TheChek News Flow

Asian Market Update: Nikkei225 soars above 16,000; Japan govt maintains overall assessment

***Observations/Insights*** - Asian bourses were mainly in positive territory following another strong performance out of the US markets. Japan stocks reopened for the first time this week following a public holiday and surged above 16,000 for the first time in six years aided by a weak yen currency. The yen fell against most of the major pairs, with the Australian dollar falling against the US dollar for the first time in four days. - The Japan Cabinet office released its monthly economic report for December. The report omitted the word deflation for the first time since 2009, instead adding that prices held firm. In addition, the government approved a record-high FY14/15 budget draft of ¥95.8T, while curbing new bond issuances by ¥1.6T to ¥41.25T - China equities were trading higher for the second consecutive day, despite a cash crunch that allowed interbank rates to reach six-month high. - China PBOC offered CNY29B in 7-day reverse repurchase agreements, signaling for the first time in three weeks that it is injecting funds to help ease liquidity concerns; the 7-day repo rate continued to remain high at 5.55% though below 8.90% from Monday's close

***Economic Data*** (JP) JAPAN CABINET OFFICE (GOVT) DEC MONTHLY REPORT: Maintains overall assessment; Drops deflation term from economic report for the first time since 2009

***Fixed Income/Commodities/Currencies*** - (CN) Daily Shibor fixings: O/N: 4.1450% v 4.5150% prior (1st decline in 7 consecutive sessions); 1-week: 6.1970% v 8.8430% prior (1st decline in 7 consecutive sessions) - (CN) China 7-day repo rate falls by almost 340bps to 5.55% from 8.94% on Monday - (CN) PBoC offers CNY29B in 7-day reverse repos (1st injection in 3 weeks since Dec 3rd) - Chinese press

***Speakers/Political/In the Papers*** - (JP) Japan Cabinet approves FY14/15 budget draft with ¥95.88T in spending (as expected with record amount) - (JP) Bank of Japan (BOJ) Dec Monthly Report: Maintains Economic Assessment - (JP) Japan Pension Fund (GPIF) selects Wellington Management as foreign stocks manager - financial press - (JP) Japan PM Abe cabinet approval declines by 5% to 49% - Mainichi News

- (CN) Some China provinces may begin child reform policy in Q1 - Chinese press - (CN) Some Beijing existing home prices may decline 10% from Nov - Chinese press - (CN) Bank of China researcher: China 2014 liquidity outlook not optimistic - Chinese press - (CN) Guandong FTZ plan submitted to state council - Chinese press - (CN) China to start municipal bond trial in 2014 - Chinese press

- (KR) South Korea Financial Supervisory Service (FSS): banks' fx liquidity is in sound condition

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 +0.9%, S&P/ASX +0.7%, Kospi +0.4%, Shanghai Composite +0.7%, Hang Seng +1.0%, Mar S&P500 flat, Feb gold +0.1% at $1,198, Feb crude oil -0.2% at $98.68/brl

US markets: - DIS: Twitter Chairman Jack Dorsey has been elected to the Disney board; +1.2% afterhours - JNJ: Follow up: Carlyle said to be nearing deal for J&J's Ortho unit; deal could be valued by as much as $4B; -0.1% afterhours

Notable movers by sector: - Industrials: Boart Longyear BLY.AU % (audit assessment); Nufarm Ltd NUF.AU +3.4% (resolves tax issue); Guangzhou Baiyun International Airport 600004.CN +5.0%, Shenzhen Chiwan Wharf Holdings 000022.CN 6.9%, Guangzhou Shipyard International 600685.CN +5.2%, Shenzhen Yantian Port 000088.CN +8.9% (Guangdong FTZ) - Materials: Elemental Minerals ELM.AU -18.6% (to continue with Dingyi offer) - Utilities: Tokyo Electric Power 9501.JP % (govt compensation fund) - Energy: Zhengzhou Coal Industry & Electric Power 600121.CN -4.8% (chairman under investigation) - Consumer discretionary: Chengdu Dr Peng Telecom 600804.CN +5.4% (resale license) - Technology: HTC 2498.TW +2.6% (cooperation agreement); Acer 2353.TW +6.2% (CEO appointment)

