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Soros sees Act II

Renowned investor George Soros says Europe's financial troubles means the world has "just entered Act II" of the financial crisis. "The collapse of the financial system as we know it is real, and the crisis is far from over," Mr. Soros told a conference in Vienna. "Indeed, we have just entered Act II of the drama, when financial markets started losing confidence in the credibility of sovereign debt. Greece and the euro have taken center stage, but the effects are liable to be felt worldwide."

Among his other comments:

"We find ourselves in a situation eerily reminiscent of the 1930s. Keynes has taught us budget deficits are essential for counter-cyclical policies, yet many governments have to reduce them under pressure from financial markets. This is liable to push the global economy into a double-dip."

"The simplest case of a purely financial bubble can be found in real estate. The trend that precipitates it is the availability of credit; the misconception that continues to recur in various forms is that the value of the collateral is independent of the availability of credit."

"Credit-default swaps (CDS) are particularly dangerous. They allow people to buy insurance on the survival of a company or a country while handing them a license to kill. CDS ought to be available to buyers only to the extent that they have a legitimate insurable interest." Read the full text of the speech in DealBook by The New York Times

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Markets, dollar rally

The markets didn't necessarily agree with Mr. Soros today, though investors have certainly had bouts of fear related to Europe's debt crisis. Today, global markets rallied on fresh signs that the economic recovery continues apace. Numbers from the United States, Japan, China and Australia all pointed to a rebounding economy. In the U.S., new claims for jobless benefits dipped, though still showing a labour market in crisis, while Chinese trade numbers showed the world's economic engine is not showing signs of slowing. Japan's freshest reading of economic growth, meanwhile, showed GDP expanded at a 5-per-cent annualized pace in the first quarter.

As expected, the Bank of England and the European Central Bank held interest rates steady.

"The last trading session BWC (Before World Cup) was a humdinger though, with risk most definitely on across the board," said David Watt, senior fixed income and currency strategist at RBC Dominion Securities in Toronto. "Concern about the EU periphery faded, Spain's stocks surged (aided by solid demand for Spain's 3-year bond issue), with the rest of Europe in hot pursuit. N.A. markets started with a lag, but put in a top effort to catch up ... After risk sentiment had been held hostage by fear, growth concerns and the risk of a repeat of the market disruptions of 2008, the fact that markets continue to operate, and that as [Bank of Canada Governor Mark]Carney noted 'there's been a modest impact on financial conditions' from Europe debt woes, and that global growth (so far) seems to be resilient, are helping dampen risk aversion. In fact, measures of risk aversion are at their lowest levels since early May when rating downgrades in the EU periphery and the flash crash caused risk aversion to blow its top."

The Canadian dollar also surged, popping above 97 cents U.S. at one point though it closed just shy of the mark at 96.97 cents, up 1.21 cents. As the loonie was rising, strategists at BNP Paribas SA advised investors to buy into the loonie given Canada's better prospects, according to Bloomberg News, going so far as to say that the country's monetary and fiscal policy suggests "the making of a reserve currency." Said the BNP analysts: "The end benefit for Canada is the rising credibility of the central bank as it correctly anticipated the subprime crisis and presided over a stable banking system. The Harper government is also moving ahead with the removal of emergency G-20 crisis measures."

Read: David Berman's Market Blog



Trade numbers threaten to heighten tension

Trade numbers from China and the United States this morning could heighten tensions between Beijing and Washington over China's refusal to allow its currency to appreciate. Official figures confirmed China's exports surged in May by almost 50 per cent from a year earlier, showing its economy continues to boom threatening to up the rhetoric and add to political pressure on Beijing to allow the yuan to rise. Separately, the United States reported that its trade deficit widened in April to the fattest in more than a year as a fall in exports eclipsed the drop in imports. Its trade deficit of $40.3-billion (U.S.) is the biggest since late 2008, and the gap with China widened to $19.3-billion from $16.9 billion.

BMO Nesbitt Burns economist Sal Guatieri noted that the U.S. trade gap with China is growing again after having stabilized for a period, adding in an interview that "on the surface it would encourage an elevation in the war on words."

In Washington today, Treasury Secretary Timothy Geithner urged China to act on trade irritants, saying in prepared remarks to the Senate Finance Committee that "the distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need."

