Posts from Thursday Sep 2 2010

Rally resumes after supportive US data

Traders are again adding to risky bets following a batch of supportive US data, but the mood is markedly less ebullient than witnessed during the previous session’s “melt up”, when better-than-expected Chinese and American factory data powered a wholesale rush into stocks, the FT reports. The S&P 500 in New York is up 0.9 per cent, also aided by confirmation that the trend for M&A continues following a private equity purchase of Burger King for $4bn. Commodities are generally firmer, and core bonds are again under the cosh, but the yen, the market’s current haven proxy darling, is moving higher. The FTSE All-World equity index is up 0.7 per cent, primarily reflecting Asia’s attempts to play catch-up with Wall Street’s 3 per cent surge on Wednesday.

Leadership fight raises fear of DPJ break-up

Naoto Kan, Japan’s prime minister, and the contender for his job sought to portray each other as relics of the stagnant politics their Democratic party has vowed to transform when they squared off in a nationally televised debate on Thursday, the FT reports. The decision by Ichiro Ozawa, the party heavyweight, to challenge Mr Kan in a leadership election this month has cast doubt on the government’s economic and diplomatic policies and prompted speculation the party could break apart.

Baidu pioneers searchable apps library

Baidu, China’s largest online search company, on Thursday launched a searchable applications library which allows third-party offerings in the library to launch directly on Baidu rather than on another website, providing a potential revenue boost for the company, the FT reports. When a user searches for a specific online game, for example, the new function launches the game immediately without the user leaving the Baidu site. That is different from what happens traditionally when users get a search result consisting of a block of text and a link to another website. Baidu said it planned to take 30 per cent of the revenues generated from applications users pay for, with 70 per cent going to the third-party developers.

Block on Thailand chemical plants is removed

A Thai court has given the green light to almost all the suspended plants at a controversial petrochemicals and metals refining complex south of Bangkok to resume operations, the FT reports. The courts suspended operations and construction on 76 projects worth $10bn (€7.8bn, £6.5bn) a year ago after finding that their operating licences had been erroneously issued. The decision revealed a new and unexpected regulatory risk for investors.

HP to buy 3Par as Dell pulls out of race

Hewlett-Packard looked set to win the bidding battle for data storage company 3Par after rival PC maker Dell balked at raising its offer yet again, the FT reports. The world’s biggest technology company by sales upped its offer to $33 a share, or about $2.4bn, topping a Dell bid at $32 a share. The contest, which began before 3Par publicly accepted a Dell offer at $18 last month, provided further evidence that the two largest US PC makers are stepping up their rivalry as they branch out into new areas.

HSBC in clearest warning yet over relocation

HSBC has given the clearest warning yet that British banks would move their headquarters abroad if the UK government-appointed Commission on Banking were to decide that big groups should be broken up, reports the FT. Stuart Gulliver, the group’s investment banking head and the favourite to succeed Michael Geoghegan as chief executive, said on Thursday he was “genuinely concerned” that the commission would recommend that universal banks, such as HSBC, should split their high street banking from their riskier investment banking activities.

Foreign companies ‘losing out’ in China

Foreign companies are losing market share in China across a broad range of industries because of discriminatory treatment by the government and regulators, according to the European Chamber of Commerce in China, reports the FT. In its annual position paper, the organisation aired a host of complaints from its member companies and explicitly accused Beijing of violating its World Trade Organisation commitments through its heavy-handed certification requirements. “Compulsory certification in excess of what is reasonable is being used to keep foreigners out of the market and business license requirements continue to exclude foreign companies from entire sectors,” the group said. China uses business licensing to restrict foreign access to some sectors and applies “vague and unprecedentedly broad definitions of public security and critical infrastructure” in its certification of a wide range of products, the EU chamber said.

Fears grow over food supply

Russia announced a 12-month extension of its grain export ban on Thursday, raising fears about a return to the food shortages and riots of 2007-08 which spread through developing countries dependent on imports, the FT reports. The announcement by Vladimir Putin came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage, and riots in Mozambique left seven dead. The unrest in Maputo, in which 280 people were also injured, followed the government’s decision to raise bread prices by 30 per cent. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.

