Pescod says...

QEC: Rises Russian gas disruption spreads across Europe

Russian gas disruption spreads across Europe

CHRISTIAN LOWE
Tuesday, January 06, 2009
MOSCOW — Russia's worsening gas dispute with Ukraine cut supplies on Tuesday to Turkey and a swathe of European countries, threatening disruption as far west as Italy and Germany.

The European Union, dependent on Russia for a quarter of its gas, urged Moscow and Kiev to find a solution this week. The head of Ukraine's state energy firm said he would fly to Moscow on Thursday.

Bulgaria, Turkey, Macedonia, Greece and Croatia said flows of Russian gas via Ukraine had come to a halt, creating what Bulgaria called a “crisis situation” in the middle of winter.

European Union member states Austria and Romania said deliveries were down 90 per cent and 75 per cent, respectively, and German energy firms warned there could be gas shortages in Europe's biggest economy if the dispute dragged on and sub-zero temperatures persisted.

“Even our possibilities will reach their limits if these drastic cuts in shipments last and if temperatures continue to stay at very low levels,” E.ON Ruhrgas chief executive officer Bernhard Reutersberg said.

Russia's Gazprom can only guarantee gas supplies to Italy of 7 million cubic metres on Tuesday, or less than 20 per cent of the expected amount, an Italian source close to the matter said. The industry ministry earlier said Rome was planning to increase gas imports form alternative suppliers.

Russia and Ukraine blamed each other for the crisis, which has struck at the height of the European winter and spread alarm across the continent.

Ukraine's neighbour Slovakia will declare a state of emergency, Czech news agency CTK reported. Poland cut gas supplies to industrial clients.

The Czech Republic, which holds the EU's rotating presidency, said it was considering the “extreme option” of a three-way EU-Russia-Ukraine summit.

“However this is not on the table yet because we insist the two sides must reach an agreement,” Prime Minister Mirek Topolanek said.

The dispute threatens to worsen Russia's ties with the West, already fraught after its war with Georgia last year.

Europe's heavy dependence on Russian energy – and vulnerability to supply disruption – was highlighted when Moscow reduced volumes to Ukraine on New Year's Day after failing to reach agreement with Kiev over gas prices.

But Simon Blakey, director of European research at Cambridge Energy Research Associates, said EU countries had seen the crisis coming and could tap large storage reserves.

“If there are significant drops in supplies to the European Union, the key question is whether it goes on for a very long time. But it would have to go on for weeks or months for serious problems to arise for Western European customers,” he said.

Russia and Ukraine have clashed repeatedly on a range of other issues, particularly the ambition of Ukraine's pro-Western leaders to join NATO.

Russia's Gazprom said Ukraine shut down three Russian export pipelines early on Tuesday and said it was a hostage of Kiev's “irresponsible behaviour”.

“Russia has requested that the gas which was stolen, which is equivalent to 65 million cubic metres (mcm), should be returned,” deputy chief executive Alexander Medvedev said.

But Ukraine blamed Russia, with President Viktor Yushchenko saying Moscow would continue cutting gas supplies to Europe or stop them altogether.

Gazprom says it usually exports about 300 mcm of gas per day to Europe via Ukraine during the winter while Ukraine consumes about 100 mcm. The latest news of pipeline shutdowns suggests exports via Ukraine running at below 100 mcm, which could mean shortages in Europe in a day or so.

The dispute helped push gas prices around 10 per cent higher in London trading on Tuesday.

The disruptions come at a bad time for Europe, which is experiencing a cold snap likely to drive up gas demand.

“As of 3:30 a.m. (0130 GMT) supplies ... to Bulgaria as well as the transit to Turkey, Greece and Macedonia have been suspended,” Bulgaria's Economy Ministry said in a statement. “We are in a crisis situation.”

Bulgaria is particularly vulnerable to the disruptions because, unlike Greece and Turkey, it has no access to alternative gas supply routes.

State firm Bulgargaz told industrial users it was suspending or cutting supplies to a minimum and urged them to switch to alternative fuels such as oil. Two fertilizer companies, Neochim and Agroploychim, were forced to halt production.

The government said people would not be left in the cold, but urged households to start using other means for central heating.

A delegation from the Czech presidency of the European Union met Ukrainian officials in Kiev, while talks between Gazprom and the EU were planned for later on Tuesday in Berlin.

“The situation [with gas supplies via Ukraine to central Europe] ...is getting worse by the minute and we would like to talk about this new situation,” Czech Industry Minister Martin Riman told reporters in Kiev.

Most larger EU countries say they have large amounts of gas stockpiled after several mild winters, and have access to supplies from sources such as Norway and Algeria.

The conflict between Moscow and Kiev, now in its sixth day, escalated dramatically on Monday when Russian Prime Minister Vladimir Putin ordered Gazprom to cut deliveries of gas to Europe via Ukraine by about one sixth – the same amount Moscow accused Kiev of siphoning off.

