Wall Street Breakfast

by: SA Editors
SA Editors
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

MACRO AND HOUSING

Wednesday Whipsaw Action in Mixed Session

The Dow Jones Industrial Average lost 25.2 points (-0.19%), the Standard & Poor's 500 index fell 2.0 points (-0.14%), and the Nasdaq gained 5.0 points (+0.20%) Wednesday. Volume on the NYSE came in at 1.23 billion shares, and decliners beat advancers by a ratio of about 3:2.
The Fed also released the results from its 28-day credit auction. The Fed will lend at a 4.65% rate, below the 4.75% discount rate. It was the first of four such auctions designed to increase liquidity (Strong Interest in Fed's First $20B Loan Auction). The U.S. 10-year Treasury note ran up 24/32 in price, now yielding 4.03%. The majority of sectors finished down, but tech (+0.24%) and energies (+0.40) managed gains. Crude gained $1.16 to finish at $91.45/barrel.
Expect another volatile session Thursday, with GDP (8:30 AM), Jobless Claims (8:30 AM), and Leading Indicators (10:00 AM) set to be released. Quarterly earnings from Research In Motion (RIMM), Fed Ex (NYSE:FDX), and Bear Stearns (NYSE:BSC) are also due out.

Strong Interest in Fed's First $20B Loan Auction

The Federal Reserve on Wednesday awarded $20B in short-term loans at a rate of 4.65% in the first of four planned auctions, known as the Term Auction Facility or TAF, as part of a coordinated effort with other central banks to help ease the global credit crisis. Also on Wednesday, the European Central Bank auctioned $10B in dollar-denominated loans and the Swiss National Bank lent $4B. "It is not clear this facility is going to address the fundamental issues driving what is going on in interbank markets, which are the constraints on balance sheets and the need of some institutions to raise capital and more fundamentally concerns about counterparty credit risk," said Richmond Fed President Jeffrey Lacker. However, one analyst called the move a "hypodermic in the heart," saying it "gets us over year-end." The rate on the 28-day Fed loans is 0.1 percentage point below the usual 4.75% discount rate charged by the Fed, which received some $61.6B in bids from 93 banks in the auction. The winning bids and sizes of the awards weren't revealed. The Fed will offer 35-day loans in its second $20B auction today. Amounts to be sold in the next two Fed auctions, to be held January 14 and 28, haven't been disclosed.

Ongoing Housing Problems to Keep Growth Weak, Fed's Lacker Says

Richmond Fed President Jeffrey Lacker said Wednesday he was "uncomfortable" with the country's inflation picture and also forecast "very weak" economic growth into next year as housing weakness continues. "Most cogent risks to the outlook are on the downside," Lacker said at the Charlotte (North Carolina) Chamber of Commerce's Annual Economic Outlook Conference. "Home construction and sales are unlikely to bottom out before the middle of the year, and I expect housing to continue to be a drag on growth well into 2008." Further into the year, however, he expected an improvement, predicting 2.2% economic growth. As for inflation, Lacker said he was "disappointed" the improvement seen earlier this year wasn't longer lasting. The inflation picture, he said, had "deteriorated" due to high energy prices. "Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation," Lacker said. "If energy prices fail to decline, monetary-policy decisions will be that much more difficult in 2008."

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TECHNOLOGY

Oracle's Strong Quarter Lifts Shares

Enterprise software giant Oracle Corp. (NASDAQ:ORCL) reported adjusted EPS and revenue that topped consensus estimates Wednesday after the bell, sending its shares higher by 6.5%. Shares fell 2.2% in composite trading Wednesday. Net income was up 35% to $1.3 billion in Oracle’s latest quarter (F2Q08), on a 28% rise in revenue to $5.3 billion. Adjusted net income was up 38% to $1.6 billion, good for adjusted EPS of $0.31. Analysts were expecting adjusted EPS of $0.27 on revenue of $5.04 billion. New software license revenues were up 35%, new license revenues for applications were up 63%, and services revenues were up 22% Y/Y. Oracle President Charles Phillips contrasted his company’s strategy with main competitor SAP's (NYSE:SAP): “We like our growth strategy of expanding beyond ERP [enterprise resource planning] into high-end industry specific vertical software in contrast to SAP's (SAP) strategy of moving down market to sell ERP systems to small companies.” CEO Larry Ellison added, "We continue to take market share from IBM (NYSE:IBM) in both” database and middleware new license sales (Oracle F2Q08 (Qtr End 11/30/07) Earnings Call Transcript)

