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| Market News: News Archive : Morning News Call Week ending |
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Feb 5, 2010
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FRIDAY, FEBRUARY 5, 2010, CANADIAN EDITION
TOP NEWS
• Canada's jobless rate unexpectedly drops in January
• Brookfield Properties FFO falls 14 percent
• Aetna Q4 profit misses Wall St views
• Toyota mulls Prius recall
• Thompson Creek terminates US$35 mln credit facility
BEFORE THE BELL
Toronto's main stock index may open lower on Friday, extending it losses from the previous session, as lingering worries over the fiscal health of some European countries curbed risk appetite. However, losses may be capped as unemployment rate fell to 8.3 percent in January its lowest rate since September, from 8.4 percent in December as the economy added 43,000 jobs, Statistics Canada said. Wall Street is also set for a lower open as investors remain cautious ahead of U.S. employment data. A Reuters survey forecast that the U.S. employers probably stopped cutting jobs and added 5,000 payrolls in January after firms slashed thousands of jobs in December. European and Asian shares fell on mounting fears about debt defaults as the cost of insuring Greek, Portuguese and Spanish government debt rose to record highs. Oil fell below US$73 a barrel and gold fell about a percent.
STOCKS TO WATCH THIS MORNING
• BlackPearl Resources Inc. (PXX). The company said on Thursday in 2009 its proved reserves rose 10 percent and said that current oil and gas production were slightly down due to reserves that were produced in 2009.
• Bombardier Inc. (BBDb). The company's unit Bombardier Aerospace said it delivered 13 percent less aircrafts during the fiscal year, and forecast a 15 percent decline in business aircraft deliveries for the current fiscal.
• Brookfield Properties (BPO). The company said on Friday its funds from operations fell 14 percent, weighed by softer property conditions and undeployed capital, but sees 2010 FFO above market estimates.
• Canadian Imperial Bank of Commerce (CM). The bank slashed its CEO's compensation in 2009, amid changes to compensation structure and reflecting board disappointment over bank exposure to structured credit.
• Gleichen Resources Ltd. (GRL). The company said on Thursday it will raise $50 million through a bought deal to fund acquisition from Desarrollos Mineros San Luis S.A. The company said it would offer 50 million shares at $1 each.
• Gluskin Sheff + Associates Inc. (GS). The wealth manager's second-quarter profit rose more than four-fold, helped by growth in performance fees and assets under management, but fell short of estimates.
• Heroux-Devtek Inc. (HRX). The aerospace and industrial manufacturer on Friday posted a third-quarter profit that narrowly missed estimates, hurt by a decline in revenue from its industrial sales segment.
• Husky Energy Inc. (HSE). The oil producer and refiner will decide on going ahead with a spinoff of its Asian offshore oil and gas operations by around the middle of the year, the CEO of the company, said on Thursday.
• Manitoba Telecom Services (MBT). The regional communications company reported a sharp drop in fourth-quarter net profit on Thursday, reflecting non-operating issues, such as charges associated with tax adjustments.
• Parkbridge Lifestyle Communities Inc. (PRK). The REIT on Thursday posted first-quarter funds from operations that missed market expectations, hurt by expenses, and said it maintained its full-year home sales outlook.
• Pembina Pipeline Income Fund (PIF_u). The company said on Thursday it allocated about $152 million for the construction of Nipisi and Mitsue pipeline projects, after spending about $76 million last year. The said it also plans to invest $240 million in new capital in 2010.
• Stella-Jones Inc. (SJ). The company said on Thursday it received U.S. antitrust clearance for Tangent Rail Corp acquisition.
• Terra Ventures (TAS). Novus Gold (NOV) exercised its option to repurchase Terra's 51 percent interest in Ren Gold property in northwest by issuing 7.5 million of its shares to Terra.
• Thompson Creek Metals Co. (TCM). The company on Friday said it terminated its existing US$35 million credit facility as the facility was no longer meeting its business needs.
• Trilogy Energy Trust (TET_u). The company on Thursday said the court and its unit holders approved its proposal to become a corporation and it expects Trilogy Energy Corp will commence trading on the Toronto Stock Exchange under the symbol "TET" on or about Feb. 10, 2010.
• Western Financial Group Inc. (WES). The company on Thursday forecast 2010 net income of about $18.5 to $20 million and said it expect a good year ahead for Western life in top and bottom line growth.
CORPORATE EVENTS
10:00 Gluskin Sheff & Associates Inc. (GS). Q2 earnings conference call
10:00 Heroux-Devtek Inc. (HRX). Q3 earnings conference call
11:00 Brookfield Properties Corp. (BPO). Q4 earnings conference call
ANALYST RECOMMENDATION
• BCE Inc. (BCE) price target raised by $0.50 to $27.50; rating neutral at Macquarie
• Fortis Inc. (FTS) price target cut by $1 to C$29; rating hold at Canaccord Adams
• Fortress Paper (FTP) price target raised to $15.60 from $13.40; rating buy at Acumen Capital
• Groupe Aeroplan (AER) price target raised to $15 from $13; keeps outperform rating at Raymond James
• North Peace Energy Corp. (NPE) price target cut to $0.27 from $0.32; rating hold at Canaccord Adams
• Victoria Gold (VIT) price target raised to $1.20 from $1; rating outperform at Raymond James
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Google facing many risks in China standoff
Google Inc's near-silence and seeming inaction since its bombshell announcement it may exit China reflects the Internet search leader's fear of running afoul of the law and jeopardizing a multi-pronged strategy for the world's top Internet market.
