Posts from Thursday Jul 30 2009

CDS report: Strong earnings inspire confidence

This CDS report was written by Markit’s Gavan Nolan
Credit experienced once of its strongest sessions for some time today as the earnings season continued to provide evidence of a recovering corporate sector. The Markit iTraxx Europe index closed at 87.5bp, nearly 7bp (7.1%) tighter than yesterday’s close. The Markit iTraxx HiVol index did even better, tightening 15bp (8.2%) to close at 163bp, while the Markit iTaxx Crossover was no slouch, closing at 619bp (-35bp, 5.4%).

The rally outpaced equities, where benchmark indices hit new highs for the year. Unsurprisingly, defensive credits lagged cyclical names. Utilities such as GDF Suez, E.ON and Centrica were among the few names to widen. Most other sectors enjoyed significant gains, with several firms posting relatively strong results. Read more

Lex: UK house prices

Positive signs from the UK housing market do not translate into a recovery.

It would be remarkable if the British housing market really had stabilised, given that the economy is some six months into the steepest recession experienced since World War II. Another possibility is that house prices have merely found a resting ledge on the way down. Affordability for most first time buyers is still out of reach. It is true that at around 30 per cent of disposable income, mortgage repayments are near their 40-year average. But that is thanks to low mortgage rates. Assume average long-run mortgage rates, and payments would chew up some 40 per cent of incomes.

 Read more

Quick! We’re supposed to be regulating this energy stuff…

Our heart goes out to the FSA, who seem to have been caught rather off-guard by the outbreak of regulatory zeal in the US, where the CFTC is promising to run oil speculators out of town – or at least be seen to run the speculators out of town.

Britain’s financial regulator has now called a snap meeting with major oil companies, banks, hedge funds and oil brokers to review regulation in  the oil and commodity markets – set for August 5. Read more

ETF blowup continues

UBS’s decision to suspend purchases of its leveraged and inverse ETFs on Monday came, we understand, largely on the advice of industry regulator Finra who in June stated :

“…inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold themfor longer than one trading session, particularly in volatile markets.”

 Read more

Lunch Wrap

On FT Alphaville Thursday morning,

Barclays and the monoline minuet. Read more

Gross v Bond, or Pimco v BarCap: The debate flares

Much debate in the blogosphere on Thursday about “Pimco versus Barclays” – or rather, “Bill Gross v Tim Bond” following the FT’s publication of a distinctly bullish piece by Tim Bond, head of asset allocation at Barclays Capital, and Pimco’s release this week of managing director Bill Gross’s latest investment outlook.

As blogger Tom Lindmark observes on ButThenWhat:

You couldn’t find a more divergent view of the future of the US economy than those offered up today by Bill Gross of Pimco and Tim Bond from Barclays. Gross is not deviating from his persistent call of chronic low growth while Bond says we have it all wrong, a boom is coming.

 Read more

Markets live transcript 30 Jul 2009

Live markets commentary from 

Barclays and the monoline minuet

Remember Barclays’ monoline exposure?

Here’s an update, in a very indirect way, courtesy of Standard & Poor’s. Read more

Statistical arbitrage and the big retail ETF con-fusion

Here’s a funny thing about algorithmic trading. Most of it depends on statistical arbitrage, which in turn depends on volatility to detect price variations to benefit from.

In which case the following abstract from a paper by Andrew Pole, a Managing Director at TIG Advisors, should be noted with interest: Read more

Sanofi’s $4bn Merial acquisition

Deal making is heating up in the world of big pharma, with French drugs group Sanofi-Aventis on Thursday confirming that it is paying Merck $4bn to take control of their animal health joint venture Merial.

