Finance and Economic

The Toronto stock market could find some lift at the open from higher mining stocks Thursday as copper prices pushed deeper into record territory.

The Canadian dollar was ahead 0.05 of a cent against the American currency to US99.99 cents.

U.S. futures indicated a lower open ahead of economic data on manufacturing, housing and employment with the Dow Jones futures down 12 points to 11,520, the Nasdaq futures slipped a point to 2,228 while the S&P 500 futures declined 1.50 points to 1,254.

Investors will take in weekly unemployment insurance claims along with a Midwest manufacturing index and a report on pending home sales.

The March copper contract gained six cents to US$4.37 a pound. Prices for the metal resumed climbing following a pause Wednesday in the wake of data showing China

Stocks are pointed to early gains as the market heads into the last few days of trading before the new year.

The market is expected to be buoyed by a spate of positive economic news in recent weeks, though economic data released Tuesday showed that consumers are still fretting about high unemployment.

Overseas markets in China and Germany were also performing well.

Ahead of the opening bell on Wednesday, the Dow Jones industrial average futures are up 12 points, or 0.1 percent, to 11,521. S&P 500 futures are up 1.3, or 0.1 percent, to 1,255. Nasdaq composite futures are up 5.5, or 0.2 percent, to 2,231.

Traders will closely watch the U.S. Treasury’s auction of $29 billion in 7-year notes on Wednesday, following a disappointing sale of Treasury notes on Tuesday that sent bond prices lower.

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Confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011.

The Conference Board’s confidence index unexpectedly fell to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the New York-based research group showed today. Another report showed home values dropped more than economists projected.

The loss of confidence is at odds with a report from the University of Michigan that showed sentiment improved to a six- month high in December, and with data showing holiday spending posted the biggest gain in five years. Federal Reserve policy makers this month said “depressed” housing and high unemployment remained constraints on consumer spending, supporting their plans to expand record monetary stimulus.

“We should watch what consumers do and not what they say,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut. “If you looked at the confidence data you wouldn’t have looked for the pace of spending to accelerate as much as it has. Consumers are still very cautious and very nervous about where the labor market is headed.”

Stocks rose, led by rising shares of commodity producers as energy and metal prices climbed. The Standard & Poor’s 500 Index increased 0.1 percent to 1,258.51 at the 4 p.m. close in New York. Treasury securities fell, pushing the yield in the benchmark 10-year note up to 3.49 percent from 3.33 percent late yesterday.

Rising Sales

Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance since 2005, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. That compared with a 4.1 percent gain a year earlier. The numbers include Internet sales and exclude automobile purchases.

The median forecast for confidence, based on a survey of 61 economists, projected confidence would increase to 56.3. The Conference Board revised the November figure to 54.3 from a previous estimate of 54.1. Projections ranged from 53 to 60. The index averaged 96.8 during the last economic expansion that ended in December 2007.

Today’s report stands in contrast to preliminary figures from Thomson Reuters/University of Michigan which showed sentiment climbed this month as the share of Americans citing an improvement in current conditions climbed to the highest level since January 2008.

Drop ‘Surprising’

“The fact confidence moved lower is a bit surprising given the other data we have observed for the month,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. “Month-to-month changes in confidence are not well correlated with those in spending. Reports from retailers as well as data on spending have been upbeat. We would give those more weight.”

The S&P/Case-Shiller index of property values fell 0.8 percent in October from the same month in 2009, the biggest year-over-year decline since December of last year, the group said today payday advance. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed.

“Despite the fact that housing will remain at pretty low levels through next year, economic growth in general will be fairly robust,” Maki said on Bloomberg Television’s “Market Pulse” with Pimm Fox. Maki said he expected growth in a range of 3 percent to 3.5 percent next year.

Home Values

The home-price gauge fell 1 percent in October from the prior month after adjusting for seasonal variations, matching September’s drop which was larger than previously estimated.

Eighteen of 20 cities showed a decrease in prices in October, led by a 2.1 percent drop in Atlanta, and decreases of 1.8 percent each in Chicago and Minneapolis. Denver and Washington were the only two that posted gains.

Six markets, including Atlanta, Charlotte, Miami, Seattle, Tampa and Portland, Oregon, reached their lowest levels in October since prices started to retreat in 2006.

“The double-dip is almost here,” said David Blitzer, chairman of the index committee at S&P. Sales aren’t “giving any sense of optimism.”

