BBC News - Japan and Australia agree trade deal

Japan and Australia have agreed a trade deal which will see them lower tariffs on imports of key products.

Australia's prime minister has called the trade agreement a historic one

Japan has agreed to lower duties on Australian beef and raise the duty-free quota on cheese - Australia's biggest dairy export to Japan.

Australia will cut tariffs on Japanese electronics, cars and white goods.

The deal, agreed after seven years of negotiations, is expected to be finalised later this year when Japan's prime minister visits Australia.

Australia's Prime Minister Tony Abbott, who is currently visiting Japan, called the pact a historic one.

"This is the first time that Japan has negotiated a comprehensive economic partnership agreement or free trade agreement with a major economy, particularly a major economy with a strong agricultural sector," Mr Abbott said.

Broader deal

The pact between the two countries comes as officials are trying to push for an ambitious US-led 12-nation free trade plan, the Trans-Pacific Partnership (TPP).

Negotiations between representatives of the various nations, which include Australia and Japan, hit a roadblock earlier this year.

Differences on the issues of tariffs on imported goods, particularly between the US and Japan, were among the issues that were unresolved.

Agricultural tariffs have become a sticking point for Japan, which is keen to protect its rice, wheat, beef and pork producers from outside competition.

Some analysts suggested that the Australian and Japan deal may help spur progress on the TPP talks.

Aurelia George Mulgan, a professor of Japanese politics at University of New South Wales said the bilateral deal means that "Australia gets preferential treatment over the US."

She said that US would be under pressure to agree a deal that puts it "on a level playing field with Australia".

"Japan knows that America wants it on board, because TPP without Japan is not much worth all that much. Japan is playing hardball," she added.

US President Barack Obama is scheduled to tour the region, including Japan, in the coming weeks and is expected to discuss the issue.

'Moderate recovery'

Meanwhile, as expected, the Bank of Japan did not announce any new stimulus measures at the end of its two day meeting,, and said it was not expanding its bond buying programme.

"Japan's economy has continued to recover moderately as a trend, albeit with some fluctuations due to the consumption tax hike," the Bank of Japan said in a statement.

"Private consumption and housing investment have remained resilient as a trend with improvement in the employment and income situation."

Tokyo's Nikkei stock market fell 1.4%, its biggest drop in two weeks, as exporter shares were hit by a continued stronger yen.

Reuters News - Norway's $860 billion oil fund needs study before buying new types of assets: minister

(Reuters) - Norway's $860 billion oil fund, the world's biggest sovereign wealth fund, is not ready to invest in new types of assets and needs a year to study whether to buy infrastructure or unlisted assets, Finance Minister Siv Jensen said on Monday.

She said the fund needed to see how its small but growing real estate portfolio functions and what the risk of more active management would be.

"We are in a learning process on building up in real estate ... and that's the portfolio we're actually discussing with broadening in the (unlisted) sector," Jensen told reporters.

The fund, which invests Norway's oil revenues, is one of the biggest investors in the world, holding about 1 percent of all global shares. Many investors watch its investment decisions keenly as a result.

Jensen unveiled a series of reforms last Friday but did not recommend new types of assets on top of its listed stocks, bonds and real estate portfolio, disappointing some critics.

The central bank, which manages the fund, earlier this year said the fund needs to take on greater risk because the current framework is unlikely to yield the 4 percent long-term return expected by the government.

"There is a great consensus that a (bigger) active portfolio represents more risk and that's something we need to look into before we conclude," Jensen said.

"If we are to broaden the active portfolio, it will be natural to discuss infrastructure and other means as well, ... this is something we will come back to in the (white) paper next year," she added.

The real estate portfolio is still just 1 percent of the fund, short of the 5 percent limit, and the central bank has been building up expertise for years to handle this new portfolio.

As part of its active management program, the fund holds meetings with companies where it wants change and actively pushes its proposals with the board and management.

(Reporting by Balazs Koranyi Editing by Jeremy Gaunt)

BBC News - ECB keeps interest rates on hold at 0.25%

Europe's central bank kept interest rates at 0.25%

ECB keeps interest rates on hold

The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%.

It comes despite the fact that inflation in the currency bloc fell to a five year low in March.

