Not any more

At what point will the strong Canadian dollar bother Jim Flaherty?

In Canada on August 5, 2010 at 16:02

These are stories Report on Business is following today. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

Loonie nears 99 cents
The Canadian dollar is inching toward 99 cents U.S, driven higher by more optimism in global markets, a generally weaker U.S. currency, stronger commodities prices and market speculation – based on ‘questionable’ reasoning – that Royal Dutch Shell PLC is eyeing EnCana Corp. ECA-T The loonie is not likely to rise much further today, though, said Scotia Capital currency strategist Sacha Tihanyi, as traders await tomorrow’s reading of the labour market from Statistics Canada.

“[The Canadian dollar] was top of G10 overnight, boosted by M&A talk of Shell interest in EnCana,” said Elsa Lignos, currency strategist at Royal Bank of Canada Europe, citing speculation that such a bid by Shell would lead to buying the loonie against the pound or the euro. “But with Shell’s cash holdings and balance sheet in [U.S. dollars], that reasoning is questionable.”

Added Rahim Madhavji of Knightsbridge Foreign Exchange in Toronto: “Calls for the demise of the loonie rally yesterday were premature … However, weak employment numbers out of Canada and the U.S. would erase these gains in a hurry.”

Scotia Capital currency strategist Camilla Sutton noted that surging wheat prices are helping to drive up major commodities readings while growth in emerging markets is supporting those prices in general. “However, many of the other drivers of [the Canadian dollar] have not kept pace,” she said. “… This hints that there is also some flow helping to boost the currency – this morning’s rumours that there are new energy M&A transactions brewing could also be helping to support [the Canadian dollar].

Finance Minister Jim Flaherty, noting the rise in the dollar makes sense given Canada’s economic prospects, told Reuters the loonie would have to move well beyond current levels to be a worry. “It would have to go significantly above parity. And that would be a concern for Canadian business, and therefore a concern of mine,” he told the news agency “… The concern of business generally in Canada has been to try to avoid having rapid fluctuations.”

Manulife posts hefty loss
Manulife Financial Corp. MFC-T shares sank quickly today after Canada’s biggest life insurer posted a huge second-quarter loss, stung by lower stock markets and interest rates. Manulife lost $2.4-billion or $1.36 a share, compared to a profit of $1.78-billion or $1.09 a year earlier. The company took pains to stress that much of the trouble relates to the reserves it has to set aside, which will be funnelled back into earnings in the future when rates and markets rise enough, The Globe and Mail’s Tara Perkins reports.

“We expect the initial negative reaction to persist until visibility of a market recovery and higher interest rates are firmer, and until [Manulife] has adjusted its products to adapt to this volatility,” said Desjardins analyst Michael Goldberg. “In the meantime, we expect the stock to go sideways at best in the near to medium term. The negative market reaction may create a buying opportunity for patient investors, but that opportunity is likely to persist and could get bigger.”

Chief executive officer Don Guloien acknowledged that the loss was disappointing, but he cited the impact of accounting rules as well. Under U.S. rules, he said, Manulife expects to report a small profit for the quarter. “We are taking difficult decisions over the course of this year to better position the company for the future,” he added.

In a report titled “How could it be worse than we thought?,” Barclays Capital analyst John Aiken noted that “while many of these negatives were anticipated by the market, we believe that the magnitude will be a surprise, particularly the decline in its capital ratios. Much of this should be recovered in the future, should market conditions improve, however, [Manulife’s] second-quarter earnings stand to highlight the significant volatility inherent in its earnings, which investors will more than likely need to contend with for some time.”

Russia bans grain exports
Struck by its worst drought in some 50 years, Russia today slapped a temporary ban on grain exports, a move that pushed wheat prices even higher. The ban on grain and related products will be in place from Aug. 15 until the end of the year. Russia’s government has already declared a state of emergency in almost 30 gain areas. Prime Minister Vladimir Putin reportedly told a government meeting that while the country has enough reserves, the government “must prevent domestic prices from rising, preserve cattle herds and build up reserves for next year.”

The move will take its toll. “As of today, Russia has no grain market,” Kirill Podolsky, the CEO of Russia’s third-largest grain trader, Valars Group, told Bloomberg News. “This will be a catastrophe for farmers and exporters alike.”

2010 Getty Images

U.S. Secretary of State Hillary Clinton

RIM fires back over security
Research In Motion Ltd. RIM-T is firing back back at overseas governments concerned by the tight security of the BlackBerry. Saudi Arabia has threatened to shut off BlackBerry Messenger tomorrow, and both the United Arab Emirates and India are making noise about halting services. In an interview with the Wall Street Journal, RIM co-CEO Michael Lazaridis warned the governments in question risk damaging e-commerce with their demands for access to encrypted data.