Sources: Press release
Additional Reading: 10 Software Predictions for 2008

RIMM Considering iPhone Rival - Globe & Mail

Research In Motion's (RIMM) Blackberry has long been the corporate phone of choice, but a report in Canada's Globe and Mail says the company has launched an important move to grab market share in the consumer cell phone segment in the U.S. Consumer-geared versions of the Blackberry, such as the Pearl, already contribute about 30% of RIMM's revenue. Now the company is looking to strengthen its foothold by releasing a touch screen phone that resemble's Apple's hugely-successful iPhone, as well as a new version of the Pearl that will offer a QWERTY-like keyboard, according to a research note by GMP Securities analyst Ray Sharma. Also, the company opened its first retail outlet last week in a suburb of Detroit. Sharma sees February as an early release date for the new phones, although he says it is not yet definite the phones will go into production. Increased costs will come with the new source of revenue, including manufacturing, tech support, and sales force education. "It's much more expensive," Info-Tech Research Group analyst Michelle Warren said. "But it opens up the market for them and they are in a position where they can expand their offerings." RIMM will release earnings late Thursday. Shares of Research In Motion gained 1.4% to $102.13.

INTERNET

Viacom and Microsoft Sign $500M Deal in Blow to Google

Viacom (NYSE:VIA) and Microsoft (NASDAQ:MSFT) announced Wednesday a strategic alliance Wednesday under which major divisions of both companies will collaborate on advertising, content distribution, event promotions and games for an initial five-year period. The two companies did not disclose the financial terms of the deal, but said that more than $500 million in financial considerations and business services between the two companies will take place over the five year term, including revenue sharing, guarantees and content licensing agreements. The agreements leave open the potential for expansion. As part of the deal, Microsoft will license TV and movie content from Viacom, and in turn Microsoft's Atlas will become the exclusive ad-serving platform for Viacom's U.S. web sites. Additionally, Microsoft will have the exclusive right to market Viacom's unsold display advertising space.
Microsoft, meanwhile, will be able to put shows from MTV and Comedy Central and movies from Paramount Pictures onto various products, such as MSN and Xbox. Microsoft already distributes some Viacom content though Xbox Live Marketplace. Viacom had been getting its ads served up by DoubleClick. Google (NASDAQ:GOOG) is attempting to buy DoubleClick; Viacom has a $1 billion copyright infringement suit pending against Google.

Google Phone Software Bugs Frustrate Programmers

Developers of Google's (GOOG) Android mobile software are not happy. Google released a software kit last month designed to get programmers started on the software and get their feedback. The company said it will spend $10 million to support programmers who develop code for Android before it hits the market next year. However, developers say the kit is riddled with coding errors, and Google, some of them have said, has been unresponsive."Functionality is not there, is poorly documented or just doesn't work," developer Adam MacBeth said. "It's clearly not ready for prime time." Android-based cellphones are seen to target the mass market as a cheap phone that can easily access the web. Though it is common for new software to have bugs, how Google fields complaints from the developer community will likely play a large part in the final product's success.

Sources: Wall Street Journal
Additional Reading: Android website

RETAIL

Nike Beats on Strong International Sales

Nike (NYSE:NKE) reported its second-quarter 2008 fiscal earnings after the bell Wednesday, exceeding analyst estimates. For the quarter, the company's net income increased to $359.4 million ($0.71/share) compared to $325.6 million ($0.64/share) last year. Revenue jumped 14% to $4.3 billion. Analysts were expecting earnings of $0.66/share on sales of $4.2 billion for the quarter. Revenue increased 7% in the U.S., 17% in Asia, and 18% in Europe compared to last year. Next quarter's future orders came in at $6.5 billion, a 13.5% rise from the same period last year. Analysts polled by Thomson had expected earnings of $0.66/share on revenue of $4.21 billion. CEO Mark Parker said, "Our strategy for continued growth is very clear -- commit totally to the consumer, deliver innovative and relevant product, and focus our execution and discipline on those parts of the business that offer the greatest growth opportunity," (NIKE F2Q08 (Qtr End 11/30/07) Earnings Call Transcript). Shares of Nike gained 2.4% in late after-hours trading. "It's a surprisingly strong quarter," said MFC Global retail analyst Sarah Henry. "They've done a good job with their brands. They seem to be taking market share globally. The geographic diversity is helping them in an uncertain environment."

