TheChek News Flow

Asian Market Update: Equities slump as Yellen zings expectations of low rates by pinning a 6-month tag on "considerable period" between the end of QE and higher rates

***Economic Data*** - (NZ) NEW ZEALAND Q4 GDP Q/Q: 0.9% V 0.9%E; Y/Y: 3.1% V 3.1%E - (AU) AUSTRALIA FEB RBA FX TRANSACTIONS MARKET (A$): 369M V 362M PRIOR - (JP) Japan investors bought ¥143.1B in foreign bonds last week (1st net purchase in 3 weeks) vs sold net ¥618.5B in prior week; Foreign Investors sold net ¥1.1T in Japan stocks v bought net ¥383.8B in prior week

Market Snapshot (as of 03:30 GMT): - Nikkei225 -0.5%, S&P/ASX -0.9%, Kospi -0.8%, Shanghai Composite +0.4%, Hang Seng -0.8%, Jun S&P500 -0.2% at 1,848, Apr gold -0.7% at $1,332, May crude oil +0.2% at $99.40/brl

***Highlights/Observations/Insights*** - Asian markets are lower nearly across the board, tracking the post-Fed selloff in US indices. Fed chair Janet Yellen, who came into her new role as renown dove, spooked investors when, during Q/A, she estimated the "considerable period" of low rates at the end of QE as a mere 6 months, potentially placing the first rate hike some time in Q2 of 2015. Fixed income markets had been looking well into H2 of next year for the first move in the fed funds. Predictably, the yield-curve narrowed with a spike on the short end, USD rallied dramatically, gold/silver sold off, and equities fell into the close. S&P emini futures are pointing to more weakness on Thursday, down 6 handles or 0.3% around 1,846. - Outside of the ripple from the first Yellen conference, the Fed also removed its 6.5% unemployment threshold in favor of more "qualitative" guidance that would include outlook for inflation among other factors. The Fed statement also announced that the committee "judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions", which eschews the recent spate of soft NFP prints and diminishes other weak economic datapoints as a function of the cold weather. Updated staff projections from the Fed came down on the mid-point for GDP estimates by 0.1pt in all three years surveyed (2014-16), but also forecasted lower projections for unemployment by a wider margin in that time frame. Despite the more hawkish than expected statement and the Yellen slip, a press report citing a survey of 17 primary dealers saw a substantial majority continue to expect the first rate hike in H2 of 2015.

- Shanghai Composite is the only market in the green, receiving a boost from a press report that China State Council will accelerate construction projects and other measures to help stabilize economic growth as soon as possible. A call to action comes in the wake of another troubling forecast from China Academy of Social Sciences (CASS) researcher estimating 2016-20 GDP rates could fall as low as 6.2%. Trading in both onshore and offshore Yuan was once again volatile, helped by the dollar boost from the Fed, with both CNY and CNH falling through that critical 6.20 handle where analysts estimate the trigger of target redemption forward (TRF) contracts which, in turn, could accelerate the wave of corporate debt restructuring.

- In Tokyo, Japan Automobile Manufacturers Association (JAMA) announced that new vehicle sales in FY14/15 will fall about 15% to 4.75M as higher sales tax goes into effect on April 1st. This is the first time that sales would dip below 5M units in 3 years, which is said to be the threshold deemed essential for maintaining domestic production levels. In turn, that could tighten the labor market in the auto industry, detracting from the progress made by the unions on boosting base wages for carmaker employees. An analyst with Fitch was more upbeat, noting the rise in consumption tax will not kill the economic recovery. Also of note, Nikkei225 is down on the day, decoupling from broad weakness in the Yen that typically spurs a more bullish action in Japan.

- New Zealand Q4 GDP was in line with consensus but down on sequential basis, with q/q increase of 0.9% falling from downwardly revised 1.2% (initial Q3 was 1.4%). Consumption expenditure and exports components strengthened, while govt spending and Capex slowed dramatically.

***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy 250B in 1-3yr JGB, 250B in 3-5yr JGB and 400B in 5-10yr JGB - (CN) PBoc to drain CNY26B in 28-day repos (10th consecutive drain); Drains net CNY48B this week v drained CNY40B prior (6th week of drain) - (CN) PBoC sets yuan mid point at 6.1460 v 6.1351 prior setting (weakest Yuan setting since Nov 6th) - (CN) USD/CNY: Offshore Yuan (USD/CNH) falls thru 6.20 level (weakest since Apr 2013)

- USD-bullish action after the FOMC was largely consolidated in the Asia session. EUR/USD traded around its 1-week lows near $1.3830, USD/JPY got up as high as 102.60 before pulling back to 102.20, and GBP/USD hit 5-week lows below 1.6540. AUD and NZD sustained relatively largely losses, falling 0.3% and 0.4% against USD respectively in Asia, with added NZD weakness coming after Q4 GDP. AUD/USD fell as low as $0.90 - off by some 120pips from pre-FOMC levels, while NZD/USD low of 0.8520 is down 110pips. Gold fell as low as $1,327 but since rallied to $1,334.

