TheChek News Flow

Asian Market Update: Soft China CPI and surprise trade deficit weigh on sentiment

***Economic Data*** - (CN) CHINA FEB TRADE BALANCE: -$23.0B V +$14.5BE (first trade deficit in 11 months; largest deficit in 2 years; 2nd largest deficit on record) - (CN) CHINA FEB CONSUMER PRICE INDEX (CPI) Y/Y: 2.0% V 2.1%E (13-month low); M/M: 0.5% v 1.0% prior - (CN) CHINA FEB PRODUCER PRICE INDEX (PPI) Y/Y: -2.0% V -1.9%E (24th month of decline; Biggest decline in 7 months) - (JP) JAPAN Q4 FINAL GDP Q/Q: 0.2% V 0.2%E; NOMINAL GDP Q/Q: 0.3% V 0.4%E; GDP ANNUALIZED Q/Q: 0.7% V 0.9%E - (JP) JAPAN JAN CURRENT ACCOUNT BALANCE: -¥1.59T (record high defict for 3rd straight month) V -¥1.41TE; ADJ CURRENT ACCOUNT: -¥588.3B V -¥549BE; TRADE BALANCE BOP BASIS: -¥2.35T V -¥2.59TE - (JP) JAPAN FEB BANK LENDING INCL TRUSTS Y/Y: 2.2% V 2.4%E; BANK LENDING EX-TRUSTS Y/Y: 2.4% V 2.5% PRIOR - (NZ) NEW ZEALAND Q4 MANUFACTURING ACTIVITY VOLUME Q/Q: 5.7% (biggest gain in 19 years) V 1.3% PRIOR; MANUFACTURING ACTIVITY Q/Q: 6.3% V 6.2% PRIOR (biggest gain in 6years)

Market Snapshot (as of 03:30 GMT): - Nikkei225 -1.0%, S&P/ASX -0.9%, Kospi -0.8%, Shanghai Composite -1.4%, Hang Seng -1.4%, Mar S&P500 -0.3% at 1,872, Apr gold -0.3% at $1,333, Apr crude oil -0.1% at $102.45/brl

***Highlights/Observations/Insights*** - Soft weekend economic data from China have once again put a dent in the seemingly resilient economic sentiment from last week. February terms of trade saw its first contraction in nearly a year and also the biggest deficit in 2 years, as exports surprisingly fell 18.1%. Shipments to US, EU, and Japan were all down double digits despite the expectations of rising demand from improving economic conditions in those markets. Stats bureau was quick to attribute the deficit to the distortions caused by the timing around the Lunar New Year, so the jury on the China trade as a gauge of global demand may still be out until March figures. Meanwhile, China CPI also came in surprisingly tame, with annual CPI hitting a 13-month low of 2.0%. Local press has surmised the February data may force the govt into a fiscal stability policy, and several analysts also hinted that weak economy may persuade the increasingly-hawkish PBoC to decelerate its mopping up of excess liquidity to forestall the risk of deflation.

- Japan revised its Q4 GDP to a final figure of 0.2% from 0.3% q/q and 0.7% on annualized basis vs 1.0% prelim. Corporate CAPEX component saw its biggest change in the revision, slowing to 0.8% q/q growth vs 1.3% initially reported and raising further questions over the efficacy of Abenomics and its glaring need of "3rd arrow" structural reform. HSBC economist interviewed after the release of the final Q4 GDP also expressed concern about Japan's rising trade deficits, potentially forcing the BOJ into action sooner than expected. BOJ concludes its 2-day meeting with a formal statement on monetary policy tomorrow. While no change is expected, traders will tune in for Gov Kuroda's accompanying statement for insight into the latest disappointing round of data. Note that Japan's current account and balance of payments trade also hit record deficit levels.

- Situation in the Crimean peninsula remained tense over the weekend, with reports of another takeover of an airport by unidentified troops. Russian Pres Putin held talks with Chancellor Merkel on Sunday, reiterating the belief that the referendum vote planned for Crimea next Sunday is based on international law and "aimed at guaranteeing the legitimate interests of the peninsula's population," just as Merkel maintained that the vote violates Ukraine constitution and will not be recognized by western powers. US President Obama is welcoming Ukraine PM Yatsenyuk to the White House on Wednesday to help add legitimacy to the new govt in the eyes of the skeptical eastern region, while the US Defense Dept has ordered a dozen F-16 fighter jets and 300 US service personnel to Poland to take part in military exercises amid the apparent escalating tensions with Moscow.

