EU Finance Ministers Agree on Bank-Failure Plan, Noonan Says
Top Stories: Business and Finance
The following are the day's top business stories:
1. Asian Stocks, U.S. Futures Fall as Dollar, Yen, Oil Gain on Egypt Unrest 2. Egypt Spurring Biggest Increase in Developing-Market Money Rates Since '08 3. Default Swaps Roiled by Algeria on Builder Payment Concerns: Japan Credit 4. Egypt's Borrowing Plans Disrupted as Protests Force Bank, Bourse to Close 5. China at Record Discount to Hong Kong Means `Buy' for Prudential's Praveen 6. Treasury Rout Ending in Fed Index Showing Stable Prices as Growth Improves 7. Rice Rebounding From Two-Year Drop as U.S. Crop Falls to Lowest Since 1989 8. Alpha Natural Agrees to Buy Massey Energy for $7.1 Billion in Cash, Stock 9. Japan Industrial Output Gains Most in 11 Months on Demand from China, U.S. 10.South Korean Bonds Lose to Malaysia as Foreigners Hit by Tax: Chart of Day 11.Billionaire Ho's Family Feuds Over Empire From Betting to Bungee Jumping 12.Loneliest Man in Davos Foresees 2015 Bank Crisis While Global Elites Party
1. Asian Stocks, U.S. Futures Fall as Dollar, Yen, Oil Gain on Egypt Unrest
Asian stocks fell, extending the biggest global share slump in two months, and U.S. index futures declined while the yen and dollar gained on speculation Egypt´s crisis will slow the global recovery. Oil prices jumped. The MSCI Asia Pacific Index sank 0.9 percent as of 9:07 a.m. in Tokyo, with Japan´s Nikkei 225 Stock Average posting the biggest loss among markets open for trading. Standard & Poor´s 500 Index futures dropped 0.4 percent after the gauge posted on Jan. 28 its biggest slump since August. The dollar, yen and Swiss franc gained against higher-yielding currencies while oil traded above $90 a barrel in New York on concern the unrest will spread to crude-producing parts of the Middle East. Shares worldwide plunged on Jan. 28 by the most since November, wiping out more than $500 billion from global market values, as the escalating tensions in Egypt overshadowed U.S. data showing gross domestic product accelerated in the fourth quarter. Egyptian President Hosni Mubarak yesterday met with top military commanders as tens of thousands of protesters defied a curfew and gathered in central Cairo. "The concerns are that we´re going to see contagion from Egypt to other parts of the Middle East," said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. "As long as these concerns about Egyptian political tensions persist, flight-to-safety flows are likely to favor the dollar, yen and Swiss franc."
2. Egypt Spurring Biggest Increase in Developing-Market Money Rates Since '08
Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt may destabilize the Middle East. The yield on JPMorgan Chase & Co.´s ELMI+ Index of short- term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low of 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a two-month high of 2.63 percentage points, according to JPMorgan´s EMBI+ Index. Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities to the highest level since September 2008. Oil advanced 4.3 percent in New York trading on Jan. 28 as Egyptian protesters clashed with police in the most populous Arab country, calling for an end to President Hosni Mubarak´s 30-year rule. Middle East shares sank yesterday, sending Abu Dhabi´s index to its biggest drop in 14 months. "The geopolitics is clearly a warning to investors," said David Cohen, the head of Asian forecasting at Action Economics in Singapore. "Oil prices have spiked higher. That would be one more source of upward pressure on interest rates."
3. Default Swaps Roiled by Algeria on Builder Payment Concerns: Japan Credit
Two of Japan´s biggest construction companies are learning the risks of expanding in developing markets to offset dwindling domestic demand, credit default swap prices show. The cost of insuring the debt of Taisei Corp., the nation´s third-largest general contractor, and No. 4 Kajima Corp. rose faster than contracts for any other Japanese non- financial company over the last month after the Asahi newspaper reported they might not collect $1.2 billion owed for work in Algeria. Taisei´s five-year swaps climbed to 203 basis points on Jan. 27 from 117 on Dec. 7, the day the article was published, while Kajima´s jumped to 207 from 146. The Markit iTraxx Japan index added 12 basis points, or $120,000 for $10 million of face value, to 110 in the period. "There are widening concerns the companies could sustain losses," said Mitsuyoshi Takahashi, an analyst at Mizuho Securities. The dispute, which also involves smaller contractors Nishimatsu Construction Co. and Hazama Corp., underscores the challenges facing Japanese companies pursuing growth abroad as the economy is set to grow at the slowest pace among all Group of Seven nations except Italy. While Japan´s near-zero percent interest rate has given corporations funding costs that are about 3 percentage points lower than in the U.S., the increase in credit default swaps indicates investors are concerned about the risks companies need to take to increase earnings.
