7.18.13: Still foot to the floor for central bankers


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Thursday’s global markets’ close
Britain’s FTSE 100
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EURO STOXX 50
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With the global economy still struggling to find sustainable traction, it’s not surprising that central bankers in Canada and elsewhereare taking pause to reflect and consider their next monetary policy movesFinancial Post’s Gordon Isfeld. Some  — such as the Bank of Canada’s newly installed governor Stephen Poloz — are looking for signs that growth will soon be on a solid ground, clearing a path to finally begin raising interest rates again. Still others, including Mark Carney — until last month, Canada’s top central banker and now the Bank of England chief — are pondering whether and when more stimulus spending is needed to pump up the economy. Or, in the case of U.S. Fed chairman Ben Bernanke, when to begin turning off those asset purchases. On Wednesday, all three central bankers addressed their concerns in one fashion or another. “None are entirely thrilled with the pace of economic growth, but all are hopeful that things will get better,” said Avery Shenfeld, chief economist at CIBC World Markets. “It’s a reasonable bet that the global economy will heal and help all three [countries] next year, but it’s not a sure thing.”

Related: Poloz signals rates to stay low for some timeFinancial Post

Top 4 risks facing the economy according to the Bank of CanadaFinancial Post

Read the Bank of Canada’s official policy statementFinancial Post

Will Bernanke’s successor matter to the bond market?

Bill Hubard, chief economist at Markets.com, talks with Guy Johnson about the behind the scenes moves to replace Ben Bernanke as Federal Reserve Chairman if he decides to step down and what type of impact that may have on the bond market. Watch the segment below.

Why Tim Hortons is failing to score in America

Tim Hortons’ failure to catch on with consumers in the U.S., where the coffee and doughnut chain’s Canadian charm means little in a crowded fast-food market, is causing growing unrest among its shareholders. Activist investors say the $664 million U.S. expansion over the last decade has been a waste. At stake may be a forced retreat from a market that promises the Oakville, Ontario-based company potential growth as it reaches saturation at home. “They are meeting the point at which they won’t be able to open any more stores in Canada,” said Jim Danahy, chief executive officer of Customer LAB, a Toronto-based retail consulting firm, in an interview. “They know long-term growth will have to come from the US.” Tim Hortons recently faced criticism of its U.S. strategy from activist investors Highfields Capital Management LP of Boston and New York-based Scout Capital Management LLC, which hold 4% and 5% of the company’s shares, respectively. Both investment firms pressured the company to scale back U.S. expansion, and instead direct capital to share buybacks.

RelatedHedge fund urges Tim Hortons to optimize capital structure — Reuters

RBC and TD shares are almost at a record highs

Shares of Royal Bank of Canada and Toronto-Dominion Bank are approaching record highs, lifting an index of the country’s largest lenders.Royal Bank, Canada’s largest lender by assets, rose 1.3% to $64.60 at 11:34 a.m. in Toronto, its highest intraday price since Feb. 25. A close at that level would be a record high after taking into account stock splits, eclipsing the previous peak of $64.49 on Feb. 20, according to data compiled by Bloomberg. Toronto-Dominion, the second-largest bank, advanced 1.5% to $87.42, its highest intraday in almost two years. The Toronto-based lender’s previous record closing price was $86.40 on March 30, 2011. Canadian banks are rising as the nation’s housing market defies predictions of a major slowdown. Canadian existing home sales rose 3.3% in June, almost matching the previous month’s gain that was the fastest in more than two years, according to Canadian Real Estate Association data.

RelatedHousing slowdown makes Canada’s banks more attractive — Bloomberg

Windows Phones smoking BlackBerrys?

There appears to be a new winner in the race for third place in the mobile platform war. Google’s Android and Apple’s iOS operating systems are still on top, but it now looks like more customers are gravitating toward the Windows Phone platform as an alternative to BlackBerry. BlackBerry released its new mobile operating system, BlackBerry 10, early this year, but sales have been disappointing so far. In fact, BlackBerry only shipped 2.7 million BlackBerry 10 devices last quarter. Meanwhile, Nokia says it shipped 7.4 million of its Lumia smartphones, which run Microsoft’s Windows Phone operating system. That number was lower than analysts had expected, but still higher than what BlackBerry was able to pull off last quarter.

RelatedBlackBerry Z10 prices slashed in U.S. as evidence of weak sales mounts, report saysFinancial Post

Slight jump in profit for takeover target Shoppers 

Shoppers Drug Mart got a solid boost from its beauty and food businesses in the second quarter — categories where executives aim to make further gains when the drug retailer integrates with its corporate parent-to-be, Loblaw Cos, reports the Financial Post’s Hollie Shaw. Ltd. The country’s biggest pharmacy chain said net profit rose 5.8% to 73¢ cents in the period ended June 13, or $147-million, compared with 69¢ ($145-million) in the same period last year. The earnings beat Thomson Reuters mean analyst expectations by a penny.Sales increased 3.3% to $2.5-billion, with sales of $1.2-billion in its pharmacy and $1.3-billion in its non-drug sales. Same-store sales, a key measure of retail health calculating volume at outlets open for more than a year, rose 1.3% in the pharmacy and 2.6% in the front of the store.

