Business Blog Posts

Strengthening investor confidence in the euro zone underpinned the single currency, while receding concerns about the banks' problems threatening the wider financial system sharply tightened Asian credit markets.

"Markets are feeling better. The sense is that things are beginning to be put in place, bondholder haircuts, bank recapitalizations and the EFSF expansion," said a Singapore-based trader with an Asian bank referring to the two-year old euro zone debt crisis.

MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS rose 1.1 percent, following a 1.4 percent gain in the MSCI world equity index .MIWD00000PUS, which posted an increase for the sixth session in a row on Wednesday.

The Nikkei average .N225 rose 1.15 percent on Thursday to a four-week high, with shares of major exporters such as Sony Corp (6758.T) rising as players bought their shares back on tentative signs of progress in the European debt crisis.

In a sign some stability and risk appetite may be returning, the overall market volatility as measured by the VIX index .VIX, Wall Street's so-called "fear gauge," has hovered around 30. The level, pulling back sharply from crisis-like levels near 50 hit in August, suggested investors are less inclined to seek protection in stock index options against an equity market slide.

In credit markets, that had been feeling the strain of waning confidence in the financial system in recent months, spreads on the iTraxx Asia ex-Japan investment grade index narrowed by about 15 points.

But the move is likely an adjustment to a recent over-sold condition and the markets were not yet out of the woods, some analysts say.

"The Vix still remains at an elevated level and the recent decline is merely a rebound from an excessively pessimistic view in the markets," said Junya Tanase, chief strategist at JPMorgan Chase in Tokyo.

"Rather than a sign of a full-fledged risk-on returning, it is just an evidence of a slight easing of risk aversion sentiment."

The euro stayed bid early in Asia on Thursday, having jumped to a near one-month high on the dollar as Europe took a step closer to shoring up its financial rescue fund.

Lawmakers in Slovakia struck a deal on Wednesday to ratify a plan to bolster the euro zone's rescue fund by Friday, effectively ending a crisis that had threatened the currency's main safety net. Slovakia is the only country in the 17-nation bloc left to approve the revamp of the fund.

Adding to the sense of urgency, the President of the European Commission, Jose Manuel Barroso, said Europe needed to take decisive action on Greece and outlined a broad plan to contain the debt crisis.

As European officials step up efforts to provide a more specific roadmap to resolve its debt woes and recover investor confidence, the European Union is expected to announce a bank recapitalization plan designed to cushion the impact any default by Greece could have on the region's banks.

Germany and France, the leading powers in the bloc, have promised to propose a comprehensive strategy to fight the debt crisis at an EU summit on October 23.

Oil prices fell on Thursday, with Brent crude futures down 0.2 percent at $111.10 a barrel after rising the day before for an 11.6 percent gain over six sessions. U.S. crude futures fell 0.8 percent to $84.89 a barrel, after snapping a five-session streak of higher closes on Wednesday.

China's trade surplus narrowed in September for a second month in a row as growth of exports and imports both fell below forecasts, reflecting global economic weakness. Exports rose 17.1 percent last month from a year ago, slowing from a 24.5 percent gain in August, and imports increased 20.9 percent, compared with August's 30.2 percent rise.

Hong Kong's benchmark Hang Seng Index .HSI rose 1.5 percent while the Shanghai Composite .SSEC was up 0.4 percent.

(Additional reporting by Umesh Desai in Hong Kong; Editing by Alex Richardson)

While Yahoo's own strategic review has bumped AOL to the back burner for many on Wall Street, Armstrong is still trying to drum up shareholder support for a deal with Yahoo, presenting it as an alternative to going it alone as an Internet media company.

"The focus in the meeting has gone from a year ago of being around the fundamentals to now being how could you carve this up, what are separate assets worth, are there ways to sell off the business to extract value from them," said a top 20 AOL shareholder who attended one of the meetings.

Armstrong said a merger between AOL and Yahoo could wring out $1 billion to $1.5 billion in savings from overlapping data centers and duplicate news sites, such as sports, entertainment and finance, according to another major shareholder who met with Armstrong.

He is pushing the notion that a combination with Yahoo would appease ad agencies looking for more efficient buys with a bigger audience, said the two shareholders.

They said they liked the idea of a merger with Yahoo but it remains to be seen if Armstrong can pull it off.

Armstrong's defection from Google Inc to AOL in 2009 had raised investors' hopes that he could revive a fallen giant once famous for connecting the world to the Web.

