What's Important in the Financial World (2/1/2012) China’s PMI, Facebook IPO

The proposed merger between NYSE Euronext (NYSE: NYX) and Deutsche Boerse has ended. The EC rejected the plan as anticompetitive. The announcement leaves the two operations each on its own in a world in which exchange mergers have been frequent. The most immediate fallout is that the NYSE will have to compete on its own, both against Nasdaq and a number of global exchanges. It has never been proven entirely that size matters in the exchange industry, but the NYSE is about to find out.

Amazon Takes a Hit

The debate over whether Amazon.com (NASDAQ: AMZN) has made proper decisions about its future, decisions that have taken its margins down, will begin again in earnest now that it has issued its earnings for the past quarter and forecasts for this one. People who believe founder and CEO Jeff Bezos is a genius will support the argument that Amazon must spend all it reasonably can to expand its e-commerce and media businesses. That means high costs of marketing, shipping, and low margins on products, led by its Kindle and Kindle Fire. The market’s immediate reaction to earnings was to drive the stock down 10%. So the consensus reaction to Bezos’s plans is currently negative.

Chinese Manufacturing

China’s PMI for January was 50.5, which indicates modest expansion. This follows several months during which the direction of its manufacturing sector has been unclear. The trouble with the Chinese numbers is either that they are unreliable or China’s factory production has faltered — at least compared to the robust periods of three years ago. What may be more telling than the Chinese statistics is the demand for its exports in many of the troubled EU nations. No amount of stimulus that the People’s Republic can set, or level of demand from emerging markets and the U.S., can offset the EU problem.

Facebook to Raise $5B

IFR reports that the Facebook IPO documents will be released soon. The amount the social network firm plans to raise is $5 billion. Rumors have been that the figure would be closer to $10 billion. It is not clear what the lower amount means. Either Facebook does not need a great deal of capital for expansion, and current shareholders want to keep dilution low, or Facebook’s bankers do not think the market will support a valuation that might be as high as $100 billion — particularly if Facebook’s numbers and forecasts are below expectations.

Douglas A. McIntyre