The following are the day's top business stories:
1. Treasuries Fall on Tax-Cut Extension; Stock Rally Fades Amid Insider Probe 2. U.S. Automakers, UAW Said to Study More Profit-Sharing Before Labor Talks 3. Citigroup Leads Decline in U.S. Bank Swaps to Below Europe: Credit Markets 4. New Zealand's Bollard May Keep Rate Unchanged at 3%, Lower Growth Forecast 5. Japanese Stocks Gain as Weaker Yen Boosts Outlook for Exports; Honda Rises 6. Tax-Cut Extension May Bolster Economy, Limit Need for Fed to Go Beyond QE2 7. Madoff Investor to Forfeit $625 Million to U.S.; Trustee Sues Mets Owners 8. Blackstone Said to Team Up With China's Bright Food Group to Purchase GNC 9. Diamond Fund Seeks to Turn `Talismans of Magic' Into Commodity Investments 10.OPEC to Maintain Production Quotas as Crude Exceeds $90: Energy Markets 11.Toyota Mimics Tesla's Laptop Battery Strategy to Pare Electric-Car Costs 12.Banks in Europe Failing Market Tests for Stress With No Central Authority
1. Treasuries Fall on Tax-Cut Extension; Stock Rally Fades Amid Insider Probe
Treasuries slid, pushing the two-year yield up the most since March, after President Barack Obama agreed to extend tax cuts and a three-year note sale drew the lowest demand since February. U.S stocks erased an early rally after a report that an insider-trading probe widened. The two-year note yield gained 11 basis points to 0.53 percent as of 4 p.m. in New York. The S&P 500 rose less than 0.1 percent to 1,223.75 after rallying 1 percent to the highest level since September 2008 earlier. Copper surged to a 31-month high in New York and an all-time high in London, while gold slipped from an intraday record and oil decreased after touching a 26-month high. The Dollar Index climbed for a second day. The rout in Treasuries sent the 10-year yield to a five- month high of 3.13 percent amid concern the extension of the tax cuts will widen the budget deficit. The gain in stocks fizzled as Reuters reported federal authorities have "ramped up" a probe of insider trading, while optimism over the tax-cut extension waned as Obama said he´d push to overhaul the code in two years and Senate Majority Leader Harry Reid said Democrats have concerns about the agreement. "It all happened at the same time, taking the market off its highs," said Michael Nasto, senior trader at U.S. Global Investors Inc., which manages about $2.5 billion in San Antonio. "Investors got a little spooked during Obama´s press conference," he said. "Then, we had news that the SEC may widen the insider trading probe. That took some wind out of stocks even after all the optimism with the tax cuts."
2. U.S. Automakers, UAW Said to Study More Profit-Sharing Before Labor Talks
General Motors Co., Ford Motor Co. and Chrysler Group LLC, in advance of next year´s labor contract negotiations, are exploring with the United Auto Workers changes that could give workers a bigger piece of growing profits. "We want to find the best possible bang for all of the employees, across the board, not a program that would pay some and not the others," said General Holiefield, head of the UAW´s Chrysler department under President Bob King. While formal negotiations haven´t begun, union leaders and executives from the automakers have broached profit-sharing changes, said two people familiar with the efforts. High-level discussions began months ago because it was deemed a significant issue that would require more time, said one of the people, who asked not to be identified because the talks were private. All of the companies have been "hinting" at profit- sharing changes, Holiefield said yesterday in an interview.
3. Citigroup Leads Decline in U.S. Bank Swaps to Below Europe: Credit Markets
U.S. bank bonds are about the safest on record relative to debt from European financial institutions as a growing economy allows Citigroup Inc. to wean itself off government support at the same time a fiscal crisis roils Europe. The average cost of protecting the fixed-income securities of Citigroup, JPMorgan Chase & Co. and the rest of the six- biggest U.S. banks with credit-default swaps fell to 12.16 basis points below the Markit iTraxx Financial Index of 25 European banks and insurers. At the height of the credit crisis in October 2008, swaps on U.S. banks exceeded those tied to their European counterparts by 341 basis points. Derivatives traders are penalizing firms in Europe for the bailout of Greece and Ireland while U.S. institutions are benefiting from perceptions that the Federal Reserve will succeed in bolstering the economy and financial system. This week, the Treasury Department sold the last of its stock holdings in New York-based Citigroup. "The largest U.S. banks are outperforming European banks," said Rajeev Shah, a credit strategist at BNP Paribas in London. "The Citigroup unwind, although it does nothing to strengthen the capital structure, is a sentiment booster and should be viewed as positive for U.S. financials. European financials still have the peripheral concerns."
