The (early) Lunch Wrap | FT Alphaville

The (early) Lunch Wrap

Good morning New York…


Don’t be alarmed about China’s balance of payment deficit (yet): Kate takes a closer look at China’s balance of payments deficit in the second quarter — its first such deficit since 1998 — and wonders whether if what it signals is really all that bad?

Flash Gordon’s alive?!
Izzy brings us news that there may be a European angle to the 2010 Flash Crash, after Nanex finds some curious ignition points in Dax futures — all of which happily coincides with Jumping Jack Gordon Brown ringing the opening bell at the NYSE on Tuesday.

The ongoing death of innocence: David tracks the demise of Hornby, via its share price.

The Greek budget shortfall gets bigger: Kate cites a report from Eurointelligence which suggests that the accumulated short-fall the troika is expected to identify in its forthcoming findings could be as big as €30bn.

Carrying liquidity as far as you can: David explores the world of uncovered interest rate parity and carry trades, a.k.a the idea that there should be no free lunch when it comes to interest rates and foreign exchange — but that somehow there often is. Yet, as he notes, carry may not be as much of a driver for FX movements as we first believed, because risk and safe have effects are often more important.


Temasek reconsiders StanChart stake: Singapore investment fund Temasek has sounded out potential buyers for its £6bn stake in Standard Chartered, potentially reigniting talk of a takeover of the emerging markets bank. The fund, which is owned by the Singapore government, had been judging buyer interest for its 18 per cent shareholding in recent months, said people close to the situation. Bankers believe any ambition Temasek might have had to engineer a merger between StanChart and another of its investments, Singaporean bank DBS, has faded, given the complexities and regulatory hostility to big banking mergers, reports the FT. StanChart was down 3.1 per cent in early London trading.

Taiwanese boats enter disputed waters: Dozens of Taiwanese fishing boats accompanied by government vessels on Tuesday challenged Japan’s control of a bitterly contested island group in the East China Sea. Japanese and Taiwanese coast guard vessels sprayed each other with water cannons during the confrontation in territorial waters around the remote and uninhabited Senkaku islands, where tensions have in recent weeks have chilled relations between Tokyo and Beijing. Beijing claims ownership of the islands, which are also claimed by Taiwan. Both China and Taiwan have strongly protested against the Japanese government’s decision to buy three of the islands that it had previously leased from their private Japanese owner, says the FT.

German bank’s Spanish exposures: German banks have the highest exposure in Europe to Spain, at $139.9bn, of which $45.9bn alone is exposure to banks, says the WSJ. Although German banks have largely hedged or disposed of their holdings of Spanish government debt, they remain exposed to Spanish financial institutions, commercial real estate and in other businesses hit by the crisis.

ECB, Bundesbank checking legality of bond-buying programme: The ECB and Germany’s Bundesbank are examining the legality of the ECB’s new bond-buying programme according to Germany’s Bild. The paper “which did not give details of its sources, said ECB and Bundesbank in-house lawyers were checking what scale and duration the programme could reach before breaching EU treaties”, according to Reuters. While the WSJ reports that Angela Merkel’s aides are searching for a way to close any potential Greek funding shortfall without asking German lawmakers for more money as “Merkel is reluctant to ask parliament to vote on measures that are likely to raise fierce opposition from within her own coalition”.

California expands bond issue to $1.75bn: Retail investors accounted for $1.02bn after the issue was expanded with the addition of $200m for institutional investors. California, which has the lowest credit rating of any in the union, set the yield at 2.45 per cent and brought forward pricing by a day, says the FT. California’s bonds have outperformed all but three other states since the start of this year, according to S&P’s returns data.

Google shares at record high: Google’s shares rebounded to a record high as Wall Street shook off some of its lingering fears about whether the company can adapt to the new world of social networking and mobile internet access. Monday’s rise, which lifted the shares $15.39 to close at $749.38, capped a powerful rally that has added 30 per cent, or $75bn, to Google’s stock market value since the middle of July. However, the search company’s shares have still failed to keep up with the Nasdaq Composite since the start of this year, according to the FT.

Bumi probe into use of unit’s funds: The Indonesian coal miner part-owned by financier Nat Rothschild, has launched an internal investigation into alleged financial irregularities at one of its affiliates, underscoring investor anger at the controversial investment group. Ari Hudaya, a close associate of the Bakrie family which is one of Bumi’s largest shareholders, resigned from Bumi’s board hours after Monday’s announcement and the company’s shares closed down 25 per cent after falling 22 per cent on Friday, reports the FT. Shares were up 2 per cent on Tuesday.

RBS managers said to have condoned manipulation of Libor rates: “RBS traders and their managers routinely sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from derivatives bets, according to employees, regulators and lawyers interviewed by Bloomberg News.”

Foxconn’s Hon Hai factory reopens after riot: The Hon Hoi factory reopened without incident on Tuesday after a riot involving 2,000 workers had forced it to close on Monday. The riot left at least 40 people injured and sparked a response by thousands of police but the cause of the riot remains unclear. However, employees said staff brought in from distant locations have been discontent, according to the WSJ.

Foxconn survives on thin slices of Apple: While the FT notes that the company, which survives on gleaning razor-thin profit margins from the vast scale of its operations, is the sole assembler for the iPhone 5 this year, with 80-85 per cent of shipments next year as well, according to analysts at Barclays. At an estimated $8 a phone, that workload brings in revenue, but has also put the company under strain. To handle Apple’s demands, Citi analysts estimate, Hon Hai must increase headcount at its Zhengzhou iPhone factory from 150,000 workers in June to 250,000 in October.

Markets: European stocks are fractionally weaker, as early gains fade following a soft showing in Asia and as global growth concerns continue to crimp underlying central bank engendered bullishness. The FTSE Eurofirst 300 is down 0.1 per cent and US equity futures suggest Wall Street will add 0.1 per cent, while many other gauges that give clues to risk appetite confirm the somewhat mixed market mood. The dollar index is up 0.1 per cent as the euro falls 0.2 per cent to $1.2898, reports the FT’s Global Markets provocateur Jamie Chisholm.