>>> Asian Update

Asian Mid-session Update: South Korea cuts growth and inflation forecasts; OPEC leaders stand firm on output volume


***Economic Data***
- (NZ) NEW ZEALAND Q4 WESTPAC CONSUMER CONFIDENCE: 114.8 v 116.7 PRIOR; 3rd straight decline, 7-quarter low
- (TW) TAIWAN NOV UNEMPLOYMENT RATE: 3.9% V 3.9%E

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -0.11%, S&P/ASX +1.7%, Kospi +0.5%, Shanghai Composite +0.4%, Hang Seng +1.2%, Mar S&P500 +0.1% at 2,068

***Commodities/Fixed Income***
- Feb gold +0.2% at $1,198, Jan crude oil +1.1% at $57.78/brl, Copper -0.1% at $2.89/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 3.0 tonnes to 724.6 tonnes; first rise in a week
- SLV: iShares Silver Trust ETF daily holdings fall to 10,517 tonnes from 10,544 tonnes prior (lowest since Sept 11th)
- (JP) BOJ offers to buy ¥450B in 1-3yr JGB, ¥450B in 3-5yr JGB, ¥240B in 10-25yr JGB and ¥160B in JGB with maturity over 25-yr
- USD/CNY: (CN) PBoC sets yuan mid point at 6.1220 v 6.1205 prior setting (weakest Yuan setting since Dec 9th)
- USD/CNY: RBS Economist Wu: Weaker CNY currency is no impediment to PBoC monetary easing if slower growth and inflation warrant such a move
- (CN) Daily Shibor fixing: 1-week: 5.7820% v 5.3670% prior (11th consecutive rise, highest since Jan 19th); 1-month: 5.9840% v 5.6855% prior (highest since Jan 28th)

***Market Focal Points/Key Themes/FX***
- South Korea Finance Ministry cut its 2014 GDP forecast to 3.4% from 3.7%, 2015 GDP to 3.8% from 4.0%, and 2015 CPI target from 2.3% to 2.0%. Finance Minister Choi and President Park added South Korea would maintain its expansionary macro policies, while the Finance Ministry adjusts capital control measures to curb the risk of outflows from the economy. Top authorities also outlined key risks as the Fed's rate hike in 2015, weak Yen, as well as Russia turmoil.

- OPEC officials at an Energy Conference in Abu Dhabi were steadfast in the recent decision to maintain their oil production levels in spite of the steep price decline. UAE Energy Minister said the major reason for the price slump is "irresponsible" output levels outside of OPEC, Saudi Arabia Min reiterated his country will not cut, but certainly Saudi Arabia is not cutting output, and Qatar Min added the price does not reflect the fundamentals. WTI crude prices fell about a dollar in early electronic trade in the wake of those comments before stabilizing later in the day.

- Further comments out of non-Bundesbank ECB officials reflected continued worries over low inflation in the Eurozone. ECB's Constancio said he expects to see a deflation in the coming months in part due to falling oil prices, and ECB's Coene expressed he would support sovereign bond purchases as an effective measure of stimulating economic activity and fighting downward price pressure. Single currency did not budge on the largely in-line rhetoric, trading in a 30pip range just below 1.2250. In other USD majors, USD/JPY was flat on low volume around 119.50, while AUD/USD pared initial losses to trade up to 0.8170.

***Equities***
US markets/ADRs:
- SPLS: Provides Update on Data Security Incident
- DAI: CFO: Company may raise final dividend for FY14; Expects better operating result vs 2013 - German press
- RDUS: Announces Phase 3 Top-Line Results for Its Investigational Drug Abaloparatide-SC in Postmenopausal Women With Severe Osteoporosis

