BarCap produced another solid batch of commentary on the potential implications of US financial reform on Friday*, this time on the topic of repo and short-rate markets.
[For any interested, previous missives covered derivatives/central clearing and the resolution authority] Read more
Remember that time we said economists were fractious creatures? Forgive us, we misspoke. They’re *really* fractious creatures.
Exhibit A – Paul Krugman’s blog post of July 2 at 7:47am, and headlined: Read more
A fresh note by Credit Suisse allows us continue our series on the unofficial European bank stress tests being conducted by analysts, ahead of the publication of regulators’ results in mid-July.
Step forward, French banks. Read more
US non-farm payrolls fell 125,000 in June the US Bureau of Labor Statistics said on Friday but private payrolls rose by 83,000 (although this was below the consensus of 110,000).
Key flashes via Reuters: Read more
Live markets commentary from FT.com
We’ve seen CDS curves in Greece, Spain, Portugal — and BP — invert this year.
But before Lehman Brothers collapsed, those kind of CDS curve flattening and inversions (which suggests CDS investors are pricing in a higher chance of default in the short-term) were relatively rare. Before the bank went under, CDS curves had a tendency to steepen in times of stress — mostly because of Leveraged Buy-Out fears, which meant issuing more debt/changing the debt structure. Read more
Based on Thursday’s closing prices IG, a spread betting group, is now bigger than the venerable London Stock Exchange — £1.52bn market cap versus £1.475bn.
The Australian government has scrapped a proposed resources ‘super-tax’ for a more moderate version, removing a cloud of uncertainty over the country’s mining sector, reports the FT. Mining companies had shelved around $186bn of investments in the economy as part of their opposition to the tax, which Australia’s new prime minister Julia Gillard has modified to cover fewer commodities, and to remove retrospectivity.
. . . the latest overseas mining company to seek a home on the London stock market.
This week Russia’s largest gold producer announced a $9bn deal to reverse into its 50.1 per cent-owned subsidiary KazakhGold and create a company big enough to qualify for inclusion in the FTSE 100. Read more
Investors are snapping up residential mortgage bonds backed by the US government amid a flight to safe havens in the global economy, the WSJ reports. Prices on the bonds are near record highs set twenty years ago. The average rate for a 30-year fixed-rate mortgage fell to a low not seen since 1971 this week — but few home-owners are taking advantage of the lower rates in order to refinance, most having done so last year. But mortgage-backed securities remain filled with junk for the most part, FT Alphaville says, pointing to the effects of mortgage-modification programs like Hamp.
Timid “bargain hunting” of riskier assets is under way as traders await important US jobs data and assess the damage from a week battered by fears that global economic growth is slowing, according to the FT’s global markets overview. The euro continued a strong rally on Friday, while US stock futures were flat ahead of the open. Large layoffs from federal Census work may — or may not — mask a private sector recovery, the NYT reports, after performing well in previous months. But a reverse would set a grim tone for the economic policy debate.
Congratulations, markets: Paul the psychic octopus probably has a better handle on the future right now.
That, at any rate, was the implication of Barclays Capital’s European Credit Alpha note on Friday, which invoked Paul — who has successfully, if inexplicably, called every German win in the World Cup — to underline the epistemic uncertainty of 2010’s second half. Read more
France’s largest drugmaker is preparing to make a US acquisition, five people familiar with the matter have told Bloomberg. Sanofi-Aventis’ chief executive Chris Viehbacher has briefed the company’s board, although negotiations are at an early stage, sources said. Sanofi declined to comment on the report.
How relatively little it takes to please miners these days.
A 30 per cent tax on so-called super profits instead of a 40 per cent rate — when there was no suggestion of any ‘super profits’ tax just six months ago. Read more
The biggest surprise of Thursday’s trading session?
The strength of the euro — particularly against the dollar. Read more
Could more bank capital cause another bank crisis? So long as it’s (still) the wrong kind? FT Alphaville wonders if banking reforms are simply shielding bondholders from losses, to the taxpayer’s detriment — suggesting that bank losses in a crisis should fall on bonds and equity alike. Read more
The Economist totally beat us to coming up with a snappy job title for Klaus Regling, the man who took office on July 1 as the chief executive of the European Financial Stability Facility (EFSF).