Cheesecake Factory Jumps on News of Peltz Stake

Activist investor Nelson Peltz has acquired a more-than 10% stake in Cheesecake Factory Inc. (NASDAQ:CAKE), Bloomberg reported Wednesday. A person with knowledge of the situation said Trian Star Trust, which is affiliated with Peltz's Trian Fund Management LP, may still add to its stake. In a regulatory filing Wednesday, Cheesecake Factory said, "We have had a preliminary conversation with Trian already, and look forward to continuing this dialogue." The fund today received FTC approval to take the stake. Peltz, who controls Arby's parent Triarc (TRY), has pushed for changes at several food and restaurant companies in recent years, including Heinz (HNZ), Wendy's (NYSE:WEN) and Kraft (KFT). Triarc has offered to buy Wendy's, the number-three U.S. burger chain. Shares of Cheesecake Factory were down 12% through yesterday; they gained 10.7% to $24.54 Wednesday. "We would buyers of Outperform-rated CAKE on news that Nelson Peltz's investment arm (Trian Star Trust) has just received approval to acquire a stake in CAKE," Cowen said in a note to investors Wednesday.

General Mills Beats by a Penny, Raises Sales Outlook

General Mills (NYSE:GIS) reported a 1.3% increase in fiscal 2Q-2008 net income to $390.5 million, or $1.14/share, beating estimates by a penny. Sales rose nearly 7% to $3.7B, compared to analysts' forecast of $3.62B. General Mills raised its sales outlook for the remainder of the fiscal year, saying it now expects mid-single digit growth, above its low-single digit long-term goal. Analysts had been expecting full-year sales growth of 4.6%, on average. The company reaffirmed its full-year EPS outlook of $3.39 to $3.43, which is short of analyst estimates of $3.45. In a statement, CEO Ken Powell commented on General Mills' "good growth" and tracking of full-year targets, in spite of "significant input cost inflation, recall expenses and double-digit growth in consumer marketing investment," (earnings call transcript later today). General Mills recorded 22% overseas sales growth to $666M. Sales grew 2% to $2.52B domestically, led by snacks (+12%) and yogurt (+11%). Shares of General Mills rose 0.7% to $59.07 on Tuesday. General Mills is a top-5, 4.8% component of PowerShares Dynamic Food & Beverage ETF (NYSEARCA:PBJ).

FINANCIAL

Morgan Stanley Gets $5B Cash Infusion After Huge Q4 Loss

Wall Street investment bank Morgan Stanley (NYSE:MS) reported a larger-than-expected loss Wednesday, after revealing an additional $5.7 billion writedown to add to its previously stated $3.7B writedown. It also announced a $5 billion cash infusion from China Investment Corp. Morgan Stanley said it lost $5.8 billion ($3.61/share) in Q4, compared to a profit of $2.27 billion ($1.44/share) in Q4 2006. Net revenue was -$450 million, because of the writedowns, vs. revenue of $7.75 billion a year ago. Results widely missed analyst projections of -$0.39/share on revenue of $4.23 billion; analysts did not account for the additional writedown. Morgan Stanley said last month it would take a $3.7 billion writedown charge for losses on credit market investments. Today, however, it revealed a total writedown of $9.4 billion, which effectively reduced earnings by $5.80/share. "The writedown Morgan Stanley took this quarter is deeply disappointing -- to me, to our colleagues, to our board and to our shareholders," CEO John Mack said. "Ultimately, accountability for our results rests with me, and I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007," Morgan Stanley F4Q07 (Qtr End 11/30/07) Earnings Call Transcript. The company also said China's government-controlled investment vehicle, China Investment Corp., has invested $5 billion through equity units that convert into common stock. The cash, it said, will help to bolster its capital position and enhance growth opportunities globally. Shares gained 4.2% to $50.08.

