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Did fracking spark quakes? Scientists now suggest a link between a controversial drilling practice, known as fracking, and two minor earthquakes in Britain.

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The British Geological Survey is investigating to determine any connection between the two temblors and fracking at a shale gas project near Blackpool. Cuadrilla Resources, the company involved, said today it had temporarily stopped drilling in the area while authorities investigate.

"We take our responsibilities very seriously and that is why we have stopped fracing operations to share information and consult with the relevant authorities and other experts," Mark Miller, Cuadrilla's chief executive offier, said in a statement.

Fracking, known also in the industry as fracing, means hydraulic fracturing, a process that uses water, sand and chemicals or gases like nitrogen to break up underground rock formations and force natural gas to the surface. It has revolutionized the natural gas industry, but is a controversial practice, including in Canada.

Earlier this year, for example, Quebec froze exploration involving fracking, which environmental groups say can lead to water contamination and pollution.

One earthquake in April measured 2.3, about 2 kilometres from the drilling site near Blackpool. The other, on Friday, measured 1.5 and was within about 500 metres of the site.

The timing suggests the earthquakes may be connected to the fracking, but more evidence is needed, Brian Baptie of the British Geological Survey said in an interview from Edinburgh.

"We understand that fluid injection, between depths of 2-3 kilometres, was ongoing at the Preese Hall site shortly before both earthquakes occurred," the British group said in a statement. "The timing of the two events in conjunction with the fluid injection suggests that they may be related."

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It's well known that fluid injections can spark small quakes, the group said, adding that typically they're too small to be felt.

'We would not expect earthquakes of these relatively small magnitudes to cause any damage," it added. "Further monitoring and careful analysis of any future activity is required to help understand any relationship between the injection process and nearby seismic activity."

Moody's hits Greece again Greece just can't catch a break. As markets increasingly speculate that it will be forced to restructure its debts, and European leaders work on a new rescue effort, Moody's Investors Service has again downgraded the country's debt. And it says it could still cut more.

Moody's said today it downgraded Greece to Caa1 from B1, with a negative outlook. It warned that Greece is running out of options, though doesn't think a debt restructuring is inevitable. The downgrade was in light of the "increased risk" that Greece won't find its footing without a restructuring.

Many market observers see a restructuring as invitable.

"A second Greek bailout package, perhaps involving some form of voluntary debt rescheduling, won't address Greece's fundamental problems and won't prevent a major restructuring in the future," said Jonathan Loynes of Capital Economics.

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"The European Commission and some national governments, led by Germany, have pushed for Greece to undertake some form of 'soft' debt restructuring or rescheduling," he said in a report today.

"But the European Central Bank (ECB) has remained steadfastly opposed to the idea and warned that any restructuring would render Greek debt ineligible as collateral for ECB loans. Reports on Wednesday suggested that some sort of compromise package is currently being discussed which might combine an additional bailout with a voluntary debt roll-over along the lines of the 'Vienna initiative' used in Eastern Europe in 2009. Details are sketchy but the basic idea is that investors will be offered incentives such as higher coupons, preferred creditor status or even some form of collateral to exchange bonds maturing in the next few years for those of longer maturities. The hope seems to be that this will circumvent the ECB's definition of default and hence protect the new bonds' collateral status."

CIBC World Markets economist Emanuella Enenajor said the most likely scenario is an "enhanced package" that would see Greece past its 2012 refinancing needs. That would mean a minimum of €32.5-billion in new loans, which cover Athens through the first quarter of 2013. A fatter package that would carry Greece through to mid-2014 could be double that.

"A debt restructuring would be a last option if European authorities are unwilling to extend further loans," she said.

"Although German authorities have been open to an eventual 'burden sharing,' the ECB has unequivocally opposed any form or debt restructuring, given its significant exposure to Greek sovereign debt as collateral in its liquidity operations. Even a 'soft restructuring' or 'reprofiling' could mean chaos for Greece, as writedowns of domestic holdings of sovereign debt would see a need for bank recapitalizations. If Greek banks are shut out of markets, that may require direct ECB intervention."

PBO spurns rosier view Canada's Parliamentary Budget Officer is offering a contrarian challenge to Canada's major private-sector economists, The Globe and Mail's Bill Curry reports today.

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In a new report, Kevin Page says he will no longer rely - as Finance Canada does - on an average of forecasts by private-sector economists to underpin assumptions for growth and government revenue.

The PBO's own view is more pessimistic than the private-sector average, which in turn leads the office to maintain its view that Ottawa's deficit will not be erased by 2015-16. The Conservatives promised during the election campaign to move up that target for returning to surplus by one year.

Manufacturing growth slows One month does not a trend make, but the world's manufacturers are showing slower growth.