Google sent shockwaves across the business and political worlds when it declared on Jan. 12 it would stop censoring Chinese search results. But in the three weeks since, the Web giant has trod cautiously.
Despite early reports suggesting Google had lifted filters on certain search results, the company insists it has made zero changes to its Chinese search engine and that it remains in dialogue with Beijing. Otherwise, executives have mostly been tight-lipped about the entire affair.
That guarded, restrained approach reflects the thorny legal issues surrounding the situation and the high stakes involved in its standoff with China, the world's No. 3 economy and largest Internet market by users.
Many analysts believe the Chinese government would have no qualms shutting down an uncensored search engine. But experts on Chinese law warn that Google employees in China could also face prosecution for breaking the law.
China's detention of four Rio Tinto employees including Australian Stern Hu in July on accusations of illegally obtaining commercial secrets amid contentious iron ore contract negotiations has underscored the risk when business matters cross into politically sensitive areas.
"If they have a lot of personnel in China and they suddenly decide to change what they're doing in a way that was not permitted by the Chinese government, then that could lead to problems," said Donald Clarke, a professor of Chinese law at George Washington University Law School, noting Google staff could be at risk of everything from arrest to harassment.
And with political momentum building -- U.S. Secretary of State Hillary Clinton and the U.S. Senate have voiced strong support for freedom of expression on the Internet -- Google has room to sit back and let others advance its cause.
"As long as individual actors, even ones as large as Google, are doing this alone as opposed to collectively, then these risks are going to be much more pronounced," said Arvind Ganesan, director of business at Human Rights Watch.
STATE SECRETS: A CATCH-ALL
A sudden move by Google to lift search censorship in China could hurt other business interests in the country, including its fast-growing Android cell phone products, advertising sales and its research and development operations.
"Both parties probably want to reach some sort of a solution, so I think both have been careful in their public statements," UBS analyst Brian Pitz.
Websites in China are prohibited from publishing content that jeopardizes the security of the nation, divulges state secrets and disturbs the social order.
"It would be normal for anybody running a high-profile, politically controversial operation in China to anticipate worst-case scenarios, and to do everything possible to guard against them," said Rebecca MacKinnon, a fellow at the Open Society Institute who has written extensively about Internet censorship in China.
Google is therefore more likely to voluntarily shut down its search operation if it is unable to reach a compromise with China, rather than unilaterally lift censorship, she said.
Google CEO Eric Schmidt said last month the company was still censoring search results in China, but that it would be making changes in a "reasonably short time." He added that Google was committed to having some presence in China.
The company does not disclose the size of its business in China, where it has several hundred employees and is the No. 2 search engine after Baidu Inc. Analysts estimate it generates US$200 million to US$600 million a year in revenue.
While many experts believe Beijing is unlikely to let Google operate an uncensored website, some say last summer's "Green Dam" software episode could offer a lesson for the company as it looks for a way forward.
Beijing backed down from a controversial plan that would have required personal computer makers to install special Internet filtering software on PCs in the face of opposition from industry groups, activists and Washington officials such as U.S. Trade Representative Ron Kirk and Commerce Secretary Gary Locke.
"What you saw is a pretty much global pushback on what were pretty onerous and odious regulations on the part of the government. And guess what? As of today, there is no requirement" to install filtering software, said Ganesan of Human Rights Watch.
-- By Alexei Oreskovic, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund
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Feb 4, 2010
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THURSDAY, FEBRUARY 4, 2010, CANADIAN EDITION
TOP NEWS
• Domtar posts Q4 profit, sees strength in pulp demand
• Fortis fourth-quarter earnings rise
• Shell to slash downstream as Q4 profits collapse
• BCE reports fourth-quarter profit
• Iteration Energy says exploring strategic alternatives
BEFORE THE BELL
Toronto's main stock index may open lower on Thursday as metals suffer from worries about economic recovery and demand from top consumer China, and firmer dollar pressure oil and gold prices. Wall Street is also set for a lower open as renewed worries over sovereign debt in some euro zone countries kept investors away from riskier investments, including equities, ahead of U.S. jobs and factory data. European shares fell dragged by banking stocks. The European Central Bank and the Bank of England kept their interest rates unchanged, while the BOE announced no increase to its unprecedented 200 billion pound asset-buying programme. Asian equities were down on the lingering concerns about the global economy and a host of negative local factors, with Toyota hitting a 10-month low on investor concerns over its massive vehicle recall. Oil slips below US$77. Gold fell about half a percent to trade at around US$1,103 an ounce.
COMPANIES REPORTING RESULTS
• Gluskin Sheff & Associates Inc. (GS). Expected to report Q2 earnings of 90 cents a share, according to Thomson Reuters I/B/E/S
• Manitoba Telecom Services (MBT). Expected to report Q4 earnings of 60 cents a share
• Parkbridge Lifestyles Cmnt Inc. (PRK). Expected to report Q1 earnings of 9 cents a share
STOCKS TO WATCH THIS MORNING
• Ballard Power Systems Inc. (BLD). The company said on Wednesday its fourth-quarter revenue fell 13 percent to US$16.5 million.
