Posts from Wednesday Jun 23 2010

Gloom lingers as weak Wall St sets tone

The general market gloom continued on Wednesday, with weak US housing figures once again setting the global tone, the FT said. New home sales in the US reported a record drop in May – following the end of a government housing credit – to a record low of just 300,000 sales, or a 33 per cent drop-off from April to May. The FTSE All-World stock index closed down 0.5 per cent, its second day of declines following a string of 10 consecutive daily gains.

China’s AgBank aims for $13bn listing

Agricultural Bank of China on Wednesday nightmoved closer to launching the world’s biggest IPO when it set a price range for the shares it plans to sell to international investors in Hong Kong, the FT says. Chinese media were reporting that the price range for the 22.2bn shares it plans to sell in Shanghai would be Rmb2.60-Rmb2.70. Analysts say the bank, considered to be the weakest of the country’s big lenders, might have to settle for a price towards the lower end of the range.

Nissan’s Ghosn tops Japan pay league

Nissan’s Carlos Ghosn has taken top spot on a list of Japan’s best-paid executives after the carmaker revealed it paid its Brazil-born chief executive Y890m ($9.9m) last year, the FT reported. Among leaders of well-known companies that have revealed managers’ pay so far, the highest compensated boss has been Susumo Kato of Sumitomo, the trading house, at Y186m.

Riot police end Bangladesh labour strife

Hundreds of Bangladeshi garment factories supplying western buyers such as Walmart and H&M  gradually reopened on Wednesday, after days of violent protests by tens of thousands of labourers demanding higher wages. Economists say the unrest highlights how pressure for higher wages is not just confined to China, and is likely to spread to other cheap Asian manufacturing bases like Vietnam, raising inflationary pressure in the global economy, the FT reported.

Executives resign at Shinsei over pay

Four foreign executives at Shinsei resigned on Wednesday amid pressure from regulators over their pay levels after the partly state-owned Japanese bank posted two straight annual losses, the FT reported. The four who stepped down included the bank’s CFO, Rahul Gupta, and Sang-Ho Sohn, head of institutional banking. The resignations come amid intense scrutiny of pay in Japan.

Japan’s new finance minister vows honesty

Yoshihiko Noda, Japan’s new finance minister, told the FT that nine months in government have taught the DPJ that it must be straight with voters – even with an important election for the Diet’s upper house just weeks away. “I want to work to win the confidence of the market and to demonstrate Japan’s determination to meet its responsibilities to the world economy,” he added.

BP removes cap from Gulf of Mexico well

A discharge of liquid and gases forced BP to remove the containment cap that for three weeks had been able to capture a large portion of the oil gushing from its damaged Gulf of Mexico well, the NY Times reports. Live video from the seafloor showed oil and gas storming out of the well unrestricted, the newspaper said. Separately, the Wall Street Journal reports that based its plans for responding to a big Gulf of Mexico oil spill on faulty US government data.

Fed says economic recovery ‘proceeding’

The Federal Reserve kept US monetary policy frozen on Wednesday as it awaits a clear outcome to the fiscal crisis in Europe. The federal funds rate will remain in its current range of 0 to 0.25 per cent and the Fed’s open market committee repeated its statement that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period”, the FT reports.

Rudd faces leadership vote in parliament

The political future of Kevin Rudd, Australia’s PM, was hanging by a thread after power brokers in his Labour government forced a challenge to his leadership, the FT said. Rudd will face off against his deputy Julia Gillard in a vote of the parliamentary Labour party on Thursday morning. Momentum is shifting firmly against retaining him as the leader. Rudd has been hurt by a backlash led by mining companies over the government’s decision to impose a superprofits tax on the resources sector.

Fed holds rates; says recovery proceeding at a ‘moderate pace’

Statement out from the Federal Open Market Committee on Wednesday, emphasis FT Alphaville’s:

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

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Wall Street’s illustrious PCF club (Updated)

It used to be that only warm and fuzzy things were said about ETFs, FT Alphaville says.
But ever since the ‘flash crash’, the products have zoomed into the public eye and not necessarily in a good way. We delve deeper into how ETFs were affected by the market fall — and assess how transparent they really are. Read more

A US new home sales no-brainer

So much for a pick-up in the US housing market.

The latest figures from the US Commerce Department on Wednesday showed sales of new homes plunging by 33 per cent in May, to a record low.  Read more

Political risk, Aussie rules

Those are the London shares of Rio Tinto, BHP Billiton and Xstrata. Read more

Drowning in euros

Sovereign debt worries are lapping around eurozone governments’ feet, European banks are facing a liquidity chasm, and economic confidence is treading water.

But can a sea of devalued euros save Europe? Read more

Getting around the UK bank levy, by UBS

UBS might expect Tuesday’s UK Budget bank levy to trim up to 8 per cent of normalised bank earnings, but it also thinks the tax’s net impact to be reduced by some clever, err, ‘balance sheet management.’