4. Egypt's Borrowing Plans Disrupted as Protests Force Bank, Bourse to Close
Egypt´s plan to raise 4 billion ($683 million) Egyptian pounds this week at debt auctions was disrupted after protests rocked the North African country, forcing the government to close banks and the stock market. The government sold 2.5 billion pounds of 182-day bills in an auction on Jan. 27 as yields jumped 40 basis points, or 0.4 percentage point, from the previous sale to a one-year high of 10.6 percent, according to data compiled by Bloomberg. The Arab world´s third-largest economy delayed two debt sales scheduled for yesterday. Reduced demand for Egyptian debt may harm the government´s ability to meet its target of cutting the budget deficit to 3 percent of gross domestic product by 2015. The gap widened to 8.1 percent in the fiscal year that ended in June from 6.9 percent in the previous 12 months. The yield on the government´s $1 billion of bonds due in April 2020 rose 27 basis points Jan. 28 to a record 6.6 percent, data compiled by Bloomberg show. "When Egypt decides to go out in the market you will see less appetite," John Sfakianakis, the Riyadh, Saudi Arabia- based chief economist at Banque Saudi Fransi, said in a telephone interview yesterday. "It´s going to cost the government a substantial amount in spreads as political risk has hit the roof."
5. China at Record Discount to Hong Kong Means `Buy' for Prudential's Praveen
Chinese stock valuations have tumbled to a record low compared with Hong Kong, a sign to investors that mainland equities are poised to rally even as the government cracks down on inflation. The MSCI China Index´s 9.2 percent slump since November has left it trading at 11.7 times estimated profit for 2011, data compiled by Bloomberg show. The MSCI Hong Kong Index rallied 26 percent between July and December, beating China shares by the most in nine years and pushing its valuation to 17.5 times earnings, the highest ever compared with shares on the mainland. Prudential Financial Inc. and USAA Investment Management Co. say the gap will close because economic growth may average 9.6 percent over the next two years, double the global figure in International Monetary Fund data. Premium valuations in Hong Kong, the route to China for most investors, signal that seven increases in bank reserves and two interest rate boosts by Wen Jiabao´s government since 2010 won´t derail growth, they say. "Things will be all right even as China takes steps to tighten," said John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International Investments Advisers, which oversees $750 billion. "Chinese growth will still be good."
6. Treasury Rout Ending in Fed Index Showing Stable Prices as Growth Improves
The biggest losses in Treasuries in more than a year have driven yields so high that a Federal Reserve measure says U.S. government securities are no longer expensive. The financial model created by economists at the central bank that includes expectations for interest rates, growth and inflation shows the so-called term premium for 10-year notes has risen to the past decade´s average. In November the gauge fell to the lowest level since the peak of the financial crisis, just as the securities began a six-week decline that drove yields up more than 1 percentage point to as high as 3.56 percent and left investors with losses of 2.5 percent. While the U.S. economy expanded at a 3.2 percent annual rate in the fourth quarter, the Fed said at the conclusion of last week´s rate-setting meeting that the pace of expansion is insufficient to lift employment. The central bank also reiterated pledges to keep rates at a record low and buy $600 billion of Treasuries, bolstering speculation that any additional rise in yields will be gradual. "The brunt of the damage to the fixed-income market over the short-term has been done," said Mark MacQueen, a partner and money manager at Austin, Texas-based Sage Advisory Services, which oversees $9.5 billion. "Rates will go higher, but they will go higher slowly and there won´t be dramatic rate increases in the near term."
7. Rice Rebounding From Two-Year Drop as U.S. Crop Falls to Lowest Since 1989
U.S. farmers are planting the fewest acres with rice since 1989 just as global demand surpasses production for the first time in four years, driving prices as much as 12 percent higher by December. Plantings in the U.S., the third-biggest shipper, may drop 25 percent this year because growers can earn more from corn and soybeans, according to the median in a Bloomberg survey of nine analysts and farmers. Rice, the staple food for half the world, declined 4 percent last year, extending a 2.9 percent drop in 2009. The other crops jumped 34 percent or more. "Why would you want to take that risk to plant rice, knowing that your income is going to be way down?" said Terry Hatley, a farmer in Marked Tree, Arkansas, who may not plant any rice this year after growing the crop for more than three decades. "Farming is a business, and you´ve got to look at the economics of it. Now, the economics on rice are very dim." Bangladesh, South Asia´s biggest buyer, doubled a target for imports in 2011 to curb prices, the Directorate General of Food said last week. The Philippines, the world´s largest importer, will probably start buying next month, according to the National Food Authority. While global stockpiles are predicted to be 26 percent higher this year than in 2007, consumption will gain 3.4 percent and harvests 2.6 percent, the U.S. Department of Agriculture estimates.
