A tale of two job reports

The chase by Marty Cej:

Prime Minister Harper says job creation will be among his top priorities in 2012, a good thing considering Canada's unemployment rate rose for a third straight month in December, putting the country on an uncertain footing for the new year. The unemployment rate rose to 7.5 percent from 7.4 percent last month as a gain of 17,500 new jobs was outweighed by a surge in people looking for work.

The headline gain of 17,500 failed to erase the plunge 18,600 jobs in the preceding month and was marked by a jump of 43,100 part-time positions that helped offset a tumble of 25,500 full-time jobs. Economist Doug Porter at BMO Capital Markets says "the soggy details reinforce the point that the job market struggled late last year after a banner start to 2011," and Mark Chandler at RBC notes that "the job trend will be seen as a disappointment."

The Canadian dollar dropped in the wake of the report as the market priced in the likelihood that the Bank of Canada will have to remain on the sidelines for longer or perhaps lean towards interest rate cuts if the economy deteriorates much further. We need to take a look at the new expectations for the Bank of Canada, the split between regions – Quebec shed 25,700 jobs! – and the industries that are creating jobs vs. those that are losing them. We also need to talk about the quality of the new jobs that were added this month.

And we'll also need to compare the Canadian jobs picture with the U.S. situation. The U.S. economy added 200,000 jobs last month compared to an estimate of 155,000 new non-farm jobs. The unemployment rate fell to 8.5% from 8.7%. The U.S. report will dominate price action for financial markets today.

In the meantime, European stocks are mixed, currencies and commodities are little changed, and stock index futures are pointing to a mixed open as traders await the U.S. jobs report. Also, Hungary's debt was just downgraded to 'junk' status by Moody's.

One of the more interesting markets to cover today will be base metals after Alcoa said late yesterday that it would cut its global smelting capacity by 12 percent, or 531,000 metric tons. We need to ask what the cut means to world supply and what it tells us about global demand. We also need to ask what it means for Alcoa's earnings and how it sets up the market for the start of fourth-quarter earnings season, which Alcoa kicks off on Monday.

As noted earlier this week, the negative to positive ratio of S&P 500 profit warnings vs. forecast upgrades currently sits at 3.8. In other words, almost four companies are warning for each company that is raising its guidance. The historical average is 2.2. This could be a tough earnings season if analysts don't start cutting their forecasts soon.

Among the Canadian corporate stories we're watching today is Jean Coutu, which reported a modest gain in both profit and revenue in the third quarter. The company had plenty to say about the "deflationary impact" of the introduction of many new generic drugs. Plenty to see here, folks, plenty to see.

I'm running late again and the web editors are breathing down my neck with their chai tea breath, which is intimidating in a strangely calm yet energizing way.

Iowa aftermath

The chase by Marty Cej:

Iowans have spoken and said that Republican voters across the U.S. should now choose between the three candidates who have said the following:
1. "I do take the position that we should just end the Fed."
2. "Isn't that the ultimate homeland security, standing up and defending marriage?"
3. "I've always been a rodent and rabbit hunter. Small varmints, if you will."
Tough call, tough call.

Sometimes, when you air your dirty laundry in public, it can smell like a hockey locker room after a weekend-long Old Timers' tournament. The Chairman of Canadian Pacific yesterday sent a public letter to Bill Ackman of Pershing Square Capital, CP's biggest shareholder, scolding Ackman for leaking misleading information to the media, including the assertion that CP had invited the former head of CP competitor CN Rail to talks. Ackman responded late yesterday with a public missive of his own, stating that CP's Chairman had in fact called him personally to arrange a meeting with CN Rail's former boss.

The thing of it is, both letters can be true since arranging a meeting with someone is not necessarily the same thing as inviting someone to a meeting. Both sides have agreed that talks to improve CP's operating performance have been constructive so it seems the conflict lies in determining exactly how to do it. Ackman wants the CEO of CP out while the board of CP, at least for now, is confident in the current management. So what we are seeing with these letters is not really a tiff over the facts but a fencing match between PR staffs.

I might have given Ackman a point for transparency, but then he used the word "effectuating." In terms of angles, we need to look again at the performance of CP under CEO Fred Green, operationally, financially and as a stock. We need to compare it to competitors not just in Canada but in the U.S. as well. We need to take a look at the issues of corporate leadership, governance and activist investing, and I'm also interesting in hearing more about the strategy of conducting a debate like this through the media. A great story with compelling characters and thousands of jobs and billions of dollars at stake.

As we approach the North American open, European stocks are declining and U.S. stock index futures are pointing to an early decline. Oil is down just a touch and copper has slipped a bit, too. Traders are pointing to Italian bank UniCredit SpA's decision to sell 7.5 billion euros worth of new shares at 43 percent less than yesterday's closing price in a bid to shore up its capital. The size of the discount has rattled markets by raising concern that demand for new bank equity has plunged at a time when many European financial services companies are preparing to go to the same well. We should also add that overnight deposits at the ECB have surged to a record high, again.

We'll zero-in on the Iowa caucuses on Headline this afternoon and ask whether Canadians – or Americans, for than matter – should care. Among our guests is Bill Galston, former policy advisor to Bill Clinton and now Senior Fellow, Governance Studies, at the Brookings Institution. We'll also talk about the economic impact of the U.S. election cycle with John Lonski of Moody's.

Ahead of that, though, Business Day AM will sit down with David Darst, Chief Investment Strategist at Morgan Stanley Smith Barney where he oversees more than a trillion dollars in assets. I'll ask him whether he is fretting over the race for the White House and how he is putting those dollars to work in 2012. He sits down with us at 11:00 am Eastern.

