The Dow Jones industrial average was up 200.56
points, or 1.76 percent, at 11,597.56. The Standard & Poor’s
500 Index was up 26.36 points, or 2.20 percent, at
1,227.22. The Nasdaq Composite Index was up 41.82
points, or 1.60 percent, at 2,656.74.
THE GLOBE AND MAIL:— Unable to walk a picket line as strikers, Air Canada flight attendants decided to protest outside the
Calgary constituency office of Prime Minister Stephen Harper on
Monday.Decked out in purple, their union’s colour, about 50 flight
attendants turned up at a suburban strip mall to demonstrate
against the federal government’s decision to prevent a strike at
the country’s largest carrier.— There may be some relief for Quebec Liberals waiting in
anticipation for an expected announcement on Tuesday by their
leader Premier Jean Charest that he has finally bowed to public
pressure and will hold an inquiry into corruption in the
construction industry.Report on Business Section:— After a year of stumbles, Jim Balsillie is predicting a
turnaround for Research In Motion Ltd . The
BlackBerry maker’s co-chief executive officer, under siege from
investors and customers after a series of public missteps, says
the company will finally deliver an answer to its legions of
critics on Tuesday as it opens up a crucial conference for
software developers in San Francisco.— The U.S. Federal Reserve’s drive to push down interest
rates is taking a dramatic toll on Sun Life Financial Inc
, forcing one of Canada’s biggest life insurers to warn
of its first quarterly loss in two years.Sun Life said it expects to post a C$621 million loss for
the July-September period when it officially reports its
financial results on Nov. 2.NATIONAL POST:— Canada will press ahead with billions of dollars in cuts
to wipe out its budget deficit, despite an uncertain world
economic outlook, and may even reduce spending more deeply than
already promised, the federal minister in charge of the program
said on Monday.— The New Democratic Party has returned money donated in
memory of former leader Jack Layton, which was supposed to be
redirected to a left-wing think-tank that has yet to open.Financial Post section:— Finance Minister Jim Flaherty tore a strip off European
political leaders on Monday for dithering while their economy
has faltered, putting the entire world in jeopardy of another
recession.— Canada’s heavyweight energy sector is expected to deliver
strong third-quarter results starting this week, but with stock
prices dragged down by the eurozone crisis and the economic
outlook uncertain, the coming months could see a return to
cautious spending and more takeover activity.
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Rio Tinto has taken a bold step into aluminum rehab. The mining giant plans to sell off roughly a third of its business in the metal, most of which was acquired in a disastrously expensive merger with Canada’s Alcan in July 2007. The timing of the purchase was undoubtedly terrible. Now is probably as good a time as ever to make some amends.
The price of aluminum halved within two years of Rio buying Alcan, and, unlike copper and iron ore, has not fully recovered. Aluminum is not in short supply. Also, producers without good long-term electricity contracts have to deal with a margin squeeze. Power prices are high and, economically, aluminum is more like condensed electricity than refined bauxite. Longer term, the metal’s profit potential is limited by the ability of China, the biggest consumer and producer of aluminum, to use its abundant cheap energy to pursue self-sufficiency.
Rio has more attractive opportunities, most notably in iron ore. That business made up 68 percent of Rio’s earnings from 42 percent of revenues in 2010. Aluminum looks like iron ore’s evil twin: it provided 5 percent of earnings from 27 percent of revenues, and EBITDA margins overall are half the 40 percent Rio has targeted.
Rio is not selling enough to change its profile. Assume it disposes of assets which would otherwise have provided a third of Rio’s $21 billion of forecast aluminum revenues for 2012, based on Credit Suisse estimates which assume a slightly higher aluminum price than today’s. With an EBITDA margin of 20 percent and rival Alcoa’s 5.6 times multiple, Rio might take in $8 billion, 7 percent of the current market capitalisation.