Purchasing managers indexes in the United States, Europe and Asia today show expansion of the factory sector, which has boomed of late, slipping in May.

The Institute for Supply Management's manufacturing index for May slipped to 53.5 from an April level of 60.4, highlighting slower growth but still marking the 22nd month in a row of expansion. The 50 marks separates expansion from contraction.

Toesday's measure was the first below 60 so far this year, and the lowest in the past year, pushed down by slower growth in new orders and production, the group said.

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"While markets won't like today's ISM print, it must be noted that a reading above 50 still corresponds to expansion, meaning that the drop that we've been seeing since the February peak suggests just a slowdown in the rate of expansion (not surprising given the supply-chain issues) rather than an outright contraction," said economist Krishen Rangasamy of CIBC World Markets.

"Indeed, the real surprise is that the ISM has been so lofty in the prior months relative to what we were observing in other measures of factory activity. In May, several of the important ISM components fell a bit but remain in solid growth territory for new orders, production and employment."

Also notable was the easing in China, the driver of the global recovery. Still, it's slowing at a moderate pace, observers note, with no suggestion of a hard landing.

"The upshot is that today's surveys provide further evidence for a gradual slowdown," said Qinwei Wang, China economist at Capital Economics in London. "China's economy is not facing an imminent hard landing, nor is it overheating. Worries about inflation should ease soon, even though they will probably not disappear until late this year."

TMX, LSE agree on name One wonders what it took to come up with LTMX Group Inc. for the name of a merged TMX Group Inc. and London Stock Exchange Group PLC. And how come the British get to go first?

After exploring thousands of names for the merged exchange operator, they opted to simply merge their names, Globe and Mail Streetwise columnist Boyd Erman reports.

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The new name for the LSE and TMX, assuming regulators and shareholders approve the transaction, will be LTMX Group PLC, the LSE said in a regulatory finding.

Bombardier profit climbs The recovery in the business jet market is beginning to give Bombardier Inc. a boost, The Globe and Mail's Bertrand Marotte reports today from Montreal.

Bombardier said today it earned $220-million (U.S.) or 12 cents a share in its first quarter, compared to $195-million or 11 cents a year earlier. Revenue climbed 9 per cent to $4.7-billion.

The company took in 77 net orders for business jets in the quarter, compared with only 6 in the previous-year's quarter.

"Bombardier Aerospace started to benefit from a stronger business aircraft market, especially at the high end," said chief executive officer Pierre Beaudoin.

Bombardier also clinched another order - albeit a modest one - for its new C Series single-aisle jet.

Fires delay Horizon repairs Alberta's forest fires are delaying repairs at the Horizon oil sands project, Canadian Natural Resources Ltd. said today.

While its facilities haven't been damaged by the fires, smoke levels remain high, meaning workers can't get back in. The Calgary-based energy company said it hopes to have them back in a few days, meaning about three weeks have been lost in repairs after an upgrader fire in early January.

Canadian Natural again estimated its costs at $350-million to $450-million, which will be covered by insurance.

It added that about five days were lost at its Pelican Lake Field, which produces about 40,000 barrels of oil a day, because of a shutdown of the Rainbow pipeline system, now back up on running, and production should get back in the next few days to the levels before the fires.

Similar, operations at Slave Lake in northern Alberta, where some 3,100 barrels of oil and 8 million cub feet of natural gas are produced daily, are at 60 per cent capacity.

Analyst George Toriola of UBS Securities Canada said the company is likely to cut its production outlook. He held his 12-month price target on Canadian Natural's shares at $50 and his rating at "buy." Analyst Menno Hulshof of TD Newcrest, however, cut Canadian Natural's price target to $53 from $54.

Analysts brighten on Scotiabank Analysts are boosting their targets on shares of Bank of Nova Scotia after the bank's second-quarter results yesterday

"With profitability in Canadian banking coming under pressure, we see this quarter as demonstrating one of Scotia's most important investment attributes - how its diversification reduces vulnerability and provides other sources of growth," said Michael Goldberg of Desjardins.

"Execution remains strong, and we see earnings and dividend growth continuing over the balance [fiscal 2011]and in [fiscal 2012] For these reasons, we believe Scotia deserves its premium valuation.

As Globe and Mail banking writer Grant Robertson reports today, Scotiabank's international businesses are enjoying wider margins and increasing loan volumes, helping boost the bank's second-quarter profit to $1.54-billion.

Mr. Goldberg boosted his price target to $66.50 from $64. Peter Rozenberg of UBS Securities Canada hiked his target to $68 from $67. National Bank analyst Peter Routledge raised his target to $64 from $63.

ADP reports disappoints Today's report from ADP Employer Services was a disappointment, showing employment jumping by just 38,000 jobs in May, well short of what economists had forecast.

The ADP report points to the official U.S. government jobs report on Friday.

