TheChek News Flow

Asian Market Update: Equities take the Dectaper in stride; Yen hits 5-year lows before recovering some ground

***Observations/Insights*** - Outgoing Fed chief Bernanke is said to have succeeded in "threading the needle", delivering both the beginning of the end of "QE infinity" while still convincing the markets that any policy stimulus exit would be of a highly gradual and measure sort. Despite the $10B taper announcement and subsequent higher USD, stocks were up sharply after the Fed said the current fed funds rate will be maintained "well past the time that the unemployment rate declines below 6.5%". Asian indices are trading mixed - Nikkei225 hit 6-year highs on the heels of a steep selloff in the yen while S&P/ASX is up 1.5%. Kospi is flat, with weakness in the yen said to pose risks to South Korea's export sector. Korean markets are also disappointed with a landmark ruling that bonuses should be included when determining overtime pay, potentially lifting corporate labor costs. Shanghai Comp is also little changed, as Shibor rates continue to ratchet higher with the PBoC on the sidelines now for more than 2 weeks.

***Economic Data*** - (CN) China Jan-Nov SOE profit CNY2.15T, +8.2% y/y, Rev CNY41.9T, +11% y/y - (JP) Japan investors bought net ¥110.5B in foreign bonds last week vs bought net ¥413.2B in prior week (10th straight week of net purchases); Foreign Investors bought net ¥619.8B in Japan stocks v bought net ¥113.8B in prior week - (JP) JAPAN OCT ALL INDUSTRY ACTIVITY INDEX M/M: -0.2% V -0.3%E - (JP) Japan Iron and Steel Federation: Nov crude steel output 9.26Mt, -2.8% m/m, +8.9% y/y - (AU) AUSTRALIA NOV RBA FX TRANSACTIONS (A$): 444M V 648M PRIOR - (NZ) NEW ZEALAND NOV TRADE BALANCE (NZ$): +183.0M V -168M PRIOR (First November trade surplus since 1991) - (NZ) NEW ZEALAND Q3 GDP Q/Q: 1.4% V 1.1%E; Y/Y: 3.5% V 3.3%E

***Fixed Income/Commodities/Currencies*** - (CN) PBoC won't conduct open market operations (OMO) in today's session (5th consecutive session of halted operations); Zero net position this week v drained CNY37B prior - (CN) Daily Shibor fixings: O/N: 3.8460 % v 3.5880% prior (4rd consecutive rise. highest since Nov 24th); 1-week: 6.4720% v 5.9020% prior (4rd consecutive rise, multi-week high, highest since June 26th) - (CN) China Qinhuangdao coal price rises to CNY620-630/t (10th consecutive rise; highest since May) - GLD: SPDR Gold Trust ETF daily holdings fall 4.2 tonnes to 812.6 tonnes (lowest since Jan 2009)

- USD/CNY: (CN) PBoC sets yuan mid point at 6.1183 v 6.1105 prior setting (weakest yuan setting since Dec 5th) - USD/KRW: Rises above KRW1,060; 2-week highs

- Among the majors, reaction to the Fed taper start was particularly evident in the yen pairs, sending USD/JPY, EUR/JPY, and GBP/JPY to 5-year highs above 104.30, 142.80, and 171.10 respectively. Yen-selling is consolidated in the Asian session, as traders question the validity of the spike in the absence of a sell-off in the shorter-end of the US yield curve. EUR/USD initially spiked to 1.38 before reversing to trade closer to 1.3650, while GBP/USD remains resilient ahead of the overnight release of UK retail data. NZD/USD briefly rose after better than expected Q3 GDP, but succumbed to broader USD strength. AUD/USD found support around $0.8820 - a fresh 3-year low. USD was also firmer against the Asia-Pac emerging FX - USD/KRW hit 2-week highs above 1,060 and USD/SGD hit 3-month highs above 1.2640

