Posts from Wednesday Sep 29 2010

US Congress to hit back on renminbi

The US House of Representatives is set to pass legislation aimed at punishing China for undervaluing its currency, in a move that could heighten trade tensions between the two countries, the FT reports. Although the bill must still pass the Senate and be approved by President Barack Obama, its expected passage in the House on a bipartisan basis highlights frustration with China’s currency policy. The Obama administration, which has not taken a position on the legislation, has pursude a policy of engagement with Beijing in efforts to persuade it to allow the renminbi to strengthen, and could see its negotiating position enhanced by mounting congressional pressure.

Liberty IPO postponed

Liberty Mutual Group, the US insurance company, has postponed its planned $1.22bn initial public offering of its property and casualty subsidiary, citing “the stalled economic recovery” and a “volatile stock market”, the FT reports. The offering, which was scheduled to price on Wednesday, was expected to be one of the largest of the year. Analysts hoped it would help reinvigorate a sluggish IPO market. Of the 173 companies that have filed to go public in 2010, about three dozen have cancelled their offerings. Of those that have gone public, only three of the top performers are US companies, according to S&P.

Australia defies the house price doomsayer

Sydney’s property market broke fresh ground this month when a harbour-front home in the exclusive enclave of Point Piper sold for A$52m ($50m), the FT reports. The sale of Villa Veneto, a five-storey, six bedroom residence with art gallery, library and glass-roofed dining room, confirmed Point Piper’s Wolsley Road as Australia’s most expensive residential strip. Villa Veneto’s price was nearly double Sydney’s previous biggest sale of 2010 and demolished the old record of A$45m set a few days before the collapse of Lehman Brothers, the investment bank, in September 2008. The sale has fed into a fierce debate, that has drawn in international hedge funds seeking overheated markets they can sell short, over the extent to which Australian property prices are experiencing a bubble.

Japanese business optimism grows

Japanese manufacturers were upbeat about business conditions in September – but painted a gloomy picture of their prospects in the months ahead, according to the latest quarterly Tankan survey published by the Bank of Japan, the FT reports. With big manufacturers expecting their business conditions to worsen during the coming quarter for the first time since December 2008, economists forecast that the authorities would loosen fiscal and monetary policy in the weeks ahead. Chinese manufacturers were also more upbeat in September as the HSBC purchasing managers’ index rose for the fifth consecutive month, helping ease fears of a hard landing.

North Korea hints at succession

North Korea has given official roles in the ruling Workers’ Party to the third son of Kim Jong-il, the country’s ailing dictator, effectively guaranteeing his position as heir apparent, reports the FT. Kim Jong-eun’s appointments in the party on Wednesday come the day after he was made a four-star general in the military.  The official KCNA news agency said the younger Kim had joined the central committee of the Workers’ Party in addition to becoming a vice-chairman of its central military commission. The appointments were made at the highest-level congress of the party for 30 years. At a similar meeting in 1980, Kim Jong-il received the party roles that identified him as successor.

Soft drinks magnate tops China rich list

Zong Qinghou, the Chinese soft drinks magnate famous for tackling the French Danone group in China’s highest-profile foreign investment dispute, has been named the mainland’s richest man with a personal fortune of $12bn, the FT reports. According to the Hurun Rich List, an authoritative ranking of China’s wealthiest people, Mr Zong tops a list of 1,363 yuan billionaires in China – up from 1,000 last year. Mr Zong heads Wahaha, China’s leading soft drinks company, which recently emerged largely victorious from a protracted global legal battle with Danone, its former joint venture partner. “‘Drinks King’ Zong, 65, has overseen Wahaha’s rise to become China’s dominant drinks business with expected profits this year of US$1.5bn and 30,000 employees,” the Hurun Report, which compiles the list, said in a statement. He rose from 12th place last year.

IMF warns of ‘over-reliance’ on sovereign ratings

Regulators have accidentally spread financial instability by forcing investors to react instantly to downgrades in sovereign credit ratings, says the International Monetary Fund, reports the FT. The fund’s twice-yearly global financial stability report, released on Wednesday, also said the credit rating agencies needed to be more precise about what their sovereign ratings categories meant. In a separate study, the IMF said regulators had failed to spot rising risks from inadequate liquidity during the financial crisis. Guidelines on managing liquidity, now being worked out by regulators, should involve tougher rules on collateral and cross-border borrowing, the fund said.

