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8 days left to save euro zone: 'Expect to be disappointed'

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Eight days and counting By the euro zone's own calculations, eight days remain in which to save the crippled monetary union. But after the euphoria of yesterday's co-ordinated move by the world's major central banks, the outlook is still bleak.

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You didn't even need a sober second look to determine that the move by the Federal Reserve, European Central Bank, Bank of Canada and others was a short-term Band-Aid. While it eased the pressure on the banks in the 17-member euro zone, and on the markets in general, it did nothing to address the underlying problems. Nor was it supposed to.

What it did was buy euro leaders some time to come up with solutions. And, as the EU's economic chief Olli Rehn put it this week, "we are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union.

EU leaders meet Dec. 9, and the clock is ticking fast. After two years of struggling, European politicians have not convinced investors they can tackle the beast that is the debt crisis.

"The key question is does it fix the underlying problems within Europe?" said CMC Markets analyst Michael Hewson in London.

"No it doesn't. For a start it makes it much more difficult for peripheral Europe to recover competitiveness due to the stronger euro. It does however buy European leaders more time, so let's hope they use it wisely and don't waste it, but I'm not holding my breath."

Nor is Camilla Sutton, the chief currency strategist at Scotia Capital in Toronto.

In a report today titled "Eight days left - expect to be disappointed," Ms. Sutton noted that currency markets remain hopeful that next week's summit will further soothe fears, though she doesn't expect that.

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"Bond yields are mixed this morning, with large drops in French, Italian and Spanish yields; however German yields remain more elevated than they have been, suggesting that all is not well in Europe," Ms. Sutton added.

"Today ECB President Draghi says that central bank bond interventions can only be limited, reinforcing our base case that the ECB continues to flood the system with liquidity, maintains very loose monetary policy and purchases bonds through the SMP program, but does not turn to a massive round of unsterilized quantitative easing."

She was referring to Mario Draghi, the new chief of the European Central Bank. Many observers believe the only solution to the crisis is massive bond buying by the ECB, and declaring it the lender of last resort to embattled nations. But Germany opposes that, as does the central bank itself, though Mr. Draghi hinted today the ECB could do more.

Markets mixed Investors appear to have had enough euphoria for one day, except in Asia, where they were catching up to yesterday's surge in North America and Europe.

Some downbeat news from China is dampening enthusiasm this morning heading into the start of trading in North America.

Tokyo's Nikkei climbed 1.9 per cent, and Hong Kong's Hang Seng surged 5.6 per cent. London's FTSE 100, Germany's DAX and the Paris CAC 40 were mixed, and struggling, while the S&P 500 and Toronto's S&P/TSX composite slipped.

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"There was an initial dip as Chinese manufacturing activity was reported to have slowed for the first time in nearly three years, but good euro zone manufacturing data and a strong Spanish bond auction put the bulls back in the driving seat," Chris Beauchamp of IG Index said of the London market.

"However, as the morning has worn on, we have seen the leading index edge back off its highs. Despite yesterday's concerted rescue by central bankers, sentiment remains weak. Perhaps investors have realized that things must indeed be bad if such a dramatic move is called for. Comments from ECB head Mario Draghi also provided food for thought, as he observed that downside risks for the euro zone economy have increased."

Manufacturing numbers from today from China, where the central bank yesterday eased the requirements of the commercial banks to spur lending, also sparked some fears as the country's economy slows. The government's reading of the manufacturing sector, measured by its purchasing managers index, showed industry contracting for the first time in three years.

"Even after a run of disappointing data, today's PMIs were worse than most expected," said Mark Williams and Qinwei Wang of Capital Economics in London. "It will be a while before policy easing helps the economy to turn the corner."

Lululemon boosts profit, stock sinks Shares of Lululemon Athletica Inc. plunged today even as the yoga wear retailer posted a hefty jump in both profit and revenue.

The yoga wear retailer earned $38.7-million (U.S.) or 27 cents a share in the quarter, up from $25.7-million or 18 cents a year earlier. Revenue climbed 31 per cent to $230.2-million, and same store sales, a key measure in retailing, rose 16 per cent.

Lululemon projected fourth-quarter revenue of $327-million to $332-million, and diluted earnings per share of 40 cents to 42 cents.

