7.23.13: ‘Everything was selling like hotcakes in May’


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Tuesday’s global markets’ close

Japan’s Nikkei
14,778.51 +120.47 +0.82%

China’s Shanghai
2,043.88 +39.11 +1.95%

Hong Kong’s Hang Seng
21,915.42 +498.92 +2.33%

Australia’s S&P/ASX 200
5,017.10 +15.20 +0.30%

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Higher auto sales helped drive Canadian retail sales 1.9% higher in May from April, the biggest monthly jump for more than three years, Statistics Canada said on Tuesday. The advance – far greater than the 0.4% growth predicted by market operators – is the largest since the 2.8% increase recorded in March 2010. Retail sales hit a record $40.42 billion in May, up from the previous high of $39.77 billion set in November 2012. Higher sales were reported in nine of the 11 subsectors, representing 94% of total retail trade. In volume terms, sales were also up 1.9%. “Everything was selling like hotcakes in May, perhaps even hotcakes,” Avery Shenfeld of CIBC WM Economics wrote in a note to clients on Tuesday. The largest sales increase in dollar terms among all subsectors was a 4.3% gain at motor vehicle and parts dealers, reflecting higher sales of light trucks as well as recreational vehicles, motorcycles and boats.

Related: ‘Death of the Canadian consumer have been greatly exaggerated’Financial Post

Tribunal dismisses complaint against credit card giants

Canada’s Competition Tribune ruled Tuesday that Visa and MasterCard can continue to charge merchants higher fees for so-called “premium” cards. The Tribunal said in a statement that it had dismissed the application by the Competition Bureau to strike down rules affecting how credit card companies charge retailers. The brief statement said the case was dismissed “without costs” and that the details of its ruling are confidential. However, it noted “the proper solution to the concerns raised by the Commissioner is a regulatory framework.” “In that regard, it noted that the experience in other jurisdictions showed that concerns would be raised by consumers regarding surcharging and that rather sooner than later, intervention would have to take place by way of regulation.” Merchants currently face credit card fees from 1.5% for basic credit cards to nearly 3% for those premium cards that offer customers incentives, such as travel points. Those fees amount to about $5-billion a year.

Related: Credit card fees a tax on small business, consumersFinancial Post

Telus looks to boost stock price with share buybacks

In an apparent effort to boost its flagging stock price, Telus Corp. said Monday it plans to buy back a further $500-million of its shares by the end of this year. That will bring the telecommunications company’s previously announced stock buyback program for 2013 to $1-billion and, if approved and carried out, will see the company repurchase 4.9% of its outstanding common shares. Telus, along with its wireless-heavy telecom peers Rogers Communications Inc. and BCE Inc., has witnessed a steep decline in its share price since the spring, accelerated on reports last month that Verizon Communications Inc. is considering entering the Canadian mobile market. The Vancouver-based company’s stock is down about 15% over the past three months. It fell 3.07% or $0.97 on Monday to close at $30.65 on the Toronto Stock Exchange.

RelatedTelus CEO Entwistle warns of ‘bloodbath’ if Verizon has advantage in wireless spectrum auctionFinancial Post

Keystone critics raise emissions estimates

Carbon-dioxide emissions caused by the Keystone XL pipeline could be more than four times higher than a draft U.S. analysis found, according to a Natural Resources Defense Council report released Tuesday. The NRDC, a New York-based environmental group that opposes the US$5.3-billion project to link Alberta’s oil sands to refineries in the U.S. Gulf Coast, says Keystone would add as much as 1.2 billion metric tons of carbon pollution to the atmosphere over 50 years. That’s a much higher rate than estimated in a State Department draft environmental analysis. “Tar sands oil production causes the release of huge amounts of carbon pollution, both from its energy-intensive extraction methods and refining processes and also from its destruction of boreal forests, peatlands and wetlands,” the NRDC report states.

Netflix best positioned in streaming media industry

Lawrence Lundy of Frost & Sullivan reviews second-quarter results from Netflix as subscriber gains fell short of expectations and why he believes they are best positioned in the streaming media industry. Watch the full segment below.

Disaster strikes… for insurers

Insurance is one of those things that pays when disaster strikes, but now disaster appears to be striking insurance companies who have been besieged with claims in recent months, writes the Financial Post‘s John Greenwood. Intact Financial Corp. became the first of what may become a long line of companies disclosing hits from recent floods in Calgary and Toronto and the train disaster in Lac-Mégantic. Toronto-based Intact said on Monday that it will record about $257-million of after-tax losses arising from customer claims related to the disasters over the next two quarters. Intact is Canada’s largest property and casualty insurer in an industry that is highly fragmented with numerous players including most of the big banks, all fighting it out for market share. Depending on the magnitude of the losses, some of Intact’s competitors may follow its lead of disclosing their exposure to the disasters prior to reporting quarterly results. Intact said it anticipates total house and auto claims of more than $300-million related to the Alberta flood, amounting to an after-tax loss of $105-million net of reinsurance for the second quarter which will be released on July 31.