S&P Puts Morgan on Credit Watch; Fitch Affirms

Standard & Poor's Ratings Services said Wednesday it has placed Morgan Stanley (MS) on CreditWatch with negative implications following the company's announcement that revenues were reduced by writedowns totaling a massive $9.4 billion during Q4 (Morgan Stanley Gets $5B Cash Infusion After Huge Q4 Loss). "Morgan Stanley's dismal fourth-quarter results heighten our concern regarding its strategic direction and risk appetite," credit analyst Scott Sprinzen said. "Fourth-quarter financial performance was considerably worse than we previously anticipated." Still, it said the franchise remains "basically sound" with strong financial performance across diverse units. Liquidity, it said, remains strong, enhanced by China Investment Corp.'s $5B cash infusion. It considers a downgrade below 'A+/A-1' (currently AA-/A-1+) unlikely. Fitch Ratings on Wednesday affirmed its AA- rating, but said its outlook remains negative, meaning it could reduce the rating over the immediate term. It also said the bank might recoup some of today's losses: "Fitch... believes that some of the recognized losses may eventually be recovered as current marks to market result from very dire assumptions about default probabilities and severity for U.S.-based mortgages. Further declines are possible but considered unlikely," it said. Shares gained 4.2% to $50.08.

Sources: Reuters

SLM Nosedives After Abrasive Conference Call

Shares of student lender SLM Corp. (NYSE:SLM), also known as Sallie Mae, plunged more than 20% Wednesday to $22.89 after the company said it may face increased financing costs due to a lack of available credit, and noted it may need a capital infusion. In a stormy conference call, new CEO Albert Lord wrangled with investors and analysts, and offered often-evasive answers to their probes. Asked if SLM would shore up its balance sheet by selling equity, he replied: "The most preferred type of equity is common equity. At this point, I'm not going to get very precise with you." Last week SLM lowered its 2008 EPS forecast to $2.60-$2.80 from $3.25, due primarily to increased costs from replacing an interim funding facility (Sallie Mae Lowers Outlook, Says Buyer Is Out). "The interim financing facility provided by the buyer has high financing costs," Lord said Wednesday. "Replacing it will probably involve higher financing costs. This is not a great time to be refinancing." When one analyst pressured Lord, saying, "We're trying to figure out what your stock is going to be worth and you've got to give us some guidance," Lord told him to "give Steve [McGarry, investor relations head] a call." "But you're the CEO," the analyst protested. "Yes that's exactly right; I'm the CEO. You should give Steve a call. Next question." The call became more abrasive from that point on. After the call, Friedman Billings Ramsey analysts downgraded SLM to Market Perform from Outperform, and lowered their target to $26 from $38, saying they believe management created more uncertainty on the conference call.
The company is in the midst of a court battle (Sallie Mae Sues for Original Deal or Breakup Fee) with a consortium of private-equity buyers that agreed to acquire SLM for $60/share last April at the height of the LBO boom, but later rescinded (Buyers Back Out of $25 Billion Sallie Mae Deal). Last week the consortium refused to renegotiate. Also Wednesday, the Wall Street Journal reported SLM understated a share sale of CEO Albert Lord announced last week. Filings with the SEC said Lord sold 97% of his stake (1,265,401 shares) at $27.36 per share, more than the previously-reported sale of 1.2 million shares, and in contrast to SLM's description of the sale as "approximately 10% of his equity units." A Sallie Mae spokesman acknowledged the errors but had no further comment. Seeking Alpha will have a transcript of Wednesday's call later today.

Sources: Reuters, Wall Street Journal
Additional Reading: Link to call (audio)

MasterCard to Appeal EU Ruling Forbidding Cross-Border Fees

MasterCard Inc. (NYSE:MA) must drop the fees it charges stores for cross-border credit card purchases within six months or face fines of 3.5% of daily global turnover, the European Commission ruled Wednesday. MasterCard Inc.'s 40-year-old transaction fee was declared illegal by EU regulators, but MasterCard wasn't fined for the breach because it informed the EU about the transaction fee. According to the Commission, the charges are incompatible with EU antitrust rules. Repeal of these fees would result in consumers relying more on cash, MasterCard said. Some 45% of European payment cards are MasterCard or Maestro logo. MasterCard Europe believes that it has strong grounds to support its decision to appeal. Forcing drastic reductions in interchange fees across Europe could delay implementation of SEPA (Single Euro Payments Area), as well as reduce incentives for payment institutions to expand into new domestic European payments markets. The Commission's approach, if the ruling stands, could be bad news for consumers and a blow to investment and innovation in the European payments industry. MasterCard is up 2% in early trading.

