The following are the day's top business stories:
1. Japan's Economy Shrank at 1.1% Annual Pace; GDP Surpassed by China in 2010 2. World's Fastest Inflation Seen in Queensland Devastation: Australia Credit 3. Japanese Stocks Advance on Mubarak Resignation, Weaker Yen; Toyota Climbs 4. Geithner Quietly Tells Obama Debt-to-GNP Cost Poised to Increase to Record 5. Size Matters in Steel as Nippon Default Swaps Beating Posco: Japan Credit 6. Emergency Medical Said to Be Near $3.1 Billion Sale to Clayton Dubilier 7. Stocks Back Sarkozy in Euro Survival as Greek Index Rises Most Since 1999 8. Queensland Floods Drive U.S. Coal Exports to 15-Year High in Record Profit 9. Egypt Treasury Bill Yields Hold at 2-Year High in First Post-Mubarak Sale 10 China Says Panel Will Begin Scrutinizing Acquisitions by Foreign Companies 11.Bailout Interest Rate Means Pain, No Gain for Portugal Market: Euro Credit 12.Loving Your Boss on Weekday Valentine's Day Lifts Japan's Chocolate Makers
1. Japan's Economy Shrank at 1.1% Annual Pace; GDP Surpassed by China in 2010
Japan´s economy contracted for the first time in five quarters as exports slowed and government stimulus faded, a pullback projected to be temporary as demand from China and U.S. revives output this year. Gross domestic product shrank an annualized 1.1 percent in the three months ended Dec. 31, following a revised 3.3 percent expansion in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 2 percent drop. China´s economy overtook Japan´s as the world´s second largest for 2010, today´s data showed, underscoring the rising role of the Japanese neighbor as a source for growth. Japan´s benchmark 10-year government bond yields reached a 10-month high last week amid expectations the expansions in China and the U.S., the country´s biggest export markets, will spur domestic output. "Japan bottomed out in the fourth quarter," Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co., Japan´s third- biggest life insurer, said before the report. China´s economy is already showing signs of resurgence and the U.S. is rebounding, building up expectations of an export-led revival in Japan."
2. World's Fastest Inflation Seen in Queensland Devastation: Australia Credit
Australia´s bond market is signaling inflation will reach a four-year high after the worst floods in 37 years devastated Queensland, supplier of more than 30 percent of the nation´s fruit and vegetables. Australian consumer prices may rise an annual 2.96 percent for the next five years, according to the gap between yields on government bonds and inflation-indexed notes. The so-called breakeven rate jumped from 2.22 percent on Sept. 1 and is the highest among eight developed markets tracked by Bloomberg. The Reserve Bank of Australia boosted its 2011 inflation forecast to 3 percent, the high end of its target range, from 2.75 percent because the A$10.6 billion ($10.6 billion) cleanup bill from the floods, record job growth and crude oil at two- year highs will spur price gains. Bond yields climbed to a 10- month high on speculation RBA Governor Glenn Stevens will raise the developed world´s highest interest rates, now at 4.75 percent, by June, as U.S. and Japanese policy makers hold borrowing costs near zero. "The danger is the rebuilding will produce a lot of income into the economy, and that will be inflationary," said Roger Bridges, who oversees the equivalent of $16.1 billion as head of debt at Sydney-based Tyndall Investment Management Ltd., part of Japan´s Nikko Asset Management Co. "The Reserve Bank is on hold to see how the economy adjusts to the floods. Our long-term view is still that they will put rates up." Bridges said he has been buying Australian bonds after yields climbed.
3. Japanese Stocks Advance on Mubarak Resignation, Weaker Yen; Toyota Climbs
Japan´s Topix index rose for a sixth day after Egyptian President Hosni Mubarak´s resignation and as the yen weakened. Toyota Motor Corp., the world´s largest carmaker, jumped 1.5 percent. Kyocera Corp., an electronics maker that gets more than half of its sales abroad, climbed 1.4 percent. Isetan Mitsukoshi Holdings Ltd., a department store operator, advanced 3.8 percent after the company raised its profit forecast. After Mubarak resigned, "the worst is behind us, although there´s still concern whether power will be transferred smoothly in Egypt," said Kazuhiro Takahashi, a general manager at Tokyo- based Daiwa Securities Capital Markets Co. "The yen´s slide against the dollar will likely support the market." The Nikkei 225 Stock Average rose 0.9 percent to 10,694.80 as of 9:22 a.m. in Tokyo. The broader Topix index gained 1 percent to 956.24 with more than five stocks advancing for each that fell. The Topix´s six-day climb was the longest winning streak since the period ending Jan. 12, 2010. Japan´s market was closed Feb. 11 for a holiday.
