Posts from Thursday Jul 9 2009

Lex: Quantitative easing in the UK

The Bank of England is practising the new art of macro-prudentialism by easing off on QE, but this may be only a pause.

It makes sense for the Bank to take a break. The world economy seems to be on the mend. The International Monetary Fund has raised its growth forecasts for next year. Investment bank bonuses are back; so too are 125 per cent mortgages in the UK and the US. Monetary stimulus is still being poured onto the incipient recovery via near-zero interest rates. And many wonder whether QE even really worked. In the UK, 10-year gilt yields remain much the same as before QE began in March, even though the Bank has bought bonds almost as fast as they were minted since then. Read more

CDS report: Indices rebound after US jobless claims tumble

This CDS report was written by Markit’s Gavan Nolan

Credit indices rebounded today following Alcoa’s better than expected results and a positive surprise from US jobless claims figures. The Markit iTraxx Europe index closed at 120.5, nearly 3bp (2.2%) tighter on the day. The Markit iTraxx HiVol and Markit iTraxx Crossover indices both outperformed the main investment grade index, tightening by 3.3% and 2.9% respectively. Read more

Quote of the day, dirty dirty miners edition

Presented without comment, via The Guardian:

Takeover battles are usually about share price performance and profits growth but the tussle between the mining giants Xstrata and Anglo American has taken an unusual turn with a crass, sexist attack on Anglo’s chief executive, Cynthia Carroll. Read more

Bond: ‘History is bunk’

From Tim Bond, BarCap’s thoughtful head of global asset allocation (and an incurable bull, by the looks of things):

Existing data confirms that a sharp improvement in the US labour market is due over the next three months. The June payrolls report, contrary to market perception, was entirely consistent with the recovery story. The return to positive growth, whether in output, profits or employment, is in the process of occurring right now, with the “turning point” covering the June-September period. Historic data is therefore much less meaningful than usual. The current consolidation in the markets is a good opportunity for investors to raise exposure to cyclical assets. Read more

Banc of America talks up Goldman Sachs

China calls for a “more diversified currency system”

On the wires earlier on Thursday (H/T John Kemp):

12:46 09Jul09 RTRS-CHINA AT G8 MEETING SAID SHOULD IMPROVE RESERVE CURRENCY SYSTEM – CHINESE OFFICIAL Read more

Lunch Wrap

On FT Alphaville Thursday morning,

- Quantitative tightening in China. Read more

BoE holds interest rates, leaves QE unchanged

No more QE for you! Not for a while anyway…

12:00 RTRS-BANK OF ENGLAND SAYS LEAVES QE TOTAL UNCHANGED AT 125 BLN STG Read more

Markets live transcript 9 Jul 2009

Live markets commentary from FT.com 

Reserving the euro

Talk of reserve currencies and the possible decline of the dollar’s supremacy has been heated over the past few months, with China and Russia leading the fighting talk. With market-watchers awaiting more mention of the debate at this week’s G8 meeting, it’s refreshing to hear some more sensible words on the issue, specifically on the idea of the euro replacing the dollar as the world’s leading reserve currency.

From RBC’s global currencies team: Read more

Quantitative tightening

From Reuters:

Chinese shorter-term bond and  bill yields soared on Thursday after the central bank resumed  one-year bill sales, that had been suspended for seven months, confirming to traders that monetary policy was being tightened. The central bank auctioned 50 billion yuan ($7.3 billion) of  one-year bills in its regular open market operations at a yield  of 1.5022 percent, above forecasts of around 1.40 percent and  ranged between 1.30 and 1.50 percent. Read more

UnQEasy drama

As the Bank of England is widely expected to keep interest rates at 0.5 per cent today while simultaneously boosting quantitative easing by another £25bn — we thought we’d share this graph:

GS chart of QE Read more

Further reading

Elsewhere on Thursday,

- Who’s looking for Goldman codeRead more

Pink picks

Comment, analysis and other offerings from Thursday’s FT,

 Read more

Snap news

Breaking pre-market news on Thursday,

- Man Group FUM is $43.3bn at June 30, compared with $44bn last year — statementRead more

IMF says world is pulling out of recession

The world economy is starting to pull out of recession, the International Monetary Fund said on Wednesday, marking up its growth forecasts for next year and hinting that it might reduce its estimates for bank losses, the FT reported. “The recovery is coming,” said Olivier Blanchard, IMF chief economist. But he cautioned “it is likely to be a weak recovery” and said policy-makers needed to guard against ongoing economic and financial risks.

Darling’s banking reforms attacked

Alistair Darling’s blueprint for reforming the financial regulatory regime on Wednesday failed to impress the City and drew withering fire from the Conservatives, who vowed to reverse the report’s main proposals should the party win the next election, the FT reported. The City, meanwhile, reacted coolly to the proposals. “This is just a deferral of any decisions until after a general election,” one senior banking executive told the FT.