Eurozone interest rates have remained unchanged since November 2013, when the bank said it expected "a prolonged period of low inflation".

This week figures showed inflation continued to fall in March to 0.5%, well below the ECB's target of 2%.

March was the sixth month that inflation in the eurozone was trapped in what ECB President Mario Draghi has called "the danger zone" below 1%.

It was also the third month in row in which inflation fell.

The fear attached to lower inflation is it could harm the eurozone's nascent economic recovery, by weakening consumer demand for goods and services because households would be likely to put off spending believing prices will continue to fall.

Low inflation also means that governments and businesses find it more difficult to repay their debts.

Monetary easing

While the ECB was not expected to cut interest rates, analysts suggested it might adopt less conventional measures to boost the eurozone economy.

These might include a new round of cheap loans to banks or large-scale purchases of financial assets, similar to the US Federal Reserve's $65bn (£39bn) monthly bond-buying programme known as quantitative easing.

Howard Archer, chief UK and European economist at IHS Global Insight, said there was "obviously a very strong case" for taking interest rates to zero given how far inflation had fallen and the fact the euro was currently trading at a two and half year high against the US dollar of $1.40.

"However, the ECB will likely have taken some comfort from ongoing evidence that gradual eurozone economic recovery is continuing and there has not been an 'unwarranted' tightening in money markets," he added.

But Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management, said the ECB's decision to hold interest rates would do little for the eurozone recovery.

"By not doing anything significant as deflation edges ever closer. Mr Draghi has let markets entertain the idea that he's going to do something without him having to actually do much. That's a dangerous game of poker and sometime soon he's going to have show his hand," he said.

Reuters News - U.S. stock markets are rigged, says author Michael Lewis

A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013.

CREDIT: REUTERS/CARLO ALLEGRI

(Reuters) - The U.S. stock market is rigged in favor of high-speed electronic trading firms, which use their advantages to extract billions from investors, according to Michael Lewis, author of a new book on the topic, "Flash Boys: A Wall Street Revolt."

High-frequency trading (HFT) is a practice carried out by many banks and proprietary trading firms using sophisticated computer programs to send gobs of orders into the market, executing a small portion of them when opportunities arise to capitalize on price imbalances, or to make markets. HFT makes up more than half of all U.S. trading volume.

The trading methods and technology that make HFT possible are all legal, and the stock exchanges HFT firms trade on are highly regulated. But Lewis said these firms are using their speed advantage to profit at the expense of other market participants to the tune of tens of billions of dollars.

"They are able to identify your desire to buy shares in Microsoft and buy them in front of you and sell them back to you at a higher price," Lewis, whose book is available on Monday, said on the television program "60 Minutes" on Sunday.

"This speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds," said Lewis, whose books include "The Big Short" and "Moneyball."

Those milliseconds can be valuable, making it possible to send around 10,000 orders in the blink of an eye.

Darting in and out of trades, HFT firms make just fractions of a penny per trade, but the sheer speed and volume of their trading activity allows those that are successful to make significant profits.

Proponents of HFT argue that the presence of such firms makes it easier for all market participants to find buyers and sellers for their trades, and that the speed at which HFT firms can detect and take advantage of pricing imbalances between different markets and assets leads to smaller bid-ask spreads.

But Brad Katsuyama, former head trader in New York for the Royal Bank of Canada and a major figure in Lewis's book, said he was finding that when he would send a large stock order to the market, it would only be partially filled, and then he would have to pay a higher price for the rest of the order.

With the help of new hire Ronan Ryan, Katsuyama realized that his orders traveled along fiber optic lines and hit the closest exchange first, where high frequency traders would get a glimpse, and then use their speed advantage to beat him to the other 12 U.S. public exchanges and 45 private trading venues. HFT algorithms could then buy the shares Katsuyama wanted, and then sell them to him at a slightly higher price.

Katsuyama and Ryan created a system in which RBC would send its orders first to the exchange that was the furthest away, and last to the exchange that was closest, with the goal of arriving at all places nearly simultaneously, cutting out HFT.

"Essentially, our fill rates went to 100 percent. We couldn't believe it when we actually figured it out," Katsuyama told "60 Minutes."