According to the Conference Board, the share of consumers who said jobs are hard to get increased to the highest level since February.

Those expecting more jobs to become available in the next six months reached the lowest level since July, while the proportion who expected their incomes to rise over the next six months also fell.

Jobs Gains

Employers added 951,000 workers to payrolls in the first 11 months of the year, according to figures from the Labor Department. December data are due Jan. 7.

The gains haven’t been large enough to reduce unemployment, which was at 9.8 percent last month after finishing 2009 at 10 percent.

President Barack Obama on Dec. 17 signed into law an $858 billion bill that extends for two years Bush-era tax cuts for all income levels, continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes during 2011.

Some Americans are more willing to make big-ticket purchases. Car sales in November rose to a 12.26 million unit pace, the highest since the government’s cash-for-clunkers program in August 2009, industry data showed this month. Demand over the past three months is the strongest in two years.

“We have a high degree of confidence that 2011 is going to be a stronger sales year,” George Pipas, Ford Motor Co.’s sales analyst, said in a Dec. 20 briefing with reporters in Dearborn, Michigan, where the company is based. “We’re a whole lot better off than we were a year ago.”

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NEW YORK, N.Y.

Companies are using extra cash built up during the recession to repurchase stock, moves that are likely to please investors who see the value of their shares rise.

But the buyback surge may not please President Barack Obama, who is urging companies to instead use surplus cash to hire more workers, hoping to generate jobs to sustain the economic recovery.

Standard & Poor’s reported Monday that stock repurchases by S&P 500 companies more than doubled to $79.6 billion in the July-to-September period from $34.9 billion in last year’s third quarter.

It was the fifth consecutive quarter of increasing buyback activity among the 500 largest publicly traded companies, many of them with substantial cash holdings built up during and after the recession that officially ended in mid-2009.

Stock buybacks indicate companies have enough cash to take their shares off the market, which increases the value of investors’ remaining shares and boosts per-share earnings results.

Buyback growth in the latest quarter “marks the full return of corporate participation in the equity markets,” S&P analyst Howard Silverblatt said. “While we do not expect a return to the 2005-2007 buyback bonanza, we do see this as a strong, positive sign for the overall health of the market.”

However, stock repurchases aren’t rebounding as rapidly as they were earlier. The latest quarter’s buyback figure is up just 3 percent from the second quarter’s total of $77.6 billion. That’s a significant slowdown from double-digit percentage increases in each of the preceding four quarter-to-quarter comparisons.

Obama met at the White House last week with 20 CEOs, urging corporate America to shake loose $1.9 trillion in untapped cash and create more jobs by hiring and investing in their businesses. Obama is trying to cut a national unemployment rate that rose to 9.8 percent in November and is slowing the broader economic recovery.

But many companies are reluctant to take cash off the sidelines, fearing consumer demand for the goods and services they provide is still too meager to support more hiring or capital spending payday loans. Companies also are reluctant to spend until the outlook for new government regulations becomes more clear. The latter worry could ease because of last week’s congressional agreement to keep in place Bush era tax rates.

When companies build up cash from rising profits, their options include hiring more workers, investing in capital spending or acquisitions, buying back stock, and raising dividends paid to shareholders. Many companies have been opting for the latter two, which please shareholders.

Much of the recent buyback surge has been driven by technology companies, which fared better than most corporations through the recession because they entered it with relatively little debt and have seen demand for their products hold up. In the latest quarter, information technology companies, including Microsoft Corp., Hewlett-Packard Co. and IBM Corp., made up nearly 29 percent of all buybacks, up from 27 percent in the second quarter.

Wal-Mart Stores Inc. and Exxon Mobil Corp. were among the other names making large buybacks in the latest quarter.

Health care companies repurchased less stock, with their share of buybacks slipping to 13 percent in the third quarter from 19 percent in the second.

Silverblatt expects a slight overall increase in buybacks in the fourth quarter. For the first part of next year, he expects companies will continue to be cautious and refrain from purchasing an excessive amount of shares.

Dividend payouts by U.S. corporations also are expected to rise this year. Third-quarter dividend payouts totaled $51.3 billion for S&P 500 companies and are nearly back to their first-quarter 2009 level of $51.7 billion.

But Silverblatt said payouts likely won’t return to 2008 levels until 2013.

