Posts from Tuesday Sep 14 2010

Basel III sets stage for Landesbank reform

Participants in the Basel negotiations over bank capital say they believe German authorities used the talks as a way to press some of their country’s banks for a long-awaited restructuring, reports the FT. People involved in the process told the Financial Times that German negotiators were “very constructive” and less protective of their banking sector in Sunday’s negotiations than at past sessions – a shift that was critical to reaching global agreement. It left the impression that Germany has been willing to try to use the Basel III process to strong-arm the public sector regional Landesbanken, seen as the weakest part of the German banking system.

India watchdog denies Lafarge plant plan

Lafarge’s plans to build a cement plant in the Himalayas have been blocked by India in a further sign of a tougher approach to environmental regulation of major industrial projects by the country, reports the FT. A tribunal that rules on environment projects reversed last year’s clearance of the plan by the environment ministry. The decision, made by the National Environmental Appellate Authority, came just weeks after New Delhi rejected London-listed Vedanta’s plans to mine bauxite from a mountain held sacred by a tribe in the eastern Orissa state. Jairam Ramesh, India’s environment minister, has expressed a determination to enforce environmental and social protection laws more aggressively.

NPS to invest $1bn more in property

The National Pension Service of Korea, the world’s fifth-largest pension fund, has pledged to spend a further $1bn (£643m) on commercial property across Europe, having agreed a new mandate to invest with Rockspring, the UK property asset manager, the FT reports. NPS has already made several key investments in the UK market over the past two years, including the purchase of the HSBC tower in Canary Wharf for almost £800m and a City of London office building at 88 Wood Street for £183m. It is one of several large national pension funds looking to invest in European property, competing with similar vehicles from Norway, Malaysia, Australia and Canada. Other sources of Korean pension money looking to invest in Europe include big corporate pension schemes.

S&P cuts Bank of Ireland outlook

Bank of Ireland faces potentially higher funding costs after S&P lowered its credit rating outlook on concerns about economic conditions and profitability, the FT reports. S&P on Tuesday reaffirmed the bank’s rating at A-/A-2 but said it was revising the outlook – a measure of a bank’s two-year prospects – from stable to negative to reflect the “considerable challenges” it faces. The rating agency noted Dublin’s continued support but warned that a debt downgrade would “most likely follow from a weakening of government support, adverse economic developments, or a setback” in the bank’s restructuring.

India expected to raise interest rate

Strong seasonal rains helped push India’s inflation last month to its lowest level since January, but economists still expect the central bank to raise its benchmark interest rate this week, the FT reports. The drop in the wholesale price index, India’s most followed inflation measure, was magnified by a change to the base year and the basket of goods tracked. The index rose 8.5 per cent for the month year-on-year with those changes, compared with 9.5 per cent under the old data series. Inflation rose 9.8 per cent in July. The deceleration in August was largely due to lower food prices, as monsoon rains supported crop yields and food inflation slowed to 10.6 per cent from 13.6 per cent in July. Non-food inflation also decelerated to 7.7 per cent last month from 8.4 per cent in July. The Reserve Bank of India is expected to raise rates for the fifth time this year as it unwinds an ultra-loose monetary policy adopted to weather the global financial crisis and seeks to bring inflation closer to its 6 per cent comfort zone. The bank has been cautiously raising rates to minimise the impact on economic growth, which rose to 8.8 per cent last quarter, the fastest pace since 2007.

Japan PM wins party leadership battle

Japan’s prime ministerial revolving door missed a turn as incumbent Naoto Kan successfully fended off a challenge to his leadership from fellow ruling Democratic party heavyweight Ichiro Ozawa, the FT reports. Mr Kan’s surprisingly emphatic victory on Tuesday after a hard-fought campaign for re-election as DPJ president meant relative continuity in the economic and diplomatic policies pursued by his administration since it took office three months ago. If Mr Kan had lost, his successor would have been Japan’s sixth new prime minister in four years. In a sharp reminder of the pressing challenges faced by the DPJ-led government, Mr Kan’s victory sent the yen climbing to a new 15-year high of Y82.90 to the dollar.