US and Europe struggle as China factory data lift Asia

Stocks pulled back as protests in Europe drove home the easy-to-forget reality that whatever central banks may be doing, a sovereign debt crisis is a bad thing for risky assets, the FT reports. A firm showing in Asia helped the FTSE All-World equity index eke out a 0.1 per cent rise to a near five-month high, as strong economic reports in China and Japan propelled the Hong Kong and Tokyo markets, with Hong Kong seeing a fresh eight-month high. A fresh infusion of liquidity from rumoured central bank interventions in South Korea, Singapore and elsewhere helped as well. It lent credence to traders’ seeming belief that risky assets – which enjoyed saw one of the five best quarters for US stocks in the past decade, with the S&P 500 index rising 11.4 per cent – will benefit as central banks pump cash into the system.

Goldman warns on Europe regulation

Lloyd Blankfein, chief executive of Goldman Sachs, has suggested that the bank could consider shifting operations out of Europe if the regulatory crackdown on the industry becomes too tough, reports the FT. Blankfein told a conference in Brussels that Europe remains of vital importance to Goldman, with less than half of the bank’s business now generated in the US. He backed current moves to toughen bank regulation, but warned that the introduction of “mismatched regulation” across different regions as governments seek to avert future financial crises would tempt banks to search out the cheapest, least intrusive jurisdiction in which to operate.

Sinochem struggling to mount Potash bid

Sinochem of China is struggling to find partners to mount a counterbid for PotashCorp and derail BHP Billiton’s $39bn hostile takeover following the collapse of talks with a potential Russian partner, the FT reports. The failure of talks with UralKali, the Russian fertiliser group, is the latest setback for the state-owned Chinese chemical group after earlier approaches to a Canadian public pension fund, and Temasek, the Singapore’s investment agency.

Fed president speech roundup

If you needed yet another sign of disagreement within the Fed over the proper course of monetary policy, look no further than the texts of four speeches given by regional Fed presidents on Tuesday and Wednesday.

First up is Atlanta Fed pres Dennis Lockhart, who believes the slowdown is temporary but nonetheless expects only gradual rise in employment and inflation. Citing only anecdotal evidence, he thinks the culprit isn’t monetary policy, but rather uncertainty: Read more

Of bond markets and imbalances

A global currency war rages, China slaps tariffs on US poultry, and the US Congress considers punitive measures related to the USD-RMB peg — suffice to say that complications related to global imbalances won’t be resolved anytime soon.

But let’s look at the long term. Economists John Burger, Veronica Warnock, and Francies Warnock have written a new paper bolstering the case that the development of local-currency bond markets in emerging economies would be extremely helpful. Read more

The Swiss franc is as good as gold (literally)

We like watching correlations here at FT Alphaville.

And here’s a new one to add to the melting pot. Read more

The problems of a Basel-ed central bank

Lorenzo Bini Smaghi.

The European Central Bank executive board member may not be a friend of analysts who ponder a Greek default, but he had some wise old words this Wednesday on the problems banks face in Basel III ‘s liquidity rules. Read more

Hedging Ireland…

Or, who’s most exposed/correlated to Ireland.*

Ahead of Thursday’s ‘D Day’ for the Irish government’s final plans for the bailed-out bank Anglo Irish, Nomura has some ideas on how to hedge those Irish bonds they recommended you to buy earlier this month. Read more

JP Morgan ponders the death of securitisation

For your digestion on Wednesday — 15 pages of Basel III brooding.

JP Morgan banking analysts led by Kian Abouhossein have meditated in their latest note on the potential effects of forthcoming Basel III regulations on investment banks, particularly US ones. Read more

Japan intervention watch

So much for Tokyo’s big, bold, intervention move. The yen rose further on Wednesday to Y83.50 before settling (temporarily no doubt) at around Y83.60.

That marks its highest against the dollar since Tokyo intervened on September 15 to try to curb its strength. Read more

Markets Live transcript 29 Sep 2010

Live markets commentary from 

Europe’s mystery dollar-snaffler strikes again

They’re at it again — whoever they are. The European Central Bank once again shuffled $60m to a single mystery bank in a weekly dollar allotment on Wednesday:

 Read more

Irony alert: China cries fowl

Minyanville has picked up on the irony of the month, following Monday’s news that China, which was the largest importer of US chicken in 2009 ($752.2m), will impose new ‘anti-dumping’ duties on chicken parts and whole birds, ranging from 50.3 per cent to a whopping 105.4 per cent.