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Copper and U.S. stocks retreated amid concern that demand from China will slow, while the U.S. dollar weakened against Australian and New Zealand counterparts as reports showed increased orders for durable goods. Oil rose.

Copper futures retreated 0.4 percent to $4.2585 a pound, while the Standard & Poor’s 500 Index slipped 0.2 percent to 1,256.77 at 4 p.m. New York time after a five-day rally drove its valuation to 15.7 times reported earnings, the highest since June. The U.S. dollar fell 0.5 percent versus Australia’s currency, 0.9 percent against New Zealand’s and 0.7 percent compared with the yen. Crude oil futures climbed 1.1 percent to $91.51, the highest settlement price since October 2008.

London Metal Exchange data show copper inventories rose for a ninth straight day, reaching the highest level since Oct. 29, signaling slowing demand. China is the world’s biggest metals user. Orders for U.S. capital equipment rebounded in November, sapping demand for the American currency today. The S&P 500 stalled after climbing to a two-year high.

“The economic data points that we’re getting are good on balance, but not madly positive,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees $342 billion. That could explain the muted response of investors. There’s downward pressure on commodities. That should weigh on today’s light action.”

U.S. stock markets are closed tomorrow in observance of the Christmas holiday. Volume on exchanges amounted to less than 4.6 billion shares, the lowest total for a full day this year.

Homebuilders Fall

Lennar Corp. and KB Home dropped at least 4.1 percent in U.S. stock trading after a government report showed that fewer new homes than forecast were sold in November payday lenders. Bank of America Corp. slumped 2.4 percent after a judge gave MBIA Inc. permission to use statistical sampling, rather than going through every loan, in a fraud lawsuit. Micron Technology Inc. lost 4.1 percent as the largest U.S. maker of computer-memory chips reported fiscal first-quarter sales that missed analysts’ estimates.

The S&P 500 completed its recovery this week from the 46 percent plunge that followed Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 as government data showed that the world’s largest economy grew at a faster pace in the third quarter than previously estimated. The stock index rallied 6.6 percent in December through yesterday after posting a combined gain of 13 percent in September and October, the biggest increase during those months since 1998.

Confidence among newsletter writers that U.S. stocks will rally has risen to the highest level since the middle of October 2007, the week after the S&P 500 and the Dow climbed to records. The proportion of bullish publications tracked by Investors Intelligence jumped to 58.8 percent on Dec. 21 from 56.8 percent a week earlier, the firm said yesterday. Sentiment has improved since October 2008, when the financial crisis drove the figure to a 20-year low of 22.2 percent.

“Optimism on stocks got very high yet people are afraid to short the market,” said Mark Bronzo, who helps manage $21 billion at Irvington, New York-based Security Global Investors. “The economy is growing at a moderate pace, but most data points are moving on the right direction. The U.S. will likely surprise positively.”

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Apple’s iPhone is widely expected to come to Verizon Wireless next year. Here’s the surprise twist: That won’t spell disaster for AT&T.

AT&T (T, Fortune 500) has been pounded for years about its network struggles, which recently got it crowned "worst carrier" in America in a Consumer Reports survey. IPhone addicts are often the company’s most vocally unhappy customers.

But AT&T isn’t sweating bullets about the prospect of customers fleeing en masse when its exclusivity deal with Apple (AAPL, Fortune 500) comes to an end.

The telecom giant — and many of the industry analysts who cover it — predict that the vast majority of AT&T’s roughly 20 million iPhone customers will stick with the wireless carrier.

AT&T had the strategic foresight to lock most of them into long-term contracts lasting deep into 2011 and beyond. That makes it painful for those subscribers to switch to another carrier — and makes the Verizon iPhone pill much easier for AT&T to swallow.

Here’s a closer look at why AT&T doesn’t have to worry too much about its upcoming iPhone rival:

Early upgrades: Over the past six months, AT&T enticed millions of its iPhone customers to lock themselves into new two-year contracts by offering early upgrades.

When Apple started selling the iPhone 4 in June, AT&T allowed any customer whose contract was running out at any point in 2010 to get the new iPhone for $199, instead of the typical $599 price for customers in the middle of their contracts. The catch: Customers had to sign a new long-term contract.

In the first three months that the iPhone 4 was on sale, AT&T locked in 5.2 million customers. Analysts expect the company to have reeled in millions more during this quarter.