Related: Chinese currency reform critical: Geithner



Canada posts trade surplus

Canada posted a small trade surplus of $175-million in April, rebounding from a deficit of $236-million a month earlier, as both exports and imports dipped on lower prices. Exports fell for the second month in a row, to $32.9-billion from $33.4-billion, Statistics Canada said today, though prices slipped 1.4 per cent while volumes actually rose slightly. Imports followed a similar path, falling to $32.8-billion from $33.5-billion, as prices declined 2.4 per cent and volumes rose 0.2 per cent. CIBC World Markets economist Krishen Rangasamy noted that "the closure of European air space in April likely played a role in halting two-way trade in the month." Read the story

Related: Economy to grow briskly, RBC says



BP bloodied but unbowed

The empire that once was is striking back. BP PLC , one of the giants of the energy industry and a company steeped in more than a century of history, suffered another rout on overseas markets today, though it saw a sharp rebound in New York. Pressure continues to build on BP by the day over the disaster in the Gulf of Mexico from the explosion on the Deepwater Horizon drilling rig in April. The company is being held to account by the U.S. government and markets don't like what they see, wiping billions from its market value. There is also pressure on the company to suspend its dividend as it faces mounting costs, which now stand at $1.43-billion (U.S.).

BP responded to market pressure in a statement this morning: "BP faces this situation as a strong company. In March, we indicated that the company's cash inflows and outflows were balanced at an oil price of around $60/barrel. This was before the costs of the incident." The company added that it has "significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."

And in a memo to employees, The Globe and Mail's European correspondent Eric Reguly reports, chief executive officer Tony Hayward noted the "undeniably difficult times" but said that "we are in this for the long run - we will do the right thing in our response, and we will emerge a stronger and safer company when we come through the other side."

Read

U.S. shares of BP rebound sharply

BP shares plunge 12 per cent

BP stock falls on fears of larger spill

Canada to monitor Arctic drill sites

We've seen the spewing oil ... where's the public outcry?



Gulf disaster could lead to more limited supply of oil

The oil disaster in the Gulf of Mexico could prove to be a "supply-side game changer" by restricting deep-sea drilling, delaying projects and boosting costs, in turn curtailing supplies, the International Energy Agency warned in a new report today. The adviser to almost 30 countries said in its Oil Market Report that projects representing between 100,000 and 300,000 barrels a day could be delayed over five years if there is a lengthy moratorium on new projects. "Costs are going to go up, projects are going to be delayed and some sort of regulatory overhaul is likely in the United States in the aftermath of this terrible accident," David Fyfe, the chief of the agency's oil industry and markets division, told Reuters television.



Bank reforms won't hurt, Carney says

New regulations for the world's financial sector will not hobble the global economic recovery, Bank of Canada Governor Mark Carney said this morning, contradicting a new study that predicts the plans will shave 3.1 percentage points from GDP in the United States, Europe and Japan over five years. The study by the Institute of International Finance, a group that represents the world's banks, warned that reforms calling for stronger capital will force banks to cut back on lending to business.

But in a speech in Montreal, Mr. Carney said that, while some are concerned about the impact of the changes on the economy, "this apprehension is misplaced." Read the story

Related: Kevin Carmichael's G8/G20 Global View summit blog on why France's foreign minister thinks the G8 is passé



Transat profit slides

Transat A.T. blamed "intense competition" and setbacks related to the airspace shutdown from Iceland's volcanic ash as its second-quarter profit fell to $6.2-million or 16 cents a share from $42.2-million or $1.27 a year earlier. Revenue dipped to $1.06-billion from $1.13-billion, the Montreal-based tour operator reported today. "Both the quarter and the first six-month period have seen intense competition, which continues to squeeze margins and benefit the consumer," said chief executive officer Jean-Marc Eustache. "Our operating expenses are under control and our cost-reduction efforts have been successful. In addition, we recorded unexpected costs of $4-million as a result of volcanic activity in Iceland." Read the story



Lululemon boosts outlook

What is it they say about those yoga pants? Lululemon Athletica Inc. today posted first-quarter profits that were triple those of a year earlier and topped analysts estimates. Lululemon earned $19.6-million (U.S.) or 27 cents a share, compared to $6.5-million or 9 cents a year earlier. Revenue surged to $138.-million from $81.7-million. The Vancouver-based company also projected second quarter revenue in the range of $140-million to $145-million, topping analyst estimates of $133-million.



If you want my (bonds?) and you think I'm sexy

Japan's finance ministry has launched a new ad campaign with a twist, advising men that the way to a woman's heart is through government bonds. "Playboys are no good," says one young woman in a magazine ad, according to Bloomberg News, which noted that the new campaign comes as government borrowing threatens to eclipse demand for its bonds. "Men who hold JGBs are popular with women!!" Bloomberg noted that government debt in Japan, the world's biggest bond market, stood at a record ¥882.9-trillion at the end of March.



From today's Report on Business

Why Brazil stands out

GoldenTree's bet on CanWest's papers

Life unravelling for Mark Kipnis

A new, improved look for biofuels





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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
BP-N
BP Plc ADR
+0.59%37.68
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
TRZ-T
Transat At Inc
-0.78%3.83

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