Announcing the duties, which will be in place for the next five years, China’s commerce ministry said US producers were engaged in “dumping” which made it difficult for China’s domestic chicken industry to compete. Read more

Europe braced for austerity protest day

European cities are braced for gridlock and mayhem on Wednesday as demonstrators take to the streets in coordinated protest against government imposed austerity measures, the Guardian reports. According to Ireland’s RTE News, protests are planned for 11 countries, including Ireland, while the European Trade Union Congress has estimated that up to 100,000 people will head to Brussels to protest against the EU’s role in promoting austerity measures. In Spain, domestic trade unions have launched their first general strike in eight years, affecting most forms of public transport in the country’s big cities, including flights and trains. The FT adds that Ryanair, the low-cost airline, has cancelled all its Spanish domestic flights and most of its international flights to and from the country.

Another LTRO roll-over [updated]

Wednesday is Long-Term Refinancing Operation roll day — the most significant European funding rollover since the expiry of the €442bn 12-month LTRO back in June.

About €225bn worth of European Central Bank liquidity largess will be maturing on September 30, as three operations come to an end (a €132bn three-month, €18bn six-month and €75bn one-year). Banks will get a chance to roll into new operations this Wednesday, specifically a new three-month LTRO. Thursday will also see the start of a six-day fine-tuning operation. Read more

Europe flat as China factory data lift Asia

European stocks were struggling to make significant headway as traders seemed reluctant to load up on riskier assets as a strong quarter drew to a close, reports the FT’s global market overview. A firm showing in Asia helped push the FTSE All-World equity index up 0.3 per cent to a near 5-month high and gold hit a new record, with investors in both assets exercised by hopes and fears respectively about what further central bank quantitative easing could mean for the investing environment. US equity futures were lower by 0.1 per cent and Treasuries little changed. The FTSE Eurofirst 300 stock index was flat.

AIG ready to discuss Treasury exit plan

AIG’s board is set to finalise a restructuring plan on Wednesday that would increase the US Treasury’s stake in the insurer to about 90 per cent as a step toward an eventual government exit, reports the FT. People close to the situation said AIG directors were expected to formally discuss for the first time the Treasury’s plan to convert $49bn in preferred shares into common stock. This would raise the government’s stake from the current 80 per cent, while diluting the holdings of existing shareholders. To make up for this dilution, the government would offer the outside shareholders warrants giving them the right to buy AIG shares in the future at a discount to the current price.

Dublin to put fresh €5bn into Anglo Irish

Ireland will unveil on Thursday a fresh taxpayer-funded recapitalisation of Anglo Irish Bank, the institution at the centre of the country’s property meltdown, amid rising alarm over the country’s financial health, reports the FT. Ireland’s cost of borrowing on Tuesday hit record levels with yields on 10-year government bonds jumping 25 basis points to 6.72 per cent. Irish bond yields for 10-year debt are at similar levels to Greece at the start of April – only a month before Athens was forced to turn to the international community for loans. The rise in yields came in spite of buying from the European Central Bank to help stabilise the markets, according to traders.

Fox savages Treasury on defence cuts

Liam Fox, the defence secretary, has launched a big assault on the Treasury’s attempt to slash his department’s budget, warning that “draconian” cuts to military spending cannot be implemented without “grave consequences” for the Conservative party and the government, reports the FT. In a head-on attack on chancellor George Osborne’s call for cuts of up 20 per cent in the Ministry of Defence budget, Mr Fox has told David Cameron that he refuses to back any substantial reduction in funding for the armed forces. In a private letter to the prime minister, written on Monday night, Mr Fox said the Tories risked “destroying much of the reputation and capital” they had built up on defence if they implemented the cuts demanded by the Treasury.

Further reading

Elsewhere on Wednesday,

Career lessons from “Wall Street: Money Never Sleeps”. Read more

Pink picks

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

Martin Wolf: Currencies clash in new age of beggar-my-neighbour
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness.” This complaint by Guido Mantega, Brazil’s finance minister, is entirely understandable, notes the FT columnist. In an era of deficient demand, issuers of reserve currencies adopt monetary expansion and non-issuers respond with currency intervention. Read more

Snap news

Breaking pre-market news on Wednesday,

– LSE trading up in H1 but slowed in Q2 – statement. Read more

Japan business optimism grows

Japanese manufacturers were more optimistic about business conditions in September than economists had expected, but the Bank of Japan’s closely watched quarterly Tankan business survey indicated more gloom ahead, reports the FT.  The results appeared to contradict recent corporate complaints about the impact of the yen’s climb to 15-year highs against the dollar and a slowdown in economic growth. Japanese companies now expect the average yen exchange rate against the dollar to be higher in the October-March period than they had expected in the last survey in June, the survey showed. Bloomberg notes, however, that confidence among companies rose the least since early 2009.