The following are the day's top business stories:
1. China Rate Increases in 2011 May Be Front-Loaded as Inflation Accelerates 2. Euro Pain Turns to 23% Gain for Europeans Pumping Cash Into S&P 500 Rally 3. Japanese Stocks Rise as Oil, Metal Prices Advance; Elpida Gains on Tie-up 4. Consumer-Backed Bond Sales to Diminish After Fed Ends TALF: Credit Markets 5. China Stocks, Bonds May Drop Little as Rate Increase Follows Cash Squeeze 6. QE2 Working Combines With Eisenhower Yields in 1% Returns for Treasuries 7. Retailers Hurt as East Coast Storm Keeps Post-Christmas Shoppers at Home 8. Japan Employees Sacrificing Wages Means Unending Deflation: Chart of Day 9. U.K. House Prices May Extend Drop in 2011 on `Weak' Demand, Hometrack Says 10.Japan Government Bonds May Rise on Speculation Stronger Yen to Hurt Stocks 11.Dark Pools Increase Share of Trading in Japan Stocks, Exchange Data Show 12.Hildebrand Unable to Unload `Burden' of Record Franc as GDP Seen Slowing
1. China Rate Increases in 2011 May Be Front-Loaded as Inflation Accelerates
China´s monetary tightening in 2011 may be mainly in the first half as officials tackle the fastest inflation in more than two years, JPMorgan Chase & Co. and Morgan Stanley said. The People´s Bank of China increased key one-year lending and deposit rates by 25 basis points on Christmas Day in its second move since mid-October. The change took effect yesterday. Premier Wen Jiabao´s government aims to limit asset bubbles in the real-estate market and prevent rising prices from leading to social unrest after flooding the economy with cash from late 2008 to drive an economic recovery. Officials may keep raising interest rates and banks´ reserve requirements, sell bills to soak up cash and allow more gains by the yuan against the dollar, according to JPMorgan. "These policy moves could be front-loaded in coming months, as headline inflation figures remain high and economic growth faces overheating risks early next year," said Wang Qian, the brokerage´s Hong Kong-based chief China economist.
2. Euro Pain Turns to 23% Gain for Europeans Pumping Cash Into S&P 500 Rally
For all the losses facing Europeans this year, investors from the region who bought U.S. stocks as the euro weakened are getting the best returns in a decade. The Standard & Poor´s 500 Index rose 23 percent this year when translated to euros, the most since the currency was formed in 1999 and almost double the 13 percent gain for Americans, according to data compiled by Bloomberg. Buying the Nikkei 225 Stock Average in Tokyo produced a 20 percent increase for Europeans, compared with a 2.5 percent loss when priced in yen, the data show. Record budget deficits and bailouts of Greece and Ireland sent the European currency down 8.4 percent in 2010, boosting winnings for anyone converting dollar-denominated investments back into euros. Concern about further declines may spur more overseas investment in 2011, according to Dirk Pattyn at Degroof Fund Management Co. in Brussels, whose U.S. fund gave European investors a 24 percent return this year. "The focus is still the debt problem in Europe, and many clients might be looking at the U.S. as a first alternative," said Pattyn, who held Chevron Corp. and Microsoft Corp. among $33 billion in investments at his company this year. "It´s been an excellent year for U.S. investors in Europe. You have the currency that added a lot, and also you had the performance of the underlying index."
3. Japanese Stocks Rise as Oil, Metal Prices Advance; Elpida Gains on Tie-up
Japanese stocks rose for the first time in three days after oil and metal prices increased. Inpex Corp., Japan´s No. 1 oil explorer, gained 0.4 percent. Japan Petroleum Exploration Co., the nation´s second-biggest oil driller, increased 0.3 percent. Elpida Memory Inc., the world´s third-largest maker of computer-memory chips, jumped 4.6 percent after a report said the company is in talks with Taiwan semiconductor companies on a business tie-up. The Nikkei 225 Stock Average rose 0.4 percent to 10,322.05 as of 9:22 a.m. in Tokyo. The broader Topix index gained 0.2 percent to 903.72. The Topix declined 0.7 percent in 2010 through Dec. 24, compared with gains of 12.7 by the S&P 500 and 10.8 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 15.7 times estimated earnings, compared with 14.7 times for the S&P and 12.5 times for the Stoxx.
4. Consumer-Backed Bond Sales to Diminish After Fed Ends TALF: Credit Markets
Bond offerings tied to automobile loans and leases are poised to dominate sales of asset-backed debt for a third straight year in 2011 after issuance of all types of the securities plunged 31 percent in 2009. Vehicle debt bundled into securities will likely total from $70 billion to $75 billion, up as much as 23 percent from 2010, as auto sales rebound from a 27-year low, according to Barclays Capital. Bond sales linked to auto and education loans, and credit cards may reach $115 billion in 2011, Barclays said. Total issuance fell to $92 billion this year from $134 billion as banks relied more heavily on deposits to fund credit card lending and the Federal Reserve ended its Term Asset-Backed Securities Loan Facility, which financed investors buying asset- backed securities. "The auto finance companies continue to originate good volumes of new loans," Brian Wiele, a managing director at Barclays in New York, said in a telephone interview. "They are not banks, and securitization offers attractive funding."
