These are stories Report on Business is following Monday, Oct. 20, 2014.
An edgy week
Canadian markets are starting a very risky week.
Others are, too, of course, but Canada has the added impact of a week chock full of comments from the Bank of Canada.
So far, global markets were mixed today. But, as they say, the week is young. As it was a week ago, and remember how that turned out.
"I think from a Canada perspective, we're fraught with risk here," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.
One of the key events will be Beijing's official report tomorrow – tonight, eastern time - on how China's economy fared in the third quarter of the year.
That's important for Canadian stocks and the Canadian dollar because of its potential impact on commodities, and thus commodity-linked companies and currencies.
And so far, it's been anything of a pretty ride for Canada's energy companies and its currency amid the recent fall in oil prices.
"A glance at last week's currency rankings shows NZD and KRW at the top, but it's those which have fallen against the dollar that tell the story: NOK, CAD, BRL, MXN," said Kit Juckes, the chief of foreign exchange at Société Générale.
He was referring to New Zealand's dollar, South Korea's won, Norway's krone, the Canadian dollar, Brazil's real, and the Mexican peso.
"So, it was a bad week for anyone who exports oil. And that of course, feeds back into our concerns about a return of gloom about growth prospects, given the risk that cheaper oil feeds into lower [consumer price indexes] before it feeds into stronger consumer demand," Mr. Juckes added.
After China, Bank of Governor Stephen Poloz and his senior deputy, Carolyn Wilkins, take centre stage, first with a rate decision and monetary policy report on Wednesday morning, and then appearances before Commons and Senate committees Wednesday and Thursday.
Obviously there will be no change in the central bank's benchmark overnight rate, but markets will be looking for any change in signal.
Don't expect any. Mr. Poloz and his colleagues are expected to remain "neutral" in their outlook, meaning that, at this point, the next move in interest rates could be up or down, though no one expects the latter.
Remember, though, that Mr. Poloz can and has moved the loonie, as Canada's dollar coin is known, with comments related to where rates might head.
"Those looking for a less dovish leaning from Governor Poloz are likely to be disappointed," Nick Exarhos and Andrew Grantham of CIBC World Markets said in a forecast.
"What the bank still sees as largely transitory inflation pressures are likely to be trumped by heightened global growth concerns, sagging oil prices and recent market volatility."
Wednesday's also a day for news that could impact the market's perception of what the Federal Reserve might do in the months ahead.
Investors have been hanging on every word that concerns when the U.S. central bank might hike its key rate, and whether it's on pace to wind down its asset-buying stimulus program known as quantitative easing, or QE, this month.
Wednesday's report on U.S. inflation is expected to show a dip in the annual rate to somewhere in the 1.5-per-cent to 1.6-per cent rate.
"A rising dollar and sagging oil prices will keep inflation low in coming months, prompting some dovish-leaning Fed officials to push for a further delay in policy tightening," said senior economist Sal Guatieri of BMO Nesbitt Burns.
For investors in general, this is also a crucial week for third-quarter financial reports from several major companies, starting today with Apple Inc. and IBM.
"To date, 80 per cent of the U.S. corporates have managed to beat market expectations," said analyst Alastair McCaig of IG in London.
"This goes some way to endorsing the high profit multiples that companies have, while at the same time asking how institutional analysts have so frequently undershot with their expectations."
Tokyo's Nikkei surged 4 per cent today, while Hong Kong's Hang Seng gained 0.2 per cent.
In Europe, London's FTSE 100, Germany's DAX and the Paris CAC were down by between 0.7 per cent and 1.5 per cent.
And in North America, markets were mixed by midday, with the S&P 500 and Toronto's S&P/TSX composite up, and the Dow Jones industrial average down.
The Canadian dollar was below the 89-cent mark.
"There are nine days to go until the U.S. Federal Reserve is expected to end quantitative easing," said market analyst Jasper Lawler of CMC Markets.
"The era of free money is coming to a close so markets are no longer a one-way bet," he said in a research note, adding that "corporate earnings will be key to whether the dislocation and resulting high valuations caused by the Fed can be justified."
- Follow our Inside the Market blog (for subscribers)
- David Parkinson: Bank of Canada expected to remain cautious on interest rates
- Loonie bounces around by a penny as 'greed begets fear'
- The (painfully slow) rise and (gut-wrenching) fall of the TSX
- Market mayhem: What's driving the global economic breakdown
Canada wins trade round
Canada is looking at slapping duties on iconic U.S. products ranging from California wine to ketchup after the World Trade Organization found the country's meat labelling laws offside for a second time in two years, The Globe and Mail's Barrie McKenna reports.