Contrarians hope for better times in 2014

In the topsy-turvy world of contrarian investing, market rallies are generally a bad thing and volatility is good. Betting against the conventional wisdom yielded big gains for contrarians during the dotcom crash of 2000 and financial crisis in 2009. Not so the past 12 months. "Contrarian strategies have had one of the worst ever years," says Beata Manthey, global equities strategist at Citi. "While simple contrarian strategies often perform very well at big macro turning points, they tend to underperform the rest of the time. An extension of a two-year 40 per cent rally and re-rating in global equities has made this one of the biggest momentum years since 1998." Like the cool kid at school whose long hair and skinny jeans are copied by peers, contrarian trades of the past two years – such as going long on Europe – have gone mainstream. At the same time big contrarian bets, like emerging market equities, which underperformed their developed world counterparts by 20 per cent according to the MSCI All Countries index, have fared poorly. Part of the problem for frustrated contrarians is the sheer volume of easy money being pumped into the financial system by the world’s major central banks. Tightening interest rate spreads have forced many investors to buy further down the credit hierarchy – and assume more risk – to achieve a decent yield. As a result, 2013 was a bumper year for junk bonds – which returned an average of 8.8 per cent according to the iBoxx corporate bond index – and subordinated bank debt. So what is a volatility-starved contrarian to do in the new year? One potential opportunity is commodities, traditionally fertile contrarian terrain. The MSCI Commodity Producers Index underperformed the World Index by more than 15 percentage points this year as miners were plagued by cost overruns and subdued commodity prices. Evy Hambro, head of BlackRock’s natural resources equities team, says the market could have seen the bottom, with more miners taking steps to improve cost discipline after seeing their shares shunned by investors. "Our checklist is definitely moving from the red zone into amber and there are a few green lights in there as well – that’s what we’re looking for as we go into 2014," he says. Another possibility – with the eurozone out of recession and US tapering having begun – lies within the broadly optimistic economic consensus for 2014. Adrian Docherty, head of banking advisory at BNP Paribas, says longer-term risks of a new banking crisis, brought about by growing levels of loan forbearance and rising interest rates, could materialise sooner than some expect. "2014 could be like 2004," says Mr Docherty. "We think everything is fine, confidence is higher than merited and therefore asset bubbles continue to develop . . . these are long-term risks but there is a chance they could materialise during the year." Prevailing market tranquillity could also be knocked out of sync by two big "known unknowns", to borrow the terminology coined by Donald Rumsfeld, the former US defence secretary. These are the end of quantitative easing and the eurozone crisis. "The fact that we have so much excess liquidity keeps the market calm," says Armin Peter, head of European debt syndicate at UBS. "If central banks were to walk away from that there will be a lot more volatility." In Europe, 2013 could be remembered as the year when existential fears of a euro break-up finally subsided in the wake of Mario Draghi’s promise to do "whatever it takes" to save the single-currency union. Since then foreign, especially American and Asian, investors have rushed back into euro-denominated assets and increased their lending to banks in core countries. But flighty investors could pack their bags once more, like they did in 2011, if the European Central Bank’s review of banks’ balance sheets and subsequent stress tests rattles investor confidence. In addition, fractious local politics, particularly in Spain, Greece, Italy and Portugal, could provide contrarian openings for short trades. "There are a number of possible adverse political events that themselves may represent profitable short trades in Europe," says Saul Greenberg, co-founder of SCIO Capital, a Europe-based asset manager. "Consider trades around Catalonia’s desire for independence from Spain and the significant market upheaval that would result if they were to declare independence, such as shorting Catalan banks." Nevertheless Alberto Gallo, head of European macro credit research at Royal Bank of Scotland, argues next year is the recession-battered periphery’s turn to shine. Mr Gallo says investors should concentrate their bets on assets with exposure to recoveries in Italy, Spain and Portugal. German debt investors, by contrast will lose out as the gap between the core and periphery yields increasingly narrows. "Long sangria and panettone vs sauerkraut," he says. A true contrarian might conclude the opposite.

