Oil prices rose slightly during electronic trading in Asia today, which deleted part of the losses from last week.

Subside the concerns about geopolitical crisis in Egypt after the resignation of the country’s president Hosni Mubarak on Friday led to the growth of stock indices during the Asian session today and also supported oil prices.

U.S. light crude for March delivery today traded for a gain of 0.2 percent to 85.73 dollars per barrel. Futures Brent with delivery in April expensive by 0.7 percent to 101.65 dollars a barrel, writes MarketWatch.

Civil unrest in Egypt over the past few weeks has created uncertainty in global financial markets and sent oil prices to two months in bed late last week. The reason for this were concerns about disruption of oil supplies worldwide.

The price of Brent rose more dramatically than that of U.S. light crude because the possible suspension of oil supplies from the Middle East would have more of the countries of Europe than the U.S. where oil reserves remain high.

BHP Billiton Ltd. could buy back shares worth $5 billion-$6 billion, taking its total buyback program to around $10 billion, U.K. newspapers said Sunday without citing sources.
The Sunday Telegraph said the company has been under pressure from institutional investors in recent months who have been calling for a significant return of capital. The papers said BHP is expected to announce the buyback when it announces first-half earnings Wednesday.
Last November, the company said it was reactivating the remaining $4.2 billion component of its previously suspended $13 billion buyback program.
BHP couldn’t be reached for comment.

