Business Blog Posts

The euro could get a further boost if the U.S. Federal Reserve maintains a cautious view of the U.S. economic recovery after a two-day policy meeting Tuesday and Wednesday.

Markets are increasingly speculating that the European Central Bank will lift interest rates ahead of the Fed, after recent tough comments by ECB chief Jean Claude Trichet about the need to keep inflation in check.

Japan's Nikkei average .N225 rose for a second straight session, advancing 1.1 percent, lifted not only by gains in New York and London overnight but by local optimism ahead of major corporate earnings reports.

Exporters including Canon (7751.T) and Kyocera (6971.T) are due to report this week, which could set the tone for earnings season which will last until early February. Canon rose 1.6 percent Tuesday, while Kyocera added nearly 2 percent.

"This isn't going to be a regular earnings season," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

"Stocks have risen a lot over the quarter and strong earnings are at least partly priced in by investors, so they will not only want to see the figures for the quarter but also how those firms can sustain growth in the long run."

The Bank of Japan, ending a two-day policy meeting, kept monetary policy extremely loose as expected, and reviewed its long-term forecasts.

The central bank upwardly revised its consumer price forecast for the fiscal year beginning in April, reflecting the impact of recent rises in commodity prices, and roughly maintained its economic growth forecasts.

The MSCI index of Asian stocks outside Japan .MIAJ00000PUS rose by 0.6 percent after recording its worst weekly performance in almost two months last week. It is down 1 percent for the month.

Shares of resource companies gained on a rise in industrial metals prices, with the MSCI ex-Japan materials index up 1.1 percent.

Worries about mounting inflationary pressures have spooked some investors into selling out of emerging Asian markets and taking profits after strong rallies in 2010, but rather than leaving the region completely investors are channeling money toward countries seen as better placed to deal with price pressures.

Indonesian bond yields have jumped and stocks have retreated as investors cut their holdings, worried that the country, one of the darlings of emerging market investors in recent years, does not have a tight grip on inflation.

Investors in major emerging markets are also closely watching India's battle against stubborn inflation, which has been aggravated by surging global commodities prices and domestic supply pressures. The central bank is expected to raise rates for the seventh time in a year at a meeting later Tuesday (0600 GMT).

EURO CLINGS TO GAINS

While TI said it is optimistic about growth prospects, analysts questioned whether its 2011 revenue growth would match an 8 percent increase in its research and development spending budget compared with 2010.

TI's shares had risen 46 percent since September as investors were anticipating stronger growth than TI delivered. The stock slid 2 percent in after-hours trade.

"Given the stock has had a big run in the last quarter or so, you don't seem to have the growth to support it," said Charter Equity Research analyst Ed Snyder, adding that the company's expenses were likely to jump this quarter.

Executives told investors on a conference call they would not increase R&D spending more than revenue. But they left analysts scratching their heads over the suggestion that this would mean 8 percent revenue growth for 2011.

Analysts are on average anticipating revenue increases less than 1 percent in 2011, according to Thomson Reuters I/B/E/S.

"The question now is when they're going to grow," said Gleacher & Co analyst Doug Freedman.

TI's fourth-quarter gross profit margin came to about 53 percent, while two analysts had expected closer to 54 percent.

TI said its profitability was pinched a bit in the fourth quarter as it ramped up production in new factories and weak demand for some chips held back output at older facilities.

But the company, whose chips are used in a products ranging from cellphones to cars, said an inventory correction that hurt sales of chips for TVs and computers had ended.

"The indications we've got from (TV) customers is they've cleaned up their inventory in the fourth quarter and we should expect a resumption of orders in the first quarter," TI's chief financial officer Kevin March told Reuters in an interview.

INVENTORY CORRECTION OVER

Electronics manufacturers had bought too many chips in early 2010 due to enthusiasm about the prospects for an economic recovery, only to curtail orders later in the year because consumer demand didn't show up and they had to clear out excess inventory.

Also on Monday, Volterra, which makes power-supply chips, said it too expects normal seasonal growth after an inventory correction in the communications, server and storage markets.

And European chipmaker STMicroelectronics posted earnings above expectations and said it expects its sales to grow faster than the overall market in 2011. 1]

Shares of the world's largest hamburger chain fell about 1.7 percent in premarket trading on Monday as the company also reported a fourth-quarter profit in line with expectations.

McDonald's said global sales at restaurants open at least 13 months rose 3.7 percent overall in December. They gained 2.6 percent in the United States, slid 0.5 percent in Europe and rose 8.9 percent for Asia-Pacific, Middle East and Africa.

Wall Street had expected December same-restaurant sales to be up 3.9 percent in the United States, up 3.4 percent in Europe and gain 5.7 percent in APMEA, according to Janney analyst Mark Kalinowski.

For January, the company expects global same-restaurant sales to increase in a range of 4 percent to 5 percent.

Net income in the fourth quarter rose to $1.24 billion, or $1.16 a share, compared with $1.22 billion, or $1.11 a share, in the year-earlier quarter. The profit matched what analysts polled Thomson Reuters I/B/E/S had expected.

McDonald's shares dropped to $73.73 in premarket trading from Friday's closing price of $75.01 on the New York Stock Exchange.

(Reporting by Ben Klayman; Editing by Derek Caney and Maureen Bavdek)

Concerns about rising inflation gave investors an excuse to book profits in some Asian markets after strong rallies in 2010, but rather than exiting the region funds were being reallocated to countries seen as having a better grip on price pressures.

Profit-taking also hit the euro, which backed away from a nine-week high, although easing concerns about Europe's sovereign debt crisis gave some support to the single currency.

The MSCI index of Asia Pacific stocks outside of Japan .MIAJ00000PUS was flat on the day after being up nearly 0.3 percent in early trade.

It posted its worst weekly performance in nearly two months last week and is down by 1 percent for the month. In contrast, the Dow Jones industrial average .DJI is up 2.5 percent in the same period.

"The Dow Jones gain on Friday and higher Asian stocks this morning may provide positive support," said Parin Kitchaotornpitak, a senior analyst at broker Far East Securities in Bangkok. "But we still see some pressure from selling by foreign investors."

Japan's Nikkei average .N225 rose 0.5 percent, with resource shares popular and recently beaten-down exporters bought amid expectations of robust earnings reports from Japanese firms this week. .T

The euro stayed above the $1.36 line, having burst through the key resistance level last Friday, helped by hawkish comments from the European Central Bank chief Jean-Claude Trichet which gave markets an excuse to cut short euro positions.

That is in sharp contrast to the Fed, which is likely to leave policy unchanged at a review on Wednesday and note a slight improvement in the economy's outlook.

The euro has rallied some 6 percent in the past two weeks on demand from Asian central banks, traders said.

INFLATION, WHAT INFLATION?

While sellers targeted stocks in India, China and Indonesia last week, on worries that authorities were being too slow to tighten policy, Citigroup strategists said inflation was running at a lower level than seen during previous cycles.

Markus Rosgen, head of Asia ex-Japan strategy at Citigroup, said inflation in Asia typically tends to pick up during this stage of the economic cycle as economies grow into their excess capacity, only to eventually subside.

Rosgen recommends buying North Asia and cyclical stocks and avoiding South Asia, consumer and utility sectors.

Moreover, the broad MSCI Asia Pacific ex-Japan 12-month forward price/earnings ratio is still below the long-term average, indicating valuations still remain attractive, according to Thomson Reuters data, while inflows into emerging markets have persisted.