Posts from Wednesday Jul 7 2010

China rules out dumping T-bills

China has ruled out moves to dump its huge holdings of US government debt accumulated over the last decade, in a qualified vote of confidence in the dollar, the FT reports. But in a Wednesday statement, the State Administration of Foreign Exchange, which administers China’s $2450bn in reserves, also urged Washington and other governments to pursue “responsible” economic policies. It also played down prospects of further major Chinese investments in gold.

EU restricts bank bonuses

Tough new rules restricting bankers’ bonuses were approved by EU  lawmakers on Wednesday and could take effect in much of the EU by this winter’s pay season, the FT reports. Banks will be forced to defer 40-60% of bonuses for three to five years, and pay half of any immediate bonuses in shares or other securities linked to the bank’s performance. As a result, bankers will only be able to receive 20 to 30% of any bonus in upfront cash.

Manila taps social networks to boost taxes

The new Philippine government of President Benigno “Noynoy” Aquino is enlisting Facebook and Twitter in an ambitious effort to close the country’s gaping budget deficit, the FT reports. Cesar Purisima, the finance secretary, wants citizens to tweet cases of tax evasion and corruption among tax collectors or report them on Facebook. Mr Aquino and his team must tackle a budget deficit that hit a record 3.9 per cent of GDP last year.

Booz, AT Kearney end talks

Management consulting firms Booz & Co and AT Kearney have ended discussions for a possible merger, the FT reports. In a joint statement, the firms said their future aspirations would be “best realised as separate partnerships”.

OECD warns on long-term jobless

Unemployment levels worldwide are set to remain high amid increasing fears that some elements of joblessness could become entrenched and even more difficult to solve, the Organisation for Economic Cooperation and Development warned on Wednesday. As the FT reports, although unemployment levels have probably peaked, the OECD says in its annual employment outlook that the strength of the current economic recovery is unlikely to be strong enough to absorb the millions of workers who are now jobless.

EU wrangles over stress tests

European regulators were locked in heated talks until late Wednesday over the EU’s moves to stress test the continent’s banks, the FT reports. The Committee on European Banking Supervision, the EU’s regulatory umbrella body, was to have published details of its stress-testing exercise early on Wednesday, but the process was delayed by disagreements over disclosure of the stress scenarios, particularly relating to the banks’ sovereign debt holdings. FT Alphaville has the key features of the tests, as finally released.

Russia’s Mezhprombank defaults

Mezhprombank, a mid-sized Russian bank owned by Sergei Pugachyov, the Kremlin-connected senator and industrial magnate, has failed to repay €200m ($251m) in eurobonds, becoming the country’s first bank to default on foreign obligations since the August 1998 financial crisis. The FT reports that the bank is asking bondholders to extend the maturity of the bond for a maximum of one year under terms of a restructuring deal.

Carlyle directors face suit

Liquidators of the failed mortgage investment affiliate of the Carlyle Group have filed suit against the US private equity firm and several of its directors, seeking to recover $1bn in losses, the FT reports. The complaint alleges that Carlyle officials paid themselves “excessive and unjustified” fees, even as the affiliate, Carlyle Capital Corp grappled with losses that resulted in its implosion in March 2008. Among those named in the suit is William Conway, founding partner of Carlyle.

WWE looks to muscle its way into China

World Wrestling Entertainment will soon host its first live event in China as part of a campaign to demonstrate its willingness to invest long-term to develop the country’s interest in what it calls “live sports entertainment,” the FT reports.

CEBS reveals stress test details (at last)

It’s finally out!

The Committee of European Banking Supervisors has finally released (as promised) the details of Europe’s banking stress tests. Read more

Don’t panic, the Baltic dry is a rubbish indicator!

The Baltic Dry Index (BDI) — a measure of shipping costs for dry bulk goods — suffered its 29th consecutive daily decline on Wednesday, to record its longest losing streak in more than six years, according to Bloomberg.

It’s news that David Rosenberg at Gluskin Sheff, amongst others, managed to get pretty excited about on Wednesday. He, for example, thought it’s the sort of story that should have made the front pages by now: Read more

Stress test rumourtrage round-up

As we wait for the release of the eagerly-awaited European bank stress methodology – which may or may not be released on Wednesday – here’s a quick round up of the latest rumours swirling the London markets and some snap reaction from Goldman Sachs.

Wednesday’s chatter is as follows: Read more

Spain’s sand-castle exposure

Aside from generalised peripheral sovereign debt jitters, there is another reason to be scared of Spain, according to Barclays Capital’s Antonio Garcia Pascaul.

In his latest note, co-authored by Piero Ghezzi, the analyst focuses specifically on Spain’s infrastructure sector, where things are apparently getting fairly gritty. Read more

A new type of TruPS warfare

TruPS CDOs may have escaped the full wrath of US financial reform, but they still have to deal with the rather daunting prospects of their underlying collateral — those Trust Preferred Securities (TruPS).

To wit, a fantastic soap opera of a structured finance story. There’s even a Texan billionaire involved. Read more

Quixotic QEasing

Here’s an interesting tidbit to trot out in the debate over the shape of the US recovery.