Even that may be ambitious, since Rio is selling its costlier and dirtier plants, keeping those with captive and clean energy supply. Still, keeping its most competitive assets looks sensible, in case prices rise. And investors will welcome the nod towards financial discipline. Four years on, Alcan still looks like a mistake, but it is at least one that’s getting smaller.
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Rio Tinto has taken a bold step into aluminum rehab. The mining giant plans to sell off roughly a third of its business in the metal, most of which was acquired in a disastrously expensive merger with Canada’s Alcan in July 2007. The timing of the purchase was undoubtedly terrible. Now is probably as good a time as ever to make some amends.
The price of aluminum halved within two years of Rio buying Alcan, and, unlike copper and iron ore, has not fully recovered. Aluminum is not in short supply. Also, producers without good long-term electricity contracts have to deal with a margin squeeze. Power prices are high and, economically, aluminum is more like condensed electricity than refined bauxite. Longer term, the metal’s profit potential is limited by the ability of China, the biggest consumer and producer of aluminum, to use its abundant cheap energy to pursue self-sufficiency.
Rio has more attractive opportunities, most notably in iron ore. That business made up 68 percent of Rio’s earnings from 42 percent of revenues in 2010. Aluminum looks like iron ore’s evil twin: it provided 5 percent of earnings from 27 percent of revenues, and EBITDA margins overall are half the 40 percent Rio has targeted.
Rio is not selling enough to change its profile. Assume it disposes of assets which would otherwise have provided a third of Rio’s $21 billion of forecast aluminum revenues for 2012, based on Credit Suisse estimates which assume a slightly higher aluminum price than today’s. With an EBITDA margin of 20 percent and rival Alcoa’s 5.6 times multiple, Rio might take in $8 billion, 7 percent of the current market capitalisation.
Even that may be ambitious, since Rio is selling its costlier and dirtier plants, keeping those with captive and clean energy supply. Still, keeping its most competitive assets looks sensible, in case prices rise. And investors will welcome the nod towards financial discipline. Four years on, Alcan still looks like a mistake, but it is at least one that’s getting smaller.
“There has to be action taken on solar,” Representative
Sander Levin said at a news conference to call for a vote on
legislation aimed at China’s currency practices.The U.S. solar industry has been hit hard by competition
from China and other countries, which offer cheap financing and
forms of subsidy to support the sector.Last month, U.S. solar panel maker Solyndra filed for
bankruptcy, burdened with $783 million of secured debt and
squeezed by falling prices for solar panels caused by an
industry glut.Its downfall has become a political embarrassment for the
Obama administration, which had promoted it as an example of
how it planned to spur development in clean energy technology
and provided a government guarantee on a $535 million that
Solyndra has said it may not repay in full.Levin, who met with solar industry representatives earlier
on Friday, warned that without government intervention there
could be no American-made solar panels within five years.Levin, a senior Democrat in the House of Representatives,
told reporters one option would be to impose “safeguard”
tariffs on Chinese-made solar panels, similar to duties
President Barack Obama placed on Chinese-made tires.However, Levin said he was also concerned about government
subsidies that South Korean and other producers receive, which
suggests a broader approach could be required.Senator Ron Wyden, an Oregon Democrat, has also pressed the
Obama administration to take action against unfair trade in
solar panel imports, either through the World Trade
Organization or by using U.S. anti-dumping or countervailing
duty laws.