Katsuyama said he decided to start a new trading platform, called IEX, for the Investors' Exchange, employing similar tactics to those he used at RBC.

"It almost felt like a sense of obligation to say we found a problem that is affecting millions and millions of people - people are blindly losing money they didn't even know they were entitled to. It's a hole in the bottom of the bucket," he said.

IEX has attracted the investment of David Einhorn, the billionaire owner of hedge fund Greenlight Capital, and an endorsement from Goldman Sachs. The investors in IEX are fund companies and individuals, not banks.

"We are selling trust, we are selling transparency, and to think that trust is actually a differentiator in a service business, is actually a crazy thought, right?" said Katsuyama.

Earlier this month, New York state's Attorney General Eric Schneiderman said he believes U.S. stock exchanges and other platforms provide HFT firms with unfair advantages.

Exchanges allow trading firms to place computer servers inside the exchange's data centers so that the firms can see the data as soon as possible. The practice, called co-location, is regulated and available to anyone who wants to pay for it.

Schneiderman has begun meeting with the U.S. exchanges, which include IntercontinentalExchange Group's New York Stock Exchange, Nasdaq OMX Group's main bourse, and four platforms run by BATS Global Markets, on possible reforms, a source close to the situation told Reuters.

A ban on HFT is unlikely, as U.S. regulators would be loath to put policies in place that could lead to a less liquid market, Robert Greifeld, chief executive officer of Nasdaq, said on Thursday.

(Reporting by John McCrank; Editing by Diane Craft)

Reuters News - A string of mega deals drives global M&A recovery in first quarter

A woman walks past the old Time Warner Cable headquarters as a man tries to enter the building in New York February 13, 2014.

(Reuters) - A string of large transactions drove the value of globalmergers and acquisitions (M&A) activity up by 54 percent in the first quarter compared to the same period last year, reflecting greater deal-making confidence among chief executives.

The value of worldwide announced deals totaled $710 billion in the first three months of the year, according to Thomson Reuters data, which includes competing bids for Time Warner Cable and SFR. Global M&A is up 35 percent excluding these competing bids.

Almost half of the M&A pot came from deals worth $5 billion or more.

The number of deals however dropped by 14 percent, the slowest year-to-date period for dealmaking by number of deals since 2003. This means fewer but larger deals have been driving activity so far this year.

"There have been several transformational deals and companies have made some bold and aggressive moves. I'm hopeful that we'll see more of this in 2014.", said Hernan Cristerna, co-head of global M&A at JP Morgan.

"We've seen something of a return of animal spirits."

Comcast Corp trumped Charter Communications with a bid valuing Time Warner Cable at $70.6 billion in enterprise value, the largest transaction in the works since January.

Earlier this year, Ireland-based Actavis. the world's second-largest generic drugmaker, spent $23.8 billion to buy U.S. specialty pharmaceuticals firm Forest Laboratories, its largest acquisition ever.

Facebook also made its boldest M&A move, paying $19.4 billion for its acquisition to grab mobile messaging services firm Whatsapp.

While the U.S. continues to stage most of the M&A action with 51 percent of the market by value of deals so far this year, Europe and Asia-Pacific are gradually catching up with 24 percent and 16 percent of the market. Asia-Pacific had the strongest start of the year on record with announced deals worth $113 billion and 1,751 transaction, according to Thomson Reuters data.

M&A activity in France rose by 673 percent, boosted by SFR and L'Oreal, two of the biggest deals so far this year.

Morgan Stanley moved into the top position for worldwide M&A advisors during the first quarter, boosted by its role advising Japan's drinks firm Suntory on its $16 billion acquisition of U.S. bourbon maker Jim Beam.

(For more detail on the Q1 M&A data please click: here)

NO SURGE YET

"We are starting to see a slow but steady growth in large deals which implies an increase in confidence.", said Henrik Aslaksen, Global Head of M&A at Deutsche Bank.

"These have a big impact on the market but can skew the true picture. There is no M&A surge yet.," he said, comparing current activity to levels before the global financial crisis.

Deals between 1 billion and 5 billion dollars, which usually constitute the sweet spot and are a barometer for the health of the M&A market, are up 17.5 percent with 91 transactions so far this year.