• BCE Inc. (BCE). The country's biggest communications company reported a fourth-quarter profit on Thursday, reversing a loss in the year-earlier period, when the company recorded a large restructuring charge.
• Canaccord Financial Inc. (CF). The investment dealer swung to a third-quarter profit, driven by a rise in investment banking revenue and commissions.
• Enerplus Resources Fund (ERF_u). The company said on Wednesday it has cut 7 percent of its staff as it transforms itself to develop holdings in Pennsylvania's Marcellus shales and the Bakken oil region of Western Canada and the U.S.
• Fortis Inc. (FTS). The utility company reported improved fourth-quarter earnings on Thursday, driven by increased profits in its regulated electric utilities business in Canada.
• Domtar Corp. (UFS). The forestry firm posted a fourth-quarter profit on Thursday, aided by strength in pulp markets, and said it expects pulp demand to remain strong in the short term.
• Fortress Paper Ltd. (FTP). The company said on Wednesday its unit agreed with GE Capital Bank AG for initial facility financing to rebuild its Paper Machine 1 into a banknote machine.
• Fortuna Silver Mines Inc. (FVI). The company said on Wednesday it will raise $30 million in a bought deal financing to partly fund the construction of its San Jose project in the state of Oaxaca, Mexico.
• Husky Energy Inc. (HSE). The integrated oil producer and controlled by Hong Kong billionaire Li Ka-shing said on Wednesday its fourth-quarter profit rose as oil prices strengthened.
• Iteration Energy Ltd. (ITX). The oil and gas exploration company said on Thursday it would conduct a review of strategic alternatives, including a possible sale of the company.
• Open Text Corp. (OTC). The business software maker reported a sharp increase in second-quarter profit on Wednesday, boosted by strong revenue growth and cost savings from a recent acquisition.
• Research In Motion (RIM). A British judge has ruled in favor of the BlackBerry maker in a patent dispute with rival Motorola Inc, the company said in an e-mail.
• Sea Dragon Energy Inc. (SDX). The company said on Wednesday it received a final approval from the government of Egypt for it 50 percent interest stake in Kom Ombo's block.
ECONOMIC CALENDAR
08:30 Building permits for Dec: Prior -4.6% Expected 2.5%
10:00 Ivey PMI for Jan: Prior 48.4 Expected 52.5
CORPORATE EVENTS
10:00 Domtar Corp. (UFS). Q4 earnings conference call
11:00 Canaccord Financial Inc. (CF). Q3 earnings conference call
11:00 Ballard Power Systems (BLD). 2010 outlook conference call
16:15 Husky Energy (HSE). Q4 earnings conference call
17:00 Manitoba Telecom Services (MBT). Q4 earnings conference call
ANALYST RECOMMENDATION
• Enbridge Inc. (ENB) price target raised to $52 from $51; rating buy at UBS
EXDIVIDEND
• Canadian Utilities (CU). Amount $0.3775
• Copper Mesa Mng Corp. (CUX). Amount $0.3775
• CU Inc. (CIU_PRA). Amount $0.2875
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Bankruptcy emergence in U.S. doesn't ensure success
The first few weeks of this year brought a surge of U.S. companies dropping the shackles of bankruptcy to emerge with lighter debt loads, a fresh business plan and new owners.
The improving U.S. economy, capital markets and a rise in prearranged bankruptcy plans have held the door open for companies to exit bankruptcy court, but turnaround experts warn that emergence is only the beginning.
"Emergence has nothing to do with turning the corner," said Alan Cohen, chairman of Abacus Advisors, a turnaround and restructuring firm. "You can correct a balance sheet by manipulating debt into equity, or reducing debt, but unless the entity focuses on improving operations, they're going to have a tough time."
RUSH TO EXIT
Some 11 formerly publicly traded companies have come out of bankruptcy so far this year, compared with just four in the same period last year, according to bankruptcy statistics provider BankruptcyData.com.
In 2008, only one company emerged in the first six months of the year.
Some firms, such as music and entertainment provider Muzak Holdings LLC, have been able to take advantage of more welcoming capital markets to fund their exit.
Others, such as RH Donnelley Corp, now known as Dex One Corp, have sped through the process after working out a restructuring deal with lenders before the bankruptcy filing.
"The prepacks are pushing people out much more quickly," said Ed Albert, a managing director at investment firm Macquarie Capital (USA) Inc. He added that the sheer volume of companies that filed for Chapter 11 bankruptcy over the past few years contributed to the new year's rush.
Some 210 public companies filed for bankruptcy last year, up 52 percent from the year before and the largest number since the previous U.S. downturn in 2001, according to BankruptcyData.com
"The timing of the filings, the velocity of the bankruptcy process and more prepackaged solutions have resulted in a wave of emergence," said Albert.
TROUBLE AHEAD?
An improving economy has helped loosen capital markets, allowing companies to refinance debt or reach deals with new lenders. Indeed, the economy grew at a faster-than-expected 5.7 percent annual pace in the last quarter of 2009.
"You can't save companies in a bad economy," said Richard Mikels, a partner with law firm Mintz Levin. "But when the economy starts to get a little better, you have a real chance of saving these companies."
