Headlines (Scroll down for complete stories):
1. Wholesale Prices, Industrial Output Down
2. Asia's Ballooning Reserves Spur Investment Abroad
3. Insider: Wal-Mart to Buy Chinese Retail Chain
4. Chicago Merc Buying CBOT for $8 Billion
1. Wholesale Prices, Industrial Output Down
Wholesale inflation plunged by the largest amount in more than three years in
September as a record drop in gasoline prices offset higher costs for cars and
other items. And in a sign of a slowing economy, industrial output dropped by
the largest amount in a year.
The Labor Department reported that wholesale prices overall fell 1.3 percent
last month, nearly double the decline that analysts had been expecting. Gasoline
prices plummeted 22.2 percent, the biggest one-month decrease on record.
Story Continues Below
In a second report, the Federal Reserve said that industrial output dropped by
0.6 percent in September, reflecting declining production at the nation's
factories and a big drop in utility output as cooler September weather cut
electricity production.
It was the first drop in industrial production since January and the biggest
fall since a 1.3 percent plunge in September 2005, which resulted from
widespread shutdowns following Hurricane Katrina.
While the overall inflation performance was much better than expected, core
inflation, which excludes energy and food, jumped by 0.6 percent in September,
the biggest increase in this area in 20 months. Much of that gain was due to a
jump in new car prices, which had been falling previously because of the
widespread use of attractive incentives aimed at moving a backlog of unsold
cars.
The 0.6 percent fall in industrial production in September was a much bigger
decline than the 0.1 percent dip that Wall Street had been expecting. It
followed no change at all in August as the nation's factory sector signaled it
was slowing production in response to the overall economic slowdown.
Financial markets are hoping that a slowing economy and recent sharp declines in
global oil prices will help to lower inflation pressures in coming months and
keep the Federal Reserve from pushing interest rates higher.
After raising rates for a record 17 consecutive times, the Fed left rates
unchanged at its August and September meetings. The Fed meets again next week
and economists widely expect no change at that meeting either.
For September, the 22.2 percent drop in gasoline prices was the biggest decline
on record, surpassing the old mark of a 22.1 percent drop in March 1986. Since
peaking above $3 per gallon in early August, gasoline prices have fallen by more
than 70 cents.
The price of home heating oil was down 18.5 percent in September although
residential natural gas prices rose by 1.8 percent.
Overall energy costs were down 8.4 percent, the first drop at the wholesale
level since last February, and the biggest decline since July 1986.
Food costs rose by 0.7 percent last month as pork prices shot up by 81.1
percent, the biggest gain since September 1999. The price of fish and rice also
increased while the cost of turkeys fell by the largest amount in 15 years.
Excluding energy and food, the 0.6 percent rise in core inflation was the
biggest since a similar 0.6 percent rise in January 2005.
The gain reflected a 2.8 percent jump in new car prices, the biggest increase in
16 years, and a 3.5 percent rise in light trucks, the category that includes
sport utility vehicles and vans. That was the biggest jump in that area since 21
years. Analysts, however, noted that prices in these areas had been falling
because of dealer incentives in previous months.
Prices were also up for alcoholic beverages, men's clothing, and mobile homes.
© 2006 Associated Press.
Editor's Note:
2. Asia's Ballooning Reserves Spur Investment Abroad
Asian countries, flush with large foreign currency reserves, are emerging as a
major source of foreign direct investment as they seek access to resources and
markets across the world, the United Nations' trade body said Monday.
Overseas investment by companies from China, India, South Korea and other East
Asian countries totaled US$68 billion (€54 billion) and the outflows will likely
increase because of their burgeoning foreign currency reserves, the U.N.
Conference on Trade and Development said in its annual World Investment Report.
The reserves have helped Asian companies aggressively scout for overseas
acquisitions and secure new markets and new resources needed to support the
region's booming economies, the report said.
It cited China, where the government is considering suggestions to set up an
investment fund with some of its foreign currency reserves that total about US$1
trillion (€800 billion), the largest in the world.
The report said China could do what Japan did in the 1980s, when Japanese
companies used surplus foreign reserves to expand operations in other parts of
the world.
"A similar situation could arise in the coming years," the report said.
China already ranks 17 as source of foreign direct investment and is "likely to
become an even more important source in the near future."
While a major part of China's overseas investment is focused on gaining access
to natural resources, including oil assets, companies from other Asian countries
have sought to expand their markets in advanced economies through acquisitions,
said Veena Jha, an India-based economist with the U.N. trade body.
For instance, a Hong Kong-based group of investors bought the Bank of America
center in San Francisco for US$1 billion (€800 million), while Taiwan's BenQ
took over Siemens' mobile phone business and India's Tata Group acquired British
chemical company Brunner Mond, the report said.
China's top overseas investments included the US$4.2 billion (€3.4 billion)
purchase of Canada-based oil firm PetroKazakhstan by state-owned China National
Petroleum Corp. last year.
The surge in capital flows from Asian countries also contributed to the global
buoyancy in foreign direct investment, or FDI.
FDI flows rose 29 percent to US$916 billion in 2005, the report said.
© 2006 Associated Press.
