Sean Kilpatrick
Today's top stories from Report on Business :
Goldman probe spooks markets
The Securities and Exchange Commission's move against Goldman Sachs Group Inc. continues to send jitters through financial markets. The civil fraud charges, which Goldman denies and has pledged to fight, again knocked stocks and commodities such as oil and gold . A report today in the Wall Street Journal indicated regulators are now probing other mortgage deals at some of Wall Street's biggest companies. The allegations also come as a debate in Washington over financial reforms plays out. "This Goldman Sachs affair is certainly something that is keeping investors a bit wary because it could become a key for more stringent regulations," Luc Van Hecka, chief economist at KBC Securities, told Reuters.
Read
Goldman Sachs case shines light on derivatives
Reform hopes soar in wake of Goldman case
An interview with author Gregory Zuckerman
Airline industry hobbled
European transport officials plan to allow more airline flights after volcanic ash from Iceland dusted the sky, prompting an unprecedented shutdown of airspace. Transport officials in the EU agreed today to begin easing the restrictions, with designated zones, though the EU's transport commission said "there will be no compromise on safety." Siim Kallas told reporters that more planes should be flying beginning tomorrow morning.
Airlines, which have lost an estimated $1-billion (U.S.) from the restrictions, had been pressing governments to back down, citing test flights that they ran yesterday. So far, more than 80,000 flights have been cancelled, according to Bloomberg News. Airline stocks have been beaten down and some carriers are seeking government compensation.
One Canadian analyst also calculated hefty losses for Air Canada and Air Transat .
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Ash buffets Canada's air industry
Economic impact widespread
The airspace shutdown is affecting businesses across the globe, and creating new economic fears, particularly in Europe, where the cloud is darkest. Germany's Economic Minister Rainer Bruederle called a meeting of industry leaders in Europe's biggest economy as supply chains dry up. "If chains of economic value are disrupted for a long time in a globalized world, we would have a serious situation, because many of our industrial sectors depend on transport by air," he said, adding the hit to the economy is significant.
Vanessa Rossi, a senior economic fellow at Chatham House, a London research institute, predicted that the air travel chaos, if it continues for months, could knock 1 per cent to 2 per cent off European growth, although that is not expected to happen at this point.
European growth was already expected to be weak in 2010, with estimates in the range of 1 per cent to 1.5 per cent. Some countries, like Greece and Spain, are still mired in recession.
The Reuters news agency reported that shares of food producers such as Nestlé, Parmalat and Damisca were hurt as they scrambled to maintain supplies without air cargo, and that Kenya's currency has been hit as flower exporters lose millions of dollars a day.
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Europe tallies economic damage
Volcano impact hits business far and wide
As ash spreads in Europe, threats to recovery seen
This crisis, Icelanders note, was not of their making
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Greece sidelined by volcano
The shutdown of Europe's airspace forced the Greek government to postpone a crucial meeting with officials of the EU, European Central Bank and International Monetary Fund, a move that again drove up its borrowing costs and added pressure to the debt-burdened country. The meeting was to focus on details of a rescue package - of up to €30-billion from euro zone countries and €15-billion from the IMF - and has now been postponed until Wednesday. Prime Minister George Papandreou said in a statement that his government would seek the emergency aid "if, to bring about the great changes needed and to take the country forward in safety we have to have recourse to this mechanism." Greece has not yet asked for a rescue.
"Volcanic ash cloud spewing from Iceland continues to wreak havoc on Europe, not only because its airspace has now been closed for the longest period since WWII but also because it delayed talks between Greece, the EU, the IMF and the ECB which were set to begin today and have now been postponed until April 21, although officials will begin discussions today via telephone," Scotia Capital economists said in a research note. "The timing of these talks are important as Greece is set to pay back €8.5-billion bonds maturing May 19 and market financing costs have become prohibitive."
IBM profit jumps
IBM Corp. late today posted a 13-per-cent jump in first-quarter profit to $2.6-billion (U.S.) or $1.97 a share from $2.3-billion or $1.70 a year earlier. Revenue rose 5 per cent to $22.9-billion. IBM said signings of service contracts, a hefty portion of its business, fell about 2 per cent to $12.3-billion. Read the story
Citigroup posts $4.4-billion profit
Citigroup Inc. today rebounded to a first-quarter profit from a massive loss in the fourth quarter of last year, and far surpassed its profit of a year earlier. Citigroup earned $4.43-billion (U.S.) or 15 cents a share, compared to the year-earlier profit of $1.59-million. Revenue rose 3.7 per cent. Chief executive officer Vikram Pandit said the company was proud of the results but is still "cautious about the environment, given the uncertain economic recovery and high unemployment in the U.S." Analyst William Fitzpatrick of Optique Capital Management noted in an interview with Bloomberg that "credit conditions have improved fairly dramatically, and investment-banking revenues are even stronger than everyone had anticipated." Read the story
Toyota agrees to hefty U.S. fine
Toyota Motor Corp. agreed today to pay a record $16.4-million (U.S.) fine, the biggest permitted by law in the United States, for what the government said was failing to notify authorities about sticky gas pedals for almost four months. Today was the deadline for the auto maker to either agree or contest the penalty, and the company agreed, U.S. Transportation Secretary Ray LaHood said in a statement this morning. "By failing to report known safety problems as it is required to do under the law, Toyota put consumers at risk," Mr. LaHood said, adding the fine was the largest civil penalty against an auto maker ever by the National Highway Traffic Safety Administration. Toyota is repairing all affected vehicles and has said repeatedly it is committed to safety.