Secular stagnation risk for EU and Japan

Larry Summers has argued that the short-term real interest rate consistent with full employment fell to minus 2 or 3 per cent sometime in the middle of the last decade. This was due to an ex-ante global saving glut, possibly reinforced by a weakening in ex-ante investment demand. Because currency has a riskless zero nominal interest rate, nominal interest rates on other financial instruments cannot fall much below zero. With output significantly below potential since the start of 2008, the expected inflation required to achieve a significantly negative real interest rate with the nominal rate at zero has not been forthcoming, despite aggressive policy easing by the world’s leading central banks. The resulting unemployment is self-perpetuating. Human capital formation suffers: today’s high actual unemployment rate becomes tomorrow’s high natural unemployment rate. Is this view correct and are bolder policies needed to boost demand? Most of humanity lives in the emerging markets that account for 45 per cent of the world’s gross domestic product. Although lower than in 2010 and 2011, EM growth is likely to be around 4.6 per cent this year. Citi’s recent annual longer-term forecast sees real EM growth of around 5 per cent for the next five years: hardly secular stagnation. The US has had a mediocre year because of premature and badly designed fiscal austerity that may have knocked about 1.5 per cent off 2013 GDP growth. But a repeat of this self-inflicted pain is unlikely. We see US growth just below 3 per cent in 2014 and just above it in 2015 and 2016. Moreover, the risk is mainly on the upside, because private investment could be stronger than expected: hardly secular stagnation. The UK is likely to grow at more than 3 per cent during 2014 and 2015, although this is largely driven by a break from fiscal austerity and by residential construction and household demand, boosted by rising house prices. This house price boom is partly due to demand from the world’s scared rich, looking for bolt holes in London, and partly to misguided policies making it possible for first-time buyers to once again obtain 95 per cent loan-to-value-ratio mortgages. Three years from now, with Bank Rate back at 3 per cent and rising, foreclosures and evictions will be headline news again. Learning has not occurred in Westminster, but secular stagnation this is not. Japan is attempting to exit 15 years of deflation and stagnation, but the Bank of Japan will have to do more, and a larger temporary fiscal stimulus will be required to offset the sales tax increases scheduled for 2014 and 2015. Much more must be done to increase labour supply and boost productivity in the service sectors if higher potential output growth is to materialise. Japan remains at risk of secular stagnation making a comeback. The main candidate for secular stagnation is the euro area. Significant recovery is unlikely there until impaired sovereigns and banks have deleveraged significantly and the European Central Bank reverses its recent asymmetric reinterpretation of its price stability mandate and tackles the material risk of further disinflation and even of deflation. How can a sufficient further reduction in the short-term real interest rates and a boost to demand be achieved? Not by a sustained debt-financed fiscal stimulus. Either the markets will rebel or governments will face an ugly additional debt burden when real interest rates recover. This will be an unfortunate accompaniment to the entitlement-spending explosion that will soon hit ageing societies. The zero lower bound on nominal interest rates could be eliminated by abolishing currency, taxing currency or eliminating the fixed exchange rate between currency and bank reserves held with the central bank, but central bank conservatism prevents this. The only other sure way to ward off secular stagnation is a sustained (but not indefinite) fiscal stimulus funded through base money issuance – helicopter money. The Bank of Japan is playing its part, as is the Fed, albeit at a diminishing rate now that tapering has started. The Bank of England will have to do this again when further fiscal tightening becomes unavoidable. The ECB, however, appears to believe that the right policy in the face of below-potential growth, below-target inflation and likely further disinflation is to shrink the balance sheet of the eurosystem – by 26 per cent since mid-2012. After setting the deposit rate below zero, aggressive monetised balance sheet expansion through outright purchases of private and sovereign debt and through long-term fixed-rate repos at rates very close to zero, are required if the euro area is to avoid secular stagnation. Willem Buiter is chief economist at Citigroup

