Posts from Monday Sep 27 2010

LCH.Clearnet rebuffed over derivatives

LCH.Clearnet, Europe’s largest independent clearing house, and the London Stock Exchange have been rebuffed by one of their biggest rivals, Deutsche Börse group, in an attempt to break into trading and clearing of off-exchange equity derivatives, the FT reports. The moves are a sign that the commercial interests of some exchanges and clearing houses could undermine efforts by global regulators to enact sweeping reforms of the vast over-the-counter derivatives markets.

Australian dollar marches towards parity with greenback

The Australian dollar’s march towards parity with its US counterpart gathered pace as it briefly cracked the $0.96 threshold for the first time in more than two years, reports the FT. The rise on Monday builds on the currency’s record as one of the world’s best performers in 2010 against the US dollar, with a gain of close to 7 per cent – although it trails the Japanese yen’s 10 per cent rise, according to Commonwealth Bank of Australia research. A swelling chorus of analysts and commentators are now lining up to predict the Australian dollar will surpass its previous record of $0.985 set in July 2008 to reach the $1 level.

Japan may demand compensation from China

Japan on Monday said it might demand compensation from Beijing for the repair of coast guard vessels damaged in collisions with a Chinese fishing boat, underscoring continued territorial tensions between Asia’s biggest economies, the FT reports. The release last weekend by Japanese prosecutors of the Chinese fishing boat captain detained after the clash in disputed waters of the East China Sea has failed to end the worst Sino-Japanese dispute in years, while exposing Tokyo’s Democratic party-led government to accusations that it buckled under pressure. China’s determination not to soften its tone about the dispute – centred on ownership of the Japanese-controlled but Chinese-claimed Senkaku islands – has fuelled regional fears that its growing economic military clout could signal more aggressive action about a host of maritime territorial disputes with its neighbours.

Kim Jong-il’s son poised for succession

Pyongyang has named the third known son of Kim Jong-il as a general in an almost certain sign that he has been appointed his father’s successor in the dynastic state, reports the FT. Kim Jong-eun is believed to be only 27 years old, and international observers are debating whether such a young man can lead in his own right or whether he will only be a puppet for a group of senior generals in North Korea. According to a bulletin from the official news agency, the son has been given the rank of general, putting him at the centre of the most important body in the country. This is the first time that North Korean state media has ever made reference to one of Kim Jong-il’s sons.

Russia hails oil pipe as first step towards China

Russia and China opened a historic oil pipeline in a move hailed by their leaders as the first step towards diversifying Russia’s energy exports away from Europe and towards its eastern neighbour, the FT reports. The commercial logic of greater energy links between one of the largest producers of energy and the world’s largest consumer has outweighed political distrust between the two nations, which fought a brief war in 1969 and only two years ago finalised border delimitation.

Rebound in eurozone bank lending

Eurozone bank lending to consumers and business is showing increasing signs of a rebound, with mortgage lending leading a noticeable pick-up last month, the FT reports. European Central Bank figures released on Monday showed bank lending to the private sector increasing at the fastest annual rate since June last year. That suggested the pick-up in eurozone growth since then has encouraged demand for credit – or, alternatively, that banks had become more willing to lend and thus oil the wheels of the economic recovery.

Unilever to buy Alberto Culver for $3.7bn

Unilever is to buy Alberto Culver, the US consumer products group, in a $3.7bn deal that will see it bring brands such as TRESemmé and VO5 shampoos into the Anglo-Dutch conglomerate’s stable of hair care and skin care products, the FT reports. The deal would be the biggest acquisition since Paul Polman became chief executive of Unilever in January 2009. It would be the second big takeover under his tenure, following on from the $1.9bn deal to acquire the European personal care division of Sara Lee in September last year.

Southwest acquires AirTran for $3.4bn

Southwest Airlines has agreed to buy rival AirTran in a deal that values the Florida-based low-cost airline at $3.4bn, reports the FT. The move by Southwest is the first example of consolidation between two large US low-cost airlines and marks a departure from the Dallas-based airline’s usual strategy of organic growth. Southwest, the originator of the low-cost airline model that has spawned imitators around the world, put its aggressive organic growth strategy on hold during the worst of the economic downturn and oil spike in 2008 caused it to pull back.