5. China Stocks, Bonds May Drop Little as Rate Increase Follows Cash Squeeze
China´s second interest-rate increase since mid-October may have limited impact on stocks and bonds because the central bank´s stricter controls on lending have already roiled markets. "I don´t see a big slump in the market, because the recent decline has more or less priced in the rate increase," said Zhao Zifeng, who helps oversee about $10 billion at China International Fund Management Co. "Large-capitalization stocks are already close to historical lows in terms of valuations." The central bank said on Dec. 25 it would raise its benchmark one-year lending rate by 25 basis points to 5.81 percent, and the one-year deposit rate the same amount to 2.75 percent. The seven-day repurchase rate, which measures lending costs between banks, has more than doubled in the past two weeks and reached a three-year high of 5.67 percent on Dec. 23. The cash crunch contributed to a 13 percent decline in the Shanghai Composite Index of stocks this year, the biggest drop among the world´s 15 largest equity markets, including a 2 percent loss last week. The yield on the benchmark 10-year bond climbed 50 basis points, or 0.5 percentage point, this quarter to 3.83 percent, according to the China Interbank Bond Market.
6. QE2 Working Combines With Eisenhower Yields in 1% Returns for Treasuries
Wall Street´s biggest bond-trading firms say investors in U.S. government debt will barely break even next year as yields climb from the lowest levels since the 1950s and the Federal Reserve boosts economic growth. Investors buying benchmark 10-year notes will gain about 1 percent in 2011 once interest payments are re-invested, as the yield rises to 3.65 percent after averaging 3.2 percent in 2010, according to a Bloomberg News survey of the Fed´s 18 primary dealers. Bank of America Merrill Lynch´s U.S. Treasury Master index returned 8.15 percent annually since its start in 1978. Average yields on 10-year notes are already the lowest since 1956, when Dwight D. Eisenhower was president, according to "A History of Interest Rates" by Sidney Homer and Richard Sylla and data compiled by Bloomberg. Even though bonds declined the most in a year this month, the dealer estimates show Wall Street anticipates stable inflation as the Fed´s policy of purchasing Treasuries through so-called quantitative easing stimulates growth and demand for riskier assets. "QE2 has had unforeseen benefits in raising risk appetites and improving confidence across the board," said Mark MacQueen, a partner at Austin, Texas-based Sage Advisory Services, which oversees $9.5 billion. "At best it´s going to be a mediocre year, but not negative" for Treasuries, he said.
7. Retailers Hurt as East Coast Storm Keeps Post-Christmas Shoppers at Home
Retailers expecting to ring up sales on the day after Christmas may have to intensify discounts over the next two weeks after an East Coast snowstorm disrupted one of the busiest shopping days of the year. Cities from Philadelphia to Boston may get the most snow of the season today, forcing consumers who had planned to shop to focus instead on getting home before returning to work tomorrow. Some stores in the southeastern U.S. weren´t able to open as early as planned today for doorbuster specials and may close early as snow made driving dangerous. Spending may shift into January, denting growth after the International Council of Shopping Centers predicted that retail sales will rise 3.5 percent to 4 percent in 2010, the biggest increase in four years. The day after Christmas is one of the five busiest shopping days of the year, according to Marshal Cohen, chief industry analyst at NPD Group Inc., a research firm based in Port Washington, New York. "It´s like throwing a party and nobody comes because the focus has gone from post-holiday shopping to post-holiday travel," Cohen said in a telephone interview today. "Look for sales to be repeated by retailers. They´re going to be more aggressive. They´ve got to throw another party."
8. Japan Employees Sacrificing Wages Means Unending Deflation: Chart of Day
Japanese workers´ willingness to accept wage cuts to safeguard their jobs is lowering prices and deepening deflation, according to the research unit of lender Sumitomo Mitsui Financial Group Inc. The CHART OF THE DAY shows declines in household spending as measured by personal consumption deflator have deepened since Japan fell into a recession in 2008, while wages have fallen or been stagnant regardless of changes in the unemployment rate. The primary cause of deflation is "not a shortage of money supplied by the central bank" said Hisashi Yamada, chief senior economist at the Japan Research Institute in Tokyo. Rather, "the economy has been trapped in a vicious cycle of price cuts and wage reduction," he said. Yamada said Japanese employees and labor unions have a tendency to accept wage cuts rather than being fired. The cuts in paychecks caused companies to reduce prices on goods and services. Japan´s jobless rate would be around 10 percent, compared with the current 5.1 percent, if companies had fired workers rather than cut pay since Japan fell into a recession in 2008, according to Yamada. Monthly pay dropped to an average 315,294 yen last year, the lowest level since the government started tracking the data in 1990.
