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SAP May Move After Oracle Misses 3Q Sales, Profit Estimates 2014-03-19 07:22:51.293 GMT

By Claudia Rach March 19 (Bloomberg) -- Shares traded down in U.S. after- hours market. * NOTE: Oracle 3Q adj. EPS, rev. miss; sees 4Q rev. growth inline with ests. * Goldmann: Sees neutral read-across to SAP from Oracle’s 3Q results which demonstrated continued stable IT spending trends * Baader: Oracle’s 3Q results missed expectations in terms of of new software license and cloud software subscriptions growth, it underlines why SAP announced stronger move in the cloud * Says SAP current share price provides interesting entry point on the way to higher share of recurring rev. * NOTE: SAP down 10% YTD vs DAX down 3.2% vs SX8P down 2.5% * NOTE: 47 analyst ratings 60% buy, 28% hold, 13% sell; avg PT EU65: Bloomberg data

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To contact the reporter on this story: Claudia Rach in Berlin at +49-30-70010-6219 or crach1@bloomberg.net To contact the editors responsible for this story: James Ludden at +44-20-7673-2645 or jludden@bloomberg.net Tim Barwell

Asian Market Update: Japan trade deficit exceeds estimates but still marks its lowest level in 4 months

***Economic Data*** - (JP) JAPAN FEB MERCHANDISE TRADE BALANCE: -¥800.3B V -¥600.0BE; ADJUSTED TRADE BALANCE: -¥1.13T (smallest deficit in four months) V -¥907.0BE - (AU) AUSTRALIA FEB SKILLED VACANCIES M/M: 0.2% V 1.0% PRIOR; Internet skilled vacancies -0.2% m/m - (AU) AUSTRALIA FEB WESTPAC LEADING INDEX M/M: -0.1% V -0.1% PRIOR - (NZ) NEW ZEALAND Q4 CURRENT ACCOUNT BALANCE (NZ$): -1.43B V -1.53BE; CURRENT ACCOUNT GDP RATIO YTD: -3.4% (narrowest since Q1 2012) V -3.4%e - (KR) SOUTH KOREA FEB PPI Y/Y: -0.9% V -0.3% PRIOR (17th consecutive decline) - (US) API PETROLEUM INVENTORIES: CRUDE: +5.9M (4th straight build and largest build since Nov 26th) v +2.5Me

Market Snapshot (as of 03:30 GMT): - Nikkei225 -0.4%, S&P/ASX +0.1%, Kospi -0.1%, Shanghai Composite -1.1%, Hang Seng -0.1%, Jun S&P500 -0.1% at 1,861, Apr gold -0.1% at $1,358, Apr crude oil -0.2% at $99.51/brl

***Highlights/Observations/Insights*** - Asian indices are mixed despite another session of gains in the US, where conference from Pres Putin announcing no intention to roll into east Ukraine continued to lift the fog of war with Russia. Instead, the focus is shifting to the Fed decision tomorrow that will also mark the first opportunity for the new Fed Chair Yellen to potentially alter FOMC's forward guidance and perhaps soften its message due to some of the recent weak data. - Japan announced another trade deficit which was wider than expected but still smaller than the past 3 months on adjusted basis. Both exports and imports were up in high-single digits - a 12th and 16th consecutive rise respectively. Trade components also showed some improvements, with double digit y/y exports increase to Asia, China, and Europe as well as a 6.4% drop in the bill for crude oil imports. BOJ board member Kiuchi reiterated his dissent, noting exports will likely continue to lack momentum for some time while suggesting the 2% inflation target of 2-years may be overambitious. Instead, Kiuchi believes the 2% target is better pursued as a longer-term objective, warning that any additional effort to expand QE could have more side-effects than benefits. Separately a press survey in Japan found 7 of 16 analysts expecting BOJ to ease in July and 3 analysts to ease as early as April - only 2 do not expect more easing. USD/JPY traded in a 20pip range going into the Fed meeting below the ¥101.50 level.

- Chinese yuan was once again set in the CNY6.13, before onshore markets pushed the level to mid-6.19. This marks the first time that Yuan traded by more than 1% relative to its fix since the PBoC widened the tradable band to 2% from 1% this weekend. Among notable local press reports, China Academy of Social Sciences (CASS) researcher said China should now look to ease restrictions for home buyers to help stabilize expectations for prices in 2014.