But Mikels warned that an improving economy would bring more new bankruptcies, not less. That's because more creditors will foreclose on the assets of troubled companies now because those assets have slightly more value than the year before. In addition, credit markets are offering more loans to companies seeking Chapter 11 protection, he said.
And companies still need to fix the problems that sent them to bankruptcy court in the first place.
"Investors should "look at how long it took companies to emerge - did they do a balance sheet restructuring only, or a balance sheet restructuring as well as an operational restructure? Did they correct their operations?" said Cohen.
"When you have an ache, you take a Tylenol, you feel better for a while but you didn't determine what caused the ache," he said. "It's just a Band-Aid."
Once-public companies to emerge so far this year, according to BankruptcyData.com, include Muzak, R.H. Donnelley (Dex One), Teton Energy Corp, Vermillion Inc, Simmons Bedding Co, Merisant Worldwide Inc, CanArgo Energy Corp, Fairchild Corp, Lenox Group, Edge Petroleum Corp and Building Materials Holding Corp.
-- By Chelsea Emery, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund
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Feb 3, 2010
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WEDNESDAY, FEBRUARY 3, 2010, CANADIAN EDITION
TOP NEWS
• Enbridge Q4 profit climbs
• IAMGOLD sees gold output at up to 1 mln oz in 2010
• Pfizer Q4 profit misses, 2010 view below forecast
• Time Warner Q4 profit up; dividend raised
• Toyota US sales hit by recall; Honda ups outlook
• U.S. FDA approves Labopharm's antidepressant
BEFORE THE BELL
Toronto's main stock index may open slightly higher on Wednesday as commodity prices rise boosting energy and mining shares. Wall Street is set for a flat open following two days of strong market gains and ahead of key jobs and services sector data that is expected to show the U.S. economy has continued to improve. ADP employment numbers for January is expected to show a smaller job loss of 30,000 when compared with a loss of 84,000 jobs in December, according to a Reuters poll. ISM non-manufacturing index is seen up at 51.0 from 49.8 compared to the previous month. European shares were slightly higher, extending a winning run to four sessions, with miners rising on stronger metals prices. Asian markets rose with energy and resources stocks leading the gainers. Oil pared some of its gains to trade around US$77.17 a barrel, ahead of key U.S. inventory data. Gold was up to trade at around US$1115 an ounce as the dollar extended losses against the euro.
COMPANIES REPORTING RESULTS
• Bell Aliant Regional Communication Income Fund (BA_u). Expected to report Q4 earnings of 59 cents a share, according to Thomson Reuters I/B/E/S
• Husky Energy (HSE). Expected to report Q4 earnings of 53 cents a share
• Open Text (OTC). Expected to report Q2 earnings of 69 U.S. cents a share
STOCKS TO WATCH THIS MORNING
• Capstone Mining Corp. (CS). The company said on Wednesday it is commencing exploration program at Minto copper-gold mine and has approved about US$2.6 million to conduct drilling during winter/spring season of 2010.
• Enbridge Inc. (ENB). The pipeline company said on Wednesday its fourth-quarter profit rose, driven mainly by stronger results from its liquids pipelines business.
• Etruscan Resources (EET). The company expects to produce 80,000 ounces of gold a year when its new Agbaou mine starts production in 2012, the CEO said on Wednesday.
• IAMGOLD Corp. (IMG). The mid-tier gold miner plans to lift its gold production to about 1.0 million ounces in 2010 from 939,000 ounces last year after starting operations at a new mine in Burkina Faso, it said on Wednesday.
• Imperial Oil Ltd. (IMO). The oil producer and refiner's fourth-quarter profit fell a worse-than-expected 19 percent as weak refining margins weighed on the bottom line, the company said on Tuesday.
• Labopharm Inc. (DDS). The biotechnology company said on Wednesday the U.S. Food and Drug Administration approved its once-daily antidepressant, clearing the way for its launch on the market later this year.
• Mosaid Technologies Inc. (MSD). The company said on Tuesday it will raise $27.1 million in bought-deal financing, partly to fund acquisitions. Proceeds from the offering, which is expected to close on or about Feb. 23, will also be used for research and development, and for general corporate purposes.
• Petrominerales Ltd. (PMG). The company said on Tuesday total company production averaged 28,639 bopd in January and added production was restricted for 12 days due to temporary pipeline capacity limitations experienced in Llanos basin.
CORPORATE EVENTS
09:00 Enbridge (ENB). Q4 earnings conference call
15:00 Aliant (AIT). Q4 earnings conference call
15:00 Bell Aliant Regional Comm Inc Fund (BA_u). Q4 earnings conference call
17:00 Open Text (OTC). Q2 earnings conference call
ANALYST RECOMMENDATION
• Barrick Gold (ABX) rating started with hold at Deutsche Bank
• First Uranium (FIU) rating cut to market perform from outperform at Raymond James
• Goldcorp (G) rating started with hold at Deutsche Bank
• Kinross Gold (K) rating started with buy at Deutsche Bank
• North American Energy Partners (NOA) rating raised to strong buy from outperform at Raymond James
• Suncor Energy (SU) price target cut to $42 from $45; rating overweight at Barclays
EXDIVIDEND
• Fortis Inc. (FTS). Amount $0.28
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
Aussie to top Canadian dollar in commodity FX play
Backed by economies geared to commodity exports, the Australian and Canadian dollars stood out as clear winners in an otherwise tumultuous year in 2009 although the so-called Aussie ran well ahead of its rival.
