Central banks provide liquidity

The chase by Marty Cej:

European stocks added to their gains and U.S. stock index futures surged after central banks around the world moved a few moments ago to provide additional liquidity to a financial system that is beginning to seize up. The Bank of Canada, U.S. Federal Reserve, Bank of England, European Central Bank, Bank of Japan and Swiss National Bank agreed to reduce the interest rate on U.S. dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013. In short, that means the banks are providing cheaper money for longer. In its accompanying statement, the Bank of Canada said that the coordinated actions are meant to "provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

The action comes after China's central bank cut for the first time since 2008 the amount of cash that banks are required to set aside as reserves. In an unambiguous nod to slumping export demand from Europe, the People's Bank of China said reserve ratios will drop by 50 basis points to 21 percent for the country's biggest lenders on Dec. 5. An adviser to the central bank, Xia Bin, said at a forum this morning in Beijing that the PBOC would maintain a "prudent policy" in 2012. The fact is, prudence now demands lower interest rates in China and elsewhere in the world to revive flagging growth. Yesterday, the talk in the market was about QE3 ? not the "if" of it, but the "when." Earlier this week, the OECD warned that even Canada ? yes, even Canada ? may have to cut rates if things in Europe worsen any further. In other words, central banks are being compelled to stimulate growth whether they want to or not, which is a position none of them appreciate much. This morning, let's talk about the specifics of the coordinated central bank action and the PBOC decision but we'll need to broaden the conversation quickly to include new expectations for quantitative easing in the U.S. and rate cuts in Canada. Will Canadians see lower borrowing costs before year-end?

Finance Minister Jim Flaherty is giving a speech this morning in New York City. We've sent a camera. We'll hear from him shortly.

Meanwhile, in Europe, finance ministers wrapped up a crucial meeting in which they agreed on detailed plans to leverage the European Financial Stability Fund (EFSF or bailing bucket) but could not say by how much because of rapidly deteriorating credit markets. In short, they agree that a lot more money needs to be thrown at the problem by the EFSF but they can't say where they'll get the dough, though the letters I, M and F have been heard in the carpeted halls of Brussels, whispered as if in prayer. Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, presaged the global central bank actions today to an audience in Singapore, saying that "We are now looking at a true financial crisis ? that is a broad-based disruption in financial markets." European leaders get together for a summit on Dec. 9. That means 10 more days of rising funding costs for euro-zone economies and falling confidence in European banks.

Canada's main competition regulator says it has "serious concerns" about Maple Group's $3.7-billion acquisition of the TMX Group. It seems the proposed takeover of Canada's financial markets by Canada's biggest trading firms ? as well as the takeover of the primary clearing house as part of the deal ? has raised the antennae of someone in Ottawa. The TMX and Maple Group have responded by saying they will work with the regulator to address those concerns and perhaps identify possible "remedial measures," which, if I recall my own youth correctly, can range from standing in the hall to getting the strap from Ms. Murphy, the ex-nun with forearms like tree trunks. The announcement comes a day before hearings in Toronto before the OSC. Paul Bagnell has the file.

U.S. outplacement firm Challenger, Gray and Christmas said this morning that planned layoffs in the U.S. were virtually unchanged in November from the preceding month but were down 13 percent from a year earlier. This could provide a little more bullishness to expectations that this Friday's nonfarm payrolls report could exceed the average forecast of 120,000. Canadian jobs are due out Friday as well.

Industry Minister Christian Paradis didn't so much as drop the ball on issue of foreign investment in the Canadian telecom industry yesterday so much as take the European Gambit, or what's known as Kick the Can Down the Road. Admitting that the issue is very serious and of great importance to Canadian consumers and companies, he concluded that it is so important he won't make a decision on it anytime soon. Incumbents, investors, would-be entrants, consumers? they're all asking "what gives?" We need to provide some better answers.

Busy day for economics at home and abroad. We're watching Canadian GDP and home prices as well as the Chicago PMI, U.S. pending home sales, productivity and the ADP employment report.

