Financial News

Surging stock markets pushed up Canadians’ net worth in the third quarter but debt levels are rising, too, according to a report from Statistics Canada.

The result is a record household debt-to-income ratio of 145 per cent, the agency said.

Household net worth, the value of families’ assets such as cars, homes, and savings accounts, minus what they owe, reached $5.72 trillion at the end of September, StatsCan said Monday.

That’s an increase of 2.3 per cent, marking two quarters of gains after three consecutive drops.

Household debt, mainly mortgages and consumer credit, kept rising from July to September as Canadians rushed to take advantage of low interest rates to buy homes, renovate, and shop. Personal sector liabilities rose to $1.41 trillion, up 1.6 per cent.

National net worth, which includes business and government assets and liabilities, fell 1 No teletrak payday loan.3 per cent to $5.89 trillion as governments and consumers took on more debt, the report said.

Canada’s premier stock market, the S&P/TSX Composite Index rose 9.8 per cent in the third quarter. That’s on top of a 19 per cent gain in the previous three months.

The central bank has made a pledge to stand pat on interest rates until June 2010 to preserve the nascent economic recovery that is taking root. Keeping rates low encourages spending and borrowing, and that spurs economic growth.

Still, the Bank of Canada warned last week that rising debt levels will make Canadian households more vulnerable when interest rates do go up.

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A higher sticker price and fewer guaranteed deliveries may be the only way to rescue Europe’s new military transport plane after years of costly delays.

The Airbus A400M is being prepared for a December maiden flight in southern Spain even as its fate depends on the outcome of talks to save the 20-billion-euro project from collapse.

The planemaking subsidiary of aerospace group EADS is pressing for concessions in Europe’s biggest ever defense contract, saying it faces unaffordable losses in delivering the 180 troop and equipment carriers to seven European NATO nations.

Germany leads pressure for Airbus to stick to its terms.

Thousands of jobs are at stake and observers say the outcome could affect the industrial shape of Europe as well as the region’s stammering progress toward a common defense identity.

Investors in EADS and suppliers are bracing for billions of euros in charges and penalties if the rescue bid fails and Boeing and Lockheed Martin are ready to fill the gap with increased sales of their own troop and cargo carriers.

Now, with an end-2009 deadline weeks away, a formula for hiking prices without any immediate burden on taxpayers appears the most widely acceptable answer to a year-long deadlock.

If adopted, such a deal could stretch the targeted total of 180 aircraft over a longer period, but result in fewer planes being handed over during the previously agreed delivery period.

It is a device negotiators typically use to engineer a unit price increase when new cash is unavailable, according to current and former arms procurement officials, and many see it as the only pragmatic starting point during the economic crisis no checking account payday advance.

One scenario, which implies an approximately 25 percent unit price increase, would call for about 40 planes being pushed back into budget limbo pending a recovery.

New cash to build them would not be needed until the decade after next, well beyond the day-to-day political horizon.

“Presentation is a problem but the hard facts are that the only way to save the A400M program is through a price increase per plane,” said Teal Group aerospace analyst Richard Aboulafia.

For investors, such a deal could lift the threat of severe penalties that EADS would otherwise face for the 3-4 year delay.

However it may also leave EADS dependent on exports to erase previous losses, and the manufacturer suffered a setback when South Africa, one of only two overseas buyers so far, canceled.

And it leaves little room for maneuver if there are further cost overruns, since they have to be amortized over a decreasing number of planes — a phenomenon nicknamed the ‘death spiral,’ which Aboulafia says can chip defense projects down to the bone. 

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Low U.S. interest rates and the weak dollar are drawing more hot money into grain markets despite the weight of mammoth crops, setting up a potential repeat of last year’s boom and bust in that market.

As index funds and other big investors pour cash into futures at the Chicago Board of Trade, U.S. grain prices have been soaring even as farmers harvest the largest soybean crop ever and the second-biggest corn crop.

Prices for corn, soybean and wheat futures on the CBOT, the world’s largest grain exchange, are viewed as the global benchmark, affecting prices from Europe to Asia to Africa.

The markets have also been frothy because CBOT rules allow investors much more leverage to use borrowed money than the U.S. stock market, which has much stricter margin rules.