4. New Zealand's Bollard May Keep Rate Unchanged at 3%, Lower Growth Forecast
New Zealand´s central bank will probably keep its benchmark interest rate unchanged and may lower economic forecasts as domestic demand weakens and dry weather threatens farm production. Reserve Bank of New Zealand Governor Alan Bollard will leave the official cash rate at 3 percent at 9 a.m. tomorrow in Wellington, according to all 14 economists surveyed by Bloomberg News. Ten analysts expect the first rate rise in March and four forecast an increase in the second quarter, the survey showed. Weaker growth and a pause in rates may curb demand for New Zealand´s currency, the third-best performer in the past year among Group of 10 currencies. Bollard also may lower growth forecasts and signal a more gradual increase in borrowing costs because of concerns a drought may curb overseas sales of milk, meat and other exports, which make up 30 percent of the economy. "The RBNZ´s projections will imply a slightly later resumption of the tightening cycle," said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. "Risks to agricultural sector production from the possible continuation of recent very dry weather and the disease impacting kiwifruit vines will also be weighing on the governor´s mind."
5. Japanese Stocks Gain as Weaker Yen Boosts Outlook for Exports; Honda Rises
Japanese stocks gained, sending the Nikkei 225 Stock Average to its first advance in three days, after the yen weakened, boosting expectations exporters´ earnings will improve. Honda Motor Co., a carmaker that gets more than 80 percent of its sales abroad, increased 0.5 percent. Sony Corp., an electronics maker that earns about 40 percent of its revenue from the U.S. and Europe, rose 0.7 percent. Sumitomo Corp., Japan´s third-largest trading company, advanced 0.8 percent after metal prices climbed. "The global economy is on track for mild recovery in terms of fundamentals," said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. "Investors are likely to buy stocks, led by those of export-related industries, on the reversal of the yen´s appreciation." The Nikkei 225 Stock Average rose 0.7 percent to 10,215.43 as of 9:27 a.m. in Tokyo. The Topix advanced 0.5 percent to 883.74, with about nine shares rising for every four that dropped.
6. Tax-Cut Extension May Bolster Economy, Limit Need for Fed to Go Beyond QE2
President Barack Obama´s agreement to extend Bush-era income-tax cuts may give U.S. economic growth a boost while reducing pressure on the Federal Reserve to prolong its $600 billion bond-purchase program. Obama´s deal with congressional Republicans may raise gross domestic product next year by as much as half a percentage point to about 3.1 percent, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Allen Sinai, chief global economist at Decision Economics in New York, also raised his growth forecast for next year by half a point, to a range of 2.75 percent to 3 percent. Stocks rallied after the agreement was announced, sending the Standard & Poor´s 500 Index to the highest level since the financial crisis in September 2008 on expectations that the extension of Bush-era tax rates, as well as reduction in payroll taxes, would spur the consumer spending that accounts for 70 percent of the world´s largest economy. Treasuries fell and copper rose to a record. "It bumps up consumer spending in the first half of next year," Feroli said. "You´re going to have a pretty nice increase in disposable income." Much of the increase would come from a 2 percent cut in payroll taxes -- which fund Social Security and Medicare -- that "we weren´t expecting," he said.
7. Madoff Investor to Forfeit $625 Million to U.S.; Trustee Sues Mets Owners
Carl Shapiro, one of the first clients of Bernard Madoff´s investment firm, and 19 members of his family agreed to forfeit $625 million in profits from the con man´s fraud, settling potential lawsuits against them. Shapiro, a Boston-based philanthropist, held an account with Bernard L. Madoff Investment Securities LLC beginning in 1961. His son-in-law, Robert Jaffe, is the former vice president of Cohmad Securities Corp., a feeder fund that shared offices with Madoff´s firm. "This agreement represents a financially rewarding outcome and it is a strong example of the progress we are making in assembling the largest fund possible for the benefit of BLMIS customers with valid claims," Irving Picard, the court- appointed trustee overseeing the liquidation of Madoff´s firm, said today in a statement. With this settlement, Picard, who also today sued the owners of the New York Mets baseball team for the return of profits earned from their Madoff investments, has recovered about $2.5 billion for victims of the fraud. Today´s actions come as Picard faces a Dec. 11 deadline to file claims for money to return to Madoff investors.
8. Blackstone Said to Team Up With China's Bright Food Group to Purchase GNC
Blackstone Group LP is teaming up with Bright Food Group Co., Shanghai´s biggest food and dairy company, to acquire vitamin and supplement retail chain GNC Holdings Inc., said two people with knowledge of the matter. The deal may be announced as early as this month, said one of the people, who asked not to be identified because the talks are confidential. It may be the largest U.S. takeover by a Chinese buyer, eclipsing Lenovo Group Ltd.´s $1.25 billion purchase of International Business Machines Corp.´s personal computer business in 2004, according to data compiled by Bloomberg. Bright Food is attempting its biggest acquisition as Chairman Wang Zong Nan expands overseas. Pittsburgh-based GNC, with more than 7,100 stores globally, may fetch about $2 billion, people familiar with the matter said in October. The Chinese company is close to an agreement to buy GNC for $2.5 billion to $3 billion, the Wall Street Journal reported earlier today, citing unidentified people. There have been about 550 announced acquisitions this year involving food companies globally, which sold for a median multiple of 6.1 times earnings before interest, taxes, depreciation and amortization, according to Bloomberg data. GNC had ebitda of $227.7 million in 2009, according to a regulatory filing.