U.S. stocks climbed Friday, concluding a second-straight week of gains at fresh 2 1/2-year closing highs after Egyptian President Hosni Mubarak stepped down.
The Dow Jones Industrial Average rose 43.97 points, or 0.36%, to 12273.26, its highest close since June 13, 2008. The measure rose 1.5% during the week and posted its strongest two-week performance since June with a 3.8% jump over the period.
The Nasdaq Composite rose 18.99, or 0.68%, to 2809.44, its highest close since Nov. 6, 2007. It climbed 1.45% during the week.
The Standard & Poor’s 500-stock index added 7.28, or 0.55%, to 1329.15, its highest close since June 19, 2008. It gained 1.39% on the week.
The gains came after Egypt’s embattled president succumbed to the demands of hundreds of thousands of his compatriots Friday and resigned from office, bringing to an end three decades of autocratic rule. The announcement was delivered by Vice President Omar Suleiman in a brief statement on state television. Mubarak delegated control of the country’s affairs to Egypt’s army, Suleiman said.
“The market is excited about the fact that we’re getting closer to a resolution,” said Burt White, chief investment officer at LPL Financial. “It just kind of lowers the blood pressure of the market a little bit.”
Don Montanaro, chairman and CEO of TradeKing said investors using his company’s trading platform “are bullish and are more bullish than they’ve been for many quarters.” He said more new accounts are being opened, more funds are being put into those accounts, and “we’re just seeing enthusiasm gradually and steadily picking up.”
Financials led Friday’s ascent as mortgage insurers surged on a government proposal to shrink the size of the Federal Housing Administration, a government-run competitor to the private mortgage-insurance industry. Genworth Financial jumped 4.4%, MGIC Investment surged 9.6%, and PMI Group climbed 2.8%.
Among other stocks in focus, Nokia tumbled 14% after the handset maker said it will adopt Windows Phone as its main smartphone platform, as part of a broad strategic partnership with Microsoft.
In economic data, the U.S. trade gap widened in December, with the full-year trade deficit registering its biggest percentage increase in 10 years on the back of a record shortfall in trade with China.
Asian markets had ended mixed Friday, amid heightening concerns over the situation in Egypt–President Hosni Mubarak’s resignation came after Asian markets closed Friday.
Egypt’s ambassador to the U.S., Sameh Shoukry, said Sunday that elections could be held within six months, and that the current peace treaty with Israel would stand.
“The treaty has been beneficial to Egypt over the past 30 years or more. We have derived a peace dividend from the treaty. We have been able to establish security and stability in the region, and I believe it is a main element in terms of our foreign policy,” the ambassador said on the ABC News program “This Week.”
Shoukry said the Supreme Military Council, led by the minister of defense, Field Marshall Mohamed Hussein Tantawi, “is now effectively undertaking the responsibilities of representing the state internally and externally.”
Speaking on the CBS program “Face the Nation,” Shoukry said the military would “most certainly” hand over power. “They indicated a very specific time frame of six months to undertake both parliamentary and presidential elections,” he said.
Shoukry said the military council’s highest priorities are security and addressing economic welfare, “but that doesn’t preclude that the reform process would not go ahead, as well.” The emergency law will be lifted, “as soon as the current conditions of protest have stabilized,” he said, adding that the military council hadn’t outlined a timetable.
China’s shares ended higher Friday, as hopes of improving demand boosted cement producers, while property developers continued to benefit from bargain hunting.
Analysts said they expect the Shanghai index to face immediate resistance at 2850 next week, as lingering inflation concerns are likely to discourage investors from building large positions.
“Upside is likely limited as persistently high inflation suggests there will be more tightening moves,” said Zhang Gang, an analyst from Central China Securities.
Huatai Securities analyst Zhou Lin said: “Investors are cautious because China’s multiple tightening measures will likely lead to a liquidity squeeze.”
China’s State Council, or cabinet, Saturday laid out long-awaited new rules and procedures for reviewing foreign merger and acquisition activity in the country on grounds of national security.
The government’s intention to establish a formal process for reviewing national security issues around international merger deals has been known since 2008, but Saturday was the first time that the government had outlined the specific procedures.
China’s National Development and Reform Commission and the Ministry of Commerce, the two ministries that already review mergers under the antitrust rules, will lead a the new national security review committee that will review mergers and acquisitions targeting key companies in the national defense, agriculture products, energy, resources, infrastructure, transportation and equipment manufacturing and technology industries, the statement said.
Hong Kong shares finished higher Friday due to bargain hunting after the blue-chip Hang Seng Index fell 5.3% over the past four sessions.
Analysts said they expect the index to find support at the 22,000 level for the rest of the month, but warned it will likely remain in a downtrend in the short term.
“The dominating concerns with regard to the emerging markets remain on inflation,” said William Lo, analyst at Ample Financial Group. He added the recent trend of emerging market equities underperforming their developed counterparts is unlikely to change soon.
Concerns about further tightening measures in China and protests in Egypt have also led investors to sell their shares, said Jackson Wong, an analyst at Tanrich. However, he added the underlying fundamentals in the Hong Kong market remain strong.
The Japanese market was closed Friday.
Crude futures settled at a two-month low in U.S. trading Friday as Egyptian President Hosni Mubarak’s resignation calmed fears that growing unrest in the country would disrupt key oil-supply routes. Gold futures also finished lower Friday as traders showed little concern about political developments in Egypt.
Base metals ended mostly higher on the London Metal Exchange Friday as weekend book-squaring steadied prices in late afternoon trade. Reaction to news of Mubarak stepping down is “yet to be realized” across base metals, Sucden said in a trading note.
FOREX:
The dollar remains supported as concerns continue about unrest in the Middle East as protests start in Yemen and Algeria, and Egypt’s future remains uncertain, HiFX senior trader Stuart Ive said early Monday in New Zealand.
“While it is good news about Egypt, there is plenty of uncertainty there to make the market hold back, so I think we are seeing that to a certain degree,” he said.
EUR/USD is at 1.3519, and Ive puts support at 1.3480, with resistance at 1.3620.
Ive notes it will be a “very intense week” of data globally. “The key focuses will really be China’s CPI, U.K. CPI (Tuesday) and (Fed Chairman Ben) Bernanke testifying on Friday,” he said.
The euro slipped against the dollar Friday, as initial relief over Egyptian President Hosni Mubarak’s resignation gave way to further questions about potential ripple effects in the Middle East and a renewed focus on the euro zone’s sovereign debt woes.
The dollar was broadly buoyed by encouraging U.S. data and some safe-harbor buying on uncertainty about Egypt. Fewer than 24 hours after defying domestic and international pressure to step down, Mubarak finally gave in to nearly three weeks of demonstrators protesting his three-decade autocratic rule.
In theory, the departure of Mubarak should have led to unwinding of safe-haven buying that has buttressed the dollar.