Futures prices still have a long way to go before they approach the highs hit last year, which triggered worries of food shortages before the financial crisis decimated markets. But market watchers remain concerned the latest rally is not justified by fundamentals.

“Corn and bean fundamentals get more bearish every day but the market direction depends on what the funds want to do,” said Paul Haugens, vice-president for Newedge USA LLC.

A wave of fund buying through the first half of 2008 drove wheat prices to a record high $13.34-1/2 per bushel, about 135 percent higher than the current level.

CBOT corn last year hit a record $7.65, up about 90 percent above the current price loans until payday. Soybeans rose to a record high $16.63, about 66 percent more than the present level.

CBOT wheat prices on Wednesday were trading at five-month highs, soybeans at a 2-1/2 month high and corn was at its highest level in nearly a month.

REPEAT PERFORMANCE?

While some fear prices will tumble like they did after last year’s rally, when grains markets ran up with crude oil, whose price peaked above $147 a barrel. But other analysts said this rally in grains could extend into next year.

“We can’t have a big break in the market because everyone is expecting more fund buying at the beginning of the year,” said Joe Bedore, CBOT floor manager for trade house FC Stone.

“We have different fundamentals than we had in the spring and summer of 2008 so I think that will keep prices in check to a certain point. But the investment community did see grains as an asset class then and they still do,” said Jerry Gidel, analyst for North America Risk Management Inc.

He said investors, buoyed by low interest rates, will bet on commodities and other asset classes.

“There is a lot of money looking for a home and it’s too risky for them to put it all in the stock market, mortgages or some kind of leases like railroad cars for example,” he said. 

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Ingersoll-Rand PLC, a maker of heating and cooling systems for homes, businesses and transport, reported a 5 percent drop in quarterly profit on Friday and said it continued to see challenges in its markets.

Net earnings were $216.6 million, or 65 cents per share, compared with $227.7 million, or 70 cents per share a year earlier.

Excluding restructuring costs, earnings from continuing operations were 70 cents per share. Revenue fell 19 percent to $3.48 billion, below Wall Street forecasts for sales of $3.56 billion.

Ingersoll, which also makes security technology, air compressors and utility vehicles, said it was confident of growing earnings next year even if markets remain weak. It forecast this year’s earnings between $1.60 and $1.70 per share.

(Reporting by Nick Zieminski; Editing by Derek Caney)

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U.S. machinery maker Caterpillar Inc posted stronger-than-expected quarterly earnings on Tuesday and raised its full-year forecast, saying it was seeing “encouraging signs that indicate a recovery may be under way.”

The news sent Caterpillar shares up nearly 5 percent in premarket trading.

The world’s largest maker of construction and mining equipment and a closely watched component of the Dow Jones industrial average reported a third-quarter net profit of $404 million, or 64 cents a share, compared with $868 million, or $1.39 a share, a year ago.

Revenue fell 44 percent to $7.29 billion.

Analysts, on average, had expected the Peoria, Illinois-based company to report a profit of 6 cents a share on sales of $7.47 billion, according to Thomson Reuters I/B/E/S.

Caterpillar also provided its first forecast for 2010, saying it expects 2010 sales and revenue will be up 10 percent to 25 percent from 2009 levels.

(Reporting by James B. Kelleher, editing by Maureen Bavdek)

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The U.S. economy is “tentatively” emerging from severe recession and inflation, as well as inflation expectations, are under control, Chicago Federal Reserve Bank President Charles Evans said on Friday.

Opening the Chicago Fed’s financial literacy conference, Evans decried attacks on the central bank’s monetary policy independence — part of the political fallout from the lengthy financial crisis.

“Confusion over the Fed’s role is quite understandable, given the unconventional steps we have taken over the past two years to ensure liquidity flows in the wake of the financial crisis and the non-traditional monetary policy environment that we are in,” said Evans.

Greater financial literacy helps the Fed to better explain its decisions and dispel “misconceptions” about the central bank, said Evans, who is a voting member of the Federal Open Market Committee in 2009 free credit reports.

“We have an important responsibility to explain our policy actions to a broad and diverse public,” he said.

