Posts from Monday Sep 20 2010

EU to rein in commodity speculation

Reforming commodities markets to curb speculation activity will be a key aim for Brussels officials as they overhaul the rules for trading in Europe during the coming months, the FT reports. EU internal market commissioner Michel Barnier said on Monday he planned to use the review of the Markets in Financial Instruments directive and the Market Abuse directive to tackle what officials view as dangerous price volatility. The proposal, which comes weeks after the US overhauled its commodities legislation, is likely to face strong resistance from London, home of Europe’s top commodities exchanges and banks dealing in raw materials.

Downturn longest since Great Depression

The longest US recession since the Great Depression officially ended in June 2009, the body charged with dating US business cycles said on Monday, reports the FT. The National Bureau of Economic Research said that the recession lasted 18 months, from December 2007 to June 2009. That was longer than the 16 months of the 1973-75 and 1981-82 recessions. The announcement highlights the extraordinary length of the recession that began when the collapse of the subprime mortgage market triggered the most severe financial crisis since 1929.

FSB turns spotlight on mortgage markets

Global regulators at the Financial Stability Board are launching a worldwide review of residential mortgage underwriting and origination standards, in an effort to address one of the main causes of the 2007-8 financial crisis, reports the FT. The Switzerland-based group, made up of representatives of 24 countries and international bodies such as the International Monetary Fund, asked regulators and banking supervisors on Monday for detailed information on their mortgage markets and rules. They are seeking to weed out poor underwriting and supervisory gaps that led to regulatory arbitrage.

Unicredit’s Profumo to step down

UniCredit, Italy’s largest bank by assets, has called an extraordinary board meeting at which its chief executive Alessandro Profumo is expected to resign, the FT reports. Mr Profumo, chief executive of the bank for 15 years, has long been one of the country’s most prominent and influential bankers. He has come under increasing pressure from shareholders and board members over his leadership since the financial crisis, and only narrowly held on to his job in 2009 and the year before.

World trade ‘set to surge 13.5%’

World trade is expected to grow by 13.5 per cent this year, a third higher than the previous estimate, according to Pascal Lamy, head of the World Trade Organisation, the FT reports. Mr Lamy said at the start of a three-day summit at the United Nations that the better-than-expected growth in trade volumes reflected the success of efforts to head off protectionism as a response to the world economic crisis. “The world trade system has stayed open despite expectations,” he told reporters after addressing a UN general assembly debate on international progress towards poverty eradication goals. “Protectionism is the dog that didn’t really bark during the crisis.”

Opposition to forcing China to revalue currency

Eight former US trade representatives and commerce secretaries have implored the leadership on Capitol Hill not to use unilateral legislation to force China to revalue its currency, the FT reports. The letter, which was sent to leaders of the Democrats and Republicans in the House of Representatives and the Senate, is a last-minute intervention in the congressional debate about how best to deal with Beijing. The signatories include US trade representatives from both Democratic and Republican administrations, including Mickey Kantor, US trade representative under President Bill Clinton in the mid-1990s, Charlene Barshefsky, his successor who served between 1997-2001, and Susan Schwab, who was trade representative for the last four years of the Bush administration.

Daniels to step down as Lloyds chief

Eric Daniels has ended months of uncertainty about his future by announcing his retirement as Lloyds Banking Group’s chief executive and adding to a fortnight of boardroom upheaval at Britain’s banks, the FT reports. Mr Daniels, 59, said on Monday he intended to retire “in a year’s time” but senior bankers involved in the process of finding his successor said he could step down within five months.

China cancels Japanese visit to Expo

China has abruptly cancelled an invitation for 1,000 young Japanese to visit the Shanghai Expo amid a widening dispute over Japan’s detention of a Chinese fishing boat captain in disputed waters of the East China Sea, the FT reports. The young people were supposed to travel to Shanghai on Tuesday at the invitation of Wen Jiabao, the Chinese premier. However, Japanese officials said the All China Youth Federation had announced late on Sunday night that the exchange could not go ahead because the “atmosphere is inappropriate”.

