Business Blog Posts

A broad sell-off in Asia since the start of 2011 on inflationary worries has shown no signs of abating, as expectations of more monetary tightening have encouraged investors to shift funds from emerging to developed markets.

Analysts said the selling in emerging markets could have some more room to run, especially in countries where stocks are ripe for a pullback after last year's stellar gains and the near term interest rate outlook is unclear.

On Friday, Taiwan .TWII shares ended down more than two percent, stock markets in Thailand .SETI and Korea were down one percent, while Australia's benchmark index .AXJO snapped a seven-day winning streak a investors took profits from banking and resource shares.

MSCI's index of Asia Pacific shares-ex-Japan .MIAPJ0000PUS is set to fall by more than 4 percent this week, its worst performance since May 2010.

So far this year, Asian shares have underperformed the MSCI world index .MIWD00000PUS by five points as traders cut positions due to a steady drip of strong data out of the U.S.

"Pressure on emerging market equities may well, therefore, continue while uncertainties about the intensity, duration and effect of the ongoing tightening cycle remain alive," Barclays strategists said in a weekly note.

This week alone, China raised interest rates, Philippines held rates but raised its inflation forecast and Bank of Korea surprised markets by holding rates steady, although it is widely expected to tighten again in March.

Foreign selling has picked up in Asian shares, especially in South Korea this week while offshore selling in Taiwan on Thursday was the biggest in six months.

Indonesian shares .JKSE fell 0.6 percent with shares in PT Garuda Indonesia GIAA.JK, the nation's state-owned carrier, tanking by more than 20 percent on debut.

Japanese markets were closed for a national holiday.

METALS GAIN

Copper rose back above $10,000 per tonne, while tin prices hit a record high as strong U.S. jobless data reassured investors about the pace of the recovery in the world's biggest economy.

Egyptian President Hosni Mubarak's plans to relinquish powers but not step down did little to boost investor hopes of a quick solution to the Egyptian crisis and lifted oil prices.

Gold, was steady at around $1,364 an ounce and U.S. crude oil futures rose 88 cents to $87.61 a barrel.

It could also run into hurdles in Washington as U.S. lawmakers and regulators consider whether they are prepared to allow the citadel of American capitalism to fall into foreign hands, although there has been virtually no public criticism in the United States as yet.

The companies said on Wednesday they are in "advanced talks" to join forces and create an exchange operator with unprecedented global reach and -- most worrisome for regulators -- a dominant grip on Europe's lucrative derivatives markets.

While executives from Frankfurt and New York have hatched a tentative agreement, there are still obstacles that must be overcome -- the same ones that scuppered past attempts to combine Deutsche Boerse with Paris-based Euronext.

"These key questions are not yet resolved," a senior German financial source told Reuters on Thursday.

A financial regulator from the German regional state of Hesse -- which must approve the deal -- said it would seek to preserve the interests of Frankfurt as a financial center. Likewise, French regulator AMF said it would be vigilant about preserving Paris' status.

Once notified, European Commission competition authorities initially have 25 days to decide whether to approve a deal but can also seek an in-depth investigation that can take some months including extensions.

"The biggest danger of a failure for the deal at this point is antitrust concerns in the derivatives market, because Eurex and Liffe would have a market share of more than 90 percent in Europe," said Stefan Brugger, a fund manager at Union Investment in Frankfurt. "We consider these concerns as overdone," he added.

U.S. politicians were unusually quiet about the deal that would see the Big Board bought out and would put more than 40 percent of U.S. options trading under one roof.

New York Mayor Michael Bloomberg, the first major U.S. public figure to comment, said he supported the plan. "It's going to give us access to Europe, and the Europeans access to the States in a way that our competitors, like London, will not have," he told reporters in New York.

While U.S. Representative Carolyn Maloney of New York said she supported the deal, five senior lawmakers with market oversight duties declined to comment. And U.S. Commodity Futures Trading Commission Chairman Gary Gensler declined to comment.

In another sign that barriers remain in Europe, French Economy Minister Christine Lagarde said she was watching negotiations closely with an eye on market stability and security, and the development of value on French soil.

DERIVATIVES SPAT

The companies have released few details about the proposed merger, which would see Deutsche Boerse's shareholders in the driving seat with 60 percent control and create an exchange behemoth with more than $20 trillion in annual trading volume.

The combination of Deutsche Boerse's Eurex and NYSE Euronext's London-based Liffe platforms would dominate trading in interest rate, fixed-income, and equity- and index-based products in Europe.

The Dow ended slightly lower, breaking an eight-day rally after network equipment maker Cisco Systems Inc (CSCO.O) gave a weak outlook.

The S&P and Nasdaq wavered in volatile late-day action as Mubarak began a speech in response to the weeks of civilian protests. Earlier in the day, as media reports spread that Mubarak might resign, equities rebounded off early lows sparked by the disappointment over Cisco.