4. Geithner Quietly Tells Obama Debt-to-GNP Cost Poised to Increase to Record
Barack Obama may lose the advantage of low borrowing costs as the U.S. Treasury Department says what it pays to service the national debt is poised to triple amid record budget deficits. Interest expense will rise to 3.1 percent of gross domestic product by 2016, from 1.3 percent in 2010 with the government forecast to run cumulative deficits of more than $4 trillion through the end of 2015, according to page 23 of a 24-page presentation made to a 13-member committee of bond dealers and investors that meet quarterly with Treasury officials. While some of the lowest borrowing costs on record have helped the economy recover from its worst financial crisis since the Great Depression, bond yields are now rising as growth resumes. Net interest expense will triple to an all-time high of $554 billion in 2015 from $185 billion in 2010, according to the Obama administration´s adjusted 2011 budget. "It´s a slow train wreck coming and we all know it´s going to happen," said Bret Barker, an interest-rate analyst at Los Angeles-based TCW Group Inc., which manages about $115 billion in assets. "It´s just a question of whether we want to deal with it. There are huge structural changes that have to go on with this economy."
5. Size Matters in Steel as Nippon Default Swaps Beating Posco: Japan Credit
Nippon Steel Corp. and Sumitomo Metal Industries Ltd. are showing that bigger is better in the steel industry for traders in credit-default swaps. The cost of protecting debt of Tokyo-based Sumitomo Metal with credit-default swaps fell 20 basis points in three days to a seven-week low of 67.47 on Feb. 7 after the company and Nippon Steel agreed to merge, a combination that would form the world´s second-biggest steelmaker after ArcelorMittal, according to Sumitomo Metal President Hiroshi Tomono. Investors consider Nippon less risky than Pohang, South Korea- based Posco, Asia´s most-profitable producer, whose default swaps traded at 90.43 points the same day. Nippon Steel´s swaps fell to 63.41 basis points on Feb. 7 from 67.09 before the deal was announced on Feb. 3. "Tighter spreads reflect the more dominant power the two companies will have in the global industry," Toshihiro Uomoto, a credit strategist at Nomura Holdings Inc., said. "They will be more competitive and on a larger scale. I expect the spreads to tighten further." While the companies´ combined debt of $26 billion dwarfs Posco´s $3.2 billion, credit-default swap rates show the advantage provided by the world´s lowest borrowing costs. Japan´s benchmark 10-year bonds yielded 1.295 percent last week, compared with 4.81 percent for similar-maturity Korean notes and 3.63 percent for U.S. Treasuries.
6. Emergency Medical Said to Be Near $3.1 Billion Sale to Clayton Dubilier
Emergency Medical Services Corp. is near an agreement to be acquired by private-equity firm Clayton Dubilier & Rice LLC in a leveraged buyout valued at about $3.1 billion, three people familiar with the matter said. Directors of the Greenwood Village, Colorado-based ambulance company plan to vote on the offer today and announce it tomorrow, said the people, who declined to be identified because the matter is private. Talks may still break down. EMS, the largest U.S. operator of ambulance services and provider of emergency-room doctors, said Dec. 14 it was looking at strategic alternatives. Directors had pushed for higher bids from Clayton Dubilier and runner-up Bain Capital LLC. The Deal first reported the winning bid earlier today. Clayton Dubilier may pay about $70 a share, the people said. That would be less than the company´s $70.66 closing price on Feb. 11 on the New York Stock Exchange. The final sales price may be $3 billion to $3.1 billion, one of the people said.
7. Stocks Back Sarkozy in Euro Survival as Greek Index Rises Most Since 1999
Europe´s most indebted nations are this year´s biggest stock market winners, a signal that investors are convinced by assurances from the region´s leaders that the single currency will survive. Stocks in Greece, Spain and Italy, the worst performing developed markets in 2010, have gained 12 percent on average this year. Spain´s IBEX 35 and Italy´s FTSE MIB are having the best start since 1998 while Greece´s ASE Index is surging the most since 1999, according to data compiled by Bloomberg. While last month 59 percent of respondents in a Bloomberg survey said at least one nation will leave the euro within five years, stocks suggest investors are becoming less concerned about the sovereign debt crisis. The rally is being fueled by demand for the cheapest stocks and support for the single currency from German Chancellor Angela Merkel and French President Nicolas Sarkozy, according to JPMorgan Chase & Co. and SVG Investment Managers. "The politicians are pulling together for the survival of the euro," said Michael Barakos in London, whose JPMorgan Europe Strategic Value fund´s gains have already exceeded all of 2010 thanks to holdings including Spain´s Banco Bilbao Vizcaya Argentaria SA. "A lot of people had thrown in the towel on Europe. No matter what valuation, they did not want to take any risk here. People forget the market is not just economic, it is political."
