Skip to main content

The Globe and Mail

Amid heated U.S. debt feud, ‘nervousness is the order of the day’

These are stories Report on Business is following Friday, Sept. 27, 2013.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

'Nervousness is the order of the day'
Investors are on edge this morning as U.S. politicians head into a crucial weekend that will determine whether the government shuts down on Tuesday.

Story continues below advertisement

There are several factors playing into global markets today, but investors are eyeing what promises to be another round of bitter fighting over the weekend.

"The haggling between U.S. President Barack Obama and the Republicans has already started in the public arena, but in order to ensure that the U.S. does not see its debt downgraded again Mr. Obama needs to move this on, and quickly," said market analyst Alastair McCaig of IG in London.

"This will be the third time in less than two years that the U.S. will have needed to take action to avoid hitting its debt ceiling; rather than once again kicking the can down the road they should tackle the underlying  issues."

The deadline is Monday, the end of the U.S. fiscal year, and tensions are running high, as expected, heightened by wrangling yesterday.

The fear is that the government could shut down on Tuesday, and, though unlikely, default by midmonth.

Tokyo's Nikkei slipped 0.3 per cent today, though that had more to do with Japan's latest inflation reading, while Hong Kong's Hang Seng gained 0.3 per cent.

In Europe, London's FTSE 100, Germany's DAX and the Paris CAC 40 were down by between 0.1 per cent and 0.7 per cent by about 8:45 a.m. ET.

Story continues below advertisement

Dow Jones industrial average and S&P 500 futures also slipped.

"The president isn't prepared to negotiate the implementation of Obamacare as part of a deal to get an increase in the debt ceiling through, so this can go to the wire," said Kit Juckes, the chief of foreign exchange at Société Générale.

"U.S. data have been mixed (yesterday a case in point as pending home sales were soft and jobless claims very strong) and the economy doesn't need even a temporary hit from a government shutdown," Mr. Juckes said in a research note.

"Obviously, that would spook risk sentiment and push back tapering into the future," he added, referring to when the Federal Reserve will begin easing its bond-buying stimulus program.

"If/when a deal is reached economic sentiment and risk appetite are likely to get a simultaneous boost. A strong credit and [emerging markets] rally would/will be unleashed. But for now, nervousness is the order of the day."

BlackBerry posts ugly loss
Here's the good news: BlackBerry Ltd. shares aren't falling this morning. And the bad? As expected, the embattled smartphone maker posted a second-quarter loss of $965-million (U.S.).

Story continues below advertisement

That loss of $1.84 a share compares to a loss of $84-million or 16 cents a year earlier, The Globe and Mail's Omar El Akkad reports.

Revenue slumped to $1.6-billion from $2.9-billion as BlackBerry sold just 3.7-million devices in the quarter.

BlackBerry took a $934-million hit on unsold inventory, a sign of just how much the business has eroded.

The company warned of this a week ago, leading to a plunge in its stock price, and on Monday announced a tentative deal to be taken private by a consortium led by Fairfax Financial Holdings Ltd.

BlackBerry shares, however, are about $1 below the Fairfax proposal of $9 a share, or $4.7-billion, indicating doubt in the market that the deal will be done amid several questions related to the letter of intent between the two companies.

But, as The Globe and Mail's Tara Perkins reports, Fairfax chief executive officer Prem Watsa says he's confident he will succeed.

BlackBerry shares are up by more than 2 per cent in premarket action in the United States, at $8.13.

"We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure," BlackBerry chief executive officer Thorsten Heins said today as the company released the results.

"We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6-billion in cash and no debt. We are focused on our targeted markets, and are committed to completing our transition quickly in order to establish a more focused and efficient company."

Analyst keen on Bombardier
CanaccordGenuity is awfully keen on Bombardier Inc. stock.

Here's what analyst David Tyerman said today as he maintained his "buy" recommendation and price target of $6 on shares of the Canadian plane and train manufacturer:

"We believe Bombardier (BBD) will prove to be a very strong share price performer over the next few years, driven by expectations of very significant earnings growth. Earnings should increase from much improved BBD Aerospace (BA) demand, substantial incremental earnings from new BA products and improved sales and margins at BBD Transportation (BT. Free cash should also surge from the above factors and from a significant decline in new product investment."

Mr. Tyerman's research note followed investor meetings with Bombardier Aerospace chief Guy Hachey, and the outlook for the company's new C series planes.

"BBD is very happy with the C series first flight and reconfirmed its expectation of a 12-month flight testing campaign for the CS100 model," the analyst said.

"M. Hachey also reiterated expectations of 300 firm orders at entry into service (EIS) from 20-30 customers. Performance confirmation, which should happen in about six months, could drive increased order flow."

Streetwise (for subscribers)

Economy Lab

ROB Insight (for subscribers)

Business ticker

Report an error Licensing Options
About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