Posts from Wednesday Sep 15 2010

Speculation that neighbours will take yen lead

Japan’s intervention to weaken the yen sparked widespread regional speculation about parallel action by other Asian countries with appreciating currencies, reports the FT. Leong Wai Ho, senior regional economist at Barclays Capital in Singapore, said it was “certainly possible” that further intervention might follow, as central banks took advantage of the lead set by Tokyo. “What the Japanese move has done is to reduce the risk of intervention for other central banks by removing the one way expectation in the market that Asian currencies will always continue to appreciate,” Mr Leong said. However, foreign exchange traders said there was no sign of intervention by other Asian countries on Wednesday.

Europe sees record repo trading

The European repurchase, or repo, market has enjoyed record trading volumes in a sign that the financial system, which came close to breaking down in the aftermath of the collapse of Lehman Brothers, is returning to health, reports the FT reports. The value of the repo market, considered vital to the functioning of the financial markets, has jumped 25 per cent to €6,979bn from six months ago, beating the previous high recorded before the credit crisis.

Japan intervenes to weaken yen

Tokyo intervened in the currency markets on Wednesday for the first time in more than six years, a move that immediately sent the yen lower against the dollar but attracted criticism from Europe over Japan’s decision to act alone, the FT reports. The unilateral intervention also marks a further easing of monetary policy, since the Bank of Japan has decided to leave in the market the yen which were used to buy dollars, where they will add to general liquidity. The intervention had the desired impact, with the Japanese currency weakening by Y3 against the dollar, in an attempt to shore up the economy’s gradual recovery from its sharpest post-war recession. Yoshihiko Noda, Japan’s finance minister, said the yen’s sharp rise following the victory of Naoto Kan, prime minister, in a ruling party leadership battle had been “a problem that could not be overlooked” given Japan’s troubled economy and chronic deflation.

US raises pressure on China over renminbi

Washington took aim at China’s “unfair” trade policy on Wednesday, with lawmakers threatening legislation against Chinese currency intervention and the administration filing two new cases against Beijing at the World Trade Organisation, the FT reports. The moves are aimed to crank up pressure on Beijing to change what the US says are distortionary and illicit measures to favour its own companies. Tim Murphy, a Republican congressman from Pennsylvania, appeared at a House of Representatives hearing on Wednesday to promote a bill that would allow the US to treat Chinese currency undervaluation as an illegal export subsidy when imposing emergency tariffs. “The American people are calling for Washington to create jobs. Since the administration won’t hold China accountable, the Congress must.”

Anshan presses ahead with US steel investment in spite of protests

Anshan Iron and Steel is pressing ahead with a controversial US investment in the face of strong opposition in Congress and by industry associations, reports the FT. The Chinese state-owned group will buy a 14 per cent stake in privately-owned Steel Development and join the board of directors, the companies announced on Wednesday, without disclosing how much Anshan would pay for the stake. The other equity partners in Steel Development have not been disclosed, but John Correnti, its chief executive, said they were “all American” and included himself. Steel Development is building a $168m reinforcing bar mill in Amory, Mississippi and plans to build four more mills after that. The investment has been heavily criticized by members of the Congressional Steel Caucus, who issued a letter in July urging the government to investigate the deal on national security grounds.

Tokyo stocks boosted by yen intervention

Stocks were under pressure as a wave of buying sparked by Japan’s intervention in the currency market was hindered by US economic data showing a still-struggling economic recovery, the FT reports. The FTSE All World index managed to eke out a 0.2 per cent gain and benchmark bond yields rose, while commodity prices fell back and traders bought the safe-haven dollar. Much of the trading action was driven by Tokyo’s attempt to halt the rise in the yen, though the move’s broader impact on sentiment was muted. The yen tumbled the most in two years, down from 15-year highs. The move helped Japanese exporters’ shares bounce sharply, pushing the Nikkei 225 up 2.4 per cent, but other risk assets remain of the view that the gains seen so far in September may be vulnerable should more data disappoint.