Worries about European gas supplies, coupled with Israel's military operation in Gaza, have pushed oil up to a three-week high close to $50 (U.S.) a barrel. Russia, whose main export is oil, stands to benefit for a recovery in prices.

© Copyright The Globe and Mail

Bargain hunters come to buy

Bargain hunters come to buy

RTGAM






Investors feeling more optimistic about 2009 snapped up stocks in some of the worst performing sectors and sent the Toronto stock market sharply higher on the first day of trading in the new year.

New York markets also surged despite data showing a further slump in the U.S. manufacturing sector as investors expect significant moves to stimulate the American economy after president-elect Barrack Obama is sworn-in later this month.

"You have a big stimulus package coming from the incoming U.S. administration - the timing is uncertain but we know it's going to be enormous," said John Johnston, chief strategist, The Harbour Group, RBC Dominion Securities.

Toronto's S&P/TSX composite index was up 246.41 points to 9,234.11 with all sectors positive save gold and consumer staples stocks, gaining 923.56 points or 11 per cent this week.
The TSX ended 2008 down 35 per cent for the year - the second-worst year ever, compared with a 37 per cent decline in 1931.

New York's Dow Jones industrial average, down 34 per cent for 2008, rose 258.3 points to 9,034.69.

The TSX Venture Exchange added 49.67 points to 846.69. The Canadian dollar edged up 0.16 of a cent to 82.26 cents US.

The Nasdaq composite index, fresh from a 40 per cent plunge last year, rose 55.18 points to 1,632.21 while the S&P 500 added 28.55 points to 931.8 following a 38 per cent tumble in 2008.

The gains on the market followed news from the Institute for Supply Management that said its manufacturing gauge stood at 32.4 in December, a 28-year low and worse than November's reading of 36.3.

"As if it needed restating, this report emphasizes once again that the U.S. economy is in a recession, as any figure below about 44 for the headline index has historically matched up well with this condition," said Eric Lascelles, chief economics and rates strategist at TD Securities.

"And to the degree that the U.S. slowdown is not actually a business-led slowdown - driven rather by sour housing, financial, and consumer factors - it speaks to both the breadth and depth of the slowdown."

Helping drive the Dow higher was General Motors Corp. - it jumped 45 cents or 14 per cent to $3.65 (U.S.), after the U.S. government paid out $4-billion in emergency loans.

A number of deals in the financial sector arising from the credit crisis were finalized at year-end. Bank of America acquired Merrill Lynch & Co., Wells Fargo & Co. closed its acquisition of Wachovia Corp., and PNC Financial Services Group bought National City Corp.

The battered TSX base-metals sector, down 68 per cent last year, was up almost 16 per cent as the March copper contract ran up 4.7 per cent to $1.461 a pound after the metal plunged 54 per cent last year. Teck Cominco Ltd. rose $1 to $7.02 and FNX Mining surged 91 cents or 30 per cent to $3.95.
The energy sector was up 6.25 cent as the February crude contract in New York gained $1.74 to $46.34 a barrel. Petro-Canada rose $2.38 to $29.10 and EnCana Corp. gained $2.79 to $59.75.

Oil surged more than $5 a barrel Wednesday after Russia threatened to cut off natural gas supplies to Ukraine. Russia followed through with that threat Thursday, though both countries pledged to keep supplies flowing to the rest of Europe.
The Toronto financial sector, down 38.5 per cent in 2008, was ahead 1.4 per cent with Royal Bank up 85 cents to $36.95 (Canadian) while Bank of Montreal headed 90 cents higher to $32.15.

The consumer staples sector was down 0.7 per cent as Shoppers Drug Mart gave back $1.55 to $46.50.

The gold sector was weak, down two per cent as the February bullion contract in New York faded $4.80 to $879.50 (U.S.) an ounce.
NovaGold Resources Inc. shares ran up 13 cents to $1.90 (Canadian) after Electrum Strategic Resources LLC of New York bought a 30 per cent stake in the Vancouver-based company for $60-million.

High River Gold Mines Ltd. shares retreated three cents or 19.7 per cent to 34.5 cents is looking to float more equity or debt while reporting a cash shortfall amid ongoing production troubles in Africa and Russia.

- The Canadian Press

Copyright 2001 The Globe and Mail

"If Santa Claus should fail to call, bears may come to Broad & Wall."

Analysts see equities under pressure until the U.S. musters an economic recovery – perhaps in the back half of 2009

January 01, 2009

RITA TRICHUR
BUSINESS REPORTER

"If Santa Claus should fail to call, bears may come to Broad & Wall."

That adage – coined by Yale Hirsch, founder of the Stock Trader's Almanac – warns that if the traditional Santa Claus rally fails to materialize during the last five trading days of the outgoing year and the first two of the new one, it is a bad omen for stocks.