Recruited to AOL for his advertising sales prowess, Armstrong wants to turn the company into one of the top media destinations dependent on ad revenue, after a disastrous 10 year merger with Time Warner Inc.

But so far, that seems elusive when AOL has to compete for advertising dollars against the likes of Facebook and Google, in addition to Yahoo itself.

In August, AOL reported a surprise quarterly loss and blamed weaker-than-expected advertising growth. Shares plunged 31 percent.

AOL, Yahoo and Microsoft in mid-September formed an advertising partnership to go up against Google, according to AllThingsDigital blog.

A deal with Yahoo could serve as a way for Armstrong to bow out gracefully. The idea is not new -- it was floated when Microsoft Corp made a bid for Yahoo in 2008, and resurfaced again last year when AOL hired Bank of America and Allen & Co to review alternatives.

"As far as Armstrong's desire for an exit, he doesn't want to be doing what he is doing 18 months from now. He wants to be out," said a source familiar with Armstrong's thinking. "He's an ambitious sort of guy and AOL is such an afterthought. But he would definitely put his hat in the ring to run a combined Yahoo/AOL."

Although Armstrong's performance has disappointed many shareholders, some are not ready yet to pitch him overboard.

"He's in the sixth inning," said the top 20 AOL shareholder. "It is not fair to grade him right now but I think the investment community is a little put off. There is a strong desire to see tangible results."

AOL declined comment for this story.

Yahoo and AOL have many common shareholders as of June 30, including Capital Research, BlackRock, Vanguard and State Street.

Fidelity Management and Research Co, AOL's No. 2 shareholder as of June 30, cut its stake in AOL to 3.7 percent from 10.3 percent according to a regulatory filing Tuesday.

WHAT'S BLACK AND WHITE...

AOL's stock has sunk more than 40 percent since it was spun out from Time Warner in 2009, ending what is widely regarded as one of the worst corporate mergers in history.

What was supposed to be a new media company is looking increasingly old media, similar to newspapers.

Both AOL and newspapers are trying to jump-start digital revenue based on news and information, but both are yoked to legacy assets, the Internet dial-up access business and printing press respectively.

"Dead money" is how another media investment banker described the predicament of the rapidly dwindling dollars derived from dial-up access and print newspapers.

AOL has invested heavily in news, some $160 million so far this year on building out its online local news network Patch and its $315 million acquisition of the Huffington Post.

Subscriber revenue, which represents about 38 percent of AOL's total revenue in the first six months of 2011, is expected to decline 23 percent this year, estimated Benchmark Co analyst Clayton Moran.

Moran forecast that advertising revenue at AOL will grow 1 percent to 2 percent this year.

"There is a race to grow the digital business before the subscription business disappears and right now they are losing that race," Moran said.

There are still some believers in AOL, just as there are in the newspaper business. Dallas based investment firm Hodges Capital Management holds shares in the New York Times Co, Gannett Co and A.H. Belo on the notion there will always be a need for content.

However, when asked if the firm would consider investing in AOL, Hodges analyst Derek Maupin said it was hard to say. "We look at as many ideas as we can. You never know what you are going to turn over."

(Reporting by Jennifer Saba and Nadia Damouni, editing by Tiffany Wu, Phil Berlowitz)

Yet by far the most value embedded in the device accrues to Apple and sustains thousands of well-paid design, software, management and marketing jobs in the United States.

By contrast, the value captured in China by the laborers who assemble Apple's products is a mere $10 or so, according to researchers led by Kenneth Kraemer of the University of California, Irvine, who crunched the data.

Viewed through this prism, offshore manufacturing of electronic products like the iPad is a solution, not a problem, for the United States, and seeking to punish China for its purportedly undervalued exchange rate is wide of the mark.

"Without China, Apple couldn't be so successful and Apple products wouldn't be so affordable," said Yao Shujie, professor of economics at the University of Nottingham in England.

In the case of the iPad, China is the final assembly point for components imported from a host of countries, including South Korea, Japan, Taiwan, the European Union and the United States itself. There are no Chinese suppliers for the iPad.

"China is sitting in the middle: It's processing goods for rich countries," said Yao. As such, he argued, it would be more accurate to allocate most of China's bilateral "iPad trade surplus" to those supplier countries.

Kraemer agreed that trade data can mislead as much as inform.

Statistical agencies are working on more accurate breakdowns of the origins of traded goods by value added, which would be attributed based on the location of processing, not on the location of ownership, he said.

