Posts from August 2010

Eurozone jobless rate flat despite growth

Robust growth in the eurozone in the second quarter failed to dent its near-record unemployment rate, which remained flat for a fourth consecutive month in July, although prospects are brighter for the revived German economy, the FT reports. The 10 per cent overall eurozone figure once again masked a chasm between the “core” economies led by Germany, which are doing well, and the “peripheral” group, such as Spain, which continues to struggle. Germany’s seasonally adjusted unemployment rate, as measured by the European Commission’s statistical arm, remained flat at 6.9 per cent in July, below its own pre-crisis levels, though its national figures point to a small decline in joblessness.

PotashCorp calls BHP’s behaviour unethical

The hostilities between PotashCorp and its suitor BHP Billiton escalated on Tuesday when the Canadian fertiliser producer accused the multinational miner of “highly unethical” behaviour, reports the FT. Potash said that BHP had made unsolicited contact with its customers as part of BHP’s $39bn hostile bid for the Canadian company. Stephen Dowdle, PotashCorp’s sales chief, said in a letter to customers that the company had learnt that BHP had “begun to cold call many of you”.

Hunger for Genzyme deal grows keener

Chris Viehbacher, chief executive of Sanofi-Aventis, quickly dispensed with pleasantries in his letter to Henri Termeer, his counterpart at Genzyme, this week in which he went public with the French pharmaceuticals group’s long mooted $18.5bn takeover bid for the US biotech company, reports the FT. He may have chosen to address the letter “Dear Henri”, but after that the barrage began. Mr Viehbacher highlighted manufacturing problems, under-resourced expansion and shareholder criticisms at Genzyme, which he claimed were reflected in under-performance over several years.

Vietnam shipbuilder fights to stay afloat

Vinashin, Vietnam’s prized shipbuilder and export group, this week appointed its third boss in two months as the government scurries to avoid a debt default and salvage its vision of state-led development, the FT reports. Vinashin’s troubles, stemming from the confluence of a global industry downturn and the proclivity of Vietnamese state companies to wander into unfamiliar lines of business, are even threatening the career of Nguyen Tan Dung, the prime minister.

Japan ruling party risks split over leadership

Last ditch efforts to patch up differences between Japan’s prime minister and a powerful Democratic party rival failed on Tuesday, setting the stage for a leadership challenge that could split the ruling party, reports the FT. After a meeting with Naoto Kan, prime minister, DPJ heavyweight Ichiro Ozawa insisted he would contest an election for party leader scheduled for September 14. Mr Ozawa’s bid to oust Mr Kan, who in June became Japan’s fifth new prime minister in less than four years, throws into doubt the DPJ-led government’s economic policy just as the nation’s recovery from its worst post-war recession appears to be at risk.

Indian economy shows 8.8% growth

India’s economy grew a brisk 8.8 per cent in the June quarter year-on-year, its fastest pace since early 2008, highlighting the strength of the economy despite the impact of high inflation on consumer spending, the FT reports. Growth during the first quarter of India’s April to March financial year accelerated from the 8.6 per cent last quarter, driven by robust manufacturing and services growth, and a pick-up in farm production. The strong performance will encourage the Reserve Bank of India to persist with its’ aggressive monetary tightening to control inflation, which has dropped slightly – to 9.97 per cent in July – from its previous double-digit peak, but remains uncomfortably high.

Taipei rejects proposed sale of AIG unit

AIG’s sale of its Taiwan life assurance unit to a Hong Kong-based consortium for $2.15bn was blocked by Taiwanese regulators on Tuesday following months of uncertainty and protracted negotiations, reports the FT. The move is a setback for the American insurer, which had hoped to use the sale of its Taiwan unit Nan Shan to raise funds to pay back loans following a US government rescue in 2008. It follows the collapse in June of AIG’s efforts to sell AIA, its main Asian unit, to Prudential after the UK insurer withdrew its $30bn-plus offer for the business.