8. Alpha Natural Agrees to Buy Massey Energy for $7.1 Billion in Cash, Stock
Alpha Natural Resources Inc., the third-biggest U.S. coal producer, agreed to buy Massey Energy Co. for about $7.1 billion in cash and stock, gaining the largest coal company in the U.S. Central Appalachian region. Massey shareholders will receive 1.025 Alpha Natural shares plus $10 cash for each share held, the companies said in a statement yesterday. The bid values Massey at $69.33 a share, 21 percent more than Massey´s price at the close of trading Jan. 28. Massey has $1.63 billion in debt, according to Bloomberg data. The combination will give the new company more than 110 mines and coal reserves of about 5 billion tons, and creates the world´s third-largest metallurgical coal producer behind BHP Billiton-Mitsubishi Alliance, known as BMA, and Teck Resources Ltd. It will be the second-largest U.S. coal company by sales, with almost 14,000 employees. "We´ve always thought the combination between our two companies was strategic, transformational and compelling," Alpha Natural Chief Executive Officer Kevin Crutchfield said in a telephone interview yesterday. "We went into the process with an eye toward winning, and, at the end of the day we did emerge victorious and we´re absolutely delighted that we did."
9. Japan Industrial Output Gains Most in 11 Months on Demand from China, U.S.
Japan´s industrial production increased the most in 11 months in December, boosted by overseas demand that´s spurring the nation´s recovery. Factory output climbed 3.1 percent from November, when it rose 1 percent, the Trade Ministry said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 2.8 percent gain. Honda Motor Co. and Nissan Motor Co. are among companies increasing production to meet demand from China and the U.S., Japan´s largest export markets. Benchmark 10-year Japanese government bond yields have risen 10.5 basis points this year amid expectations of a domestic economic recovery. "Production will likely gather momentum as it´s highly likely exports have entered into a clear recovery trend on a pick-up in global demand," Naoki Tsuchiyama, a market economist at Mizuho Securities Co. in Tokyo, said before the report. "An economic recovery is under way this quarter."
10.South Korean Bonds Lose to Malaysia as Foreigners Hit by Tax: Chart of Day
South Korea´s revival of taxes on income from debt has made government bonds from Malaysia, where the central bank´s benchmark rate is the same as Korea´s, a better investment, according to UBS AG. South Korea revived a tax of as much as 14 percent on interest income from treasury bonds held by foreigners on Jan. 1, as well as a 20 percent levy on capital gains from their sale. Bank Negara Malaysia Governor Zeti Akhtar Aziz said in November that restrictions on capital inflows aren´t being planned. The CHART OF THE DAY shows foreign ownership of South Korean bonds dropped in December, sending the one-year yield to the highest level in 12 months. Global funds increased their holdings of Malaysian debt the same month, pushing the one-year yield lower. The Bank of Korea has raised its benchmark interest rates three times since the start of July to 2.75 percent, bringing it on a par with borrowing costs in Malaysia. "The South Korean market isn´t as foreigner-friendly as before due to the restrictions," said Ju Wang, a Singapore- based Asian fixed-income strategist at UBS, Switzerland´s biggest bank. "Malaysian bonds are a better buy given that capital-control risk there is the least in Asia."
11.Billionaire Ho's Family Feuds Over Empire From Betting to Bungee Jumping
From the moment visitors board the plane or ferry to Macau, to lunch at the city´s three-Michelin- star restaurant, to a turn on the world´s highest urban bungee jump, they put money into the pockets of billionaire Stanley Ho. And that´s before tourists ever hit the casinos. Ho´s four- decade monopoly on gambling until 2002 in the former Portuguese colony allowed him to build a business that covers virtually every facet of Macau´s economy. Even with competition from Las Vegas rivals such as Sheldon Adelson´s Las Vegas Sands Corp. and Steve Wynn´s Wynn Resorts Ltd., the Ho family takes more than 50 cents of every dollar bet in the Chinese enclave. That´s the prize being squabbled over by his 16 children from four women in a legal battle over the fortune of the ailing 89-year-old billionaire. At its heart is control of Ho´s 31.7 percent holding in the privately held Sociedade de Turismo e Diversoes de Macau SA, which has stakes in casinos, construction, hotels, and Macau´s airline. "Ho covers anything and everything that you do getting in and out of Macau and the vast majority of activities while you are here," said Ciaran Carruthers, managing director of consulting firm Asia Pacific Gaming, who has lived in Macau for seven years. "There is every likelihood whatever you do is part of his empire."
12.Loneliest Man in Davos Foresees 2015 Bank Crisis While Global Elites Party
As politicians, executives and financiers networked at parties and panels last week in Davos, Switzerland, Barrie Wilkinson was in a nearby hotel, warning that a 2015 financial catastrophe may be looming. "The fundamentals haven´t been addressed at all," Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. "The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they´re actually bigger now than they were then." In the caste system of the World Economic Forum´s annual event in the Swiss ski resort, Wilkinson was at a bottom rung, with an identification badge that denied him access to most sessions and soirees. His message clashed with the optimistic tone of many at the center of the meeting, who were eager to emphasize the progress made after two years of hand-wringing in the wake of the 2008 financial crisis. "The systemic reforms that have been accomplished are significant," Canadian Finance Minister Jim Flaherty said as he left a private meeting with finance company chief executive officers on Jan. 29. "We need to communicate better that financial institutions globally are operating on a very different basis today, that they are operating with higher capital and are better regulated."
-0- Jan/31/2011 00:35 GMT