The perpetual battle over War Loan

The British government isn’t renowned for its wonderful financial decisions. But among the best must be the consolidations of perpetual bonds between the two world wars. (Other candidates include the purchase of the Ottoman share of the Suez Canal for £4m in 1875 and the £35,000 paid for the Elgin Marbles in 1816.)

But you’d never guess this from reading Friday’s press release from Chancellor George Osborne when he announced that one of the smaller perpetual bonds would be repaid. Here’s what Mr Osborne said: Read more

US wage and salary growth inching up, still very slowly

The third quarter was the second straight three-month period showing a favourable trend for US nominal wage and salary growth, though a lot more acceleration is needed before it’s anything to celebrate:

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Your extended Abe put

Earlier on Friday, we noted that one of the most interesting things coming out of Japan on the day was the rumour that the government was about to approve new allocation targets for the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF), which would increase its exposure to domestic stocks.

That rumour has now been confirmed.

As Richard Kaye, portfolio manager at the Comgest Growth Japan fund noted, in terms of importance, this far outweighs the BoJ’s decision to raise the monetary base by around Y80tn a year from Y60-70tn and to triple annual purchases of ETFs and REITS. Read more

Why banking got out of control in the digital age

Could the real cause of today’s financial malaise have less to do with greedy bankers, bad regulation and poor monetary policy, and more to do with the effects of the information technology age on banking?

That at least is the argument proposed in a new book, “The end of banking – money, credit and the digital revolution” by Jonathan McMillan, a collective pseudonym for two authors who are keeping their identities secret, but who hail from the world of banking and academia.

Not to say the financial system was free of instability before the IT age, it’s just that the way in which the instability was dealt with was entirely different. Read more

Markets Live: Friday, 31st October, 2014

Live markets commentary from FT.com 

QE, who needs ya? No, don’t answer that

A farewell to QE (of sorts) from Michael Hartnett et al at BofAML:

A recent US Treasury paper calculated that between Jan’09 and Apr’13 the S&P500 index rose 570 points in the weeks the Fed bought $5bn or more securities, 141 points in the weeks it bought up to $5bn, and fell 51 points in the weeks the Fed sold securities.

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The (early) Lunch Wrap

Russian Central Bank raises rates || BoJ stuns investors by expanding monetary easing programme || RBS makes £400m provision for forex probe || UK to repay part of perpetual WWI loans || Poll predicts Scottish wipeout for Labour in general election || SuperGroup rejects discounting despite profit warning || Hungary abandons controversial internet tax plan || Markets Read more

Further reading

Elsewhere on Friday,

- In Kobani, for the first time, Isis was fighting an enemy that in important respects resembled itself.

- The next financial crisis will be different.

- Give me some crowding-out.  Read more

Your Abe put [updated]

Since we can’t put charts in the Cut without borking format for a bunch of readers, here’s what a surprise commitment from the Bank of Japan to raising the monetary base by around Y80tn a year from Y60-70tn, a tripling of annual purchases of ETFs and REITS, and a certain (probably coordinated) GPIF rumour doing the rounds will do to Japanese equities and the yen.

More on the GPIF rumour and the positive and negatives of this latest Kuroda splurge near the bottom.

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The 6am London Cut

Markets: “Japanese stocks jumped and the yen skidded to six-year lows against the dollar on Friday after the Bank of Japan surprised markets with fresh easing steps – a move aimed at stoking inflation and recharging a fragile economic recovery. The Nikkei stock average rallied [4.5 per cent at pixel with the yen threatening 110 against the dollar] after Japan’s central bank said it would purchase more shares of exchange-traded funds and real estate investment trusts, and extend the duration of its portfolio of Japanese government bonds, to “pre-empt manifestation” of risks.” (ReutersRead more

Quantitative pleasing

With the end of QE, just a quick chart to reiterate that central bank bond buying doesn’t work the way one might expect.

Far from reducing bond yields, when the Federal Reserve buys bonds, it tends to make yields go up. Equally, when it stops – or says it will stop, or tapers – the yield goes down. Read more

Why didn’t QE3 raise inflation expectations?

The Fed’s balance sheet is no longer in expansion mode, which means it’s time for post-mortems of the most recent asset purchase programme. (Our colleague John Authers has a very good round-up of what did and didn’t happen since QE3 began.)

We want to focus on the fact that the most recent round of bond-buying seemed to have no inflationary impact. If anything, an observer of the data who had no preconceptions about monetary policy operations would conclude that QE3 was disinflationary. Alphaville writers have been exploring this possibility for years (though without firm conclusions).

