Markets await RIM results
I love my BlackBerry Bold, but I’d be oh, so tempted to at least look at the iPhone if I had to pay for the thing myself.
And therein lie some of RIM’s troubles.
I have a BlackBerry through The Globe and Mail - Note to bosses: I really appreciate it and I’m not asking for a new iPhone 5 - but some companies aren’t wedded to Research In Motion Ltd. any longer. And not everyone's a journalist who needs a tiny keyboard.
A wounded RIM is expected today to report another brutal quarter, though it buoyed some optimism earlier this week, sending its shares higher, when it disclosed that its subscriber base has climbed to 80 million and reiterated that its new BlackBerry smartphones, BB10, were still on track for early next year.
RIM shares have collapsed amid disappointing results and loss of market share to the likes of Apple Inc.’s iPhone and the Google Inc. Android system.
Analysts expect RIM to post a drop in revenue to about $2.5-billion (U.S.), and an adjusted net loss of 47 cents, when it reports second-quarter results after markets close today.
And while the fatter subscriber base, up from 78 million at last report, is certainly good news, there are questions surrounding the “quality” of the increase.
Many new subscribers would be in the emerging markets, where RIM sells cheaper devices, said Raymond James analyst Steven Li.
“With an aging BB7 portfolio and intensifying competition at the lower end of the market, we believe RIM’s fundamentals likely continued to deteriorate in 2Q,” Mr. Li said in his projections for today’s results.
Analyst Todd Coupland of CIBC World Markets said he expects the “typical seasonal increase” to be tempered by people delaying a new BlackBerry until BB10 models are available.
“We believe the share price will continue to stagnate in the mid- to upper single digits until after the BB10 launch,” he said in a research note. “... We believe the risk is too high for investors until BB10’s popularity worldwide is better understood.”
Free trade and free currencies
Amid all the talk of currency wars, CIBC World Markets is calling for Canadian trade negotiators to discuss not only tariffs and other traditional barriers, but also “free currencies.”
Economists Avery Shenfeld and Emanuella Enenajor discuss currency intervention in a report released today. They don’t call it manipulation, and they don’t use politically inflammatory language. But they do note that countries “playing by the rules” are grappling with currencies that are stronger than warranted.
That includes Canada, whose exporters have been hurt, which in turn has “handcuffed the Bank of Canada into providing excessive stimulus for interest-sensitive housing and consumption.”
Remember that Canada’s trade deficit is now at a record.
Mr. Shenfeld and Ms. Enenajor took an in-depth, and interesting, look at the issue, which they tied to the 25-year anniversary of Canada-U.S. free trade talks and Ottawa’s desire to push its trade agenda.
“While Canada recently opted to delay a formal deal on tariffs and other barriers with China, the issue of trade will remain front and centre in relations with Asia’s largest economy,” they wrote.
“But the bigger picture goes beyond just tariffs and regulatory barriers, centering on currency and other policies that affect the balance of trade between Canada and China, and other emerging market economies.”
I’ll stress here that CIBC did not take China to task, which would, of course, have been politically sensitive amid mounting trade tensions. Certainly others have done it.
The CIBC economists also noted that Beijing has allowed the yuan to rise against the U.S. dollar.
“Looking beyond China, other emerging markets, oil exporters and selected developing economies, have been actively intervening to keep their currencies weaker than free markets would take them,” they said.
“The degree of that intervention is largely mirrored in the growth of [foreign exchange] reserves accumulated as the central bank sells its own currency.”
Indeed, at one point, they said, China’s reserves hit 50 per cent of gross domestic product, while those of other emerging nations got to about 30 per cent of GDP.
“These are far larger levels than needed to defend against currency volatility,” Mr. Shenfeld and Ms. Enenajor said.
“While initially the target was to weaken their own currencies against the U.S. dollar, and to a lesser extent, the euro, shifts within these large pools of assets are having a significant impact on other currencies, including the [Canadian dollar].”
The CIBC economists also gave a nod to the Federal Reserve’s latest asset-buying program, known as QE3 to mark the third round of quantitative easing.
That’s a policy that weighs on the greenback.
Many major countries are managing their currencies, Mr. Shenfeld wrote in his introduction. Not just China, but Japan, Switzerland, Brazil and others.
There’s an argument, too, that quantitative easing is a “tactic” to soften the U.S. currency.
“The result is that those who are playing by the rules and leaving their currencies unfettered are seeing them push stronger than trade fundamentals alone would justify,” Mr. Shenfeld, CIBC’s chief economist.
“IMF estimates put the [Canadian dollar] among the most overvalued on that score … That can, in part, be tied to a portfolio shift by large foreign exchange reserve funds out of U.S. dollars, some of which has found a haven in triple-A-rated Canadian government bonds.”
So as Ottawa moves forward, “free trade, but free currencies as well.”
U.S. economy suffers setbacks
The latest economic readings from the United States today are, well, a downer.
First, economic growth for the second quarter has now been revised down to just 1.3 per cent, from the initial reading of 1.7 per cent. The U.S. Commerce Department took a knife to the measure after a second look at consumer spending and trade, among other things.
On top of that, the latest report on big-ticket sales showed durable goods orders plunging by more than 13 per cent in August, marking the fastest decline in about three years, though largely because of the aircraft industry. That suggests industry continues to struggle.
If there was any bright spot in today’s reports, it came in claims for jobless benefits. According to the Labor Department, initial claims for benefits fell last week by 26,000. What’s notable is that the current level is now the lowest since July.
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Spain in austerity budget
Spain faces another deep round of social spending cuts as it tries to reduce its budget deficit by €40-billion in 2013, The Globe and Mail's Eric Reguly reports.
The spending cuts could trigger another social backlash in a country that is reeling from Europe’s highest jobless rate – 25 per cent – and falling incomes. But it appears that Madrid is gambling that spending cuts will be resisted less than wholesale tax hikes.
The Financial Times is reporting that the fresh austerity package, which may pave the way to financial assistance from the European bailout fund and the European Central Bank, consists of 58 per cent spending cuts and 42 per cent tax hikes.
Spain’s budget minister, Cristobal Montoro, said at a press conference in Madrid that he expects a “soft recession” in 2013, based on a forecast for a contraction of 0.5 per cent, though some economists think the recession could be much deeper as the austerity measures remove stimulus from the economy.
- More social spending cuts as Spain looks to slash deficit
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Auto talks wrap up
The major Detroit-based auto makers have now wrapped up contract talks with the Canadian Auto Workers union, buying four years of labour peace.
As The Globe and Mail's Greg Keenan reports, the new deals hold labour costs low enough to win new jobs and investments.
The final piece was put in place late yesterday when Chrysler Group LLC reached a tentative deal that matches the key parts of labour pacts struck earlier between the union and Ford Motor Co. and General Motors Co.
GM pledged investments in its Canadian operations of $675-million, while Ford promised 650 jobs and Chrysler committed to maintaining current employment levels.
Yes, we’re paying through the nose at the gas station. And, yes, our debts are out of hand, as the Bank of Canada keeps reminding us.
But take some solace in the latest report from Statistics Canada, which shows annual wage growth topping 4 per cent, well above the rate of inflation of 1.2 per cent.
Average weekly earnings rose 1.1 per cent in July, Statistics Canada said today, bringing the annual pace to 4.1 per cent.
“The 4.1-per-cent increase during the 12 months to July reflects a number of factors, including wage growth, changes in the composition of employment, as well as average hours worked per week,” the federal agency said.
Earnings were up in every province, led by Saskatchewan and with Quebec at the bottom.
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