China cash crunch eases as PBoC reassures

China’s cash squeeze has abated after the central bank reassured investors that it wants to avoid deeper turmoil by making its first market-wide money injection in three weeks. The People’s Bank of China pumped Rmb29bn ($4.8bn) into the financial system via open-market operations on Tuesday morning. Although the injection was tiny relative to the country’s Rmb100tn banking market, it was an important gesture to coax wary lenders back into doing business with each other. The relief was virtually immediate. The seven-day bond repurchase rate, a key gauge of short-term funding, fell 344 basis points to 5.4 per cent, the steepest decline in more than two years, as liquidity improved. Chinese banks had been hoarding money, charging each other nearly 9 per cent to borrow cash in a near doubling of rates from just one week earlier, a sign of extreme stress in the interbank market. Over the past week the central bank had provided targeted money to cash-strapped lenders but it had yet to offer any liquidity via its open-market operations, a more transparent and powerful channel for influencing the financial system. On Tuesday morning that changed. Traders said the PBoC stepped forward to offer Rmb29bn in seven-day reverse bond repurchase agreements for the first time since early December – in effect, providing an extra dose of cash to the market for the next week. In a signal of its determination to end the cash crunch, the central bank announced the injection to banks about 10 minutes earlier than normal, a move that let the news spread more widely in Chinese money and equity markets as they reopened. The Shanghai Composite, China’s main stock index, rose 0.7 per cent in the morning’s trading session. "The worst of this round is over," said Zhou Hao, an analyst with ANZ. At the same time, he noted that trouble could rear its head again soon, with renewed tightness likely in late January before the Chinese new year when demand for money increases dramatically. The turmoil of the past few days – China’s second cash crunch in half a year – has shown a harsh spotlight on rising risks in the world’s second-biggest economy. While still growing at nearly 8 per cent a year, China is increasingly laden with debt and the government has embarked on reforms that could be bitter medicine for an economy that has become overly reliant on cheap capital. The repeated bouts of stress in China’s money markets are signs that debt deleveraging has begun but also that the process is likely to be painful Nevertheless, while the central bank has pushed for some tightening of monetary conditions, analysts say it did not want to see such a steep spike in interbank rates. In an indication that it wants interbank lending conditions to ease, it offered its reverse repos at 4.1 per cent on Tuesday, the same level as before the cash crunch. There had been uncertainty about whether the central bank would make an injection in its open-market operations on Tuesday. Mark Williams, an analyst with Capital Economics, had predicted an injection: "It is in nobody’s interest for this to continue for a prolonged period," he said before the news. Liquidity is traditionally tight in China at the end of the year as corporate demand for cash rises and banks rush to book deposits on their balance sheets to meet regulatory requirements. The competition for deposits has been compounded by the growing array of bank-like institutions that offer higher-yielding alternatives for savers. Moreover, analysts believe the central bank overestimated government spending in the final weeks of the year, leading it to believe that liquidity would be more ample than it has turned out to be. As interbank rates have risen, the central bank has tried to persuade investors that monetary conditions are loose enough by pointing to the Rmb1.5tn of excess reserves in the banking system. It has nudged banks sitting on unused cash to step forward to ease the money-market gridlock.

Fed's Fisher says on Fox Business that he argued in favor of $20 bln taper at last FOMC meeting, market could have absorbed that scale of reduction - Reuters

Closing Market Summary: Technology Leads Stocks Higher

The S&P 500 settled higher by 0.5%, registering its third consecutive gain. The benchmark index extended its December advance to 1.2% as eight of ten sectors ended in the green. Stocks jumped at the open with the technology sector (+1.5%) driving the early surge. The space received considerable support from its largest component, Apple (AAPL 570.09, +21.07), which spiked 3.8% after inking a long-rumored distribution agreement with China Mobile (CHL 52.47, +0.84). Emboldened by Apple's strength, other top sector components also rallied. Google (GOOG 1115.10, +14.48), Oracle (ORCL 36.94, +0.57), and Intel (INTC 25.32, +0.27) gained between 1.1% and 1.5%. Despite Intel's strength, other chipmakers struggled to keep pace with the sector as Micron (MU 21.49, -0.68)weighed after Bank of America/Merrill Lynch downgraded the stock to ‘Underperform' from ‘Neutral.' The broader PHLX Semiconductor Index advanced 0.9%. Social media names also took part in the tech party as Facebook (FB 57.77, +2.65) and Twitter (TWTR 64.54, +4.53) settled higher by 4.8% and 7.6%, respectively. Outside of technology, gains in other sectors were much more subdued. In fact,the telecom services sector (+1.1%) was the only other outperformer. Although all six growth-oriented groups posted gains, the energy sector spent the entire session in a steady slide from its opening high. The group ended little changed while crude oil slipped 0.4% to $98.93 per barrel.