"AT&T knew the window of exclusivity would collapse, so there was a very explicit effort on AT&T’s part to give customers an expanded window of time to get the subsidy on the iPhone," said Charles Golvin, analyst at Forrester Research. "It was quite successful in locking those customers in."

It’s really expensive to switch: Customers under contract will need to fork over a $325 "early termination fee" to AT&T if they switch. It’s prorated, but each each month of completed service knocks just $10 off the tab.

That’s not all. AT&T’s iPhone customers will also need to buy a whole new iPhone if they want to switch to Verizon (VZ, Fortune 500). That’s because the two carriers operate on a different technology standard, and the chip in AT&T’s iPhone is not compatible with Verizon’s network.

If you bought a new iPhone 4 on AT&T when it came out in June and then switch to Verizon in early 2011, you’ll have shelled out around $645 for iPhones in a matter of months — $200 for the AT&T iPhone 4, about $200 for the essentially identical Verizon iPhone 4, and $245 or so for the early termination fee.

Switching is particularly painful for those with family plans, since they have to buy all new phones for their whole family. AT&T says 80% of its customers with integrated devices — a category that includes the iPhone — are on "Family Talk" or business plans.

AT&T’s customers are ’sticky’: About two-thirds of AT&T customers are happy with their service and say they won’t switch wireless companies for any reason, according to a recent a Booz & Co. survey.

For the other third, the biggest factor that would motivate them to switch is lower costs. But experts don’t expect Verizon’s iPhone pricing to be substantially different than AT&T’s. (The margins are ultra-thin on the iPhone, since carriers take a hit of about $400 in subsidies for each device.)

AT&T can weather the storm: An estimated 2.5 million AT&T iPhone customers will defect to Verizon in 2011, according to Yankee Group, which based its forecast on a survey of 15,000 U.S. consumers. That prediction falls right into the range of most analysts’ forecasts.

That sounds like a lot, but it represents just 3% of AT&T’s base of 93 million customers.

Plus, defections are a fact of life of the wireless business — one that AT&T has successfully weathered in the past. About 12% to 15% of the company’s wireless subscribers have historically terminated their contracts each year, but AT&T has consistently added more customers each year than it lost.

For those that do leave, AT&T will reap the rewards of their early termination fees, blunting the loss to the company’s revenue.

The end result of all those calculations is that most analysts expect a minimal impact on AT&T’s bottom line.

Mike McCormick, a financial analyst at Nomura, expects AT&T to lose a net 1.3 million customers next year. He thinks company will probably take a $689 million hit to sales. Booz & Co.’s George Appling, who expects a 2 million customer loss, anticipates a $1.7 billion hit.

But that’s a drop in the bucket for a company the size of AT&T.

"AT&T is a $120 billion a year company," Appling said. "$2 billion could get easily washed away and hidden."

Don’t expect AT&T to simply roll over: AT&T’s network has a few technical advantages over Verizon’s. Expect them to be heavily advertised.

AT&T operates on the GSM standard, which allows customers to talk and surf the Web at the same time — a features that Verizon’s CDMA network doesn’t allow. GSM is also used in far more countries, allowing AT&T’s phones to work across the globe — something most of Verizon’s phones can’t do. Analysts expect AT&T to go hard after Verizon on those points in advertisements once both networks carry the iPhone.

AT&T says it’s serene about its future.

"We are the industry leader in smartphones; we offer the iPhone and other great devices and we will continue to do so," said company spokesman Mark Siegel. "We operate the nation’s fastest network and we plan on making it even faster."

So if there is a massive fallout from Verizon getting the iPhone, it likely wouldn’t happen until the latest round of two-year contracts are up. That wave hits in late 2012 and early 2013.

But by that time, AT&Ts 4G network — a years-in-the-works upgrade that the company has poured billions into — will be in place. All of those network problems that the company’s customers have suffered through for years could become a thing of the past.

"It’s certainly possible that some AT&T customers will leave for Verizon in 2012 or 2013, but the smartphone market is rapidly changing," said Forrester Research’s Golvin. "It’s hard to look out and say one way or another."  

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When Tina Caden, of Belleville, got a reversible Columbia Sportswear jacket as a gift, she could have assumed her friend had spent a pretty penny

The Toronto stock market was lower Friday, dragged down by the financial sector after Bank of Montreal announced a sizable all stock deal to expand its presence in the U.S. banking industry.

