Posts from Thursday Jun 3 2010

South Korea to seek G-20 support for bank levy

South Korea will use this weekend’s meeting of G20 finance ministers to enlist support for an international levy on bank transactions, the WSJ reported. According to the newspaper: “South Korea Finance Minister Yoon Jeung-hyun…will argue the tax should also be framed as a way to slow the rapid flow of capital that caused excessive currency fluctuations here and in other small but important economies during the past two years.”

Australia raises minimum wage

Australia’s new independent workplace-relations tribunal will raise the country’s minimum wage by 4.8 per cent to A$569.90 (about US$485) in early July, the WSJ reported, calling the decision “a victory for unions”. The decision raises the wage rate paid to the country’s lowest paid workers to A$15 an hour. It falls just A$1 short of calls by organized labor for a pay rise of A$27 a week, the WSJ said.

Carry traders under pressure

Recent volatility has caused hedge funds and other investors rushing for the exits from strategic “carry trade” or “differentiation trade” bets, according to the FT. Some of the world’s largest macro funds are now counting the cost. Moore Capital’s $14bn macro fund, for example, saw its Moore global fund lose 7.7 % over the first three weeks in May. Many Asian-focused managers suffered even larger losses.

UK and US call for bank transparency

The health of European banks appears set to dominate this weekend’s meeting of finance ministers from the world’s leading economies, with the UK and the US on Wednesday calling for greater disclosure of their financial conditions, the FT said. Markets have become particularly concerned about the impact a Greek default could have on the eurozone banks that hold its debt – and on the knock-on effect for the debt sustainability of larger countries such as Spain.

UK crackdown likely after JPMorgan fine

The record £33.3m fine imposed on JPMorgan for failing to keep billions of dollars of client money in separate accounts underscores an industry-wide problem has embarrassed UK regulators. The FT, citing people familiar with the matter, said several more enforcement cases are expected in the next few weeks. Those fines are also likely to be substantial, although smaller than JPMorgan’s penalty because the amount of client money is smaller.

Visa in clash over China payments

Visa has told banks they must stop using the payment system of Chinese state-backed China UnionPay to process international transactions for co-branded Visa and UnionPay credit cards, as required by operating regulations, the FT reported. If banks did not comply with Visa’s request, the card company said it would start to charge penalties from August 1. China UnionPay replied: “Neither side has the right to unilaterally restrict cardholders’ options for overseas payment channels.”

Food inflation fears on rise

The rising cost of meat, dairy products and vegetable oils will increase the world’s food import bill by 11.5 per cent in 2010, according to the UN’s Food and Agriculture Organisation, further stoking fears of rising food inflation in emerging countries. In its forecast about this year’s food import bill, the FAO said the cost of imported foods would hit $921bn, topping the record of $1,015bn in 2008, the FT reported.

End looms for era of cheap Chinese labour

Factory wages in China are rising: 30 per cent in the case of the Foxconn workers and a 24 per cent offer at the Honda factory. And indications are that recent salary increases symbolise a broader shift in favour of labour that is likely to carry on for a number of years, the FT said. Rising wages and salaries reflect powerful demographic shifts resulting from the three-decade old one child policy, and a potentially significant move toward more consumer consumption.

BP launches fresh attempt to halt spill

BP on Thursday took the first step in its plan to capture the oil pouring from its leaking Macondo well in the Gulf of Mexico, using powerful hydraulic shears to cut off broken pipes from the valves on the sea bed, the FT said. The latest attempt to contain the spill came as both Fitch and Moody’s cut their ratings on the energy group. For comprehensive coverage of the Macondo disaster, see the FT’s Energy Source blog.

Unusual economic indicators, Brazilian plastic surgery edition

Hollywood cheered when the Obama administration’s proposed ‘botox tax‘ didn’t make it into the final version of the mammoth health care reform bill. On the other hand, those seeking a year-round golden glow may have been irked that a 10 per cent tax on tans delivered via tanning bed comes into force on July 1.

If they’re really, really irked, perhaps they should move to Brazil. The LatAm powerhouse has decided to treat cosmetic procedures as tax deductible. Read more

CDS report: It’s the economy, stupid

Risk aversion receded today as European credit continued to take its cues from US stock markets. A strong finish to the session yesterday had the predictable effect of compressing European credit spreads at the open. The Markit iTraxx Europe was trading at 118bp (-5.5) first thing this morning and didn’t stray far from this level for most of the day.

Concerns over the peripheral eurozone economies, while still present, have faded into the background this week. A lack of negative headlines around sovereigns has led to a tentative reappraisal of risk. Sovereign debt and a possible contagion through the financial system remains the biggest potential obstacle to a sustained rally. That sovereign spreads are still at historically wide levels – the Markit iTraxx SovX WE is at 152.5bp, double the levels in mid-March – serves as a reminder that the risk is still high. But the hysteria has subsided somewhat and given the markets room to focus on other matters. Read more

Dubai: It’s a ‘frontier market’ for a reason

Dubai has aggressively positioned itself as an international financial center and a destination for capital. But recent events – like the Nakheel restructuring and a long-running probe into financial misconduct in its property sector, suggest it’s quite some way from shedding its frontier market trappings, FT Alphaville writes.  Read more

The fate of the euro is in your hands

Want to forecast the future of the eurozone? There’s an App for that.