Traders optimistic ahead of Fed decision

A week of holidays in large Asian centres, a thin slate of economic catalysts on Monday and wariness ahead of the US Federal Reserve’s monetary policy decision on Tuesday did not stopped traders from taking a bullish tack, the FT reports. The FTSE All-World equity index was up 1.2 per cent and industrial metals are firmer. But signs that some participants remain extremely wary about the investing environment can be seen, arguably, in the gold market, where the precious metal at one point hit another nominal high, above $1,283 an ounce. Widening eurozone “peripheral” spreads provide another cautionary note, and core sovereign bonds are little changed despite the heightened risk appetite in stocks.

In case of interest: Obama vs hedgie

The Washington Independent on Monday published an excellent summary of Barack Obama’s town hall to discuss the economy, which included this exchange between the president and a hedge fund manager:

 Read more

Choppiness continues for CRE

Moody’s on Monday released the latest update of its commercial property price index. According to the rating agency’s proprietary index, June’s woes continued through July and prices have nearly fallen back to their recession lows:

The Moody’s/REAL All Property Type Aggregate Index recorded a 3.1% decrease in July, bringing the index to 108.98. This is the second consecutive month in which the index has shown a price decline in excess of three percent. The index has now fallen to a level that is only 0.9% above the recession low recorded in October 2009. Read more

Staying on target

The FOMC meets on Tuesday, and a discussion has broken out among the commentariat over the potential efficacy — and political viability — of the Fed’s setting a higher inflation target.

Tyler Cowen argues an inflation target of 3 per cent would effectively boost spending and reduce the real value of debt, though it would also be politically tricky. And if it didn’t work, the move could seriously damage the Fed’s credibility and maybe even threaten its independence. Read more

The once and future sovereign crisis

From the annals of is-that-really-the-story-here Bloomberg headlines:

Europe Debt Crisis Abates as Traders See Yield Spreads Narrow

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The Great Recession was so 2009

The Business Cycle Dating Committee of the National Bureau of Economic Research has arbitrarily declared something of little real import announced that the Great Recession in the US officially ended more than a year ago (emphasis ours in all excerpts):

The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

 Read more

The descent into global C-H-A-O-S

It’s Monday and time for another helping of doom and gloom from Albert Edwards.

This week SocGen’s ‘strategiste global’ is in particularly bearish mood, arguing that all of the ingredients are now available for a meal of global chaos. Read more

Access denied?

Is that what Goldman’s Erik Nielsen means when he talks about losing access to the market?

The Irish 10-year bond yield has reached danger record levels on Monday: Read more

And it’s goodbye from Eric

Hankies at the ready.

Eric Daniels is leaving Lloyds. As the bank said in a release on Monday: Read more

Still stubbornly inverted

Joseph Abate at Barclays Capital sure loves a mystery.

Recently, he puzzled over why US GC repo rates were trading stubbornly higher than US unsecured rates… Read more

Britain’s AAA-usterity, courtesy of Moody’s

First the AAA-rated Euro bailout fund, now this. Moody’s was obviously feeling generous on Monday.

It’s kept the UK’s top rating on a stable outlook — interesting, as Moody’s clearly believes you can have austerity and keep your AAA. Read more

S&P rustles up another – yawn – AAA for the EFSF

We’re detecting a slight theme here.

Standard & Poor’s completed a hat-trick of top ratings for the European Financial Stability Facility on Monday — veritably dilly-dallying behind Moody’s and Fitch’s earlier pronouncements. From S&P’s releaseRead more

Markets Live transcript 20 Sep 2010

Live markets commentary from 

Homework for the Independent Banking Commission

Here’s some reading for the UK’s Independent Banking Commission, ahead of its first public appearance on Friday.

It’s an in-depth report from JP Morgan on the profitability of Lloyds Banking Group’s retail operations. Read more

The renminbi’s release is speeding up

Now here’s a renminbi mystery.