“This is about the Internet,” Mr. Lazaridis told the newspaper. “Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can’t deal with the Internet, they should shut it off.”

He added the issue will be resolved “if there is a chance for rational discussion.”

Lebanon today joined the growing list of countries discussing the security issues. “I am not doubting the ability of BlackBerry to maintain communication security,” Imad Hoballah, acting chief of the country’s Telecoms Regulatory Authority, told Agence France Presse. “This is related to the ability of law enforcement agencies to access the data as may be required by law.”

In Jakarta, however, Indonesia’s Communication and Information Ministry said in a statement it has no plans to force a shutdown in BlackBerry service.

And in Washington, U.S. Secretary of State Hillary Clinton said her government would meet with the UAE and other countries to discuss the issue. “We are taking time to consult and analyze the full array of interests and issues at stake because we know that there is a legitimate security concern, but there is also a legitimate right of free use and access,” she said.

BCE posts strong quarter
BCE Inc. BCE-T posted a 70-per-cent jump in second-quarter profit today and boosted its annual dividend by 5 per cent, topping analysts’ estimates and raising its full-year outlook. Profit jumped to $590-million or 78 cents a share from $346-million or 45 cents as the country’s biggest telecommunications company added almost 98,460 new wireless customers. Bell said growth in wireless data revenue surged 45 per cent and now represents 22 per cent of wireless network sales. It hiked its annual dividend to $1.83.

“Overall, we continue to view the company’s performance positively, with good traction in wireless, stronger overall margins, a focus on broadband deployment and a shareholder-friendly dividend policy,” said Desjardins analyst Maher Yaghi. “However, the bulk of BCE’s business (i.e. wireline) remains in a state of organic decline and we reiterate our view that investors should be cognizant of potential pricing pressures in [the second half of 2010] within Quebec when Vidéotron launches its wireless service, as BCE’s major competitor may become aggressive on product bundling promotions in order to gain market share.”

Canadian Natural Resources sees strong quarter
Canadian Natural Resources Ltd. CNQ-T posted a strong second quarter today as its profit surged to $667-million or 61 cents a share from $162-million or 15 cents a year earlier. Factoring out hedging and foreign exchange gains or losses, per-share earnings were 63 cents, well above the estimates of analysts compiled by Bloomberg.

“The variance from our estimates appears to be due to a combination of higher than expected production volumes from CNQ’s North American liquids division … and lower than expected royalties and operating costs in North America as well,” said UBS Securities Canada anlysts Matt Donohue and George Toriola, calling the results a “strong beat.”

Airlines gear up for fight
Canada’s two major airlines, rebounding from the slump, are poised to step up their fight against Porter Airlines Inc. in central Canada. Air Canada AC.B-T said today it’s keen to resume service at Toronto’s island airport, where Porter has held a monopoly on commercial flights. WestJet Airlines Ltd. WJA-T has transferred an executive to Toronto to oversee the Calgary-based carrier’s service from Toronto’s Pearson International Airport.

U.S. jobless claims jump
America’s jobs crisis shows no signs of easing. Initial claims for jobless benefits in the United States rose by 19,000 last week to 479,000, the highest since April. Even the four-week moving average, which is a seen as a better measure compared to the volatile nature of weekly readings, jumped to 458,000 from 453,250. This morning’s report knocked U.S. stock futures, pointing to a softer opening in New York.

“This is disappointing but not a disaster; claims are still subject to seasonal adjustment distortion following the auto retooling shutdowns,” said Ian Shepherdson, chief U.S. economist at High Frenquency Economics. “Even without the seasonal problems, remember that claims are very noisy on a week-to-week basis, and sometimes unexpected results come from nowhere and then reverse just as quickly. That said, markets are nervous right now about the state of the economy and are likely to give more weight to this number than we think is justified.”

Central banks hold the line
The European Central Bank, the Bank of England and the Czech National Bank all held their benchmark interest rates steady today amid expectations they will continue to stand pat for some time yet. “A number of factors are playing a role, including the ongoing lack of consumer confidence, still cautious businesses, a general sense of uncertainty about future economic outlook and tough fiscal repair,” said Scotia Capital economists Gorica Djeric and Derek Holt.

As he held his benchmark rate at a record low 1 per cent today, European Central Bank chief Jean-Claude Trichet said the euro zone is rebounding faster than projected.

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