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A strong year for stocks, but no joy for the dollar

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(Reuters) – Markets are ending 2017 in a party mood after a pick-up in global growth boosted corporate profits and commodities, while tame inflation kept central banks from snatching away the punch bowl of easy monetary policy.
MSCI’s world equity index .MIWD00000PUS, which tracks 47 countries, inched up 0.13 percent, and was poised to add a 14th straight month of gains to put it at an all-time high. The index gained 22 percent for the year.
Emerging markets .MSCIEF have led the charge with gains of 34 percent. Hong Kong .HSI surged 36 percent, South Korea .KS11 climbed 22 percent, India .BSESN rose 28 percent and Poland .WIG20 made 27 percent in local currency terms.
Japan’s Nikkei .N225 and the S&P 500 are both ahead by almost 20 percent, while the Dow has risen by a quarter. In Europe, the UK FTSE .FTSE has lagged behind a little with a rise of nearly 8 percent.
Craig James, chief economist at fund manager CommSec, said of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
“For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,” said James.
“Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.”
Yet after a strong run-up there may be little room for error. U.S. stock markets opened lower on Friday, trimming their strong gains for the year.
The Dow Jones Industrial Average .DJI fell 31.83 points, or 0.13 percent, to 24,805.68, the S&P 500 .SPX lost 2.47 points, or 0.09 percent, to 2,685.07 and the Nasdaq Composite .IXIC dropped 17.75 points, or 0.26 percent, to 6,932.41.
“While the broader economic outlook appears increasingly rosy, as captured by measures of consumer and business confidence, the more cautious nature of investors hints at a concern that markets may have already discounted much of the good news,” said Michael Metcalf, State Street’s head of global macro strategy.
One of the early issues for next year will be an Italian election scheduled for March 4. As things currently stand the vote is expected to produce a hung parliament that could ultimately catapult the 81-year-old, four-times premier Silvio Berlusconi back to center stage.
Slideshow (2 Images)Benchmark 10-year Italian government bond yields IT10YT=RR rose to fresh two-month highs on Friday at 1.99 percent. They started the year at just over 1.8 percent but are still under the highs of 2.6 percent hit back in March.
DOLLAR DISAPPOINTS U.S. dollar bulls have not been fortunate this year. The widely held assumption at the start of the year was that, with the Federal Reserve set to raise interest rates further and lawmakers poised to cut taxes, the only way for the dollar was up.
Yet even though the Fed delivered on its three promised hikes and a tax bill was signed into law last week, the currency has failed to benefit.
Measured against its major peers the dollar has shed nearly 10 percent this year, putting it on track for its biggest annual loss since 2003 .DXY. The dollar index fell 0.44 percent for the day.
Among the winners have been emerging markets and the euro EUR=, which is ahead almost 14 percent for the year and has turned in its best annual performance since 2003.
The dollar’s loss has been a boon for commodities priced in the currency, which have also benefited from a synchronized pick up in global trade and surprisingly strong demand from China.
Everything from coal to iron ore has reaped gains, with copper a stand-out performer in part due to expectations of rising demand for the mass production of electric vehicles.
The industrial metal is turning in its largest annual gains since the global financial crisis ebbed in 2009, but moved a bit off its four-year highs on Friday. Copper futures CMCU3 last lost 0.51 percent to nearly $7,252 a tonne.
Gold XAU= has struggled somewhat this year against a background of subdued global inflation, but at $1,302.58 an ounce was still on track to end 2017 with gains of more than 12 percent.
Oil prices were near their highest in 2-1/2 years after data showed strong demand for crude imports in China and a surprise fall in U.S. production. [O/R]
U.S. crude CLcv1 rose 0.45 percent to $60.11 per barrel and Brent LCOcv1 was last at $66.47, up 0.47 percent on the day.
Additional reporting by Marc Jones and Wayne Cole;

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Proxy Advisory Firm Iss Says Qualcomm Should Negotiate Sale To Broadcom

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– U.S. semiconductor company Qualcomm Inc should try to negotiate a sale to Broadcom Ltd following the latter’s sweetened $121 billion offer, proxy advisory firm Institutional Shareholder Services Inc (ISS) said.