"This will eventually provide a clearer picture of who our trading partners really are, but, while this lengthy process unfolds, countries will still be arguing based on misleading data," Kraemer and fellow authors Greg Linden and Jason Dedrick said in a recent paper.

FOOTLOOSE MANUFACTURERS

Such economic niceties cut little ice with U.S. politicians. The Senate on Tuesday passed a bill aimed at getting China to raise the value of the yuan in an effort to save American jobs. The legislation now heads for the House of Representatives, where its fate is uncertain.

The bill would allow the U.S. government to slap duties on products from countries found to be subsidizing their exports by undervaluing their currencies.

Fred Bergsten, director of the Washington-based Peterson Institute for International Economics, reckons a $100 billion improvement in America's current account deficit would translate into 600,000 new jobs.

But Fredrik Erixon, director of the European Center for International Political Economy, a think tank in Brussels, said America's trade deficit had deep demographic and other structural roots. As such, even a substantial rise in the yuan would lead to only a marginal increase in U.S. jobs.

"Multinational firms that think currency appreciation is going to have a big effect on their export capacity from China to the United States are going to shift to other countries, not to the United States," he said.

Indeed, manufacturers are already exiting low-margin sectors in response to the steady rise in the yuan -- up 30 percent in nominal terms against the dollar since 2005 -- plus fast-rising costs for labor, land, energy and other inputs.

Jonathan Anderson, chief emerging-markets economist for UBS in Hong Kong, said U.S. and EU trade data showed that China's share of total low-end light manufacturing imports had peaked over the last 24 months and was now falling outright in the United States.

Gaining at China's expense were its even cheaper neighbors, including Vietnam, Bangladesh and Indonesia, as well as Mexico, Anderson said.

Strikingly, while overall U.S. imports of apparel and furniture have continued to increase over the past two years, domestic American production has plummeted. Foreigners have gained, not lost, market share.

Anderson said it made perfect sense that U.S. workers were not the beneficiaries of rising Chinese wages.

"If $300 per month for a 65-plus hour work week is too rich for, say, basic toy manufacturers, do they go to the U.S. and pay $1,200/month plus benefits for a 40-hour week at the minimum wage -- or do they go to Bangladesh or Cambodia, where workers put in Chinese-style hours for less than $100/month?" he wrote in a recent report.

NO EASY FIX

Only by forcing a massive rise in the yuan or imposing implausibly high tariffs could such a cost gap be closed. The threat of trade and currency wars, which is likely to be a refrain at this weekend's meeting of Group of 20 finance ministers in Paris, could then well become a reality.

"The gradual concentration of electronics manufacturing in Asia over the past 30 years cannot be reversed in the short to medium term without undermining the relatively free flow of goods, capital, and people that provides the basis for the global economy," wrote Kraemer, Linden and Dedrick.

They said they did not want to imply that there was no hope for U.S. manufacturing. But it was design, computing and marketing, not snapping a molded plastic case in place, that created high-wage jobs. In any case, next-door Mexico could already handle final assembly at a relatively low cost.

"Bringing high-volume electronics assembly back to the U.S. is not the path to 'good jobs' or economic growth," they wrote.

There were only 3.06 million available jobs at the end of August, down from July's downwardly revised 3.21 million, according to the Labor Department's Job Openings and Labor Turnover Survey released on Wednesday.

Monthly job openings -- unfilled, posted vacancies that employers plan to fill within 30 days -- help describe demand for labor. The number has consistently hovered well below the 4.4 million openings registered in December 2007, before the 2007-2009 recession.

Some 8 million Americans lost their jobs in the recession and only 1.4 million of those jobs have come back during the recovery.

Hiring rose marginally in August, with businesses and government hires climbing to 4.01 million from 3.98 million a month earlier, too small a gain to bring down the U.S. unemployment rate.

The rate at which workers were separated from jobs by layoffs or quits, a measure of labor turnover, was 3.1 percent in August.

President Barack Obama has been counting on the economic recovery to help his re-election campaign, but an unemployment rate stuck above 9 percent and painfully slow jobs growth is putting his chances of winning a second term at risk.

In a modest bright spot for workers, the Labor Department report on Wednesday showed the rate at which people quit their jobs, which can indicate workers' confidence in their ability to find new jobs, rose to 51 percent in August from 50 percent in July.

The rate of layoffs was 42 percent.

The Job Openings and Labor Turnover Survey encompasses employment data from about 16,000 establishments across the country.

(Reporting by Jason Lange; Editing by Theodore d'Afflisio)