Stocks slip near end of September’s strong run

Government bond yields continued to tick lower as investors’ thirst for safe-haven assets shows no sign of letting up, while stocks’ September rally takes a breather, the FT reports. An auction of two-year Treasury bonds saw them price at the lowest-ever yield, though most assets were little moved during the session. Traders’ reluctance to make a sharp move continues into another week. No one wants to get caught in the crossfire of ‘a currency war’, it would seem. The FTSE All-World equity index touched six-month highs earlier in the day, as Wall Street’s Friday rally spilled over into Asia, which took the benchmark’s advance to 9 per cent in September.

Brazil in ‘currency war’ alert

An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness, the FT reports. Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

The FDIC considers safe harbours (again)

On Monday, the FDIC finally approved a new set of rules governing “safe harbour” provisions for ABS, which will be effective starting December 31.

As we’ve noted previously, safe harbour provisions concern the rules that a bank issuer of ABS must adhere to in exchange for assurance that the FDIC will not take over the securitised assets that have been transferred from the bank to special purpose entities. Read more

Dagong gets defiant

Oh, this is getting fun.

Put aside for a minute the ongoing debate over the renminbi and the looming threats of a trade war. Another US v China conflict is hotting up again, after a two-month lull. Read more

Sovereign liquidity snapshots

Curious, this. The European Central Bank dialed back its buying of eurozone government bonds last week despite panic swamping Portuguese and, in particular, Irish bonds. The ECB bought a scant €134m of bonds, versus €323m a week earlier.

Or is it so curious? Perhaps it’s really just a lesson in liquidity. Read more

And over in Belgium …

The bond market’s (Belgian) beer goggles have firmly come off.

10-year Belgium bond spreads over German bund equivalents have risen to circa 90 basis points, or about 40 per cent more than at the start of this month. That, we’re told, is on worries the country’s current leadership vacuum will prevent it from tackling its debt burden, reportedly the third biggest in the eurozone. Read more

Maturity magic

We knew it was coming.

But innovations to escape newly-created liquidity rules for banks have come rather sooner than we thought. Read more

The trouble with assets, within assets, within assets

Correlation swaps. Next big thing or next big risk factor?

Theo Casey, a MoneyWeek managing editor, has looked at the fledgling asset class in more detail this week. In an article for Futures and Options Intelligence he concludes that for many investors . . . it’s probably the latter. Read more

A hold-out in the devaluation wars

Schwing! As they might be saying at European Central Bank HQ:

 Read more

The slooooww death of Europe’s excess liquidity

And now — an elegy for the end of some more European excess liquidity. Except for the bits still keeping Greek, Portuguese (et al.) banks going.

September 30 is rather a red-letter day for the euro money markets this week. Three European Central Bank repo operations will expire, totalling €225bn: or to put it another way — 38 per cent of the liquidity the Bank shoved into the system during the crisis. Read more

Europe’s EFSF really is not saving anything

The European Financial Stability Facility — the centrepiece of the €750bn European Stabilisation Mechanism — is suddenly hitting headlines, but not in the way its creators might have wished.

From structure to size Read more

The increasing frequency of the Fed’s POMOs

Here’s a nice chart from Olivier Jakob at Petromatrix, who is taking an increasingly broad view of market goings-on in his bid to interpret the energy complex — oil, gas, the lot — on a daily basis:

 Read more

Eurozone M3 sharply on the rise

Here’s one for the inflation vs deflation debate.

According to the latest figures from the European Central Bank, there was an unexpectedly large bounce in eurozone M3 money supply in August. Read more

Markets Live transcript 27 Sep 2010

Live markets commentary from 

Takefuji finally ‘sheds its skin’

It’s almost like old times, when Japanese financial institutions were crashing like sumo wrestlers on a bad day.

For keen observers of Japan’s troubled consumer finance sector, the only surprise about a Monday report in Japan’s Nikkei newspaper that lender Takefuji could file for bankruptcy protection, is that it took this long for another domino to fall. Read more

Moody’s thwacks Anglo Irish bonds

More bad news for Anglo Irish creditors on Monday — Moody’s slashed its ratings of the bank’s senior unsecured and subordinated debt; the latter by six notches, no less, although Moody’s actions on the bank’s senior unsecured debt may be of more concern.