Royal Bank of Scotland to Buy Stake in Chinese Bank - WSJ

Royal Bank of Scotland (NYSE:RBS) has agreed to buy a 19.9% stake in Chinese bank Suzhou Trust, according to a source at the Wall Street Journal. The terms of the deal were not disclosed, but the source did say Suzhou is planning on increasing its capital by about $40 million. The agreement should help RBS in its goal to offer a larger range of wealth management services to the Chinese population. Suzhou was approached by other international investors, but a source said RBS looks like the most probable deal to be completed. The 19.9% stake is the maximum RBS is allowed to own as part of Chinese government regulations. Shares of RBS fell 1.8% to $8.64 Wednesday.

TRANSPORT AND AEROSPACE

Navistar Likely Buyer of GM Medium-Duty Truck Unit

Navistar International Corp. (NAVZ.PK) is the likely front-runner to buy General Motors’ (NYSE:GM) medium-duty truck unit, sources close to the negotiations have reported. The deal could be announced as early as Thursday. Details are sketchy and both companies refused to comment, though a Navistar spokesperson did say to “stay tuned.” Bear Stearns values the unit at roughly $500 million. GM has sold off approximately $21 billion in assets over the past three years to help cover net losses of more than $50 billion and focus on its core business. According to Morgan Keegan analyst Pete Hastings, “They might as well monetize one more non-strategic asset to fund the turnaround. GM doesn't have a liquidity problem, but adding more coins to the coffers is never a bad thing.” Navistar, which manufactures both trucks and truck engines, saw its shares climb 7.5% on light volume Wednesday. GM shares were down 1%.

CarMax Falters on Weak Comps; Lowers Guidance

Shares of CarMax (NYSE:KMX) fell 7% Wednesday after the used-car retailer's earnings missed Street targets and it warned of flat comparable sales and a challenging economic environment. Net earnings declined 34% to $29.8 million ($0.14/share), vs. $45.4 million ($0.21/share) in FQ3 2007. Total sales increased 7% to $1.89 billion from $1.77 billion. Analysts polled by Reuters expected EPS of $0.17 and revenue of $1.87 billion. "Current economic conditions clearly affected our performance this quarter," said CEO Tom Folliard. Flat comps reflected a decline in consumer confidence, the company said. Income at the firm's CarMax Auto Finance [CAF] unit fell 49% to $16.3 million from $32 million. "Continuing turmoil in the asset-backed credit markets drove funding costs higher in CAF's warehouse facility as the spread between asset-backed commercial paper rates and benchmark rates widened significantly during the quarter," it said. A recent front-page piece in the Wall Street Journal (Auto Loan Delinquencies Surge) discussed the spillover of credit-market concerns into the auto loan market. Looking ahead, the company now estimates comparable-store sales growth of 2% and full-year EPS of $0.87-$0.93. Prior expectations were $0.92-$0.98, while analysts were looking for $0.95. The company said the weaker guidance is largely the result of higher funding costs at CAF. In a recent note, RBC Capital Markets explained the correlation between KMX's flat comps and its lending woes: "Just as easing lending standards helped accelerate comp growth (more people qualified for financing), tightening lending standards will likely slow comp growth further (fewer people now qualify)." On Dec. 17, Wachovia maintained an Underperform rating on CarMax, and said it believes the overall environment has worsened since September and expects declines over the next two quarters. Shares are down 4.7% to $20.60 in pre-market trading.

ENERGY AND MATERIALS

Eaton Takes On $2.8B in Acquisitions

Cleveland-based diversified industrial equipment maker Eaton Corp. (NYSE:ETN) announced early Thursday it plans to make two overseas acquisitions with a mix of cash, debt and equity, worth as much as $2.8 billion. Eaton said it will acquire The Moeller Group, a private equity-owned German electrical components maker, for €1.55B ($2.23B). Moeller's estimated 2007 Ebitda is $245M, on sales of $1.47B. Pending customary closing conditions, the deal is expected to close in Q1. Separately, Eaton has launched a tender offer for Taiwan-based Phoenixtec Power, a manufacturer of uninterruptible power supply systems. Eaton is offering NT$50/share ($1.54), for a net purchase price of $565M for all shares outstanding. Phoenixtec's chairman and board members have already agreed to tender 25% of the company's shares. Phoenixtec's estimated 2007 Ebitda is $52M on sales of $495M. Eaton CEO Alexander M. Cutler, said the acquisitions are expected to be neutral to operating EPS in 2008 and accretive by $0.25 to $0.35 in 2009. Eaton's overall 2008 outlook is for operating EPS growth of 15% to 20%, on sales growth of 25%. Shares of Eaton rose 0.4% to $89.42 on Wednesday.