* Some Iran experts are skepticalBy Angus McDowall and Sylvia WestallDUBAI/VIENNA, Oct 13 (Reuters) - Saudi Arabia said on
Thursday it was weighing its response to an alleged Iranian plot
to assassinate its ambassador in Washington that has increased
tensions between OPEC’s two top oil producers.Saudi Foreign Minister Prince Saud al-Faisal, on a visit to
Austria, said the kingdom would have a “measured response” to
the alleged plot. Iran called the accusations a fabrication
designed to hurt its relations with its neighbours.”We hold them (Iran) accountable for any action they take
against us,” Prince Saud said in Vienna, where he was discussing
opening a religious dialogue centre. “Any action they take
against us will have a measured response from Saudi Arabia.”Prince Saud said this was not the first time Iran had been
suspected of similar acts, and condemned Tehran for trying to
meddle in the affairs of Arab states. Asked what actions Saudi
Arabia might take, he said: “We have to wait and see.”U.S. authorities said on Tuesday they had uncovered a plot
by two Iranian men linked to Tehran’s security agencies to hire
a hitman to kill ambassador Adel al-Jubeir with a bomb planted
in a restaurant. One man, Manssor Arbabsiar, was arrested last
month while the other is believed to be in Iran.Some Iran experts were sceptical, saying they could not see
the motive for such a plot. Iran has in the past assassinated
its own dissidents abroad, but an attempt to kill an ambassador
of another country would be a highly unusual departure.Iran has denied the charges and expressed outrage, saying
the allegations threaten stability in the Gulf — where Saudi
Arabia and Iran, the biggest regional powers, are fierce rivals
and Washington has a huge military presence.U.S. President Barack Obama spoke on Wednesday to Saudi King
Abdullah about the alleged plot, the White House said.”The president and the king agreed that this plot represents
a flagrant violation of fundamental international norms, ethics,
and law,” the White House said in a statement issued by press
secretary Jay Carney.Earlier Carney told reporters: “We’re responding very
concretely with actions we know will have an impact on Iran and
will make clear this kind of behavior is unacceptable and will
further isolate Iran.”In Britain, Foreign Secretary William Hague told parliament
the alleged plot “would appear to constitute a major escalation
in Iran’s sponsorship of terrorism outside its borders”.”We are in close touch with the United States’ authorities
and will work to agree an international response along with the
United States, the rest of the European Union and Saudi Arabia,”
he said.Relations between Saudi Arabia and Iran soured after the
1979 revolution that brought Shiite Muslim clerics to power on
the other side of the Gulf. Sunni Saudi Arabia and Shi’ite Iran
consider themselves protectors of Islam’s two main rival sects.The rift sharpened this year after Saudi Arabia deployed
troops to the Gulf island kingdom of Bahrain to crush a
Shi’ite-led uprising there.FOMENTING VIOLENCESaudi Arabia has also accused Iran of fomenting violence in
its own Eastern Province, where the kingdom’s Shi’ite minority
is concentrated.In a particularly strong-worded statement, Saudi Arabia’s
official SPA news agency quoted an un-named official source as
condemning what it called “the outrageous and heinous”
assassination plot and said the kingdom.”The kingdom, for its part, is considering decisive measures
and steps it would take in this regard to stop these criminal
actions and to decisively confront any attempt to undermine the
stability of the kingdom, threaten its security and spread
sedition among its people,” the statement said.On Wednesday, Saudi Prince Turki al-Faisal, a former chief
of Saudi intelligence, said there was overwhelming evidence of
Iranian official involvement in the plot.Iran’s parliament speaker, Ali Larijani, called the charges
an American fabrication.”America wants to divert attention from problems it faces in
the Middle East, but the Americans cannot stop the wave of
Islamic awakening by using such excuses,” Larijani said in an
open session of parliament.Prince Saud said all information Saudi Arabia has indicates
that Tehran was responsible.”It is not the first time Iran has done something like this
in order to mix itself up in Arab affairs,” Prince Saud said,
adding that a similar attempt was made in Kuwait, where a group
suspected of planning an attack was arrested.”Iran must understand there is only way for international
cooperation between countries — and this is through the respect
and adherence to international laws and people’s rights.”The alleged plot was revealed shortly before Saudi Arabia
said King Abdullah, believed to be 88, would in coming days
undergo surgery in Riyadh for a back problem.
