The big picture

The big picture

China on the rise

China’s economy continued to improve in October – industrial production jumped to a 19-month high, up 16.1% from a year ago, while retail sales also beat expectations, up 16.2%. Exports were down 13.8% over the year, but that was a smaller decline than September (15.2%). China signalled it may be ready to allow the yuan to appreciate, a move that would be welcomed by countries around the globe that have complained the persistently weak yuan is a giant subsidy for China’s exports. Global shipping is still weak, with Maersk, the world’s largest shipping container company, expecting to lose US$1 billion this year.

The U.S. dollar hit a 15-month low on Wednesday as Fed officials warned that high unemployment and reluctant consumers would likely make a U.S. economic recovery weak and erratic. U.S. unemployment hit 10.2% in October, but new claims for unemployment insurance fell more than expected last week. The Bank of England said it may extend its extraordinary efforts to stimulate growth, as it forecast a long, slow economic recovery. Last week, the U.K. central bank expanded its bond-buying program to £200 billion (US$334.56 billion) from £175 billion. In Canada, new home prices rose 0.5% in September, the largest month-over-month increase since January 2008, with the biggest hikes in Vancouver, Ottawa and Calgary.

Markets

Dow breaks six-day winning streak

Canadian stocks surged early in the week as commodity prices jumped on better-than-expected industrial production in China, but on Thursday, gains were erased as commodity prices retreated because of a stronger U.S. dollar. The Dow broke a six-day winning streak as a guarded outlook from Walmart fueled consumer fears. Walmart reported higher-than-expected third-quarter profits due to cost cutting, but softened their expectations for the key holiday shopping season.

Hewlett-Packard plans to buy 3Com for US$2.7 billion, as it battles Cisco for market dominance. BCE earnings beat estimates, with its Bell division posting a 26% rise in operating income in the third quarter. Shoppers Drug Mart also showed strong results, with quarterly sales rising 8%. Jean Coutu, Canada’s second largest pharmacy, said it expects to double or triple revenues in its generic drug division in the next five years as patents expire on drugs like Lipitor, with annual sales of $1.8 billion in Canada. Apple beat Nokia with a third-quarter profit of US$1.6 billion, making it the most profitable cellphone maker just two years after entering the market. Cellphone sales are expected to grow between 5% and 8% next year, according to Gartner Research.

The big picture

Canada’s GDP growth stalls

The latest reports on the Canadian economy unexpectedly showed no GDP growth in July, throwing into question the strength of the country’s recovery. Wednesday’s report from Statistics Canada dashed economists’ expectations of a 0.5% increase, blaming shutdowns at mines, lower oil-and-gas extraction, civic strikes and poor weather. On the bright side, employers added 27,000 jobs in August, and new applications for employment insurance fell. Prime Minister Stephen Harper reported that 90% of the economic stimulus funding has been allocated and that the money will create or support 200,000 jobs over two years by funding 7,500 infrastructure projects, training for 44,000 Canadians, $5.8 billion in added EI benefits and $131 billion in business financing.

Bank of Canada Governor Mark Carney said, “A powerful and sustained restructuring of the global economy has begun, but the efforts required of us will be historic,” as he called on consumers and businesses to spend and hire. Consumer confidence in Canada rose for the seventh month in September, but fell unexpectedly in the U.S. on job security worries. U.S. home prices rose for the third month in July, but still are down 32.6% from their 2006 peak. In Germany, stocks surged as Chancellor Angela Merkel was re-elected and pledged to form a centre-right coalition.

Markets

A bumpy road to recovery

Early gains in the week were erased on Thursday as weak U.S. manufacturing and jobless data sent stocks lower. It was one year ago that the Dow Jones Industrial Average suffered its biggest point drop ever – but also its largest gain soon after. In the fourth quarter of 2008, the S&P 500 moved 3% in one day a stunning 29 times. The extreme market volatility seen last year has abated, but stocks are expected to remain in a volatile environment as the recovery picks up.

On Monday, Bombardier shares surged when its joint venture in China won a US$4-billion contract to build 80 high-speed trains. Apple’s iPhone will go on sale in China in October for about US$700. The iPhone App Store hit 2 billion downloads, with users buying 6 million apps per day. Mergers and acquisitions continued with Xerox buying Affiliated Computer Services, while Abbott Laboratories will acquire a division of Solvay. Meanwhile, British regulators gave Kraft a November 9th deadline to make a formal bid for Cadbury. In the lead-up to the holiday season, Wal-Mart unveiled a list of 100 toys for $10 each, and Toys “R” Us is hiring 35,000 seasonal employees.

The month in review

September: One year later, recovery intact but fragile

September 15th marked one year since Lehman Brothers declared bankruptcy, setting off the worst financial crisis since the Great Depression. Canada’s economy is recovering faster than previously thought. Nonetheless, the Bank of Canada kept its lending rate at an all-time low of 0.25%, and renewed its pledge to hold rates until mid-2010. Canada’s banks

were ranked the soundest in the world for the second year in a row by the World Economic Forum, while U.S. banks were ranked 108th. Prime Minister Stephen Harper cautioned that while the recession technically may be over, the recovery is extremely fragile. Finance Minister Jim Flaherty insists that it would be a major mistake for developed economies not to continue stimulus.