9. U.K. House Prices May Extend Drop in 2011 on `Weak' Demand, Hometrack Says
U.K. house prices fell for a sixth month in December and will extend their decline in 2011 on "weak" demand and tighter mortgage-lending conditions, Hometrack Ltd. said. The average cost of a home fell 0.4 percent from last month, and prices will drop a further 2 percent in 2011, the London-based property researcher said in an e-mailed report today. A separate release showed the majority of U.K. retailers predict a decline in sales next year. The Hometrack report also showed sellers had to wait the longest since April 2009 to shift their properties in December and adds to forecasts for a weaker housing market in 2011. The Royal Institution of Chartered Surveyors said this month that prices in the fourth quarter of 2011 may be 2 percent lower than current levels, while Rightmove Plc sees sellers cutting asking prices by as much as 5 percent. "We expect house prices to remain under downward pressure in the first half of 2011 on the back of weak demand," Richard Donnell, Hometrack´s director of research, said in the report. However, "a tightening in supply together with continued low levels of housing transactions will continue to act as something of a support to pricing levels."
10.Japan Government Bonds May Rise on Speculation Stronger Yen to Hurt Stocks
Japanese government bonds may advance on concern a stronger yen will damp earnings prospects for the nation´s exporting companies, boosting demand for the safety of government debt. Benchmark 10-year yields are likely to fall toward a four- week low before data tomorrow that may show Japan´s deflation continued. Prime Minister Naoto Kan plans to cap new bond sales at 44.3 trillion yen ($535 billion) in fiscal 2011 to finance a record budget for the year starting April 1, according to a proposal approved by the Cabinet on Dec. 24. "There´s a chance that a further strengthening of the yen will spur a drop in stocks and gain in bond futures," said Tokuyoshi Takano, a financial-derivatives manager at Mitsui Sumitomo Insurance Co. Ten-year bond futures for March delivery finished at 139.85 in London on Dec. 24, compared with 139.73 at the 3 p.m. close of the Tokyo Stock Exchange. The contract will open for trading at 9 a.m. Tokyo time.
11.Dark Pools Increase Share of Trading in Japan Stocks, Exchange Data Show
The share of Japanese equity trades taking place in dark pools, or private systems that don´t display prices publicly, is growing according to data from the Tokyo Stock Exchange´s alternative share trading platform. The share of Japanese stocks traded on the Tokyo Stock Exchange Trading Network, or Tostnet, increased to 10 percent in November from 7 percent in March, when regulators first required dark pools to connect to the system, the bourse said. Daiwa Securities Capital Markets is among the operators of dark pools that uses Tostnet, according to the brokerage´s Global Head of Electronic Trading Services Punit Mittal. "The increase in Tostnet´s share of trades shows use of dark pools is growing in Japan," said Lee Porter, Hong Kong- based managing director for Liquidnet Holdings Inc.´s Asian dark pool operations. "Most of the major broker-dealers have now deployed their dark pools in Japan. You are now seeing the Japanese domestic brokers doing the same too, so clearly there is appetite." Japan´s Financial Services Agency in March ruled dark pools must register as proprietary trading systems or connect to financial markets via systems such as Tostnet. Foreign brokers including Credit Suisse, Citigroup and Morgan Stanley operate dark pools in Japan alongside domestic operators like Daiwa Securities. Tostnet trades accounted for 6.6 percent of domestic share volume at the Tokyo exchange in 2009 and 6.2 percent in 2008, according to bourse data.
12.Hildebrand Unable to Unload `Burden' of Record Franc as GDP Seen Slowing
Swiss central bank President Philipp Hildebrand, who ended 15 months of intervening in foreign- exchange markets this year, may prove powerless to stop the franc from extending a record rally that he calls a "burden." Options traders are more bullish on the franc for the next three months than any major currency except the yen, according to data compiled by Bloomberg. Bank of Tokyo-Mitsubishi UFJ Ltd. says it may appreciate 7.9 percent to 1.17 per euro in six months after rising more than any major peer since intervention ended in June. Standard Bank Plc estimates an advance to 1.20. Currency traders say Hildebrand probably won´t renew efforts to stop the gains after previous sales failed to halt the appreciation that made exports more expensive and saddled the Swiss National Bank with $22 billion of exchange-rate losses in the first nine months of 2010. While policy makers said on June 21 that intervention was no longer needed as the risk of deflation had ebbed, price increases have since slowed. "The SNB cannot do much, they are just observers," said Beat Siegenthaler, a Zurich-based currency strategist at UBS AG, ranked by Euromoney Institutional Investor Plc as the world´s second-biggest foreign-exchange trader. "Of course they are very worried. Their options are limited."
-0- Dec/27/2010 00:35 GMT