Today's top stories from Report on Business :
Appeals court denies Microsoft
Canada's i4i Ltd., the small Toronto tech firm, won another round against Microsoft Corp. today when a U.S. appeals court denied the software giant's bid for a wider court panel to hear its case. Microsoft could still go the U.S. Supreme Court but a spokesman told Reuters it is studying its options. The Canadian company won a $290-million (U.S.) judgment last year when a jury found Microsoft infringed a patent that relates to a certain software for manipulating text. Read the story
Manufacturing sector rebounds
The global manufacturing sector is showing signs of a strong recovery. Readings from the sector in the United States, Europe and Asia today showed a sharp pickup in production, buoying global markets. Across Europe, the weaker euro appears to be boosting exports, based on March data, while production in Britain alone grew at its best rate in more than 15 years. The major European economies such as Germany and France also saw marked activity, and China's manufacturing sector remained strong. A global index done by JPMorgan Chase & Co. shows global manufacturing growing at the best rate since the spring of 2004. Various readings "painted a portrait of on ongoing 'V' shaped global manufacturing recovery," Scotia Capital said. Added Fortis Bank economist Nick Kounis in an interview with Reuters: "We are seeing world trade booming, it's recovering very sharply. Emerging markets were driving this at the beginning but developed markets are also now catching up."
In the U.S., the Institute for Supply Management's widely watched manufacturing index rose to 59.6 from 56.5, better than economists expected and marking the eighth straight month of a reading well above the 50 level, which separates expansion from contraction. "It is worth noting that the level of the index now sits at the highest level since mid-2004," said TD Securities portfolio strategist Ian Pollick. "... Of course, part of the large increase is a function of the low levels reached during the credit crunch, and the clawing back of lost ground."
Canadian dollar tops 99 cents
The Canadian dollar is back in the running for parity with its U.S. counterpart, topping 99 cents U.S. again today after a few down days. Commodity prices are up, the Canadian economy is performing well, and markets expect the Bank of Canada to boost interest rates before the Federal Reserve acts - developments that have supported the currency. David Watt, senior currency strategist at RBC Dominion Securities in Toronto, noted today that the loonie led G10 currencies in the first quarter, gaining 3.7 per cent against the U.S. dollar and 10 per cent against both the pound and the euro, which has been hammered recently by debt troubles in Europe, most notably Greece.
The Canadian dollar closed at 99.17 cents, up almost three-quarters of a penny.
"The still-substantial slack in the Canadian economy and [the Canadian dollar's]flirtation with parity, do give the BoC some flexibility, but rate hikes are inevitable," Mr. Watt wrote. "... Beyond shorter term supportive factors [the Canadian dollar]is further bolstered by longer term factors, such as [foreign exchange]reserve diversification supported by Canada's many strengths and increasing questions about [the euro's]status as a reserve currency." Read the story
Canadian economy appears robust
Some economists are revising their economic forecasts again after yesterday's reading that showed Canada's economy expanded in January at its fastest pace in three years, at 0.6 per cent, according to Statistics Canada. BMO Nesbitt Burns said today it now projects growth in the first quarter, which ended yesterday, of 5.5 per cent on an annualized basis, a revision from its earlier call of 4.7 per cent. That bumps its 2010 forecast to 3.4 per cent from an earlier projection of 3.2 per cent.
Said deputy chief economist Douglas Porter: "Are we now seeing the mirror image of the fast and furious growth revisions in late 2008/early 2009, except with the economy 'melting up' this time? Unlikely. While the early stages of recovery have easily surpassed the most buoyant expectations, it still faces many serious medium-term challenges. Exports will continue to be constrained by a lacklustre U.S. consumer sector (which isn't bouncing back any time soon) and the muscular loonie (which is quietly taking another run at parity), while governments around the world will be compelled to rein in spending to varying degrees in the next few years, acting as a limiter on the expansion."
David Rosenberg, the chief economist at Gluskin Sheff + Associates, said first-quarter growth could come in between 5.5 per cent and 6 per cent.
Consumer debt a worry, CIBC says
Canadian consumers may be a happier lot, but they're actually in a weaker position, which is a concern for an economy reliant on consumer spending, CIBC World Markets says. Senior economist Benjamin Tal says in a report today that the bounce back in consumer confidence has actually been accompanied by a weakened ability of Canadian households to spend. "It's the difference between what's in your head and what's in your pocket," Mr. Tal said in an interview.
His report is based on CIBC's consumer capability index whose goal is to illustrate the ability to spend, rather than willingness.
"The practical implication of the reduced consumer capability as measured by our index is that consumer spending will disappoint in the coming 12 months," Mr. Tal wrote. "... And given the vulnerable starting point of the consumer, the Bank of Canada will soon find that even a moderate monetary squeeze will be sufficient to drive a material deceleration in consumer spending."
Mr. Tal says that while stronger consumer sentiment can give a short-term lift to spending, a sustainable boost has to come with better fundamentals such as income growth, declining jobless levels and falling debt burdens. He noted that the debt-to-income ratio among households hit a record 147 per cent in December, and pointed to the troublesome fact that the ratio is accelerating quickly.
Consumers aren't relying all that much for daily needs, he said, adding that about 70 per cent of the growth in debt over the past year has been related to mortgages given the rebound in housing.