Instead, it provided an excuse for investors to look more closely at the woes that continue to bedevil the euro zone, which has yet to resolve the sovereign debt crisis.
“Still percolating underneath it all is the concern that all things are not good in the periphery,” of the euro zone, said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Bank in New York.
After bouncing up to around $1.3570 in the wake of Mubarak’s resignation, the euro fell to new session lows below $1.3500.
The Egyptian president’s resignation didn’t come as a “massive surprise” to currency traders, Ruskin said, noting there was “still an extraordinary amount of uncertainty when talking about the transition phase” from Mubarak’s government to a possible democracy.
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(MORE TO FOLLOW) Dow Jones Newswires
February 13, 2011 17:12 ET (22:12 GMT)
DJ ASIAN MORNING BRIEFING: US Stocks End Week -2-
Late Friday in New York, the euro was at $1.3560 from $1.3602 late Thursday, according to EBS via CQG. The dollar was at Y83.40 from Y83.22, while the euro was at Y113.04 from Y113.13. The U.K. pound was at $1.6002 from $1.6093. The dollar was at CHF0.9730 from CHF0.9692.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at about 78.412 from about 78.199.
Meanwhile, a top official at the International Monetary Fund warned at the weekend that soaring inflation across Asia is showing signs of spilling over into broader price pressures, something which policy makers will need to respond to by allowing their currencies to appreciate.
Anoop Singh, Director of the Asia and Pacific Department at the IMF, said there are increasing signs inflation is gaining traction due to wider structural economic shifts, not just one-off volatility, something that requires broader reforms in order for price pressures to be contained.
“We are concerned that inflation is spilling over” into underlying demand, Singh told Dow Jones Newswires in an interview. Monetary policy alone will not be enough to contain these pressures and exchange-rate reform is essential. “There’s certainly much more room for much of Asia to have more-flexible exchange rates and to have more strengthening,” Singh said.
BONDS:
Treasurys rose Friday as the recent selloff lured buyers to scoop up cheaper securities.
But the rally faded following the resignation of Egyptian President Hosni Mubarak, a move that eased worries about geopolitical risks in Middle East and sent stock prices higher.
“With Mubarak stepping down, there may be a lessening of tensions short term,” said Ted Ake, head of Treasury and Agency trading in New York at Societe Generale. “However, in my view, this just replaces one uncertainty with another. Who will take over longer term? Are they trading one despot for another?”
In late Friday afternoon trading, the benchmark 10-year note was 17/32 higher in price to yield 3.638%. The 30-year bond was 31/32 higher to yield 4.697%.
The bond market is showing some signs of stabilization after the recent rout that sent the 10-year note’s yield to 3.770% on Wednesday, the highest level since late April 2010.
For the week, the 10-year note’s yield was little changed from 3.646% a week earlier.
In contrast, the two-year note’s yield climbed about 0.08 percentage point over the week to 0.838%. The rise resulted from some bets that the Federal Reserve may start raising key policy rate in December amid inflation worries.
The buying Friday was driven mainly by investors who had aggressively bet on a decline in bond prices. Hedge funds and other types of short-term investors were forced to cover their so-called short wagers by buying back Treasurys, traders said.
Some long-term investors including foreign central banks also bought Treasurys, believing any further rise in yields could undermine U.S. economic growth by pushing up mortgage rates.
“Yields proved to be attractive to some investors,” said Alan De Rose, head Treasury trader at Oppenheimer and Co. in New York. “There is still concern about the strengthening economy.”
Japan’s quarterly economic data and China’s monthly inflation figures will take center stage in Asia during the coming week, along with BHP Billiton’s interim results.
Japan will kick things off with the release of its preliminary gross domestic product for the fourth quarter.
Real GDP likely contracted 2.4% in annualized, seasonally adjusted terms, as the nation almost certainly ceded its spot as the world’s second largest economy to China, according to the median estimate of 14 economists surveyed by Dow Jones.
Analysts at Goldman Sachs wrote in a note to clients that the decline was probably because of the end of subsidies on eco-friendly cars and an increase in taxes on cigarettes.
“We expect consumption to remain weak for a while due to the disappearance of stimulus, although we do not forecast continued declines,” Goldman wrote in the report. “We think the data will show that foreign demand declined in (the fourth quarter) as improvement in the global economy came to a standstill, but we do not forecast continued declines.”
Any contraction would be the first since a 1.2% pullback in July-September 2009.
Also Monday, China is slated to release trade data for January. Both exports and imports are estimated to have increased at a faster rate than in December.
But analysts expect the monthly trade surplus to narrow, as import growth outpaces exports on higher commodity prices and strong domestic consumption.
China’s CPI is tipped to have risen 5.4% in January from a year earlier, up from a 4.6% rise in December, according to a Dow Jones Newswires survey of 12 economists. That would likely be the country’s highest inflation rate since the CPI rose 6.3% in July 2008. The data are scheduled for release sometime at the beginning of the week.
The Bank of Japan’s policy board is expected to maintain its super-easy monetary policy at a two-day meeting starting Monday, but may raise its assessment of the economy for the first time in nine months amid increasing signs of recovery in key economic sectors.
All 10 economists surveyed by Dow Jones Newswires said they expect the central bank to keep its overnight call loan rate in the current 0.0%-0.1% range and take no other easing steps at the February meeting.
BHP is due to report Wednesday.
China government bonds ended higher Friday, as the liquidity squeeze continued to ease after the week-long Lunar New year holiday.
Upside for the Shanghai Stock Exchange government bond index may be limited amid investors’ concerns about rising inflationary pressures, a Beijing-based analyst with a local fund said.
Japanese markets were closed Friday.
TOP HEADLINES:
Egypt Envoy To US: Elections Could Be Held Within Six Months -TV
IMF Official: Concerned Asia Inflation Is Spilling Over
Gulf Stocks Gain On Egypt Mubarak Departure; Growth Hopes Return
NYSE Board Meets On Deutsche Merger, No New Difficulties Seen
EU Commission Plans Euro-Zone Rescue Mechanism Of EUR500B -Report
Greece Criticizes IMF, EU Call To Sell Assets To Pay Debt
WSJ: Obama Budget Would Cut Deficit By $1.1 Trillion
BHP Billiton May Up Share Buyback Program To Around $10B-Report
China Outlines Rules For National Security Review Of Foreign M&A
Beijing Auto Sales To Fall CNY60B This Year, Official Says -Xinhua
Public Support For Japan’s Cabinet Falls To All-Time Low -Kyodo
Algerian Opposition Calls For Protest March In Algiers Next Week
Sources Say Palestinian Cabinet To Resign Monday – Report
China Adviser: Reserves Should Be Diversified From US Debt
China Think Tank Calls For More Interest Rate Hikes -Report
China Researcher: Emerging Economies Capital Inflows Face Some Reversal Risk-Report
PBOC Officials: May See Money Market Interest Rate Rises, Fluctuations -Report
BOJ Set To Raise Economic Assessment -Nikkei
Weber To Step Down As Bundesbank President
US Outlines Proposals To Replace Fannie, Freddie
US Trade Gap Widens 5.9% In December
Trichet Says EMU Needs Sound Finances, Strong Rules
US To Pursue WTO Cases Against China
Powerful Earthquake Hits Chile
IMF Official: Australia’s RBA Will Likely Tighten Policy By Year End
New Zealand 4Q Real Retail Sales -0.4% Vs 3Q; Consensus -0.6%