This year, Australia's exposure to booming China, its main trading partner, will trump Canada's exposure to its main export market of the United States, giving the Aussie the edge again.
For investors looking to bet on commodities via foreign exchange, both provide liquidity as the world's sixth and seventh most-traded currencies.
The Aussie has gained over 20 percent to $0.94 from a 2009 low of $0.78. The factors behind its 2009 rise -- which apart from China also included a sturdy economy and the highest interest rates in the developed world -- will serve it well this year as well.
"It's definitely the Aussie between the two," said Joseph Tan, Asia chief economist at Credit Suisse in Singapore. "I would not be negative the Aussie right now."
While further gains in the Australian dollar are to be had at the Canadian dollar's expense, they will be much more modest.
Commonwealth Bank of Australia says the Aussie could edge up to $0.9800 by June, a rise of just over 4 percent, while National Australia Bank forecasts it will hit $1.00 by the end of 2010, an increase of more than 6 percent.
Higher commodity prices helped the Aussie soar 29 percent last year against the U.S. dollar, its biggest annual rise in six years. Still, the Canadian dollar was no slacker, rising close to 16 percent.
CHINA VS UNITED STATES
Attractive in its own right for its fiscal restraint as governments elsewhere spend their way out of the financial crisis, Canada is however hostage to a fragile U.S. economy.
The United States buys three quarters of Canada's exports. As Australia's biggest export destination, booming China bought more than a fifth of its exports from July to November 2009.
China is expected to grow 8.5 percent this year, towering over the United States' 3-3.5 percent forecast. China will help Australia's economy grow near its potential long-term growth rate of 3.25 percent having helped it avoid recession in the downturn.
Canada is forecast by its central bank to grow at 2.9 percent this year and higher next year although it has said longer-term growth will be more limited. There are other differences. Commodities including iron ore, coal and copper make up 85 percent of Australia's exports. About 40 percent of Canada's exports are manufactured goods.
"The pricing of those goods is under a lot of pressure and demand for them is going to remain weak," said Peter Hall, vice-president and chief economist at Export Development Canada, citing cautious consumers in the West.
Australia's top commodity export, iron ore, is expected to rise strongly this year, on China demand.
Prices for Canada's top exports, oil and gold, are expected to rise, but not like iron ore.
Surging Chinese demand for steel, made from iron ore and metalurgical coal -- another Australian export -- could help iron ore miners to hike prices by up to 40 percent in 2010.
The Australian economy's resilience during the downturn has prompted the Reserve Bank of Australia to raise its policy rate three times since October to 3.75 percent from 3.00 percent and it remains the only central bank in the G10 to have done so.
Markets bet Australian rates will rise to 4.5 percent by the end of the year.
In contrast, Canadian rates are seen at 0.25 percent until June and at 0.5 percent by December.
The Aussie's hefty yield advantage could hold for some time yet. The Bank of Canada (BoC) has singled out the strong Canadian dollar as a risk to growth, feeding talk it won't tighten soon. The RBA, on its part, seems unperturbed by a flying Aussie.
"For Australia, a stronger currency is not a negative. Whereas the BoC is going to moderate the pace of interest rate hikes to the extent that that would cause an overshoot to the currency," said Avery Shenfeld, economist at CIBC World Markets.
Arguably, the Aussie may have already priced in more rate rises and could fall sharply if they do not materialise.
Yet, even if Australian rates stay on hold and U.S. rates rise to 0.5 percent by December -- markets are priced for a chance of that -- a gap of 300 basis points between the two is still wider than in the decade after 1992.
ALREADY HIGH, BUT EVEN HIGHER?
Still, the Aussie's lofty level is a turn-off for some.
Morgan Stanley thinks selling the Aussie against the Canadian dollar is a top trade for 2010. It sees the Canadian dollar rising to US$1.08 by December, while the Aussie skids to US$0.78.
That implies the Aussie falling to $0.84, a fall of 10 percent from current levels.
ING Bank said the Aussie is the priciest among 10 big currencies measured by purchasing power. The Canadian dollar was the third-cheapest.
Yet, an expensive currency does not always have to fall. The yen in the last decade and pound in early 1990s were widely regarded as overpriced.
"Despite the over-valuation, I admit that momentum, interest rate hikes and economic fundamentals could indeed carry the Aussie higher," said Tan at Credit Suisse.
Granted, Australia's rising dependence on China is a double-edged sword. If China splutters, Australia will be among the first to wobble. A reversal in commodity prices should also be more painful for the Aussie since it has risen more.
Likewise, a surprisingly strong U.S. economic recovery would provide more upside potential for the Canadian dollar.
But for some the Aussie is a clear stand out.
"It is simply not possible to make a confident bearish case for the Aussie," said Patrick Bennett, an analyst at Societe Generale in Hong Kong.
