Markets Live: Tuesday, 3rd May, 2016

Live markets commentary from 

Financial backer of wannabe terminal disrupter says terminals will be disrupted

Morgan Stanley is a backer of the bank-led chat project, Symphony, crafted to woo trader talk back to a channel the banks can control.

And here’s a Morgan Stanley built theory of the terminal business:

We view the evolution of the industry in three stages:

Phase 1 (now to 2018): High-Cost, Bundled Products Prevalent: Historically, the network effect has been a gating factor that led participants in the market data terminals industry to keep their existing high-cost terminals. Legacy terminals have comprehensive functionality, so customers only need to purchase one main product. Counterparties purchase the same product, so that business can transact through the terminals (i.e. through chat). Learning of specific shortcuts enhances stickiness. Changes to workflow is typically disruptive, which leads to high retention rates. Examples include Bloomberg and TRI’s Eikon product.

Some current products in the market contain full-functionality, but do not have the network effect (FDS, CapIQ). Customers requiring less frequent interaction with outside parties (i.e. trading) may choose to use these products. The cost of the products is often lower than the premium legacy products with network effects, but remains high given switching costs and bundling of the underlying products.

Phase 2 (2017 – 2019): Facilitating Escape:

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FT Opening Quote

HSBC is the latest bank to see a bite taken out of its profits, Aberdeen’s assets under management are down by £38bn, Just Eat’s takeaway orders are up 41 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Tuesday,

- “’It’s the Burning Man 1%,‘ said Charles, a documentary filmmaker with spikes pierced through his ears and a brainwave meditation startup. ‘It’s curated.’ Eric Schmidt was backstage leaning against a tower of palettes and wearing an ornate top hat and a vest made of mirrors. He said he was at Further Future mostly because these were his friends.”

- Theranos: blame the (Silicon Valley tech) press?

- Preet Bharara, scourge of Wall St, hero of Turkey, lover of PR.

- Oliver Shah’s sweary battle with Philip Green. Read more

FirstFT – Leicester crowned champions, a cancer breakthrough and the curse of the Japanese salaryman

Leicester City claimed a piece of sporting history when they were crowned English Premier League champions for the first time in their 132-year existence Read more

Oh my! Craig Wright’s ‘Keys of Revelation’

As the clairvoyant FT Alphaville said on March 31, Australian Craig Wright has come out to claim he is Satoshi Nakamoto, the pseudonymous creator of Bitcoin both in a personal blog post and in media interviews with The Economist, a former newspaper, blokes’ mag GQ, and the gullible old BBC.

And he chose Monday, May 2 (a Bank holiday in the UK), to do the ‘Big Reveal’, which just happens to coincide with the first day of Consensus, a hullabaloo blockchain event in New York featuring famous self-styled bitcoin/blockchain radicals like Balaji Srinivasan of 21 Inc, Jack Markell, governor of Delaware State, and Larry Summers. (Yes, that Larry Summers.)

As the world’s media now embraces a manufactured ‘Craig Wright media storm’, we should probably add some detail on how this story has developed and we need to look at the evidence thus far presented. Read more

FirstFT – Halliburton and Baker Hughes abandon tie-up, Obama’s comedy calling and the booming popularity of escape rooms

The $28bn deal has been terminated due to regulatory approval challenges Read more

Thought for the weekend

(Bloomberg LP competes with Zero Hedge in providing financial news and information.)

Bloomberg LP Read more

How Greece restructured its debt, and a Jamaican success story

Alphachat is available on Acast, iTunes and StitcherRead more

Decentralised courts and blockchains

In the beginning, there was the promise that blockchain-supported smart-contracts could disintermediate the powers that be and replace them with a self-organising decentralised system where every contract entered into could be depended upon to perform as expected, with risk and costs entirely eliminated.

Furthermore, it was thought, both human and state involvement could be taken out of the process too. Instead, we’d achieve an autonomous financial utopia within which capital flowed from each according to his ability, to each according to his needs — guided only by faceless protocols and algorithms.

Yet, from the beginning, there was an inconvenient truth buried in the promises being made by blockchain advocates. Read more

Markets Live: Friday, 29th April, 2016

Live markets commentary from 

Warren Buffett: A dream deferred

Our colleague Stephen Foley wrote a compelling analysis last year noting how much Warren Buffett’s Berkshire Hathaway Inc had taken advantage of deferred taxes to build its empire:

“In the latest and largest example, Mr Buffett’s Berkshire Hathaway has been able to defer $61.9bn of corporate taxes, the company revealed in its annual report. This figure — about eight years worth of taxes at Berkshire’s current rate — is a reminder that Mr Buffett understands how putting off the moment when taxes are due gives him more money today to invest elsewhere. Read more

Explaining the BoJ’s reticence

You’ll have noticed that the yen and Nikkei were displeased yesterday. Like throw your toys out of the pram because you didn’t get what you wanted displeased. Like one of the worst one day JPY moves in the past decade displeased.

What they didn’t get, and what prompted that tantrum, was any auld bit of easing from the Bank of Japan.

And here are eight potential reasons why the BoJ disappointed, from SocGen: Read more

Further reading

Elsewhere on Friday,

- Zuckerberg gets to control Facebook a while longer.

- ‘Normal America’ is not a small town of white people.

- “Surely no campaign has ever before had a divisive internal fight over whether the candidate should be presidential or not…”

- When Ted Cruz signed a copy of The Communist Manifesto. Read more

US growth slows, Mallya defiant and China’s robot revolution

GDP growth of 0.5 per cent was less than half the rate set in the previous quarter due to tumbling corporate investment and lower exports Read more

Are we over depending on capital gains?

