Top Stories: Business and Finance
The following are the day's top business stories:
1. Service Industries in U.S. Expand at Fastest Pace Since May 2006, ISM Says 2. Japan Stocks Rise to Seven-Month High on U.S. Services, Jobs; Honda Gains 3. Mitsubishi Loan at Libor as $32 Billion Trader Debt Maturing: Japan Credit 4. Coal Prices for Asia Steelmakers May Jump 33% After Australia Mines Flood 5. India May Need to Raise Rates to Battle Inflation, IMF Mission Chief Says 6. Thomas Lee to Buy AEA's Acosta in Deal Said Valued at More Than $2 Billion 7. Google Wins Freeze on Microsoft Contract With U.S. Department of Interior 8. China Rare Earths Leave Toxic Trail to Toyota Prius, Vestas Wind Turbines 9. Samsung Electronics Plans Cheaper 3-D Televisions as Prices Deter Shoppers 10 China Skyscraper Boom Signals `Misallocation' of Capital: Chart of the Day 11.Buy Chinese Stocks on Inflation Policy `Noise,' JPMorgan Asset's Wang Says 12.Goldman Sachs Sends a Message With Facebook Deal: The Magic Model Is Back
1. Service Industries in U.S. Expand at Fastest Pace Since May 2006, ISM Says
Service industries expanded in December at the fastest pace since May 2006, showing the U.S. economic recovery is picking up and broadening beyond manufacturing. The Institute for Supply Management´s non-factory index, which covers about 90 percent of the economy, rose to 57.1, exceeding the median forecast of economists surveyed by Bloomberg News, from 55 in November. A reading greater than 50 signals growth. Another report today showed hiring accelerated. Improving demand at FedEx Corp. and Carnival Corp. shows the expansion is extending to areas like retailing and recreation, putting the rebound from the worst recession since the 1930s on firmer footing. The gains may prompt more employers to increase payrolls, one of the missing ingredients that has concerned Federal Reserve policy makers. "We´re coming into 2011 with some good momentum," said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected the ISM index would climb to 57. "We´re going to be entering a better business climate."
2. Japan Stocks Rise to Seven-Month High on U.S. Services, Jobs; Honda Gains
Japanese stocks rose, driving benchmark indexes to their highest levels since May, after faster-than-estimated growth in U.S. payrolls and service industries boosted optimism in the world´s largest economy. Honda Motor Co., Japan´s No. 2 automaker by sales, gained 1.4 percent. Canon Inc., a camera maker that generates about 80 percent of its revenue overseas, advanced 1.2 percent after the dollar surged against the yen, boosting the outlook for export earnings. Mitsui & Co., a trading company that counts commodities as its biggest source of profit, rose 1.6 percent after crude-oil and copper prices increased. "Investors are taking business confidence as being on a recovery track because economic measures are good in general," said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. "A global pickup in business sentiment is boosting actual demand for commodities." The Nikkei 225 Stock Average rose 1.1 percent to 10,499.44 as of 9:04 a.m. in Tokyo, the biggest gain among benchmark indexes in the Asia-Pacific region. The Topix climbed 1 percent to 921.07, with almost eight times as many shares advancing as declining. Both gauges reached their highest levels since May.
3. Mitsubishi Loan at Libor as $32 Billion Trader Debt Maturing: Japan Credit
Japan´s Mitsubishi Corp. agreed to pay a record-low interest rate for a loan last week, a sign there´s no lack of demand for debt from an industry that has about $32 billion coming due within two years. The nation´s biggest trading company will pay one basis point, or 0.01 percentage point, more than the London interbank offered rate for yen loans for five years, according to data compiled by Bloomberg. The price on Itochu Corp.´s bond due in May 2014 shrank to seven basis points versus similar-maturity swap rates yesterday from 50 when Japan´s fourth-largest trading firm sold the notes in May 2009. The narrowing premiums reward the trading companies, whose investments range from resources to industry and retail, as they raise profit forecasts at a time when Prime Minister Naoto Kan sees Japan´s economic growth slowing to 1.5 percent next fiscal year from 3.1 percent. While expanding into Australian coal and Chinese retail, the traders are benefiting from the lowest borrowing costs in the developed world. "It´s a great time for the commodity companies to issue bonds," said Yasuhiro Matsumoto, head of credit research at Shinsei Securities Co. in Tokyo. "The risk premium for commodity companies is at historic lows."