The housing bubble reconsidered

Maybe it was Jackson Hole or the August slowdown, but academics are in a reflective mood these days.

And some of them are especially interested in answering one specific question that continues to linger — just what caused the damn housing bubble? A description of three attempts from the past week follows. Read more

To: HSH Nordbank employees, Re: Spying, porn

And you thought German landesbanks were boring.

Last week, HSH Nordbank reportedly sent a memo to its employees preparing them for an upcoming Spiegel report. At the centre of the story were supposedly allegations that the bank’s former head of the New York branch, known as Roland K, was fired after child pornography was found in his office. Read more

A brief look back at a weird August

We think a few points are worth highlighting from the M&A and capital markets snapshots just released by Thomson Reuters.

First, after an extraordinary first half of the month, the year’s junk bond rally (which we’ve been monitoring) completely fizzled in the second half: Read more

ETF pricing NAVigation

Dave Nadig over at Index Universe has a really good post this week about the pricing of exchange traded funds with respect to their net asset values.

There is, after all, a tendency for the market to take the daily NAV valuations spluttered out by ETF providers as gospel. Read more

A history lesson from the FCIC

In addition to grilling Dick Fuld on Wednesday, the FCIC has also quietly released a preliminary staff report documenting the history of ‘Too Big To Fail’ bailouts in the US and their relevance to the latest crisis.

The first use of the TBTF rationale for a government bailout after the post-war period can be traced to the FDIC’s rescue of Continental Illinois in 1984, the report says. This wasn’t the first post-WWII bailout, which came in 1974, just the first time TBTF was explicitly articulated by federal regulators. Read more

A 99% depreciation in the worth of Blankfeins

The Goldman Sachs CEO was right at the top of Vanity Fair’s 2009 list of the 100 most influential people:

 Read more

Ireland’s exteeeeended banking issues

So much, perhaps, for that scary September of bank refinancing.

Reuters reports that Ireland “signalled” on Wednesday, that it’s seeking to extend its guarantee of Irish bank liabilities, started in response to the late 2008 crisis. It’s the erm, obvious and simple solution, to the problem of a looming €25bn refinancing. Ireland’s Credit Institutions (Financial Support) Scheme is due to end in September. A smaller scheme has already been extended to the end of this year. Read more

Markets Live transcript 2 Sep 2010

Live markets commentary from 

More intrigue in the wonderful world of potash

An even bigger week than usual for potash-related deals and developments with Russia — undoubtedly spurred to new competitive heights by BHP’s hostile $38.6bn bid for Canada’s PotashCorp — signalling its support for the planned merger between potash producers Uralkali and Silvinit.

On top of that come reports on Thursday that China Mining United Fund, which owns minority stakes in various potash producers including Canada’s Allana Potash Corp, is eyeing Allana’s Ethiopian potash project and could raise its stake in the company. Read more

Data boost from economic giants

A surprise bounce in manufacturing activity in the world’s two biggest economies in August cheered investors as it ended the bleak run of US economic data over the summer, reports the FT. Economists had expected US manufacturing to slow further in August, but the closely watched figures from the Institute of Supply Management pointed to an acceleration of output growth even as separate regional surveys painted a more downbeat picture. The US surprise was matched by an unexpected bounce in the equivalent PMI indices in China, now the world’s second-biggest economy.

GM sales dip casts shadow over IPO

General Motors’ sales in its core US market sagged in August, potentially complicating its bid to drum up investor support for its forthcoming public share issue, reports the FT. Sales were a quarter lower than in August 2009, when demand was bolstered by the Obama administration’s cash-for-clunkers scrappage incentives. GM has also eliminated four brands since then. More worrying, however, was a 7.2 per cent decline from July. Low-margin sales to car rental operators and other fleet owners climbed to 28 per cent of the total, from 25 per cent in July. According to Reuters, General Motors plans to begin courting investors for its initial public offering immediately after the Nov 2 US midterm congressional elections.