***Speakers/Political/In the Papers*** - (CN) China Beige Book: Economy strengthened in Q4; Companies' borrowing shrank - (CN) China PBOC Q4 survey: China bankers confidence index rise to 71.3% v 61% in Q3; China household inflation expectations rise - (CN) China MOFCOM official: Outlook for foreign trade in 2014 is difficult - China Daily - (CN) Former PBoC adviser/director of National Economic Research Institute Fan Gang reiterates that China economy has "basically completed soft-landing" - (CN) China Banking Regulatory Commission (CBRC) to monitor banks' off-balance sheet operations - Chinese press - (JP) Japan Chief Cabinet Sec Suga: Fed made appropriate decision based on economic data - (JP) Japan may set FY14/15 GDP target at 1.4% - financial press - (KR) South Korea vice Fin Min Choo: South Korea closely monitoring KRW/JPY rate - (KR) South Korea court ruled regular bonuses should be included when determining overtime pay, benefits; Likely to result in sharp increase in labor costs

- (US) Senate approves two-year budget agreement (as expected) - (US) Moody's: Wind-down of Fed's QE will likely lead to rates increasing globally; sees move toward normalization of monetary policy in US relatively finite, temporary impact

***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 +1.6%, S&P/ASX +1.5%, Kospi flat, Shanghai Composite -0.1%, Hang Seng flat, Mar S&P500 -0.2% at 1,801, Feb gold -1.2% at $1,220, Jan crude oil -0.1% at $97.71/brl

US markets: - ALIM: Enter into labeling discussions with the FDA for ILUVIEN, agree advisory committee no longer necessary; +77.7% afterhours; PSDV +58.3% afterhours - AKS: Guides Q4 $0.02-0.06 (ex tax benefits) v -$0.03e; +7.4% afterhours - SCS: Reports Q3 $0.18 (incl items) v $0.26e, R$784M v $761Me (2 ests); +4.4% afterhours - PAYX: Reports Q2 $0.43 v $0.42e, R$610.5M v $599Me; +2.0% afterhours - ORCL: Reports Q2 $0.69 (adj) v $0.67e, R$9.3B v $9.18Be; Guides Q3 Non-GAAP EPS $0.68-0.72 v $0.70e (constant currency), Non-GAAP Rev +3-7% y/y (constant currency, ex 1% FX headwind) v +4.2%e (implies $9.3-9.6B v $9.38Be) - conf call; +1.3% afterhours - TGT: Said to be hit by a theft of credit card data during Black Friday weekend - financial press; -0.4% afterhours

Notable movers by sector: - Consumer discretionary: Milan Station Holdings 1150.HK -6.3% (profit warning); Beijing Jingxi Tourism Development 000802.CN +10.0% (continues momentum on acquisition); Ohsho Food Service Corp 9936.JP -2.9% (president shot and reported dead) - Industrials: Shenzhen Techand Ecology & Environment 300197.CN +3.2%, Shanghai Safbon Water Service 300262.CN +3.2%, Beijing Water Business Doctor 300055.CN +5.7% (China calls for environment protection); Worley Parsons Ltd WOR.AU -1.6% (receives legal notice) - Financials: Simsen International Corp 993.HK +5.4% (positive profit alert); National Australia Bank Ltd NAB.AU +1.3% (comments from AGM) - Materials: Aquila AQA.AU +1.7% (Baosteel purchases shares); Toll Holdings TOL.AU +1.6% (awarded contract) - Energy: Santos Ltd STO.AU +2.5%, Origin Energy ORG.AU +1.7% (enters gas purchase & sale agreement) - Healthcare: Guilin Layn Natural Ingredient 002166.CN +3.0%, Shenzhen Neptunus Bioengineering 000078.CN +0.6%, Beijing Tiantan Biological Products 600161.CN +6.4% (Guangdong Province reports 1 new H7N9 case) - Technology: Samsung Electronics 005930.KR +1.8% (launches products)

Bristol Nears $3 Billion Deal to Sell Stake in Diabetes Venture to Astra

Bristol-Myers Squibb Co. BMY +2.92% is nearing a deal to sell its stake in a diabetes venture to partner AstraZeneca AZN.LN +0.66% PLC, according to people familiar with the matter, a move that would reverse a multibillion-dollar investment Bristol made in diabetes just last year.

The deal between the two companies could be valued at more than $3 billion, some of the people said.