“The better the public understands the work of the Fed, the easier it will be for us to achieve our mission.”

In general, Evans said, American consumers have relatively low rates of financial literacy and often lack a clear understanding of concepts such as inflation and compound interest.

“When you don’t understand what inflation is, or the risk that it presents to your financial well-being, then it is difficult to appreciate the importance of a Federal Reserve that can take politically unpopular steps to combat inflation,” he said.

(Editing by Andrew Hay)

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AMR Corp’s American Airlines faces an increasing dispute with Federal Aviation Administration (FAA) regulators over allegedly improper repairs to at least 16 aircraft, the Wall Street Journal said, citing people familiar with the matter.

The paper said FAA officials suspect one of those planes was abruptly retired to get it out of sight of government inspectors.

The probe, which began several months ago, has raised red flags at the FAA about the Fort Worth, Texas-based carrier’s willingness to properly disclose potential safety problems, the people told the paper.

According to the paper, the latest case is viewed as particularly serious because some FAA inspectors think the circumstances under which the airline suddenly chose to mothball one plane show the move was part of an effort to hide the extent of suspected defects business cards design.

The plane was ferried to the New Mexico desert in March for storage, the paper said, citing people familiar with the probe and company documents, which were reviewed by the Journal.

“The FAA has provided American the opportunity to respond to its investigation, and we are in the process of doing so.” American spokesman Tim Wagner told the paper, but declined to elaborate, adding “we believe conversations outside of that process are inconsistent with FAA regulations.”

The FAA and American Airlines could not be immediately reached for comment by Reuters out of regular U.S. business hours.

(Reporting by Chakradhar Adusumilli in Bangalore, Editing by Ian Geoghegan)

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NEW YORK–Americans' confidence in the economy darkened further in July as worries about job security offset any enthusiasm about the resumed stock market rally that has helped bolster retirement accounts.

The New York-based Conference Board said Tuesday that its consumer confidence index, which retreated last month, fell to 46.6, down from 49.3 in June. Economists surveyed by Thomson Reuters were expecting a reading of 49. It would take a reading above 90 to signal that the economy is on solid footing.

The second straight month of decline follows an upswing in confidence this past spring fuelled by a stock market rally and some signs that the economy was improving.

The disappointing report on confidence followed an upbeat report on the housing market, also released Tuesday, that offered more evidence that the real estate market was showing signs of life. According to the Standard&Poor's/Case-Shiller index, home prices in May posted their first monthly increase since the summer of 2006, indicating prices may finally stabilizing.

But clearly, shoppers are looking past surging stock prices and a stabilizing housing market and remain nervous about their own financial security because of mounting job losses.

And the job cuts keep coming. Verizon Communications Inc. said Monday that it plans to slash more than 8,000 employee and contractor jobs before the end of the year easy payday loans.

Americans' lack of confidence presents an obstacle for retailers and other businesses because consumer spending accounts for more than 70 per cent of economic activity.

According to the Conference Board, The Present Situation Index, which measures shoppers' current assessment of the economy, declined to 23.4 from 25.0 last month. The Expectations Index, which measures shoppers' outlook over the next six months, fell to 62 from 65.5 in June.

"Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

She noted that the decline in the Present Situation Index was caused primarily by a worsening job market. The deteriorating outlook for consumers was "more the result of an increase in the proportion of consumers expecting no change in business and labour market conditions." However, Franco said.

"More consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead," Franco said.

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SAN FRANCISCO–Intel Corp.’s quarterly results and outlook blew past Wall Street expectations yesterday, starting the technology sector’s earnings season with a bang.

Shares of Intel jumped 8 per cent on the report, which also bolstered shares of arch rival Advanced Micro Devices Inc. and other technology stocks.

The world’s largest chipmaker projected third-quarter revenue at $8.1 billion (U.S.) to $8.9 billion, compared with analysts’ average forecast of $7.82 billion.

Intel saw third-quarter gross margin at 53 per cent, plus or minus 2 percentage points, an improvement from the second quarter’s 51 per cent.

"They guided gross margins for the third quarter of 53 per cent and the whisper was 50 per cent to 51 per cent. A nice way to kick off earnings season for tech companies," said Patrick Wang, an analyst at Wedbush Morgan.