"The moment Mubarak said he would be giving up duties to his vice president, the market said it was a good thing and rose," said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co in New York.

"There was an initial reaction that things would be better, but that doesn't seem to be the case," Holland added. Mubarak's speech enraged protesters, who reacted with chants of "Down, down Hosni Mubarak."

More than two weeks of civilian unrest in Egypt have created some uneasiness among global investors on fears that political instability could spread through the region and impact commodities.

The Van Eck Market Vectors exchange-traded fund (EGPT.P) ended up 0.45 percent, cutting gains late when it appeared that Mubarak was not stepping down. Previously, the fund had risen as much as 5.8 percent.

Volume on Wall Street was stronger than in recent days, which had seen some of the thinnest trade of the year. But with a total of about 8.15 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, volume was still below last year's daily average of 8.47 billion.

"Egypt stopped us from dropping lower, but the low volume means that people are skeptical of the climb we've had," said Michael Nasto, senior trader at U.S. Global Investors Inc in San Antonio, Texas. The Dow and S&P are both up more than 5 percent since the start of 2011.

Cisco shares tumbled 14 percent to $18.92 on heavy volume a day after the outlook, but chief competitors surged as investors see Cisco losing market share. Juniper Networks (JNPR.N) rose 7.6 percent to $43.40 and the Networking Index .NWX surged 3.5 percent.

The Dow Jones industrial average .DJI was down 10.60 points, or 0.09 percent, at 12,229.29. The Standard & Poor's 500 Index .SPX was up 0.99 points, or 0.07 percent, at 1,321.87. The Nasdaq Composite Index .IXIC was up 1.38 points, or 0.05 percent, at 2,790.45.

Also weighing on the Dow was Wal-Mart Stores Inc (WMT.N), which fell 2 percent to $55.59 after UBS downgraded the stock to "neutral" from "buy." UBS said a sales recovery at the retail giant could take longer than expected.

New U.S. claims for unemployment benefits dropped to their lowest level in 2-1/2 years, the government said on Thursday, in a sign the labor market was improving.

Kraft Foods Inc (KFT.N) fell in extended trading after it reported fourth-quarter results. The stock, a Dow component, was off 1.3 percent to $30.72.

Disappointing earnings overseas hurt sentiment as Credit Suisse (CSGN.VX)(CS.N) missed profit expectations. The bank's U.S.-traded shares dropped 7.2 percent to $43.27 while peer Deutsche Bank (DB.N) fell 2.6 percent to $62.61 on the New York Stock Exchange.

Both are relatively new chains that are rapidly adding more restaurants. They have found a following among diners who are willing to pay a bit more for quick meals made with upscale ingredients like naturally raised meats and artisan cheese.

Chipotle and Panera have chalked up 12-month gains of about 160 percent and 40 percent, respectively, on industry-leading sales trends, and investors have wondered how long their outperformance would last.

Chipotle, which features organic and natural ingredients, on Thursday said fourth-quarter sales at established restaurants jumped 12.6 percent, an acceleration from the 11.4 percent climb in the prior quarter.

The Denver-based burrito chain also reported quarterly profit that topped Wall Street's view and repeated its forecast of a low-single-digit percentage gain in 2011 same-store sales.

Shares in the company -- now facing a widening federal crackdown on its undocumented work force -- rose 8.6 percent to $278.80 in extended trading.

Panera, which serves lavish sandwiches, salads and pastries, said same-store sales at company-owned bakery-cafes rose 5.2 percent in the fourth quarter.

The company on Thursday reported fourth-quarter profit above analysts' average view, boosted its full-year earnings forecast and called for 2011 same-store sales growth of 4 to 6 percent. Panera's shares jumped 10.5 percent in extended trading.

Results from another high-flying restaurant chain, BJ's Restaurants Inc, disappointed with a quarterly profit that just matched Wall Street's view. Its shares, which are up 85 percent over the past year, fell 4.2 percent to $37.07.

The restaurant and brewery operator said sales at established restaurants rose 5.9 percent during the fourth quarter and were up by roughly the same amount so far this quarter.

California Pizza Kitchen Inc and Cheesecake Factory Inc also reported better-than-expected quarterly earnings on Thursday, but their sales trends lagged.

California Pizza Kitchen reported a 1.1 percent decline in sales at established full-services restaurants, while Cheesecake Factory said same-restaurant sales at its namesake eateries rose 1 percent. Shares in those chains were unchanged in extended trading.

RISKS LOOM

After years of cutting back, diners are venturing out for meals away from home more often. But consumer spending remains cautious and it's not yet known how much restaurant operators will be able to raise menu prices to offset higher costs for food like beef, dairy, cooking oil and produce.

Chipotle executives said they would likely raise menu prices later this year to cover their higher bill for food.