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Let’s call it quits, and head for Switzerland

Jan. 16: Target and Sony close up shop in Canada, plus fall out from the Swiss Central Bank’s currency surprise


 

MORNING-PLAYBOOK-STORY

Today, the continuing saga of two stories: abroad, the shock of the Swiss currency being unpegged from the euro, and at home, Target’s announcement that the company will shutter its Canadian stores.

It hasn’t been a particularly sunny week for the global economy, with jumpy oil prices and fears of deflation or low inflation in much of the world.

There’s not much on the calendar today in Canada, but some closely watched numbers to come from the States and across the Atlantic: industrial production numbers and inflation numbers will be out for December for the U.S., and inflation numbers for December will also be out for the eurozone as a whole and for Germany. Especially from the eurozone, expect plenty more worrying about the fog of deflation hanging over the continent, and whether the central bank will kickstart quantitative easing.

Banks reporting season in the U.S. continues today, with Goldman Sachs reporting.

Little country, big currency shock. After Switzerland uncapped the franc from the euro yesterday – completely without warning – the franc jumped almost 40 per cent immediately after the announcement, before dropping again to settle at about a 15 per cent increase. The swings are less dramatic today, with the franc down slightly, but the trend continues: analysts and currency traders alike are scrambling to catch up. The cap was in place for three years, after the financial crisis made Switzerland a haven amidst volatility, pushing the franc up and threatening the country’s exports. But the price of maintaining that cap against a faltering euro was growing too high, the bank said – and with the European Central Bank widely anticipated to begin quantitative easing (possibly as soon as next week), the cost of keeping the franc low would likely have grown even higher.

What went wrong for Target? The questions continue today after news the U.S. budget retailer will close up its Canadian operations, closing up 133 stores and laying off 17,500 employees. The reasons why the expansion faltered were numerous, as Chris Sorensen points out – from complaints about higher prices for the Canadian versus the U.S. stores, to inventory issues, to an expansion that may have just gotten too big, too fast.

Sony is also closing up shop. Yesterday the Japanese electronics company said it too was calling it quits with Canada, announcing they would close all 14 of their stores. The company’s recent travails are also well known – ahem, The Interview – but the company has also had major losses on its smartphone sector, announcing last year it had a more than $2-billion net loss, and would stop paying a dividend.

Amazon had a “sweetheart deal” with Luxembourg. The massive e-retailer had a beneficial tax agreement in Luxembourg, the European Commission confirmed this morning. The investigation is just one of several going on at the moment between European countries and major multinationals – Luxembourg is also facing scrutiny over its dealings with Fiat, while Ireland is in the hothouse over Apple and the Netherlands is being probed for Starbucks’ tax agreement. The investigation came after a major leak of papers from within an accounting giant, that appear to show preferential, special tax agreements – “sweetheart deals” – with companies that route their profits through the tiny nation. The “Lux Leaks” have had a political blowback: the deals happened under the watch of Jean-Claude Juncker, currently the head of the European Commission.

The Mafia makes your fake mozzarella. Organized crime in Italy has been expanding its reach as the country’s economy has worsened, with a new report claiming that more than a third of all agricultural activity is now linked to crime. Italy is back in recession again, and the FT reports that as the economy has worsened, the impact of the Mafia on agriculture at all levels – including counterfeit olive oil and mozzarella – has been growing, squeezing legitimate farmers and using agriculture to “dirty” money, by investing legal funds in crime. If you were wondering, calling a cheese mozzarella requires that the cheese be produced according to traditional recipes, and buffalo mozzarella must be produced within a few select areas of Italy.

Need to know:
TSX: 14,041.82 (-42.61), Thursday
Loonie: 83.58 cents (- 0.14 cents)
Oil (WTI): $47.73, Friday morning

 


 

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