Greece rules out possibility of default

Greece’s finance minister has strongly rejected the idea that Athens will be forced to restructure its debts, saying that a default would break the eurozone, the FT reports. On a two-day visit to London, Paris and Frankfurt to convince investors that Athens has turned a corner in its year-long economic crisis, George Papaconstantinou told the Financial Times that a Greek default would spark selling in other so-called peripheral bond markets of Portugal and Ireland. “Restructuring is not going to happen. There are much broader implications for the eurozone should Greece have to restructure its debt,” he said. “People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.”

EU unveils crackdown on derivatives

Tough rules to clamp down on the use of privately-traded derivatives and speculation in shares have been unveiled by the European Commission in a bid to tame what it has called the “wild west” of financial markets, the FT reports. The proposed rules aim to bring more transparency to the often-opaque world of “over-the-counter” derivatives – financial instruments traded off-exchange between two parties. Separately, the Commission has proposed an increase in the disclosure of short selling, where traders bet on a fall in the price of a security or share.

Goldbugging con’t…

Breakfast with Dave (Rosenberg, of Gluskin Sheff) on Wednesday included this remarkable, self-explanatory chart:

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Statement re: press comment

An entry for the media/corporate smackdown hall of fame.

MELBOURNE, AUSTRALIA — (Marketwire) — 09/15/10 — Ivanhoe Mines Ltd. (TSX: IVN)(NYSE: IVN)(NASDAQ: IVN) – Read more

The self-denying sovereign wealth fund

This is – in a way – yet another of those posts commemorating the fall of Lehman Brothers, two years ago to the day.

Then again — the post-Lehman sovereign wealth fund really has become something to behold, given the past two years of change. Read more

US manufacturing: now what?

Another day, another pair of freaking economic indicators sending out mixed signals on the state of US manufacturing.

Industrial capacity utilization and industrial production in the US both climbed slightly in August, reports the Fed, though the production numbers are less impressive than they appear because of a downward revision to July’s numbers. Read more

All hail, dollar repo in Europe

As we’ve already noted, the International Capital Market Association (ICMA)’s September survey of the European repo market has a wealth of interesting data and statistics.

Here’s one we found particularly telling, though: Read more

LSE volume watch

We often hear equity traders moaning about low volumes. But it seems right now they have a point.

Below are the top 10 stocks ranked by volume on the London Stock Exchange on Wednesday: Read more

European repo is back from the dead, says ICMA

The International Capital Market Association’s latest review of the European repo market is out, and there are some interesting findings to say the least.

Chief amongst them is the fact that European repo markets have recovered almost fully from their Lehman crisis setback, notching up a baseline market size of about €6,979bn — an increase of 25 per cent on the previous survey, conducted in December 2009. Read more

When bunds and euros are climbing

A slight curiosity, this. Citigroup’s FX team notes that bund futures rose late on Tuesday — and so did the euro against the dollar.

Here’s the chart: Read more

Tough crowd, Mervyn?

Bank of England governor versus — err — Big Barn Farm during a rare appearance at the UK’s Trade Union Congress on Wednesday:

For the benefit of readers outside the UK, CBeebies is a television channel for children — and Bob Crow’s a rather militant trade union leader. Read more

Bond and bill auctions, bashed all round

Now here’s an unglücklich result for Germany’s debt management agency.

That is, if results from Wednesday’s 10-year bund auction are anything to go by. Flashes via Bloomberg (emphasis ours): Read more

Markets Live transcript 15 Sep 2010

Live markets commentary from 

What next for the yen: ‘A lot of fake movements’

Here’s the latest on Tokyo’s long promised (or should that be, threatened)  intervention in the FX markets, as of about 6pm Tokyo time (10am BST).

The Bank of Japan is said to have sold a total of about $11-$12bn worth of yen into the market on Wednesday to buy dollars, according to traders and brokers at Tokyo’s biggest FX trading operations. Read more

Pimco makes $8.1bn bet against US ‘lost decade’

Bill Gross’s PIMCO has taken an $8.1bn position on the US not suffering a decade of deflation like the one experienced by Japan in the 1990s, reports Bloomberg. Regulatory filings show that was the notional value of long-term derivative contracts tied to the US consumer price index that Pimco’s mutual funds entered into during the first half of this year. According to Bloomberg, the funds receive $70.5m in up-front premiums under these contracts, known as inflation floors, in return for agreeing to pay investors should prices decline in the 10 years ending in 2020.