The Federal Reserve has been quick to highlight the speed and intensity of its policy movements, most notably its quantitative easing and interest rates. This, we are often told, is what will keep the US away from a Japan-style Lost Decade, or even perhaps, save it from double-dip doomRead more

Markets Live transcript 7 Jul 2010

Live markets commentary from FT.com 

Who’s the bank with the golden swap?

UBS precious metals analyst Edel Tully takes a stab at making sense of the mysterious BIS gold swap, revealed in headlines on Wednesday.

In particular, she attempts to determine which institution could possibly be behind it. Read more

Risk in retreat as US growth fears return

Risk wasagain in retreat as the previous session’s rally proved short-lived, the FT reports. The FTSE All-Word equity index was down 0.6 per cent, industrial commodities were softer and the dollar was moving higher as worries about US economic prospects returned. Global stocks jumped 1.8 per cent on Tuesday after traders lapped up sanguine comments on Asian growth from Australia’s central bank. With signs that Europe and the US may be slowing, that was just what investors wanted to hear in a market that many considered to be oversold.

Hayward meets with Gulf investors

Tony Hayward, BP’s chief executive, was on Wednesday visiting Abu Dhabi, which is home to a range of sovereign investment vehicles and is one of the oil company’s main partners in the Middle East. People familiar with his visit told the FT he was expected to meet officials in the wealthy capital of the United Arab Emirates, but his exact schedule was not clear. The trip comes after the troubled oil company put out feelers to investment entities in the Middle East to gauge their interest in buying the group’s shares following their dramatic decline after the Gulf of Mexico oil spill

Goldman calls for QE2

This will be music to the ears of Paul Krugman — Goldman Sachs calling for Quantitative Easing v2.0 and additional deficit-financed fiscal stimulus, reports FT Alphaville. The bank’s chief US economist Jan Hatzius reckons there are enough “disturbing signs” — Friday’s payroll report and recent CPI releases for example — to justify further policy easing via a return to unconventional monetary policy, and/or fiscal stimulus. Read more

Some BIStoric gold swaps

Whether the Bank for International Settlements can, or wants to, sell its 346 tonnes of newly-acquired central bank gold is a matter of some debate, reports FT Alphaville. But one thing everyone seems agreed on is that, as the FT notes, these BIS gold swaps haven’t happened very much in recent years, or at least, they haven’t been mentioned in BIS’ reports. Read more

346 tonnes of gold at the BIS …

… 346 tonnes of gold at the BIS, 346 tonnes,
You take one down, sell it around, 345 tonnes of gold at the BIS!

This little footnote — from BIS’s latest annual report — is currently making waves in gold markets: Read more

Further reading

Elsewhere on Wednesday,

- “There is no statistical evidence that bailouts can speed economic recovery.” Read more

Pink picks

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

Martin Wolf: Demand shortfall casts doubt on early austerity
Fiscal default is nigh, insist the doomsayers: repent and retrench before it is too late, writes the FT’s Martin Wolf. Yet I have a question: do we believe that markets are unable to price anything right, even the public debt of the world’s largest advanced countries, the best understood and most liquid assets in the world? I suggest not. Markets are saying something important. Read more

Snap news

Breaking pre-market news on Wednesday,

- Heritage Oil gets approval for Ugandan asset sale but tax row rumbles on — statementRead more

Borrowing costs increase as ECB drains cash

Eurozone market interest rates headed higher on Tuesday, in effect tightening monetary policy in the 16-country bloc, as ECB operations drain excess liquidity from the financial system, the FT reports. The rise in borrowing costs highlighted the balancing act faced by the ECB, which holds an interest-rate setting meeting in Frankfurt on Wednesday. FT Alphaville reported on Monday that the bank’s recent liquidity draining was the equivalent of two small policy rate hikes in “normal” times, according to Citi analysts.

Anadarko is latest to trigger NYSE trade halt

Trades in Anadarko Petroleum, the US partner to BP in its ill-fated Macondo well, have become the latest to trigger the New York Stock Exchange’s new single-stock circuit breaker rules, the Wall Street Journal reports. Anadarko was halted for five minutes during the New York morning because of an erroneous trade, for $99,999.09, which has now been cancelled and erased from the records, the WSJ says.

Barclays break-up theories fuel Footsie

Break-up theories helped lift Barclays on Tuesday as the FTSE 100 posted its biggest rally in five weeks, the FT says. Barclays was up 5.9 per cent to 274½p after Mediobanca said the bank was likely to be looking at splitting its corporate units from the retail division. FT Alphaville has a summary of the note, written by Mediobanca’s Christopher Wheeler, who worked in investors relations at Barclays until 1998.

Overnight markets: European rebound

Asian markets
Nikkei 225 down -82.10 (-0.88%) at 9,256
Topix down -7.08 (-0.84%) at 840.16
Hang Seng down -181.25 (-0.90%) at 19,903

US markets
S&P 500 up +5.48 (+0.54%) at 1,028
DJIA up +57.14 (+0.59%) at 9,744
Nasdaq up +2.09 (+0.10%) at 2,094 Read more

Bank of England makes £10bn gilts gains

The Bank of England has made nearly £10bn in paper profits by buying UK government bonds as part of emergency efforts to pump money into the British economy. The bank’s quantitative easing – a buy-back programme that began in March 2009 and involved purchasing nearly £200bn in gilts – has generated gains of £9.7bn for the Bank, according to an analysis for the FT.