SCHEDULE OF MAIN EVENTS (times in GMT):
2350 Japan 4Q 1st Preliminary Quarterly GDP Estimates
0001 UK Jan Regional PMI
0030 Australia Dec Housing Finance
0200 Japan Jan Electric Power Output
0300 S Korea 4Q Net barter terms of trade
0430 Japan Dec Revised Retail Sales
0530 Singapore Singapore Government Parliament sitting
0630 India Jan Monthly WPI (all commodities)
1000 EU Dec Industrial Production
1100 France Dec OECD Composite Leading Indicators
1500 US New York Fed President William Dudley at the Regional Economic Press Briefing
N/A China Asia-Pacific Economic Cooperation – ABAC APEC
Business Advisory Council Meeting
N/A China Jan Trade
N/A Japan Feb Bank of Japan Monetary Policy Meeting
N/A US U.S. President Obama’s Fiscal Year 2012 Budget released
N/A EU Euro zone finance ministers meeting

When two well-known names in any industry merge there is often a fierce debate about what to do with their respective brands. The proposed tie-up between NYSE Euronext (NYX) and Deutsche Boerse AG (DB1.XE) is likely to be no different, but while Deutsche Boerse will own the majority share of the new group, it is NYSE’s brand that carries far more weight.
Past exchange deals have resulted in a variety of solutions to this problem. When the London Stock Exchange Group PLC (LSE.LN) and Deutsche Boerse announced their intention to merge in 2000, they proposed scrapping their respective names and forming a new company called iX. On the other hand, the New York Stock Exchange and Euronext merely squashed their two brands together when they merged in 2006 to form NYSE Euronext.
Research by consulting firm Brand Finance suggests the value of the NYSE brand is such that it will almost certainly survive the latest spate of merger mania.
According to Brand Finance, the NYSE Euronext brand is worth $1 billion, second only to the Chicago Mercantile Exchange, which is valued at $1.2 billion; Deutsche Boerse’s name is worth significantly less at $686 million (Brand Finance calculates the financial value of a company’s brand using, what it calls, the ‘royalty relief’ approach, which seeks to calculate how much a company would have to pay to license a brand it didn’t already own.)
The London Stock Exchange would also rise through the ranks if its tie-up with Toronto’s exchange is successful. At $593 million, the two brands would form the fourth most valuable exchange brand portfolio in the world. The LSE currently lies fifth in Brand Finance’s list.
The debate over the name of the merged NYSE Euronext-Deutsche Boerse entity has already begun. Ted Deutch, a U.S. congressman, has called for NYSE’s brand to be protected if the merger goes ahead. He said: “One absolute pre-condition of this merger must be that the iconic name of the New York Stock Exchange remain unchanged forever.”
The deal has been billed as a merger of equals, but the combination would leave 60% of the company in the hands of Deutsche Boerse shareholders.
Shailendra Kumar, a brand consultant with Equilibrium Consulting, has worked with Deutsche Boerse in the past and says the exchange is unlikely to give up “an incredibly powerful brand.” He said one solution would be for the two exchanges to form a holding company as an umbrella under which both brands are retained.
However, David Haigh, the chief executive and founder of Brand Finance, said companies are often so protective of their brands that an uncomfortable compromise is reached in which two brands are cobbled together. The prospect of a clumsy moniker is particularly likely given the raw material in this instance: NYSE Euronext and Deutsche Boerse.
“Sometimes egos get in the way,” said Haigh.