Switzerland to block UBS record transfer to US

The Swiss government on Wednesday waded into the legal battle between UBS and the US authorities by saying it would forbid the bank from handing over confidential client information, if a crucial court case next week required it, the FT said. Bern warned it might go as far as confiscating the data, should a US court in Miami rule the bank was obliged to transfer the client names requested in a move that mark a major escalation in its war of words with Washington over  demands that UBS hand over names of up to 52,000 US taxpayers holding offshore accounts in Switzerland.

AIG rekindles talks with MetLife over Alico

AIG has rekindled talks with MetLife, its US rival, over the sale of American Life Insurance Company, one of the jewels in its crown, in a move that could help the stricken insurer raise more than $15bn to repay the $80bn it currently owes US taxpayers. The talks over Alico, which has operations in more than 50 countries outside the US, are preliminary and could founder as they did earlier this year when the two sides disagreed on price, the FT reported, citing people close to the situation.

M&S chief defiant amid investor revolt

Marks and Spencer suffered an investor revolt at its annual meeting on Wednesday with a strong shareholder vote in favour of a resolution calling on Sir Stuart Rose to stand down early as chairman. The protest vote underlined the extent of shareholder dissatisfaction with Sir Stuart holding the roles of both chairman and chief executive, the FT said. But Sir Stuart, who shrugged off the stand-off with institutional shareholders to charm the 1,900 mainly private investors present, was defiant. “A win is a win,” he said. “It is broadly 60 per cent in favour of management.”

Sky Capital staff face $140m fraud charges

Six former executives and brokers of Sky Capital, a New York brokerage, have been charged with a $140m transatlantic “boiler-room” fraud that law enforcers say reeled in UK and US investors, the FT said. According to a criminal indictment the individuals, including Sky’s “bad boy” founder and chief executive Ross Mandell, allegedly persuaded investors to buy shares through private placements in two related companies, Sky Capital Holdings and Sky Capital Enterprises, which traded on the LSE’s AIM. The indictment alleges the men used the funds to enrich themselves and to pay commissions to brokers, often disguised as loans or bonuses.

Meriwether’s JWM Partners winds down flagship fund

JWM Partners, the hedge fund set up by John Meriwether after the collapse of his previous outing, Long Term Capital Management, is winding down its operations. The FT, citing people close to the group, said the former superstar Salomon Brothers bond trader would shutter the Relative Value Opportunity II fund – JWM’s flagship – which had a net asset value of about $1.6bn at its peak. The value of the fund has fallen more than 44 per cent since the financial crisis started in September 2007. Meanwhile, Lex wondered: had genius failed, again?

Anglo American shareholders dash Xstrata hopes for merger of equals

Xstrata‘s proposed £40 billion merger with Anglo American has effectively collapsed after Anglo’s shareholders rejected the approach, according to the Times. The newspaper said “investors representing nearly 50 per cent of Anglo’s stock are understood to have rejected the Xstrata proposal, effectively killing it in its present state.” Moreover, “those shareholders that have expressed an opinion on pricing told The Times that they want a premium of between 30 per cent and 50 per cent to complete the deal.”

US Treasury pushes ahead with toxic asset plan

The US Treasury on Wednesday pushed ahead with scaled back plans for public- private partnerships to buy toxic assets, naming nine fund managers and allocating $30bn of public funds, but without securing any further backing from the Federal Reserve, the FT reported. The Federal Deposit Insurance Corporation, meanwhile, said it remained committed to a pilot scheme under which it would provide debt guarantees for funds purchasing housing bubble-era loans, but initially only from failed banks.

Rio employee held on suspicion of spying

Chinese officials have detained Stern Hu, Rio Tinto‘s head of marketing and sales in China and an Australian citizen, on suspicion of espionage and stealing state secrets, a move that could stoke tension between the two countries, the FT said. Mr Hu’s detention comes amid fraught talks over iron ore pricing and follows Anglo-Australian Rio’s recent decision to abandon a plan to sell a $19.5bn stake to Chinalco, the Chinese state-owned mining company. But Stephen Smith, Australia’s foreign minister, ruled out any link between the Mr Hu’s detention and any commercial matters concerning Rio.

Nationwide offers 125% mortgage

Negative equity mortgages are being offered to customers of Nationwide that will allow homeowners once again to borrow more than the value of their intended house purchase, the FT reported. Nationwide has begun offering its customers suffering from negative equity a mortgage that provides up to 125 per cent of a property’s value, should they want to move. The building society is not actively promoting the offer, and does not expect a huge take-up, the FT added.

Overnight markets: Still down in Asia

Japanese equity markets  tumbled for a seventh consecutive session as increasingly uneasy traders fretted that what had looked earlier this year like the green shoots of economic recovery were, in fact, weeds. Sentiment had been dented by Alcoa’s second quarter loss, a result which reflected the continuing decline in global industrial output. Alcoa’s results, reported after the close on Wall Street, triggered concerns other US companies would show similar weakness. The yen hit a near 5-month high against the dollar, rising to 91.81, before weakening in later trade.

Asian markets (Thurs)
04:15 BST
Nikkei down 49.67 (-0.5%) at 9,371.08
Topix down 8.79 (-1.0%) at 879.75
Hang Seng down 147.3 (-0.83%) at 17,573.77 Read more