Today's top stories from Report on Business :
New Brunswick kills power deal
New Brunswick's premier has cancelled a $3.2-billion sale of generating stations to Hydro-Québec. Shawn Graham and his Quebec counterpart, Jean Charest, called off the controversial deal today, saying they couldn't agree on which province would take on the risk for ongoing and future work needed at some of the New Brunswick Power facilities. Mr. Graham's Liberal government has been retreating since last fall, when he announced the province would sell all of New Brunswick Power Corp. to Hydro-Québec for $4.8-billion. In January, he amended that to a $3.2-billion agreement under which his province would sell most of the Crown corporation's generating assets, but keep the transmission and distribution operations. Mr. Graham and Energy Minister Jack Keir have never been able to persuade New Brunswickers that even the more limited sale to Quebec's provincially owned power utility would protect the interests of local consumers and businesses. Read the story
Why Brin wanted out of China
Google Inc. co-founder Sergey Brin says China is reminiscent of the Soviet Union that his family fled when he was just six years old. Mr. Brin, 36, recalls in an interview with the Wall Street Journal how police came to his home and how his father was a target of anti-Semitism. In the remarkable interview, posted online on the newspaper's site, Mr. Brin says those memories bolstered his opinions on Google's operations in China. He cites China's Web censorship and meddling in the company's affairs, adding that the cyberattack cited by Google was "the straw that broke the camel's back." The newspaper says Mr. Brin and other Google officials won out over some who believed Google should stay in China. It announced this week it would no longer censor and routed its China traffic through Hong Kong. While China has made huge strides in some areas such as poverty, he tells the newspaper, "nevertheless, in some aspects of their policy, particularly with respect to censorship, with respect to surveillance of dissidents, I see the same earmarks of totalitarianism, and I find that personally quite troubling."
China's CNOOC signs LNG deal
China's relentless pursuit of resources continued today with a multibillion-dollar, 20-year deal signed by China National Offshore Oil Corp., or CNOOC, for 3.6 million tonnes of liquefied natural gas a year from Australia's BG Group PLC. Based on an oil price of $70 (U.S.) a barrel, the deal would be worth about $40-billion. Today's agreement makes final a preliminary deal struck last year, and, according to Australia's energy minister, is the biggest business-to-business pact ever. The gas will come from a planned terminal in Queensland state, and the two companies are also forming a venture to build two LNG ships that would transport it. China has been striking resource deals around the world. Just yesterday, Royal Dutch Shell and China National Petroleum Corp. announced plans to develop natural gas fields in China's Sichuan province under a 30-year deal. CNPC's subsidiary PetroChina is also, with Shell, bidding for Australia's Arrow Energy.
Carney mindful of hotter inflation
Bank of Canada Governor Mark Carney has economists again pondering the timing of his first interest rate hike. Mr. Carney told the Ottawa Economics Association this afternoon that inflation is running hotter than the central had projected and, notably, he emphasized how the Bank of Canada is committed to keeping inflation in check. That suggests Mr. Carney could boost his benchmark overnight rate sooner rather than later. The central bank has pledged to keep its key rate at a record low 0.25 per cent until at least mid-year, but that promise was conditional on inflation. Now that the core inflation rate, the measure that guides the Bank of Canada, is higher than anticipated, some economists expect he will move quickly. Statistics Canada pegged that core rate, which ignores volatile items, at 2.1 per cent in its latest reading. And, noted Mr. Carney, "the Bank of Canada has an unwavering commitment to price stability."
Eric Lascelles, the chief Canada macro strategist at TD Securities, pointed out that Mr. Carney failed to squash market speculation on an early hike, and may be "very tempted" to act in June. "Clearly the Bank of Canada is more willing to consider unravelling its commitment than we had thought," Mr. Lascelles said. "In turn, recent economic strength argues for a significant risk of a June decision. Ultimately, the decision will be data dependent, based upon how inflation, employment, and economic growth play out over the next few months."
BMO Nesbitt Burns senior economist Michael Gregory said after Mr. Carney's speech that he still expects the Bank of Canada to move no sooner than in July "but the odds of something happening earlier are increasing a bit." Read the story
Related: How sticky is inflation?
Carney criticizes business
Mr. Carney also took on Canadian businesses with comments that are rare for a central bank governor, saying corporate Canada has a poor showing on productivity despite the fact that governments created favourable conditions.
"In general, while there is always more to do, governments have put in place conditions for a productivity revival," Mr. Carney said. "Business, thus far, has disappointed."
And he noted that growth in productivity fell during the recession, for the first time in three decades.
"Looking forward, despite the availability of capital, relatively strong balance sheets and improving economic conditions, corporate Canada does not appear ready to invest," Mr. Carney said. "Investing intentions for 2010 remain modest and largely driven by the public sector. This appears unwise." Read the story
Fitch downgrades Portugal
Debt troubles in Europe rippled through currency and stock markets again today but the focus shifted somewhat from Greece to Portugal. Fitch Ratings downgraded Portugal's debt by one notch to AA- and warned it could go further still, citing concerns over the economy and government finances in the medium-term given its "existing structural weaknesses and high indebtedness across all sectors of the economy." The government's deficit last year was 9.3 per cent of gross domestic product. Small mercies, though: Portugal's rating still tops that of Greece. Greece is also still a concern as various governments bicker over an aid package, and the woes of both countries helped push down the euro. In an interview today with Bloomberg Radio, Paul Donovan, the deputy chief of global economics at UBS, warned that Greece will default on its bonds at some point.
