FT Alphaville is off on holiday. But before we go we wanted to say…
Markit credit analyst Lisa Pollack investigates why 2007 is still haunting a number of CDS index products when it comes to off-the-run volumes.
According to ISDA, there were $62,000bn of credit default swaps (CDS) at the end of 2007. What exactly is this number though? First, it’s gross, not net. If one desk at a dealer is a buyer of $10m of CDS protection and another desk at the same dealer is a seller of $10m of CDS protection, the dealer as a whole has a net position of zero. In order to be perfectly fungible, the two CDS contracts have to have the same attributes, meaning reference entity, tier, maturity, currency, and restructuring clause. Read more
RTRS-BRITAIN’S FTSE 100 <.FTSE> INDEX HITS 6,000-MARK FOR FIRST TIME SINCE JUNE 2008
Sadly it didn’t manage to close there. Read more
On Thursday, Germany’s Sueddeutsche Zeitung carried a story suggesting Germany was working on the creation of a European Stability and Growth Investment Fund, which according to Reuters would run as a largely independent institution next to the European Central Bank. The facility would, however, be used to backstop ailing euro-zone members.
As Reuters reported: Read more
With a hat tip to Annie Lowrey of Slate, check out the winner of Merriam-Webster’s word of the year for 2010:
Topping the list is austerity, defined as “enforced or extreme economy.” Lookups for austerity peaked dramatically several times throughout the year, as people’s attention was drawn to global economic conditions and the debt crises in Europe, but lookups also remained strong throughout the year, reflecting widespread use of the word in many contexts. “Austerity clearly resonates with many people,” said Peter Sokolowski, Editor at Large at Merriam-Webster, who monitors online dictionary searches. “We often hear it used in the context of government measures, but we also apply it to our own personal finances and what is sometimes called the new normal.” Read more
Here’s something to add to those lists of 2011 investment themes doing the rounds: whether we’ll get a full-blown comeback of the dollar carry trade in the new year.
Controversial, we know. Read more
Not that we think any of these indicators will have much of an impact on the last trading day before Christmas — but here’s a roundup of activity on Thursday morning:
Initial weekly unemployment claims: Read more
For those still worried about a potential eurozone break-up, here’s an interesting factoid courtesy of Barclays Capital’s Thorsten Polleit on Thursday.
According to the economist, there are still €13.45bn worth of Deutsche Marks in circulation in the eurosystem. Read more
Live markets commentary from FT.com
We all know the Bank of England has an inflation problem.
As revealed in Wednesday’s MPC minutes, BoE governor Mervyn King and crew are more worried about inflation than they have ever been in the post Lehman crisis environment. Read more
The sell-off in the trendy clothing retailer shows no signs of abating.
The US has accused China of illegally subsidising the production of wind power equipment Reuters reports, with officials saying they were concerned that Chinese manufacturers of wind turbines and related parts and components could have received several hundred million dollars in questionable government grants in 2008. The US has asked for talks at the World Trade Organisation, which is the first step in filing a trade case. “Import substitution subsidies are particularly harmful and inherently trade distorting, which is why they are expressly prohibited under WTO rules,’’ said Ron Kirk, the US trade representative, in a statement. “These subsidies effectively operate as a barrier to US exports to China.” Read more
Airgas has rejected another takeover offer from Air Products, Reuters reports, after the sweetened $5.9bn bid was deemed not enough by the industrial gas producer. Meanwhile Air Products reiterated that its $70 per share cash offer is “best and final.” Airgas’ board wants at least $6.5bn, or $78 per share, and all ten directors were united in urging shareholders not to accept Air Products’ tender offer, which expires on 14 January. Air Products approached Airgas about a takeover in late 2009, but talks have stumbled over the price. Dealbook analyses the Airgas rejection. Read more
Six regional banks have repaid funds that the US Treasury supplied during the financial crisis, returning $2.7bn to taxpayers, the FT reports. More than two years have passed since the US government invested $389bn in a financial system which was frozen by crisis . Many of the nation’s largest banks and insurers have since repaid their bail-out funds, underlining the weaknesses of those still in its programme. The diverging path of the industry’s haves and have-nots has helped spur a pick-up in merger activity among regional banks. The latest crop includes four of the top 25 largest remaining Tarp recipients. The US Treasury said on Wednesday that Huntington Bancshares, First Horizon National, Wintrust Financial, Susquehanna Bancshares and Heritage Financial each bought back all of the government’s outstanding preferred shares and paid out dividends. A sixth lender, Bank of Kentucky Financial, repurchased half of the Treasury’s preferred shares. Read more
The price action in Allied Irish Banks on Thursday morning:
