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Market volatility: ‘One can only imagine what tomorrow will bring’ Add to ...

These are stories Report on Business is following Tuesday, June 18, 2013.

Follow Michael Babad and the Globe’s top business stories on Twitter.

Awaiting the Fed
Global markets have been swinging wildly, moving on nods and winks surrounding central bank stimulus.

Watch out for what happens tomorrow when the Federal Reserve finally releases its latest pronouncements.

Investors have been on edge, worried that the U.S. central bank could pull back too early from its extraordinary quantitative easing program.

“The nagging worry remains that the world’s most powerful central bank will … bring this rally to an abrupt end with a decision to ease back on stimulus,” said market analyst Chris Beauchamp of IG in London.

“The Fed definitely appears to be caught between a rock and a hard place, knowing that a reduction of QE could do untold damage to the economy, but also aware that it needs to avoid stoking the risk of uncontrollable price inflation.”

It’s clear that the Fed will begin to taper the asset-buying scheme. It’s the exact timing that’s not clear, and markets have bounced around on various statements. Which is why tomorrow’s meeting could mean more volatility.

“These wild swings in U.S. equity markets are becoming the norm with the Dow Jones [industrial average] solving ‘the case of the missing volatility’ over the past few trading sessions by gyrating wildly by over 100 points in different directions,” said Mr. Beauchamp’s colleague at IG, senior market strategist Brenda Kelly.

“One can only imagine what tomorrow will bring when we finally get a glance at what to expect from the Fed in terms of monetary policy.”

The central bank’s policy-setting group, the Federal Open Market Committee, isn’t expected to announce any changes tomorrow, but investors will be watching for signals.

“We don’t expect the Fed to begin curbing its asset purchases from the current pace of $85-billion per month at [tomorrow’s] FOMC meeting,” said Paul Ashworth of Capital Economics.

“Our best guess is that the Fed will wait until the September meeting and even then the tapering will begin with a very modest reduction in the monthly purchases, to perhaps $65-billion per month,” he said in a research note.

“We still expect the asset purchases to be ended completely sometime in the first half of 2014, with short-term interest rates not rising from near-zero until mid-2015.”

The Fed has pledged not to begin hiking rates until unemployment eases to 6.5 per cent.

Exit, stage right?
Will 2013 mark the end of Ben Bernanke’s reign at the world’s most powerful central bank?

It’s growing increasingly likely.

Observers certainly see it that way, the latest evidence coming from President Barack Obama, who said late yesterday that the Federal Reserve chairman has done “an outstanding job” in these troubled times but that has stayed in the post “a lot longer than he wanted or he was supposed to.”

This is a crucial year for the Fed as it heads toward the expected pullback in stimulus but remains focused on unemployment, which the central bank has said must fall to 6.5 per cent before it raises interest rates again.

“Add this to the fact that Bernanke is taking a pass on one of the most important monetary policy events of the year at the Jackson Hole, Wyoming, [conference] sponsored by the Kansas City Federal Reserve, and it seems fairly likely that Bernanke will be stepping down as Fed chairman when his term expires on Jan. 31, 2014,” said Derek Holt and Dov Zigler of Bank of Nova Scotia, referring to the president’s comments.

HBC shuffles ranks
Hudson's Bay Co. shuffled its top ranks today, moving the well-known Bonnie Brooks to vice-chair from president, and Liz Rodbell to president from executive vice-president.

HBC, which has turned around its Canadian Bay stores, though its Lord & Taylor unit in the United States lags, said the transition will be done by early next year.

"This new structure will continue to drive our long-term growth strategy, as we build upon the company's momentum toward revitalizing its banners and product offerings, and strengthening the customer experience," said chief executive officer Richard Baker.

Verizon eyes Canada
A top-ranking executive at Verizon Communications Inc. has confirmed the U.S. telecom giant is mulling an entry into Canada’s $19-billion wireless market in the wake of a report this week by The Globe and Mail.

Chief financial officer Fran Shammo told The Wall Street Journal today that New York-based Verizon is in the preliminary stages of weighing a potential expansion into Canada.

