Posts from Wednesday Jul 28 2010

Bangladesh garment workers to get higher pay

A government oversight board in Bangladesh nearly doubled minimum wages in the important garment industry on Wednesday, the NY Times reports. According to the newspaper: “The increase comes at a time when many western retailers and clothing brands have been buying more from Bangladesh — which has the world’s lowest garment wages — as costs have risen in China, the largest producer. The raise could slow the shift to Bangladesh, although pay for the nation’s workers will remain far lower than in China and other apparel hubs like Vietnam.”

Weak inflation sinks Australian currency

Australian consumer-price inflation was less than expected in the second quarter, causing the currency to fall on the likelihood that interest rates will be kept on hold for several months at least, the WSJ reports. According to the newspaper, the consumer-price index rose 0.6 per cent from the first quarter and 3.1 per cent from a year earlier. Economists had expected the CPI to rise 1.0 per cent from the first quarter and 3.4 per cent from a year earlier, the WSJ says.

Danone sells Huiyuan stake

Danone has sold its stake in Chinese juice maker Huiyuan Juice Group for €200m ($260m), less than half the amount Coca-Cola was prepared to pay in a deal that collapsed last year, the FT reports. The value of Danone’s stake in Huiyuan has plunged since Beijing blocked Coca-Cola from taking over the country’s largest privately-owned juice producer. The French group said on Wednesday it had agreed to sell its 23% stake in Huiyuan to SAIF, a Hong Kong private equity group.

ICBC in rights issue after heavy lending

ArcelorMittal warns on pace of global upturn

India warns on slowdown in capital flows

Growing risk aversion among investors is slowing foreign capital flows to emerging markets such as India, potentially choking inflows needed to fund the nation’s widening current account deficit, the governor of Reserve Bank of India, told the FT. Duvvuri Subbarao also warned that the IMF’s global growth forecasts were too “sunny” and that a more pessimistic outlook among policymakers in India, the world’s fastest-growing large economy after China, was holding back monetary policy tightening.

Conoco to sell out of Lukoil

Chinalco to unveil Rio Tinto mystery deal

Thai Union nets MW Brands food deal

China revs up renminbi expansion

This month, for the third time this year, China took another big step toward transforming the renminbi into an international reserve currency, the FT reports. Regulators lifted a raft of restrictions blocking the free flow of renminbi in Hong Kong, the designated launchpad for the renminbi’s global expansion. That move came after two other big steps in June, when China cut the renminbi’s de facto peg to the US dollar and dramatically expanded the year-old programme that allows Chinese companies to settle cross-border trades using the currency.

Fresh warning on climate change

International scientists have presented fresh evidence into the debate over global warming, saying that climate change is “undeniable”, in the first major piece of research since the “Climategate” controversy,  the FT says. The research, headed by the US National Oceans and Atmospheric Administration, is based on new data not available for the UN’s Intergovernmental Panel on Climate Change report of 2007, which has been attacked by critics.

Lessons from olde worlde finaunce

James Montier, the former SocGen analyst now allocating assets at hedge fund GMO, is prone to occasional outbursts of macroeconomic theorizing.He’s entered the austerity debate with his latest paper, which FT Alphaville compared to Bernard Mandeville’s 1705 epic Fable of the Bees. Quick translation: if everyone saves at once, we all get poorer. Read more

In the land of two-tier rates…

This is the divergence that’s taken place between three-month Euro Libor (as set by 16 banks in London) and Euribor (as set by 42 banks in Europe) since about June 2009:

 Read more

The unpredictability of the unsolicited rating

One other aim of recent ratings reform — now largely forgotten what with the Dodd-Frank/Rule 436(g)-induced ABS oops — was to encourage the issuing of ‘unsolicited ratings’ opinions.

In effect, the SEC’s amended Rule 17g-5 allows non-mandated agencies to rate transactions thanks to increased transparency and information unavailable before the change went into effect last month. The whole idea is to avoid the kind of ratings shopping and arbitrage that contributed to the crisis. Read more

Credit rating cliff risk creeps to American banks

It’s been a lurking concern since early this year.

But late Tuesday credit rating cliff risk came to Bank of America, Wells Fargo and Citi care of Moody’s — thanks to the combustible dynamic between the new Dodd-Frank Act and the ratings agencies. Read more

Keeping the pedal on the UK metal, with Merv

GDP surprising on the upside; sales trading up; sterling on a rocket — the British economy’s looking pretty good at the moment.

Unless you govern the Bank of England. Read more

Credit cards create inequality, Fed paper says

The question of ‘plastic or paper?’ has just taken on a whole new moral dimension.

In a new study from Federal Reserve Bank of Boston, authors Scott Schuh, Oz Shy, and Joanna Stavins ponder the question of “Who Gains and Who Loses from Credit Card Payments?” in the US. Read more

BarCap on correlation and ETFs

FT Alphaville has made the case about how increased correlations may be linked to ETFs before — albeit in our own inimitable and non-mathematical style.