***Equities*** US markets: - MLHR: Reports Q3 $0.34(adj) v $0.34e, R$455.9M v $460Me; +5.5% afterhours - JBL: Reports Q2 $0.10 v $0.11e, R$3.57B v $3.75Be; +3.5% afterhours - KODK: Reports Q4 net loss $63M v loss 402M y/y; Rev $607M v $739M y/y (no ests); +2.4% y/y - CTAS: Reports Q3 $0.69 v $0.70e, R$1.13B v $1.14Be; +0.7% afterhours - GES: Reports Q4 $0.83 v $0.80e, R$768.4M v $773Me; Raises quarterly dividend 12.5% to $0.225/shr from $0.20/shr; -6.2% afterhours

Notable movers by sector: - Consumer Discretionary: Liaoning Shidai Wanheng 600241.CN -1.3% (FY13 results); VODone Ltd 82.HK -3.5% (FY13 results); Myer Holdings MYR.AU -5.1% (H1 results) - Financials: Financial Street Holdings 000402.CN +2.4% (FY13 results); Wuzhou International Holdings 1369.HK +5.2% (FY13 results) - Materials: Minfeng Special Paper 600235.CN -1.0% (FY13 results); Panoramic Resources PAN.AU -5.9% (shareholder cuts stake) - Industrials: BYD Corp 1211.HK -8.0% (FY13 results); Shenzhen Expressway 548.HK -2.0% (prelim FY13 results); Toyota Motor Corp 7203.JP -0.6% (to pay $1.2B to resolve criminal probe) - Technology: Tencent Holdings 700.HK +0.5% (Q4 results); Automated Systems Holdings 771.HK -16.4% (profit warning); Brambles Limited BXB.AU -1.6% (update on discussions with Goodpack) - Utilities: Sungrow Power Supply 300274.CN +2.7% (FY13 results); TEPCP 9501.JP -4.2% (Fukushima update)

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Bouygues Turns Into Iliad Target After Losing SFR Bid: Real M&A 2014-03-19 23:00:01.5 GMT

(For a Real M&A column news alert: SALT REALMNA <GO>.)

By Marie Mawad and Francois de Beaupuy March 20 (Bloomberg) -- After losing a bidding war for SFR, France’s second-biggest mobile carrier, Bouygues SA’s best move may be to turn from buyer to seller. Vivendi SA agreed last week to start exclusive talks about merging its SFR phone business with billionaire Patrick Drahi’s Numericable Group, turning down a rival offer from fellow billionaire Martin Bouygues’s construction and telecommunications company. While the failed bid included an agreement to have rival Iliad SA buy parts of Bouygues’s phone business to preempt antitrust concerns, Iliad is open to discussing a purchase of the entire Bouygues Telecom unit, people with knowledge of the matter said. Iliad, now France’s fourth-largest wireless operator, could move into third place by buying Bouygues Telecom. Iliad’s 32 percent stock rally this year gives the company currency that could come in handy for a deal, and its profit multiple is now the highest of all large European telecommunications carriers, according to data compiled by Bloomberg. Bouygues could get about 5 billion euros ($6.9 billion) for the phone unit, according to Societe Generale SA and Natixis, not far from the market value of the entire company less than two years ago. “Bouygues is back to the same situation it was in two weeks ago, with a mobile market of four players and little prospect for improvement,” said Benoit Maynard, an analyst at Natixis. “The market will now be looking for a merger between Iliad and Bouygues Telecom.” Representatives for Bouygues and Iliad, both based in Paris, declined to comment.

Competing Bids

Bouygues wanted to buy SFR to create a carrier of more than 21 million contract wireless customers, closing a gap with market leader Orange SA. Vivendi preferred the proposal from Numericable, France’s largest cable operator, which offered 11.75 billion euros in cash and a 32 percent stake in the enlarged company. Bouygues had bid 11.3 billion euros in cash and a 43 percent stake. Iliad entered the mobile market in January 2012 and sparked a price war by selling discounted wireless phone packages. The company had 8 million clients at the end of 2013, or 12 percent of the market. Buying Bouygues Telecom would bolster its customer count by about 9.9 million subscribers. “Such a bid from Iliad could become even more probable if Bouygues steps up its aggressive strategy in the fixed broadband segment, which represents Iliad’s cash cow,” Nicolas Hue de La Colombe, an analyst at Credit Agricole SA who values Bouygues Telecom between 4.5 billion euros and 5 billion euros, wrote in a note. He said talks may materialize by the end of the year.