Editor's Note:
3. Insider: Wal-Mart to Buy Chinese Retail Chain
Wal-Mart Stores Inc. has agreed to buy a Chinese hypermarket chain for about $1
billion to become the top foreign player in China's fragmented retail market, a
source familiar with the situation said on Tuesday.
If approved by Chinese regulators, the deal to buy Trust-Mart, a closely held
Taiwan company with 100 supercentres in China, would push Wal-Mart past
Carrefour SA for the most supercentres in China, Asia's second-biggest retail
market.
Spokespeople with Wal-Mart, the world's largest retailer, and Trust-Mart
declined to comment on Tuesday.
Supercentres, also known as hypermarkets, are giant stores that sell a wide
range of general food and merchandise. Wal-Mart beat Carrefour out in bidding
for the Trust-Mart stores, The Wall Street Journal reported on Monday, citing
sources.
Trust-Mart posted 2005 sales of about 13.2 billion yuan ($1.67 billion) at its
Chinese hypermarkets, according to the China Chain Store and Franchise
Association, well above Wal-Mart 's 9.9 billion yuan in its Chinese stores.
By comparison, Carrefour had 2005 sales of 17.4 billion yuan at its Chinese
hypermarkets while Germany's Metro recorded sales of 7.5 billion yuan, the data
showed.
But China's retail market - worth about $500 billion according to research firm
Euromonitor — is still dominated by Chinese chains, analysts said, with the
foreigners lagging far behind industry leader Bailian Group Co. Ltd., which was
created in 2003 through a merger of four major retail firms.
"When Wal-Mart expands, supposedly they are going to enjoy better economies of
scale," said retail analyst Selina Sia with UBS in Hong Kong.
"The market is still highly fragmented. None of the chains have a dominant power
to take leadership, but there are more domestic firms than foreign ones."
The top 100 retailers in China account for only 10 percent of the sector,
accounting firm Ernst & Young said in a recent report.
International Expansion
Established in 1997, Trust-Mart employs more than 30,000 people at its
hypermarkets in more than 20 provinces across China, and says it offers nearly
20,000 different products.
"Acquisition is the game. If you can buy 'x' number of stores in one scoop ...
then you have increased size to help you cut down on the cost of supply. It's
just the right thing to do," said Jack Huang, chair of the Greater China
Practice of international law firm Jones Day, who closely tracks other
competition.
International expansion has become increasingly important for Wal-Mart as its
U.S. sales growth slows. Its U.S. discount stores posted 7.9 percent sales
growth for September, while the international business turned in a strong 32
percent gain.
Wal-Mart 's international operations have endured some high-profile setbacks
this year, however, as the retailer pulled out of South Korea and Germany.
The retail giant said in July it was selling its underperforming German stores
to Metro, the country's leading retail chain, just after it in May announced the
divestment of its loss-making South Korean stores to Shinsegae Co. Ltd.
Wal-Mart has made no secret of its ambitions in China. The retailer has said
that its operations there could be as big as its U.S. business in 20 years.
Wal-Mart currently has more than 3,700 U.S. stores, re association's data
showed.
In March, Wal-Mart said it planned to hire some 150,000 people in China over the
next five years — five times the number it currently employs — as it prepares
for a major store expansion.
Shares of Wal-Mart closed on Monday down 14 cents, or 0.29 percent, at $48.32.
Carrefour shares opened slightly lower on Tuesday, edging down 0.5 percent to
49.80 euros at GMT 0710, versus a 0.23 percent decline in the DJ Stoxx European
Retail Index ($1=7.91 yuan).
© 2006 Reuters.
Editor's Note:
4. Chicago Merc Buying CBOT for $8 Billion
Chicago Mercantile Exchange Holdings, Inc. announced Tuesday it agreed to buy
CBOT Holdings Inc. for $8 billion.
The Chicago Mercantile Exchange is the world's biggest financial market in terms
of market value. It is also the most diverse exchange, trading instruments such
as options and futures on interest rates, equities, currencies, and commodities
as well as derivatives. The Chicago Board of Trade is the world's oldest futures
and options exchange.
Once combined, the new company will be called CME Group Inc., and will create a
"global derivatives exchange with average daily trading volume approaching 9
million contracts per day," writes the Associated Press. The company will be the
largest derivatives exchange in the world and headquartered in Chicago.
CBOT stockholders will get 0.3006 shares of CME Class A common stock for each
share they own, or they can opt to receive an equal amount in cash. According to
the AP, the cash payout won't exceed $3 billion, and if no shareholders elect to
take the cash, CME shareholders will own 69 percent of the company and CBOT
shareholders will own 31 percent. CME estimates that it will issue about 15.9
million shares valued at $8 billion.
"We are very pleased to announce this strategic merger today," said CME Chairman
Terrence A. Duffy, in a statement. "We have enjoyed a strong, productive
relationship with CBOT for a number of years, including our historic clearing
agreement in 2003 in which CME began clearing all CBOT trades. This merger takes
us to the next level in the evolution of our high-growth business."
The AP says, based on Monday's closing prices, the company is valued at $25
billion. CME and CBOT say that the deal should be completed by mid-2007, pending
regulatory and shareholder approval.
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