On Capitol Hill and in the White House, Rahm Emanuel enjoyed the reputation of a political rottweiler who inspired fear and loathing in Washingtom, the FT reports. All that changed when Mr Emanuel quit his job as President Barack Obama’s chief of staff this year to run for mayor of Chicago. He has now undergone a transformation. Pugnacity has been replaced by affability, aggression by geniality, and the famously quick temper has given way to seemingly endless patience. Indeed, the main barrier between Mr Emanuel and the mayor’s office has not been another candidate but a legal challenge to his status as a Chicago resident for the past year – a prerequisite for mayoral candidates. A hearing officer has said that Emanuel meets the residency requirement to run for mayor of Chicago, Bloomberg reported today. However the recommendation is non-binding and must be considered by the Board of Election Commissioners later today. Read more
Global stocks are brushing their best levels in nearly 27 months, before the collapse of Lehman Brothers, as investors continue to place bets that better economic growth in 2011 will power risky assets yet higher, the FT’s global market overview reports. The FTSE All-World equity index was up 0.2 per cent to 216.7, commodities were mixed and the dollar lower. Markets were unfazed as South Korea began a large-scale military exercise near the border with the North. The Kospi index fell just 0.03 per cent on soft technology stocks. Hopes that an improvement in the US economy will add an extra boost to growth in 2011 is continuing to buoy sentiment, pushing the FTSE Asia Pacific index up 0.4 per cent, close to the best levels since July 2008. Australia’s S&P/ASX 200 rose 0.4 per cent to a six-week high, after Riversdale Mining climbed as much as 2.2 per cent to A$16.84 on the back of Rio Tinto’s formal $3.9bn offer. China’s Shanghai Composite was down 0.8 per cent as oil refiners lost ground on concerns that operating costs would increase following recent gasoline and diesel price hikes. Hong Kong’s Hang Seng was off 0.1 per cent and India’s Sensex was down 0.2 per cent. The FTSE 100 has tickled the 6,000 level in early skirmishing, up 0.2 per cent at 5,998 as resources stocks continue their storming run. The FTSE Eurofirst 300 index was up 0.1 per cent. The dollar index was down 0.3 per cent at 80.45, while the Korean won was up 0.4 per cent to the greenback as traders brushed off any worries surrounding Seoul’s military exercises. Read more
A Christmas flirtation between US shopping centres, social media and Handel’s Messiah has suffered a setback after fire officials in northern California shut down an impromptu performance of the oratorio amid safety concerns, the FT reports. An estimated 5,000 people crowded into the food-court of the Roseville Galleria shopping mall outside Sacramento on Monday night for a planned “flash mob” performance of the Messiah’s Hallelujah chorus by local choral singers. But fire officials ordered the closure and evacuation of the steel-framed building before the performance could begin, after loud cracks and popping noises were heard from the second floor. Westfield, which runs the centre, said the response to the event “was far greater than anticipated by organisers” and the building closed “out of an abundance of caution”. The event was the latest in a series of retail-centre Messiahs and other pieces that have erupted across North America this year, with local musical groups using social media such as Twitter and Facebook to pull in “flashmob” crowds. Read more
Hispanic voters’ apparent disenchantment with Republicans is likely to become a growing problem for the party after US census results showed that population gains in mostly Republican “Sun Belt” states were driven by Latino voters, the FT reports. Texas, a solid “Red” state that supported John McCain in the 2008 presidential election, is gaining four new seats in the House of Representatives. according to census results. But two of them could well be won by Democrats, analysts say, marking the beginning of a gradual shift that could favour Democrats in states such as Nevada, Arizona and Colorado. Read more
President Barack Obama sealed a big foreign policy victory after months of effort when the US Senate ratified an arms control agreement with Russia, the FT reports. Wednesday’s 71-26 vote to approve the Start treaty, which Mr Obama personally negotiated with Dmitry Medvedev, his Russian counterpart, marks the latest in a series of successes for the US president following large Republican gains in Congressional elections last month. “This is the most significant arms control agreement in nearly two decades,” Mr Obama declared after the ratification, which was backed by 13 Republicans. Mr Medvedev said Russia would proceed to approve the treaty “in parallel” with the Senate ratification. Read more
Elsewhere on Thursday,
- Default and bankruptcy in the municipal bond market (part two). Read more
News, comment and other offerings from Thursday’s FT,
FT Person of the Year: Steve Jobs
When Steve Jobs walked on to the stage at San Francisco’s Yerba Buena Center in January, it capped the most remarkable comeback in modern business history, write the FT’s Richard Waters and Joseph Menn. It wasn’t simply a matter of the illness that had sidelined him for half the year and required a liver transplant. Little more than a decade earlier, both Jobs’ career and Apple, the company he had co-founded, were seen as washed up, their relevance written off both in Silicon Valley and on Wall Street. By the start of 2010, however, the rebound was complete. Read more
Breaking pre-market news on Thursday,
- Rio Tinto recommends A$16 per share cash offer for Riversdale – statement. Read more
Asian stocks rose for a third day on Thursday after figures showed the US economy expanded faster than previously estimated, boosting investor confidence in a global economic recovery, reports Bloomberg.