Most of Europe’s “fringe” exchanges maintained Thursday that they want to remain independent and are able to stand up to international competition from the newly proposed global giants, but some hinted that they could still be enticed by a spectacular offer.
Although independent, most already have past or present relationships with the large players, especially with Deutsche Boerse AG (DB1.XE), which will become a global powerhouse if its plan to take over NYSE Euronext (NYX) comes off. That deal was announced Wednesday, the same day that rival London Stock Exchange Group PLC (LSE.LN) said it had agreed to acquire Canada’s TMX Group Inc. (X.T).
Europe’s remaining independent exchanges include those in Vienna, Zurich, Warsaw, Madrid, Athens and Istanbul. Most others have been gobbled up by big players such as NYSE Euronext, the LSE or Nasdaq OMX (NDAQ).
Wiener Boerse, based in Vienna, with exchanges covering Austria, the Czech Republic, Hungary and Slovenia, said Thursday it is happy with its position focusing on Central and Eastern Europe and isn’t putting itself on the market. It does, however, use the Xetra cash market trading platform licensed by Deutsche Boerse.
“We don’t want to attract global exchanges at all,” Wiener Borse spokeswoman Beatrix Exinger told Dow Jones Newswires. “It is important for small economies and small countries to have their own stock exchanges where national companies get attention. If we were to be part of Deutsche Boerse, for instance, our small and medium-sized companies would be considered micro-caps and get no attention at all,” she added.
The Vienna exchange is owned by a group of national banks and other financial institutions. It is also part of a regional stock exchange group for Central and Eastern Europe.
The exchange’s chief executive, Michael Buhl, in an interview with Dow Jones Newswires last week, was adamant that his company could prosper without having a bigger exchange take over, although he indicated his exchange had been approached.
“There have been two groups who’ve been interested, but we made it quite clear, also with our shareholders, that we’re not for sale for the time being,” he said.
“We’re in a different league… we are operating in niche markets. Our companies usually are not really of a volume and liquidity which is interesting for big stock trading,” Buhl said.
The Warsaw Stock Exchange remains under government control, although it did try to sell itself Deutsche Boerse in 2009. The deal failed because the parties couldn’t agree a price. The government has a minority equity stake but retains a voting majority.
It also has a strategic partnership with NYSE Euronext that involves migrating the Polish cash and derivatives markets to a trading platform supplied by NYSE Technologies.
On a possible sale to an outside entity, Polish Treasury Minister Aleksander Grad said last year that “selling the treasury’s controlling stake in the bourse would be a job for the next Treasury Ministry team.” This government’s term ends in November. He said that the strategic partner, NYSE, could buy the minority stake that gives it control over the business from the government within a few years.
Warsaw exchange CEO Ludwik Sobolewski wouldn’t comment specifically on sector consolidation, but told Dow Jones Newswires: “WSE gives investors the ability to get return on Central and Eastern European stocks,” he said. “The two large operators don’t operate in the region and we don’t operate on their markets.”
Other exchanges have also attracted Deutsche Boerse’s interest, among them Spain’s exchange operator Bolsas y Mercados Espanoles SA (BME.MC), which declined an invitation from the German company to hold merger talks in 2006. At the time, there was a wave of mergers among exchanges in Europe, but BME kept out of it. It hasn’t held talks with any other exchanges after receiving the Boerse invitation, a BME spokesman said.
The spokesman declined to comment Thursday on recent consolidation or whether BME wants to remain independent or combine with another exchange.
Analysts say that it would make sense for BME to join a combined Deutsche Boerse/NYSE Euronext group eventually because it would otherwise stand alone in Europe against that group and LSE-Borsa Italiana. BME has a market value of about $2.6 billion.
SIX Swiss Exchange has engaged in M&A activity on a small scale, for example taking over Dow Jones’ stake in STOXX in November 2009 together with Deutsche Boerse, but reckons its current make-up and strategy will allow it to withstand competition from overseas.
“Our enterprise is committed to the Swiss financial center and will ensure the long term Swiss sovereignty of the country’s securities trading activities and all related services,” Werner Vogt, Swiss stock exchange spokesman, said Thursday in an emailed statement.
“At the same time, the traditional multi-provider architecture will be preserved, which can face up to the competition beyond national boundaries,” he added.
Greece’s stock exchange has made it clear it is open to merger discussions because of international consolidation in the sector: “We cannot dismiss any serious proposals for a tie-up and would engage in initial discussions if, for instance, a larger exchange contacted us,” Socrates Lazaridis, CEO of Hellenic Exchanges, told Dow Jones Newswires. It has a market value of about $582 million.
The exchange sees its first priority to become part of the chain of exchanges in the region. “We are a European market that incorporates all the rules so we are an open market even if we don’t have the mass. But the positive is that regionally we are becoming a more integrated market,” Lazaridis said.
“We want to be part of the chain of bourses across the region and also want to be a gateway to other south east European as other markets grow, and that can attract even more investors to Hellex,” he added.
Officials of the Istanbul Stock Exchange were at a conference and couldn’t immediately be reached for comment.
Analysts at Morgan Stanley said they didn’t expect any immediate moves by big players to jump at some of the smaller bourses in the region.
“Debate will also revolve around further potential tie-ups, though smaller European exchanges are less likely to deliver such attractive cost synergies or strategic opportunities, in our view,” Morgan Stanley said.
If the Western giants do decide to pounce on one of Europe’s smaller exchanges, there could be competition from further afield, including bourses in Asia. The Hong Kong stock exchange said Thursday that it is open to international alliances, according to press reports, and the Singapore Exchange Ltd. (S68.SG) recently bid $8.3 billion for the operator of Australian stock exchange ASX Ltd. (ASX.AU).