Let’s start by looking at the changes in actual inflation since the start of 2010. Read more

Someone’s in rouble now

С начала года ЦБ для поддержания курса рубля потратил $68 млрд. Полторы Олимпиады улетело в пустоту.

— Alexey Navalny (@navalny) October 30, 2014 Read more

Markets Live: Thursday, 30th October, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning New York,

ALPHAVILLE Read more

Affordable housing and the legit big-city whinge

When city-dwellers moan about their high cost of living, they often elicit the unsympathetic retort that they should shut up and praise the ghost of Jane Jacobs for the cultural vibrancy of their neighborhoods, the lucrative jobs, and the artisanal pizza.

Living in a great city is a consumption good, you whinging ninnies — you SHOULD have to pay for it! Why do you think you’re entitled to live wherever you want?
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BoJ: you know we said “about” two years, right?

The Bank of Japan has bought bonds, bills, stocks and property since embarking on its radical monetary easing programme last April.

Now it’s buying time. Read more

Further reading

Elsewhere on Thursday,

- There will never be a time when you – the retail investor – are the first to read, understand and react to a news story. Redux.

- AND high-speed traders avoid low-speed website.

- Remembering the suits vs geeks divide.

- “Three recent breakthroughs have unleashed the long-awaited arrival of artificial intelligence…”  Read more

The 6am London Cut

Markets: Asian equities were mixed after the Federal Reserve confirmed it would end the asset purchases that have supported economies across the region for half a decade. The moves came ahead of gross domestic product data due out later on Thursday that are expected to show the US economy grew 3 per cent in the July-September period from the second quarter, according to a Bloomberg survey. But concerns about capital outflows from emerging economies now that the Fed has stopped pumping liquidity into the global financial system weighed on some Asian markets. The US dollar staged its third day of gains against the yen, rising as much as 0.3 per cent to Y109.1. (FT’s Global Markets OverviewRead more

Video: LSAPs RIP

We had a chat with the FT’s US markets editor Mike MacKenzie about Wednesday’s FOMC statement. There were masks:

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The Closer

FURTHER FURTHER READING Read more

Highlights from the FOMC statement, 29 October 2014

Full text here. The highlights:

– Large scale asset purchases have ended, as expected (though remember that the Fed is still reinvesting the principal on MBS and rolling over maturing treasuries). Read more

Bankers and borrowers disagree about European housing

The European Central Bank’s latest quarterly bank lending survey shows that lending standards are getting looser and that demand for credit is rising. Lorcan Roche Kelly of Agenda Research summarised the main findings with this handy chart:

Negative numbers for the orange-ish lines mean that lending standards have loosened (slightly), meaning credit is easier to get. Positive numbers for the green and blue lines mean that demand for loans is increasing. Overall the supply of loans is still shrinking, but not as fast as it was in recent years and loan growth could even return by the end of 2015 if current trends hold up. That said, we can’t help but note the large difference visible in the chart between loans to households (orange and beige) and loans to businesses (red). Read more

So Tesco stock surges on confirmation of SFO probe…

We guess this is the regulatory version of those occasions where a self-regarding company chairman or chief executive announces their retirement, only to watch the company’s share price rise in relief.

From Tesco on Wednesday afternoon, following a report on KleinmanwireRead more

This is what $22bn looks like

Along with the Facebook results on Monday, there was another SEC filing.

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Markets Live: Wednesday, 29th October, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Fed’s grand experiment draws to a close || Sanofi board ousts chief executive Chris Viehbacher || Legal costs drag Deutsche Bank to third-quarter loss || Norway’s oil fund hit by European stocks || Mortgage data show UK housing market cooling || Inflated exports cast doubt on Chinese trade outlook || Wall Street is sceptical of Facebook’s plans to pour money into products || Markets Read more

This is not the iron price. When’s the crash?

Some semiotics. This is what Americans call a cast iron skillet.

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This is BABA, what’s your target price? [updated]

First on Alibaba, the FT reports that the Cayman registered derivative contract vaguely related to ecommerce in China — and which floated on Sept 19 the same day the S&P 500 peaked — has almost broken into the list of the world’s 10 most valuable companies:

Shares of Jack Ma’s Hangzhou-based group climbed as much as 2.8 per cent to touch a new record high of $100.50, lifting its market capitalisation above $247bn. Read more

Further reading

Elsewhere on Wednesday,

- Facts and myths about bank leverage ratios.

- But really, are we sure the world’s greatest counterfeiter would have been caught?

- In which Matt Levine and the Streetwise Prof hug and blush a little.

- Rational regret is a real issue. Read more