- May copper contract was exceptionally volatile in the early part of electronic trade, briefly falling by over 2.5% below $3.00/lb before recovering much of its lost ground. Copper and iron ore have come under pressure on Friday as well following confirmation of a China corporate default, and sellers re-emerged in the Asia session after the soft China trade components showing large sequential losses in copper shipments.

***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 - USD/CNY: (CN) PBoC sets yuan mid point at 6.1312 v 6.1201 prior setting (weakest Yuan setting since Dec 3rd) - (KR) South Korea sells 5-yr govt at 3.215% - GLD: SPDR Gold Trust ETF daily holdings rise 1.5 tonnes to 805.2 tonnes (3-week high)

- Yen pairs are under modest pressure given the overall risk aversion in the equity markets after the soft China data, which is also weighing on the AUD currency. AUD/USD fell about 30pips below $0.9040 and USD/JPY briefly tested below the ¥103 handle, down about 25pips from Friday close. NZD remains resilient and trading flat around $0.8460, as investors brace for RBNZ to become the first central bank from a major developed economy to raise interest rates.

***Equities*** US markets: - URI: To acquire National Pump s for about $780M; Raises FY14 EBITDA to $2.55-2.65B from $2.45-2.55B prior forecast; Rev to $5.45-5.65B v $5.36Be (prior forecast $5.25-5.45B) - BA: Reportedly planning to inspect 787 Dreamliner aircraft wings of planes that have yet to be delivered to clients following a client complaint; May cause some delivery delays but will not impact FY14 revenue and delivery guidance - press; Malaysia Airlines Flight MH370 en route from Kuala Lumpur to Beijing missing and believed to be lost in the South China Sea; Japan Airlines-operated Dreamliner flight from Tokyo to San Francisco made emergency landing in Hawaii due to possible problem with hydraulic system - press

Notable movers by sector: - Consumer Discretionary: Wuliangye Yibin 000858.CN -1.7% (prelim FY13 results); Skyworth Digital 751.HK -3.3% (Feb sales results) - Financials: Poly Real Estate Group 600048.CN -2.8% (Feb sales results) - Materials: Anhui Fangxing Science & Technology 600552.CN +0.8% (FY13 results); Fortescue Metals Group FMG.AU -7.8%, BHP Billiton BHP.AU -3.5%, Rio Tinto RIO.AU -5.1% (commodity futures trade down in China, after first debt default, as well as trade deficit in China) - Industrials: China Southern Airlines 1055.HK -3.9%, Air China 753.HK -1.8%, Cathay Pacific Airways 293.HK -1.6%, China Eastern Airlines 670.HK -1.9% (flight from Malaysia Airlines disappears in the South China Sea); China Rongsheng Heavy Industries Group 1101.HK -2.7% (FY13 results); Leighton Holdings LEI.AU +11.1% (receives proportional bid from Hochtief); Jiangsu WELLE Environmental 300190.CN +10.0% (FY13 results) - Technology: Tencent Holdings 700.HK -1.0% (acquires stake in JD.com)

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Bouygues in Talks to Sell Mobile Network to Free for EU1.8b 2014-03-09 10:59:32.465 GMT

By Andrew Roberts March 9 (Bloomberg) -- Bouygues says in statement seeking as much as EU1.8b for network and portfolio of frequencies. * Bouygues says transaction is conditional on acquisition of Vivendi’s SFR, aims to preserve strong, infrastructure based competition in France * Bouygues says agreement means it can present to French Competition Authority measures designed to maintain competitive market * Bouygues says deals would help restore level playing field in mobile telecoms sector, boost employment, facilitate investment, improve quality of service, innovation * NOTE: Iliad Says Bouygues Acquisition Won’t Require Capital Increase NSN N260TI6JTSE8 <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Andrew Roberts in Paris at +33-1-5365-5015 or aroberts36@bloomberg.net To contact the editors responsible for this story: Celeste Perri at +31-20-589-8505 or cperri@bloomberg.net Mike Harrison, Douglas Lytle

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French Competition Probe of SFR Deal Could Take 9 Months: Figaro 2014-03-08 09:19:40.649 GMT

By Andrew Roberts March 8 (Bloomberg) -- France’s competition authority will take the time needed to examine Vivendi’s sale of SFR to Bouygues or Altice, the regulator’s president Bruno Lasserre says in interview with Le Figaro. * An in-depth review is more likely than a simple 25-day procedure, Lasserre says: Figaro * NOTE: Bouygues said to start regulator talks in SFR race with Drahi NSN N22VSW6KLVSL <GO>