--By Koh Gui Qing and Jennifer Kwan, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund
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Feb 2, 2010
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TUESDAY, FEBRUARY 2, 2010, CANADIAN EDITION
TOP NEWS
• Suncor posts Q4 profit
• Dow Chemical Q4 profit beats Street; revenue jumps
• Whirlpool posts higher Q4 profit
• BP Q4 profit rises on higher oil prices, misses forecasts
• Pepsi Bottling Q4 profit beats Wall Street view
BEFORE THE BELL
Toronto's main stock index may open higher on Tuesday as oil and gold gain back strength and Canada's biggest energy company Suncor posted a profit in the fourth quarter. Wall Street is also set for a higher open ahead of housing and retail sales data, while investors awaited White House adviser Paul Volcker's testimony before a Senate panel urging that lawmakers curb risks taken by large banks. European shares rose with miners strong after Australia unexpectedly kept interest rates on hold and banks gained. Resource stocks lifted Asian shares off three-month lows after strong U.S. manufacturing data raised hopes the global economic recovery was on a firmer footing. Oil topped US$75 a barrel and gold inched higher US$1113.40 an ounce.
COMPANIES REPORTING RESULTS
• Saputo Inc. (SAP). Expected to report Q3 earnings of 47 cents a share, according to Thomson Reuters I/B/E/S
STOCKS TO WATCH THIS MORNING
• Absolute Software Corp. (ABT). The provider of computer security solutions on Monday posted a wider-than-expected loss in its second quarter and said it lowered its outlook for full-year sales contracts, hurt by the continued devaluation of the US dollar.
• CI Financial Corp. (CIX). The company on Monday reported net sales of $100 million for January and said asset under management at the end of last month was $65 million.
• Clearwater Seafoods Income Fund (CLR_u). The company said on Tuesday it extended the maturity of its 7 percent convertible bonds and increased the interest rates by 2.5 percent to 9.5 percent.
• Coalcorp Mining Inc. (CCJ). The company said on Monday it agreed to settle all litigation and terminate regulatory proceedings with Xira Investment and under the agreement Xira would pay US$34 million.
• Emerge Oil and Gas Inc. (EME). The company on Monday set 2010 capital expenditure at $55 million for expenditure and development activities.
• First Uranium Corp. (FIU). The company said on Tuesday Ezulwini mine is progressing more slowly than originally anticipated due to which it is undertaking strategic review of the mine. The company also said it has commenced a project restructuring at Mine Waste Solutions.
• IGM Financial Inc. (IGM). The mutual fund manager's part Mackenzie Financial Corp said on Monday it assets under management rose 19 percent by the end of January 2010 from a year ago.
• North American Energy Partners Inc. (NOA). The company on Monday posted a third-quarter profit, partly helped by foreign exchange gains. For the third quarter ended Dec. 31, the company posted net income of $20.8 million, or 57 cents a share, compared with a net loss of $14.7 million, or 41 cents a share, a year earlier.
• Rainy River Resources Ltd. (RR). The mineral exploration company said on Monday it will raise $40 million in a bought deal private placement of units for advancing its Rainy River Gold project in Northwestern Ontario.
• TMX Group Inc. (X). The Toronto Stock Exchange operator said on Monday it is slashing trading fees it charges for securities worth less than $1, its latest to defend its waning market share.
CORPORATE EVENTS
09:00 North American Energy Partners Inc. (NOA). Q3 earnings conference call
09:30 Suncor Energy (SU). Q4 earnings conference call
14:30 Saputo Inc. (SAP). Q3 earnings conference call
ANALYST RECOMMENDATION
• Absolute Software (ABT) rating cut to hold from buy at Paradigm
• Innergex Power Income Fund (IEF_u) price target cut to $11 from $11.50; rating neutral at Macquarie
• Innergex Renewable Energy (INE) price target raised to $7.50 from $5; rating neutral at Macquarie
• MagIndustries (MAA) price target cut to $0.95 from $1.10; keeps speculative buy rating at Canaccord Adams
• Midway Energy (MEL) starts with outperform rating; price target of $4.25 at Macquarie
• Norbord Inc. (NBD) price target raised to $18.50 from $16.50; keeps hold rating at Salman Partners
• Rogers Communications (RCIb) adds to conviction sell list at Goldman Sachs
• Seacliff Construction (SDC) starts with sector outperform rating and price target of $14 at CI Capital
• UR Energy (URE) price target cut to $1.50 from $1.60; rating strong buy at Raymond James
• Uranium Participation (U) price target cut to $8.70 from $8.90; rating outperform at Raymond James
• Viterra Inc. (VT) price target cut to $11 from $12; rating buy at UBS
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
BREAKINGVIEWS - Obama's 2011 budget underlines depth of US woes
President Obama's 2011 budget underlines the depth of U.S. fiscal woes. By then, bailouts and stimulus outgoings will be all but over, recovery should be under way, and Obama's promised spending freezes should be in place. Yet the deficit next year will still be an eye-watering US$1.3 trillion. Bigger spending cuts are needed -- and soon.
Monday's budget for the year ending in September 2011 includes higher federal spending than the Congressional Budget Office estimated as recently as Jan. 26, despite Obama's freezes. With lower revenue as well -- thanks largely to the CBO's overly optimistic assumptions about tax revenue -- the deficit is projected to be US$287 billion bigger than the CBO expected.
Over the next decade, the projected cumulative deficit in Obama's budget is some US$8.5 trillion, US$2.5 trillion more than the CBO forecast a week ago -- and that is probably optimistic.