Notable movers by sector:
- Consumer Discretionary: Kathmandu Holdings KMD.AU -20.8% (sales down y/y); Navitas NVT.AU +3.1% (refinances debt facilities); RXP Services RXP.AU -35.2% (FY15 guidance)
- Materials: Maanshan Iron & Steel 600808.CN +5.6% (CISA forecast on China steel industry profit)
- Energy: Chaowei Power Holdings 951.HK -6.2% (Guides FY14 loss); GCL-Poly 3800.HK +6.5% (terminates asset sale); PetroChina 601857.CN +%, China Oilfield 2883.HK +4.7% (WTI crude moves higher); AWE AWE.AU +5.9% (provides operation updates)
- Industrials: Worley Parsons WOR.AU +7.1% (contract extended); Transfield Services Ltd TSE.AU -5.3% (Ferrovial drops bid after Board recommends no action)
- Utilities: Datang International Power Generation 601991.CN +10.0%; Huaneng Power International 600011.CN +8.2%; SDIC Power Holdings 600886.CN +7.1% (speculation on China power reform)

>>> What to look at this Week End ( 20th & 21th of December)


Macro :
- Ukraine Cut to CCC- From CCC by S&P, Outlook to Negative
- Italy Govt Favors Public Solution for Ilva Steelmaker: Giornale
- Wenning Says German Industry Faces Difficult Year: Frankfurter
- ECB's Coene (Belgium): Would support the ECB govt bond purchases - Belgium press 

Keep an eye on :
- ABE SM : Abertis Interested in Brescia-Padua Toll Road, Il Sole Reports
- ADS GY : Adidas Says Sales of German Soccer Team Jerseys Surge: Focus
- ALO FP : Alstom in Talks With U.S. Authorities on Bribery Fine: Kron
- ALO FP : Brazil Court Frees Alstom’s BRL$148m Tied to Train Cartel: Folha
- SPR GY : Axel Springer Seeks to Buy Telekom Online Unit: Handelsblatt
- AZN LN : AstraZeneca CEO Says New Pfizer Takeover Bid ‘Unlikely’: DI
- AZN LN : AstraZeneca Says Full Lynparza Approval Will Require More Data
- BMPS IM : Monte Paschi Seeks Partner, Capital, Profumo Tells Der Standard
- BSY LN : Vodafone May Bid for Sky in 2015, Sunday Express Reports
- BUZ IM : Buzzi Targets Ebitda Break-Even in 2016 in Italy, Sole Reports
- CBK GY : Commerzbank Winning Consumer Clients From Competitors: dpa-AFX
- DAI GY : Daimler May Raise 2014 Dividend, CFO Tells Boersen-Zeitung
- DBK GY : Deutsche Bank Sees European Consumer Banking Consolidation: Welt
- DTE GY : Deutsche Telekom Weighing T-Online Sale to Axel Springer: Wiwo
- FER SM : Ferrovial Said to Plan Higher Transfield Bid of A$2-A$2.05/Shr
- FCA IM : Chrysler Expands Air-Bag Recall Nationwide, Adding 2.9 Mln Cars
- FNC IM : Finmeccanica to Decide on Breda, STS Sale Next Year: Messaggero
- HIK LN : Drugmaker Hikma on lookout for acquisitions - FT
- NES1V FH : Neste Oil Revises Operating Profit for 2014 to Exceed EU550m
- OCS FP : Oberthur Makes Bank Card With Changing Code, Aujourd’hui Says
- RNO FP : Renault India Raises Prices by 2.5% Citing Higher Input Costs
- SAN FP : Sanofi Sues Fresenius to Block Generic Jevtana Cancer Drug
- SBRY LN : CEO: Will take as long as 2 years to recover from the "extremely challenging" conditions in grocery market
- SIE GY : Siemens CEO Expects Return to Growth in 2016: Wirtschaftswoche
- SIE GY : CEO: No plans to float health-care unit in 2015; Looking to grow the business through acquisitions
- SIK VX : Sika CEO Says Can’t Implement Saint-Gobain’s Goals: NZZaS
- HO FP : Thales to Name Proglio as Chairman, Caine as CEO, AFP Reports
- TIT IM : Telecom Italia Mgmt to Meet With Oi After Jan. 12, Sole Reports

WSJ : History Holds Hard Lesson on Cheap Energy

History Holds Hard Lesson on Cheap Energy
Don’t Count on Bonus for Economic Growth

What Janet Yellen calls “transitory,” the American consumer considers a surprise holiday bonus.