Commodities continue to be a compelling story with expectations continuing to rise for a rebound in many prices this year. Oil, for example, has already vaulted back over $100 a barrel. The question is whether recent and expected gains are justified by the outlook for economic growth. Does oil belong at $100 a barrel with Europe poised on the edge of what could be a severe recession?

Natural gas remains a conundrum for investors and the companies involved in the sector.

Welcome to 2012

By Marty Cej
The Chase

The week ahead provides a glimpse at the themes that may dominate the new year. Investors will wade through a flood of economic data including Asian export numbers, global manufacturing reports and U.S. unemployment data at the end of the week, all of which will help determine the spillover from the European debt crisis. The heavy political calendar for this year kicks off with the Iowa caucus, which will help thousands of American reporters narrow their focus onto two or three frontrunners in the race to name a Republican challenger to President Obama. Europe and the race for the White House will likely dominate broad price action in 2012.
Today, we'll narrow our own focus on how political, economic and corporate events are likely to drive price action in the stock, bond, currency and commodity markets this year. As we near the open of North American stock markets, U.S. index futures are pointing to modest gains and most European stock markets are trading higher on the back of higher-than-expected manufacturing data out of China, India and Australia. A surprising improvement in German unemployment also helped boost demand for risk assets this morning. A report on U.S. manufacturing due out at 10:00 am Eastern is also expected to show expansion. In fact, a reading of 53.4 on the ISM index – the average expectation among economists surveyed by Bloomberg, would be the fastest expansion in six months. At 2:00 pm, we'll peruse the minutes of the last FOMC meeting along with Republican candidate Ron Paul who is looking for an excuse to abolish the Fed. We'll look for insight, Paul will be looking to incite.
Commodities are kicking off the year on stronger footing after the manufacturing data as well. Crude oil, natural gas, copper, gold and silver are all higher in the early going. Natural gas could be the one to watch this week after tumbling below $3 last week. The CFTC reports that last week's downward slide may have flushed a lot of traders out of their bearish positions. Natural gas plunged more than 30 percent last year, which could lead some producers to rein in their output. Plus, the weather has turned wintery in North America, at least in my office where the atmosphere is particularly Dickensian. Also, keep an eye on gold, which appears poised for a technical breakout after showing considerable stability amid thin trading last week.
In corporate news, we're following Canadian Pacific Railway after the company's Chairman, John Cleghorn, wrote a polite, if firm, letter to hedge fund manager and CP shareholder Bill Ackman, explaining that leaks to the media are counterproductive in his efforts to force change at CP. The letter is in response to reports last week that Pershing Square Capital was agitating for Hunter Harrison to take over as the new CEO of CP. Cleghorn says no invitation has been extended to Harrison and that perhaps Ackman might want to talk face to face about what he wants changed at CP rather than going to the press. The gloves haven't been dropped but the players are jawing.
The National Post reports this morning that Research In Motion is preparing to unveil a boardroom shakeup that would see Mike Lazaridis and Jim Balsillie give up their co-chairmen roles in favour of board member Barb Stymiest. Citing unnamed sources for the story, the Post did not give a timeline. Calls are out to the company.

Last call for 2011

The chase by Noah Zivitz:

This was a year that (as of yesterday’s close) saw Canada’s benchmark stock index shed nearly 12%. Research in Motion trailed furthest among all index members, with still plenty of questions to be answered about whether the Jim and Mike show can regain lost market share in the new year. Even amid the ruins of a year that left the TSX lagging the S&P 500, there were some outsized returns to be had. Trilogy Energy shares surged 206%. Why? And what’s the plan to keep shareholders happy in 2012? And how about other leaders like Westport Innovations, Valeant and Dollarama? Throughout the day, and into next week on The Street, we’ll be reviewing the hits and misses of 2011.

Today is rich in symbolism for anyone who has watched Manulife Financial's volatile post-crisis experience. When former CEO Dominic D'Alessandro announced his retirement in 2009, his pay package generated tremendous criticism. Hearing the outrage loud and clear, D'Alessandro slapped conditions on the package. And now he appears poised to lose out on $10 million in restricted share units with MFC shares well below year-end vesting thresholds. After all of the hedging and de-risking Manulife has undergone over the past couple of it years, it still hasn't climbed back to levels D'Alessandro hoped for. Will patient MFC shareholders be rewarded in 2012? We’ll explore this one today.

And from today’s headlines:
The Globe and Mail is reporting Bill Ackman is reaching out to former CN CEO Hunter Harrison to lead the way at CP. According to the unconfirmed report, Harrison has demonstrated an interest in Ackman’s approach. We’re seeking comments from principals. Let’s also ask shareholders and analysts for perspective on the possibility of the iconic rail boss plying his trade at CP.

Manufacturing activity shrank in China this month, albeit at a slower pace than in November. We need to hear what the source of the PMI softness is, and what policy measures can be expected from Beijing next year. With Hu Jintao nearing the end of his term as president, I’d like to hear more about the country’s next leader.

After a string of losses that left gold in bear market territory at one time yesterday, the metal is staging an end of year rally today. But for how long, and what could support prices early in 2012? The Street gets a trader’s perspective at 8:30, and the technical view at 8:45.
January 3 will be the most important day thus far for candidates seeking to lead the Republican party in the next U.S. presidential race. Today and Tuesday we’ll need to ramp up analysis of what’s at stake in the Iowa caucuses.

We’ll be watching Silvercorp shares after it announced late yesterday two consulting firms have been retained to provide technical reports on a trio of projects to “alleviate” lingering concerns after the company had to fend off fraud allegations earlier this year.