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What $1.70 gasoline would mean: Job losses, stock rally fizzle

These are stories Report on Business is following Wednesday, April 4, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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Gas at $1.70 BMO Nesbitt Burns isn't saying that pump prices are necessarily going to $1.70 a litre, but senior economist Sal Guatieri does take a look today at what that would mean. And it's not pretty.

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It's certainly worth Mr. Guatieri's efforts given that drivers are fuming today as gas prices surge again.

"Although the recent increase in gasoline prices hasn't changed our outlook for growth, a further run-up surely would," Mr. Guatieri said in a report.

A rise in oil prices amid ongoing tensions related to Iran would not drive up Canadian pump costs to the same extent as in the United States.

But a sustained in rise in pump prices of 30 per cent, which would mean about $5 (U.S.) a gallon in the United States and about $1.70 (Canadian) a litre here, could cut annual economic growth by more than a percentage point, Mr. Guatieri said.

"This would lift unemployment in both countries, halt the equity rally, and possibly spur additional monetary easing."

Economists have warned that high energy prices could derail the economy, which is why countries such as the United States, Britain and France are examining tapping their oil reserves.

Pump prices rose across the country, though by varying degrees. In Toronto, for example, prices averaged $1.39 a litre, and in Montreal $1.47.

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Markets fall Investors are in something of an ugly mood today, troubled by indications that the Federal Reserve plans no new stimulus measures and another flare-up in the euro zone debt crisis.

"The market is clearly unprepared for the eventual end of central bank stimulus, as the reaction to yesterday's FOMC minutes has been extreme," said senior currency strategist Camilla Sutton of Scotia Capital, referring to the central bank's policy-setting panel, the Federal Open Market Committee.

"This combined with a shift in focus back to the weakness in Europe and a disappointing Spanish bond auction has supported a jump in risk aversion."

Tokyo's Nikkei tumbled by 2.3 per cent, and Europe's major exchanges by about 2 per cent. North American markets followed suit as the Dow Jones industrial average , the S&P 500 and Toronto's S&P/TSX composite all slipped.

"Market reaction says we are all addicted to the Fed's sugar-rush and can't cope with a long period of not a lot of policy change," said said Sebastien Galy, senior currency strategist at Société Générale.

Dow Jones industrial average and S&P 500 futures also slipped, having lost ground yesterday after the minutes of the Fed's last meeting were released in the afternoon.

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As The Globe and Mail's Kevin Carmichael reports, the minutes from the central bank meeting signalled the Fed isn't thinking about further measures to stimulate the economy at this point, and won't unless the recovery falters. According to the minutes, "a couple" of policy makers believed further measures may be needed if the rebound loses steam.

"At first glance, the difference between 'two out of 10' and 'a few' might not seem like much, but it is often on such nuances that the fate of global markets depends," said market analyst Chris Beauchamp of IG Index.

"Last night's minutes showed that the world's most powerful central bank is actually not as keen as everyone thought about more quantitative easing, causing risk aversion to take the upper hand in trading today."

Focus on Spain Spain continues to be the focus today as the euro zone debt crisis refuses to go away.

Bond yields in Spain spiked at an auction that fell short of what its Treasury was looking for. Borrowing costs in other countries rose as well, amid new indicators that continue to suggest the 17-member monetary union is in recession. Separately, the European Central Bank held its benchmark rate at 1 per cent.

Spain, whose jobless rate is the worst among euro zone nations, warned yesterday that its debt-to-GDP ratio is going to rise this year, and, As The Globe and Mail's Eric Reguly reports, there are fears the country could require a bailout.

"The picture in Europe remains a troubled one with deteriorating economic data starting to seep into the core countries of Europe as the austerity-led recession continues to bite," said senior market analyst Michael Hewson of CMC Markets in London.

Yahoo cuts jobs Yahoo Inc. is slashing 2,000 jobs, or about 14 per cent of its work force, in a restructuring it says will save $375-million (U.S.) a year.