Just last year, Bristol expanded its commitment to diabetes by acquiring Amylin Pharmaceuticals for $5.3 billion. Bristol then bundled Amylin into its long-running diabetes partnership with AstraZeneca, which paid Bristol $3.4 billion for a half share of Amylin's products, chiefly the drugs Byetta and Bydureon. Earlier this year, Bristol and AstraZeneca deepened their partnership by merging their diabetes-drug marketing teams.

But sales at the diabetes venture, which was established in 2007 to develop the therapy Onglyza, have disappointed analysts. Last month, Bristol said it would end its own, separate efforts to develop new diabetes drugs because it didn't see enough opportunity in the market.

Bristol reported $1.2 billion in sales from the business's four main diabetes products during the first nine months of this year, while AstraZeneca reported $546 million.

In going their separate ways, AstraZeneca and Bristol—two companies seeking to overcome aging product portfolios—are taking opposing bets on diabetes.

Drugs treating the condition had $36 billion in world-wide sales last year and are projected to generate nearly $61 billion in revenues in 2018, according to EvaluatePharma.

Sales are rising as lifestyle changes in both developed countries like the U.S. and emerging markets such as China and India produce millions of diabetics seeking to control their blood-sugar levels and avoid life-threatening complications.

Yet the very size of the market has attracted nearly every big drug maker, including Sanofi SA, Merck & Co. and Novo Nordisk A/S. And health plans and governments have been pressuring companies to control prices. Also, health regulators have proven cautious about approving new medicines, out of concern for possible side effects on the heart and other organs.

Last week, the AstraZeneca-Bristol partnership received a boost when a panel of advisers recommended that the U.S. Food and Drug Administration approve an experimental treatment for Type 2 diabetes called dapagliflozin. The companies had hoped dapagliflozin would be the first of a new kind of diabetes treatment to enter the market, but a decision on approval in the U.S. was delayed by concerns about cancer risks. Meantime, Johnson & Johnson's JNJ +2.18% agent, Invokana, was greenlighted in March. Eli Lilly LLY +2.62% & Co. is developing its own version.

To prepare for generic competition to top-selling products like bloodthinner Plavix, Bristol has gone on an extreme diet, shedding a third of its employees, half of its manufacturing plants and baby formula and other non-pharmaceutical units.

Last year, Bristol and partner Pfizer Inc. PFE +2.09% began rolling out a stroke-preventing pill called Eliquis. Its sales have started more slowly than Wall Street expected, though some analysts still forecast $5 billion in annual sales.

On the bright side, Bristol is pioneering the use of therapies that harness the immune system to fight cancer. A skin-cancer "immunotherapy" called Yervoy is already on sale, with $700 million in sales through the third quarter. Bristol is in the late stages of developing another of the drugs for skin, lung and kidney cancers, which analysts estimate could generate billions of dollars in sales.

AstraZeneca's new CEO, Pascal Soriot, is racing to revive the company's prospects and has been doing deals to restock its portfolio and drive the company into specialty drugs. Among the acquisitions engineered by Mr. Soriot are deals that could be worth more than $1.6 billion for cancer biotech Amplimmune Inc. and respiratory drug maker Pearl Therapeutics Inc.

AstraZeneca, of London, has suffered a number of expensive drug-development failures in recent years, thwarting its efforts to bring new medicines to market.

Schizophrenia treatment Seroquel, once one of AstraZeneca's big sellers, has been clobbered by generic competition. Patents on other drugs, including Nexium for heartburn and Crestor for cholesterol, are set to expire in the next few years. This week, AstraZeneca said it was aware of reports that Nexium was already facing competition in the U.S. from a generic rival and was pursuing legal action.