But here comes a very similar argument, this time from Barclays Capital’s equity research team (with added maths). Read more

ABS market freed! Ford rejoices! Ratings agencies make provisos!

Behold — the first ABS to be issued since the Dodd-Frank bill caused the market to paralyse, the securitisation markets to declare the end of the world, and the ratings agencies to fight for free speech.

It comes from Ford and it is a $1.082bn bond backed by automotive loans. Read more

Soros goes to Bombay (Stock Exchange)

You know things are heating up when George Soros wants to invest, and in this case, it’s Asia’s oldest stock exchange. Soros is in final talks to buy Dubai Holding’s 4 per cent stake in the Bombay Stock Exchange for about $40m, valuing the bourse at about $1bn. FT Alphaville ponders the move. Read more

Markets Live transcript 28 Jul 2010

Live markets commentary from 

Risky assets rise as US concerns ease

The US economy may seem to be on a weak footing but signs of on-track recoveries elsewhere are proving enough for investors to nudge risky assets further up from recent lows, according to the FT’s global market overview. Asian stocks shrugged off a weak Wall Street session on Tuesday, while European bourses have climbed to a 12-week high on European bank optimism and corporate earnings, Bloomberg reports. US equity futures looked forward to a 0.3 per cent rise on the open, the FT added.

Hess in $445m deal for American Oil & Gas

Hess Corp. has announced an all-stock deal worth $445m for American Oil & Gas as part of moves to expand into the Bakken shale oil play, Reuters reports. The offer, if approved by American Oil & Gas shareholders, would take Hess’s stake in Bakken to 85,000 acres, with the company provided extra credit facilities to continue exploration in advance of the deal’s completion.

Kerviel affair adds to mystery over ETFs

Did Socgen use exchange-traded funds to liquidate positions created by rogue trader Jerome Kerviel back in 2008?, FT Alphaville asks. There is increasing evidence that Lyxor CAC, DAX and Euro Stoxx 50 ETFs were impacted disproportionally over the liquidation period, adding to the debate on the systemic risk potentially posed by ETFs. The products also play a role in the rise of correlation between asset classes, and thus corresponding declines in the relevance of actual valuations to trading, Alphaville notes.

Google developing Facebook rival

Google has opened talks with online game-makers as part of a bid to create a social networking service to rival Facebook, people familiar with the matter told the WSJ. Playdom, Electronic Arts’s Playfish and Zynga — in which Google has just bought a stake — were part of the talks. Google is playing catch-up in a sector it should have moved into years ago, especially since Facebook’s 500 million users have helped the network to develop a strong stance in advertising, VentureBeat says. Playdom itself was bought Disney for $763m on Tuesday, PeHub observes.

Ex-regulators pile in on Dodd-Frank lobbying

Dozens of former regulators — who once served as SEC lawyers, Federal Reserve bankers and CFTC officials — will be fighting banks’ side as agencies shape the regulations emerging from the Dodd-Frank Act, the NYT reports. The lobbying effort comes as a consequence of the vast number of rules that the Act requires agencies to reformulate, with the SEC facing 95 revisions alone. President Obama will meanwhile head to Wall Street on Wednesday for his own lobbying effort — fund-raising from donors who are now turning hostile, the WSJ says.

‘Drill and spill’ bill pared down

Senate Democrats have put forward a dramatically pared-down “clean energy jobs” bill, combined with new oil spill laws, in order to get the legislation through partisan divisions in Congress, the FT reports. The Clean Energy Jobs and Oil Company Accountability Act – dubbed the “drill and spill bill” – requires BP to pay for the damage it has inflicted in the gulf, removing a $75,000 cap on liabilities, and forces all oil companies to invest in technologies to prevent domestic oil spills. But plans to support renewable industries and set up cap-and-trade schemes have been dropped.

Stimulus averted second Depression, study says

A new paper from a former Fed vice-chair and Moody’s’ chief economist argues that the massive economic interventions of the Bush and Obama administrations averted about 8.5 million further job losses and a 6.5 per cent greater drop in GDP than took place, the NYT reports. Alan Blinder and Moody’s’ Mark Zandi estimated the overall direct cost of the recession to have been $1.6 trillion. But while intervention provided an early spark, it will not catch on in the long run, argues Martin Feldstein.

Telefonica strikes $9.8bn deal for Vivo stake

Spain’s Telefonica has reached a preliminary agreement to buy Portugal Telecom’s stake in the Brazilian wireless operator Vivo, Bloomberg reports. Telefonica raised its offer for the third time in a long-running battle for control of Vivo, which the company plans to merge with its existing fixed-line business in Brazil. Portugal Telecom is also hunting for a stake in Oi, Brazil’s biggest phone operator, a plan which proceeds from the Vivo sale will help to finance.

Lost in correlation fatigue

Alternate title: The end of valuation.

And this is why. Read more