US bank profits return to pre-crisis levels

US banks’ profits rebounded to pre-crisis levels in the second quarter despite the continued struggles of small lenders, as falling loan losses enabled large institutions to reduce provisions and boost income, the latest official data show, the FT reports. However, the sluggish economy and the ongoing woes of consumers and businesses placed even more banks at risk of failure, sending the number of “problem lenders” to the highest level in 17 years, the Federal Deposit Insurance Corporation said on Tuesday. The 7,000-plus commercial banks overseen by the FDIC reported total profits of $21.6bn in the three months to June, a sharp improvement on the $4.4bn loss suffered by the sector a year ago, the regulator said.

Fed minutes fuel recovery fears

Global shares, which spent most of the day in negative territory, fell further after the Federal Reserve raised concerns that it may have ruled out large-scale asset purchases, the FT reports. Throughout much of Tuesday’s session there has been an overriding sense that fiscal and monetary authorities are bumbling their lines in the face of a dangerous plot twist for the global economy, pushing traders away from stocks and back into havens such as core government bonds. The yields on benchmark 10-year Treasuries fell slightly further after the minutes were released, down 6 basis points to 2.47 per cent.

Moody’s avoids prosecution, on a technicality…

A feather (of sorts) in the cap of one Sam Jones.

The young, former Alphavillain wrote this for us two years agoRead more

Two years and a Volcker Rule later

It seems JP Morgan is closing all proprietary trading desks, according to Bloomberg, starting with its commodities unit. Equities and fixed income desks will come later.

From the report: Read more

Bickering at the FOMC?

You already knew this if you read the Wall Street Journal’s impressively detailed article last week, but the just-released minutes of the FOMC’s meeting on August 10 seem to reinforce the notion that there is significant disagreement within the Fed behind closed doors.

Or maybe we’re just reading too much into it. Read more

The Jackson Hole papers (finally)

As Mark Thoma notes, the Kansas City Fed has an inexplicable (and seemingly indefensible) policy of withholding from the public the research papers that are presented at Jackson Hole until after the conference is over.

Well, it’s over. For your skimming pleasure, below we provide links to the papers and excerpts from their abstracts and conclusions. Read more

The Comex gold inventory jigsaw

Here’s a fun game for a (relatively quiet) Tuesday.

Take the latest general gold inventory figures from the Comex exchange — these have been falling since around the beginning of August: Read more

US Q2 house warming (or should that be warning)

Yes, house prices in the US climbed in the second quarter of the year. No, that’s not cause for optimism or even relief.

First the announcement from S&P (emphasis ours): Read more

James Montier on the bond bubble

GMO’s James Montier has added his two-penneth to the bond bubble debate.

He reckons it is a largely sterile conversation because what investors should be asking themselves is whether bonds are a good investment at their current low levels. Read more

50:1 leverage lives!

A big H/T to Alea for this story, plus the title.

Late on Monday, the US Commodity Futures Trading Commission released its final foreign exchange market rule. The centrepiece is the limit on leverage for firms dealing in retail forex — the decision itself, following months of weighty deliberationRead more

Mike Mayo’s Citi DTAaaaaaaattaaaaack!

Where oh where, did the Mike Mayo vs Citigroup dispute begin?

The CLSA bank analyst hit headlines last week after Fox Business News revealed Mayo had been “frozen out” by Citi. The reason? None other than Citi’s infamous deferred tax assets (DTAs) : Read more

Too bullish, too bearish, whatever…

We have previously written about the optimism bias of equities analysts, illustrated nicely by this chart:

 Read more

A central banker’s parable: the boy who cried ‘tekisetsu’

Here’s some suggested bedtime reading for Japanese officials, who might be wondering why the more vociferously they threaten action to curb the yen’s growing strength, the more underwhelming are the results.