The MSCI Asia Pacific Index Excluding Japan Index increased 0.4% to 472.16 as of 11:51am in Hong Kong on Thursday, with about seven stocks rising for every five that fell. The gauge has climbed 5.2% this month as China refrained from raising interest rates and US reports on consumer confidence, the trade deficit and jobless benefits beat analyst estimates. Read more
Hundreds of website addresses that disparage Bank of America executives and board members have been registered — or taken off the market — in recent days, in an apparent effort to protect the bank and its leaders, reports the FT, citing internet companies that track the buying and selling of such domain names. More than 300 addresses that disparage BofA officials using variations on “sucks” and “blows”, including BrianMoynihanSucks.com, referring to the bank’s chief executive, were registered on Dec 17. Domain names targeting the bank’s CFO, Charles Noski, and board member Charles Rossotti were also registered, all by MarkMonitor, which protects the identity of large corporations. DealJournal notes that such defensive web strategies are particularly important “at a time when a corporate reputation can be sullied by a few clicks of the mouse”. Read more
The US economy grew at a slower pace than analysts expected in the third quarter, highlighting the fragility of the US recovery as the housing market continued to struggle, reports the FT. Analysts, who had initially forecast a modest upturn in housing in 2010, are now predicting that prices will decline in 2011 by as much as 10%, as a record number of distressed properties hit the market. Figures on Wednesday showed that sales of existing homes grew by 5.6% in November to 4.68m properties — 28% below year-ago levels. While house prices rose 0.7% in October, the Federal Housing Finance Agency’s index fell 3.4% over the preceding 12 months. US economic growth meanwhile was revised upward by less than analysts had expected for the third quarter. Although the Bureau of Economic Analysis raised its estimate from 2.5% to 2.6%, many analysts had been hoping for 3% growth. Meanwhile, the annualised rate of consumption growth was revised downward to 2.4% from 2.8%. Read more
The amount of UK-listed shares held by private investors has hit the highest level since the recession began, reports the FT. Retail shareholders are on track to hold more than £200bn ($307bn), or nearly 11%, of the stock market by year-end, next week, according to analysis by Capita Registrars. This will put private shareholdings at their highest level since May 2008, before the turmoil triggered by the collapse of Lehman Brothers in September that year. Private investors ploughed £983m of new money into the stock market this year, the highest level since Capita began its analysis four years ago, with £460m going in between September and November. Read more
Six regional banks have repaid funds borrowed from the US Treasury in the financial crisis, returning $2.7bn to taxpayers, reports the FT. The US government spent $389bn bailing out the financial system more than two years ago. Many of the largest US banks and insurers have since repaid the emergency funds, underlining the weaknesses of those still in the scheme and helping drive merger activity among regional banks. The latest crop includes four of the top 25 largest remaining Tarp recipients. The US Treasury said on Wednesday that Huntington Bancshares, First Horizon National, Wintrust Financial, Susquehanna Bancshares and Heritage Financial each bought back all the government’s outstanding preferred shares and paid out dividends. A sixth lender, Bank of Kentucky Financial, repurchased half of the Treasury’s preferred shares. Read more