(Recall: 16 eurozone governments established the EFSF to provide funding guarantees to any member of the single currency who might find itself facing liquidity issues) Read more
Elsewhere on Friday,
– Krugman versus austerity: the war goes on. Read more
Comment, analysis and other offerings from Friday’s FT,
Philip Stephens: Splintered solidarity
Whatever happened to global governance?, asks the FT’s Stephens. The Group of 20 was supposed to answer the question of our times – how do rich and rising nations manage competing and coincident interests in an interdependent world? But the best that the G20 leaders could come up with the other day was polite agreement to disagree. Read more
Breaking pre-market news on Friday,
– BHP Billiton, Rio Tinto, Xstrata welcome revised Australia resource tax — statement. Read more
Google late on Thursday pushed into the online travel world and opened a new front in its battle with Microsoft as it announced a $700m acquisition of travel technology group ITA Software, reports the FT. The deal is among the search company’s biggest acquisitions and could give it influence in a key area of online commerce. Microsoft’s own relative success in travel search could help Google clear the antitrust process, which Google CEO Eric Schmidt said could take a “fair amount of time” but would be likely to go through.
Nikkei 225 up +20.48 (+0.22%) at 9,212
Topix up +2.59 (+0.31%) at 830.98
Hang Seng down -272.89 (-1.36%) at 19,856
S&P 500 down -3.34 (-0.32%) at 1,027
DJIA down -41.49 (-0.42%) at 9,733
Nasdaq down -7.88 (-0.37%) at 2,101 Read more
Julia Gillard, Australia’s new prime minister, has caved in to mining industry demands and watered down the controversial resource super profits tax as she prepares for a national election as early as August, reports the FT. The Gillard government announced key concessions to the mining industry on Friday, ending a two-month fight that damaged her predecessor Kevin Rudd and the Labor party’s re-election chances. Iron ore and coal will now be subject to the new tax at a rate of 30% instead of the originally proposed 40%. The tax will kick in on profits that exceed an approximate 12% rate of return, rather than 6% before. The Australian dollar rose as much as 0.9% against its US counterpart to $0.8511 on the news.
The US government has collected more than $10bn in cash, dividends and securities from its bail-outs of Citigroup, reports the FT. The government’s gains on its Citi investments reached $10.3bn on Thursday after it completed the sale of a second tranche of shares in the group at a profit of about $700m. The latest sale was smaller and less lucrative than the first divestment of government shares, which yielded a $1.3bn profit, but marks another step in the authorities’ drive to end their part-ownership of one of the world’s biggest banks.
Institutional investors have placed bids valued at $50bn for the Hong Kong portion of Agricultural Bank of China’s mammoth dual-listing, indicating that the Chinese state-owned bank could raise as much as $23bn this month in what could be the world’s biggest IPO, reports the FT. Investors have been placing orders across the HK$2.88-HK$3.48 range in which the bank plans to sell 25.4bn shares in Hong Kong. The IPO’s final price will be set on July 6 with the shares due to list in Hong Kong on July 16, a day after Shanghai.
The Dutch government demanded a “cultural change” within the central bank on Tuesday after a report into the collapse last year of DSB, a small retail bank, found that the regulator should not have issued the controversial lender with a banking licence, reports the FT. The criticism adds pressure on central bank president Nout Wellink after the finance ministry asked for a plan to change the bank’s culture within a month. The ministry pledged legislative changes to give the central bank’s supervisory board oversight of its regulatory duties.
UBS’s top China investment banker has resigned in a move that will test the Swiss bank’s ability to remain a force in the growing Asian market, reports the FT. In a memo to staff on Thursday, Henry Cai outlined his decision to “take a long break” because he was “very tired”, and told colleagues he had yet to decide on his next step. Cai, chairman of investment banking in Asia, had in recent months considered setting up a private equity fund, although no final decision had been made, said people familiar with the matter.
Bankers and analysts expect up to 20 of Europe’s banks to be forced into cash calls as a result of this month’s stress tests, raising up to €30bn ($37.3bn) of fresh equity amid persistent unease about the outlook for European banks and eurozone sovereign debt, reports the FT. The news came as it emerged that Axel Weber, head of Germany’s Bundesbank, told banks at a meeting on Wednesday that they should prepare emergency capital-raising plans in case they fail the stress tests.