DOJ victory in SAC insider trading trial

A former top aide to SAC Capital’s founder was found guilty of insider trading on Wednesday, handing the US government another victory in its long-running crackdown on Wall Street corruption. After just a day of deliberations the jury convicted Michael Steinberg, a former SAC portfolio manager, of five counts of conspiracy and securities fraud for trading shares of Dell and Nvidia after learning confidential earnings results in 2008 and 2009 from his research analyst. The verdict was slightly delayed after Steinberg appeared to faint before it was delivered, and the jury was asked to leave the court for a short while. The trades netted more than $1m in profits for SAC, the eponymous hedge fund founded by Steven Cohen. Mr Steinberg faces up to 20 years in prison. The US attorney’s office in Manhattan has not lost an insider trading case since its crackdown began in 2009. Mr Steinberg is the 77th person to be convicted of insider trading. The trial was the toughest test of insider trading yet for the government since its case rested largely on the testimony of Jon Horvath, the former SAC analyst who pleaded guilty in a deal with the government. Mr Horvath told the jury that after a bad performance period Mr Steinberg told him to get edgy "proprietary information", which he interpreted to mean inside information. Prosecutors buttressed their case with emails between the men sharing information on gross margins and revenues for Dell ahead of its quarterly results announcement. In one example, just before Dell’s August 2008 earnings were released, Mr Horvath sent an email to Mr Steinberg with details of Dell’s gross profit margin, which read: "Please keep to yourself as obviously not well known." Mr Steinberg replied: "Yes normally we would never divulge data like this, so please be discreet." But the government was challenged because Mr Steinberg was at the end of a long chain that linked back to company insiders. Mr Steinberg’s lawyer, Barry Berke, sought to discredit Mr Horvath, pointing out that he had pleaded guilty on the eve of his own criminal trial. Over five days of cross examination during a three-week trial, Mr Berke pressed Mr Horvath who said he did not recall telling Mr Steinberg his company source on the information. In a sign of confidence, Mr Steinberg called no witnesses and did not testify. Mr Steinberg was the first former SAC employee to go to trial. Last month SAC pleaded guilty to insider trading and agreed to wind down and pay a record $1.8bn fine to resolve criminal and civil charges. Six other former SAC employees have pleaded guilty to insider trading while at the hedge fund. Mathew Martoma, a former SAC money manager, is due to face trial on January 6 for allegedly trading drug company stocks in advance of negative clinical trial results. He has pleaded not guilty.

GE predicts sales growth and cash returns

General Electric expects its revenue growth to accelerate next year as the US economy continues to strengthen, the US manufacturing and financial group told investors on Wednesday. It also forecast double-digit growth in earnings from its industrial operations, offsetting a decline in profits at GE Capital, its finance arm. In an annual presentation to analysts and investors, Jeff Immelt, GE’s chief executive, said the company would have a "ton of cash", with about $90bn available over the next three years, much of which could be used for share buybacks and raising the dividend. Mr Immelt said he expected "pretty good" 4 per cent to 7 per cent organic growth in industrial revenues next year, an acceleration from the roughly 2 per cent rise expected for 2013, which is at the bottom end of the 2 per cent to 6 per cent range the company forecast a year ago. He also projected a continued widening in profit margins, although at a slower pace than this year, when GE expects a 0.7 percentage point increase to 15.8 per cent, helped by a cost-cutting programme that has cut administrative expenses as a proportion of sales. He set a margin target of 17 per cent for 2016. GE last week announced a 16 per cent rise in its quarterly dividend, the largest since 2010, which Mr Immelt said reflected a plan for the proportion of earnings paid out to shareholders to"drift up". The $90bn of available cash will be generated by GE’s industrial and financial operations, and from the planned spin-off of the North American retail finance business, which is scheduled for 2014-15. A chart in GE’s presentation suggested only about a quarter of that cash would be needed for capital investment and organic growth, with the rest available for dividends, share buybacks and acquisitions. Mr Immelt reiterated his previous statements that GE was not looking for a large deal, saying it was focused on businesses valued in the $1bn-$4bn range, usually with focused technology. "We just don’t plan to change that," he said. "We see a lot of good deals that we like in that context." The prediction of faster revenue growth is based on GE’s expectation that the US economy is continuing to strengthen, while Europe remains "sluggish". In spite of the slowdown in China’s economy in recent years, Mr Immelt said the country was still "a positive", as GE’s businesses such as healthcare and aviation benefited from the country’s shift to providing more consumer goods and services. He said there were still great opportunities in China. In five years' time, the markets for medical diagnostic imaging equipment and gas-fired power generation could be bigger in China than in the US, while the market for commercial aviation could be about the same, he said. GE’s shares rose 1.4 per cent to close at $27.41