"The pipeline at the moment looks healthier than the number of deals being announced, which means getting deals done remains difficult," said Jonathan Rowley, co-head of M&A in Europe, Middle East and Africa at UBS.

More generally, high valuations in the equity market and regulatory risk continue to hold back a stronger uptick in M&A activity, which is still down 17 percent compared to the first quarter of 2007 when M&A peaked before the crisis, according to TR data.

"The number one hurdle is valuation as the pricing of assets is reasonably full and makesit difficult for bidders to pay a premium to the share price," said Rowley.

Regulatory risk is especially threatening Telecoms, Media and Technology (TMT), the most active sectors for M&A at the moment with a combined 39 percent market share according to TR data, as anti-trust watchdogs around the world seek to protect customers against potential cartels.

AT&T's blocked acquisition of Deutsche Telekom's U.S. unit by the U.S. competition authority is still clouding prospects of greater consolidation in the U.S. telecom market. In Europe, the European Commission's verdict in May over Hutchison's acquisition of O2 Ireland and Telefonica's move to buy E-Plus from KPN in Germany is likely to set the mood for in-market consolidation in the industry.

"The challenge for M&A generally is that deals have such a long gestation period and it only takes one bump in the road to slow things down.", said Greg Lemkau, co-head of global M&A at Goldman Sachs.

"But while there will always be geopolitical or macro risks, the risk that is more acute to M&A right now is the regulatory environment."

THE DREAM DEAL

With the main ingredients for M&A now in place - cheap funding, cash-rich corporates, a relatively stable macroeconomic environment and strong equity market -, those having the guts to complement organic growth through acquisitions have so far been rewarded on average.

"It's an opportune time for CEOs to think about their ‘dream deal'", said Lemkau.

Another encouraging sign is that most acquirers of the biggest transactions so far this year saw their share price rise on the back of their deals, except Facebook.

"Immediate stock price reaction is something people are focused on, perhaps overly so, but it does influence the psyche of boards and CEOs. I don't think this recent wave of positive stock price reaction is driving companies to do deals solely for that reason, but it has reduced one of the key anxieties of an acquirer," said Lemkau.

Finally, activist investors targeting underperforming companies are expected by bankers to aim at more firms in the United States and even in Europe following recent successes.

Billionaire activist investor Carl Icahn pocketed $600 million earlier this year after his successful push within Forest Laboratories to sell to Actavis.

Recent companies targeted by activist investors include UK retailer Morrisons, UK transport companies Firstgroup, Swiss bank UBS, U.S. computer network equipment Juniper Networks, eBay, Abercrombie and several oil & gas majors.

While importing the activist model from the United States to Europe is unlikely to bring the same results because boards and executives are more closely aligned in Europe, targeted activism handled behind closed-doors could well lead to more M&A.

"Activist investors and funds are increasingly targeting Europe; obviously, they are adapting their approach to the European corporate landscape," said Yoel Zaoui, co-founder of Zaoui & Co advisory boutique, who recently advised L'Oreal and Peugeot alongside his brother Michael on two of the largest transactions in Europe since the beginning of the year.

(Reporting by Sophie Sassard; editing by Keiron Henderson)

Bloomberg News - Ukraine Unlocks $27 Billion International Aid Deal

Photographer: Robert Ghement/EPA

Ukrainians cast their shadows while waving a giant composite flag full of signatures during a rally on Independence Square in Kiev, Ukraine, on March 23, 2014.

Ukraine reached a preliminary deal with the International Monetary Fund to unlock $27 billion in international aid as U.S. lawmakers passed bills imposing more sanctions on Russians linked to Crimea’s annexation.

The government in Kiev reached a staff-level accord with the IMF for a two-year loan of $14 billion to $18 billion, the lender said today in an e-mailed statement. The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the cabinet must complete “prior actions” to receive the first installment as early as April.

President Barack Obama said the IMF agreement is “a major step forward” for Ukraine’s bid to stabilize its economy. “It provides the prospect for true growth” and is “a concrete signal of how the world is united with Ukraine,” Obama said at a news conference in Rome today.