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Andrew Roberts in Paris at +33-1-5365-5015 or aroberts36@bloomberg.net To contact the editors responsible for this story: Celeste Perri at +31-20-589-8505 or cperri@bloomberg.net Ross Larsen

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Imerys Won’t Boost Offer Price for Amcol 2014-03-07 21:55:01.134 GMT

By Jeran Wittenstein March 7 (Bloomberg) -- Imerys won’t increase $45.25 cash offer for Amcol International after Amcol said $45.75 Mineral Technologies offer was superior. * Says would not “be able to comply with its long term value creation objectives” at higher price * Says termination fee would apply if Amcol terminates merger agreement with Imerys * NOTE: Yday, ACO calls New Minerals offer superior Statement

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Jeran Wittenstein in San Francisco at +1-415-617-7203 or jwittenstei1@bloomberg.net Jeran Wittenstein, Scott Schnipper

Weekly Market Update: Cold Weather, Cold War

- The S&P500 notched new all-time closing highs this week and not even the prospects of war in Ukraine managed to unseat the relentless bid. Ukraine became a central issue after Russian troops occupied Crimea without a shot fired and the Ukrainian province prepared to legitimize the move via referendum. In Europe, ECB President Draghi was more hawkish than expected and resisted calls to offer additional accommodation or even say the word deflation. At China's National People's Congress, Beijing unveiled its official 2014 targets, most notably maintaining the 7.5% GDP objective for the third year in a row and set the inflation target at 3.5%. Meanwhile, China's Feb manufacturing PMI fell to an eight-month low of 50.2, just a hair away from contraction. For the week, the DJIA rose 0.8%, the S&P500 gained 1.0% and the Nasdaq added 0.7%.

- On Monday, Russia's MICEX index fell 11%, the DAX was down as much as 3% and the CAC fell as much as 2.5% as Europe responded to Russian escalation over the weekend. The ruble was in free fall, prompting the Russian central bank to raise its key lending rate to 7% from 5.5%. At its worst, USD/RUB rose as high as 36.6, the ruble's weakest level since the 1998 currency crisis. An air of unreality surrounded Russian statements about the situation, as Putin denied that Russian troops were even participating in the occupation of Crimea (he said the troops were just extraordinarily well-armed local Russians). The Crimean parliament asked Putin to start the procedure of formally allowing Crimea to join the Russian Federation and scheduled a referendum for March 16th. Ukraine called the moves illegal and promised to hold on to the peninsula. Europe responded by threatening to consider sanctions, while the US is actively establishing a limited sanctions regime and sending token military assets to the region.

- The February jobs report took markets by surprise on Friday. After the ADP miss (at +139K jobs v +155Ke) and various weak employment components from February regional Fed reports, many participants were assuming the Labor Department report would be terrible. On Thursday, Fed Governor Lockhart said he did not expect to see an outstanding jobs report. But in the event, the Feb NFPs roundly beat expectations (+175K v +149Ke) and the unemployment rate ticked up one-tenth to 6.7%. The biggest surprise in the data was a 0.4% increase in average hourly earnings, the largest increase since last June, while average hours worked fell, likely due to distortions caused by weather.

- The February ISM manufacturing data was slightly better than expected, rising to 53.2 from January's nine-month low of 51.3. The key new orders component saw solid gains, rising to 54.5 from 51.2 prior. Note that the weakness in December and January was chiefly seen in the new orders component.

- February auto sales numbers are the latest economic data to be impacted by winter weather. Ford and GM both saw sales decline on a y/y basis, although total unit sales were more or less in line with expectations. Sales executives from both firms cited the weather as restraining sales. Chrysler's sales grew 11%, and executives said the weather only helped sales of their Jeep line, which were up 47% y/y. Nissan's sales grew 16% y/y, although this was a bit shy of expectations.

- In earnings news, shares of Radio Shack are down 20% this week after the troubled retailer reported brutally bad fourth quarter results, with losses three times the year ago figure and retail comps down 12%. Homebuilder Hovnanian dragged down the entire sector after it missed revenue expectations and racked up an unexpectedly large quarterly loss. The firm's contract cancellation rate crept up and its net contracts signed metric fell y/y. HOV is down 17% while fellow luxury home builder KBH is down nearly 10% this week. Costco missed top- and bottom-line expectations in its second-quarter report. The price club's same store sales held up well, up 2% overall while US comps were up 4%. Earnings fell y/y, dragged down by weak margins in the holiday season and tough FX conditions.