RelatedCanadian property insurer Intact to take $123-million hit – Canadian Press

Questions remain on Lac-Mégantic: CN Chief

The head of Canadian National Railway Co. urged federal lawmakers to wait until the investigation is completed into the tragedy of Lac-Mégantic before they consider new regulations on the industry, reports the Financial Post‘s Scott Deveau. Claude Mongeau, CN chief executive, warned the unusual sequence of events that led to the disaster in the Quebec town earlier this month has yet to be determined. “We don’t know at this point exactly what happened,” Mr Mongeau said on a conference call Monday following the railway’s quarterly results. “Suffice it to say, it’s much more complicated than just finding out how many handbrakes were set.” He said there were many questions remaining, including what caused the fire in the locomotive, why the air in the independent brakes let out in minutes not hours, and why the required reset safety control did not play a role in stopping the train. The country’s largest railway reported  net income of $717-million in the second quarter, or $1.66 an adjusted, diluted share, up from net income of $631-million, or $1.50 an adjusted diluted share, for the same period in 2012. Analysts had been expecting earnings of $1.61 a share.

RelatedCP Rail strengthens safety measures after Lac-Mégantic disaster – Financial Post

Ugly earnings season for miners

It is going to be ugly. The only question is how ugly. The mining earnings season kicks into full gear this week, and investors and analysts are bracing themselves for a set of painful second-quarter results, writes the Financial Post‘s Peter Koven. Writedowns, project deferrals and plummeting profits will all be front-and-centre as the miners try to make sense of one of the most turbulent quarters they have faced in years. The sector is full of new CEOs, and the market will be watching closely to see how they respond to the challenges. Many of them are under intense pressure to cut costs due to shrinking margins. Of course, the majority of the pain will be felt in the precious metals sector. The average gold price plunged 13% in the second quarter to US$1,414 an ounce, marking the single biggest quarterly decline since 1980. Silver did even worse, falling 22% to US$23.33. What matters for mining companies is not the average quarterly prices but their realized selling prices, which are based on when they sell their material. And that is one potential problem.

RelatedGet ready for turbulent gold earnings season – Financial Post

No-growth quarter for Apple

After years of blowout quarters and impressive financial results, analysts who cover Apple Inc. are forecasting the tech giant will report almost no revenue growth for the first time since the iPhone’s debut six years ago, writes the Financial Post’s Matthew Braga. With new products not expected until fall at the earliest, and forecasts predicting a second consecutive quarter of earnings decline, the company’s third-quarter results will likely serve as further proof that a decade-long streak of financial ascendance is over. Since peaking 10 months ago at $705.07, Apple’s stock has plummeted by about 40% to about $425 – wiping out roughly $260-billion in shareholder wealth. The Cupertino, Calif.-based computer maker has faced rising pressure from competitors in recent years, with the likes of Samsung Electronics Co. Ltd., Google Inc. and even HTC Corp. producing a bevy of powerful yet low-cost devices that have rivaled Apple’s in terms of features and capabilities.

Related: Apple developer site hacked, pulled offline – Bloomberg

Spectrum costs could deter Verizon

If Verizon Communications Inc. is not certain it can reap a return on a foray into Canada’s wireless market, it might not bother heading north of the border, reports the Financial Post‘s Christine Dobby. Scotiabank telecom analyst Jeff Fan said he believes Verizon views the chance to consolidate one or more of Canada’s small new entrant mobile providers and purchase wireless spectrum in an upcoming auction as “opportunistic and not 100% strategic.” That means return on investment matters, and acquiring spectrum at reasonable prices to support return on investment “could be a challenge, given Canadian incumbents’ strong interest to protect their positions,” Mr. Fan said in a research report Friday. Verizon, as a new entrant to the market, would be permitted to bid on up to two of the four blocks of prime spectrum in the auction while Telus Corp., Rogers Communications Inc. and BCE Inc. would all be limited to one block. “We continue to believe there is no guarantee that Verizon can secure spectrum (specifically two 700 MHz blocks in the upper C bands) in the upcoming auction at reasonable prices given the Canadian incumbents’ interest,” Mr. Fan said.

RelatedTelus CEO: ‘Bloodbath’ if Verizon has advantage in wireless spectrum auction – Financial Post

Why the bull will charge on

The broadest rally in U.S. stocks since at least 1990 has lifted shares of everything from the smallest companies to the biggest banks, signalling the bull market for America’s largest corporations will last at least until the end of the year, if history is a guide. The Standard & Poor’s 500 Index’s advance to a record last week coincided with highs in the Russell 2000 Index of smaller companies, the Dow Jones Transportation Index, the S&P 500 Financials Index and a gauge of economically sensitive equities overseen by Morgan Stanley. Since 1990, the S&P 500 has gained for six months on average after those measures peaked, according to data compiled by Bloomberg. While bears say the breadth shows indiscriminate buying just as profit growth slows and the Federal Reserve prepares to curtail stimulus, gains across stock measures have proved an accurate forecaster of performance. In four market tops during the last 23 years, small-cap stocks and the cyclical gauge never peaked after the S&P 500.

Related: Bullish on gold, oil and Southeast Asia: Franklin Templeton’s MobiusFinancial Post

A $380M Babynomics boost

Call it a baby bump. As news that Kate Middleton delivered a healthy baby boy circles the globe, the British royal family has joined retailers in offering baby products to celebrate the spawn of the Duke and Duchess of Cambridge, the future heir to the throne. And it will net big profits for the U.K. economy. Though democratically irrelevant since World War II, the royals seem to be priming Britain for a binge in consumer spending. Joshua Bamfield, director of the Centre for Retail Research (CRR), estimated that the baby’s arrival could add more than 240 million pounds to the British economy. Bamfield forecast 4.8 million people would splash out 62 million pounds on alcohol to wet the future monarch’s head and spend 25 million pounds on food for baby parties. He expected 156 million pounds to be spent on commemorative china and other collectibles,toys, books, DVDs and media. Merchandise at palace shops includes Union Jack booties and “Born to Rule” pajamas.

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