Phone Value

Bouygues introduced a so-called triple play discount package last month that bundles Internet, fixed phone and TV services. The company, which had 11 million mobile-phone clients and 2 million fixed broadband subscribers at the end of 2013, said at the time it aims to gain 5 million triple play customers as soon as possible. At 5 billion euros, Bouygues Telecom would represent more than half of its parent’s entire market value of about 9.5 billion euros yesterday. That also compares with Bouygues’s market value of 5.5 billion euros as recently as November 2012. Iliad shares rose 32 percent this year, reaching a record 215 euros on March 12 and bringing the company’s market value to more than 11 billion euros. Iliad had net debt of about 1 billion euros at the end of 2013. Chief Financial Officer Thomas Reynaud said this month that the company has “ample room” to borrow more.

Bouygues Pressure

Bouygues’s telecommunications business, which represents about a third of its conglomerate parent’s earnings before total earnings before interest, taxes, depreciation and amortization, has come under pressure amid price wars in France. The phone unit’s Ebitda dropped 31 percent last year from 2011, and revenue declined 19 percent over the same period. A sale of Bouygues Telecom for 5 billion euros “would be a good price for Bouygues shareholders, considering its lack of critical mass in the broadband market and ongoing pressure on mobile operations,” Stephane Schlatter, an analyst at Societe Generale, wrote in a note. “A deal would also ease uncertainties about the telecom business and thus contribute to reduce the holding discount.” Bouygues could use proceeds from selling the phone unit to pursue other businesses as part of its conglomerate strategy, Credit Agricole’s La Colombe said. In addition to the 90.5 percent stake in Bouygues Telecom, the company owns 44 percent of TF1, the nation’s biggest broadcaster, and 29 percent of train and power-equipment maker Alstom SA.

Earlier Interest

In the past, Bouygues has exited businesses such as offshore exploration and water treatment when the chief executive officer was dissatisfied with their growth prospects. In April 2012, billionaire Bouygues didn’t rule out an initial public offering of Bouygues Telecom further down the line. Iliad’s founder Xavier Niel had examined Bouygues Telecom among other assets in the past two years, two people familiar with the matter have said. Bouygues wasn’t a seller of Bouygues Telecom and antitrust hurdles also deterred a deal from happening, people familiar with the matter have said. While Bouygues is unlikely to shift its telecommunications strategy right away, it hasn’t ruled out analyzing options for its mobile business, said two people familiar with the matter, who asked not to be identified because the deliberations are private. “If Bouygues missed the SFR deal, it was clear that it could go talk to Iliad instead,” said Conor O’Shea, an analyst at Kepler Cheuvreux.

Other Options

Even though French Industry Minister Arnaud Montebourg this month said he favors a return to three carriers in the country, there’s no sign that Iliad and Bouygues will rush into a sale. Iliad instead could pursue organic growth, a strategy that has boosted revenue so far, said Natixis’s Maynard, who values Bouygues Telecom at 5 billion euros. Buying Bouygues Telecom also would dilute earnings, Maynard said. The closing of Numericable’s SFR purchase is also likely to play a role in decisions about Bouygues Telecom. While Drahi predicted a final contract with Vivendi will be signed before the end of the month, a failed Numericable-SFR deal would open more possibilities for Bouygues. Any deal with Iliad and Bouygues may be difficult as the two have struggled to see eye-to-eye in the past. Martin Bouygues likened Iliad to a cuckoo in 2012, after Niel had said French operators were treating their customers like “pigeons” until he entered the market.

Consolidation Trend

Consolidating the French market more would put an end to the fight between Bouygues and Iliad over discounted packages, said Claudio Aspesi, an analyst at Sanford C. Bernstein & Co. Such consolidation would follow a trend in other parts of Europe. In Spain, Vodafone Group Plc agreed to buy cable provider Grupo Corporativo Ono SA in a $10 billion deal this week. Vodafone last year paid more than $10 billion for Kabel Deutschland Holding AG, Germany’s largest cable company. “France will settle into a market of three broadly integrated players,” Aspesi said. “It seems likely that, one way or another, Iliad and Bouygues will end up in each others’ arms.”