Qualcomm has been seeking to walk a fine line between resisting Broadcom’s acquisition approach, which it says undervalues it and is fraught with regulatory risks, and demonstrating to shareholders and proxy advisory firms such as ISS that it is willing to engage to secure a better deal if possible.

In a report published late on Friday, ISS recommended to Qualcomm shareholders that they vote for four out of the six board director nominees that Broadcom has put forward for election at Qualcomm’s shareholder meeting on March 6.

While this recommendation would fall short of Broadcom’s nominees winning a majority on Qualcomm’s 11-member board, ISS said such a vote by Qualcomm shareholders would offer a reasonable path to a negotiated deal that would deliver value.

“The tenor of (Qualcomm‘s) engagement leading up to the present raises questions as to whether the incumbent (Qualcomm) board is committed to playing its part in attempting to maximize the offer,” ISS said in its report.

Broadcom first unveiled an unsolicited $70 per share cash-and-stock offer in November, which Qualcomm rejected. It raised its offer to $82 per share in cash and stock on Feb. 5 and offered other concessions, including paying an $8 billion breakup fee in the event regulators thwart the deal, which would be the technology sector’s largest-ever acquisition.

ISS said it did not recommend voting for all six Broadcom nominees because Qualcomm’s board would then be less inclined to drive a hard bargain with Broadcom in deal negotiations. ISS recommended that Broadcom nominees Samih Elhage, Julie Hill, John Kispert and Harry You should be elected as Qualcomm board directors.

Qualcomm on Friday called a Feb. 14 meeting with Broadcom constructive and opened the door to more talks, but continued to reject the proposed deal.

As of Saturday afternoon, no new meeting between the two companies had been scheduled, according to people familiar with the matter. Broadcom and Qualcomm representatives offered no immediate comment.

FILE PHOTO: Broadcom Limited company logo is pictured on an office building in Rancho Bernardo, California May 12, 2016. REUTERS/Mike Blake/File Photo The takeover battle is at the heart of a race to consolidate the wireless technology equipment sector, as smartphone makers such as Apple Inc and Samsung Electronics Co Ltd use their market dominance to negotiate lower chip prices.

Singapore-based Broadcom is mainly a manufacturer whose connectivity chips are used in products ranging from mobile phones to servers. San Diego-based Qualcomm primarily outsources the manufacturing of its chips which are used for the delivery of broadband and data, a business that would significantly benefit from the rollout of 5G wireless technology.

ISS said in its report that Broadcom’s latest $82 per share cash-and-stock bid, which Broadcom CEO Hock Tan has called its best and final offer, does not appear to be clearly superior to Qualcomm’s potential standalone value in the short term. ISS added, however, that the offer seemed to represent a reasonable starting point for negotiations.

Even though both companies “have adopted strategies that do not lend themselves to fluid negotiations,” a deal between them is possible, ISS said. It suggested that Qualcomm shareholders could gain greater exposure to the deal’s potential upside if they were to receive more of the combined company.

ISS also said it appeared more likely than not that Broadcom and Qualcomm, with their collective experience and resources, can find a reasonable path to regulatory approval, despite Qualcomm’s current concerns about antitrust risk.

NXP DEAL

Qualcomm is currently seeking to complete a $38 billion deal to acquire NXP Semiconductors NV, which is still pending regulatory approval. NXP shares ended trading on Friday at $118.50, significantly above Qualcomm’s $110 per share all-cash offer, as some NXP shareholders, led by activist hedge fund Elliott Management Corp, have called on Qualcomm to raise its price.

Broadcom has said its acquisition offer is contingent on either Qualcomm buying NXP at currently disclosed terms of $110 per share in cash or the deal being terminated.

ISS said in its report that Qualcomm could negotiate provisions with Broadcom to close the NXP deal at a mutually agreed price, which would provide Qualcomm with the “next-best safety net of diversification” in the event the deal with Broadcom falls through.