4. Coal Prices for Asia Steelmakers May Jump 33% After Australia Mines Flood
Steelmakers in Asia may be forced to pay as much as 33 percent more for hard coking coal after the worst floods in 50 years in Australia´s Queensland state disrupted output from the world´s biggest shipper of the fuel. Prices may increase to $270 a metric ton for three-month contracts starting April 1 as the floods threaten to take as much as 10 million tons of metallurgical coal out of the market, Colin Hamilton, a London-based analyst at Macquarie Group Ltd., said in an e-mailed response to questions. Daiwa Capital Markets analyst David Brennan said prices may jump to $300 a ton. Mills agreed to pay $225 a ton for the three months starting Jan. 1, Bank of America Merrill Lynch analysts wrote in a report last month. Rain in Queensland, where waters have inundated an area the size of France and Germany, has prompted BHP Billiton Ltd. and Rio Tinto Group to declare force majeure, a legal clause that allows mines to miss deliveries. About 37 percent of the world´s traded coking coal is affected, according to Macquarie. Floods in Queensland in 2008 left steel producers, including Japan´s Nippon Steel Corp. and JFE Holdings Inc., with a threefold increase in annual contract prices to about $300 a ton. "Queensland accounts for the majority of the premium hard coking coal supply on a global seaborne basis," Alex Tonks, a commodity strategist at Bank of America Merrill Lynch in Sydney, said by telephone. "A lot of operations have been impacted. It certainly looks pretty bad at this stage."
5. India May Need to Raise Rates to Battle Inflation, IMF Mission Chief Says
India´s central bank may have to keep raising interest rates to combat persistent inflationary pressures, the International Monetary Fund´s mission chief to the country said. "We see a pretty strong underlying inflationary pressure still in there," Masahiko Takeda said on a video on the IMF´s website. Monetary policy "has been appropriately tightened," though "in our view there´s a possibility that further monetary tightening action may be needed to contain the high inflation." The Reserve Bank of India said Dec. 30 that threats to growth have "receded" and inflation risks "have come to the fore," signaling it may tighten monetary policy further after boosting interest rates the most in Asia in 2010. Governor Duvvuri Subbarao, who increased rates six times in 2010, held off on raising borrowing costs in a Dec. 16 policy announcement as a record 1.1 trillion rupees ($24.3 billion) of share sales last year caused a cash squeeze in the banking system. IMF´s Takeda made the comments after completing an annual review of India´s economy, which was discussed by the IMF board on Dec. 22. In the board´s conclusions released today, the IMF said that the Indian economy is expected to grow 8.75 percent in the fiscal year ending March 31, and 8 percent the following year. The IMF staff report was not published.
6. Thomas Lee to Buy AEA's Acosta in Deal Said Valued at More Than $2 Billion
Thomas H. Lee Partners LP agreed to buy the Acosta food marketing company from private-equity firm AEA Investors LP, as deals between buyout companies rose to a record. The transaction, which was announced today in a statement from Jacksonville, Florida-based Acosta Sales & Marketing, values the company at more than $2 billion, according to three people briefed on the talks. The purchase is scheduled to close in the next 60 days and there will be no change to the senior management or operations, Acosta said. The company, which has more than 17,000 associates in 65 locations throughout the U.S. and Canada, is at least the second marketer in two months to announce a switch in private-equity owners. Apax Partners LLP agreed in November to buy a majority of Advantage Sales & Marketing Inc. from J.W. Childs Associates LP and Bank of America Corp.´s private-equity unit. The takeover valued Advantage at about $1.8 billion, a person with knowledge of the transaction said at the time. "Different firms use different methods to improve the company based on the stage that the company is in," said Russell Pinilis, partner at Kramer Levin Naftalis & Frankel LLP in New York. "There´s nothing wrong" with secondary deals.
7. Google Wins Freeze on Microsoft Contract With U.S. Department of Interior
Google Inc. won a temporary court order stopping the U.S. Interior Department from moving ahead with an e-mail project that favored Microsoft Corp., after alleging improprieties in bidding on the $49.3 million contract. A federal judge in Washington halted the U.S. from proceeding with a Microsoft e-mail system for the department´s 88,000 employees in an order unsealed yesterday. U.S. Court of Federal Claims Judge Susan Braden cited deficiencies in the procurement process in her order. Google, based in Mountain View, California, and Onix Networking Corp., a licensed Google seller, sued the Interior Department in October, claiming the department didn´t provide a "full and open" competition for the contract. "Without a preliminary injunction, the award will put into motion the final migration of Interior´s e-mail system, achieve ´organizational lock-in´ for Microsoft, and cost Google the opportunity to compete," the judge wrote in a 27-page decision.
8. China Rare Earths Leave Toxic Trail to Toyota Prius, Vestas Wind Turbines
Rare earth metals are key to global efforts to switch to cleaner energy -- from batteries in hybrid cars to magnets in wind turbines. Mining and processing the metals causes environmental damage that China, the biggest producer, is no longer willing to bear. China´s rare earth industry each year produces more than five times the amount of waste gas, including deadly fluorine and sulfur dioxide, than the total flared annually by all miners and oil refiners in the U.S. Alongside that 13 billion cubic meters of gas is 25 million tons of wastewater laced with cancer-causing heavy metals such as cadmium, Xu Xu, chairman of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters, said at a Beijing conference on Dec. 28. "China supplied the world with very cheap and good-quality rare earths for more than a decade at the cost of depleting its resources and damaging its environment," Wang Caifeng, who heads the government-affiliated China Association for Rare Earths, said at the conference. "The world should thank China." With China now shutting down unregulated rare earth mines and slashing exports, users from Toyota Motor Corp. to Vestas Wind Systems A/S, the world´s biggest maker of wind turbines, are concerned that supplies may be constrained. China provides more than 95 percent of global shipments of the 17 rare earth metals, also used in mobile phones, catalysts to reduce automobile exhaust emissions and energy-saving electronics.