- Aussie dollar is underperforming after an overnight rally following those more hawkish than expected RBA policy meeting minutes overnight. AUD/USD hit a 3-month high around $0.9135 early in the day before falling about 30pips, and is now faced with technical resistance from a downtrend going all the way back to April of last year. Today's survey of analysts seemingly reflects the latest neutral/upbeat sentiment from the RBA, with 12 out of 32 analysts said to expect the central bank to start raising rates this year and only 6 expecting another cut. Skilled vacancies data from Australia offered a slightly more ominous anecdotal picture in the labor sector, with resource-heavy Western Australia recording the biggest regional fall in internet ads in February, down 5.8% m/m. Separately, a Fitch report stated that while stockpiling will not suspend China demand for Australia ore and while demand for commodities will keep rising in absolute terms, the extent of each year's incremental demand is likely to decline progressively.

- Nominee for Bank of Korea governor Lee addressed lawmakers in confirmation hearings, noting the BOK will maintain its 2.5-3.5% mid-term inflation target for now, as any change would possibly hurt the BOK credibility. Lee also said falling growth potential is the biggest challenge for South Korea, while also diminishing the potential impact on the economy from the Fed taper. Recall last week, the BOK reiterated that negative output gap in South Korea economy will remain going forwards, but will gradually narrow.

- Canadian dollar fell to near its 1-week lows around C$1.1150 in early Asia session after reports of Canada Finance Minister Flaherty announcing his resignation to return to the private sector. Later in the day, local press reported Natural Resources Minister Joe Oliver would replace Flaherty, with the announcement expected as early as Wednesday.

***Fixed Income/Commodities/Currencies*** - (CN) China MOF sells CNY28B in 10-yr bonds; avg yield 4.42% - (JP) BOJ offers to buy ¥170B in JGB with maturity over 10-yr and ¥20B in inflation-linked bonds - (AU) Australia MoF (AOFM) sells A$700M in 2024 Bonds, avg yield: 4.0891%, bid-to-cover: 3.88x - (NZ) Fonterra Global Dairy Trade auction: Dairy Trade price index -5.2% (biggest decline since June) from prior auction; Third straight decline

***Equities*** US markets: - PSUN: Reports Q4 -$0.17 v -$0.18e, R$219M v $214Me; +7.3% afterhours - CWH: Activist investors win proxy vote to throw out entire board; Corvex and Related plan to make Sam Zell Chairman - press; +4.9% afterhours - P: Said to have raised price of ad-free service to $4.99/mo from $3.99/mo for new customers effective in May - financial press; +1.1% afterhours - STLD: Guides Q1 $0.13-0.17 v $0.29e; raises quarterly dividend by 4.5% to $0.115/shr from $0.11/shr; flat afterhours - ADBE: Reports Q1 $0.30 v $0.25e, R$1.00B v $971Me; +0.2% afterhours - ORCL: Reports Q3 $0.68 v $0.70e, R$9.31B v $9.36Be; Guides Q4 Non-GAAP EPS $0.92-0.99 v $0.95e (constant currency), Non-GAAP Rev +3-7% y/y v +5%e (implies R$11.3-11.7B v $11.5Be); -3.5% afterhours - NUS: Temporarily halts some promotional meetings in China; to extend refund, return policy; expects regulatory fines to be levied - 10K filing; -4.8% afterhours

Notable movers by sector: - Consumer Discretionary: David Jones Ltd DJS.AU flat (H1 results); Hainan Airlines 600221.CN -1.6% (FY13 results); Kirin Holdings 2503.JP +1.2% (to expand sales) - Materials: Aluminum Corporation of China Limited 2600.HK +3.5% (FY13 results); Discovery Metals DML.AU +23.1% (enters JV) - Industrials: Shanghai Construction 600170.CN +1.0% (FY13 results); Tsugami Corp 6101.JP +7.2% (speculation of FY14/15 results) - Technology: Renren Inc RENN -8.0% (Q4 results); Acer 2353.TW -2.5% (employees suspected of insider trading) - Utilities: Huaneng Power International 902.HK +1.7% (FY13 results)

FOMC Seeks to Talk a Good Game

Switching to qualitative guidance on rates frees Fed from numerical constraints but poses other challenges.

Watch what they say, not what they do.

The Federal Reserve's policy-setting Open Market Committee will wind up a two-day meeting Wednesday, when it is expected to describe the conditions under which it will begin to raise short-term interest rates from the floor, where they have been pinned since the credit crisis in late 2008.

Those words will count far more than the actions to come out of the confab, which will be to taper further the central bank's buying of Treasury and agency mortgage-backed securities. The panel is all but certain to approve another $10 billion reduction in its monthly purchases from the current $65 billion pace. Fed officials have set a very high bar to deviate from that path.

But the FOMC has boxed itself into something of a corner as to when and under what conditions the FOMC will lift its federal funds target, from 0-0.25%.