- Safeway announced a formal merger deal with Cerberus's Albertsons after a long courtship. The $40/share price values Safeway at more than $9 billion. Note that there have been reports that Kroger is still mulling a higher offer. A Deutsche Bank analyst wrote that Kroger should bid and that Safeway could fetch a price above $40.

- The ECB resisted calls to fight disinflation with more easing at its policy meeting on Thursday. EUR/USD was steady after the ECB left rates on hold and refrained from launching any new programs, and then moved sharply higher, testing 1.3850, once it was clear that ECB President Draghi would merely reiterates familiar positions at the post-rate decision press conference. Draghi said that recent improvements in the eurozone obviate the need to halt SMP sterilization. On Friday morning, EUR/USD moved even higher, probing briefly above 1.3920 to its highest level since late 2011. The euro weakened after the US jobs report.

- China has now witnessed its first corporate default in history. Shanghai Chaori Solar Energy is looking to sell overseas assets to make up a missed bond payment and neither banks nor government entities are stepping in to help. Chaori's default took place during the annual People's Congress session, reinforcing the signal that Beijing is letting market forces play a stronger role in the economy. However analysts point out this is only the beginning given that the number of Chinese companies with debt levels double equity has surged since the financial crisis began.

Closing Market Summary: Stocks End Upbeat Week on Mixed Note

The stock market finished an upbeat week on a mixed note. The S&P 500 added just under a point, holding its weekly gain at 1.0% while the Nasdaq lost 0.4%.

The major averages began the day on an upbeat note, but relinquished their opening gains during the first 90 minutes of action. The early sentiment was boosted by a better-than-expected nonfarm payrolls report for February (175K versus consensus 163K), but a closer look into the report suggested that the weather excuse, which has been commonplace for the past several weeks, may have been overused in justifying some of the disappointing economic data received in recent weeks.

Stocks retreated from their opening highs with the Nasdaq pacing the slide. Specifically, biotechnology underperformed for the second day in a row, which fueled much of the Nasdaq weakness. The iShares Nasdaq Biotechnology ETF (IBB 259.40, -1.74) lost 0.7% after being down as much as 2.6% at the start of the session. The biotech ETF posted a 1.9% decline for the week, but remains up 14.2% in 2014.

Although biotechnology was able to climb off its lows, the rebound coincided with selling in the traditional technology sector (-0.3%). As a result, the Nasdaq was pressured throughout the day.

Even though heavily-weighted sectors like technology and health care (-0.2%) weighed on the broader market, the S&P 500 held up relatively well thanks to the relative strength of the financial sector (+0.5%), which continued its recent outperformance. The influential sector finished the week with a gain of 3.0%.

Elsewhere among cyclical groups, energy (+0.4%) and industrials (+0.3%) outperformed while consumer discretionary (-0.1%) and materials (-0.5%) lagged. The energy sector posted a modest gain as crude oil rose 1.0% to $102.54/bbl. Despite today's increase, the energy space remains the weakest cyclical group of the year, down 1.8%.

Industrials, meanwhile, drew strength from transports. The Dow Jones Transportation Average added 0.4% after marking a fresh intraday record high at 7627.44.  

Despite the continued uncertainty surrounding the situation in Ukraine, stocks climbed into the close, suggesting participants remained hopeful that a worst case scenario would be avoided. The sentiment was a bit different in Europe where major regional indices finished on their lows after a Gazprom spokesman said the company could stop delivering natural gas to Ukraine since the country is behind on its payments. The news rattled the region considering Gazprom is a major supplier to the entire European continent and supply disruptions could affect other economies.

The Treasury market, however, did not reflect a flight to safety as the 10-yr note finished in the red with its yield up five basis points at 2.79%.

Participation was a bit below average as 710 million shares changed hand at the NYSE.

Taking a look at economic data:

* Nonfarm payrolls added 175,000 jobs in February after adding an upwardly revised 129,000 (from 113,000) in January. The consensus expected an increase of 163,000. Private payrolls were a little lighter, up 162,000 in February after adding 145,000 in January. The consensus expected private payrolls to increase by 170,000. Over the last several weeks, economists have pointed toward the winter weather as the reason for the recent economic slowdown. The above consensus result in the February employment report refutes that theory. Sectors that are normally impacted by weather events, such as construction of buildings (+100), reported positive payroll gains. These sectors should have seen a sizable pullback if weather was the root cause of the economic malaise. 

