Stories Report on Business is following today :
Markets eye higher rates
You can't know for sure what the Bank of Canada is thinking. But you can know what the markets think it's thinking. And this morning, markets are betting the central bank is thinking about raising interest rates sooner rather than later given the pace of its favoured measure of inflation.
Readings on inflation and retail sales combined this morning to drive the Canadian dollar back above the 99-cent U.S. mark on speculation central bank governor Mark Carney is poised to raise rates this summer. The loonie retreated later in the morning as the U.S. greenback rallied, but continued to do well against other currencies such as the euro and the pound, said TD Securities currency strategist Jacqui Douglas.
Mr. Carney has pledged to hold his benchmark overnight rate at its historic low until the end of June, depending on inflation. This morning, Statistics Canada reported, overall annual inflation eased in February to 1.6 per cent from 1.9 per cent in January. But the Bank of Canada is guided more by core inflation, which strips out volatile items and which rose in February to 2.1 per cent from 2 per cent in January. That added to speculation that Mr. Carney will begin hiking interest rates from their emergency lows before the Federal Reserve, which is dealing with tame inflation, acts.
There were a couple of notable items in the inflation report, though. First, inflation was skewed by higher accommodation prices for travellers because of the Winter Olympics in Vancouver, a temporary factor. But at the same time, vehicle prices also rose, which is more of a trend.
Separately, Statistics Canada reported that retail sales rose 0.7 per cent in January, or 6 per cent year over year, indicating consumer demands remain strong. This adds to the other factor that has driven up the dollar of late, the belief among investors that the economic rebound is well under way.
This morning's report had economists again speculating as to when Mr. Carney will move.
"Even looking beyond the special factor of travel costs due to the Olympics, core inflation remains surprisingly sticky in Canada, with neither the recession nor the resurgent Canadian dollar able to keep core prices down," said BMO Nesbitt Burns deputy chief economist Douglas Porter. "While the bank will not overreact to the persistent high-side surprises just yet, rate hikes are coming up fast on the near-term horizon, with or without the Fed in tow. We continue to expect the tightening cycle to begin in July, but can not completely rule out the bank going ahead of that if core inflation does not back down soon."
Added Scotia Capital economists Derek Holt and Karen Cordes: "Add stronger than expected growth, a more hawkish Bank of Canada and further improvement in the funding and liquidity environment into the mix and the BoC has what it needs to hike rates at the end of [the second quarter] While that is not our base case assumption, with our own projection for the hike in [the third quarter]of this year, the reasons for an earlier hike are growing."
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Inflation reading sparks rate talk
China moves to ease currency tension
China, the source of raging controversy over its currency policy, is trying to ease tensions with the U.S. government. Beijing is sending deputy commerce minister Zhong Shan to Washington to meet with officials to discuss trade issues, China's Commerce Ministry said today. China's trade partners have been pressing Beijing to allow its currency, the yuan, to rise, which the country has rebuffed day after day. "A lot of problems can be properly solved so long as we can avoid politicization and emotionalization," an official of the Minister told reporters in Beijing, according to the Reuters news agency. "It should not be one side pressing the other side." Read the story
Related: China won't bow to U.S. currency demands
Oil sands do well for Shell
Royal Dutch Shell PLC says its returns from the oil sands far outstrip those of other upstream projects. The global energy giant has posted a report on its website in response to demands from shareholders meant to address environmental issues in advance of its April 28 annual meeting.
"Development of Canadian oil sands resources has received increasing attention from shareholders, the media and non-governmental organizations," Shell said in a statement accompanying the report. "This has included a resolution tabled at our 2010 annual general meeting by certain shareholders, requesting that the company produce a report for our 2011 annual report regarding the context and assumptions behind Shell's investments in oil sands. We wish to emphasize that we share many of the same environmental and economic concerns raised by the group of shareholders who submitted the resolution."
Shell detailed its investments in the oil sands, including its 60 per cent stake in the Athabasca Oil Sands Project with its partners Chevron Corp. and Marathon Oil Corp.
"Canada's oil sands are one of the world's largest accumulations of crude oil, and should be an important part of the global energy supply equation," it said. "Oil sands mining activities require high upfront capital investment to build long-term positions that then produce for several decades. Shell expects the cash flows from oil sands to cover these up-front capital costs and to create returns for shareholders for many years."
Oil sands projects, Shell added, are designed to produce for about 40 years, a long "asset life" providing returns to shareholders. Most notable are comparisons to other upstream projects.
"The initial capital investment in our mining operation on stream was recovered in less than five years after start-up," the energy company said. "During this period oil prices averaged around US$54/barrel. Oil sands earnings per barrel are typically higher than Shell Upstream averages. Over the period 2005-2009 average earnings for oil sands mining were around US$20/barrel, compared to Shell upstream (excluding oil sands) averages of around US$12/barrel. Over the same period, oil sands mining contributed US$31.-billion to Shell's earnings and US$5.6-billion to cash flow from operations."
Nexen, Shell announce 'significant' find
Nexen Inc. and Royal Dutch Shell PLC today announced a "significant discovery" in the Gulf of Mexico, Nexen's third in the region. The Calgary-based oil company said in a statement it holds a 20-per-cent interest in the Appomattox project in the eastern gulf, while its partner owns 80 per cent. Nexen also holds 25 per cent and 20 per cent of the two other projections, Shell again being the partner. "The Appomattox discovery confirms our confidence in the play and provides a strong basis to evaluate the remainder of our significant acreage position in the eastern Gulf of Mexico, said Nexen chief executive officer Marvin Romanow. "We are looking forward to additional drilling at Appomattox to confirm the estimate of total resource and move the discoveries towards development." Read the story
Palm shares falling
Shares of Palm Inc. are falling sharply this morning after the company's disappointing quarterly results and projections late yesterday. The company behind the Pre smart phone yesterday projected sales in the current quarter would come in well below what analysts had estimated. Palm is in a heated race with Research in Motion Ltd. RIM-T, maker of the BlackBerry, and Motorola Inc. MOT-N, whose Droid device uses Google Inc.'s Android system. "Our recent underperformance has been extremely disappointing to me personally and the entire Palm team," chief executive officer Jon Rubinstein told analysts on a conference call, according to Bloomberg News. "We're very realistic about our near-term challenges, but the issues we're facing are far from insurmountable."
Barrick launches African IPO
Barrick Gold Corp. has raised £581-million ($887-million Canadian) from its IPO in London of its African operations. The giant gold producer said in a statement today that it sold 101 million shares of the business in the initial public offering, which Bloomberg News said gives the unit a market value of £2.3-billion. Read the story
California studies workplace safety for pornography
Here's a workplace issue of a different sort: The California Occupational Safety and Health Standards Board is studying a proposal that would force actors in pornography films to wear condoms. The proposal came from the AIDS Healthcare Foundation, which, according to The Associated Press, wants actors to be protected, as are nurses and doctors. The safety board voted yesterday to have an advisory committee study the issue. While advocates praised the move, Steven Hirsch, who heads Vivid Entertainment, told the news agency that the porn industry would probably leave the state if actors are forced to wear condoms in sex scenes.
From today's Report on Business
Foreign demand for bonds cuts Ottawa some slack
Private TV broadcasters post first operating loss