The deal values Merial on the basis of three times 2008 sales and 10.2 times 2008 EBIT, Sanofi said. Read more

Callers, tossers and the odds of the flip

Okay, this is what we consider to be a research talking-point.  From two Stanford academics, Persi Diaconis and Susan Holmes, and Richard Montgomery from Santa Cruz, University of California…

Abstract: Read more

The Keystone Press and the latest hoax bid story

There is no $2.2bn bid for Gulf Keystone Petroleum.

Repeat. Read more

PR flashing at ICE

CFTC Commissioner Michael Dunn asked Intercontinental Exchange CEO Jeffrey Sprecher about the practice of high frequency trading on his exchange in Tuesday’s CFTC hearing. Sprecher eagerly replied that “flash trading” did not take place on ICE.

On Wednesday the following press release was issued by ICE to emphasise the point: Read more

The ‘end of the beginning’, according to Bruce

Just as we were all thinking we’d go mad if we heard the term “green shoots” one more time, Lazard’s chief executive Bruce Wasserstein has obligingly come up with a Rumsfeldian phrase (or better still, Churchillian, as readers point out) to describe the promising new phase for markets and corporate earnings.

In discussing Lazard’s solidly respectable Q2 results on Wednesday (net Q2 income of $43.1m – down yoy from $64.6m but way up from a Q1 loss of $29.7m), he said: “We feel it is the end of the beginning of the stabilisation of the financial sector”… Read more

Further reading

Elsewhere on Thursday,

– Fools – this is a V-shaped recoveryRead more

Pink picks

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

 Pink Picks illustration - FTSmaller banks will not make us safer
Josef Ackermann, chief executive of Deutsche Bank, writes: A number of regulatory changes will lead to higher capital requirements, and care should be taken that the aggregate effect does not exceed levels deemed sufficient in the interest of an appropriate balance between stability and the ability of the financial system to raise the funds necessary for global growth. Read more

Snap news

Breaking pre-market news on Thursday,

– Nationwide says July house prices rise 1.3 per cent in July — statementRead more

Microsoft and Yahoo seal deal

Yahoo on Wednesday agreed to hand control of its internet search technology to Microsoft in a deal that fell short of expectations. Yahoo shares slid 12% as analysts expressed doubts about the deal’s financial benefits and long-term impact on Yahoo. For Microsoft, although a comedown from its proposed $48bn acquisition of Yahoo last year, the move would be costly and difficult to implement but could make it a credible rival to Google. However, the deal will face intense antitrust scrutiny. Lex meanwhile is not impressed.

Beige Book suggests recession is easing

The pace of economic decline has moderated or stabilised in most parts of the US, the Fed said on Wednesday, with manufacturing, residential property and even employment showing signs of improvement. According to the Fed’s Beige Book – a regional snapshot of the US economy – overall economic activity has stabilised at a low level since its June report when most regions reported weak or worsening conditions. The report adds to signs that the recession is easing.

NY Fed’s Dudley sees tight credit

William Dudley, president and chief executive of the Federal Reserve Bank of New York, sought to dispel fears of rising inflation on Wednesday while playing down prospects for a speedy US economic recovery. Dudley’s remarks came amid concerns that the expansion of the Fed’s balance sheet, easy monetary policy and aggressive fiscal stimulus would undermine the dollar’s value. He also noted that weak income growth would limit the pace of consumer spending.

Lazard posts $43m Q2 profit

Lazard on Wednesday reported Q2 net income of $43.1m, down from $64.6m in earnings for the same period last year, but up from a loss of $29.7m in the first quarter. The results helped boost the investment bank’s shares by almost 13% to $34.50 in New York. Lazard’s earnings were paced by record revenues of $93.2m in restructuring services, up from $60.9m in the first quarter and $32.7m in the comparable period a year ago.

Trading restores Nomura to Q1 profit

Nomura Holdings has reported its first period in the black since 2007, making a net profit of Y11.4bn ($120m) in the April-June quarter as trading profits surged and rising stock markets boosted its retail brokerage. The strong results will help assuage doubts about Nomura’s purchase of parts of Lehman Brothers. Costs related to absorbing Lehman staff contributed to Nomura’s losses last year, adding to doubts about integrating the two corporate cultures.

