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Uh oh, Italy swears it doesn't need a bailout

These are stories Report on Business is following Tuesday, June 12, 2012.

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No bailout here
Italy says it doesn't need a bailout, now or later. All of which would be fine had such comments not marked the pre-bailout periods of the other euro countries such as Greece and Spain.

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"Italy even in the future will not need aid from the European Financial Stability Fund," Prime Minister Mario Monti said on German radio today, according to reports.

While Italy could have been linked with the concept of an "undisciplined  country" at one time, it's now "more disciplined" than many of its neighbours, he said.

As The Globe and Mail's Eric Reguly writes today, some observers fear Italy will follow Greece, Ireland, Portugal and Spain in requiring a massive rescue, further straining the bailout funds of the European Union.

Italy, in recession, is struggling under hefty debts, while still having to help bail out the other struggling countries of the 17-member euro zone. As the third-largest economy in the monetary union, much is at stake.

This came today as concerns and questions mounted over Spain, which has won a €100-billion rescue for its banks. Yields on Spanish and Italian bonds climbed again. And, oh, yes, Fitch downgraded a bunch of the Spanish banks.

"Investors have clearly had enough excitement for the moment, as nothing today has really been able to make a lasting impact on the equity markets," said market analyst Chris Beauchamp of IG Index.

"The major news story has been the steady rise in Spanish bond yields, with the 10-year bond yielding 6.7 per cent today, its highest level since November, 2011. This pushes Spain back towards the 7-per-cent level that is usually viewed as 'bailout territory,' but we've already had one Spanish bailout this week, and even the euro zone isn't going to have two bailouts in a single week. Fitch provided a brief flurry of excitement this afternoon when it downgraded the mass of Spanish banks, but even this was not enough to move investors on any lasting basis."

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Markets are frustrated by a lack of concrete action by Europe's leaders, whose divisions run deep. There have been calls for euro bonds and a so-called banking union that would spread the risk around, but Germany, pressing its case for fiscal discipline, objects to both. Until there's something definitive, markets are sure to remain in a fragile state.

"Our own view has long been that this patchwork of sticking plasters can only buy a little more time before Europe's policy makers are forced into some form of closer fiscal and political union in order to save the euro," said Julian Jessop of Capital Economics in London.

"The real question is whether they go the whole way soon enough to prevent some of the weaker members from leaving, or at a later stage as a means to keep a hard core of countries together after others have departed. We continue to think the latter scenario is more likely."

Hiring outlook fades
The hiring outlook among Canadian employers has ebbed to a two-year low, and weakened in many other countries too, suggesting turmoil in Europe is chipping away at confidence, The Globe and Mail's Tavia Grant reports today.

A quarterly hiring outlook from Manpower shows Canadian hiring intentions for the July-to-August period are softer than the prior quarter and now at the lowest level since the third quarter of 2010.

Manpower's survey shows the weakest hiring plans are in education and manufacturing of non-durable goods (such as food, clothing and paper). Hiring plans are, once again, brightest in the West, while they are more cautious in Atlantic Canada.

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Brookfield to build new tower
Brookfield Office Properties is pushing ahead with a second tower at its Bay Adelaide Centre in the heart of Toronto's financial district, naming Deloitte as its anchor tenant today.

Deloitte has signed for 420,000 square feet, or almost 45 per cent of the what will be Bay Adelaide Centre East.

The tower will be 44 storeys, and 980,000 square feet in total, and is expected to be built by late 2015 or early 2016. The west tower opened in 2009, and is 95-per-cent leased.

Brookfield says that timeline coincides with the expiry of several large office leases in the financial area.

"Strong fundamentals and low vacancy in Toronto's financial core signify the market's willingness to support new office development," said Jan Sucharda, chief executive officer of Brookfield Office Properties' Canadian commercial operations.

Watch Bombardier
Shares of Canada's Bombardier Inc. climbed today after the announcement late yesterday of what's being called the biggest private order in airline history.

Bombardier is getting a piece - and it's a big piece - of an order by NetJets for up to 425 new business business jets worth just shy of $10-billion (U.S.).

NetJets, owned by Warrent Buffett's Berkshire Hathaway Inc., says it plans to buy up to 275 Challenger 300 and 605 series jets from Bombardier, The Globe and Mail's Bertrand Marotte reports. One hundred of those are firm, and there are options for a further 175.

It will also buy up to 150 Cessna Aircraft Co. Citation Latitudes, 25 of them firm orders and 125 on option.

Analyst Benoit Poirier of Desjardins said the order "confirms Bombardier's strong market leadership." He has a price target of $6 and a "buy" rating on the stock.

"We estimate that Bombardier had a total backlog of 69 Challenger aircraft at the end of Q112 (10 months of production, and the new order will add 100 aircraft to the backlog (26 months of production; management targets 15-18 months," Mr. Poirier said.

"We maintain our positive stance on Bombardier despite its disappointing 1Q12 results," he added. "We continue to believe the stock is attractive at current levels, which, in our view, represent a good buying opportunity."

Viterra sees strong quarter
I'm not sure just how much it matters any longer given that it's going to disappear as a publicly listed company, but Canada's Viterra Inc. today posted strong second-quarter results.

The agri-business company, in the midst of being swallowed by Glencore, posted a profit of $67.1-million or 18 cents a share, compared to $30.2-million or 8 cents a year earlier. Revenue climbed to $2.7-billion from $2-billion.

Rosenberg's sounding ... bullish
I'm wondering just what has transformed David Rosenberg. He's almost bullish.

The chief economist of Gluskin Sheff + Associates, one of the world's great bears, says he's the light "at the end of a dark tunnel" and that "the future is brighter than you think." Indeed, by Thanksgiving he could be a "perma-bull."

Now, that has to be put into perspective. Much depends on global developments. And it doesn't mean there won't be another recession.

But it's an important shift for the Toronto economist.

"I'm noticing a certain degree of despair these days, just as I am getting enthusiastic about the future," he says, in the belief that there will be a "clear and coherent" U.S. fiscal plan that will spur capital investment.

"Much depends on what happens on Nov. 6 and between now and then we still have the European mess, China hard landing risks and the U.S. debt ceiling issue to confront," according to his research note.

"Be that as it may, those with some dry powder on hand will have their clients in a solid position to take advantage of whatever forced 'panic' selling takes place … Don't be surprised if I end up turning bullish ahead of the pack - though it may not be until the like of my good friend, Jim Paulsen, is hiding under his desk screaming 'uncle."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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