The Federal Reserve chairwoman poured cold water on the idea that the central bank would be swayed by the impact of sliding oil prices on inflation. As usual, rate setters’ focus is on core prices that exclude food and energy. While many people grumble about that view when the costs of those essentials are rising, plunging pump prices are putting smiles on faces coast to coast, outside of a few oil patches.

Just don’t expect the exuberance to be reflected in Tuesday’s data on personal consumption in November. Economists surveyed by The Wall Street Journal expect it to rise by 0.5% compared with October.

Analysts have been quick to calculate the beneficial effect of lower oil prices. The drop in gasoline alone is worth an extra $125 billion in consumers’ pockets on an annualized basis—about the same as the payroll-tax holiday that expired in 2013. But past experience shows that growth of actual consumer expenditures, which include energy, after all, may slow.

There have been several oil price shocks, such as the Arab embargo in the 1970s, which saw a spike in prices. The only fall of similar magnitude to the current one that wasn’t in reaction to a crisis came in 1986. Oil prices plunged by half in the first half of that year during a price war—similar to what has happened in the past six months.

Whereas annual growth in personal consumption averaged 3.6% in the two years before and after 1986, year-over-year growth slowed sharply to 1.8% in the second half of that year. Because the inflation rate used in calculating gross domestic product also fell, real economic growth didn’t miss a beat. But it also didn’t shine relative to expectations.

This time around, some economists think there will be a meaningful benefit to that measure of growth. Those at Goldman Sachs, for example, see the energy rout adding half a percentage point in 2015.

On average, though, 50 economists polled by The Wall Street Journal have precisely the same expectation for real economic growth in 2015 that they held back in June. That is despite the fact that they see crude prices and inflation $30 a barrel and 0.8 percentage points lower, respectively, by mid-2015.

In other words, they see no fillip to growth—not even a transitory one.

WSJ : XL’s Catlin Deal Isn’t Assured of Success

XL’s Catlin Deal Isn’t Assured of Success
Proposed Purchase Is a Bit of a Head-Scratcher
Some deals make sense strategically. Some make sense financially. XL Group ’s proposed takeover of Catlin doesn’t seem to make much sense either way.

There is a push for insurers to get bigger given heightened regulatory costs and a desire to mitigate natural earnings volatility, especially in catastrophe reinsurance, through diversification. Catlin, one of the biggest underwriters in the Lloyd’s of London market, has long traded at varying discounts to sector rivals partly because of its determination to invest in organic growth overseas, notably in Asia and Europe.

It took more than five years after Catlin listed in 2004 for these efforts to make any profits at all. Even now, underwriting profits from its international businesses are just 13% of the total, with Bermuda-based catastrophe and reinsurance business contributing 18%, its onshore U.S. business 17% and Lloyd’s the rest.

This is good progress and Catlin makes better margins outside the highly competitive Lloyd’s and Bermuda markets. But it still doesn’t solve XL’s problems.

New York-listed XL navigated the worst of the financial crisis thanks to the quick actions of then-incoming Chief Executive Michael McGavick. It ditched exposure to bond insurance and complex derivatives swiftly. After flirting with disaster, it has grown tangible book value in each of the past five years with improving profits and dividends along the way.

It now wants to get bigger in insurance lines not correlated with business it already writes, while getting out of low-returning areas. Catlin, a smaller, more profitable business, would improve XL’s return on equity. But Catlin’s international arm, the part truly different from what XL does, is still small. And a large proportion of its Lloyd’s business and most of Bermuda and the U.S. will be close to XL’s existing exposure.

Financially, details are scant. But XL is proposing paying a price in cash and shares that is 1.6 times Catlin’s tangible net asset value as at the end of June and 1.4 times UBS’s full-year forecast. XL’s own shares trade at a 6% discount to its latest tangible book value.

At the same time, in a sector awash with excess capital, XL is not. At the end of 2013 it had net debt of less than $500 million, so it has some room for extra leverage. But credit rating constraints make it likely that a deal would rely on a dilutive share issue.

XL stock has dropped 4.5% since news of the talks broke last week, while Catlin is up but remains 9% below the mooted offer price. Investors on both sides will take much convincing.