From the rating agency’s release: Read more

Global value of buy-outs doubles to $144bn

The private equity industry’s rush to put its money to work has seen a near doubling of buy-out activity in the first nine months of the year, reports the FT. Buy-outs jumped from $77.9bn in value to $144bn in the first nine months of the year. In the third quarter, buy-out activity was the highest since early 2008, rising to $62.9bn from $24.4bn in the same period last year. The increase, helped by a thawing of financing markets, came amid modest recovery in global M&A activity. While the rate of growth in deals is strong, absolute levels of activity remain subdued. The value of deals announced in the year to date rose 19.1 per cent to $1,354.8bn from the same period last year, helped by a busy August during which BHP Billiton launched its hostile all-cash bid for PotashCorp , according to data from Mergermarket.

Wolseley plans to move tax base to Switzerland

Wolseley, the builders’ merchant, has become the latest British company to seek to change its corporate structure for tax reasons, proposing to redomicile to Switzerland as it disclosed a narrower annual pre-tax loss, reports the FT. The FTSE 100 group said on Monday it planned to create a new holding company that would be listed in London but incorporated in Jersey, with a tax residence in Switzerland. Wolseley said that as a result of the move, which is subject to shareholder approval, its underlying tax rate would fall from 34 per cent to 28 per cent. That would have saved the company an estimated £23m in its most recent financial year.

Walmart targets S Africa’s Massmart in $4bn move

Walmart offered more than $4bn for South African wholesaler Massmart Holdings on Monday as the world’s largest retailer seeks to expand in fast-growing Africa, reports Reuters. Massmart, South Africa’s third-largest listed store group by value, owns chains such as Game and Makro and has been among the most aggressive South African retailers in expanding into the rest of sub-Saharan Africa, and now operates in 14 countries. There had long been speculation that Walmart would try to expand in Africa, with Massmart seen as a likely target. The two companies said Walmart had offered R148 per share for Massmart, valuing the company at R28.9bn ($4.1bn) or a premium of nearly 10 per cent above the share price at Thursday’s close of R134.75.

Unilever pays $3.7bn for Alberto Culver

Unilever is to buy Alberto Culver, the US-based consumer goods company, for $3.7bn (£2.3bn) in a deal that will bring brands such as TRESemmé and VO5 into the Anglo-Dutch conglomerate’s stable of haircare and skincare products, reports the FT. “We are delighted to be acquiring Alberto Culver,” Paul Polman, Unilever chief executive, said on Monday. Shares in Unilever rose 0.3 per cent or 6p to £17.99p in early London trading on Monday. For the 12 months to June, Alberto Culver made revenues of $1.6bn (£1.1bn) and earnings before interest, tax, depreciation and amortisation of more than $250m (£158m). The all-cash deal includes $150m of Alberto Culver’s debt.

Stocks extend gains on economic recovery hopes

Stocks in Europe were moving higher, helped by solid gains in Asia, as investors became more optimistic about the economic recovery following supportive data out of the US, reports the FT. US equity futures were up 0.1 per cent. However, with core bond yields a touch lower and industrial commodity prices falling back, appetite for risk appeared selective. The FTSE All-World equity index was up 0.4 per cent to a near six-month high, taking its advance during September to more than 9 per cent. The global benchmark has climbed 14 per cent this quarter, powered by record peaks in some emerging markets – such as Indonesia and the Philippines – and an 11.5 per cent rise for the S&P 500 in New York as investors became convinced that the US Federal Reserve stood poised to take supportive action should evidence of an economic relapse cause riskier assets to falter.

Japanese lender Takefuji under bankruptcy cloud

Speculation mounted on Monday that Japanese consumer lender Takefuji was preparing to file for bankruptcy as part of a move to restructure itself, Japan’s Nikkei newspaper reported. According to Bloomberg and Reuters, the group, which has $5.2bn in debts, has suffered under the weight of court-ordered interest repayments and tighter lending rules. The lender is seen at risk of failure due to not having the financial backing of any of Japan’s big banks. Bloomberg said the group was considering “various measures” to revitalize its business, according to a statement it made to the exchange on Monday. Shares were halted for most of the day as as a glut of sell orders hit the market immediately after the media reports were published. For more see FT Alphaville.