Full coverage of the Ukraine Crisis:

• Nationalists Keep Ukraine on Edge as Stability Is Elusive
• Soros-Backed Sale of U.S. Oil Reserves Seen as Putin Penalty
• NATO Refocuses on Home Defense, With a Hand From Putin

Ukraine’s government, which came to power after an uprising ousted President Viktor Yanukovych last month, is grappling with an economy threatening to slide into a third recession in six years, dwindling reserves and a weakening currency. Ukrainian asset prices have also suffered asRussia’s takeover of the Black Sea Crimean peninsula sparked European and U.S. sanctions and rekindled memories of the Cold War.

The U.S. Senate and House in Washington passed bills today imposing further sanctions on Russian and Ukrainian officials connected with Russia’s takeover of Crimea. The Senate bill includes about $1 billion in loan guarantees and $150 million in direct aid for Ukraine. The House passed the loan guarantee earlier this month.

UN Resolution

In New York, the United Nations General Assembly approved a non-binding resolution today declaring Crimea’s March 16 referendum on exiting Ukraine and joining Russia as “having no validity” and calling on all states and agencies to not recognize “any alteration of the status” of Crimea.

The resolution had 100 votes in favor, 11 against and 58 abstentions. It doesn’t mention Russia or directly blame or accuse it of violating Ukraine’s territorial integrity.

“The IMF package should be sufficient to prevent the country falling into a full-blown balance-of-payments crisis,” London-based Capital Economics Ltd. said in an e-mailed note. “But the volatile political situation and Ukraine’s poor track record in implementing reforms demanded by the fund mean that there will still be many doubts about whether politicians will be able to push substantial changes through.”

Yields Plunge

The government Eurobond due in June gained to 97.6 cents on the dollar from 96.5 yesterday, pushing the yield, which reached 55.7 percent on March 12, down 7 percentage points to 21.36 percent, data compiled by Bloomberg showed. The Ukrainian Equities Index fell 0.6 percent, while the hryvnia, the worst performer against the dollar in 2014 with a 26 percent decline, advanced to 10.99 from 11.22 before later sliding to 11.12.

A Snapshot of Ukraine's Past and Future

As part of the IMF agreement, Ukraine agreed to narrow the budget deficit to 2.5 percent of gross domestic product by 2016 and to raise retail energy tariffs toward their full cost, according to the Washington-based lender. The central bank will shift to a flexible exchange rate and inflation targeting, while the nation will tackle bad debts at banks, it said.

Lawmakers in Kiev approved budget changes and a tax bill today needed for the IMF loan deal.

‘Very Unpopular’

“The country is on the edge of economic and financial bankruptcy,” Prime Minister Arseniy Yatsenyuk said today in Kiev. “This package of laws is very unpopular, very difficult, very tough. Reforms that should have been done in the past 20 years.”

After being voted in by lawmakers last month, Yatsenyuk described his task as a “kamikaze” mission, saying Ukraine is in a “great mess” with an empty treasury and foreign-currency reserves that have been “robbed.” GDP will shrink 3 percent in 2014 and inflation may be as high as 14 percent, he said today.

Approval for the rescue package is “expected in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in the statement. Disbursement may start next month, he told reporters in Kiev.

The IMF agreement will clear the way for a planned 1.6 billion euros ($2.2 billion) in emergency aid from the European Union, European Commission President Jose Barroso said March 5.

‘Powerful Sign’

The EU has also pledged project loans and grants that could reach 11 billion euros over seven years. The European Bank for Reconstruction and Development said today that it would increase investments in Ukraine to 1 billion euros a year and would resume lending for state-run projects.

Russia agreed with Yanukovych in December on a $15 billion bailout and a one-third reduction in natural gas prices. The Kremlin withdrew that discount, as well as another it granted in 2010, doubling the price Ukraine may have to pay for the fuel starting next month, according to Yatsenyuk. Ukraine depends on Russia for more than half of its gas needs.

Russia also stopped its bailout after disbursing the first $3 billion in 2013. The first interest payment on the loan, which was granted in the form of a two-year Eurobond, is due in June. Ukraine owes $13.6 billion in total in the next 11 months. State debt represents 53 percent of GDP, Yatsenyuk said today.

