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Adapting to the strong Canadian dollar: 'Lies, damn lies' and stats

Stories Report on Business is following today :

Google reported to be planning China exit

Google Inc. is expected to announce as early as today that it plans to shut down its Chinese search engine. The Financial Times reported this morning that the Internet search giant will also unveil plans for its other operations in China. Google could exit all its businesses in China, the newspaper said, but this was not clear. A retreat from China could hurt Google's stock price, analysts said today, because of the growing importance of China. "It hurts the multiple people who are willing to pay for Google if they don't have the China opportunity," Kaufman Brothers analyst Aaron Kessler told the Reuters news agency.

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Rio Tinto executives on trial in China

Reports from China say four executives of Rio Tinto PLC have pleaded guilty to taking bribes in a high-profile trial. News reports this morning quote a lawyer for one of the men as saying the four officials, including Stern Hu of Australia, as saying they entered pleas. Tom Connor, Australia's Consul General in Shanghai, where the trial is taking place, added that Mr. Hu "made some admissions concerning some of those bribery amounts, so he did acknowledge the truth of some of those bribery amounts," according to the Reuters news agency. Read the story



Health care stocks rise in U.S.

Shares of U.S. insurance companies and hospital groups rose today in the way of the health care overhaul bill passed yesterday. The S&P health care sector index rose about 0.8 per cent after markets opened, while the Morgan Stanley healthcare payor index gained 1.9 per cent. Other companies affected by the bill also rose.

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India rate hike surprises

A surprise interest hike by India's central bank late Friday unsettled currency markets today. Citing inflationary pressures, the Reserve Bank of India boosted its benchmark rate by one-quarter of a percentage point, and analysts expect authorities won't stop there. While markets had been expecting a rate hike, they didn't expect it this soon, believing instead authorities would move at the next policy meeting April 20. Also rippling through markets this morning are the ongoing concerns over Greece's debt troubles. "The combination of ongoing uncertainty over support for the weaker EU members, the U.S. passage of the health care bill and India's surprise interest rate hike have markets taking back some of last week's gains," Scotia Capital said of the currency market.



Recovery looks more robust

Canada's economic prospects are brightening faster than many observers had projected, based on recent indicators.

Coming off a strong showing at the end of last year, BMO Nesbitt Burns deputy chief economist Douglas Porter notes that "the trend really gathered momentum since dawn broke in March." Auto sales have surged, housing starts hit a February level of almost 200,000 annualized, Canada's trade surplus reached its best level in a year, some 60,000 full-time jobs were created last month, and manufacturing, home and retail sales have all jumped.

"While some of these high-side surprises came fully equipped with a 'yes, but' caveat ... there is simply no mistaking that growth and inflation have more underlying power than even the most strident optimist would have believed just a few short months ago," Mr. Porter said in a research note, and BMO now projects the economy will expand by 4.7 per cent in the first quarter.

"The conventional wisdom has relentlessly been that this will be a sub-par recovery, and the only debate has been whether we are headed for a U- or W-shaped rebound," Mr. Porter added, referring to a slower recovery denoted by a U, or the dreaded W, as its shape suggests.

"It looks more and more V-shaped by the day, and policy makers still have their foot firmly planted on the gas pedal," he said.

Mr. Porter is not alone. In a note titled "Eh Canada!," Scotiabank's Aron Gampel noted that "virtually everything Canadian is shining in the post-Olympic 'golden aura,' with investors buying stocks, bonds, real estate, companies, and the currency."

But recent indicators are just that. They can turn from month to month, and economists still expect bumps on the path to recovery. Mr. Gampel noted several factors that indicate "a more gradual appreciation in Canadian prospects." The Canadian economy remains closely tied to the United States, and Canada faces a long run of competitive pressures, he said, citing the impact of a stronger dollar on exporters. As well, he said, trade hurdles grow "more frequent and larger during times of international stress."

Mr. Porter, by the way, isn't beyond poking a little fun at Canada's economists, including himself, in referring to the fact that most of the economic indicators of late have come in better than expected: "What do you call it when Canadian economists underestimate every economic indicator for a month? No, no, no ... not par for the course ... a trend.





Dollar still 'albatross' for manufacturers, Shenfeld says

Canadians shouldn't be fooled into thinking that the strong dollar is no longer a serious issue for the manufacturing sector, the chief economist of CIBC World markets says.

"When it comes to looking at the implications of a strong Canadian dollar, there are lies, damn lies, and manufacturing statistics," Avery Shenfeld said in a recent report. "Of late, we've seen claims from some quarters that a near-parity exchange rate is no longer a serious concern, drawing their conclusions from the recent sharp upturn in Canadian factory shipments and GDP. But both the basis used for that comparison, and the timing of that conclusion, make such a finding far too premature."

Mr. Shenfeld cited reports last week that followed Statistics Canada's latest measure of the factory sector, which showed manufacturing shipments rose 2.4 per cent in January to the highest level since November, 2008. It marked the fifth consecutive gain for the sector. While Mr. Shenfeld was referring specifically to media reports, Finance Minister Jim Flaherty also pegged the loonie's level as "competitive" while Industry Minister Tony Clement said companies are adapting to a strong currency.

Mr. Shenfeld noted that most export manufacturers, or those competing with imports, hedge some or all of their short-term currency risks, and it can take up to two years to feel the full effect of translating foreign sales into "fewer Canadian dollars." He also noted that the latest figures are being compared to depressed levels at the height of the recession in 2009.

"Nobody doubted that at any level of the Canadian dollar, we would see what would look like a steep climb after a nearly 30-per-cent nosedive in real factory shipments," he wrote. "Those impressed by the recovery to date need a reality check. Adjusted for inflation, manufacturing GDP and shipments are sitting at only 1997-98 levels, and nearly 20 per cent below the pre-recession peak. The effect of the strong Canadian dollar will show up in the extent to which the factory sector can make up that vast remaining ground."

Mr. Shenfeld said there is a fair lag for the impact to be felt on Canada's share of the sector's activity in North America, adding in an interview that "it could take a couple of years before you have a sense of how much damage has been done to our manufacturing competitiveness."



Real estate officials vote on changes

More than 300 officials from Canada's real estate boards meet in Ottawa today to vote on changes to fees. Real estate agents have been under pressure since the Competition Bureau alleged the current structure for the Canadian Real Estate Association's Multiple Listings Service is uncompetitive. The bureau has gone to the Competition Tribunal alleging the association makes it impossible for any of its members to offer consumers fee-based services for particular portions of a deal, such as listing on the MLS or negotiating a sale price. Changes to the structure would allow sellers to handle a great portion of their home sale on their own, but still take advantage of the MLS. Read the story



CRTC to rule this afternoon

The federal broadcast regulator is scheduled to rule after markets close today in the latest round in the fee-for-carriage debate, now known as value-for-signal. Broadcasters, such as CTVglobemedia and CanWest Global Communications, want Canada's cable and satellite companies to pay for conventional over-the-air TV signals, which would help cover the cost of programming for struggling broadcast businesses. In turn, the distributors argue they already pay rising fees for specialty and pay-television services and should not have to pay extra for signals that have always been free. The dispute between the broadcasters and carriers has been heated, and today's ruling by the Canadian Radio-television and Telecommunications Commission follows a report last week that showed conventional private broadcasters posted an operating loss last year for the first time since the regulator began tracking the data.

Related : Private TV broadcasters post first operating loss



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And, did you miss the weekend edition?

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