Back in the mid-2000s, the London Stock Exchange was a reluctant belle at a merger ball, pursued first by Germany’s Deutsche Borse and then Nasdaq OMX. The LSE evaded would-be suitors, only to watch deals create stronger rivals.
Fast forward to today, and the LSE is again being left behind. No sooner had it announced a merger with Canada’s TMX Group than the deal was eclipsed by a planned merger between NYSE Euronext and Germany’s Deutsche Borse.
That combination is a game-changer for the global exchange industry, and not just in Europe where the two biggest derivatives exchanges would be combined. If successful, the deal would create a derivatives powerhouse to potentially rival Chicago’s CME Group, which trades financial instruments like futures.

A likely 50% share of the U.S. options market, meanwhile, would pose a challenge to another Chicago operator, CBOE Holdings. And it would possibly push Nasdaq and other equity markets to consider their positions, given the heft the new company would have in this area, too–both in the U.S. and Europe.

The potential for revenue growth from the merged entity could be significant, in particular given a near monopoly on exchange-traded interest-rate futures in Europe. It would put together Euronext’s Liffe business, which dominates derivatives at the short-end of the yield curve, with Deutsche Borse’s Eurex, which dominates at the curve’s longer end. European-listed derivatives grew by 24% in the first half of 2010, according to the Futures Industry Association, and the tie-up would make it very tough for rivals to muscle in.

There would also be annual cost savings of about EUR300 million ($482 million), according to a statement from NYSE on Wednesday that confirmed merger talks. Taxed and capitalized, those would be worth about EUR1.9 billion. Part of this is likely to come from savings from the clearing of derivatives trades. Taken together, it is no surprise NYSE shares leapt 14% Wednesday.

But it may be early for the champagne. A U.S. backlash against ownership of NYSE by a foreign company is possible–the new entity would be 60% owned by Deutsche Borse shareholders. More importantly, the deal would have to be cleared by European regulators, who may balk at an entity with such market power.

Such concerns clouded Euronext-Deutsche Borse talks in 2006. The firms today may counter that the combination of CME with the CBOT in 2007 clears the way for their own, similar combination, according to Rich Repetto, an analyst at Sandler O’Neill. But regulators will also likely hear from users who fear such an entity’s pricing power–including any who feel they have suffered after the CME/CBOT deal.

Also, investors should remember competing with Chicago is no cakewalk. Back in the early 2000s, Deutsche Borse made a foray into the Windy City in a bid to challenge CME. It ended up retreating to Germany, bruised. The fight will be different this time, but it is doubtful CME, Nasdaq and others will let this monumental deal proceed unanswered

Japan just isn’t worth it. At least that’s the message from its corporations.
It’s well known that Japan Inc. is increasing its dependence on faster-growing foreign markets. But the hope that tax changes in 2009 would result in more overseas earnings flowing back to the nation in the form of dividends isn’t panning out as expected. Earnings are recovering sharply, but businesses see greater benefit in retaining and reinvesting that capital elsewhere.
There was nearly $240 billion sitting overseas at subsidiaries of Japanese companies in the fiscal year that ended in March 2009, according to the latest government data. Dividends and royalties to the parent firms that year totaled only about $27 billion. Separate data show that they’ve been falling for three years through 2010.
One major reason is the anemic economy, which crimps the domestic returns for many companies. Indeed, too many businesses are chasing a shrinking pie in a deflationary environment — a lousy proposition. Compounding pressure on margins, input prices are now rising too.
Consider this: For Japanese manufacturers, the operating-profit margin at home for the year ending March 2009 was 1.5%; overseas, it was 5.6%. Take the auto sector in that year: The margin in the Asean Four — Thailand, Indonesia, Malaysia and the Philippines — was at 8.2%, while the overall car industry in Japan had lost money after the Lehman shock.
In the latest comparable data, for the July-September quarter, the margin in Japan improved to 3.4% for overall manufacturing, while anecdotal evidence shows that margins overseas, especially in China and Asean, are higher. For example, ball-bearing maker NSK’s operating margin in the three quarters through December was 6.3% in Japan but 7.8% in Asia.
The low returns are also hurting foreign direct investment into Japan. There was actually a $61 billion outflow last year.
It’s easy enough to list changes that could help: Lower corporate tax rates, more free-trade agreements and greater labor flexibility would give companies greater incentives to invest more in Japan. But there are vested interests standing in the way, such as the farm lobby.
One change that won’t help: Backtracking on governance. Late last year, Japan’s Pension Fund Association, which oversees nearly $130 billion in corporate retirement funds, dropped the famous provision by which it would seek to sack directors if a company missed an 8% return-on-equity for three years. Instead, it now raps directors if ROE has been “significantly poor over a long term.”
Companies themselves should take some blame for not doing enough to change the weak local environment.