“We're looking at the opportunity,” Mr. Shammo said in an interview at the Journal’s CFO Network conference in Washington. “This is just us dipping our toe in the water.”

On Monday, The Globe reported that Verizon has held exploratory talks with investors in Wind Mobile in recent weeks, but those discussions are still at an early stage.

Liability on rise
The Canadian government is raising raise the bar for oil companies operating off the East Coast and in the Arctic, increasing the limit on their liability for environmental and other damage from a blowout or oil spill to $1-billion, The Globe and Mail's Shawn McCarthy reports.

Natural Resources Minister Joe Oliver said the $1-billion cap – up from $30-million in the Atlantic and $40-million in the Arctic – is part of the government’s “polluter pays” approach to resource development. But environmental groups complain it could still leave taxpayers on the hook for massive costs, noting the cleanup from BP PLC’s Gulf of Mexico spill has cost more than $40-billion.

GM offers buyouts
General Motors of Canada Ltd. is offering special buyouts at its assembly plants in Oshawa, Ont., in a bid to get higher-paid, long-serving workers off the payroll and potentially replace them with employees who will earn lower pay and less generous benefits, The Globe and Mail's Greg Keenan reports.

Canadian Auto Workers local 222 in Oshawa has agreed to expanded use of supplemental work force employees at a plant that is scheduled to be closed next year, after the union fought a tough battle in negotiations with GM Canada last fall to limit the use of such employees.

Scouting Tim Hortons
Pressure is likely to mount on Tim Hortons Inc. now that it’s in the crosshairs of a second American hedge fund.

Scout Capital Management says in a regulatory filing that it has boosted its Tim Hortons stake to 5.5 per cent, from 1.5 per cent earlier, and that it plans to raise certain issues with the Canadian coffee-and-doughnut chain.

Scout’s interest follows a push just a couple of months ago by Highfields Capital, which urged Tims to hold back on U.S. expansion and drive up profitability via other means.

Yesterday, in documents filed with the Securities and Exchange Commission, Scout said it now holds 8.4 million shares of Tim Hortons and has been talking with the company’s senior executive.

The hedge fund made all-encompassing, typical statements in the document, but the message appeared clear.

“The reporting persons have engaged and expect to continue to engage in discussions with senior management of the issuer with respect to the issuer’s optimal capital structure, capital expenditures, timing and magnitude of share repurchases, management compensation metrics, and technology investments, among other matters,” Scout said.

“Reporting persons may have engaged, or may in the future also engage, in discussions with management, the board of directors, other shareholders of the Issuer and other relevant parties concerning the business, management, operations, assets, financial condition, governance, strategy and future plans of the Issuer in addition to those more specific matters addressed in the previous sentence.”

A Tim Hortons spokesman said the chain doesn’t talk about meetings with individual stockholders, but added that “we are focused on continuing our track record of creating shareholder value, and welcome feedback from all of our shareholders.”

A spokesperson for Scout said the hedge fund is not commenting further.

Tim Hortons, which just last month appointed former Nestlé executive Marc Caira as its chief executive officer, cited “challenging” conditions when it posted first-quarter results in early May.

 “In Canada, we believe consumer confidence and discretionary spending have been negatively impacted by rising unemployment, high consumer debt and the cooling housing market,” it said at the time.

“U.S. consumers are also facing elevated unemployment relative to pre-recessionary levels, as well as concerns arising from changes to fiscal policy. In response to the low-growth environment, competitive activity in the consumer sector remains intense, impacting the performance of many participants in the sector.”

But it also stressed that it’s “taking important steps to continue to expand and enhance our system, improve the guest experience and build value for our shareholders.”

G8 expected to unveil tax initiative
The G8 leaders are expected to announce greater co-operation on tax transparency as well as a move toward more disclosure of corporate ownership when their meeting ends today, The Globe and Mail's Paul Waldie reports from Enniskillend, Northern Ireland.

Both issues are seen as critical to developing countries, particularly in Africa, and leaders from Senegal, Liberia, Ethiopia and the African Union will attend the meetings at the Lough Erne Resort to press their case.

But there are stumbling blocks at the G8. Canada is believed to be resisting some of the measures, something that has surprised advocates.

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