"Today's actions are an important next step toward a bold, new Yahoo! – smaller, nimbler, more profitable and better equipped to innovate as fast as our customers and our industry require." chief executive officer Scott Thompson said in a statement.

"We are intensifying our efforts on our core businesses and redeploying resources to our most urgent priorities. Our goal is to get back to our core purpose – putting our users and advertisers first – and we are moving aggressively to achieve that goal."

Yahoo said it expects to take a pre-tax hit of $125-million to $145-million in its second quarter.

The company said it has identified "key parts" of its business, which it described as core, on which to focus and redeploy. It did not identify those businesses in its statement.

Yahoo has been under extreme pressure, and is in the midst of a proxy fight with its biggest shareholder, hedge fund manager Daniel Loeb.

Do Not Call List to get funding The Canadian government is throwing a financial lifeline to the national Do Not Call List, The Globe and Mail's Rita Trichur reports today.

The Canadian Radio-television and Telecommunications Commission has received assurances it will receive some short-term funding to continue the program's investigation and enforcement activities for the current fiscal year.

The program, which helps consumers reduce the number of telemarketing calls and faxes they receive, had been due to run out of cash March 31.

Burger King listing again Maybe if he can make Burger King a public stock again, Bill Ackman can indeed accomplish something at Canadian Pacific Railway Co. .

Mr. Ackman is the man behind Pershing Square Capital Management, and its push for change at the Canadian railway after buying up its stock to become its largest shareholder. He's waging a heated battle in the run-up to the annual meeting next month.

But that's not his only focus. Yesterday, Mr. Ackman got a piece of Burger King Worldwide Holdings Inc., and plans to take it public again, a move some analysts believe may be too soon.

Burger King lost the No. 2 spot in the United States to Wendy's and, according to its latest numbers, posted a decline in revenue.

What the Fed didn't do This might be funny but for the fact that someone spent almost a year and a half investigating it: The Fed wasn't used in connection with the infamous Watergate break-in, didn't help cover up, and didn't help lend money to Saddam Hussein to buy weapons.

First, let me say that I do understand that the scandal that forced Richard Nixon out of office helped change the way we think about politicians, and that just about anything could have happened in the Nixon White House of the Seventies.

But this investigation was sparked by the ramblings of Ron Paul, the Texan who had hoped to be the Republican presidential candidate but for the fact that he says a lot of dumb things.

At a hearing in February, 2010, Mr. Paul alleged that the cash in the Watergate scandal was moved through the U.S. central bank, and that Fed officials "stonewalled" the investigation. He also suggested that the Fed "facilitated" a loan of $5.5-billion (U.S.) to Saddam Hussein to buy arms from the Americans.

The chairman of the House financial services committee asked for an investigation, and Fed Chairman Ben Bernanke put the probe in the hands of the central bank's Office of Inspector General.

Without going into all the details of the investigation, here's what the 30-page report, posted on the Fed's website, found:

"Specifically, regarding the first Watergate allegation, we did not find any evidence of undue political interference with or improper actions by Federal Reserve officials related to the cash found on the Watergate burglars. Our office also did not find any evidence of undue political interference with Federal Reserve officials or inaccurate responses by board officials regarding the second Watergate allegation (i.e., that the Federal Reserve stonewalled' congressional members and staff about the source of the cash found on the burglars).

"The documentation we reviewed indicated that the Board's decision not to provide information requested by congressional members and staff was consistent with the U.S. Attorney's Office advising the Board to not disclose the information because such disclosure may impede the investigation and jeopardize the subsequent prosecution. Finally, with regard to the Iraq allegation, we did not find any evidence of undue political interference with Federal Reserve officials or any indications that the Federal Reserve facilitated a $5.5-billion loan to Iraq for weapons purchases during the 1980s. We also did not find evidence of any loans between the Federal Reserve and Saddam Hussein or Iraq during the 1980s."

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