Its third-quarter sales trailed analysts' estimates, leading to the rout in the market.

Chief executive officer Christine Day still declared it "another very healthy quarter of financial results," and said the popular retailer is set to close out the year with "a stronger brand, a stronger organization."

But its showing wasn't as bad as that of Gildan Activewear Inc. whose shares also plunged, and at a far faster pace at that, after it posted a drop in fourth-quarter earnings.

Gildan's profit slipped to $48.5-million or 40 cents a share from $56.8-million or 47 cents. Sales rose to $481.8-million from $368.9-million.

BP sells Canadian NGL business BP PLC is selling its Canadian natural gas liquids business for $1.67-billion (U.S.). But the energy giant said today Canada remains "an important part of our portfolio of growth opportunities to meet North America's energy needs."

The unit BP is selling owns or has rights to some 4,000 kilomtres of pipeline systems, 21 million barrels of storage capacity and natural gas liquids produced from more than 8 billion cubic feet a day of processing capacity, it said.

The business is being sold to a subsidiary of Plains All American Pipeline LP .

BP said the 450 people involved in the operation will transfer to Plains.

Canada's banks kick off earnings Canada's big banks began kicked off their fourth-quarter earnings season today, with gains by Canadian Imperial Bank of Commerce and Toronto-Dominion Bank , The Globe and Mail's Grant Robertson and Boyd Erman report.

TD's profit climbed 58 per cent to $1.57-billion or $1.69 a share from $994-million or $1.07. Revenue increased 13 per cent.

"TD had a record year in 2011, and we were able to succeed because of the strength of our retail-focused strategy and its proven track record during tough times, as well as the client-driven franchise model of our wholesale bank," said chief executive officer Ed Clark.

CIBC profit, in turn, rose 59 per cent to $794-million or $1.90 a share from $500-million or $1.17. While revenue didn't change much, CIBC's income tax expense fell markedly to $249-million.

"Our capital position remains among the best of any bank globally and we continue to take steps to further grow our business by investing in organic growth and through acquisitions," said chief executive officer Gerry McCaughey.

Bombardier sneaks past estimates Canada's Bombardier Inc. edged past analysts estimates today with third-quarter earnings that its aerospace and rail units turned in okay results in the midst of troubled times for the global economy.

Bombardier earned $192-million (U.S.) or 11 cents a share, up from $147-million or 8 cents a year earlier, The Globe and Mail's Bertrand Marotte writes from Montreal. Revenue climbed to $4.6-billion from $4-billion.

"Our focus on execution permits us to continue to deliver good results in these uncertain economic times," said chief executive officer Pierre Beaudoin.

Suncor's George to retire One of the kings of the oil patch is stepping down.

Rick George said today he planned to retire as chief executive officer of Suncor Energy Inc. at the energy giant's annual meeting next May. He'll be succeeded by Steve Williams, who has been chief operating officer since 2007 and was named president today.

Mr. George has been CEO for more than two decades and, of course, engineered the takeover of Petro-Canada

"During his 21 years as chief executive officer, Suncor has implemented game-changing technologies, merged with Petro-Canada, and increased production nearly ten-fold from 58,000 barrels per day in 1991," said chairman John Ferguson.

CPPIB eyes piece of Yahoo Yahoo Inc. is reportedly weighing competing bids to invest in the company, one from a consortium that includes the Canada Pension Plan Investment Board.

CPPIB is part of a group led by private equity concern Silver Lake, and includes Microsoft Corp. and Andreessen Horowitz, a venture capital company, The Financial Times reports.

That group is offering $3-billion (U.S.), or $16.60 a share, for some 13 per cent of Yahoo, the newspaper said.

The rival bid is from TPG, also a private equity group, but at $17.50 a share. Other groups are also weighing the possibility of bids.

While Silver Lake's offer is below that of TPG, The Financial Times said, it still hopes to emerge victorious because of its proposed strategy, which would see a new board of directors and a new CEO at the helm.

As The Globe and Mail's Tara Perkins and Boyd Erman reported in October, the CPPIB made a handsome profit in an earlier investment in Skype Technologies, and is now looking at a bigger and riskier move into the tech sector.

Yahoo's board, of course, is the one that fired Carol Bartz as the chief in September. That's the same board she, in turn, famously referred to as "doofuses."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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