* The U.S. trade deficit widened in January to $39.10 billion from an upwardly revised $39.00 billion (from $38.7 billion) in December. The consensus expected the trade deficit to fall to $37.30 billion. The goods deficit rose to $59.30 billion from $58.70 billion, a gain of $0.70 billion. The services surplus increased by $0.50 billion in January to $20.20 billion. Exports increased 0.6% in January to $192.50 billion. Almost all of the increase can be attributed to a $1.80 billion increase in exports of nonmonetary gold and a $0.20 billion increase in artwork sales. 

* Consumer credit increased by $13.70 billion in January after increasing a downwardly revised $15.90 billion (from $18.80 billion) in December. The consensus expected consumer credit to increase by $11.80 billion in January. 

There is no economic data on Monday's schedule.

* Nasdaq Composite +3.8% YTD  * Russell 2000 +3.8% YTD  * S&P 500 +1.6% YTD  * Dow Jones Industrial Average -0.8% YTD 

Boeing to Inspect Wings of Undelivered Dreamliners for Cracks Airplane Maker Says Supplier's Manufacturing Defect Could Cause Delays in Delivering the Jets

Boeing Co. revealed Friday that a manufacturing problem had caused hairline cracks in the wings on some of its 787 Dreamliner jets, requiring inspections on 42 aircraft and delaying the delivery of some to airlines. Wing-maker Mitsubishi Heavy Industries Ltd. informed Boeing that a change in its manufacturing process may cause the cracks in the wings it produces for yet-to-be-delivered jets, according to a spokesman for the U.S. aerospace giant. Subsequent inspections revealed cracks on some jets, the spokesman said. The defect is a major headache for Boeing, which is working to consistently produce 10 Dreamliners a month this year, though it still plans to deliver around 110 of the jets in 2014 and said its revenue guidance for the year remained unchanged. The inspections and repairs at Boeing plants in Washington state, South Carolina and Mitsubishi facilities in Japan illustrate how manufacturing problems can be spread quickly through the supply chain while it builds Dreamliners at a record rate. Boeing said none of the 123 787s delivered to date are affected by the wing issue. A person familiar with the issue said the company was told by Mitsubishi in the second half of February of the issue after its routine quality checks. "We will work with customers to adjust delivery schedules as required," said the spokesman. Boeing and its partner are inspecting 787s with line numbers running from 151 to 193, representing around a fifth of all Dreamliners built since 2007, according to the same person familiar with the issue. The latest problem to affect the Dreamliner program stems from fasteners used to connect the wing ribs to the shear ties on the carbon fiber composite wing panel, according to two people familiar with the situation. The fasteners were over-tightened without the use of manufacturing fillers, compressing a gap in the structure and in some cases caused hairline cracks of less than an inch to carbon fiber composite shear tie that connect the rib to the lower skin of the wing panel. If left unchecked, it can cause unintended stress on the jet's structure and could lead to further damage. "We understand the issue, what must be done to correct it, and are completing inspections of potentially affected airplanes. We are addressing affected airplanes as required," said the spokesman. The manufacturing defect is a rare significant quality defect for the Japanese aerospace supplier, whose quality has traditionally been a model for Boeing to emulate inside its own factories. Mitsubishi wasn't immediately available for comment. A Boeing supplier in Italy made a similar manufacturing error discovered in 2010 when assembling horizontal tails for the Dreamliner, requiring significant rework to dozens of aircraft. Mitsubishi builds the entire carbon fiber composite 787 wing at its Nagoya, Japan, factory before it is shipped by a heavily modified 747 to Boeing's final assembly lines in Everett, Wash., and North Charleston, S.C. Japanese suppliers build 35% of the Dreamliner, the first jetliner to be made from a majority of carbon fiber composites. A spokesman for Boeing said it expects each airplane will take one to two weeks to inspect and correct, depending on its position in the production process. About 17 of the 42 aircraft are fully completed and seven have been undergoing pre-delivery flight tests, according to external sources tracking the program. The rest of the 787s are in various states of assembly or the wings are still in Japan and have yet to be shipped for final assembly. The company said its 2014 revenue guidance of between $87.5 billion and $90.5 billion remains unchanged, and that it still plans to deliver 110 787s this year. However, deliveries planned for the first quarter could slip beyond March, the close of the company's first quarter.