9. Diamond Fund Seeks to Turn `Talismans of Magic' Into Commodity Investments
Former Rapaport Group executives are creating a fund that´s looking to transform diamonds from the "talismans of magic" advertised by De Beers into commodity investments like copper and soybeans. The precedents aren´t good. Diamond Circle Capital Plc, the first publicly listed fund to invest in the stones, has plunged 49 percent since selling shares in 2008, compared with a drop of 14 percent in an index of overall prices for the gems. The first diamond investment trust, set up in the 1980s, also collapsed. Saul Singer, co-founder of Fusion Alternatives and a former research chief at Rapaport, the world´s main provider of diamond prices, says conditions are right for his firm´s new fund. He sees bottled-up demand from investors, locked out of a trade that sells diamonds through a closed network of dealers or in retailers. Prices have risen 11 percent in 2010, trailing gains in platinum, silver and gold. "There is increased demand and increased interest from the investment community in diamonds," Singer, 36, said in an interview. "The main goal is to put all the pieces together to create a marketable investment vehicle for the professional investment community."
10.OPEC to Maintain Production Quotas as Crude Exceeds $90: Energy Markets
Oil´s rally to a more-than-two-year high is unlikely to coax OPEC into raising production quotas at this week´s meeting in Ecuador, as member nations consider the global recovery strong enough to withstand price gains. The Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply, will maintain the limits set in 2008 when representatives gather in Quito on Dec. 11, according to all but one of 39 analysts and traders in a Bloomberg News survey. Ministers from Angola, Venezuela and Libya say the group will probably repeat its 24.845 million- barrel-a-day target. New York crude futures climbed above $90 a barrel for the first time in 26 months yesterday, exceeding the $70-to-$90 range described by Saudi Arabian Oil Minister Ali al-Naimi as "comfortable." Iran, Venezuela and Libya said this month they would accept prices as high as $100, while OPEC Secretary- General Abdalla El-Badri said the group won´t necessarily boost production unless there´s a need for more oil. "I don´t think there´s a magic number that causes them to take action," said Mike Wittner, head of oil market research at Societe Generale SA in New York. "As long as the economy seems OK, as long oil demand seems healthy, what they consider to be an acceptable range will move upward as prices move up."
11.Toyota Mimics Tesla's Laptop Battery Strategy to Pare Electric-Car Costs
Toyota Motor Corp., Daimler AG and Bayerische Motoren Werke AG are turning to laptops for a cheaper way to power their electric cars -- and their sales. Automakers are testing packs of lithium-ion batteries assembled by Silicon Valley startup Tesla Motors Inc. costing less than bigger, car-only batteries favored by General Motors Co., Nissan Motor Co. and Mitsubishi Motors Corp. A pack of 6,831 cylinder-shaped cells made by Panasonic Corp. powers Tesla´s $109,000 Roadster sports car for up to 245 miles per charge. The car industry will help lithium-ion battery makers more than triple sales to 5 trillion yen ($60 billion) in a decade from 1.5 trillion yen in the year ending in March, according to Sanyo Electric Co., the world´s biggest maker of the batteries. Rechargeable consumer-electronics batteries benefit from an economy of scale that may help cut manufacturing costs and sticker prices in the nascent electric-car industry, said Koji Endo, a Tokyo-based analyst at Advanced Research Japan. "It may lead to the total component cost of an electric car getting lower than that of a gasoline car," Endo said. "As the cost lowers, there´ll be more likelihood that retail prices of electric cars will drop."
12.Banks in Europe Failing Market Tests for Stress With No Central Authority
In the five months after the U.S. published results of its 2009 bank stress tests, the Standard & Poor´s 500 Financials Index rose 25 percent. Five months after the European Union released its version, the Bloomberg Europe Banks and Financial Services Index is down 4 percent. The failure of the EU tests to restore confidence in the region´s banks was underscored last month when Ireland directed its two biggest lenders, both of which passed the exams, to raise additional capital. Since July 23, when the results were disclosed, the average cost of insuring the senior debt of 110 European banks against default has surged 114 basis points, or 1.14 percentage points, more than 30 times as much as for the 34 largest U.S. banks whose credit-default swaps are tracked, according to data compiled by Bloomberg. Now, amid a widening European debt crisis, regulators from 27 nations are searching for ways to improve the tests, which will be repeated next year. That won´t be easy as long as national leaders and central banks remain unwilling to cede bank oversight to a central authority, said Nicolas Veron, a senior fellow at Bruegel, a Brussels-based economics research group. "Financial nationalism prevented the tests from being credible or really useful," said Veron, who´s also a visiting fellow at the Washington-based Peterson Institute for International Economics. "Nations view the bank tests as a competitive game among countries and not as a way to ensure the common good of European financial stability."
-0- Dec/08/2010 00:35 GMT