Not any more

Canadian dollar tumbles more than a penny, stocks take beating

In Canada on August 11, 2010 at 12:51

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.

Markets, loonie sink on sour outlook
Global stocks tumbled today and the Canadian dollar CAD/USD-I sank by well over a penny amid an ever gloomier outlook for the economic recovery. Following the grim picture painted yesterday by the Federal Reserve, and fresh concerns in Britain and China, Japan’s Nikkei 225 index slipped by 2.7 per cent, while Hong Kong’s Hang Seng fell less than 1 per cent and the Shanghai composite index gained slightly.

Losses on the Toronto Stock Exchange and in New York were well over 200 points.

“Equity markets continue to sink lower on the back of concern about economic recovery prospects in western economies,” said CMC Markets analyst Michael Hewson. “This ‘risk off’ scenario was given a helping hand by this morning’s data out of China … These fears of a continued slowdown in China, along with the Fed’s downbeat assessment of the U.S. economic outlook, and this morning’s similar statement from the Bank of England has seen the markets adopt a ‘risk off’ strategy and book profits from the recent range highs.”

Fresh signs of slowing in China
Feeding into the markets’ foul mood today are new numbers that show China’s hot economy continues to cool. Several indicators reported today by the government, including retail sales, industrial output, bank lending and fixed asset investment, all paint a picture of a slowing economy, which to date has helped to fuel the global recovery. This follows yesterday’s data showing the pace of growth in imports slowing. Today’s numbers for July still show growth, but growth that is ebbing. Industrial production rose more 13 per cent, the slowest in about a year. Retail sales, though up almost 18 per cent, are at a seven-month low. And fixed investment, up a hefty 25 per cent, showed the slowest increase in more than two years.

“China’s growth needs to be driven increasingly by domestic demand, and softening consumption data certainly don’t point in that direction,” said BMO Nesbitt Burns economist Benjamin Reitzes. “Making matters worse, consumer price inflation accelerated to 3.3 per cent in the month (as expected), making real sales even weaker.”

Added Mark Williams, senior China economist for Capital Economics in London: “The economy appears to be slowing more rapidly than anticipated a couple of months ago, according to data released today. China’s government has plenty of room to loosen policy to avoid a hard landing, but this will probably entail limits on bank lending being shelved.”

Britain’s central bank cuts forecast
Britain’s growth outlook is also choppy. The Bank of England today cut its forecast for next year and warned of a “choppy recovery” as the world struggles back from the financial crisis and the recession. The central bank now believes economic growth will peak at an annual pace of 3 per cent, compared to the 3.6 per cent forecast just a few months ago.

“There are clearly risks,” Governor Mervyn King told reporters. “Business and consumer sentiment have shown signs of softening, measures of financial fragility remain elevated and there is great uncertainty about the outlook for both the United States and our most important trading partner, the euro area.”

Trade deficit widens
Canadian exports fell in June, largely on a hefty drop in energy products and industrial goods, outpacing a decline in imports and leaving an unexpectedly far wider trade deficit of $1.1-billion. The level of exports fell to $33.5-billion as both prices and volumes declined, Statistics Canada said today. That followed six straight months of increases in export volumes, the federal statistics gathering agency reported. Imports to Canada, in turn, fell to $34.6-billion, largely on price declines as the actual volumes were flat. A quick breakdown:

  • Exports to the U.S. dipped 1 per cent, largely on energy products. Imports from the U.S. climbed 0.8 per cent.
  • Exports to other countries slipped 7 per cent, primarily because of a drop in shipments to the EU, eclipsing a 4.6-per-cent decline in imports from countries other than the U.S.
  • Exports of industrial goods and materials fell 7.1 per cent.
  • Precious metals exports fell 24.1 per cent, a third consecutive drop after hitting a record high in March.
  • Exports of energy products fell 5.5 per cent as volumes fell for the fifth month out of six.
  • Exports of autos and related products fell 4.6 per cent, with cars down 7.1 per cent.

It’s just a one-month measure, so don’t read too much into it, but the declines in exports to Europe are worth noting. Sales to Europe are now barely above levels of a year ago, said BMO Nesbitt Burns deputy chief economist Douglas Porter, and “this is at the very least a loud warning shot from these European figures.”

U.S. trade deficit balloons
The U.S. trade deficit also swelled in June, far more than expected, and is now at its fattest since October of 2008. U.S. exports fell 1.3 per cent, marking the second drop in three months, far outpaced by a 3-per-cent rise in imports. Notable in today’s numbers was the widening shortfall with China, where the gap is now $4-billion (U.S.) higher at $26.2-billion. This threatens to again heighten trade tensions between China and the U.S., which has been pushing Beijing to allow its currency to rise. China has allowed some movement in the yuan, also known as the renminbi, but the change has been minimal.

On a seasonally-adjusted basis, the U.S.-China gap has only been wider twice, in September and October of 2008, noted Paul Dales, U.S. economist for Capital Economics in Toronto. “It is even worse than that: After applying our own seasonal adjustment it stands at $26.4-billion, which is a new record high,” Mr. Dales said. “In the runup to the midterm elections in November, this could boost concerns over the slow pace of renminbi currency appreciation and increase U.S.-China tensions.”

As for the overall showing, he added, the figures suggest “that the U.S. economy cannot rely on a boost from overseas demand to offset the current domestic weakness. In fact, overseas effects are exacerbating the domestic downturn.”

Quebecor posts lower profit
Quebecor Inc. QRB.B-T profit slipped in the second quarter, though revenue jumped 5 per cent. Profit fell in the quarter to $65.5-million or $1.02 a share from $76.8-million or $1.19 as revenues jumped to $994-million from $946.4-million, the media company said today.

“Quebecor reported … results that were in line with revenue expectations and ahead of profitability expectations,” said Desjardins analyst Maher Yaghi. “The company continues to aim for the launch of its wireless network by the end of this summer. Overall, we remain positive on the company’s long-term prospects, given the potential for a significant new leg of growth from wireless, supplemented by organic growth in cable from pricing increases despite slowing subscriber growth. However, we continue to believe that wireless growth may take a few years to impact profitability materially, and that in the near term, telecom margins will be negatively impacted once the wireless network comes onstream.”

Markets hit CPP
The Canada Pension Plan posted a 1.3-per-cent investment loss in its fiscal first quarter ended June 30 as global stock markets dipped, sending the fund’s public equity holdings lower. The value of the fund’s assets rose to $129.7-billion from $127.6-billion, however, due to $3.8-billion in new contributions from plan members, which offset a $1.7-billion loss on investments. The losses came as the S&P/TSX composite index fell 6.2 per cent in the three-month period, while the S&P 500 index fell 11.9 per cent.

Call it the sex trade
North Korea is making a decidedly unique attempt to settle its debts. Deep in economic trouble, the North Korean government is offering to pay off the equivalent of about $10-million (U.S.) in debt to the Czech Republic with what a Czech newspaper calculates at some 20 tonnes of ginseng. Ginseng is an exotic root believed to be healthy on several fronts, and is a noted aphrodisiac. As The Financial Times noted, however, the “now-capitalist Czechs are unconvinced they need an injection of vigour.” The country’s deputy finance minister told the MF Dnes newspaper that “we have been trying to convince them to send, for instance, a shipment of zinc, which is mined there.”

From today’s Report on Business

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