The old Aesop fable of the “boy who cried wolf” could, in fact, be a modern parable — all in nice bureaucratic speak — about the interminable threats of “appropriate action” emanating from Tokyo — the latest being a classic double-header from Masaaki Shirakawa. The Bank of Japan governor told a press briefing on Monday night that the BoJ would “take appropriate steps at the proper time” and went on to say that “the current pace of outright government bond purchase is the most appropriate”. Read more

Markets Live transcript 31 Aug 2010

Live markets commentary from 

Titan Capital ups bets on market crash

Titan Capital Group is loading up on cheap out-of-the money options as it positions its flagship volatility fund to benefit from potentially extreme market moves, reports Bloomberg. The New York-based hedge fund, which manages $400m, rose 21.6 per cent in May as stocks tumbled. Titan’s founder Russell Abrams told Bloomberg that the market was currently underestimating the likelihood of a crash, referencing government bonds as pricing in much bleaker economic outcomes than the stock market. “Either you’re going to see the bond market make the big move or the equity market make the big move; the current situation is not in equilibrium,” he told the news agency.

Corn prices jump as dry US summer takes toll

The price of corn rose on Monday as parched US fields and demand for exports put a premium on grain for delivery in the near future, the FT reports. The government has forecast a record 13.4bn bushel US corn crop this year after farmers planted seeds early and then enjoyed a favourable mix of sun and rain. But a recent period of pervasive heat has raised fears of a disappointing harvest for the world’s top corn grower. CBOT September corn rose 1.7 per cent to $4.28¼ a bushel, the highest for a front-month contract since June 2009. December futures, which represent this season’s crop, added 1.8 per cent to $4.44 a bushel.

IMF enhances its credit lines

The International Monetary Fund announced on Monday that it had enhanced and expanded its lending tools to encourage needy economies getting financial aid before crises developed. The enhanced credit lines are to focus on pre-qualified countries that do not immediately need an emergency loan, according to Reuters. Flexible credit lines, which are already in place with Mexico, Poland and Colombia, are to be extended by up to two years. A new credit line with additional policy requirements for economies with ‘moderate vulnerabilities’ is also to be created, says Bloomberg.

Proof of cashflow, please

Jules Kroll — the man behind one of the best-known security and industrial espionage investigation firms Kroll — is taking to the ratings business, reports the WSJ.

And if Kroll’s other line of work is anything to go by, it should certainly inject some danger and excitement into the world of credit ratings. Read more

Lack of faith in policymakers hits risk

A sense that fiscal and monetary authorities are bumbling their lines in the face of a dangerous plot twist for the global economy was gripping markets, pushing traders away from riskier assets and back into havens such as core government bonds, the FT reports. The FTSE All-World equity index was down 0.9 per cent, US equity futures were off 0.5 per cent and industrial commodities were faltering. The yen, one of the favoured currencies in times of strife, was again flirting with 15-year highs versus the dollar. The Nikkei 225 was now down 22 per cent since April’s peak, having lost 3.6 per cent on Tuesday as investors worried that the previous day’s announcement of stimulus measures by the government and the Bank of Japan were insufficient to drag the economy out of its slough.

Spot the difference – Ocado edition

Compare and contrast.

On Tuesday morning, Goldman Sachs initiated coverage of Ocado with a “buy” rating and a 200p target price: Read more

Osborne plans 25% Treasury staff cuts

George Osborne is planning to cut staff numbers at the Treasury by about one-quarter and scale back his department’s role as he attempts to lead by example in the search for sweeping spending cuts across Whitehall, reports the FT. The chancellor will reconvene the public spending “star chamber” this week and hopes to settle a number of departmental budgets – including justice, transport, environment and culture – by mid-September.

Where’s Zhou Xiaochuan?

It’s not often that central bankers go missing. Zhou Xiachuan, governor of the People’s Bank of China, appeared to do so at the end of last week, says FT Alphaville. Rumours of Zhou’s disappearance were catapulted into internet infamy after Stratfor, a Texan risk-assessment company, picked up some local Chinese reports and rumours on its website. But China’s officialdom has since then been determined to refute this particular rumour. Read more

An illustrated history of yen intervention

As you can see from that RBS chart, since the Bank of Japan’s last big splurge of intervention in 2003/04 the yen has appreciated by 20 per cent against the US dollar. Read more