(Not really — but close.) Read more

Mining super-tax rage (Part II): The dark and the light side

Continued from Part I: Xstrata on warpath.

Amid the howls of pain from miners over Australia’s proposed 40 per cent resources ‘super profits’ tax — the latest manifestation being Thursday’s outburst from Xstrata’s combative CEO Mick Davis — come some more sobering figures. Read more

FSA fines JP Morgan record £33.2m

On Thursday, Britain’s Financial Services Authority whacked JP Morgan for failing to segregate client money during the merger with Chase — resulting in what regulators trumpeted as the FSA’s ‘largest ever’ fine at £33.32m.

Something to shout about when the government is about to abolish you, we guess. Read more

Markets Live transcript 3 Jun 2010

Live markets commentary from 

Thursday payrolla

What’s this?

A sudden rash of market optimism?
 Read more

Bourses take lead from Wall Street’s gains

The US consumer has ridden to the rescue of floundering markets, wrenching investors from the grasp of economic pessimism, according to the FT’s rolling global markets overview. The FTSE All-World index is up 1.4 per cent, commodities are in fine fettle and the euro is higher as traders favour increasing their exposure to chancier plays. US equity futures are up 0.5 per cent.

Talk of takeover swirls around BP

When a whale is wounded, it does not take long for the sharks to circle, the FT says. With BP floundering in the Gulf of Mexico, the market has been abuzz with talk of a takeover of the British oil major. With its share price in the doldrums, this is a better time to launch an affordable bid than for decades. BP might meanwhile have to sell some of its most-valued US assets to pay its Gulf bills, Bloomberg reports. Fitch also cut the energy giant’s credit rating to AA from AA+ on Thursday, FT Alphaville adds.

BP downgraded to AA from AA+ by Fitch (updated)

The first of many to come? The outlook would suggest so, after Fitch cut BP’s credit rating in response to its Deepwater spill dilemmas on Thursday — watch negative.

As Fitch’s release suggests, it’s a further headache for BP: Read more

G20 bank levy deal unlikely

General principles in favour of making banks pay for their own bailouts, rather than specific global taxes, will frame the weekend’s G20 financial summit, Reuters reports. Treasury Secretary Tim Geithner will nevertheless press for greater transparency in banking, according to the NYT — a demand backed by the UK, the FT says.

Lawmakers move to toughen ‘Volcker rule’

Congressional negotiators are moving to toughen financial reform legislation, raising the chances that banks will face a strict ban on proprietary trading and a new conflict of interest rule, people involved in the deliberations have told the FT. Twin House and Senate bills will be merged from next week when legislators return from recess.

Wall Street’s hotshot exodus

Hedge funds are on the hunt for star traders as banks cut back their activities in the wake of financial reform, the WSJ reports. Some traders have already jumped. Greg Lippman is among the most high-profile, having left Deutsche Bank to establish Libre Max, a new hedge fund staffed with other Deutsche colleagues. Meanwhile, Blackstone and Citadel are among firms creating seeder platforms for trader-led funds to start.

Tearing flesh off the FSA’s bones

Typical. You launch a regulatory reign of terror so wide-ranging, so baldly inquisitorial, that it would make Robespierre himself blush, and what do you get?

Oblivion. Read more

BP ‘not prepared’ for deep-water spill

BP did not have all the equipment needed to stop the leak from its Macondo well in the Gulf of Mexico in the aftermath of the explosion on an oil rig six weeks ago, the energy giant’s CEO Tim Hayward has told the FT. While BP has come under more pressure in recent days after the Justice Department unveiled civil and criminal probes into the oil spill, the WSJ reveals that officials were wary of making the investigation public.

Mining super-tax rage (Part I): Xstrata on warpath

Xstrata’s chief executive Mick Davis is on the warpath. On Thursday he captured headlines with his threat to scrap $5.4bn in coal and copper projects in Australia, blaming Canberra’s plan to slap a 40 per cent “super profits tax” on mining companies. But the tax has some supporters, as well. See FT Alphaville for an overview. Read more

More on those USD swap lines…

Here’s a timely working paper from the Bank for International Settlements — a big review of liquidity provision during the crisis, including currency swaps, which have been restored amid European debt fears. And it presents evidence that the Fed’s aid to Europe last time may have helped US banks quite a bit, FT Alphaville says. Read more

The loss of central bank credibility, the coming inflation – by MOST

Here’s a big two-finger salute to central bankers, courtesy of Morgan Stanley, writes FT Alphaville — a prediction of a coming crisis of confidence in their ability to handle inflation, should monetary policy remain as loose as it has been. Read more

Further reading

Elsewhere on Thursday,

Knightian uncertainty, explained. Read more

Pink picks

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

Chris Patten: Europe must focus on what works
Start from the top. Over the past half century, the European Union, the world’s largest economy, has been a spectacular success, writes Lord Patten, chancellor of Oxford university, former Conservative party cabinet minister and a former European commissioner. Today, however, Europe’s woes begin with the crisis of confidence in the eurozone – and larger worries are down the road. The sooner Europe focuses on the century that lies ahead rather than on the century in which its institutions were founded and its ideas first formed, the more prosperous, competitive and globally relevant it will be. Read more