The S&P/TSX composite index lost 30.93 points to 13,150.3, finding some support from a strong earnings report from tech giant Research In Motion Ltd. (TSX: RIM), while the TSX Venture Exchange gained 9.41 points to 2,115.22.

Bank of Montreal (TSX: BMO) shares fell $3.65 or 5.9 per cent to $58.40 after it announced it is buying Wisconsin-based bank Marshall & Ilsley Corp. (NYSE: MI) for US$4.1 billion in shares. Marshall & Ilsley has US$51.9 billion in assets.

The Canadian dollar declined as the U.S. dollar advanced against other currencies continuing nervousness about the government debt crisis in Europe. The loonie lost 0.55 of a cent to 98.86 cents US.

Research In Motion (TSX: RIM) shares rose $2.60 to $62.21 after the company posted record third-quarter results after the market closed Thursday, helped again by strong international growth and sales of its new BlackBerry Torch, which has a touchscreen and a pullout keyboard.

RIM earned US$911.1 million, or $1.74 per diluted share in the third quarter. That compared with a profit of $628.4 million or $1.10 per share a year ago.

Revenue for the quarter totalled $5.49 billion, up from $3.92 billion.

Oil prices moved slightly higher despite the rising greenback, with the January crude contract on the New York Mercantile Exchange up a dime to US$87.80 a barrel. The energy sector rose 0.18 per cent and Suncor Energy (TSX: SU) gained 16 cents to $36.62 after the energy giant launched a $1.75-billion development agreement in Canada

U.K. retail sales rose in November after a bigger than estimated increase in October, led by demand for food, toys and jewelry in the run-up to Christmas.

Sales increased 0.3 percent from October, when they gained a revised 0.7 percent, the Office for National Statistics said today in London. That matched the median forecast of 24 economists in a Bloomberg News survey. From a year earlier, sales rose 1.1 percent.

Recent data indicate the economic recovery maintained momentum in the fourth quarter, with jobless claims falling for a second month in November and surveys showing manufacturing growth accelerated to a 16-year high. Retail sales may also have been boosted by consumers bringing forward spending to avoid next year’s increase in value-added tax.

“There’s an element of pre-Christmas demand in the numbers, and the budget cuts haven’t started to kick in yet,” said Alan Clarke, an economist at BNP Paribas in London. In 2011, “incomes will be eroded by inflation and that will make it harder for retailers.”

Prime Minister David Cameron’s government will increase value-added-tax to 20 percent from 17.5 percent starting from January. Almost two-thirds of U.K. retailers predict Christmas sales will be the same or better than last year, according to the British Retail Consortium.

Food Sales

The pound was little changed against the dollar after the report, and traded at $1.5591 as of 9:46 a.m. in London, up 0.3 percent since yesterday.

Excluding fuel, sales increased 0.3 percent in November from October and were up 1.8 percent on the year, the statistics office said. Food-stores sales increased 0.6 percent from the previous month, and non-food sales rose 0.2 percent. Tesco Plc, the U.K.’s largest supermarket chain, said on Dec. 7 that sales in the peak Christmas period are ahead of its forecast.

Internet sales surged 37.5 percent by value in November. Such sales now account for 10.5 percent of all retail sales, compared with 7.9 percent a year earlier. Average weekly internet sales in November amounted to 660 million pounds ($1.03 billion), according to the statistics office.

Bank of England Deputy Governor Charles Bean said this week the recovery “has remained on track” and may have persisted this quarter. Nevertheless, the pace of consumer-spending growth may be curbed by the government’s planned fiscal squeeze. The Treasury’s fiscal watchdog has said the U.K. faces a “sluggish” recovery and forecasts that about 330,000 government jobs will be axed by 2015.

Inflation Pressure

Accelerating inflation may also undermine households’ spending power. Consumer-price growth unexpectedly accelerated to a six-month high of 3.3 percent in November. The Bank of England said in a report today that Britons’ inflation expectations surged to their highest level for more than two years in a sign that price increases may be becoming embedded in the minds of consumers.

Policy makers held the benchmark interest rate at a record low 0.5 percent this month and left their bond-purchase plan at 200 billion pounds. Adam Posen said in a speech today that policy makers shouldn’t “overreact” to the fact that inflation is above the 2 percent target.

The retail deflator, a measure of changes in shop prices, showed a 2.3 percent annual increase in November, the statistics office said. The deflator on clothing was 2.5 percent, the most since records began in 1988.

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