"The ADP's reported increase of a mere 38,000 jobs is clearly a surprise, given that expectations had been for a 178,000 rise," said senior economist Jennifer Lee of BMO Nesbitt Burns. "Although the shockingly weak result is unnerving, keep in mind that this report is not a perfect replica of the official release (coming this Friday)."

Canadians cut back, but trouble ahead for some Most Canadians should be able to handle higher interest rates expected later this year, but many will still see a "financial shock," Toronto-Dominion Bank economists say.

Their comments come as Bank of Canada Governor Mark Carney primes markets for that inevitable hike, which economists believe will now come in September.

"The main question is how households will respond to the eventual rebalancing of monetary policy, TD economists Craig Alexander and Diana Petramala write in a new report that looks at indebtedness among Canadian households.

"In our opinion, many Canadians will experience a financial shock when interest rates eventually rise, but the vast majority of households should be able to cope so long as interest rates rise only gradually. The worst scenario would be one where interest rates are left too low for too long, which necessitates a more rapid tightening of monetary policy that would pose a greater shock to personal finances."

Yesterday, the Bank of Canada held its benchmark overnight rate steady at just 1 per cent, citing global uncertainty and the impact of the strong Canadian dollar, but said rates must eventually rise. Mr. Carney has warned borrowers to get ready, pointing to high personal debt levels, and consumers have started to heed the call.

Mr. Alexander and Ms. Petramala note that households are cutting back. Annual personal credit growth slowed to a year-over-year pace of 6.4 per cent in April, compared to an average 10.9 per cent in a period spanning 2004 to 2008.

Both secured and unsecured lending has moderated, they say, the former a sign of the real estate sector's "soft landing," and the latter an indication that consumers "have responded to the calls for greater prudence in managing their debt."

Those are good signs, the economists add, but household budgets are still stretched and, thus, at risk.

"The moderation in credit growth has been evident in all measures of debt," according to the report's authors.

"However, the brunt of the cooling in debt accumulation is being experienced in non-mortgage lending products, such as credit card borrowing and personal lines of credit (predominately home equity lines of credit) ... The debt obligation on these instruments is typically very flexible, meaning that outside of interest payments, consumers are not limited to how much principal they wish to pay off in any given month or year. This is in contrast to mortgages where monthly payments are generally fixed, and one's ability to pay down principal is often limited by the terms of contract. This provides some evidence that households are trying to work down high debt levels."

And, they warn, while credit growth may be cooling, consumers aren't "deleveraging." Families are still borrowing more than they're saving. And amid that cooling, debt costs are climbing.

"The debt-service ratio, the interest households must pay on their debt each month as a share of personal disposable income, climbed to a two-year high of 7.6 per cent in [the first quarter of]2011, despite still record low interest rates. Over the next year and a half, the expectation is that a future rise in interest rates will lift this ratio to the highest level in more than a decade."

As others have also suggested - and evidence this week highlighted - the TD economists note that consumers are tapped out and won't be the main driver of the rebound after "spending like gangbusters" over the past five to 10 years.

(For the TD measures of indebtedness, see the accompanying infographic or click here.)

TSX to announce index changes Changes to the S&P/TSX composite index are expected to be announced June 10, after a quarterly review.

UBS Securities Canada strategist Garry Cooper says 13 stocks have a strong possibility of being added, and one, Ritchie Bros. Auctioneers Inc. , deleted.

The candidates for addition:

  • Athabasca Oil Sands Corp.
  • Meg Energy Corp.
  • Tourmaline Oil Corp.
  • Tahoe Resources Inc.
  • Capital Power Corp.
  • Romarco Minerals Inc.
  • Extorre Gold Mines Ltd.
  • Wi-LAN Inc.
  • San Gold Corp.
  • Bonterra Energy Corp.
  • B2Gold Corp.
  • Paramount Resources Ltd.
  • Endeavour Silver Corp.

In Economy Lab today

Now that NHL hockey is back in Winnipeg, here are two reasonably safe predictions: The Jets (we always liked the name) will be a huge success at the box office in their first season, despite what are sure to be high ticket prices; and the owners will be hard-pressed to turn this into a profitable venture. Brian Milner examines the move.

In International Business today

The 17-member euro monetary zone has failed, and has only two options. Financial Times columnist Martin Wolf looks at what's at stake.

Intolerable choices for the euro zone

In Personal Finance today

When you're looking for travel deals online, search results can differ by browser, and one browser can sometimes produce a dramatically better deal, Angela Self writes.

Home Cents blogger Dianne Nice reports on a new survey shows what our friends are doing to their properties has the biggest influence on our own decisions to renovate.

Find out how thieves are using new technology to re-invigorate identity fraud, and what you can do to protect yourself.

From today's Report on Business

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