Business Blog Posts

London copper futures rallied to a record high after lower than expected consumer price figures from China soothed concerns that Beijing might adopt a more aggressive monetary tightening regime to fight inflation.

Chinese consumer price inflation accelerated to 4.9 percent in the year to January. It matched the widespread figure that swirled through markets on Monday, but was below the earlier consensus forecast of 5.3 percent.

Analysts remained wary of a build-up in China's price pressures, saying Beijing could raise interest rates further, given continued rises in food prices.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

MSCI's Asia Pacific index excluding Japan .MIAPJ0000PUS, which snapped five straight sessions of losses on Monday, was up 0.08 percent.

The Shanghai stock market .SSEC rose more than 1 percent by 0540 GMT, compared with a rise of 0.38 percent before the Chinese inflation data came out. On Monday, it jumped 2.5 percent on market rumors of the inflation data.

Japanese stocks .N225 edged higher to log a 10-month closing high. The Nikkei average ended up 0.20 percent at 10,746.67. .T

South Korea's KOSPI .KS11 gave up some initial gains, weighed by falls in automakers including Hyundai Motor (005380.KS), while Hong Kong stocks .HSI fell 0.45 percent.

EURO INCHES UP, BUT TREND WEAK

In the currency market, the euro edged up 0.24 percent to around $1.3520, after falling as low as $1.3426 overnight, as traders tried to take out stop-loss orders.

But uncertainty remained over concrete solutions to Europe's fiscal problems, keeping the euro vulnerable. Worries about rescue plans for ailing German lender WestLB have also added to the single currency's struggle.

On Monday, euro zone finance ministers agreed that a permanent rescue mechanism, the European Stability Mechanism, to be set up from 2013, would total 500 billion euros, but are waiting for leaders' guidance to agree changes to the existing bailout fund.

Traders are also focusing on U.S. retail sales data for clues on the dollar's near-term outlook. The figures, due later in the day, are expected to show a 0.6 percent rise in January from the previous month.

"The greenback may regain its footing over the next 24 hours of trading as the economic docket is expected to reinforce an improved outlook for future growth," said David Song, currency analyst at DailyFX.

In Asia, Australian bourse operator ASX and suitor Singapore Exchange revised the board structure of their planned $7.9 billion tie-up in an attempt to win the support of Australian lawmakers wary of ceding control of the local bourse.

Nationalism is one of the biggest hurdles to the consolidation sweeping the industry as exchanges are often seen as symbols of national pride. The deals, including a bid by the London Stock Exchange to take over Toronto Stock Exchange operator TMX Group, face intense scrutiny from regulators and politicians around the world.

A number of key details in the Deutsche Boerse and NYSE Euronext merger have been hammered out, sources said. A definitive agreement is expected to be announced on Tuesday, one source said.

But a number of difficult issues have yet to be addressed, which is likely to add to concerns being raised on both sides of the Atlantic.

Political concerns are also seen as the driver behind the SGX giving more board representation to ASX in the combined entity. The bourses said in a joint statement on Tuesday that the two will have equal number of directors in the merged group, compared with less than half for ASX in the earlier proposal.

"All the resistance to the deal has been political. The steps taken today should address some of those political issues," said Mark Nathan, portfolio manager at Arnhem Investments. "It clearly carves out and maintains some sovereignty within Australia, and there should be a lot less resistance to the deal in its new form."

There is no change to the value of the SGX offer and ASX shareholders will still hold about 36 percent of the company under the new proposal.

WHO NEXT?

Some issues facing the Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely looking out for tie-up opportunities, Chief Executive Edemir Pinto told Reuters. Pinto said China and India were markets where the bourse could pursue expansion.

Consumer price figures for China that came in lower than had earlier been expected prompted London copper to rally to a record high, as the data soothed concerns that Beijing might adopt a more aggressive monetary tightening regime.

Chinese consumer price inflation accelerated to 4.9 percent in the year to January. It matched the widespread figure that swirled through markets on Monday, but was below the earlier consensus forecast of 5.3 percent.

Analysts remained wary about a build-up in China's price pressures, saying Beijing could further tighten monetary policy, given continued rises in food prices.

"The data probably slightly eased expectations of immediate tightening, although in the overall scheme of things, this doesn't change the fact that China is still in a tightening phase," said Etsuko Yamashita, chief economist at SMBC.

After the Chinese data was released, three-month copper on the London Metal Exchange rose $30 to $10,190 a tonne by 0233 GMT.

The Shanghai stock market .SSEC was up 0.4 percent, compared with a rise of 0.38 percent before the data came out.