For Related News and Information: Billionaire Drahi Faces French Scrutiny on Way to Win SFR NSN N2LACS6S973E <GO> Bouygues Increases Cash Portion of SFR Bid to $15.8 Billion NSN N2DM2T6JIJUR <GO> Iliad acquisition news: ILD FP <equity> TCNI MNA <GO> Bouygues acquisition news: EN FP <equity> TCNI MNA <GO> Real M&A columns: NI REALMNA <GO> Top deal stories of the day: DTOP <GO>

--With assistance from Matthew Campbell in London.

To contact the reporters on this story: Marie Mawad in Paris at +33-1-5530-6290 or mmawad1@bloomberg.net; Francois de Beaupuy in Paris at +33-1-5365-5051 or fdebeaupuy@bloomberg.net To contact the editors responsible for this story: Beth Williams at +1-212-617-2307 or bewilliams@bloomberg.net; Kenneth Wong at +49-30-70010-6215 or kwong11@bloomberg.net; Simon Thiel at +44-20-7673-2814 or sthiel1@bloomberg.net Whitney Kisling

Closing Market Summary: Stocks Slide While FOMC Keeps Participants on Their Toes

The major averages finished the Wednesday session in the red with small caps displaying the largest decline. The Russell 2000 lost 0.7% while the S&P 500 settled lower by 0.6% with all ten sectors ending in the red.

Equity indices did not show much change during the first half of the session as participants awaited the latest policy statement from the Federal Reserve, but activity picked up considerably after the release of the directive. Confusion may have also played a part in today's trading activity as the FOMC statement represented the most wordy directive on record.

As expected, the Federal Open Market Committee announced another $10 billion taper, reducing the size of its monthly asset purchases to $55 billion ($25 billion in agency mortgage-backed securities and $30 billion in longer-term Treasuries). In addition, the Committee opted to drop the 6.5% unemployment threshold from its forward guidance while choosing to shift the focus to a ‘wide range of information' on jobs as well as inflation.

Although the stock market dropped to new lows immediately following the statement, those losses were limited with the S&P 500 trading roughly five points below its flat line. The benchmark index tried to claw its way back to the flat line, but was unable to do so with selling pressure accelerating after Ms. Yellen gave an interesting answer to a question regarding a portion of the policy statement.

In response to a question as to what the Fed means by "considerable time" for keeping the current target range for the federal funds rate after the asset purchase program ends, Fed Chair Yellen said "probably six months." Selling activity accelerated after the remark and the fed funds futures market, which, last week, expected the first hike to take place in July, saw the expectations shift to April.

Treasuries plunged to lows after the FOMC announcement and continued their retreat during Ms. Yellen's press conference. The benchmark 10-yr yield was up as much as 11 basis points at 2.79% before retreating to 2.77% by the close, representing a nine-point increase.

The big spike in yields weighed on the rate-sensitive utilities sector (-1.5%), which ended at the bottom of the leaderboard. The remaining countercyclical groups were mixed with respect to the broader market as consumer staples (-0.9%) lagged while health care (-0.4%) and telecom services (-0.4%) outperformed.

On the cyclical side, energy (-0.9%), industrials (-1.0%), and materials (-0.9%) bore the brunt of the selling while the remaining groups held up relatively well. Consumer discretionary (-0.6%) and technology (-0.5%) displayed losses comparable to the benchmark index while financials (-0.2%) outperformed as higher rates should translate into improved net interest margins. Bank of America (BAC 17.44, +0.25) and Citigroup (C'48.94, +0.80) settled higher by 1.5% and 1.7%, respectively, while regional banks also displayed strength. The SPDR S&P Regional Banking ETF (KRE 41.62, +0.27) gained 0.7%.

Volatility protection was in demand as indicated by a 4.1% increase in the CBOE Volatility Index (VIX 15.12, +0.60).

Despite the busy afternoon, participation was on the light side with just over 650 million shares changing hands at the NYSE.

Today's economic data was limited to two data points. The fourth quarter current account deficit totaled $81.10 billion while the consensus expected the deficit to hit $87.60 billion. The third quarter deficit was revised to $96.40 billion from $94.80 billion.

Separately, the weekly MBA Mortgage Index fell 1.2% to follow last week's'decline of 2.1%.

Tomorrow, weekly initial claims will be released at 8:30 ET while February Existing Home Sales, February Leading Indicators, and the March Philadelphia Fed survey will cross the wires at 10:00 ET.

* Russell 2000 +3.2% YTD  * Nasdaq Composite +3.1% YTD  * S&P 500 +0.7% YTD  * Dow Jones Industrial Average -2.1% YTD