These are stories Report on Business is following Tuesday, Nov. 20, 2012.
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Markets mixed
From Brussels to Tokyo, it's a day of vexing issues.
Markets were mixed as investors ponder the Bank of Japan's defiance, a downgrade of France, another meeting of European finance ministers to discuss Greece and, of course, ongoing questions about the fiscal cliff.
"The markets have been able to weather everything thrown at them, stubbornly holding on to the gains made yesterday on hopes of progress in U.S. fiscal cliff negotiations," said market analyst Chris Beauchamp of IG in London.
"Last night's downgrade of France by Moody's has been ignored with an appropriately Gallic shrug, since it doesn't exactly spell doom for the French economy."
There are also questions surrounding two of our favourite subjects, the Twinkie and RIM, whose stock is climbing again today.
Tokyo's Nikkei slipped 0.1 per cent as the Bank of Japan held firm, ignoring the demands of politicians to do more as it struggles with deflation and a slumping economy. Hong Kong's Hang Seng also slipped, by 0.2 per cent. In Europe, London's FTSE 10, Germany's DAX and the Paris CAC-40 climbed, while North American markets slipped.
"Europe's markets have continued their gains from yesterday's sharp rally, though volumes have been on the low side as investors digest the latest news flow coming out of Europe in the wake of Moody's decision to take the scissors to France's triple -A rating," said senior analyst Michael Hewson of CMC Markets in London.
"Markets have pretty much taken this in their stride given that Moody's isn't telling the markets anything they don't already know, however markets have drifted off their highs, as yesterday's blind optimism gives way to some more pragmatic caution, ahead of this evening's eurogroup meeting on Greece," he said in a research note.
"The greater concern for markets is that there could well be other downgrades in the pipe from Moody's given that both the Netherlands and Germany are both on negative outlooks with the same agency."
HP takes massive hit
Hewlett-Packard Co. is taking a massive hit on a company it acquired just last year, citing allegations of "accounting improprieties, misrepresentations and disclosure failures" by the British firm.
HP said today its loss in the fourth quarter was $6.85-billion (U.S.), or $3.49 a share, compared to a profit of $239-million or 12 cents a year earlier. Revenue slipped 7 per cent to $30-billion.
But shocking the markets was its disclosure of an $8.8-billion writedown related to last year's $10-billion purchase of Autonomy Corp. PLC, sending its stock lower.
"HP is extremely disappointed to find that some former members of Autonomy's management team used accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company, prior to Autonomy's acquisition by HP," the troubled tech giant said in a statement.
"These efforts appear to have been a willful effort to mislead investors and potential buyers, and severely impacted HP management's ability to fairly value Autonomy at the time of the deal. We remain 100 per cent committed to Autonomy and its industry-leading technology."
HP said it is investigating, adding that it began probing the issues after a "senior member" of Autonomy's management made the allegations.
In London, the BBC reported that Autonomy's former managers rejected the accusations, saying they were shocked by the statement and that "HP's due diligence review was intensive." Autonomy's former chief told The New York Times that "it's completely and utterly wrong."
RIM shares climb
Shares of Research In Motion climbed again today, following on yesterday's gain.
Analyst Peter Misek of Jefferies & Co. doubled his target on RIM shares – okay, it was only to $10 (U.S.) but that's twice as much as he had been targeting – on a better-than-expected view from carriers of the coming BlackBerry 10 devices, which are scheduled for the end of January. Mr. Misek upped his recommendation to "hold" from "underperform."
He now gives the BB10 a better chance of success.
"Preliminary results from our quarterly handset survey indicate developed market carriers have a much more positive view of BB10 than we expected," Mr. Misek said, according to reports. "With greater carrier shelf space and marketing support, we now believe BB10 has a 20 per cent to 30 per cent probability of success."