>>> Dijon: Un automobiliste fauche volontairement une dizaine de piétons en


Dijon: Un automobiliste fauche volontairement une dizaine de piétons en criant «Allahou Akbar»

ACCIDENT - Deux personnes seraient grièvement blessés...

Un automobiliste a fauché volontairement onze personnes ce dimanche à Dijon (Côte d'Or). Selon France info et Le Figaro, l'homme aurait crié lors de son acte «Allahou Akbar». Et selon le quotidien local Le Bien public, l'homme aurait hurlé, au moment de son arrestation, «Au nom des enfans de la Palestine».

D'après le journal, quatre piétons ont d'abord été percutés délibérément par le véhicule dans le centre-ville de Dijon. Et les sept autres personnes ont été fauchées dans trois autres collisions. Deux des personnes sont grièvement blessées.

Selon le Figaro, l'homme visait des forces de l'ordre. Si les faits étaient confirmés

>>> SBRY - CEO: Will take as long as 2 years to recover from the "extremely chal

CEO: Will take as long as 2 years to recover from the "extremely challenging" conditions in grocery market - UK Press 
- Says: "First, as of today, there's no sign the grocery market is going to return to volume growth and that would be a tipping point... Second, there's no sign that there will be food inflation coming through in the next period, so the market dynamics are going to be extremely squeezed."

FT : Boost to eurozone consumer confidence expected in week’s data

Boost to eurozone consumer confidence expected in week’s data

Tuesday will be the only important day in terms of data releases in most markets thanks to a shortened week for the public holidays surrounding Christmas, although some interesting Japanese data will be published on Christmas Day itself.
Monday’s highlight will be the release of consumer confidence figures for the eurozone in December. The previous month saw confidence fall from -11.1 to -11.6 on the index but the expectation is that falling oil prices and increasing real incomes should boost consumer confidence. The consensus prediction is that the index will show -11.0 in December.

The third release of estimates of US gross domestic product for the third quarter will be released on Tuesday. Analysts suggest that consumer spending was much stronger in the third quarter than previously though and so the consensus is that the annualised rate of growth will be revised upwards from 3.9 per cent in the second estimate to 4.3 per cent.
US durable goods orders and personal income and spending data will be published on Tuesday as well. Both are expected to show an acceleration in November, for durable goods this is thought to be mainly due to an increase in aircraft sales. The year’s last University of Michigan confidence index is expected to show a final reading of 93.3, revised downward slightly from 93.8 in the initial release.
Tuesday will also see the release of the final estimate of UK GDP in the third quarter, but this is expected to remain unchanged at 0.7 per cent quarter-on-quarter growth.
Thursday, a public holiday in the US and UK for Christmas, will see the release of Japanese inflation and labour market data for November as well as retail sales and industrial production figures.
On Friday, Haruhiko Kuroda, the governor of the Bank of Japan, said that the country was on track to defeat inflation after the bank expanded its quantitative easing scheme in October with an aim to expand the monetary base by an annual Y80tn.
Thursday’s estimates of inflation are, however, expected to show falling inflation again. Stripping out the effects of the April VAT rise, inflation was 0.9 per cent in October and this is expected to fall to 0.7 per cent in November on the back of falling energy prices.
Industrial production figures ought to be more encouraging: Growth is expected to accelerate to 0.9 per cent in November up from 0.4 per cent in October.

FT : Drugmaker Hikma on lookout for acquisitions

Drugmaker Hikma on lookout for acquisitions

Hikma is on the lookout for more acquisitions as the UK-listed drugmaker pushes for membership of the FTSE 100 index.
Said Darwazah, chief executive, said Hikma had the financial firepower for more dealmaking if good targets could be found at a reasonable price.

“Money is readily available and interest rates are very low. It is a good time to do an acquisition,” Mr Darwazah told the Financial Times.
Hikma has built itself into one of world’s biggest makers of generic injectable medicines with the help of deals such as last July’s $300m acquisition of US-based Bedford Laboratories from Boehringer Ingelheim of Germany.
Analysts have estimated that Hikma has a war-chest of up to $1bn available for deals and Mr Darwazah confirmed that Hikma was open to buying companies or individual products to boost growth.