Swaps rules leave insurers in limbo

Insurers are facing uncertainty created by sweeping definitions in the Wall Street reform act, which leave open the possibility that their products will be covered by the new swaps regime, reports the FT. The Commodity Futures Trading Commission has the power to use the ambiguity of wording in the Dodd-Frank financial reform act to extend its reach to financial products that share some of the characteristics of derivatives, lawyers have said. Gregory Mocek, former director of enforcement at the CFTC, said the very wide definition of swaps – derivatives in which two counterparties exchange benefits – in the legislation left it “unclear as to how insurance will be covered”.

Vitol fined $6m over tardy disclosure to Nymex

Vitol, the largest oil trader, has been fined $6m by the US federal commodities regulators for “wilfully” failing to disclose in 2007 information on the relationship of two subsidiaries to the New York Mercantile Exchange, the FT reports. The fine comes amid heightened regulatory scrutiny of the oil market in the US. Earlier this year, the Commodities Futures Trading Commission fined Moore Capital, the hedge fund, and Morgan Stanley with separate penalties totalling $39m for alleged breaches of rules in the precious metals and oil markets. The CFTC said on Tuesday that it had settled a case involving Vitol Inc and Vitol Capital Management Ltd, both based in Houston, Texas. The regulator said Nymex “misperceived” the relationship between the two companies and the companies did not correct the situation until much later.

Tokyo stocks boosted by yen intervention

European bourses opened fractionally softer as all eyes turned to action in the forex markets, reports the FT’s global market overview. Tokyo’s attempt to halt the rise in the yen was the early centre of attention as traders assessed the impact such a move may have on the broader market. Not much, seems to have been the initial reaction. It’s just a yen thing. This has helped Japanese exporters’ shares bounce sharply, pushing the Nikkei 225 up 2.4 per cent, but other risk assets remain wary that the gains seen so far in September may be vulnerable should upcoming data disappoint. The FTSE All World index was up just 0.03 per cent, commodities were lower and core bonds were mixed. Gold remained within several bucks of Tuesday’s new peak. US equity futures were up 0.1 per cent.

Retailer price inflation

Another day and another reason to expect that Bank of England governor Mervyn King will be writing another Dear Chancellor letter later this year, reports FT Alphaville. Next, one of the UK’s biggest clothing retailers, has reiterated its warning that prices will have to rise significantly because of rising cost pressures around the globe. That stark warning from Next follows similar statements in the past week from AB Foods, the owner of Primark, and Debenhams. Read more

Gold hits fresh high

Gold prices hit fresh records amid forecasts that central banks would be net buyers of bullion this year after a decade of heavy disposals, the FT reports. Also supporting the gold price was news from gold producer AngloGold Ashanti on Wednesday that it planned to ‘eliminate’ its gold hedge book entirely by early 2011, reports FT Alphaville. GFMS, a consultancy that compiles benchmark gold statistics, meanwhile, said central banks would buy about 15 tonnes of bullion on a net basis this year, a situation last seen in 1988. The swing, which follows buying by Russia and some Asia- based central banks and plunging sales in Europe, drove gold prices to a fresh nominal high of $1,274.75 a troy ounce on Tuesday, up nearly 2 per cent on the day.

Guess who? QE edition

Competition time.

Who said the following at an investor Q&A on Tuesday? Read more

The gold de-hedging effect is back

Just when some were beginning to warn about gold producers’ exposure to a fall in gold prices, because of their stubborn reluctance to re-start hedging programmes…

The price of a troy ounce of bullion does this: Read more

Japan intervenes — at long last

Japan on Wednesday finally intervened in the foreign exchange market for the first time since 2004, bringing the yen to as low as Y85 to the dollar after it reached Y82.88 early in the day.

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