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Stories Report on Business is following today:
Oil slumps to 2010 low
The price of oil fell today to its lowest level this year, dipping below $70 (U.S.) a barrel before climbing back to close just above that mark. Oil has now slumped 20 per cent in about two weeks as fears over the spreading European debt crisis and fresh concerns over slowing growth in China send commodity prices tumbling. Also affecting oil was a high reading on U.S. oil inventories. Falling commodity prices also knocked down Canadian stocks and the dollar.
"The tide has turned against the bulls," Stephen Schork, president of U.S. consultancy Schork Group Inc., told Bloomberg News. "The weakness of the euro and worries about the contagion risk from Greece are the primary factors moving oil."
Other analysts agreed oil prices could remain soft, though Goldman Sachs Group Inc. analysts said prices could "reconnect" with the broader market within weeks and that demand will remain strong.
Greek crisis spreads new fears
There is no respite for Europe.
The euro sank to a four-year low before rebounding today, pressured by the mounting concerns over southern Europe's debt crisis, a leading organization warned that the troubles could snuff out the economic recovery among the former communist states in the east.
Economists have already warned that the austerity measures among countries such as Greece, Portugal and Spain could lead to a lost decade of growth in Europe, given the severity of the cutbacks necessary to meet targets, despite the $1-trillion bailout for the euro zone unveiled a week ago by the EU, the International Monetary Fund and the European Central Bank. Today, the European Bank for Reconstruction and Development put eastern Europe in a new light as well.
"We have the Greek crisis, and it poses a risk in particular to southeastern Europe," the agency's chief economist said at the bank's annual meeting in Croatia, according to Bloomberg news. "But there is a broader risk for the region."
Investors fear the austerity measures in Europe will slow growth on the continent, and have driven down the euro and European stocks in response.
"Given the unprecedented size of the bailout from an EU perspective, as well as an IMF point of view, the market reaction while initially positive, does not bode well for the future strength of the single currency in the medium to long term," said CMC Markets analyst Michael Hewson. "The severe nature of the austerity measures being imposed on countries in exchange for bailout cash has caused a crisis of confidence about future growth levels, and could well precipitate the debt defaults it was designed to avoid."
Read
Stocks in for tough week on European concerns
EU to draft new derivatives rules
Audio
Brian Milner on the latest developments
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Is China's growth peaking?
There are suggestions this morning that economic growth in China, one of the drivers of the global recovery, may be peaking. It's just one measure, but it does match the view among private economists. According to The Conference Board today, its leading economic index, or LEI, for China rose just 1.1 per cent in March, an indication that the country's rapid growth is tapering off.
"The recent behaviour of the LEI for China suggests the economic expansion is unlikely to accelerate further through the summer months," Conference Board analyst Bill Adams told Reuters.
According to UBS Securities Australia today, Chinese trade is weakening, which could have ramifications for companies around the world.
"Resources' equity-commodity markets are spooked by macro-restraints on China's economic growth, euro zone's debt issues, Australia's tax dramas - and completely ignoring positive economic data flowing from the U.S.," said UBS analysts Tom Price, Julien Garran and Peter Hickson. "... The bears now have support from a key fundamental event: China's seasonal withdrawal from trade in May. China typically buys most of its raw materials in the first three to four months of the calendar year, to meet downstream peak production and sales periods in June-July (tools, vehicles, white goods) ... China depends heavily on imports of copper, zinc and nickel. Absolute size of these trade flows is now sufficiently large to influence global prices and equities."
A combination of Europe's debt fears and concerns that China's economy will slow sidelined Canadian stocks and the Canadian dollar today as commodity prices such as those of oil and metals fell.
Market Blog: After China brakes
Video: The China bear
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Why Rosenberg sees deflation
David Rosenberg, the bearish chief economist of Gluskin Sheff + Associates, warned today that the European crisis "must be seen as a significant deflationary shock." Mr. Rosenberg, who noted that it's getting ever harder to find a bear these days, cited in a research note how the debt troubles in southern Europe have sent investors scurrying into the U.S. dollar, just as they did after the collapse of Lehman Brothers.
"Price declines are already evident in Portugal, Spain and Ireland while underlying inflation in Germany is flirting near 11-year lows," he said. "Contagion risks to the global banking sector are hardly trivial with European banks holding onto nearly $3-trillion (U.S.) of [Portugal, Ireland, Italy, Greece and Spain]government debt and U.S. banks have enough exposure that the bonds they hold represent 25 per cent of their Tier 1 capital base."
Mr. Rosenberg cited several examples of why deflation is the "primary" trend:
- Credit is contracting.
- Wage rates are stagnating.
- Money supply growth is vanishing.
- The U.S. dollar is strong.
- Commodities have peaked.
- U.S. home prices are rolling over, again.
- Lumber prices have sagged almost 17 per cent from April highs.
- Wal-Mart is cutting prices on 10,000 goods.