The remaining cyclical sectors—consumer discretionary (+0.5%), industrials (+0.4%), and materials (+0.4%)—logged modest gains. However, the discretionary sector failed to capture the relative strength of homebuilders. The iShares Dow Jones US Home Construction ETF (ITB 24.31, +0.71) jumped 3.0%. A Citigroup upgrade of KB Home (KBH 18.19, +1.28) to ‘Neutral' from ‘Sell' and news that incoming FHFA Director Mel Watt is going to delay the implementation of new mortgage fees on government-backed loans, which many think will crimp new housing demand, factored into the outperformance. On the countercyclical side, the telecom sector posted a solid gain while consumer staples (-0.2%), health care (+0.4%), and utilities (-0.3%) lagged.

Also of note, following Friday's close, the CBOE Skew Index (SKEW 143.20,+5.34) jumped above the 139 level for the first time in almost two years. Unlike the VIX, which measures the expected near-term volatility to the upside or downside, the Skew index updates after each session and measures the perceived likelihood of a tail event. The index ranges from 100 to 150 with higher values signaling increased demand for low-strike puts. With the index hovering just below its upper limit, we can conclude that investors are demanding downside protection. Treasuries settled on their lows with the benchmark 10-yr yield up four basis points at 2.93%. Participation was well below average as many elected to sit today's session out. Only 598 million shares changed hands on the floor of the New York Stock Exchange. Today's economic data was limited to just two reports, neither of which saw a notable reaction in the market. Personal income increased 0.2% in November after declining 0.1% in October. The consensus expected personal income to increase 0.5%. Compensation levels were a little softer than the employment report implied, increasing 0.3% instead of 0.6%. That difference likely caused the weaker-than-expected income gain. Personal spending rose 0.5%, in-line with consensus expectations, after increasing an upwardly revised 0.4% (from 0.3%) in October. Separately, the December University of Michigan Consumer Sentiment Index remained at 82.5 in the final reading while the consensus expected the index to be revised up to 83.3. Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while November Durable Orders will cross the wires at 8:30 ET. The October FHFA Housing Price Index will be reported at 9:00 ET while the New Home Sales report for November will be revealed at 10:00 ET.

o Nasdaq +37.4% YTD o Russell 2000 +36.3% YTD o S&P 500 +28.2% YTD o DJIA +24.4% YTD

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AB InBev Belgian Family Owners Buy 7.39m of Brewer’s Stock 2013-12-23 17:53:48.238 GMT

By John Martens Dec. 23 (Bloomberg) -- Eugenie Patri Sebastien SA, the investment vehicle of the Belgian families who have joint control of Anheuser-Busch InBev, acquired 100,000 AB InBev shrs for avg EU73.94 apiece in trades on Euronext Brussels on Dec. 17, according to filing posted on Belgian regulator FSMA’s website.

Link to Company News:{ABI BB <Equity> CN <GO>}

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To contact the editor responsible for this story: John Martens at +32-2-285-4303 or jmartens1@bloomberg.net

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Spanish Billionaire Ortega Said to Pay $670m for London Building 2013-12-23 16:27:12.906 GMT

By Jim Silver Dec. 23 (Bloomberg) -- Amancio Ortega, owner of clothing retailer Inditex, bought office building in London’s West End for GBP410m, person with knowledge of the matter tells Bloomberg’s Patrick Gower and David M. Levitt. * Ortega’s Ponte Gadea bought Devonshire House, a 1920s property opposite Ritz hotel, from estate of Lehman Brothers Holdings, person says * Joelle Halperin, spokeswoman for Lehman Brothers, declines to comment * Ponte Gadea didn’t respond to calls, e-mail requesting comment * Estates Gazette reported news earlier today

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--Editor: Andrea Snyder

To contact the reporter on this story: Jim Silver in New York at +1-212-617-7342 or jsilver@bloomberg.net

To contact the editor responsible for this story: Andrea Snyder at +1-202-624-1831 or asnyder5@bloomberg.net