* Q4 bookings seen above Q3 level of 514 mln euros* Confirms sees 2011 sales at record 5.5 billion euros* Shares up 0.7 pct at 1110 GMTBy Roberta CowanAMSTERDAM, OCT 12 - Dutch chip equipment maker ASML
said it saw signs of slowing growth in the
semiconductor industry except in the technology needed to
produce tablets and smartphones, and avoided making predictions
for its own performance next year.A bellwether for Europe’s technology sector, ASML is the
world’s largest maker of semiconductor lithography machines
which map out electronic circuits on silicon wafers, competing
with Japanese groups Canon and Nikon and
counting Samsung Electronics , Taiwan Semiconductor
Manufacturing and Intel among its customers.”I think 2012 will be a difficult year to say anything about
right now; this is because we are listening to our customers,”
said Chief Financial Officer Peter Wennink in a company video
released with third-quarter results on Wednesday.Wennink added that the slowdown in the semiconductor
industry was evident from ASML’s fourth-quarter order book.ASML, which has a global market share of about 70 percent,
said it saw fourth-quarter orders above the third-quarter level
of 514 million euros, but declined to be more specific.Analysts surveyed by Reuters had expected fourth-quarter
bookings of between 500 and 700 million euros.ASML said customers were continuing to upgrade technology
for chip manufacturing but wasn’t more specific about what
orders it expected in the last three months of the year.Some analysts were relieved that orders were at least
rising, rather than falling.”ASML’s third-quarter results are quite solid, with
fourth-quarter order intake slightly better than expected,” said
Victor Bareno from SMS Securities in Amsterdam, adding that the
report gave “some confidence that ASML isn’t falling off a
cliff.”ASML’s shares rose over 4 percent in early trade on
Wednesday but by 1110 GMT had pared earlier gains, trading up
0.7 percent at 27.20 euros.”Even with the current high volatility and market
conditions, I believe ASML has the visibility to improve the
fourth-quarter order book by more than 100 million euros,”
Bareno added.Other analysts were less optimistic.”For us to be relieved, we’d want to see a higher
fourth-quarter order book and some visibility for next year,”
said Richard Windsor from Nomura in London.”ASML is setting out a worst case scenario because basically
we really don’t know what will happen next year. Technology
upgrades will happen even if there’s no new demand, but they
don’t know what will happen in 2012 as far as capacity expansion
goes,” added Windsor.Wennink said ASML had become flexible enough to cut its cost
base by up to 20 percent within six months, if necessary.ORDER BOOK A BEACON FOR TECH SECTORASML’s order book development serves as a barometer for the
expectations of big chip makers such as Intel Corp , the
world’s largest, and Taiwan Semiconductor Manufacturing
, the world’s biggest contract chip maker.”It is too early to understand how overall demand for
semiconductors will contribute to our business in 2012, but we
believe that a sustained need for leading-edge systems … will
likely result in increased fourth-quarter bookings, compared
with Q3,” Chief Executive Eric Meurice said in a statement.Wennink said the smaller, faster, smarter chips found in the
latest mobile devices including smartphones and tablet computers
will continue to drive demand for the leading-edge equipment
used for producing those smart chips.Industry experts estimate the most advanced chips found in
tablets and smartphones amount to about 20 percent of the
semiconductor sector.Global chip makers and foundries have been battling falling
demand as the industry was hit by economic uncertainties, supply
chain disruptions due to the March earthquake in Japan, and
customer inventory adjustments.While Apple has prospered from demand for its iPads
and iPhones, and the Galaxy smartphone series has become
Samsung’s main profit engine, growth in the
traditional personal computer market has plummeted.Last month, research firm Gartner said semiconductor
inventories were too high and it expected the sector to go
through a moderate inventory correction in the next few quarters
with production and sell-through expected to return roughly to
balance by the second quarter of 2012.Some chip makers have reportedly said they will cut capital
spending in 2012 amid low visibility in the sector and lower
growth expectations in some chip markets next
year.ASML said it expects fourth-quarter sales to be above 1.1
billion euros. In the third quarter it made a net profit of 355
million euros, up 32 percent from a year ago, on sales up 24
percent at 1.459 billion euros.It reiterated its 2011 sales forecast of 5.5 billion euros.Intel is seen posting revenue at the low end of its forecast
range when it releases third-quarter earnings on Tuesday.