A comparison of Obama's budget with the projections for 2011 in Bush's first spending plan, presented in February 2001, highlights both the tendency of outcomes to be worse than the more distant projections and the bipartisan nature of recent U.S. fiscal indiscipline.
Bush forecast spending in fiscal year 2011 of US$2.7 trillion, just a little more than 15 percent of projected GDP. That was too optimistic -- even in 2002, federal government spending was nearly 18 percent of GDP. And Obama's budgeted spending in 2011 of US$3.8 trillion is more than 25 percent of GDP.
An equivalent slippage from the current budget for 2020 would leave government spending by then at around a third of GDP, well above the level in most European Union countries once U.S. state and local spending is included.
Faster-than-projected economic growth could alleviate this problem, as it has in the past. But with U.S. government debt already at 64 percent of GDP, slow growth with occasional efforts at further stimulus spending -- an echo of Japan's experience in the 1990s -- would soon put the United States on track towards Japan's current debt level of around 200 percent of GDP.
If Obama's 2011 budget is supposed to mark the start of a more disciplined approach to spending, he'll need to follow it with much tougher measures. Fiscal profligacy has been a bipartisan vice over the past decade. It deserves a rapid bipartisan reformation.
CONTEXT NEWS
-- President Obama's federal budget for the year to September 2011, unveiled on Feb. 1, includes receipts of US$2,567 billion, outlays of US$3,834 billion and a deficit of US$1,267 billion. Revenue is US$103 billion less than in the Congressional Budget Office projection of Jan. 26, outlays are US$184 billion more and the deficit is US$287 billion higher. That's despite the spending freezes Obama pledged on certain categories of expenditure in his State of the Union address last week.
-- Federal spending of US$3,834 billion in the year to September 2011 (25.1 percent of GDP) is 41 percent higher than the US$2,706 billion, or 15.4 percent of expected GDP, projected for that year in the budget presented by President George W. Bush in February 2001.
-- The projected U.S. deficit for the year to September 2010 is US$1,556 billion, US$207 billion higher than the CBO projection for that year. Obama's projected cumulative deficit for 2011-2020 is US$8,532 billion compared with US$6,047 billion in the CBO projection of Jan. 26.
-- White House budget: http://r.reuters.com/nuq96h
-- By Martin Hutchinson
-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund
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Feb 1, 2010
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MONDAY, FEBRUARY 1, 2010, CANADIAN EDITION
TOP NEWS
• Brazil's Cosan, Shell in US$12 bln ethanol deal
• JPMorgan may not take all of RBS Sempra
• Obama 2010 budget deficit at record US$1.56 tln
• Swiss minister says UBS failure would hit economy - report
• Crescent Resources sees Chapter 11 exit in Q2
BEFORE THE BELL
Toronto's main stock index could open mixed on Monday, after it closed at its lowest level in three months on Friday. Wall Street is set for a higher open as investors digest President Barack Obama's budget plans that projected the 2010 deficit soaring to a post World War Two high of US$1.56 trillion. On the macro front, investors will be closely watching personal income and consumption data for December, the biggest shopping month of the year. The ISM manufacturing index is expected to rise slightly to 55.0 from 54.9, according to a Reuters poll. European equities were down. Asian stocks fell to three-month lows after business polls showed strong growth and higher inflation in China, strengthening the case for tighter Chinese monetary policy. Oil steadied around US$73 per barrel while gold rose as the dollar turned lower against the euro.
COMPANIES REPORTING RESULTS
• Absolute Software Corp. (ABT). Expected to report Q2 loss of 3 cents a share, according to Thomson Reuters I/B/E/S
• Enbridge Income Fund (ENF_u). Expected to report Q4 earnings of 9 cents a share
STOCKS TO WATCH THIS MORNING
• C.A. Bancorp Inc. (BKP). Maxam, a private-equity group based in Vancouver, said it intends to allow its offer to buy C.A. Bancorp to expire on Feb. 2.
• Cequence Energy Ltd. (CQE). The company said on Monday it expects to spend $30 million in first-quarter in drilling efforts.
• Coalcorp Mining Inc. (CCJ). The company said on Friday it did not pay a US$6.9 million interest on its 12 percent senior secured notes, due on Dec. 31, 2010, within the required cure period, which ended on Jan. 31, 2010.
• Crescent Resources (CRC). The real estate developer expects to emerge from bankruptcy protection in the second quarter of 2010, and said on Monday it filed a reorganization plan in a Texas court that will slash its debt by US$1 billion to US$465 million.
• IROC Energy Services Corp. (ISC). The company on Monday appointed Ryan Michaluk as CFO.
• Noront Resources Ltd. (NOT). The company said on Friday The First Nations logistics halt at Koper Lake has forced Noront to temporarily suspend its winter drill program and reduce manpower levels but remained confident that the planed drilling will be completed.
• Roca Mines Inc. (ROK). The molybdenum miner on Friday posted a narrower first-quarter loss, helped partly by lesser provisions for income and mining tax recovery.
• Sandvine Corp. (SVC). The network equipment maker said on Monday it received a contract from Japan's NTT Communications Corp to deploy its policy traffic switch on NTT's high speed network in Japan.
• Timminco Ltd. (TIM). The company on Friday said its senior secured lender has agreed to delay the requirement for an additional US$5 million of minimum availability reserve to March 1 from Feb. 1, 2010.