AMR files for bankruptcy protection

The chase by Marty Cej:

Cyber Monday is a silly thing to say.
Thin on news, markets rallied yesterday on optimism that European authorities were finally shuffling their slippered feet towards a solution to their sovereign debt crisis and evidence that U.S. consumers continue to shop like, well, U.S. consumers. Today, we are spoiled for choice.
AMR, the parent company of American Airlines, filed for bankruptcy protection in a New York court. The airline is the last of the U.S. heavyweights to file for protection after managing to hold out through the financial crisis and the industry downturn in the wake of the September 11 terrorist attacks.

The company said it will continue to operate as usual as it reorganizes "to achieve a cost and debt structure that is competitive in the airline industry." While its competitors restructured their debt under bankruptcy protection, cut their costs and pension plans, American decided to gut it out and is now paying the price for deals it cut with employees a few years ago. Calls are out to principals and analysts. For some unique insight into the industry and how the filing could affect Canadian travelers, we'll sit down with Greg Saretsky, CEO of WestJet, at 3:10 pm Eastern.

In Europe, finance ministers meeting in Brussels today are tasked with doing the grunt work ahead of a meeting of European leaders on Dec. 9. Their work will include finalizing details of the enhanced bailout mechanism, or EFSF. German Chancellor Angela Merkel made clear again this morning that her priority is a rewriting of the relevant euro-zone treaties to impose tighter budget rules and greater oversight/influence on the ne'er do wells by the core countries (ahem, Germany, ahem).

In the meantime, the ECB, which is not allowed to backstop sovereign governments, found that it was unable to fully "sterilize" the 203.5 billion Euros of government bonds that it has purchased since May of last year to provide liquidity but not – it insists – not to backstop needy governments. Frances will try to explain the process to me on Business Day and says she will speak slowly and use hand gestures when I get confused.

Germany's biggest potash company, K+S Aktiengesellschaft, or Aktiengesellschaft for short, said it will spend $3.5 billion on developing its project in Saskatchewan and expects to be in production by 2015. Kristine Owram is on the story in the early going today and I would like to see our coverage expand to include the bigger picture of Saskatchewan being open for business.

Like, way open. Home prices in Regina are climbing, Saskatchewanionians (sp?) who went west in search of their fortunes are returning home to find them. I'd like to hear a little bit more about what is going on there and see whether lessons have been learned from the boom and bust cycles of a certain neighbour.

One story that has jumped out for me is Compton Petroleum. The company said late yesterday that President and CEO Tim Granger is stepping down. Oh, and Chief Operating Officer Shannon Ouellete will also be resigning. And let's see… oh, yes, Theresa Kosek, the CFO will also be departing the company. And David Horn, VP of business development, too. A few quarters ago, this company had a market cap of more than a billion dollars. Now it's a small cap. Brett Harris will take a look at this company's short and bumpy trip to the bottom.

Still in the oil patch, Nexen has given its 2012 production and expenditure forecasts this morning and announced a joint venture with Japan's Invex to develop its Horn River, Cordova and Liard basins in BC.

Industry Minister Christian Paradis was expected by some to announce changes to foreign investment rules in the telecom industry at a speech in Ottawa today but the Globe and Mail says not to hold your breath. The Globe also reports that the minister has cancelled meetings with telecom analysts in New York this week and could signal in his speech today that a decision on the rules may not be reached at all this year. The news will disappoint potential investors and competitors from abroad who have been waiting for an opportunity to enter the Canadian market. It will also disappoint the incumbents who have been asking for clarity.

Oh, and unnamed sources are telling The Wall Street Journal and Bloomberg that Facebook is getting closer to filing for a $10-billion IPO that would value the company at a whopping $100 billion. Me, I'd like to test that valuation against what we know about the company's growth, its revenue, profit, management and the market's appetite for new listings. The IPO would not take place until the spring, at the earliest, sources say.