His comments suggest that the mergers and acquisitions spree that convulsed the pharmaceuticals sector this year could spill into 2015 as drugmakers tap plentiful cash and cheap credit to strike deals.
But Mr Darwazah added: “Hikma has always been very disciplined and we will not make acquisitions for the sake of it.”
Hikma’s share price has risen by two-thirds in the past year, taking its market capitalisation above £4bn to the cusp of the FTSE 100 index of Britain’s biggest companies.
The company has increased revenues by a compound annual rate of 19 per cent over the past five years to $1.37bn and Mr Darwazah said he was looking for ways to sustain the momentum through deals and organic growth.
Hikma’s London listing makes it the fourth-biggest UK-listed drugmaker after GlaxoSmithKline, AstraZeneca and Shire, but most of its business is concentrated in the US, the Middle East and North Africa.
The company was founded by Mr Darwazah’s father, Samih, in their native Jordan in 1978. The former took over as chief executive in 2007.
It has not all been smooth sailing. Hikma has received warning letters from the Food and Drug Administration, the US regulator, over quality problems at plants in the US and Portugal over the past two years. The US facility has since been given the all-clear and Mr Darwazah says the Portuguese issues are being addressed.
The Middle East and North Africa, which still account for 40 per cent of sales, have also been a drag on growth recently, in part because of political disruption in Libya and Iraq. “This year has seen more volatility than usual but volatility is part of doing business in this region and we have got used to it,” said Mr Darwazah.
James Vane-Tempest, analyst at Jefferies, said strong US growth was “offsetting a disappointing performance in the Middle East and North Africa”.
The company chose London over New York for its stock market listing in 2005. This has allowed it to benefit from the more favourable UK corporate tax regime compared with the US. Several US drugmakers have used foreign acquisitions to move their tax domicile offshore through so-called inversion deals in the past two years.
Ramaswamy Narayanan, analyst at Citigroup, said Hikma had strong momentum with M&A activity holding the potential for further upside.

FT : Rolls-Royce pledges greater openness with investors

Rolls-Royce pledges greater openness with investors

John Rishton, chief executive of Rolls-Royce, pledged greater openness with investors in a bid to restore relations with a financial community smarting after a series of profit warnings.
The group would have “more meetings, listen more, reflect more and provide more formal access”, said Mr Rishton in an interview with the Financial Times. “What we are trying to do is change our approach.”

Britain’s most admired engineering group fell from grace this year after a series of botched communications and missteps. As well as the profit warnings, it was reprimanded by the UK’s Financial Reporting Council for using aggressive accounting practices and is under investigation by the Serious Fraud Office for alleged corruption relating to deals in China and Indonesia. Its shares have fallen a third during 2014.
Mr Rishton said the group was working on ways to give better guidance to investors and would implement them once he was sure Rolls-Royce would “get it right”.
Investors have high hopes that David Smith, the group’s new finance director, will help a traditionally closed group to deliver guidance in a more consistent manner. They were particularly angered by the company’s failure to alert the market to a downturn in defence, which Mr Rishton said had been identified in 2013, but not communicated until February 2014 because of the group’s habit of giving guidance only in the current year.
Mr Rishton said some of the errors were due to the fact that Rolls-Royce had been trying to respond to investor demands for greater transparency. The company had held two investor days this year, which was unprecedented, he said.
His comments come as Rolls-Royce prepares to ramp up production of its new XWB engine, which will power the new Airbus A350 aircraft. The engine has taken 10 years and cost more than £1bn to develop, and will be a test of Rolls-Royce’s ability to deliver at volume and on time.
More from Rishton
To do so, Mr Rishton said the company would have to reduce costs and improve processes, as well as make better use of state of the art facilities such as the recently opened factory in Singapore. He reiterated the group’s target to cut its global manufacturing footprint by 20 per cent. “I have too much capacity,” he said. “I have to get out of old stuff.”
He said that Mr Smith had been given two tasks: the first to make sure management had “robust information” and the second to “make sure our cost-performance delivery is where it needs to be”.
Mr Smith replaced Mark Morris, a 27-year veteran of Rolls-Royce, who left the group in November when it announced 2,600 jobs would go as part of £120m cost reduction plan.