A WTO appeal panel ruled that a U.S. law that requires grocery stores to list the country of origin on meat products discriminates against Canadian and Mexican livestock. The decision was made public Monday.
The Conservative government warned that it will strike back with punitive duties unless the U.S. ends the "blatantly protectionist" regulations, and has already identified 38 target products.
Canada and Mexico won a similar case in 2012. But the U.S. Congress responded with new labelling legislation that farmers and meat packers found even more onerous, prompting the latest appeal.
Trade experts said they that while Canada would be within its rights to retaliate, a full-blow trade war is unlikely.
Apple profit, revenue climb
Apple Inc. posted stronger fourth-quarter results after markets closed today, capping what it called a year "for the record books."
The tech giant said its quarterly profit climbed to $8.5-billion (U.S.), or $1.42 a share, diluted, from $7.5-billion, or $1.18 a year earlier.
Revenue rose to $42.1-billion from $37.5-billion, buoyed by the launch of its new iPhone 6 and Plus models.
"Our fiscal 2014 was one for the record books, including the biggest iPhone launch ever with iPhone 6 and iPhone 6 Plus," said chief executive officer Tim Cook.
Apple also projected first-quarter revenue of between $63.5-billion and $66.5-billion.
CPR warns of industry woes
Canadian Pacific Railway Ltd. says its "exploratory conversations" about a takeover of CSX Corp. are over.
The Canadian railway not only signalled the breakdown, but also warned that "immediate action" is needed to fix the industry's congestion.
"CP proposed an integrated coast-to-coast combination that would improve customer service, promote competition, alleviate congestion in North America – specifically the key Chicago gateway – and generate significant shareholder value," the Canadian railway said in a statement.
"Such a business combination would offer creative alternatives for shippers, greater fluidity, increased capacity and improved efficiency industry-wide."
On that last note, CPR warned that regulatory issues seem to be having an impact – a "major deterrent," in its words – on potential rail mergers.
"CP believes that given the right structure between the right players, and having thoughtful considerations and remedies to address shipper concerns, regulatory approvals are achievable," it said.
The North American rail industry is confronted today with the challenges of moving more freight than ever and the prospect of moving even more as oil production, crop yields and consumer demand grow alongside the economy," it added.
"CP is convinced that the significant problems that beset the industry now will only worsen over time if solutions aren't put in place immediately."
Well, that didn't last long
IBM kicked off the corporate week with a third-quarter earnings report that disappointed investors, sending its stock sinking.
Indeed, chief executive officer Ginni Rometty said she was "disappointed" in the company's performance.
"We saw a marked slowdown in September in client buying behaviour, and our results also point to the unprecedented pace of change in our industry," she said in a statement unveiling the results of the industry giant, which now won't meet next year's target.
"While we did not produce the results we expected to achieve, we again performed well in our strategic growth areas – cloud, data and analytics, security, social and mobile - where we continue to shift our business. We will accelerate this transformation."
Revenue slipped 4 per cent in the quarter, to $22.4-billion (U.S.), while third-quarter profit tumbled 99.6 per cent to $18-million, or 2 cents a share, from $4-billion or $3.70.
That included a loss on discontinued operations. But adjusted, earnings per share of $3.68 still missed the estimates of analysts.
- IBM abandons 2015 earnings goal, divests chip unit
- IBM plant in Quebec not part of semiconductor divestiture
Canada is still triple-A, according to Moody's Investor Service, though the ratings agency warns of high consumer debt levels.
"Canada's Aaa rating and stable outlook continue to be supported by the country's relatively solid economic performance, favourable trends in federal government finance and debt levels, and strong institutional and regulatory framework," Moody's said today in its annual look at the country.
"After a recession at the time of the global financial crisis, the economy recovered and continues to show positive momentum, supporting improvement in government finance," it added.
"At the federal level, Canada's government debt is relatively low and, after a period of deficits, the budget is projected to return to balance in the current fiscal year and record moderate surpluses thereafter."
However, Moody's noted the "lofty housing valuations" that have "muted" home-building.
"While Canada's peers have also seen similar trends in recent years, Canada's market, with prices that barely moved during the recession and have been rising almost monotonically ever since, appears to be particularly inflated, especially in the largest metropolitan areas," it said.
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