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Rallying around the world

April 10: From the Hang Seng to the ruble, slow growth isn’t putting a damper on some unexpected rallies. Plus, it’s jobs day!


 

MORNING-PLAYBOOK-STORYOil prices may be leaving big questions about the state of the economy and, surely, on Jobs Day, there are more big questions to come, but yesterday, the TSX was shaking it off, closing up more than 100 points and at the highest level since September. The rally is continuing this morning in Asia and Europe, with a flow of mainland money setting Hong Kong markets alight, and euro indexes nearing 15-year highs, helped in Germany by a weaker euro. Who else is rallying? You may be surprised to hear: the ruble.

After a calamitous fall in December, which the central bank tried to stem with sudden hikes and drops in the interest rate, the ruble is the world’s best-performing currency against the greenback so far this year (yes, it’s true), even as the economy faces down expectations of a recession this year.

Today, we’ll have a media roundup, from Bell to Postmedia to Corus, we’ll run through China’s low inflation and big equity boom, and take a quick look back at the fines Deutsche Bank is facing for its part in the Libor scandal of 2012. But the real thing to watch for today is Jobs Day: Statistics Canada will have the numbers on employment and wages out today and, this morning in London, the loonie was trading slightly down in anticipation of numbers that are not expected to be particularly bright and shiny. There are also housing-starts numbers and, in the U.S., import prices and the budget deficit.

A media news roundup. Yesterday brought a shakeup at Bell, plus falling revenue at Postmedia and Corus Entertainment. Bell gave the boot to its president, Kevin Crull, after a controversy last month over an attempt to influence coverage by CTV, which Bell owns, during the CRTC’s pick-and-pay hearings. BCE, which owns Bell, announced the outing yesterday evening after trading closed. As reported in the Globe last month, Crull allegedly attempted to bar CRTC Chairman Jean-Pierre Blais from appearing on air during coverage of the decision, which will require that companies offer cheaper basic TV packages, and more choice, to consumers. The directive was resisted or ignored by several reporters, and Crull subsequently apologized. Meanwhile, Corus Entertainment said the new pick-and-pay rules, plus falling advertising revenue, were to blame for an $86-million net loss for the second quarter. In the world of print, falling advertising revenue and circulation continue, as the Postmedia chain reported second-quarter earnings yesterday. The company lost $58 million in the second quarter—double what it lost in the same quarter last year—and revenue was $154.4 million, a drop of 10 per cent from the same quarter year. The loss was credited partly to volatility in the loonie, as debts remain in U.S. dollars and revenue stays in Canadian dollars, but the long-term trend is in advertising: down 16 per cent in print, and down almost three per cent online, with a 4.3 per cent drop in circulation. Ouch. Next week will bring more media news, with Postmedia expected to officially acquire the Sun media chain, after buying it for $316 million late last year.

Chinese inflation continues to slow. This morning, China announced inflation numbers, coming in at 1.4 per cent, a little slow for a Western country, but half Beijing’s target of a three per cent rate. Disinflation and even deflation fears are rising in regards to the slowdown in China, and the real numbers here have to do with the declining prices in factories, also released today—which showed a decline of 4.6 per cent. The rate has now been declining for 37 consecutive months, more than three years. In response, Beijing has been cutting rates and boosting stimulus, as well as downgrading its expectations for growth. Is the problem even worse than it looks from afar? Bloomberg thinks so: A metals analyst travelled around the country, and now they’re “terrified for the economy,” although this piece feels like little more than a teaser. Meanwhile, Christine Lagarde at the IMF warned of slowing growth around the world, and also highlighted a catch-22, warning that low rates could fuel bubbles, even as she urged central banks to do more.

Deutsche Bank gets fined. The bank is expected to pay more than $1.5 billion in combined fines to regulators as a result of investigations into manipulation of currency markets, according to the New York Times. This would be the last of the fines for the scandal, which previously set UBS up with a $1.5-billion bill (along with several other banks), and DB’s would be the largest of them all. What is the Libor scandal, you ask? “Libor” stands for “London inter-bank lending rate” and is formed from an average of the lending rates that the leading banks submit daily for lending to one another. But it’s also seen as a key indicator of the health of the financial system. The scandal, which emerged in 2012, showed incidents of collusion between bankers at different institutions, as well as cases where misleading rates were filed, making the system look healthier and rates lower than they really were. (The BBC has a helpful little Q&A here.) The fines really do add up: A KPMG study recently found that Britain’s largest banks had paid out 60 per cent of their profits in the last few years in fines and repayments they faced for various wrongdoing.

As the Nikkei 225 surges, Hong Kong could still edge ahead. Japan may still be battling inflation, but the country’s main market index briefly went above 20,000 for the first time since 2000, pushed on a long rally from the central bank’s latest mega-round of quantitative easing in the fall. But Hong Kong could bump Tokyo to take the crown for third-largest stock market at any moment, as the value of equities listed lingered at $4.9 trillion yesterday, compared to Japan’s $5 trillion. The first spot for largest stock market is held by the U.S., while the second is held by mainland China. The sudden boost is one sign of how quickly money is flowing into the island from mainland China, as Beijing has eased restrictions on movement of the currency to Hong Kong, which previously have been much more tightly controlled.

Need to know:
TSX: 15,326.31 (+112.71), Thursday
Loonie: 79.42 (-0.34), Thursday
Oil (WTI): $50.77, Friday (8 a.m.)


 

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