Fresh from the Swiss bank — this note: Read more

Chinese floating exchange rate? There’s an ETF for that

Call the global ETF industry what you want, but you can’t deny that they’re not quick to react to changing investor demands.

Not even a week since news broke that China would consider some flexibility in its exchange rate, and ETF Securities has already announced “emerging market Currency ETCs”. What’s that? See FT Alphaville for more. Read more

Markets Live transcript 23 Jun 2010

Live markets commentary from 

Portrait of an oil company in distress

It was widely reported that Tony Hayward, the chief executive of BP, was a prominent no-show at this week’s World National Oil Companies Congress, which was being held in London.

Steve Westwell, the company’s chief of staff, stepped in at the last minute to deliver the prepared rhetoric — although even his BP Solar heritage didn’t stop Greenpeace protesters from heckling him downRead more

Flight to safety? Follow the US Treasuries

Here’s an interesting data point from the US Treasury market overnight.

Some $40bn of two-year notes were sold at a record low yield of 0.789 per cent on Tuesday, with a bid to cover ratio of 3.45 — the highest since October 2009, according to Bloomberg — and direct bidders at a record-breaking 15.1 per cent. Read more

Auto dealers gain from financial reform, while banks wait

Auto dealers will escape oversight by the new consumer protection agency being set up by the House-Senate financial reform bill now in conference, Reuters reports. Banks are meanwhile close to finding out how limits on their proprietary trading will be resolved, as legislators meet to discuss the issue on Wednesday. Consumer protection will be a key focus when the reforms are passed on Thursday, with some Republican opposition to the new agency, the FT adds.

BP’s Dudley takes over spill response

Robert Dudley, a former contender for BP’s CEO post, will take over the company’s response to the Gulf of Mexico spill from current chief Tony Hayward on Wednesday, the NYT reports. Dudley is used to crisis: he was expelled from Russia in 2008 over a feud with authorities in a joint venture in the country. Business goes on for BP beyond the Gulf spill, the WSJ adds, as it competes with Chevron in bidding for an exploration block in the South China Sea.

A split Sentance, UK monetary policy dissent

The first to break ranks among the UK’s Monetary Policy Committee is one Andrew Sentance.

From the Bank of England’s just-released MPC meeting minutesRead more

Petrobras puts off $25bn share issue

Latin America’s biggest company by market value will delay one of the largest share issues in history until September, FT Beyond Brics reports, as the Brazilian energy giant Petrobras faces down shareholder fears over capital spending and regulatory risk after the Gulf of Mexico spill. Failure to set pricing in a deal to buy government oil reserves has also scuttled Petrobras’ plans, Bloomberg adds.

Bank taxes gain momentum worldwide

A joint statement by Britain, France and Germany on coordinating levies on their banking systems has galvanised moves to set up similar taxes elsewhere, the WSJ reports. The three governments will press more countries to follow suit at the G20 summit this weekend, after Britain announced a $3bn levy in its austerity budget on Tuesday. UK bank stocks fell in London on Wednesday as investors weighed up the announcement, according to the FT.

Ocado or Battersea Power Station

Here’s some unexpected fallout from the credit crunch – Battersea Power Station is to be listed.

The heavily indebted owner of the derelict site, Real Estate Investment Opportunities, has agreed to seek a long term equity partner and spin off the development in return for new banking facilities from its lenders — HBOS (who else) and NAMA (previously Bank of Ireland). Read more

Gilt trip

With time to read through Tuesday’s British austerity Budget, it looked like the gilt market was happy with the government’s fiscal plans, after all:

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July 1 could be the day liquidity dies

Remember July 1, FT Alphaville says — for this is the day the European Central Bank will end its Long Term Refinancing Operation for the continent’s banks. It could also be the day that we start to see three-month dollar Libor rising in response, even with the ECB switching to three-month operations instead. How fast could Libor rise? We only have to wait seven days to find out. Read more

My junk bond is better than your sovereign bond

Fitch has an interesting report out on the ‘extreme credit cycle’ taking place in junk bonds, FT Alphaville writes — and extreme is the word. Default rates have collapsed — aided in no small part by an explosion in issuance. Low interest rates set by governments have sent investors flocking to junk over sovereigns. How ironic. Read more

Further reading

Elsewhere on Wednesday,

Visualising the UK budget.
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Pink picks – UK Budget special

Comment, analysis and other offerings from Wednesday’s FT — including special commentary on Britain’s austerity Budget,

Martin Wolf: A bloodbath none were prepared for
Fortune favours the brave, or so George Osborne, the new chancellor of the exchequer, and the coalition government must hope, the FT columnist writes. For brave he has surely been. He has announced a dramatic fiscal tightening, though the gory details are to be revealed in the spending review to be completed by October. Yet what he has already outlined is a savage Budget. Perhaps only such a young government – in age and in time in office – would gamble so much on such a fast adjustment, so early in its life. Read more