Not only did the People’s Bank of China fix the USDCNY cross-rate lower for the eighth time running on Monday at 6.7110, versus Friday’s 6.7172 — the longest run of low fixes since October 2007. But the cross-rate actually traded below the fix itself, hitting a low of 6.7095: Read more

The strange tale of the Facebook phone

Facebook is following in the steps of Google and building its own cellphone, a source with knowledge of the matter has told Tech Crunch. Oh no we aren’t, Facebook has countered, insisting to Reuters that it plans to integrate with existing platforms. But there do seem to be plans for Facebook to build the software for a phone and then contract out the hardware to a third party, creating a Facebook-branded handset, reports CNET. At any rate — it’s a sign that the social network giant is concerned about the impact of Apple’s iPhone and Google Android on its future expansion plans, even as the timetable for an initial public offering for the company remains unclear.

Indian conglomerate circles MGM

Sahara India Pariwar, an Indian media-to-sports conglomerate, is in talks to rescue Metro-Goldwyn-Mayer, the troubled Hollywood studio, with an offer to buy up half of the studio’s $3.7bn debt in return for an equity stake, the FT reports. MGM has been in the hands of its lenders for almost a year after it became unable to service its huge debt pile, amassed when it was taken over in 2005 by a consortium comprising private equity firms, Sony and Comcast. Sahara would have to pole-vault over substantial hedge fund holdings of the debt in order to make an attractive offer to creditors, the WSJ adds.

BAE expands in US with $296m deal

BAE Systems, Europe’s biggest defence contractor, is to acquire part of L-1 Identity Solutions in a complicated deal that will result in the US defence group being sold to French rival Safran for $1.6bn, the FT reports. BAE is paying $296m for three L-1 divisions specialising in intelligence services. Spectal is a private intelligence consulting business staffed with former intelligence officers, of whom many worked at the CIA and FBI. Safran’s acquisition will also give it skin in the American defence game however, according to Dow Jones, in a deal that represents a 31 per cent premium on L-1’s 30-day average closing price.

Market plays Fed waiting game, again

Wariness ahead of the US Federal Reserve’s next monetary policy decision on Tuesday has left many traders cautious in their purchase of risk in Monday’s market, the FT reports. US equity futures are up 0.4 per cent, suggesting Wall Street will remain stuck at the top of its recent relatively tight range. However, gold has pushed to a fresh nominal high, above $1,283 an ounce, in part on expectations of monetary easing from the Fed. While the Fed won’t help resolve investor uncertainty, the market is also digesting last week’s FX intervention by Japan, Reuters adds, with fears of a domino effect on other currency markets beyond the country.

HP seeking internal candidate for CEO

Hewlett-Packard is looking within to find its next chief executive, the WSJ reports — though the company won’t be announcing a pick in the next few days. Three executives stand out, according to the paper’s sources — Todd Bradley, HP’s personal-computers boss, Ann Livermore, who leads its server business, and Dave Donatelli — who led the company’s bidding war with Dell for 3Par. Bradley appears to be in the lead for now, having gained support on HP’s board. HP’s lawsuit to prevent its ditched former chief executive Mark Hurd from joining Oracle continues.

Pimco cycles into buying bank debt

Negative basis trades ahoy — Pimco is exploiting gaps between the cost of CDS protection on bank debt and the yield it offers, Bloomberg reports, as financial institutions prepare to rebuild capital after the crisis. The fund is exploiting a 25 basis-point gap between the two, up from 2 basis points in January but still far below the 250 basis-point chasm opened in the wake of the Lehman crisis. Analysts predict that the current gap will disappear as signs of economic tension ease — although Pimco’s chief executive Mohamed El-Erian is waiting until November for the Fed to confirm its policy, as he writes in an opinion piece for FT Alphaville.

Still a risk Ireland will access the EFSF and IMF – Goldman

No doubt about the main high lowlight of the week (apart from the FOMC meeting) — the Irish government’s attempt to find buyers for €1.5bn of four and eight year bonds on Tuesday.

In an effort to calm nerves ahead of the auction, Ireland’s finance minister Brian Lenihan went on the offensive at the weekend, pointing out that the country had raised sufficient funds to finance its budget through to the middle of next year. Read more