- RIM's BlackBerry 10 app strategy: Local, global
- RIM starts countdown to BlackBerry 10
- In the developing world, RIM makes its last stand
Bernanke warns on cliff
Ben Bernanke warned U.S. politicians in no uncertain terms today to get their act together on fiscal issues or face drastic consequences.
The U.S. central bank chief was referring to the so-called fiscal cliff, the combination of tax increases and spending cuts that would come into effect Jan. 1 if no budget deal is reached.
Already, he said, the uncertainty is having an impact.
"Coming together to find fiscal solutions will not be easy, but the stakes are high," Mr. Bernanke told the New York Economic Club.
"Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy," he said in the test of his speech.
"Continuing to push off difficult policy choices will only prolong and intensify these uncertainties."
Euro group meets
European finance ministers are meeting again today to talk about all they ever talk about: Greece.
A week ago, the group decided to give Athens an additional two years to meet its fiscal targets, though no decision was made on the crucial issue of the next tranche of bailout money.
That's supposed to be decided today.
"As with all things Europe we will have to wait and see, but the likelihood of a fudge, in the form of a partial payment seems the most likely solution, as opposed to a long term solution and markets should guard against getting their hopes up," said CMC's Mr. Hewson.
Remember, too, that International Monetary Chief Christine Lagarde openly opposed the group's decision last week to give Athens the extra two years.
Today's meeting comes in the wake of another downgrade, this one by Moody's, which knocked France's triple-A rating down a notch. Standard and Poor's had already done this.
The downgrade likely won't be all that big a hit to France, observers said, though they are watching to determine any impact on the country's banks.
"What it probably will also do is spice up the conversation at today's special EU finance ministers meeting which has been convened to discuss the disbursement of the next aid tranche for Greece," said Mr. Hewson.
"There still remains a degree of uncertainty with respect to what decision EU leaders will come to with talk that the EU would be likely to give the go-ahead to disburse €44-billion to Greece on [Dec. 5] as long as a number of prior actions are completed," he said.
"This does somewhat fly in the face of comments yesterday from Dutch and German officials that there would be no final decisions on Greece at today's meeting, and this really seems to be the most likely outcome," he added in a research note.
"It also doesn't square with IMF chief Christine Lagarde's recent insistence on a proper sustainable solution to the problem of Greece's finances. In positioning herself in such a way she now leaves herself open to a lack of credibility if she then backs away from this position, and agrees to another temporary solution."
(Borat would be so proud: Fitch upgraded Kazakhstan today.)
Saving the Twinkie
Hostess Brands Inc. and its bakers union meet for mediation today in a last effort to keep the embattled company afloat and save 18,500 jobs. And the Twinkie.
The judge overseeing the Hostess Chapter 11 proceedings yesterday urged the two sides to meet in the wake of the company's decision to liquidate.
The Bakery, Confectionery, Tobacco Workers and Grain Millers International Union had ignored a warning to end a week-old strike or face a permanent shutdown of the company, whose famous brands also include Ding Dongs and Wonder Bread.
The company plans to liquidate and sell off the brands, though agreed to today's last-ditch attempt.
Bank of Japan holds firm
By doing nothing, the Bank of Japan said a lot today.
The central bank left its policy on hold after a two-day meeting and highlighted its independence amid mounting pressure from politicians.
The leader of the Liberal Democratic Party, Shinzo Abe, who is leading in the polls in the run-up to the mid-December vote, wants the central bank to consider zero or negative interest rates, and an inflation target of up to 3 per cent.
Japan is fighting a new bout of deflation, and its economy contracted in the latest quarter, meaning it could be in the middle of a recession.
"Today's BoJ statement included familiar language to the effect that the BoJ is already undertaking 'aggressive monetary easing in a continuous manner' with the implication being that it is not clear that there is a rational monetary policy that is more aggressive than that which it is currently implementing and that additions to monetary easing would be on top of easing measures that are still being carried out," said Derek Holt and Dov Zigler of Bank of Nova Scotia.
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