90 seconds at 9 am: Big shadow

90 seconds at 9 am: US fiscal negotiations cast a big shadow; confusion of who regulates banks in the eurozone; enormous stimulus expected in Japan; NZ$1 = US$0.844, TWI = 75.2

18th Dec 12, 8:44am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the world is waiting nervously for fiscal cliff deal in the US.

There are a few signs of movement - the Republicans said they would agree to higher tax rates for people earning more than US$1 mln per year, an offer rejected by the White House - and investor sentiment is anticipating a positive outcome.

Obama and Boehner huddled at the White House yesterday as the pace quickened in negotiations, and both sides have their own political reasons to get something agreed before January.

But it is casting a big shadow over the US and international business scene.

In Europe, a somewhat unexpected clash is looming between the ECB and Germany. The recent bank reform was thought to give regulatory powers to just the largest EU banks, but Mario Draghi believes he now "ultimately" regulates all 6,000 of them.

In Japan, the magnitude of the Liberal Democratic Party’s win in the weekend elections smoothes the path for fiscal stimulus in early 2013 as incoming Prime Minister Abe moves to end the economy’s contraction.

Markets are expecting an enormous extra stimulus announcement, but given the Japnaese track record in these things, markets actually have a low expectation for real change.

The big news today will be the local news. We get the latest update on the current account at 10:45 am, and the Government will give its half year economic and fiscal update at 12:30 pm. Both have the potential to move markets, expecially the currency.

The NZ$ starts today at 84.4 USc and 80.1 AUc, and the TWI is at 75.2.

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1 Comments

by Gareth Vaughan | 18th Dec 12, 9:43am 1355777008

Even after selling Trade Me Fairfax's credit rating remains junk -

BULLETIN: Fairfax Media Ltd. Ratings Unaffected By Sale Of Trade Me

SYDNEY (Standard & Poor's) Dec. 17, 2012--Standard & Poor's Ratings Services said today that its ratings and outlook on Fairfax Media Ltd. (BB+/Negative/--) were not immediately affected by the company's announcement that it will sell its 51% ownership in New Zealand-based Trade Me Group Ltd. (Trade Me; not rated). Fairfax expects to receive gross sales proceeds of A$616 million, which will be applied to reduce debt.

Although the sale will facilitate a material reduction in the group's debt levels and improve liquidity, rating stability remains reliant on Fairfax successfully addressing the key structural challenges in its core publishing operations. This will be critical to maintaining our "fair" business risk profile assessment on the group, particularly given Trade Me represented an attractive and high growth part of the group's operations. In this regard, key factors for assessing the group's success in addressing these structural challenges will include the introduction of an effective online pay model for its metropolitan mastheads, together with reducing the cost base of its structurally declining metropolitan print operations in a timely and effective manner.

As a result of the potential Trade Me sale, we have revised our forecast EBITDA (from continuing operations) for year ending June 30, 2013, to A$315 million-A$335 million, from A$410 million-A$430 million. We believe if Fairfax can effectively execute its cost reduction programs, and revenue in its metro newspaper business does not fall rapidly, it will continue to generate sufficient free-operating cash flow (after capital expenditure) to maintain fully adjusted debt to EBITDA (from continuing operations) of about 2x in the next two years. We consider these financial ratio expectations, together with a fair business risk profile, as consistent with the 'BB+' rating.