
- Barrick considers suspending key Andean mine project
- Sophie Cousineau: Barrick Gold's board needs to learn how to say no
CP profit climbs
Chief executive officer Hunter Harrison is exceptionally optimistic today in projecting what could be the best year in the financial history of Canadian Pacific Railway Ltd.
CP posted a strong first-quarter profit, The Globe and Mail’s Guy Dixon reports, earning $217-million or $1.24 a share, compared to $142-million or 82 cents a year earlier.
Revenue climbed to a record of almost $1.5-billion.
“CP delivered the best first-quarter results in its history despite challenging winter conditions, Mr. Harrison said.
“With a very strong start to the year and momentum quickly building, I am now even more confident that we are on pace toward the best year-end financial and operating performance in CP’s history,” he added in a statement.
Apple shares sink
Shares of Apple Inc. slipped below $400 (U.S.) today as analysts cut their price targets on the tech giant’s stock after it posted its first year-over-year drop in profit in about 10 years, but later climbed back above that mark.
As The Globe and Mail’s Simon Avery reports, Apple’s profit slipped in the second quarter to $9.5-billion (U.S.) or $10.09 a share from $11.6-billion or $12.30 a year earlier.
Revenue, though, climbed to $43.6-billion from $39.2-billion.
The company also hiked its quarterly dividend by 15 per cent to $3.05 and boosted the amount of its stock buyback to as much as $60-billion.
Apple shares are down by more than 40 per cent since its peak of more than $700 last September.
Yesterday's results sparked a rash of cuts among analysts in their outlook for the shares.
Nomura, for example, cut its price target to $420 from $490, while, at the higher end, CanaccordGenuity trimmed its target to $560 from $600.
"Consistent with our global wireless surveys indicating seasonally softer iPhone 5 sales combined with a stronger mix of legacy iPhone 4S/4 sales, Apple reported March quarter results in line with our estimates and slightly ahead of consensus," said CanaccordGenuity analyst T. Michael Walkley.
"However, June quarter revenue and margin guidance failed to meet even our below-consensus estimates, as refreshes of key iPhone and iPad products are not expected to occur until the fall."
He believes, however, that new product launches in the second half of the year will boost year-over-year profit again.
- Apple rolls out cash as profit sags, analysts cut targets
- Omar El Akkad's review: With near-perfect keyboard, Q10 a better BlackBerry than Z10
Will ECB cut rates?
Fresh economic readings from Europe today have fanned speculation that the European Central Bank may finally cut its benchmark interest rate next week.
While pressure has been building on the ECB for some time, yesterday’s weak manufacturing data and today’s German Ifo index measure have raised the ante.
As our European correspondent Eric Reguly writes, the closely followed index of business expectations took its biggest fall in about a year, to 104.4 from 106.7.
While many observers now expect a rate cut at next week’s meeting, there are other avenues available, as well.
“It doesn’t seem that long ago when the then CEO of Citigroup, Chuck Prince, stated that ‘as long as the music is playing then you have to get up and dance, and we’re still dancing,’ and markets certainly seem to be taking that view, as bad data becomes the catalyst for further stock market gains, on the premise that central banks will continue to prime the money pump,” said senior analyst Michael Hewson of CMC Markets in London.
“The fact that an ECB rate cut will have little or no effect is being conveniently ignored for now.”
- Eric Reguly’s Economy Lab: Germany’s slowdown bolsters case for ECB rate cut
- Economic woes huge as Italy names Enrico Letta new PM
Australia to buy Chinese bonds
Australia is moving to reinforce its growing relationship with China, announcing plans today to buy Chinese government bonds.
Philip Lowe, the deputy governor of the Reserve Bank of Australia, unveiled the move in a speech in Shanghai, saying the central bank will use up to 5 per cent of its foreign currency reserves to invest in Chinese bonds.
The People’s Bank of China, the RBA’s counterpart, has approved it and final touches are being put on an agreement, he said.
It’s the first such Asian investment by the RBA, with the exception of Japan.
“The decision to invest in China is an important one,” Mr. Lowe said of Australia’s largest trading partner.
“It reflects the broader economic relationship between China and Australia and our increasing financial ties,” according to the text of his speech.
“It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets.”
Streetwise (for subscribers)
- Germany's slowdown bolsters case for ECB rate cut
- Report shows closing of gender gap in Canada is at a snail's pace
ROB Insight (for subscribers)
- Commodity prices' round trip (or why QE isn't working)
- Choosing your own cable menu remains a pipe dream
- How do Canadian and U.S. house price fundamentals stack up?
- Shopping for a first mortgage? Arm yourself with research and negotiate
- Rob Carrick on money: Living longer, spending more
- Video: Let's Talk Investing - How shaky is the condo market?