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business briefing

These are stories Report on Business is following Tuesday, Oct. 14, 2014.

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Market angst
U.S. stocks may have perked up today but the commodity-sensitive Toronto market slipped into correction mode.

Equities in Toronto moved into that zone this morning, though pulled back later, only to drop further again in the afternoon, closing down more than 190 points, or 1.3 per cent, at 14,036.68. That marked a drop of some 10 per cent from its peak in early September, thus meeting the definition of a correction.

Investors are grappling with a lot these days, from global economic growth and the troubles of the euro zone - Germany, in particular - to mounting fears over Ebola.

Overseas, warning signs from the luxury goods industry helped fan the flames early today, though third-quarter results from several big U.S. banks later helped buoy investors.

Thus, the day on global markets was mixed.

Tokyo's Nikkei and Hong Kong's Hang Seng both lost ground, though major European exchanges swung from earlier losses into the green. The S&P 500 and Dow Jones industrial average initially rose but sank late in the day, only to rise again, while Toronto's S&P/TSX composite lost ground from the get-go.

The primary forces in Canada, of course, are sliding oil and gold prices.

"With WTI now slipping below $85, Canadian energy stocks have slid more than 15 per cent since their late-August high, while materials have shed 14 per cent in the past three months," said senior economist Robert Kavcic of BMO Nesbitt Burns, referring to West Texas Intermediate, the U.S. oil benchmark.

Mr. Kavcic had noted even before the market opened that Toronto stocks were flirting with an "all-out correction"

The Canadian dollar swung in a wide arc, from a high of 89.36 cents U.S. to a low of 88.40 cents.

And oil prices slipped as the International Energy Agency trimmed its projects for demand for crude.

Here's what other market watchers are saying:

"The bad news kept on coming today for the German economy but with European markets trading at yearly lows, decent earnings from the U.S. banks thanks to higher bond-trading revenues saved shares another huge selloff. Not a day seems to go by without Germany falling further from grace, today being no exception with a negative reading in the ZEW survey and the German government chopping down the country's growth forecasts for this year and next." Jasper Lawler, CMC Markets

"Markets have dramatically shifted course over the last week, driving volatility substantially higher, on the back of a deceleration in the outlook for global growth and inflationary pressure. Data prints over the last two days have added to these fears, driving a wave of safe-haven [U.S. dollar] buying. Accordingly the USD is strong, but on the back of safe haven." Camilla Sutton, Bank of Nova Scotia

"What will be key for the markets over the next couple of months is corporate earnings season. There has been so much volatility over the last week, driven largely by fear, that investors need a reason to buy again. We may only be around two-thirds of the way into the 10-per-cent correction that so many believe is necessary, but solid earnings reports could make the current levels look quite attractive." Craig Erlam, Alpari

"As we await the regular flow of [U.S.] domestic data (highlighted this week with a handful of top-tier reports including retail sales, producer prices, the Fed's Beige Book, industrial production, and housing starts  and permits), the question becomes to what extent these reports can influence financial markets. Monday saw a late-day collapse tied to an Ebola scare that pulled the S&P500 down by 1.7 per cent (overseas bourses followed course, though North American futures are attempting a very modest bounce this morning)." Mark Chandler, Ian Pollick, Royal Bank of Canada

Oliver confident
Canadian Finance Minister Joe Oliver left a meeting with Bay Street economists today confident that his government will meet its economic and budget targets, even as economists expressed concern that oil's sharp decline may tip the balance of economic risk to the downside.

"Canada remains strong despite an uncertain global economy," Mr. Oliver told reporters, The Globe and Mail's David Parkinson reports.

"We are confident we're going to have a surplus next year … We're in a position, therefore, to fulfill our campaign promise, which was to lower taxes for hard-working Canadians."

While Mr. Oliver wouldn't confirm the current consensus GDP growth forecasts that the government is working with, economists who took part in the meeting indicated that it calls for real growth of about 2.3 per cent in 2014 and 2.5 per cent in 2015, still in line with the assumptions Ottawa used in its budget last February. But while the mid-point of economic forecasts hasn't changed, there may have been less of a true consensus in the meeting than there had been among private-sector forecasters earlier in the year.

Citigroup pulls out of 11 regions
Citigroup Inc. is staging a retreat from several countries to focus on markets "where it has the greatest scale and growth potential."

The Wall Street giant, which posted third-quarter results today, said it would quit its consumer businesses in 11 regions, including Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary, Japan, Nicaragua, Panama and Peru.

It's also pulling out of consumer finance in Korea.

The big U.S. bank said "active sales processes" are now in motion.

Citigroup will continue in 24 regions that account for more than 95 per cent of its revenues.

"While we have made progress optimizing these 11 consumer markets, we believe our global consumer bank will achieve stronger performance by focusing on the countries where our scale and network provide a competitive advantage," said chief executive officer Michael Corbat.

Citigroup profit climbed in the quarter to $3.4-billion, or $1.07 a share, from $3.2-billion or $1. Revenue rose to $19.6-billion from $17.9-billion.

Moody's warns Toronto to hold 'tight grip on costs'
Moody's Investors Service is praising Toronto for its fiscal restraint, but at the same time warning of the pressures on the municipality's books.

"Greater focus on cost efficiencies has translated into improving operating surpluses," the big U.S. credit rating agency said today.

"The city of Toronto's (Aa1 stable) aptitude for expenditure restraint and uploading of certain services back to the province have supported improvements in gross operating balances and a reduction of non-recurring measures to close opening budgetary gaps until recently."

The but, however, is that "mismatch between revenues and services and services needs will likely persist."

This comes, of course, amid an election campaign that is unique, to say the least, given the withdrawal of incumbent Mayor Rob Ford due to illness and his brother Doug taking his place.

Toronto's credit rating is supported by a "very large and stable" tax base, Moody's said, but it remains below other triple-A-rated neighbours, and will for up to the next two years.

"Future operating and capital pressures will require the city to capitalize on its unique taxation powers and maintain a tight grip on costs," Moody's said.

"Continued fiscal discipline, including a permanent solution to the existing operating budget pressures, along with a continued strengthening in financial position, could however, exert upward pressure on Toronto's rating over time," the agency added.

One of the city's big challenges going forward will be a 10-year capital investment program of almost $19-billion, and that will be threatened by its "ability to secure a variety of funding sources and maintaining sufficient management resources to ensure a successful execution of projects without incurring substantial cost overruns."

Wealth expands
Personal wealth around the world grew by 8.3 per cent last year to $263-trillion (U.S.) despite a still-sluggish economy, according to a study by Credit Suisse AG.

And the richest 1 per cent of the world's population own almost half of the global wealth, the survey – published Tuesday – found.

"Taken together, the bottom half of the global population own less than 1 per cent of total wealth. In sharp contrast, the richest decile (one-tenth) hold 87 per cent of the world's wealth, and the top percentile alone account for 48.2 per cent of global assets," the report said.

That's up from 46 per cent in Credit Suisse's report on global wealth last year, The Globe and Mail's Bertrand Marotte reports.

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