Gold gains as central banks stock up

Gold prices have pushed to a fresh record amid forecasts that central banks will be net buyers of bullion this year for the first time in two decades, the clearest sign of the rehabilitation of bullion after the financial crisis, the FT reports. The shift marks a turnround after heavy disposals by European central banks over the past 10 years, when gold was seen as a non-yielding unattractive asset. Monetary institutions then swapped their bullion for yielding sovereign debt. GFMS, the consultancy that compiles benchmark statistics for gold, said that central banks would buy about 15 tonnes of bullion on a net basis this year, a situation last seen in 1988. The swing comes on the back of buying by Russia and several Asia-based central banks and the collapse of sales in Europe. The shift in central banks’ attitude towards gold, coupled with renewed US dollar weakness on Tuesday, propelled gold prices to a fresh nominal high of $1,274.75 a troy ounce, up nearly 2 per cent on the day. Gold prices have risen about 15 per cent since January, boosted by worries about sovereign risks. Adjusted for inflation, gold prices are, however, still a long way from their all-time high above $2,300 in 1980 reached during the Soviet invasion of Afghanistan.

CME test trading goes awry

CME Group, the world’s biggest futures exchange, mistakenly placed orders on active energy and metals markets as it was undertaking a quality assurance procedure, reports the FT. CME declined to say which contracts were placed into the live market or how many orders were sent or executed, but they are believed to number in the tens of thousands. The mistaken order flow began at 3:38pm Eastern time on Monday and lasted six minutes. CME said the erroneous orders did not affect prices but futures brokers noted anomalous price action.

Stocks lose steam in twitchy trading

Stock bulls lost their nerve after a mixed batch of catalysts encouraged buying of “safe haven” assets, a rise of caution following a jolly gambol so far in September, the FT reports. A risk rally after Monday’s sympathetic deal on global banking regulation continued into the Asian session, but came apart later in US and European trading, as bond investors throughout the day shrugged at slightly improved US economic news. Benchmark stock indices in Europe and the S&P 500 index in the US ended flat. Gold pushed to a new nominal peak above $1,270 an ounce, a record eyed suspiciously in the equity markets as moves higher in bullion are usually associated with protective hedging. A sharp dip in the dollar is doubtless helping gold’s case. The dollar is at a one-month low as investors picked up growth-linked currencies like the Australian dollar. But the Japanese yen, a preferred risk haven, is also hanging near its 15-year high against the dollar, and the Swiss franc rose to parity against the dollar for the first time in 2010.

Quality assurance test at CME Group goes awry

A strange occurrence earlier Tuesday at CME Group, reports the FT:

CME Group, the world’s biggest futures exchange, mistakenly placed orders on active energy and metals markets as it was undertaking a quality assurance procedure. Read more

The Boomer Solution

Call it the Baby Boomer Legacy Promotion Tax.

Or at least that’s what Michael Kinsley seems to be calling for in the October 2010 issue of Atlantic Monthly (our emphasis): Read more

What Volcker rule? Credit Suisse acquires stake in York Capital

Just out on the wires, from York flaks:

Credit Suisse announced today that its Asset Management division has agreed to acquire a minority interest in York Capital Management (“York”), a leading global hedge fund manager, based in New York. York will continue to operate independently and will continue to be led by Jamie Dinan, founder and Chief Executive Officer, Dan Schwartz, Chief Investment Officer, and the firm’s senior management team. Read more

Ten years later

Unlike Roubini & Bremmer, we doubt the recent crisis has produced an “irreversible” setback from which developed economies will never recover.

But that doesn’t mean the current pain will be short-lived or easy to bear. Read more

UBS expects a 25bp rate rise from the SNB

Never underestimate the Swiss National Bank, says UBS.

Going out on a bit of a limb, the bank’s analysts are predicting the SNB may deliver as much as a 25bp hike this week, while all other forecasts are predicting no change. Read more

Has Harbinger sold out of Tate & Lyle?

That rather amateurish photo (taken with a Nokia 6303)  is the Indications of Interest (IOI) page on Bloomberg for Tate & Lyle, the UK sugar and food ingredients company.

(We would have used the ‘Grab’ function, but for some reason it does not work on the IOI page). Read more

Keep your credit, buy our stuff

We’ve written before about the difficulty of knowing whether the decline in small business lending is a problem of supply or demand.

The answer matters not just to the health of small businesses, but for knowing whether the Fed’s easing measures have been successful in circulating credit throughout the economy. Read more

Who played the largest ever arbitrage?

H/T to former FT Alphavillain Sam Jones — currently the FT’s hedge fund correspondent — for pointing us in the direction of some hedge funds that actually executed the largest arbitrage ever.

Rather successfully at that. Read more

Lehman homage in Afghanistan (of sorts)

Writing the day before the second anniversary of Lehman Brothers’ fall, Gideon Rachman argues that ‘9/15’  might matter more to America in the long run than 9/11.