9. Samsung Electronics Plans Cheaper 3-D Televisions as Prices Deter Shoppers
Samsung Electronics Co., the world´s largest maker of televisions, plans to offer a range of 3-D TVs that will be priced lower than its existing models after high prices damped demand. The electronics maker will include the technology in seven models this year, Lee Kyung Shik, a vice president at the digital-media division, told reporters in Seoul on Dec. 23 without disclosing prices. Samsung will display six models at this week´s Consumer Electronics Show in Las Vegas, Jason Kim, a company spokesman, said yesterday. "After assessing consumers´ needs through market research, we´ve found that there´s quite strong demand for 3-D TVs," Lee said. "But price has been an obstacle." Samsung joins Toshiba Corp. in seeking to boost demand for 3-D TVs after high prices and the need to wear special glasses deterred sales. Tokyo-based Toshiba said yesterday that it plans to sell the world´s first large-sized 3-D sets that don´t require viewers to wear spectacles.
10.China Skyscraper Boom Signals `Misallocation' of Capital: Chart of the Day
China is home to almost half of all skyscrapers being erected around the world, underscoring concerns that excessive investment will lead to a sharp economic slowdown, according to Barclays Plc. The CHART OF THE DAY shows investment in real estate development in China reached 4.3 trillion yuan ($649 billion) in the first 11 months of last year, more than triple the amount of the same period in 2005. The Shanghai Stock Exchange´s property developers´ index and Dubai main equities gauge are also tracked. China accounts for 44 percent of the 50 skyscrapers scheduled for completion worldwide in the next six years, Barclays analysts led by Andrew Lawrence said in a report this week. "For investors, this concentration of skyscraper building should raise concerns," the analysts wrote. "History implies that this is a sign of economic over-expansion and a misallocation of capital, which will result in an economic correction within the next five years." Over the past 140 years, completion of the tallest buildings has coincided with periods of economic turmoil such as the Great Depression, the Asian financial contagion and the global credit crisis, Barclays said. The 632-meter Shanghai Tower will be the world´s second-tallest skyscraper when work on the building finishes 2014, after Dubai´s 828-meter Burj Khalifa.
11.Buy Chinese Stocks on Inflation Policy `Noise,' JPMorgan Asset's Wang Says
China´s stocks, the worst-performing among major global equity markets last year, will rise this year and investors should buy when faster inflation triggers rumors of further tightening measures, JPMorgan Asset Management said. Valuations for some Chinese shares, such as those of developers, "look extremely cheap," said Howard Wang, head of the Greater China team at the JPMorgan unit, which oversees more than $1.3 trillion of global assets. Shares in the property industry group on the Shanghai Composite Index trade at an average 13 times estimated earnings, compared with 16.4 times on the Hang Seng Property Index and 21.5 times for companies on the MSCI World/Real Estate Index. "The good news is that China was an absolute dog last year, so expectations are set particularly low," Wang said at a media briefing in Hong Kong yesterday. "We expect MSCI China and H shares to get positive returns this year." The Shanghai Composite Index, which tracks the bigger of China´s two stock exchanges, dropped 14 percent last year, the worst performer among the 14 biggest world benchmark indexes, as the government stepped up its fight against inflation. Banks´ reserve ratio requirements were increased six times in 2010 and interest rates were raised twice as price gains accelerated to 5.1 percent in November, a 28-month high.
12.Goldman Sachs Sends a Message With Facebook Deal: The Magic Model Is Back
Goldman Sachs Group Inc.´s stake in Facebook Inc. and plan to offer shares to wealthy clients shows how Chief Executive Officer Lloyd Blankfein´s model of investing the firm´s own capital continues to pay off. While the financial crisis led rivals such as Morgan Stanley to scale back principal risk-taking, Blankfein, 56, hewed to the firm´s strategy of serving as a co-investor as well as an adviser and financier to clients. The Facebook deal demonstrates that new U.S. financial regulations and proposed international capital requirements haven´t changed that yet. "The take-away is that the model is not broken," said Roger Freeman, an analyst at Barclays Capital in New York who has an "equal-weight" recommendation on Goldman Sachs. "When the dust settles a lot of the prior activities are still permissible." Principal investing -- in which Goldman Sachs uses its own money, instead of clients´ money, to buy stakes in companies or real estate -- generated a total of $9.4 billion for the firm since the end of 2001, company filings show. The business can be volatile. In 2007 the unit contributed $3.8 billion in revenue and the next year it lost $3.9 billion, company filings show.
-0- Jan/06/2011 00:35 GMT