From March 2009 until June 2011, the panel said it would keep the fed funds rate near zero for an "extended period." In October 2012, FOMC tried to get more specific, putting policy on a calendar by stating the funds rate would stay near zero until mid-2015.

In December of that year, it made that conditional upon the unemployment rate falling to 6.5%, from 7.8% at the time. With the jobless rate down to 6.7% in February, in large part because of lower labor-force participation, that parameter is increasingly problematic.

Various Fed officials, from Chair Janet Yellen on down, have emphasized the headline unemployment rate understates the slack in the labor market. Thus, she doesn't want to be constrained by that flawed measure.

That's especially so if inflation is running well below the Fed's 2% target, as it has been consistently for some time. Indeed, Yellen has provided hints that she would not be averse to maintaining an easy policy in the face of positive indicators—such as falling unemployment—if inflation remains in check.

In an out-of-print volume, The Fabulous Decade: Macroeconomic Lessons from the 1990s, co-authored with former Fed Vice Chairman Alan Blinder published in 2001, Yellen wrote one of the reasons for the success of the previous decade was the willingness of the Fed (then led by Alan Greenspan) to forego interest-rate hikes then. Inflation appeared to remain well in check, despite the fall in the jobless rate; surging productivity from technology was paying off, according to the authors' thesis. Greenspan opted not to raise rates until he saw "the whites of the eyes" of inflation.

Fast forward almost 20 years and the jobless rate again is falling faster than expected but inflation remains in check. Numerous economists, both inside the Fed and outside, agree the headline unemployment rate understates the actual slack in the labor market, especially given the degree of dropouts from the workforce.

Thus the Fed has the choice of changing the policy parameters for a rate hike: a lower jobless rate threshold; more attention to a too-low inflation rate; some attention to financial-market indicators, which show easy conditions, especially in the credit markets; or some form of qualitative guidance.

The latter would be analogous to the Supreme Court's definition of obscenity. The FOMC can't define in advance the conditions under which it would raise its rate target, but it will know when it gets there.

JPMorgan Chase economists think the latter option is most likely, rather than changing numerical thresholds.

"We believe that this switch will be done with an intent to convey no change in the stance of policy, much like Indiana Jones replacing the golden idol with a bag of sand," they write.

"The Fed pulled a similar switcheroo back in December 2012, when it transitioned from calendar guidance to threshold guidance, but as [former Federal Reserve Chairman Ben Bernanke] noted at the time, 'this change in the form of the Committee's forward guidance does not in itself imply any change in the Committee's expectations about the likely future path of the federal funds rate'."

Bottom line: The Fed doesn't want to be constrained by a preset number.

Fed watchers also will be examining the chart of various FOMC members' expectations for the timing of the initial fed funds hike. These charts representing the personal view of each of the seven members of the Fed's Board of Governors and the 12 Fed district bank presidents. (All the Fed governors vote on the FOMC along with five of the Fed presidents, who serve on a rotating basis, except for New York, which always votes.)

In the previous set of projections, released Dec. 18, two members thought the first hike could come in 2014 while the consensus—12 members—thought it would happen in 2015. The other three looked for the first increase not to come until 2016. It would not be surprising if the expectations of a 2014 rate increase are eliminated in the new polling.

Looking at the dots representing the anticipated year-end fed funds targets, 10 expected the rate to be 1% or less by the end of 2015 and 10 looked for it to be 2% or less by the end of 2016.

That would be well below what the panel's members reckon to be the normal, longer-run fed funds rate—around 4%, according to the consensus.

The FOMC's task will be to communicate how it gets from here (near zero interest rates) to there over those time frames. Too much specificity can backfire.

The Bank for International Settlements, the so-called central bank for central banks, recently warned that signaling that short-term rates will remain low for a long period can encourage destabilizing, speculative excesses. Think of how the glacial pace of fed funds hikes from very low levels in the mid-2000s helped to inflate the housing bubble.

By contrast, the quick rise in the fed funds rate—from 3% to 6%—in 1994-95 sent shock waves through the stock market—roiling the mortgage-backed securities market, which wound up bankrupting Orange County, Calif., and rippled through to Mexico's "Tequila crisis" in which the peso crashed.

While Yellen and Blinder praised the Fed's actions then in producing a "soft landing" for the U.S. economy, the Fed has taken pains to avoid such disruptive side-effects, although not successfully, as the events of 2007-08 show.

That's the conundrum the FOMC faces: how to signal its plan to lift rates from near zero without roiling the markets and causing a back-up in interest rates that could throttle the expansion, while not encouraging a new bubble