Japanese stocks .N225 hit a new nine-month high in early trading on growing investor confidence boosted by recent solid corporate earnings, but remained in a narrow range with no clear direction. .T

MSCI's Asia Pacific index excluding Japan .MIAPJ0000PUS, which snapped five straight sessions of losses on Monday, was up 0.18 percent as of 0258 GMT, while South Korea's KOSPI .KS11 was up 0.4 percent and Hong Kong stocks .HSI dipped 0.5 percent.

In the currency market, uncertainty remained over concrete solutions to Europe's fiscal problems, keeping the euro vulnerable, though it edged up 0.2 percent to around $1.3515, after falling as low as $1.3426 overnight.

On Monday, euro zone finance ministers agreed that a permanent rescue mechanism, called the European Stability Mechanism (ESM), to be set up from 2013, would total 500 billion euros.

Traders are also focusing on U.S. retail sales data for clues on the dollar's near-term outlook. The figures are expected to show a 0.6 percent rise in January from the previous month.

"The greenback may regain its footing over the next 24 hours of trading as the economic docket is expected to reinforce an improved outlook for future growth," said David Song, currency analyst at DailyFX.

The dollar held steady near 83.30 yen, while Aussie rose to the day's high of $1.0056 after China's CPI data.

U.S. crude futures pared some losses in early Asian trade, buoyed by Chinese demand and unrest in the Middle East, which could trigger supply disruptions of crude oil.

(Writing by Yoko Nishikawa; Additional reporting by Hideyuki Sano in Tokyo and; Nick Trevethan in Singapore; Editing by Daniel Magnowski)

The two have hammered out a broad framework for a merger deal that focuses on functions and personalities, with several executives chosen for key posts across Europe and the United States, three people familiar with the plan said.

Another source added that major issues like the exact exchange ratio and the premium to be paid to NYSE Euronext have been sorted out, and a definitive agreement is expected to be announced on Tuesday.

Among the issues they will leave in the too-hard basket for now are what to call the merged entity, how exactly it will cut costs, and which technologies it will favor, sources said.

Putting these off may only add to the questions being asked by some politicians on both sides of the Atlantic about whether the deal should be approved. Any delay could also open the door to rival bidders for NYSE Euronext -- one news report on Monday cited CME Group Inc as a potential buyer.

Some issues facing Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The boards of NYSE Euronext and Deutsche Boerse are set to vote Tuesday, two sources said. Deutsche Boerse will also publish quarterly results Tuesday.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely watching for tie-up opportunities, Chief Executive Edemir Pinto told Reuters.

Pinto said BM&FBovespa is interested in China and India as markets where it could pursue expansion because of their growth potential and similarities in terms of products. He added that a partnership with CME also has "room to grow," but did not elaborate.

In Australia, market operator ASX said it was in talks with suitor Singapore Exchange about changes to board arrangements as the sides seek to win political and regulatory support for their proposed tie-up.

'SENSITIVE AND COMPLICATED'

But Republicans, who accuse Obama of being a tax-and-spend Democrat, said the president had not gone far enough in curbing costs.

They aim to make the 2012 presidential election a referendum on his fiscal track record and threaten fights over a legal limit on the U.S. debt and how to fund the government in the short-term.

Obama said his plan was a balance between deficit reduction pain and investment for growth. It only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.

"What we have done here is make a downpayment, but there is going to be more work that needs to be done and it's going to require Democrats and Republicans coming together to make it happen," he said at a school in nearby Maryland.

The budget calls for investments in areas such as high-speed rail, broadband Internet, and energy efficiency research. It makes cuts to programs that provide heating help for poor people and grants to big airports, for example.

Obama's $3.729 trillion budget proposal for fiscal 2012 shows the deficit rising to a record $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013 compared to its size when he entered the White House in January, 2009.

The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.

Two-thirds of the $1.1 trillion in savings come from spending cuts. The rest comes from higher revenues as U.S. growth steadily picks up pace and from tax increases. The president is seeking an additional $328 billion through a variety of measures, including ending tax breaks for big business on income earned abroad.

FIRST STEP

Standard & Poor's Chief Economist David Wyss said the budget was a "step in the right direction" but more was needed to be done in order to tackle entitlement spending.

He did not comment on the U.S. debt rating. A recent S&P report said a U.S. stable rating outlook assumes the government will "soon reveal a credible plan ... to enable the general government debt-to-GDP ratio to stabilize and then to decline." A ratings downgrade would likely push up U.S. borrowing costs.

Obama's budget for fiscal 2012 is a proposal to Congress and months of wrangling will now follow with Republicans, who control the House of Representatives and increased their seats in the Senate after November elections. They campaigned on deep cuts in federal spending.

"Congress often goes in a different direction," said Michael Moran, chief economist at Daiwa Securities America in New York, who was also disappointed there was not more from the president on tackling entitlements.