Federal Reserve Chairman Ben Bernanke said the U.S. recession is technically over, with growth expected to show in the third quarter. The Federal Reserve kept interest rates unchanged at 0.25%, while giving its most upbeat assessment of the U.S. economy in 18 months and voting to end its US$1.45-trillion program for buying mortgage debt three months early.

G20 leads economic cooperation

At London’s G20 meeting, finance ministers agreed the world economy is stabilizing, but recovery is not established enough to start unwinding stimulus programs. Bankers’ pay is at the centre of discussions; Britain’s finance minister says “the party is over” for bankers who were at the heart of “this almighty car crash.” Bank of England Governor Mervyn King revealed that the Royal Bank of Scotland and HBOS had been just hours away from collapsing last October.

Loonie shows strength; gold tops US$1,000

As the Canadian dollar approached 94 cents U.S., the Bank of Canada repeated warnings that economic recovery may be hampered by the strength of the currency, but said it would ignore short-term volatility in its exchange rate. Gold climbed above US$1,000 an ounce as investors sought a hedge against a falling U.S. currency.

Canadian stocks regain October 2008 levels

Markets advanced in September, reaching levels last seen in October 2008. The TSX has gained 50% since its March 2009 low.

Mergers and acquisitions marry superheroes with princesses

Disney will buy Marvel Entertainment for $4 billion in its biggest deal since buying Pixar in 2006, T-Mobile and Orange will merge to create the U.K.’s biggest wireless operator, and Swedish sports car maker Koenigsegg has teamed up with a Chinese company to buy Saab from General Motors. Magna plans to buy a stake in Opel, GM’s European car division, but risks alienating customers VW and BMW. Canada’s biggest IT services player, CGI, surged on takeover speculation after Dell bid US$3.9 billion for Perot Systems, a 68% premium.

Smart phone wars

In technology news, new hardware and an alliance with Facebook could see Nokia catching up with rivals such as Apple and Research In Motion. Apple unveiled an updated line of iPods this month, while RIM’s quarterly profit and outlook fell short of analyst expectations, sending its shares down sharply. Google’s new Internet phone service, Google Voice, is expected to draw scrutiny from regulators.

Alternative energy: changing the tide

Nova Scotia was given the green light to test turbines in the Bay of Fundy. If viable, sea power could meet 10% of the province’s energy needs. First Solar struck a 10-year deal with the Chinese government to build the world’s largest solar field. Solar panels will blanket a desert area larger than Manhattan and generate enough energy to light 3 million homes. A123 Systems, a U.S.-based battery maker for electric cars, jumped 43% in one day after raising US$380 million through an initial public offering.

The big picture

Canada bouncing back, but rates stay on hold

Canada’s economy is recovering faster than previously thought, the Bank of Canada (BoC) said Thursday. Nonetheless, the BoC kept its lending rate at an all-time low of 0.25%, and renewed its pledge to hold rates until mid-2010. Canada’s banks were ranked the soundest in the world for the second year in a row by the World Economic Forum, while U.S. banks were ranked 108^th.

At London’s G20 meeting, finance ministers agreed the world economy is stabilizing, but recovery is not established enough to start unwinding stimulus programs. Finance Minister Jim Flaherty said, “We agreed that we are not out of the woods . . . We must all remain focused on fully implementing our stimulus packages.” The International Monetary Fund called Canada’s economic strategy “large, timely, well-diversified and structured for maximum effectiveness.” The IMF raised its estimate for global economic growth in 2010 to 2.5%, from 1.9%. Rating agency Moody’s said on Tuesday that the U.S. government’s triple-A credit rating was safe and that the U.K. and Spain are unlikely to lose their top credit ratings.

Markets

Stocks rise as oil and metals rally; gold breaks $1,000

Rising prices for oil and metals helped push the TSX index to an 11-month high this week and the S&P index extended its gain to five straight days, its longest winning streak since November. Oil prices rose 6% since last Thursday and gold rallied above $1,000 an ounce for only the third time in history. The Canadian dollar surged as high as 93.56 cents, but fell back as investors weighed the risk of central bank intervention.

First Solar struck a 10-year deal with the Chinese government to build the world’s largest solar field. Solar panels will blanket a desert area larger than Manhattan and generate enough energy to light three million homes. Apple chief executive Steve Jobs unveiled a new iPod Nano equipped with a video camera and announced price cuts. In merger and acquisition activity, Telus bought Black’s Photo, adding 113 stores to its retail base; Cadbury rejected Kraft’s merger offer of US$16.7 billion; T-Mobile and Orange will merge to create the U.K.’s biggest wireless operator; and Swedish sports car maker Koenigsegg has teamed up with Beijing Automotive Industry Holding Co. (BAIC) to buy Saab from General Motors.