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Stories Report on Business is following today:
Dollar, stocks in strong rally
Global stocks, the Canadian dollar and oil are all rallying this morning as the mood in financial markets changes considerably. The Canadian dollar shot up, oil is well above $73 a barrel, and The Dow Jones industrial average , S&P 500 and S&P/TSX composite index all jumped as North American markets opened.
Helping to drive stocks, and commodity-linked currencies such as the loonie, was positive news from Spain, the OECD's economic forecast yesterday and a denial by China of a news report that it is reviewing its holdings of euro assets, which is described as "groundless." In Spain, the parliament approved a €15-billion austerity package, though it passed by just one vote.
Market Blog columnist David Berman notes this morning that while global markets are rebounding, stocks have behaved erratically recently, to say the least, and markets have been whipsawed over the past two trading days.
As for the loonie, Scotia Capital economists Derek Holt and Karen Cordes Woods note this morning that, while there have been extreme ups and downs, the Canadian dollar is outperforming most of its global peers. "The [U.S. dollar]has outperformed almost all currencies this month, but [the Canadian dollar]has held its own better than most. The [loonie]has slipped 4.9 per cent against the greenback so far this month ... The point is that [the Canadian dollar]has outperformed on the upside and downside of broad movements in global risk appetite compared to a basket of currencies. Investors have done well over-weighting both the [U.S. dollar]and [the Canadian dollar]in portfolios. Yes this has been a [U.S. dollar]friendly environment, at least for now and until U.S. admonishment of European finances swings around to focus on U.S. fiscal austerity and drag effects on U.S. GDP over the next three years."
North American stocks closed on a down note late yesterday but futures are now surging.
"The surge in risk aversion heading into the U.S. close led to a selloff in U.S. equities dragging risk proxy currencies down with them," said strategist Christian Lawrence of RBC Dominion Securities. "This proved short-lived however and the overnight session was spent recouping those losses. The initial move was attributed to comments that China is considering a review of its euro zone bond holdings, but this was subsequently denied leading the way for a reversal ... As you would expect, these [foreign exchange]moves were accompanied by a rally in U.S. stock futures (S&P up 1.9 per cent), gains in Asian and European bourses (Nikkei +1.23 per cent, DAX +1 per cent) and a general bid tone across the commodity world. We have seen some paring back of the risk bid in the last few hours however, with a moderate bounce in [the U.S. dollar]and the high yielding currencies coming off their highs."
Related: Wild dollar swings cause headaches
Related: Kevin Carmichael's Global View blog on reasons to remain fearful
U.S. rebound weaker than believed
The recovery in the U.S. economy is slightly weaker than initially believed. The U.S. Commerce Department said this morning the economy expanded in the first quarter at an annual pace of 3 per cent, compared to an initial estimate of 3.2 per cent and below what economists had expected. The revision was largely due to lower consumer and business spending, on equipment and software, compared to the initial reading.
"With the first quarter in the rear-view mirror, attention now turns to the second quarter (and beyond)," said Toronto-Dominion Bank economist James Marple. "All the indicators point to a growth rate in the second quarter at least on par with the first quarter and likely above, leaving little doubt that the recession is over and a recovery is under way ...
The key to a sustainable recovery in the United States remains conditions in the labour market."
The Associated Press notes that while 3-per-cent growth would be deemed healthy in normal conditions, it will have to be two or times stronger to bring down the nation's unemployment rate in any significant way. Expansion of about 3 per cent is only enough to keep job growth on pace with population growth. Read the story
Sprott sees long market slump
Money manager Eric Sprott says he's bracing for a "long, deep" market slump, so he's buying gold. Mr. Sprott told Bloomberg News in an interview that the slump that so far has driven down the S&P 500 by more than 10 per cent is the start of a major pullback that will take the index, sometime in the next year, below its weakest level of 2009. The $1-trillion bailout of the euro zone by the EU, International Monetary Fund and European Central Bank has failed to calm investors' nerves, while governments are running out of measures to continue pumping their economies.