U.S. company rebuffs Couche-Tard
Casey's General Stores Inc. , the target of a hostile bid by Alimentation Couche-Tard Inc. , has adopted a shareholder rights plan, or poison pill, in an attempt to fend off the Quebec convenience store company. Casey's had already rejected the offer worth $1.9-billion (U.S.). Analyst Martin Landry of Desjardins Securities said in a research note that the poison pill "is likely to delay the transaction and increases the probability that Couche-Tard will have to raise its offer price in order to conclude a transaction." Read the story
Markets await Bank of Canada
Bank of Canada policy meetings are always widely watched by markets, but tomorrow's interest rate decision has sparked speculation more intense than is normally the case. That's because the central bank, weighing higher-than-expected inflation readings against better-than-expected economic data, may signal where it is headed as it prepares to unwind its recession-era emergency measures.
Governor Mark Carney and his colleagues, who have pledged to keep rates at their historic lows until midyear, announce their decision at 9 a.m. ET tomorrow. They are not expected to hike their benchmark rate, now sitting at 0.25 per cent, but they are being watched for signs of whether they will lift rates in either June or July.
"The reality may be somewhat messier, with quite a number of viable scenarios, and the most likely outcome that the bank elects to leave both options open - to be settled by income economic data," TD Securities chief economics and rates strategist Eric Lascelles said in a research note. "This would force the market to continue stewing until the last moment."
The belief in the market that the Bank of Canada will act before the Federal Reserve - coupled with a strengthening economy and what investors believe is Ottawa's sound fiscal policy - has helped push the Canadian dollar to around parity with its U.S. counterpart. Read the story
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Investors are loving Canada
Investors are pumping more and more money into Canada.
Foreign investors purchased an additional $6.7-billion in Canadian securities in February, all in bonds, while shedding equities, though in small amounts, Statistics Canada said today.
Separately, Bloomberg News said today that international funds poured $2.7-billion (U.S.) into Canada over the past year, lured by forecasts for profit growth and "the best dividends relative to global equities on record." Profits among companies listed on the Toronto Stock Exchange's benchmark index are forecast to rise 42 per cent this year, compared to 24 per cent for those on the S&P 500, analysts estimates compiled by the news agency showed. And, it noted, funds tracked by EPFR Global in Cambridge, Mass., bought almost $550-million in Canadian stocks in the eight weeks ended March 31.
"It's a way to play in North America that you probably won't get burned on," Michael Mullaney, a manager at Fiduciary Trust Co. in Boston, told Bloomberg. "It's a safe way to diversify away from your U.S.-based holdings without going to the riskier emerging markets."
Another money manager, Peter Sorrentino of Huntington Asset Advisors in Cincinnati, told the news agency he's acquiring stock in Suncor Energy Inc. , in turn cutting back on holdings of Exxon Mobil Corp.
"Canada is a more stable environment at this time and they have what India and China need: raw materials, energy, along with rational government and a stable currency."
International investors have been lured by a strong economy compared to Canada's G7 counterparts, what is seen as sound fiscal policy and its resource-based stocks, and have pushed up the Canadian dollar to around parity with the U.S. currency.
Related: Market Blog columnist David Parkinson on Canada fund flows, still a foreign affair
Seafood in high demand
It's not just Canada's oil, wood and potash that the world wants, but seafood too. The Reuters news agency reports today that Maersk Line, the biggest container shipper on the planet, has begun a route from Halifax to Rotterdam to satisfy growing tastes in Europe for live shellfish. Maersk and partner Aqualife have worked jointly for a few years to establish transport lines for seafood, the news agency said, and the Halifax operation is made up of 20 water tanks in a refrigerated container. "It is a very exclusive product because the value of the lobster and crabs and mussels is high," Thomas Eskesen, the senior director of the Maersk refrigerated cargo unit, told Reuters. "Now is the right time to go for Halifax."
Aqualife, in turn, said that over time a Canada-Europe lobster route could be worth a lot of money. North American lobster exports to Europe are worth the equivalent of almost $245-million (U.S.) a year, it said, with about 3,400 tonnes of live lobster coming from Canada's east coast.
Related: Lumber prices at highest in three years
From today's Report on Business
Potash Corp.'s Bill Doyle dims hopes for new mines
Markets watch for Bank of Canada signals
Limited impact seen from new mortgage rules