China’s MOFCOM is the only regulator globally required to approve the Qualcomm-NXP deal that has yet to do so. With the start of the Chinese New Year public holiday this week, Qualcomm may now delay its decision on raising its offer for NXP until after the March 6 Qualcomm shareholder meeting.

Reporting by Greg Roumeliotis in New York

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Judge Approves Takatas Us Bankruptcy Plan

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WILMINGTON, Del. – Takata Corp’s U.S. unit received court approval for its bankruptcy exit plan, a plaintiffs’ law firm said on Saturday, clearing the way for a $1.6 billion sale of Takata assets and providing compensation for those injured by the company’s deadly air bags.

Takata and its U.S. unit, TK Holdings Inc, filed for bankruptcy last year in the wake of the largest automotive recall in history. The company’s air bags can inflate with too much force and spray metal fragments, and have been linked to hundreds of injuries and at least 22 deaths.

”We are pleased that Judge (Brendan) Shannon has approved what we believe to be fair options for current and future victims of Takata airbags that provide swift resolution and allow victims to try to move on with their lives,” said a statement from the Motley Rice law firm.

The law firm represented more than two dozen injured drivers in the U.S. bankruptcy case.

The U.S. unit’s reorganization plan will include funds provided by automakers to help compensate those injured by the air bags.

On Friday, a lawyer for Takata’s U.S. unit told the bankruptcy court in Wilmington, Delaware, that the U.S. government will complete its review of the planned sale of Takata’s non-air bag businesses by March 26.

The non-air bag inflator businesses are being sold to Key Safety Systems, a unit of China’s Ningo Joyson Electric Corp (600699.SS).

Reporting by Tom Hals in Wilmington, Del.

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Exclusive Indian Banks May Take More Than 3 Billion Hit From Pnb Fraud -tax Department

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NEW DELHI – Indian banks could take a hit of more than $3 billion from loans and corporate guarantees provided to diamond companies at the center of a massive alleged fraud at the state-run Punjab National Bank, the tax department has estimated.

As of March 2017, banks had extended loans and guarantees worth 176.32 billion rupees ($2.74 billion) to companies tied to billionaire jeweler Nirav Modi and his uncle Mehul Choksi, the tax department said in a note seen by Reuters.

Since then, the loans and guarantees would have increased over the past year and the total “hit” to Indian banks “may well exceed” $3 billion, according to an internal note prepared by the tax authority on its preliminary investigation into India’s biggest bank fraud case.

According to a complaint by PNB, the biggest fraud in Indian banking history involved two junior officials at a Mumbai bank branch issuing “letters of undertaking” to firms linked to Modi and Choksi for them to obtain credit from overseas branches of other Indian lenders.

The bank said these fraudulent transactions had taken place over a number of years and amounted to $1.77 billion.

None of these letters of undertaking – essentially credit guarantees – were recorded on the bank’s internal software system and instead were transmitted through the SWIFT interbank messaging system, “thus avoiding early detection of fraudulent activity”, the tax note said.

It said that Choksi’s Geetanjali Gems and its subsidiaries led by Choksi dealt with 32 banks. Among those that offered credit to Choksi and Modi, famous for his chain of stores stretching from New York to Beijing, were the Union Bank of India, Allahabad Bank and Axis Bank, the tax note said.

Union Bank of India (UNBK.NS), another state-run lender, said on Friday it has an exposure of $300 million as a counter-party lender. Axis Bank (AXBK.NS), a private sector lender, has said it has sold all its exposure related to the fraud.

Among the findings of the tax department was that several firms in which Modi and his uncle were involved had people of limited means listed as majority partners. Those people were not identified in the tax department note.

The total loans in the three firms of Modi, Stellar Diamond, Solar Exports and Diamonds ”R Us was 39.929 billion Indian rupees, while total capital of the partners was 4 billion Indian rupees, it said.

It said the three firms’ “trade receivables”, or the amount being billed to customers, were “much higher than total turnover of the three companies involved in the fraud, which shows that goods are being sold for related party and are either over-invoiced or not coming at all”.

Modi and Choksi have not made any comment so far. Federal police say they both left India in early January and there whereabouts are unknown.

Reporting by Sanjeev Miglani;

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