8. Queensland Floods Drive U.S. Coal Exports to 15-Year High in Record Profit
The biggest floods in Queensland, Australia, in half a century are turning into a windfall for U.S. coal mining companies anticipating record profits and the highest exports in 15 years. Shipments from the U.S. are poised to rise 8.8 percent this year to about 86.5 million tons, the most since 1996, the Energy Department in Washington said Feb. 8. Demand for American coal is increasing after floods devastated an area of Australia twice the size of Texas. Queensland´s combined output of steelmaking and thermal coal may be reduced by 23 million metric tons, Bank of America Merrill Lynch said in a Jan. 25 report. That´s about 13 percent of the state´s exports in the year ended in June. Disruptions will drive the average price of U.S. Eastern coal used to make steel up 13 percent to $254 a ton and the fuel used in power plants to $74 a ton, 20 percent higher than a year ago, according to the median of 11 analysts in a Bloomberg News survey. That may spur a fivefold profit gain for Alpha Natural Resources Inc. and 75 percent for Walter Energy Inc., while boosting President Barack Obama´s goal of doubling exports by 2014. "Are we pushing the price? You´re damn straight we are," said Bob Pusateri, executive vice president of sales and marketing at Canonsburg, Pennsylvania-based Consol Energy Inc., which operates 18 mines across six U.S. states. "If there is a short-term phenomenon because of weather-related issues, the coal companies are going to take advantage of it."
9. Egypt Treasury Bill Yields Hold at 2-Year High in First Post-Mubarak Sale
Egypt paid yields that were close to the highest in two years at its first debt auction since the ouster of President Hosni Mubarak amid investor concern over the economic effects of 18 days of demonstrations. The Ministry of Finance sold a combined 6.5 billion pounds ($1.1 billion) in 91-day and 266-day bills at a sale yesterday. The three-month bills yielded an average 10.95 percent compared with 10.97 percent at last week´s sale, the highest since February 2009. Egypt´s bourse, closed for more than two weeks, will open Feb. 16 to allow companies to disclose the impact of protests on their business. Middle East shares rose yesterday. "The yields will stabilize or reverse direction to become a little lower" in the short and medium term, said Walaa Hazem, who helps run about $1 billion in equity and fixed-income as vice president for asset management at Cairo-based investment bank HC Security & Investment Co. A widening budget deficit and the likelihood of a drop in economic growth will prevent yields from falling "significantly," he said. Finance Minister Samir Radwan said in a Feb. 12 interview economic growth may drop to 4 percent in the fiscal year through June from 5.1 percent in the previous 12 months. The International Monetary Fund estimated before the unrest began that the country´s economy would expand 5.5 percent in 2011, more than twice the 2.5 percent growth rate the IMF forecast for developed countries.
10.China Says Panel Will Begin Scrutinizing Acquisitions by Foreign Companies
China plans to create a ministerial panel to review takeovers of local companies by foreign investors. The panel will be led by the National Development and Reform Commission and the Ministry of Commerce and will be overseen by the State Council, according to a statement published today on the council´s website. Coming under scrutiny will be acquisitions involving military industrial companies and others relating to national defense, the statement said. It also will look at takeovers involving producers of agricultural goods, energy and natural resources, as well as companies in some parts of the infrastructure and transportation-services industries. "Now foreign-funded M&A in China would be subject to review by a state-level investment-review authority and can be blocked on the ground of endangering national security, which may not be received favorably by international investors," said Hubert Tse, a Shanghai-based partner at law firm Boss & Young.
11.Bailout Interest Rate Means Pain, No Gain for Portugal Market: Euro Credit
A European Union-led bailout of Portugal would raise the country´s borrowing costs and debt burden rather than offer respite unless policy makers reduce the rate charged for emergency loans. Portugal´s average debt-service cost is about 3.5 percent, according to the Lisbon-based debt agency. In a projection that assumes "very extreme" conditions, Portugal would have an "implicit funding cost" of less than 5 percent by 2013. Ireland pays an average 5.8 percent for its rescue financing. Portuguese leaders are fending off the views of economists such as New York University professor Nouriel Roubini, who has said Portugal will "soon enough" follow Ireland and Greece in being shut out of markets. European officials have said a lifeline for Portugal may be part of a financial-crisis fix they aim to pull together by the end of March, along with a possible reduction in loan rates. "It would only make sense for Portugal to ask for a rescue if the average interest rate of its debt were to become higher than the rate of the Irish aid," said Filipe Silva, who manages 60 million euros ($82 million) and holds bonds of Portuguese banks at Banco Carregosa in Oporto, Portugal. He no longer holds Portuguese government bonds or bills after selling them in December and January.
12.Loving Your Boss on Weekday Valentine's Day Lifts Japan's Chocolate Makers
For 25-year-old Tokyo office worker Ryoko Ejiri, Valentine´s Day is about boxes of heart-shaped chocolates. She´s not getting them from admirers, she has to buy them for her bosses. "I´m spending more on chocolates this year than I´ve ever done in my life," said Ejiri, who stood in line for an hour at Isetan department store to buy the confectionery for her four managers. "I´m offering them gifts to show thanks." On Valentine´s Day in Japan, women buy chocolates for male coworkers rather than husbands and lovers, a tradition called "giri choco," or "obligation chocolate." With Feb. 14 falling on a weekday for the first time in three years, analysts say that´s a boon for candy makers like Meiji Holdings Ltd., Morinaga & Co., and Morozoff Ltd. Valentine´s Day-related revenue will rise to a three-year high of about 40 billion yen ($485 million), according to Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo.
-0- Feb/14/2011 00:35 GMT