David Levy’s April forecast, by way of Jerome Levy Forecasting Center, presents three notable viewpoints worth sharing this month.

The first is that capital gains are accounting for an increasing share of total investment returns, now making-up probably the majority of them. But, says Levy, it will be challenging to maintain those capital gains from now on.

The second is that whilst there is a popular view that foreign exchange can explain the extreme volatility so for in 2016, this is probably wrong. According to the prevailing view, Davy notes, the stability of the global economy leans heavily on currency stability and especially on a benign set of stable dollar exchange rates. Read more

Markets Live: Thursday, 28th April, 2016

Live markets commentary from 

Today in disappointed markets…

UPDATE: JPY through Y108 as Kuroda says helicopter money is illegal. Of course, definitions matter where that is concerned.

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FT Opening Quote

Five large companies are expected to suffer big executive pay moans from shareholders today, Lloyds’ bank profits are down 46 per cent, WPP’s billings are up 8 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Thursday,

- “Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.”

- Meanwhile in Israel: “If someone is over 18 and wants alcohol, cigarettes, a knife, a binary option account, it’s his own responsibility.”

- Your annotated Fed statement.

- Ant Financial, now valued at $60bn apparently, is confusing. As is its relationship to Alibaba. Sorry, we mean its relationship to the Cayman registered derivative contract vaguely related to ecommerce in China known as Alibaba. Read more

FirstFT – Central banks stand pat, Loeb warns of hedge fund ‘killing field’ and the Silicon Savannah

The yen surged 2 per cent and equities slumped after the Bank of Japan keeps policy on hold Read more

Guest post: Toby Nangle on the end of the “Goldilocks slump”

In this guest post, Toby Nangle, the Global Co-Head of Multi Asset & Head of Asset Allocation, EMEA at Columbia Threadneedle, wonders whether rising wages caused by changes in demography could ultimately end the productivity slump.

Weak productivity growth has puzzled economists and policymakers but it doesn’t seem to have hurt investors: the period 2009-2016 might even be called “the Goldilocks Slump”. Ample slack in job markets ensured little bargaining power for workers, whilst central banks battled deflationary impulses with a combination of low (or negative) rates and asset purchases. The net effect has been falling real yields and tight risk premiums.

But productivity growth does matter. And we are nearing the point where its absence will be of overwhelming importance to financial market investors. Read more

When countries go bankrupt

Alphachat is available on Acast, iTunes and Stitcher.

Going bust is painful. But when you are a country it is particularly awful.

While people and companies have recourse to established legal frameworks that govern their bankruptcies, struggling countries have to tackle debts in what is close to a legal limbo.

As a result, both countries and their creditors are uniquely vulnerable. The former have no formal bankruptcy protection that it can use for an orderly restructuring of its debts, but the latter have few ways to compel a stubborn state to heel (at least in the post-gunboat diplomacy era). The result is a delicate balance — and when it breaks down, it can lead to an unholy mess. Read more

Nice fintech startup you got there, it would be a shame if someone sued it

As bank settlements go, last week’s $2.5m payout from online lender SoFi is pretty small.

The privately-owned nonbank for wealthy millennials, which makes a show of being better than traditional banks, was accused of doing unauthorised credit checks on prospective borrowers that damaged their credit score.

Shawn Heaton, the initial plaintiff in the class action lawsuit, claimed that SoFi had performed a “hard pull”, which shows up on a person’s credit report when applying for loans, when it had told him it would only be doing a “soft pull”, which doesn’t show up. Later, Heaton tried to get a credit card from another lender and was rejected, in part because his credit report showed too many inquiries, one of which was SoFi’s hard pull, according to the initial complaint from November 2014. Read more

Markets Live: Wednesday, 27th April, 2016

Live markets commentary from 

“What if China lands hard?” they asked in 2013

What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing?

The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come.

You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example:

The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP.

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FT Opening Quote

Barclays’ profits are down by a quarter, Steinhoff concedes defeat in the battle for Darty, the BHS blame game is heating up. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Wednesday,

- The “areas hardest hit by trade shocks were much more likely to move to the far right or the far left politically.”

- “No matter how high the tariffs Mr. Trump wants to raise to encircle the American economy, he will not be able to produce a manufacturing renaissance at home.”

- Debt-equity conversion and NPL securitization in China, some advice from the IMF.

- The resilient Chinese consumer is still resilient.

- Nestlé’s Maggi health scare in India was not handled… perfectly. Read more

FirstFT – Apple’s iPhone troubles, Twitter’s tumble and sailing the fiscal seas

Apple’s revenues were down 13 per cent from the same period last year while earnings per share fell 18 per cent Read more

The Prince, the Firm, and the Fund

Because if his Royal Highness the prince wants the world’s largest sovereign wealth fund — then who’s to say no?

As for the Arab and Islamic depth, we have the Qiblah of Muslims. We have Medina. We have a very rich Islamic heritage.

We have great Arab depth. The Arabian Peninsula forms the basis of Arabism. The kingdom constitutes a large part of it. That issue has not been exploited in full.

We have a pioneer investment power at the level of the world. Today, you see that many statements are being made, including statements indicating that the Saudi Sovereign Fund will be the largest fund in the world by far, compared to the other funds.

That will be the main engine for the whole world and not only the region. There will be no investment, movement or development in any region of the world without the vote of the Saudi Sovereign Fund.

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