"Europe has failed to clear its first serious hurdle," Mr. Donovan said. "If Europe can't solve a small problem like this, how on earth is it going to solve the large problem, which is the euro doesn't work."
Read
Portugal downgrade, Greek woes hit euro
Fitch downgrades Portugal's debt
Germany insists no aid for Greece
Neil Reynolds: The telltale signs of a coming sovereign debt crisis
Gwyn Morgan: Greek policy has been a recipe for failure
New EI claims decline
New claims for jobless benefits are falling as the economy picks up. Statistics Canada said today the number of initial and renewal claims fell 7.8 per cent in January from December, dropping in all provinces but for Newfoundland and Labrador. The sharpest decline came in Ontario. The number of unemployed workers on continuing claims also fell, by 6.4 per cent, though there's no way to tell that's due to better prospects or people exhausting their benefits. Notable is that as of January, the year-over-year pace of increase in beneficiaries was faster among women, at 20.6 per cent, compared to 12.8 per cent for men. Read the story
New home sales fall in U.S.
Sales of new homes fell in the United States in February to their lowest on records dating back to 1963, down 2.2 per cent, but particularly hard hit were those regions slammed by snowstorms. Still, it was the fourth drop in a row. "The decline in new home sales during the month is consistent with the recent stall we have been seeing in the overall housing market, which also includes the existing home sales market," said TD Securities portfolio strategist Ian Pollick. "... We are of the view that the housing market recovery remains intact, though it has been losing steam over the past couple of months, and may have been impacted by adverse weather. Going forward, we don't expect housing to rise at a blistering pace, though it is likely not to fall off a cliff either."
Economists defend stimulus
Economists are coming to the defence of Finance Minister Jim Flaherty and his stimulus measures, and rather emphatically at that. Yesterday, the Fraser Institute released a study saying stimulus spending didn't help boost the economy all that much, accounting for just 0.2 percentage points of economic growth between the second and third quarters of last year, and nothing from the third to the fourth. Rather, the think tank said, private sector investment and higher exports were the key drivers. Senior economist Niels Veldhuis noted in an accompanying statement that Ottawa "repeatedly claimed credit" for Canada's improving fortunes in the latter half of last year, but that Statistics Canada data showed government spending and infrastructure investment had only a "negligible effect."
Economists have oft credited both stimulus and the Bank of Canada's emergency measures for righting the economy, and today Scotia Capital economist Derek Holt shot back:
"One year later, and out come the rearview mirrors and the revisionists. It's easy to judge stimulus efforts from the confines of a recovery. Stimulus, they say, didn't work. Stimulus, they say, just saddled us with deficits and debt for years to come and nothing to show for them. I think such claims have some merit, but are overly harsh for researchers to be making on three counts. One is that we don't know the alternative state of the world in which no global and Canadian stimulus was introduced. It seems that in order to make bold judgments on the efficacy of stimulus, one would need the proverbial control sample. Sadly, that's what makes the social sciences, like economics, more imprecise than (some) of the hard sciences in which trial and control samples can be done with results witnessed in a beaker inside of a flea's life cycle. Second, the way to measure it isn't through just a national income accounts add-up that focuses upon the government spending and investment categories. We'll never really know the extent to which fiscal and monetary policy action bolstered confidence and thus insulated against further downsides to private spending categories. Third, much of the stimulus frankly did work. A bond-for-mortgage swap program added to gross government debt, but earned more than a penny or two for the feds while contributing toward a sharp improvement in mortgage spreads to the benefit of much of the credit space. Lastly, Canada, unlike many other countries, carved out relatively modest and short-lived stimulus roughly as per IMF guidelines such that deficits are chopped in half in short order."
Added BMO Nesbitt Burns: "Recent reports that government stimulus had little effect in 2009 in Canada simply do not look correct. One rough and ready gauge is to look at the net contribution to GDP growth of government spending (on goods, services and capital spending) and compare that to a long-run average. In the four quarters to [the fourth quarter of]2009, this spending added 1.5 percentage points to GDP, versus a 25-year average of 0.5 [percentage points] So, net additional stimulus spending at all levels of government added at least 1 [percentage point]to growth last year."
Dividend with your coffee?
Starbucks Corp. said today it plans to pay a cash dividend for the first time and buy back more stock. The quarterly dividend of 10 cents (U.S.) a share follows a restructuring in the recession. Dow Jones noted that the coffee giant joins many other companies of late in beginning or upping their stock buybacks and dividends.
"We believe a dividend makes sense since Starbucks has entered a phase of slower store development and the development of a recurring, high-income consumer products business," said UBS Investment Bank analyst David Palmer. "An added benefit is that the dividend should help widen [Starbucks']investor base. While total share authorizations only represent 3 per cent of diluted shares, this could provide additional technical support for the stock through the year and negate dilution from options."
Japanese exports dip
Japan's exports are on something of a slower boat to China, but the United States is picking up the slack. Statistics released today showed Japanese exports dipped last month, largely because the Lunar New Year ate into shipments to China, the country's biggest export market. But analysts said a surge in primarily automotive exports to the United States illustrate the rebounding economy. "The figures overall underline the view that exports are on an uptrend, and the trend may well have strengthened, Mizuho Research Institute senior economist Yasuo Yamamoto told the Reuters news agency.
From today's Report on Business
Real estate agents ready for court fight with Ottawa
Overhaul of Fannie, Freddie faces hurdles
Marketers invade grocery aisles to pitch in the 'last three feet'