Curb Exports

Russia, which doesn’t recognize the new government in Kiev, will curb Ukrainian exports through trade restrictions that could lower economic growth by 1 percentage point, according to Yatsenyuk. Ukraine will probably pay $480 per 1,000 cubic meters of Russian gas from April 1, he said.

Russia’s tactics in Ukraine, particularly its annexation of Crimea, have sparked the worst standoff with the U.S. and its allies in more than 20 years. Obama said yesterday that America and Europe must stand united against Russian attempts to redraw Ukraine’s boundaries, warning that indifference would ignore the lessons from two world wars.

While investors in Ukraine are pleased that the IMF pact doesn’t impose losses on bondholders, their enthusiasm may give way as May 25 presidential elections approach, according to Arko Sen, a London-based analyst at Bank of America Corp.

“There was substantial market concern about an imminent restructuring, which is why we’re seeing the ongoing relief rally in Ukraine assets,” he said today by e-mail. “That can run a bit further in the near term, before giving way to the risks of program execution and upcoming elections against the backdrop of rising domestic tariffs and a weak economy.”

To contact the reporters on this story: Daryna Krasnolutska in Kiev atdkrasnolutsk@bloomberg.net; Daria Marchak in Kiev at dmarchak@bloomberg.net

Bloomberg News - China Plans Change to Opening-Price Mechanism of Money Rates

Photographer: SeongJoon Cho/Bloomberg

China is loosening controls on borrowing costs to give market-determined interest rates a greater role in pricing risk. 

The People’s Bank of China plans to change the way it compiles the opening prices of benchmark money-market rates to help prevent manipulation, according to two people with knowledge of the matter.

The National Interbank Funding Center will ask 50 institutions to submit quotes anonymously for overnight and seven-day repurchase agreements from 9 a.m. inShanghai, and use these to derive an opening level published at 9:30 a.m., according to a proposal outlined in a document sent to market participants. The center, a unit of the central bank, did not give a timeframe for the proposed change, the people said. Currently, the level is the first trade recorded each day.

“The problem with the existing system is that the opening price can be determined by as few as two banks,” said Chen Peng, a fixed-income analyst at Fortune Securities Co. in Shenzhen, Guangdong province. “Because most of the following bids and asks treat the opening price as the reference rate, it can induce manipulation.”

China is loosening controls on borrowing costs to give market-determined interest rates a greater role in pricing risk. The seven-day repo or the Shanghai Interbank Offered Rate can become the nation’s new benchmark rate, PBOC Deputy Governor Yi Gang was cited as saying in a Nov. 26 report by the official Xinhua News Agency. Goldman Sachs Group Inc. has designated the seven-day repo its key barometer and stopped making forecasts for the central bank’s official lending and deposit rates, which were last adjusted in July 2012.

Rate Reform

Policy makers removed last year a floor on the lending rates banks can charge to borrowers, and PBOC’s Yi said deposit-rate reform will be the focus this year and next, Caixin magazine reported on its website on March 22.

The seven-day repo rate, a gauge of funding availability in the interbank market, rose 24 basis points, or 0.24 percentage point, today to 3.88 percent as of 12:19 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The overnight rate increased two basis points to 2.52 percent. The first transactions recorded today were at 3.60 percent and 2.50 percent, respectively.

The minimum amount for institutions’ quotes to be counted toward the setting of the opening level would be 100 million yuan ($16.1 million) and the maximum 500 million yuan, according to the document. A press officer at the National Interbank Funding Center declined to comment on the plan.

Better Indicators

The proposed changes to the setting of the opening levels are “going to help the indicators better reflect the real liquidity situation,” said Li Haitao, a Shanghai-based bond analyst at China Guangfa Bank Co. “The seven-day repo, in particular, is the underlying rate for a lot of transactions and derivatives, so it’s not desirable for regulators to see it distorted because of thin trading.”

In the domestic foreign-exchange market, China should set the yuan’s closing price as the next day’s opening price, China Securities Journal reported today, citing Chen Bingcai, a former official with State Administration of Foreign Exchange and a researcher with the Chinese Academy of Governance.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai athsun30@bloomberg.net; Yuanting Yin in Beijing at yyin26@bloomberg.net