Intel’s microprocessors are used in more than three-quarters of the world’s personal computers, so the company results are a barometer for the global PC sector.

Intel felt the effects of the recession and the slowdown in technology spending but CEO Paul Otellini noted in April that PC sales "bottomed out" in the first quarter and the industry was returning to seasonal business patterns fast cash.

The chipmaker posted a net loss of $398 million, or seven cents a share, for the second quarter, after taking charges related to a $1.45 billion fine imposed by European regulators, which ruled in May that Intel abused its market position to squeeze out AMD. Intel has said it intends to appeal the ruling.

This time last year, Intel earned $1.6 billion in net income, or 28 cents a share.

Excluding the charges, Intel said it earned 18 cents a share in the second quarter, beating by far the average analyst forecast of eight cents, according to Reuters Estimates.

Revenue in the quarter to June 27 was $8 billion, down 15 per cent from last year, but well above the average forecast of $7.27 billion.

Chief financial officer Stacy Smith attributed the upside to strengthening computer markets. Intel saw "pockets of relative strength" in consumer PC markets as well as in the Asia-Pacific region and in China, Smith said.

Intel shares traded as high as $18.25 after hours, compared with the Nasdaq close 34 cents higher to $16.83. Shares posted a 52-week low of $12.05 in early February.

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The Toronto stock market closed higher yesterday, clawing back a tiny part of the previous day’s 4.4 per cent plunge, in large part because of energy stocks rising alongside oil prices.

The main S&P/TSX composite index closed up 62.54 points to 9,896.72 after a 454-point selloff sparked by a World Bank report that warned the world economy will shrink 2.9 per cent in 2009 not its previously forecast 1.7 per cent.

Grim as the World Bank report was, analysts say investors were looking for an excuse to take some profits from the spring rally that started in mid-March and boosted the TSX as much as 41 per cent.

"We needed to see a bit of a pullback," said Don Reed, president of Franklin Templeton Investments Corp. and manager of the Templeton International Stock Fund.

"We’re in an environment where we see big moves both ways."

Since hitting a high on June 11, the TSX has lost about 7.5 per cent.

Yesterday, the TSX energy sector clawed back a chunk of Monday’s slide of more than 6 per cent, rising 1.5 per cent as the August crude contract in New York rose $1.74 (U.S.) to $69.24 after falling $2.62 on Monday. Suncor Inc. gained 97 cents (Canadian) to $33.16.

The financial sector was the biggest weight on the TSX, down 1.55 per cent, with Royal Bank of Canada off $1.04 to $44.06.

The Canadian dollar was a fifth of a cent higher to 86.96 cents (U.S.). The TSX Venture Exchange was down 4.48 points to 1,074 affordable new jersey health insurance.18.

U.S. markets were weak with the Dow Jones industrial average down 16.1 points to 8,322.91 after slumping 2.4 per cent Monday, weighed down by Boeing after it again delayed the first test flight of its long-awaited 787 jetliner.

In the tech sector, MySpace announced 300 overseas job cuts. The News Corp. unit’s shares rose two cents to $9.07 on Nasdaq yesterday. Oracle’s fiscal fourth quarter and full-year results beat Wall Street estimates. Its stock was up 51 cents, or 2.6 per cent, to $20.38 in after-hours trading after closing down 10 cents at $19.87 in regular trading.

The Nasdaq edged 1.27 points lower to 1,764.92 as the S&P 500 index rose 2.06 points to 895.10.

The U.S. Federal Reserve started its two-day meeting on monetary policy yesterday. The Fed is widely expected to keep its key rate near zero, but investors are unsure whether the central bank is optimistic about the economy or considering raising rates later this year to curb inflation.

On the TSX, the base metals sector was up 1 per cent after sliding 9 per cent Monday. Copper prices rose seven cents to $2.20 a pound. Teck Resources rose $1.08 (Canadian) to $17.84.

The August bullion contract in New York rose $3.30 (U.S.) to $924.30 and the TSX gold index was the biggest percentage gainer, up 4 per cent.

The Canadian Press

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