A small sigh of relief. Gilt yields fell slightly Thursday as the Bank of England left interest rates unchanged and the euro-zone debt crisis threatened to reignite. But the longer-term outlook for gilts isn’t bright. Ten-year yields have risen 0.4 percentage point to 3.87% already this year and are likely to head higher as worries about inflation, fears of a policy error and economic volatility weigh on government bonds.
Investors are increasingly charging an inflation premium. The BOE’s forecasts have consistently underestimated inflation; it hit 3.7% in December, way above the 2% target and will rise to 4-5% in coming months. True, many of the factors feeding into inflation are outside the BOE’s control – including higher global food and energy prices and tax rises – but some worry that inflation expectations have become unanchored. Investors may also be charging an extra premium for economic volatility, given the choppy nature of recent data and uncertainty over the effect of fiscal tightening.
The market, like the Monetary Policy Committee, appears split: some share MPC member Andrew Sentance’s view that rate hikes are overdue; others argue the economy is too fragile and too sensitive to interest rates to withstand hikes. That puts gilts in a delicate position: if the BOE stands pat, the greater the inflation premium the market may demand, as investors fear that ultimately rates will have to rise sharply. A rate hike, however, would set in train a new regime for the market: it would shift to asking how far rates would rise and over what period; this would likely push up yields too. It might also raise questions about the unwinding of the BOE’s GBP200 billion holdings of gilts.
The saving grace for gilts at present is that the U.K. has recovered its fiscal credibility; as such it looks like a safe haven if the euro-zone crisis flares up. Gilts caught a bid Thursday as Portuguese 10-year yields briefly spiked above 7.5%. But the misfortune of others is no recipe for a lasting rally in gilts when the U.K. has so many risks of its own.

SINGAPORE (Dow Jones)–Asian stock markets were mostly lower on Thursday, but shares in China managed to push higher amid tentative trade after this week’s rate hike announcement.
Most investors traded on local cues, and in Australia, stock exchange operator ASX surged after news of stock market consolidations offshore.