UK acquisitions bolster Santander

Santander on Wednesday said it remained on track to match 2008 results as Spain’s largest bank reported a 4 % annual decline in first-half net profits. The lender, the eurozone’s largest, said net profits for the half-year through June were €4.5bn ($6.4bn), compared with €4.7bn last year. The results beat forecasts, sending the shares up in Madrid. However, the year-on-year comparison was distorted by factors including the integration of Alliance & Leicester of the UK, and the deposits and branch network of Bradford & Bingley.

Temasek may seek outside capital

Temasek, the Singapore state investment company, is considering expanding its stakeholder base and for the first time seeking outside investment capital from institutions and the public, Ho Ching, chief executive, said on Wednesday. Ho also acknowledged that Temasek lost more than S$40bn ($27.6bn) in the fiscal year through March. The finance ministry, Temasek’s sole shareholder, said in February that Temasek had lost S$58bn in the eight months to Nov 30, bringing the value of its portfolio to S$127bn. See also Lex and FT Alphaville on Temasek.

Macquarie: Profits lower, outlook up

Macquarie Group on Wednesday warned that first-half profits could fall by about 28% from a year earlier. Nicholas Moore, chief executive, flagged an expected weaker contribution from core investment banking activities – a key driver of earnings growth – but said all businesses except Macquarie Capital had improved their underlying performance in the opening quarter. Macquarie shares closed up nearly 1% as the Australian group underlined its balance sheet strength. See also Lex and FT Alphaville on ‘Teflon’ Mac Bank.

Mittal sees 10% rise in steel demand

Lakshmi Mittal, chairman and main owner of ArcelorMittal, has predicted that world steel demand will pick up by at least 10% next year. In an unusually optimistic forecast, Mittal told the FT that emerging economies were coming out of the downturn “reasonably quickly” and that stimulus spending in the US and Europe was having an impact. ArcelorMittal on Wednesday reported a Q2 net loss of $792m, against a $5.8bn net profit a year ago. Its shares fell 4.4% to €24.20.

Spending drought hits Time Warner

The prolonged global advertising drought hurt Time Warner in the second quarter as steep double-digit declines in online and magazine publishing sales sent the media group’s net profit down 8% to $519m. Revenue fell 9% to $6.8bn. But the one-time largest media company, now pruning its portfolio to focus on TV, movies and print content, appeared better positioned than some rivals. Viacom this week reported losing a third of its profits in the last quarter, while News Corp expects to report a significant loss in operating profit for its fiscal year ending June.

Trustee sues Madoff’s wife for $45m

Ruth Madoff was sued for $44.8m on Wednesday by the trustee seeking to recover money for victims of her husband, disgraced former broker Bernard Madoff. The action by Irving Picard, the court-appointed trustee, is the first against a Madoff family member, all of whom have said they knew nothing of his $65bn “Ponzi” scheme. It follows at least a dozen lawsuits filed by Picard against hedge funds and individuals. Picard has so far recovered about $1bn.

Overnight markets: Mixed

Most Asian stocks declined on Thursday as lower commodities prices dragged down materials producers, overshadowing better-than-expected earnings at Honda and Nissan. Futures on the S&P500 climbed 0.2% after the benchmark dipped 0.5% on Wednesday as a drop in Chinese equities hurt investor sentiment.
Asian markets (Thurs)
04:10 BST
Nikkei up 3.25 (0.03%) at 10,116.49
Topix up 0.23  (0.02%) at 930.59
Hang Seng down 105.07 (-0.52%) at 20,030.43

US markets (Wed)
S&P500 down 4.47 (-0.46%) at 975.15
DJIA down 26.00 (-0.29%) at 9,070.72
Nasdaq down 7.75 (-0.39%) at 1,967.76 Read more