The last five trading sessions of 2008 produced a flurry of mixed results for key New York indexes, while the Toronto stock market mostly posted gains. It remains to be seen how investors will ring in the new year when trading resumes tomorrow. Nonetheless, analysts suggest that glad tidings may be in short supply in 2009 – at least for the near term.

Since mid year, stocks on both sides of the border have been trapped in a vicious bear market that has already proven to be one of the worst ever for Toronto's main stock index.

Despite soaring to a record-breaking high of 15,073.13 on June 18, Toronto's S&P/TSX composite index posted a 35 per cent loss for 2008 as the crisis of confidence that infected credit markets also proved contagious for stocks.

If past experience is any guide, the average TSX bear market requires about three years to return to its previous peak.

The bad news, experts say, is that markets will likely remain choppy in the short term.

"We anticipate that Canadian equities will remain under pressure through 2009; our end-2009 TSX composite target is 8,000, and we expect the market to trade somewhat lower than that through the year," said David Wolf, an economist with Merrill Lynch, in a recent report.

"Our TSX operating EPS forecast for 2009 is $620, down 35 per cent from 2008 and 28 per cent below the bottom-up consensus. We cannot call a bottom for equities until Canadian market participants evince a more realistic and balanced assessment of the drastically changed macro environment and until greater visibility allows risk premiums to ebb."

Underpinning his "still-bearish outlook" is a two-pronged argument that contends analysts' revised earnings forecasts are still too upbeat, while stocks are "not nearly as cheap" as they might seem.

"Based on the bottom-up consensus EPS (earnings per share) number for 2009, the TSX is currently trading at 10 times forward earnings, indeed close to the lowest levels we've seen in 20 years," observed Wolf. "But using our $620 forecast, the market is trading at more than 13 times forward earnings, no cheaper by this metric than has generally been the case over the past several years."

Wolf may be known for his bearish views, but even traditional equities bulls are advising investors to tread cautiously. Among them is Paul Taylor, chief investment officer for BMO Harris Private Banking, who warns the first half of 2009 will be "very challenging" for capital markets.

"As a result we plan to only be a very selective buyer of Canadian equities early in the year," stated Taylor. "However, as economic growth re-ignites, there will be an opportunity for a rotation into more cyclical stocks and sectors."

Even allowing for that smidge of optimism, Taylor's cautious stance is a marked shift from last April when he predicted the outlook for equities would improve during the second half of 2008.

Taylor, however, is not the only Bay Street veteran altering forecasts in the face of deepening economic woes. Jeff Rubin, chief economist of CIBC World Markets, recently pared his 2009 year-end TSX target by 1,000 points to 11,000. In doing so, he counselled clients to "think twice before bulking up on stocks just yet."

Last June, Rubin predicted that strong crude oil prices would spur the TSX to hit a record high of 15,200 by the end of 2008. It didn't quite make it, but came within spitting distance as commodity prices soared.

As oil prices reversed course, however, he slashed his short-term target to 9,500 and then again to 9,000 on Dec. 10. The TSX actually ended 2008 at 8,987.70 points.

"We continue to expect the North American economy to contract over the first half of the year, with near-term punitive consequences for earnings," Rubin said, suggesting that investors "going long stocks now should be prepared for more jolts along the way."

Despite the darkening economic outlook, Rubin does hold out hope that "more than reasonable" returns could be generated over the next 12 months. His prediction largely hinges on plans for a mammoth fiscal stimulus from the American government. Such measures, he said, "should resuscitate growth by the second half of the year, spelling a recovery in both earnings and commodity prices, particularly energy."

Vincent Delisle, director of portfolio strategy at Scotia Capital, also suggests the long-term equity outlook is poised to improve even if the not-so-distant future looks dim.

"Since Canada's economy and equity market lag the U.S. by approximately 12 to 18 months, 2009 will be the year where Canada's numbers visibly deteriorate," Delisle said. "Our 2009 TSX EPS forecast is set at $650, pointing to a 32 per cent decline in TSX earnings."

Delisle suggests that S&P 500 earnings will likely rebound before those of the TSX. With that being his "index of choice," his "defensive" sector preferences include financials, discretionary, consumer staples and utilities.

He agrees it may be too soon to call a definitive bottom, but observes that past bear markets have either rebounded or fell into a trough during recessions rather than times of economic recovery. Historical data suggest S&P 500 bear markets typically end about eight months before the job market heals.

CIBC economists Peter Buchanan and Meny Grauman, meanwhile, suggest the TSX's bottom could be nigh if the United States manages to muster an economic recovery during the back half of 2009.

"The good news is that since the 1920s Canadian stocks have tended to bottom between three and nine months before the end of a U.S. recession, with the median being around five months," they wrote.

"True, the economic challenges facing the country are nearly unprecedented, but so too is the accompanying government response."