RelatedLoblaw-Shoppers deal not the only reason consumer stocks are soaringFinancial Post

A fuselage of confusion

It wasn’t the rollout they were hoping for or planning on. Indeed, changes underway at WestJet Airlines Ltd. to introduce premium economy seats and fare bundles have created some growing pains as the Calgary-based carrier looks to evolve past a one-size-fits-all airline, reports the Financial Post‘s Scott Deveau. Senior management acknowledged in a memo to staff obtained by the Financial Post that the roll out of its new offerings has been rougher than they had hoped. The new class of seating, or its so-called Plus product, gives passengers added legroom in the first three rows of the plane and offers other amenities, like a second checked bag and priority boarding, for a fee. But its soft launch in recent months has also created some tension between WestJet’s front-line workers and its customers. “We underestimated the impact that the complexity and magnitude of this change would have on both WestJetters and our guests,” acknowledged Bob Cummings, WestJet executive vice-president of sales, marketing and guest experience, in an email to WestJetters dated July 8.

RelatedWestJet looking to cut costs as ‘cushion’ over Air Canada shrinks – Financial Post

Consumer stocks on a tear

Loblaw Cos Ltd.’s planned acquisition of Shoppers Drug Mart Corp. put a charge into Canadian consumer stocks this week, but the blockbuster $12.4-billion deal isn’t the only thing bolstering the sector’s share returns of late, reports the Financial Post‘s David Pett. A combination of catalysts including M&A and corporate restructuring as well as real estate spinoffs and shareholder activism have turned the country’s largest publicly-traded retailers from an afterthought into one of the hottest plays around. “It’s become a really interesting space that has done remarkably well for a while now,” said Mary Anne Wiley, head of iShares Canada. “If the Canadian economy improves, the sector may benefit even further and continue to perform nicely.” Since the beginning of the year, the S&P/TSX Capped Consumer Staples Index has risen 21%, far outperforming the broader S&P/TSX Composite benchmark, which is up just 1%. The staples group also rose 20.8% and 4.8% in 2012 and 2011, respectively, versus the broader index’s 1.8% gain and 11% loss during the same time periods.

RelatedApparel chains could feel heat from $12.4-billion deal – Financial Post

What’s in Jean Coutu’s wallet?

In the wake of the Loblaw-Shoppers Drug Mart blockbuster deal, Jean Coutu Group Inc.’s decision to sell its remaining 7.2% stake in Rite-Aid Corp. raises more questions about what the Quebec-based drugstore chain has planned for its growing cash position, writes the Financial Post‘s Jonathan Ratner. The company has filed with regulators to sell 65.4 million Rite-Aid shares. Following the sale, Jean Coutu will have fully divested its 28% position in the U.S. drugstore operator over the past two years. It sold more than 40 million Rite Aid shares in June. With the transaction expected to raise $183-million in gross proceeds, Barclays analyst Jim Durran estimates that Jean Coutu will have about $475-million in net cash. The company has no debt on its balance sheet. “Jean Coutu’s management has been open about their desire to participate in industry consolidation to improve profitability eroded by government drug reforms,” the analyst said in a research note. “Given the size of the cash balance and the speed at which Jean Coutu has built up the balance sheet, we believe this Rite-Aid sale and the preceding one have increased the possibility that Jean Coutu could be preparing to make an acquisition.”

RelatedLoblaw’s $12.4-billion Shoppers deal shows grocers are hungry for pharmacy deals – Financial Post

A controversial pipeline by a different name

A Canadian company’s plan to build an oil pipeline that will stretch for hundreds of kilometres through the U.S. Midwest, including through many sensitive waterways, is quietly on the fast-track to approval — just not the one you’re thinking of. As the Keystone XL pipeline remains mired in the national debate over environmental safety and climate change, another company, Enbridge Inc. of Calgary is hoping to begin construction early next month on a 965-kilometre pipeline that would carry oil from Flanagan, Ill., 160 kilometres southwest of Chicago, to the company’s terminal in Cushing, Okla. From there the company could move it through existing pipeline to Gulf Coast refineries. The company is seeking an expedited permit review by the U.S. Army Corps of Engineers for its Flanagan South pipeline, which would run parallel to another Enbridge route already in place. Unlike the Keystone project, which crosses an international border and requires State Department approval, the proposed pipeline has attracted little public attention — including among property owners living near the planned route.

RelatedWhat’s Keystone XL? Half of Americans have never heard of the pipeline project — Financial Post 

Canadian banks are ‘really cheap’

No, not in that way. Canadian bank valuations have plunged in the past four years amid a slowdown in the housing market, making the country’s lenders including Toronto-Dominion Bank and Bank of Nova Scotia more attractive to investors. Bank stock values closely track resale home prices, which rose at the slowest pace in almost four years last month. As a result, Canadian lenders are trading at about 11 times earnings, down from almost 19 in September 2009. “We think the banks are really cheap,” David Baskin, president of Baskin Financial Services, whose Toronto-based firm oversees about $500 million including bank shares. “People will become more comfortable with the Canadian housing market again and they’ll recognize that these fears were overblown.” Bank stock valuations have been a leading indicator to the changing pace of resale home prices since 2009, Bloomberg data show. The ratio of stock price to earnings for Canada’s eight-largest lenders soared in February 2009, about three months ahead of a surge in the growth of home prices, according to Bloomberg data. Bank stocks were most expensive at the end of September 2009, while home prices peaked in May 2010.

RelatedDavid Rosenberg says everything is just fine on the Canadian homefront — Financial Post

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