- Home Depot has cut prices on flowers, fertilizer, lawn equipment and outdoor furniture.
- Taco Bell is offering $2 combo meals.
- The latest report on retail sales in the United States hinted at deflation in groceries, electronics, clothing and sporting goods.
Canadian home sales dip again
Sales of existing homes fell again in April, down by 2.6 per cent on a seasonally adjusted basis, which economists said signals that the real estate market will continue to cool as mortgage rates rise and higher house prices take a toll. New listings are also rising as sellers are increasingly enticed by what has been a remarkable rebound from the depths of the recession. Sales have now dipped month-over-month for three months out of the past four.
Average prices rose 12.2 per cent in April from a year earlier, which, while robust, is the "mildest gain" since last summer, noted BMO Nesbitt Burns deputy chief economist Douglas Porter. Raising the question of whether housing is moving "from big thrill to big chill," Mr. Porter said.
"Canada's housing market has gone from full gallop to stately canter, and is poised to slow to a leisurely trot in the months ahead," he said. "The tote board of higher rates, tighter mortgage rules and the [harmonized sales tax in Ontario and British Columbia]will rein in activity. However, the solid rebound in Canada's job market is an important supportive factor, keeping the market from fully breaking stride."
TD Securities senior strategist Millan Mulraine said that while demand is expected to moderate further, the pace of that moderation is projected to be "measured and orderly." Read the storyGM rebounds to profit
General Motors Co., reborn from bankruptcy protection, has posted its first quarterly profit in almost three years. GM said this morning it earned $865-million (U.S.) or $1.66 a share, a turnaround from a loss of $6-billion or $9.78 a share a year earlier. GM has been buoyed by a turnaround in North America and results from emerging markets such as China, Globe and Mail auto writer Greg Keenan reports. "The results emerging from a tumultuous 2009 make a solid first rung on the ladder to long-term viability," Michael Robinet, vice-president of global forecasting for CSM Worldwide, told Bloomberg News. Read the story
Related: How GM returned to profitability
TD bulks up in U.S. south
Toronto-Dominion Bank has done another deal in the U.S., this one for more than $190-million (U.S.) for South Financial Group Inc. TD is paying more than $60-million to the bank's shareholders and almost $131-million to the U.S. government. The deal gives TD another 176 locations for its holdings in the southeast United States.
Desjardins analyst Michael Goldberg said the move is a positive one. "This price is below market for the consideration to be paid to both [South Financial Group]stockholders and the U.S. Treasury," he said. "This is not an assisted transaction, but [South Financial Group's]banking operations are no longer considered 'well capitalized' under applicable banking regulations." Read the story
Streetwise: TD toes line with U.S. acquisition
Pension fund bows out of Transurban
The Ontario Teachers' Pension Plan is getting out of Transurban Group after the Australian toll road operator's rejection of a sweetened takeover bid it launched with the Canada Pension Plan Investment Board and an Australian investor. Reports from Melbourne this morning say Teachers sold its 12 per cent stake, while there was no immediate word on what CPPIB planned to do. Columnist Andrew Willis reports in Streetwise this morning that Transurban has been a major holding for the pension fund since 2003.
British bank replaces BlackBerry
Britain's Standard Chartered is shifting from the BlackBerry to the iPhone. A spokeswoman for the British bank told Reuters today that the shift to the device to Apple Inc. from Research In Motion Ltd. was a group-wide move. "If more companies switch to the iPhone, this is of course bad news for RIM," an analyst at Macquarie Securities in Taipei told the news agency. "However, it will take a long time for companies to do their own internal testing before decided to change, so it will be a while before it has any effect on RIM."
RIM has been under pressure from Apple as the popularity of the iPhone grows. Recent statistics from IDC in Framingham, Mass. showed Apple took 16.1 per cent of the smart phone market in the first quarter, compared to just 10.9 per cent a year earlier, while RIM held 19.4 per cent, a dip from 20.9 per cent.
Separately today, RIM said it was launching the the sale of its popular BlackBerry Storm with China Telecom Corp.
Man Group to buy GLG
Man Group PLC, one of the world's major hedge funds, is building up, striking a deal to acquire rival GLG Partners Inc. in a $1.6-billion (U.S.) deal. The acquisition will create a company with $63-billion in funds under management. The purchase is seen as a big strategic deal for Man Group, whose primary investment operation, AHL, has turned in a lagging performance.
Something is rotten in the state of Denmark
The Danes are running out of beer. Reports from Copenhagen today say a strike by Carlsberg brewery workers has resulted in a notable shortage. The union is seeking pay increases and says it opposes new work rules being proposed by the company, and the strike has spread since it began with a few hundred workers in early May. "There are no beer deliveries ... to supermarkets, shops, bars and other catering places," a Carlsberg spokesman told Agence France Press.
From today's Report on Business
Ottawa begins funding push for hybrid R&D
China's loss is Thunder Bay's gain