Joy Global Climbs on Beat and Raise

Shares of mining equipment maker Joy Global (JOYG) gained 7.2% after the company topped estimates in its latest quarter and increased its forward guidance. “The outlook for our markets is stronger than ever,” said CEO Mike Sutherlin. “Supply continues to chase demand in our international markets, including coal, copper, iron ore and the Canadian oil sands.” Adjusted EPS were $0.80, $0.05 above consensus adjusted estimates. Sales also came in above forecasts, rising 6.8% to $735.9 million, versus the $710.2 million Wall Street was expecting. The company said it now expects to boost sales by 10%-18% in 2008, good for EPS of $3.10-$3.35, including an expected charge of $0.08. That forecast is slightly above adjusted analyst estimates.

INTERNATIONAL

Asia Flat Thursday, Except Red Hot China

Japan (+0.01%) and Hong Kong (-0.05%) were flat Thursday, while China's Shanghai composite forged ahead by +2.06%. Stocks in Japan fell in late trading, giving back early gains, as traders quickly took profits in a light-volume trading session. Banks, including Mitsubishi UFJ (MTU +2.2%) rose after they said they will not contribute to a U.S.-led subprime rescue fund. Chinese's stocks were lead by the resource sector; shares in coal companies jumped on news mainland utilities will have to pay more for thermal coal in the coming year. China Railway surged 9.5%, while new issue Sinoma, the number-one global cement engineering services provider, closed up 35% from its IPO price. China Petroleum & Chemical Corp. (NYSE:SNP) jumped 6.8%. NTT DoCoMo (NYSE:DCM) was +1.7%. Toyota (NYSE:TM) lost 0.5%. Sony (NYSE:SNE) was down 1.1%. Hitachi (HIT) fell 2.3%. China Netcom Group Corp. (NYSEARCA:CN) lost 4.5%. China said Thursday is has once again raised interest rates, to a nine-year high of 7.47%China Hikes for Sixth Time This Year; BoJ Holds.

Sources: Reuters, Bloomberg

Europe Inches Up Thursday

Markets in Europe inched up in early Thursday trading. London's FTSE (+0.66%) lead the way. The French CAC (+0.56%) and German Dax (+0.35%) were also up as of 7:12 a.m. ET. Shares of Johnson Matthey jumped 7.2% on rumors of a bid for the platinum specialist after the Financial Times reported the firm may be a target for Dow Chemical (NYSE:DOW). Energy shares were up on rising crude prices (RDS.A +0.8%), (BP +0.3%). Banks RBS (RBS) and HSBC (HBC) were up 0.9% and 0.8%. Volatile Northern Rock was down 3.4%. Vodafone (NASDAQ:VOD) added 1.5% and Prudential (PKU) was up 2%. "It's been a bit of a dreary ending to the year," said Brewin Dolphin strategist Mike Lenhoff, adding 2008 may be better. "I really feel quite convinced that lower interest rates will limit the downside," he said.

Sources: Reuters
Additional Reading: Asia Flat Thursday, Except Red Hot China

China Hikes for Sixth Time This Year; BoJ Holds

The People's Bank of China raised rates for a sixth time this calendar year to a nine-year high. Effective Friday, the benchmark lending rate will rise 0.18% to 7.47%, while the deposit rate will increase 0.27% to 4.14%. The PBoC is struggling to manage record-high inflation and prevent further speculation in real estate and equities. In spite of the rate hikes and ten reserve requirement hikes, inflation hit an 11-year high at 6.9% in November, pushed higher by continued double-digit increases in food prices. A Shanghai-based senior economist at Standard Chartered Bank believes the PBoC "will get even more aggressive from now on." Meanwhile, the Bank of Japan voted unanimously to keep its benchmark rate unchanged at 0.5%. The BoJ also lowered its assessment of the economy for the first time in three years, making a near-term rate hike increasingly unlikely. This was the BoJ's first unanimous decision since June. The BoJ has held rates at 0.5% since February. ETFs FXI, GXC and PGJ, as well as closed-end fund CAF, all offer U.S. investors broad exposure to Chinese equities. ETF EWJ and closed-end fund JOF are the most actively traded Japan funds, offering large-cap exposure in the former and featuring smaller-caps in the latter.

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