"Our thesis is we're in for a long, deep cycle, and we've thought that since 2000, but up to this point, governments and central banks have always tried to stave it off," he told the news agency.
Mr. Sprott has boosted gold assets, and shares of gold companies, while betting against banks such as TD, Bank of Nova Scotia and National Bank of Canada through short sales.
Of course, Mr. Sprott is just one voice, though a prominent one in Canada. Mark Mobius of Templeton Asset Management Ltd. had a different view, also in an interview with Bloomberg.
Mr. Mobius has been buying stocks in the BRIC countries - Brazil, Russia, India and China - and "despite the fact that a lot of people that think that we entering a bear market, we don't believe so. This is a correction in an ongoing bull market."
Banks miss estimates
Three banks, three misses, Streetwise columnist Andrew Willis writes this morning.
Royal Bank of Canada , Canadian Imperial Bank of Commerce and Toronto-Dominion Bank all fell shy of analysts' estimates in reporting second-quarter results today.
Despite missing, RBC's quarterly profit surged 40 per cent to $1.3 billion, but its international earnings were hit by the stronger Canadian dollar. RBC's cash earnings per share were 96 cents, shy of the $1.10 projected by analysts.
"Once again, provisions for credit losses came in well below expectations but were offset by revenue weakness as lower net interest income and non-interest revenues were well off expectations," Barclays Capital analyst John Aiken said of the results from Canada's biggest bank. "While last quarter [RBC's]meeting consensus expectations was a disappointment, we believe that this material negative surprise on revenues will likely be frowned upon once again by investors."
CIBC rebounded to a profit of $660-million from a loss of $51-million a year earlier, as earnings per share of $1.46 were short of the $1.49 projection.
TD's profit more than doubled to $1.18-billion but per share earnings of $1.36 did not meet the expected $.140.
Read
Strong dollar undermines RBC profit
CIBC back in black in second quarter
Nixon warns of sporadic bank reform
RBC chief executive officer Gordon Nixon warned this morning that a lack of co-ordination on financial reform is destabilizing financial markets and could set back the global economic rebound. "At a time when the world needs strong co-operation by all parties, the complete opposite appears to be occurring," Mr. Nixon said on a conference call related to the bank's earnings. "Various jurisdictions are creating their own rules ... The problem we face today is a number of constituents including banks, regulators and politicians each have very different interests and very different views on regulations."
Financial reform is shaping up to be a major stick point at the upcoming G8 and G20 summits in Canada, where various interests are going to call for a global bank tax, which Canada strongly opposes. Read Kevin Carmichael's Global View blog
Obama to unveil drilling regulations
President Barack Obama is expected today to unveil new rules for offshore drilling, and delay or kill some deals, reports this morning say. The president is struggling to prove he is control of the massive oil spill in the Gulf of Mexico, the Financial Times reports. Among other measures expected, the administration will suspend looking at any applications for drilling in the Arctic until next year, The Wall Street Journal says, describing the move as a setback for Royal Dutch Shell PLC's plans to drill in the Chukchi and Beaufort Seas in the summer. Mr. Obama is also expected to extend by six months a moratorium on permits for new deepwater wells.
The move comes as BP PLC scrambles to plug a well that has been spewing oil into the Gulf with a so-called 'top kill' process that involves pumping in heavy fluids and then sealing it with cement.
How luxury goods are performing
Here's a tale of two continents: Tiffany & Co. this morning topped analysts' projections as profit surged to $64.4-million (U.S.) or 50 cents a share from $24.3-million or 20 cents a year earlier, and revenues rose to $633.6-million, topping the estimates. Tiffany also boosted its forecast for annual profits.
But in Zurich, Richemont, the producer of the iconic Cartier, warned that Europe's deepening debt crisis could take a toll. Richemont's annual profit from continuing operations fell 18 per cent on currency losses, and sales fell 4 per cent. "What is going on in the western world is not very encouraging," said deputy chief executive officer Richard Lepeau. "Look at Europe and what may happen in the U.S."
From today's Report on Business
Securities watchdog plan allows provinces to opt out
How Apple became the new tech king