The Cult of Equity is dead. Long live bonds

If Citigroup’s global equity strategist was at all still prevaricating on which side to take in the bond-stock decoupling conundrum, he’s firmly made up his mind now, says FT Alphaville. On Thursday Robert Buckland writes that the 40-year cult of equity is — quite simply — dead. There are several reasons for the passing of the Cult according to Buckland, who dates its birth to the 1950s, when the equity dividend yield dropped below the bond yield. One is poor profitability. Another is volatility. Read more

SEC probes canceled trades, quote stuffing

The Securities and Exchange Commission is to take a closer look at the practice of so-called ‘quote stuffing’ in equity markets as part of its probe into the May 6 stock-market flash crash, the Wall Street Journal reports. The high-frequency strategy involves sending large amounts of orders to buy or sell stocks which are then immediately cancelled in a bid to crowd out, slow down or detect hidden liquidity in the the market. The Journal says the SEC is also looking into the practice of sub-pennying, which sees firms improve on bids and offers in increments as small as one-tenth of a cent on official exchanges, so as to attract trades that might otherwise be seen as off-market.

A gazillion more CDS trades

All hail the Depository Trust and Clearing Corporation

The DTCC has provided an updated and more in depth version of its market “snapshot” of CDS trade — six-month data for the top 1,000 CDS single-named reference entities. It’s aimed at “informing” market participants and regulators which names might have sufficient liquidity to be cleared through a central counterparty. Read more

Meat price surge fuels fears of food inflation

Global meat prices have hit a 20-year high as robust demand from emerging countries has coincided with a drop in production by exporters such as the US and Australia, fuelling concerns about rising food inflation, the FT reports. The UN Food and Agriculture Organisation’s index of meat prices rose in August to its highest level since 1990, up 16 per cent over the past year, after lamb prices hit a 37-year high, beef prices climbed to a two-year high and the cost of pork and poultry prices rose.

Apple raises stakes in TV battle

Apple made its most serious bid yet for the internet-connected television market on Wednesday, slashing the price and size of its AppleTV product by more than half and providing it with movies and television shows to rent, reports the FT. The digital entertainment powerhouse demonstrated the $99 gadget in San Francisco, where Steve Jobs, chief executive, showed a new interface that lets users stream movies from Netflix, home movies from their computers or rentals from the iTunes online store.

Rally pauses as traders revisit mixed data

European bourses were trading on the back foot as investors took a more critical view of the previous session’s “melt up”, which saw better-than-expected US and China factory data power a move into risk, reports the FT. Commodities were steady, core bonds were seeing demand and the yen, the market’s current haven proxy darling, was again on the rise. The FTSE All-World equity index was up 0.2 per cent, reflecting Asia’s attempts to play catch-up with Wall Street’s 3 per cent surge on Wednesday.

CSAs the Spanish way [updated]

Hot on the heels of Portugal’s two-way CSA, comes a partial step from Spain.

From the excellent Chris Whitall, over at Risk MagazineRead more

Further reading

Elsewhere on Thursday,

– The Chinese-hedging-gone-awry theory of TreasuriesRead more

Pink picks

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

John Gapper: Hedge funds should cool it on tax
Try to extract money from a hedge fund manager or the founder of a private equity fund and he loses all sense of proportion, says the FT’s Gapper. The first example came in July when Stephen Schwarzman, the co-founder of Blackstone, compared the US government’s attempt to increase the amount of tax paid by the partners of financial firms to Adolf Hitler’s invasion of Poland in 1939. Mr Schwarzman had to apologise for the analogy, made privately to the board of a non-profit group. Read more

Snap news

Breaking pre-market news on Thursday,

– Spice and Cinven in advanced discussions over a 70p a share cash offer – statementRead more

Chilton hires Fidelity star

Leading US hedge fund Chilton Investment has hired a star former Fidelity money manager in its effort to expand in Europe, reports the FT. Frederic Gautier, who previously managed $5bn across a range of pan-European funds for asset manager Fidelity, will spearhead the move by Chilton to grow its investments in European markets. The $6.5bn US fund manager already has a significant presence in the US and Asia, including an office in mainland China, opened in late 2007, but as yet has a relatively small European operation.