Australia’s S&P/ASX 200 was up 0.1%, Japan’s Nikkei Stock Average was down 0.1%, South Korea’s Kospi Composite was down 1.0%, Hong Kong’s Hang Seng Index fell 0.7% and China’s Shanghai Composite rose 0.8%.
Dow Jones Industrial Average futures were up five points in screen trade.
In Sydney, stock exchange operator ASX stood out as it surged to a two-month high of A$38.60. The shares were up 4.5% at A$38.35, lifted by news of offshore consolidation in the industry.
On Wednesday, shares of London Stock Exchange rose 3.1% and TMX Group added 6.4% after the LSE agreed to merge with the Toronto Stock Exchange owner, while NYSE Euronext shares rose 14% as Deutsche Boerse said it is in advanced merger talks with the U.S. exchange.
This offshore consolidation fuelled hopes the Australian government will approve the proposed merger between Singapore Exchange and ASX. Singapore Exchange shares rose 0.7%.
Telstra rose 0.4% despite reporting a 36% drop in first half net profit. It was supported by news it gained customers and maintained its full-year guidance for earnings and dividends.
MF Global Senior Institutional Trader Anthony Anderson said that the Australian earnings period was going quite well, with a range of companies reporting strong results. “Banks (are) up on seriously good results and there’s also a certain amount of optimism for large-scale capital management from resource companies this earnings season.”
Among banks, Commonwealth Bank of Australia was up 0.8% while ANZ Bank gained 0.6%.
In China, the market turned higher after opening lower, with buyers still tentative amid expectations Beijing will take additional tightening measures following Tuesday’s announcement of an interest rate hike.
Guodu Securities analyst Zhang Xiang said: “Investors remain cautious on expectations that consumer goods prices will stay at high levels in the first half.”
The central bank-backed Financial News earlier quoted Ba Shusong, an economist at a government think tank, as saying China’s consumer price index in January and February could exceed 5.0%.
Auto stocks supported the market after some companies announced strong January sales numbers.
General Motors said Wednesday that its January sales in China rose 22% from a year earlier to a record 268,071 vehicles.
SAIC Motor rose 7.5%, while Jiangling Motors was up 7.3% after it said its auto sales in January rose 40% from a year earlier.
Software stocks were also active after the government on Wednesday announced new policies to promote the development of software and integrated circuit industries. China National Software & Service rose 5.0% and Shandong Inspur Software advanced 5.4%.
Stocks in Japan succumbed to profit-taking ahead of Tokyo’s three-day weekend following the “dull” performance for U.S. stocks, said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
“Expectations that a string of rate hikes (in other emerging market nations) will follow China’s rate hike” on Wednesday were also weighing on sentiment, while expectations for steady performance by Japanese firms were discouraging investors from putting on short positions, he said.
He added that investors were cautious ahead of the kickoff of the new “J-GATE” next generation derivatives trading system on the Osaka Securities Exchange on Monday.
Twenty-five of the 33 Topix subindexes were higher.
Toyota Motor was up 2.6% following a Nikkei report that the auto maker would join with Mitsui & Co and Sollers, a major Russian auto maker, to assemble passenger cars in Vladivostok.
Nissan Motor was off 2.5% as profit-taking kicked in after its raised full-year earnings forecasts were mostly in line with market expectations.
Asahi Glass was down 3.0% following disappointing earnings while Pioneer gained 1.1% on a solid earnings report and its announcement of a new tie-up with Taiwan’s Asia Optical to produce digital cameras in Brazil.
Foreign selling continued to weigh on the Korean stock market. Most large-cap stocks were lower with LG Chem down 3.2% and LG Electronics down 1.2%.
Bank stocks were also lower, in line with the overall market, as investors waited for fourth-quarter earnings from several large financial firms. Hana Financial Group, KB Financial Group and Woori Finance Holdings are due to report later.
Among other markets, New Zealand’s NZX-50 was 0.6% lower, Singapore’s Straits Times Index fell 1.0%, Malaysia’s KLCI fell 1.0%, Taiwan’s Taiex fell 1.0%, Indonesian shares slipped 1.9% and Philippine shares lost 2.8%. India’s Sensex fell 0.5% and Thailand’s SET fell 1.0%.
In foreign exchange markets, the euro took a breather against the U.S. dollar after solid gains on Wednesday.
The single currency was at $1.3708, from $1.3733 in late New York trade on Wednesday, and at Y113.15, from Y113.08. The dollar was at Y82.55, from Y82.36.
The Australian dollar was choppy after data painted a mixed picture of the labor market. It was recently fetching US$1.0083, from US$1.0100 just prior to the data.
While overall job creation continued to surge in January despite widespread flood devastation in the state of Queensland during the month, there was some concern about the fall in full time employment.
The economy churned out a further 24,000 jobs, on top of the 200,000 created in the last six months of 2010, but the latest boost came via part-time employment rising 32,000. Still, “Australia remains fully employed,” said Paul Bloxham, chief economist at HSBC. Interest rates could be raised as soon as May as the central bank becomes “increasingly concerned about inflation,” he said.

The lead March Japanese government bond futures contract was up 0.21 at 138.78 points, lifted by U.S. Treasurys’ gains Wednesday. The yield on the 10-year cash JGB was down 2.5 basis points at 1.305%.
Spot gold was at $1,361.80 per troy ounce, down $2.00 from the New York close on Wednesday. March Nymex crude oil futures were up seven cents at $86.78 per barrel on Globex.

DUBAI (Zawya Dow Jones)–Government-owned Borse Dubai, one of the largest stakeholders in the London Stock Exchange Group PLC (LSE.LN), said Wednesday it continues to support the LSE management’s efforts to create more shareholder value, as it ties-up with Canada’s TMX Group Inc. (TMXGF) to create a new transatlantic exchange.
Earlier Wednesday, the London Stock Exchange Group and TMX Group Inc. said they agreed terms of the tie-up.
“We have been following these developments with interest. Borse Dubai has always been supportive of management initiatives to create shareholder value in the London Stock Exchange,” Borse Dubai said in an emailed statement. “We continue to support the management in their efforts to create both a stronger platform and a more valuable enterprise for stakeholders.”

Borse Dubai owns a 20.64% stake in the London Stock Exchange Group, according to Zawya.com. The Dubai government-owned investment firm also owns a 17% stake in The Nasdaq OMX Group; a 79.63% stake in the Dubai Financial Market; and a 33.33% stake in Nasdaq Dubai.

Post transaction, London Stock Exchange shareholders will own 55% and TMX shareholders 45% of the enlarged share capital of London Stock Exchange, the holding company of the Merged group.
The new group, which has yet to be given a name, will be listed on both the LSE and the Toronto Stock Exchange and will continue using their existing recognized brand names.

The deal, which still needs approval from U.K. and Canadian regulators, comes just a week after Russia’s top exchanges, Micex Group and RTS, said they planned to merge and hold an initial public offering in Moscow in the second half of 2012.