• Uranium One Inc. (UUU). The company said on Monday indicated resources at Karateu increased 12 percent and also said it completed the aquisition of Christensen ranch and Irigaray in Wyoming.
• Volta Resources (VTR). The company expects a pre-feasibility study at its Kiaka gold mine in Burkina Faso to start second half of 2010, with first production at the mine seen in 2014, the CEO said on Monday.
CORPORATE EVENTS
16:45 Birks & Mayors Inc. (BMJ). Q3 earnings conference call
17:00 Absolute Software Corp. (ABT). Q2 earnings conference call
ANALYST RECOMMENDATION
• Alarmforce Industries (AF) rating cut to hold from buy at Acumen Capital
• Cinch Energy (CNH) rating raised to outperform from market perform at Raymond James
• HSE Integrated (HSL) rating raised to outperform from sector perform at CI Capital
• Legacy Oil Plus Gas (LEG) started with strong buy rating and price target of $15 at Raymond James
• Rock Energy (RE) price target raised to $5; rating buy at Acumen Capital
EXDIVIDEND
United Corps Ltd. (UNC). Amount $0.20
Note: All values in Canadian currency, unless otherwise stated
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INSIGHT
BREAKINGVIEWS - Community banks don't need another Obama sop
President Barack Obama's speeches suggest he doesn't dislike all banks -- just the big ones. Indeed, even though he used much of his State of the Union address last week to bash Wall Street and the money business, he threw the community banking industry another bone. He pledged to divert US$30 billion of repaid Troubled Asset Relief Program money to smaller banks to help them make loans to small businesses.
Sounds good, doesn't it? After all, small businesses are the backbone of American employment. Giving them access to fresh capital should help them invest and hire more people. And small banks, it would appear, are the most effective conduit for disbursing capital to the small business community.
According to the Independent Community Bankers Association, the primary lobbying group for the nation's 8,000 smaller banks, institutions with less than US$1 billion in assets hold only 12 percent of all bank assets but have made 40 percent of the small business loans currently outstanding. Meantime, big banks -- those with US$100 billion or more in assets -- made only 22 percent of such loans.
So Obama's idea sounds logical. But there are problems that would probably make any plan the White House comes up with both unworkable and bad for taxpayers.
Firstly, community banks don't need the money. While the Federal Deposit Insurance Corp. regularly has to close down troubled small banks (including four on Friday), in aggregate the industry is relatively flush. In the third quarter, banks with assets of less than US$5 billion on average had tangible common equity equal to 9.62 percent of tangible assets. That's a stronger capital position than big banks, whose equivalent ratio stood at just 7.97 percent on average, according to SNL Financial.
Moreover, small banks appear to be hoarding the money they do have, lending out just 82 percent of their deposits. That's a lower loan-to-deposit ratio than the 91 percent at big banks. And it may not be their fault: the Federal Reserve's survey of loan officers released in October suggested that 35 percent of domestic banks were experiencing weaker demand for loans from smaller companies.
But even if that were to change, small banks are unlikely to accept TARP cash without major changes to the way the scheme has been administered so far. Since the smaller banks don't really need the money, ICBA chief economist Paul Merski says they would want some conditions removed. Among the concessions they'd expect are lower dividend payments to the government on any capital it lent them, no stock warrants attached to the investment, and no restrictions on executive pay.
These strings attached to TARP money were safeguards the Treasury imposed to protect taxpayer funds. The Treasury invested US$205 billion in 707 banks, receiving senior preferred stock or other securities. To date these have generated a 3.1 percent absolute return. Fold in the sale of warrants the Treasury received over stock in 34 of the banks and the return jumps to 8.8 percent.
Relaxing the requirements of TARP would seem at odds with the president's other objectives of reducing debt and closing the yawning budget deficit. It's also not clear the Treasury could simply waive conditions without an act of Congress, where members may be disinclined to sanction another banking initiative financed by taxpayers.
The government could still try to facilitate the flow of money to small businesses in other ways. It could set up an entity to buy small business loans from community and other banks, and then sell them on to investors. This was the idea behind the Venture Enhancement and Loan Development Administration for Smaller Undercapitalized Enterprises (Velda Sue) -- a proposal that never got off the ground.
But the troubled experience of Fannie Mae and Freddie Mac, which play a similar role on a huge scale for mortgages, suggests that plan isn't so good, either. Indeed, add all the elements up -- slack demand for small business loans, banks already flush with money and the potential for taxpayer losses -- and the conclusion seems clear. The latest proposal to subsidize banks, even small ones, makes great rhetoric -- but it's a bad idea.
CONTEXT NEWS
-- President Obama, in his State of the Union address last week, proposed "that we take US$30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat."
-- The White House has yet to issue details on the proposal.
-- According to The Hill, a newspaper covering Congress, the Independent Community Bankers of America, the primary group representing small banks, was among the most successful lobbying organizations in 2009.
-- The group "helped secure a carve-out from examinations under the new Consumer Financial Protection Agency and an exemption from paying into a new industry fund to cover costs if the government takes over a failing financial firm," The Hill wrote.
--- By Rob Cox and Rolfe Winkler
-- The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund
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(Please note Canadian quotes are delayed 15 min)
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