"Combining all of the … information into one index reveals that Canadian consumer fundamentals are weaker than they have been in almost 15 years," Mr. Tal said. "… The rapid acceleration in the household debt ration, the loss of net worth, the softening in income growth, and a relatively high bankruptcy rate are definite negatives. Those minuses are moderated by the recent increase in the saving rate, and a low long-term unemployment rate, but overall the balance is still weighted to the downside." Read the story
Confidence in Japan rises
Companies in Japan are also seeing better times, according to a key survey of business confidence that indicates they are beginning to see the fruits of a rebound in exports. The quarter tankan survey released by the Bank of Japan today shows confidence rose 11 points, marking the fourth consecutive increase. "There has been this concern that exports go up and nothing else happens," Macquarie Capital Securities economist Richard Jerram told the Associated Press. "We've been arguing that you should get second-round effects … and that certainly seems to be coming through quite well."
Bombardier profit falls
Bombardier Inc. posted a sharp drop in fourth-quarter profit to $179-million (U.S.) or 10 cents a share from $312-million or 17 cents a year earlier, results the company described as "good" given the troubled economic backdrop. The bottom line in this morning's results is that the rail market remained "resilient" while the aerospace market suffered. Revenue fell to $5.35-billion. Said chief executive officer Pierre Beaudoin: "In aerospace, we took the necessary steps to adapt to the economic reality by carefully monitoring capital expenditures and reducing our production rates for both business and region jets. We met our target deliveries and increased our market share in both segments ... The rail market remained resilient. Bombardier Transportation increased both revenues and profitability."
Dundee Securities Corp. analyst Richard Stoneman told Dow Jones: "They stayed profitable, while their competitors drank red ink. Looking forward, we're expecting a better economy and aerospace environment in the next 12 months. The big growth engine is going to be the recovery in aerospace, and underlying stable piece is transportation, which continues to get better." Read the story
Analysts mixed on RIM
The initial reaction among investors after Research In Motion Ltd. reported quarterly results was to sell. But several analysts are upbeat today, though they don't discount the BlackBerry maker's competitive challenges, particularly in North America. To recap, after markets closed yesterday, RIM posted a 37-per-cent jump in fourth-quarter profit to $710-million (U.S.) or $1.27 a share from $518.3-million or 90 cents a year earlier. Revenue, too, jumped 35 per cent to $4.08-billion, falling shy of estimates. Its projections calmed investors somewhat but the big concern appeared to be that while it is making headway abroad, its North American foothold is slipping. Goldman Sachs Group Inc., for example, cut RIM stock to a "sell" from a "neutral."
Others were more upbeat. UBS Securities raised its price target, as did Raymond James, while Canaccord Adams and National Bank Financial kept it steady.
Raymond James analyst Steven Li upped his target on RIM stock to $82 from $80. Canaccord Adams analyst Peter Misek held the stock at a "buy" with a target of $100.
Wrote National Bank Financial analyst Richard Tse, whose price target on the stock is $100: "While our initial take after seeing the results yesterday (light revenue and units) didn't exactly have us ecstatic, following further analysis, the outlook and the company's conference call, we think things are right on track, particularly when it comes to the back half of this year."
Said Mr. Misek: "While at first blush shipments in the quarter appear light, we expect this to be the result of a one-time inventory adjustment at carrier partners. More importantly, we believe RIM will continue to demonstrate strong device shipments and robust margins ... We continue to be impressed with RIM's execution and anticipate strong top-line growth in the coming quarters driven by new products, further gains in international markets and a resurgence in corporate IT."
Added Mr. Li: "RIM is now an international growth story … BlackBerrys have gone viral in many regions including Venezuela and Indonesia, accentuated by the popularity of the BlackBerry Messenger and the platform security. The U.K., Mexico and Brazil were other strong international markets for RIM in the quarter."
Analysts still see heated competition as the BlackBerry is challenged by smart phones such as the iPhone from Apple Inc. and those using the Android operating system by Google Inc. Read the story
Apple's iPad wins strong reviews
The new iPad from Apple Inc. is winning rave reviews from some who have tried it out and praise both its battery life and how easy the new tablet computer is to use. The touch-screen tablet, which goes on sale in the United States this week, isn't a knockout punch against the laptop, reviewers say, but it will present a serious challenge. The bottom line in reviews in both The New York Times and The Wall Street Journal is that it will mean everything to certain users, basically those looking for Web surfing, e-mail, music and the like, but won't be enough for those who need to perform more complex tasks. "If people see the iPad mainly as an extra device to carry around, it will likely have limited appeal," wrote The Wall Street Journal's Walter S. Mossberg. "If, however, they see it as a way to replace heavier, bulkier computers much of the time - for Web surfing, e-mail, social networking, video- and photo-viewing, gaming, music and even some light content creation - it could be a game changer the way Apple's iPhone has been."
EMI fails to strike deal
Reports from London this morning say EMI, the music company that boasts the Beatles, Coldplay, Pink Floyd and others, is in serious trouble after it failed to strike an agreement to sell distribution rights in North America. The Associated Press quotes sources as saying the company had hoped to raise about £200-million ($308.2-million Canadian) by offering a five-year licensing deal with either Universal Music Group or Sony Music. The deal collapsed on price issues, it sale. Now, EMI still must find £120-million by the middle of June to meet debt payments to Citigroup Inc. Read the story
Chinese steel producer wants long-term pricing
The controversy over the pricing of iron ore continued today as Baosteel, one of the top steel makers in China, said the longer-term system is a benefit to both suppliers and steel mills. "We hope the miners will consider long-term interests and protect the development of both the upstream and downstream parts of the industry," Baosteel chairman He Wenbo told a meeting in Beijing today, according to Reuters.
Vale SA of Brazil and Australia's BHP Billiton struck deals earlier this week that break from a 40-year tradition of annual contracts in favour of shorter-term quarterly pacts. The most recent deals also call for sharply higher prices that are expected to ripple through the global economy given the predominance of steel in many products.
Yesterday, steel makers in Europe called for an antitrust investigation, while auto makers and others warned they could be hit hard by higher prices.
From today's Report on Business