Tuesday, July 11, 2006, 4:15 PM EST (Thomson Financial Corporate
Services): The Bank of Canada was an island of stability in an otherwise
nervous market day, marked by terrorist attacks in India and problems in
the Iranian nuclear proliferation talks. The Bank kept rates at 4.25% in a
vote of confidence in the Canadian economic outlook, calming fears of
inflation. Meanwhile, U.S. shares managed small gains despite some
disappointment in Alcoa's quarterly release.
* The S&P/TSX Stock Exchange Composite Index surged 138.25 points, or
1.19%.
* The Bank of Canada, after seven consecutive rises, held lending rates
steady at 4.25% today. When confronted with strong economic data on jobs,
housing, and wages, the Bank chose to keep the rate level; many analysts
had believed that they would raise it to stem growing inflation. Economists
are now waiting to see if the BoC's holding pattern will continue when the
next decision arrives on September 6; the rate was 2.0% a year ago.
* June housing start data from Canada Mortgage and Housing Corporation
indicated a better-than-expected rise of 4.5%. This represents 232,200
units, in contrast to May's revised figure of 222,200 and above analyst's
expectations of 221,500.
* The loonie slipped at the BoC's news. Its strength had been one of
the reasons the Bank cited for maintaining the rate: "The additional
strength that has developed in domestic demand is expected to persist into
next year, but this should be more than offset by a weaker outlook for net
exports, owing primarily to the recent strength of the Canadian dollar."
* Xstrata raised the stakes again in its hostile bid for Falconbridge,
raising its all-cash offer to C$59 per share from C$52.50; rival Inco,
offering shares instead, claims its bid is worth C$61.65 per share as of
today. Waiting in the wings, suitor Phelps Dodge said it was not surprised
at the raise but still believed "that the three-way agreed deal ... will
provide the greatest long-term value for Falconbridge shareholders as well
as net benefits to Canada that would not be available under Xstrata's
hostile offer." Inco made a similar statement regarding its own offer for
Falconbridge.
* "Nonsense" and "nothing new" was the reaction of Ian Delaney, the
chairman of nickel-importer Sherritt International, to a promised American
crackdown on nickel exports from Cuba as part of a program by the
Commission for Assistance For a Free Cuba. The Commission maintains that
nickel, the market for which is approaching an all-time high, accounts for
nearly half the Communist regime's revenues. Sherritt operates a joint
venture with the Cuban government that mined 34,000 tons of nickel last
year, and is expected to increase that output by 50% with a new facility
expansion at its Moa Bay plant. Mr. Delaney and top Sherritt execs are
already barred from the U.S. because of their defiance of the 1996
Helms-Burton Act; analysts say that actually stopping the flow of nickel
from Cuba to Canada would be very difficult.
* U.S. earnings reports are emerging once again, with Alcoa kicking off
the unofficial start of earnings season. Alcoa was the biggest percentage
decliner within the Dow industrials, after the aluminum giant's revenue for
the second quarter fell shy of analyst expectations even as it reported a
62% jump in profit. Local rival Alcan also fell in sympathy.
* In U.S. tech news, Lucent warned that its quarterly revenue would be
about US$300 million less than Wall Street expected. Its earnings-per-share
result also will lag estimates. The maker of telecom equipment was hurt by
weak sales in the U.S. and China. Nonetheless, the stock received an
upgrade to "buy" from "hold" from Citigroup, which predicted benefits from
the company's planned merger with French telecom producer Alcatel. Nortel
Networks edged lower on the day.
* Crude oil edged US$0.55 to close at US$74.16 as markets were spooked
by terrorist attacks on the Mumbai rush-hour trains and setbacks in the
Iranian nuclear energy talks.
* Gold soared US$17 to US$643.10 as investors, also rattled by the
tragedy in Mumbai, again sought safe refuge in the yellow metal.
-- Carolyn.Crapo@contractor.Thomson.com; Thomson Financial Corporate
Services
This is Thomson Financial Corporate Services Canadian Commentary, which
is updated twice daily. The information herein is believed to be true and
accurate, we take no responsibility for inaccurate information and reserve
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SOURCE Thomson Financial Corporate Group
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