While you can argue with that, there is now another parallel of sorts between the two dates, thanks to the Afghan central bank. Read more

The Fed, and what to do about MBS

Not that the Fed has ever been a model of clarity and decisiveness, but the announcement in August that it would re-invest proceeds from its MBS holdings into long-dated Treasuries left open a few questions:

What is the magnitude of the future MBS paydowns? What are the Fed’s objectives with respect to its SOMA (System Open Market Account) portfolio and what are the benefits and drawbacks of purchasing either Treasuries or MBS? How do these objectives fit in with the newly emerging, more stringent capital regime for banks? Can the Fed lower mortgage rates? Does it want to? Largely, these questions reflect the uncertainty about the efficacy of the transmission mechanism for monetary policy: can the Fed really do anything to stimulate an economy and financial system that are aggressively deleveraging?

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(H)ARMless bid rumours

It seems somebody doesn’t believe Apple, Intel, Samsung or some other big company is going to launch a cash offer for the UK chip designer.

That somebody is actually several Arm executives and a handful of non-executive directors who have just declared the sale of around  725,000 shares. (Note that these disposals follow a flurry of selling at the start of August). Read more

Europe’s social model rules OK — er, for now

Looks like Société Générale’s economics team has some new members:

 Read more

Markets Live transcript 14 Sep 2010

Live markets commentary from 

Japan: Hold the ‘Kan can’ jokes please

So the fat lady has sung – or rather, the sumo wrestler has grunted – and Japan’s latest political circus is over (for now).

Naoto Kan has retained his somewhat battered position as the country’s prime minister, defeating the “shadow shogun” of his party — but only narrowly by 206-200 in the crucial vote among parliamentarians in the ruling DPJ. And, as the FT reports, all eyes are on the yen. Read more

The largest arbitrage ever documented

National Bureau of Economic Research research claims to have documented the largest ever arbitrage.

It’s contained in a great little paper published earlier this month and it isn’t a fancy, schmancy accessible to high frequency traders only type of trade. Read more

AIG prepares to stop taking US aid

American International Group is in talks with government overseers to help accelerate its plan to repay US taxpayers, and speed up its return to full independence, the Wall Street Journal reports. The paper cites sources who say the repayment plan would commence as early as the first half of 2011, and probably involve the conversion of $49bn in AIG preferred shares into common stock. The move would bring the government’s ownership stake in AIG to above 90 per cent, from 79.8 per cent currently. It is believed the common shares would then be gradually sold off to private investors, a move that would reduce US ownership and potentially earn the government a profit if the shares rise in value.

Dear Chancellor…

There’s more letter writing in store for the Bank of England governor Mervyn King, reports FT Alphaville. August consumer price inflation was forecast to come in 2.9 per cent (year-on-year). It didn’t. In fact, it was 3.1 per cent – unchanged from July’s reading – due to unexpectedly strong rises in airfares, clothes and food prices. Month-on-month, inflation jumped by 0.5 per cent, compared to the 0.2 per cent fall seen in July, and against forecasts of a 0.3 per cent increase. Read more

Stocks inch higher in cautious trading

Equity bulls were pausing for breath and waiting for fresh catalysts after enjoying a good gambol so far in September, the FT reports. The FTSE All World index was up just 0.1 per cent – a fifth consecutive advance that takes the gains so far in September to 6.8 per cent as investors welcomed better economic data out of China and the US and an apparently sympathetic deal on global banking regulation. Commodities were slightly softer and core bond yields were down a touch, with traders waiting for the outcome of Greece’s return to the debt markets and news of US retail sales later in the day. German economic sentiment data may also move the dial. European bourses have opened flat, mirroring little change in US equity futures.

Charts du jour – FX edition

Parity for the Swiss franc:

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Jim O’Neill’s valedictory

So farewell Jim O’Neill.

Goldman’s Mr BRIC is moving on to head the bank’s asset management business – FUM $802bn — and here (via Zerohedge) are some excerpts from his farewell letter. Read more

Irish government debt needs you

Amid continued fear in the market that the government’s bailout of the banking system will increase them markedly, FT Alphaville directs to an interesting sidelight on Ireland’s sovereign liabilities from Barclays Capital’s Laurent Fransolet. According to the analyst those liabilities won’t be borne by Irish banks. Or, indeed, by many Irish institutions, full stop because around €12bn is held by European banks, while non-bank (although also European, probably) investors hold a further €40bn.  Read more