The firms, who were cautiously optimistic or bullish through the summer selloff, have turned bearish just as the market seems to be clawing back.Between September 18 and October 6, several Wall Street houses who mostly stood pat through months of market volatility and heavy declines finally decided enough is enough.Morgan Stanley Smith Barney, Wells Fargo Advisors and UBS have scaled back their portfolios’ exposure to equities in the past three-and-a-half weeks, shifting away from stocks and into fixed income and cash.Meanwhile, the S&P 500 Index had its biggest rally in nearly six weeks on Monday and has gained 8.8 percent in the past six trading days.Despite that, investment officers at the firms say they don’t believe governments in Europe and the U.S. are doing enough to address the crushing debt undermining their financial systems.Investment managers said they believe the ongoing uncertainty and wild market swings are here to stay. What’s more, the volatility suggests to some investment strategists that another recession is increasingly likely.European leaders have been meeting for months to address the debt crisis plaguing the continent. What little progress there has been is not happening fast enough, said Jeff Applegate, chief investment officer at Morgan Stanley Smith Barney, the brokerage arm of Morgan Stanley.European Central Bank President Jean-Claude Trichet warned on Tuesday that the crisis had “reached a systemic dimension.”At the same time, in the U.S. the government has been unable to get much accomplished, Applegate said. For example, President Obama’s jobs-creation package was defeated in the U.S. Senate on Tuesday.”You have seen a lot of change since August,” Applegate said. “And the policy responses have not been swift enough or large enough.”On October 6, Morgan Stanley Smith Barney shifted the allocation of its portfolios from overweight on global equities, commodities and real estate investment trusts to underweight, while going overweight from underweight on cash and global bonds.BIG SHIFT”This is a big shift for us, the biggest we have made since April 2009,” Applegate said. At that time the firm shifted to overweight equities as the markets rebounded after the financial crisis.One major factor in Morgan Stanley Smith barney’s decision to cut back on risk was a September 21 report by the Economic Cycle Research Institute predicting a recession. ECRI has successfully predicted the past four U.S. recessions.On October 1, Wells Fargo Advisors, the brokerage arm of Wells Fargo & Co. went from neutral to underweight on its equity exposure in its cyclical asset allocation portfolios.Wells, which reevaluates its portfolios on a quarterly basis, first reduced its equity exposure slightly in April, but cut exposure even further this month due to fears about the European debt crisis, said Stuart Freeman, chief equity strategist at Wells Fargo Advisors.The firm in April shifted its moderate growth & income portfolio to 58 percent in equities from 63 percent. This month, the fund decreased its share of equities again, to 45 percent.Wells Fargo Advisors now predicts a 35 percent chance for a U.S. recession, up from a 20 percent chance four months ago, Freeman said. The chances of a recession in Europe, according to the firm: 40 percent, up from 25 percent a few months ago.Similarly, UBS shifted its portfolios from neutral to underweight equities on September 18.”We felt that the fundamental issues affecting the markets had not been resolved,” said Mike Ryan, head of research for wealth management at UBS. Ryan doesn’t think the United States is necessarily headed for a recession.”We think you will see choppy, sluggish growth,” he said.Of course, not every firm is scaling back on equities. Equity strategists at Bank of America Merrill Lynch - whose logo is a bull — are maintaining their overweight position on equities, albeit a “moderate” overweight position, said Kate Moore, global equity strategist at Bank of America Merrill Lynch.She said that too many investors have held too small a position in equities since the market crash of 2008 and missed the rally. Furthermore, she said she believes Europe is closer to coming up with a solution for its problems.”We are seeing a willingness of policy makers in Europe to put things together,” she said.Bank of America Merrill Lynch’s economists forecast U.S. GDP growth of 2.5 percent for the third quarter, she said.”That’s a far cry from the two quarters of negative GDP growth that define a recession,” Moore said.
