Posts from Tuesday Jan 4 2011

Eurobond launch intended to aid Ireland

The European Union will today launch a multibillion-euro bond to raise money for the effort to rescue Ireland’s finances, in this year’s first important test of investor sentiment for Europe’s troubled government debt markets, the FT reports. Bankers said there was strong demand for the bonds from European, Asian and Middle Eastern investors, even before the official opening of order books expected today. The EU will sell about €5bn ($6.7bn) in five-year debt, the first part of some €50bn in bonds that will go towards the Irish bail-out over the next two years.

Sony in cloud-based streaming push

Sony is set to steal a march on rivals Spotify and Apple by becoming the first company to launch a cloud-based music streaming service in the highly lucrative US market, reports the FT. Sir Howard Stringer, Sony chief executive, is expected to announce at the Consumer Electronics Shows in Las Vegas details of Sony’s Music Unlimited launch in the US. The launch comes as rivals are racing to bring out their own music streaming services in the US, which remains the world’s biggest market for recorded music with sales worth $4.6bn in 2009.

Eurozone inflation exceeds target

Eurozone inflation has surged above the European Central Bank’s target for the first time in more than two years, complicating the bank’s efforts to combat the regional debt crisis, the FT reports. Prices rose at an annual rate of 2.2% in December, according to a preliminary estimate by Eurostat, the EU’s statistical unit. Inflation had been 1.9% in November, in line with the ECB’s goal of an annual rate “close but below” 2% over the medium term. Although Eurostat gave no details, the acceleration was almost certainly due to rises in food and energy prices, which were exacerbated by the euro’s recent fall.

Kan calls on opposition to back tax plan

Naoto Kan, Japan’s prime minister, has set a June target for cross-party agreement on sweeping reform of the tax system, waving aside suggestions that slumping public support could force him from office well before then, the FT reports. In a new year press conference intended to set out his priorities for 2011, Mr Kan also promised to push for a lowering of Japan’s trade barriers while preparing policies to reinvigorate the notoriously uncompetitive agricultural sector.

Australian producers face huge floods bill

Devastating floods in the north-eastern Australian state of Queensland have wreaked havoc on coal and commodity producers there, industry bodies said, with losses already pegged at A$2bn ($2.01bn) in terms of lost production, the FT reports. Losses are set to increase as companies start to pump water out of flooded mines. The Queensland Resources Council, an industry trade body, said the floods had cost the coal industry A$1bn in lost production. It warned of further losses.

Chile joins currency war to help exporters

Chile is set to become the latest country to join the “global currency wars” on Tuesday after the central bank said it would spend up to $12bn this year to curb the peso’s strength and so help exporters from one of Latin America’s most open and best managed economies, the FT reports. The move, announced late on Monday after the peso rose to nearly a three-year high against the dollar, took markets by surprise as Chile’s central bank is known for its hands-off approach to its free-floating exchange rate.

Stocks stumble after new year gains

The first full trading day of the new year in Tokyo and London saw investors swooping up shares, though Wall Street has given back some of the gains made on its return to trading on Monday, the FT reports. Interest rates continued to rise, however, following the Federal Reserve’s release of the minutes of its December meeting. Yields on 10-year Treasuries rose near session highs, at 3.34 per cent, after the Fed outlined a still-pessimistic, but not more dire, economic outlook. “The information reviewed at the December 14 meeting indicated that economic activity was increasing at a moderate rate, but that the unemployment rate remained elevated,” according to the Fed’s minutes. “Members generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program,” the minutes said. Yet anxiety about growth elsewhere held back risky assets. A relapse for the euro suggests that fears for the eurozone linger. A swift sell-off in a swathe of commodities also has got the market chattering about a large fund executing a strategy switch that entails a reduction in exposure to the erstwhile buoyant asset class.

US economic recovery not enough to curb QE2

Federal Reserve officials concluded at their last meeting that the recent acceleration in the US recovery was not enough to consider scaling back their plan to buy a total of $600bn in long-dated Treasury bonds by the end of June, reports the FT. According to minutes of the December 14 gathering of the Federal Open Market Committee released on Tuesday, policymakers “generally felt that the change in outlook was not sufficient to warrant any adjustments to the asset purchase programme”.

Ford overtakes Toyota in US car sales

Ford Motor overtook Toyota as the US’s number-two car maker last year for the first time since 2006, underlining the two companies’ contrasting fortunes over the past 12 months, the FT reports. Ford posted a 19 per cent surge in sales, its biggest increase since 1984, while Toyota recorded a slight drop. Sales for General Motors, the market leader, advanced by 6.3 per cent, and Chrysler‘s were 17 per cent higher. Excluding models of four discontinued brands, GM’s sales were up 21.3 per cent.

Further further reading

For the commute home,

- Calculated Risk’s outlook for US housing prices this year. Read more

Chart du jour, BofA edition

Bank of America shares since yesterday morning against both the S&P 500 and the KBW bank index:

 Read more

“Risks” for 2011

Under ‘U’ in the Panglossary (our happily optimistic reference portmanteau) one must surely find “upside risk”.

On Tuesday, Bob Doll, BlackRock’s bullish Chief Equity Strategist, showcased his predictions for the year ahead. Read more

Minutes of the December FOMC meeting

The minutes from the FOMC’s meeting on December 14 are out.

At first glance there appear to be no hidden nuggets of insight, and the discussion of where the economy stood near the end 2010 makes for familiar reading: generally improving indicators tempered by ongoing worries about the housing market, deleveraging by households, and the unwillingness of corporate employers to use their cash piles to hire new workers. Read more

SEC pokes – and friends – secondary markets

Facebook – as you well know – has friended Goldman Sachs and seemingly poked the SEC into investigative action.

Whilst FT Alphaville was tagging holiday photos from awkward family gatherings, Facebook received a Christmas present from Goldman Sachs and DST Global in the form of a $500m investment via a private, secondary share market purchase. Read more

SNB collateral, an Irish and BP non-love story

Hat-tip to Lorcan for this — the Swiss National Bank no longer accepts Ireland’s government bonds as eligible collateral in its repo operations.

It’s probably not earth-shaking for holders of Irish government bonds, following earlier margin calls on these assets by LCH.Clearnet last year. Read more

Risks for 2011

The Eurasia Group, a political risk consultancy, has come out with its list of Top Risks for 2011. We don’t agree with every item, but it’s an interesting overview of the geopolitical tensions to watch this year.

The outline is below, but click on the link for fuller explanations of each. Read more

Issuance isn’t the eurozone’s big problem

As far as 2011 tail risks go, everyone’s eyeing heavy, costly, issuance waves of risky debt from vulnerable eurozone sovereigns.

But the problem isn’t the issuance. It’s the asset. Read more

Dirty cash

Fight, fight, fight, fight.

The battle between De La Rue and its French suitor has just turned very nasty. Read more

Inflation in the eurozone

Here’s an interesting datapoint from the eurozone on Tuesday.

According to Eurostat figures, inflation in the euro area increased to 2.2 per cent in December 2010. That was just over consensus expectations of 2.1 per cent. Read more

Markets Live transcript 4 Jan 2011

Live markets commentary from FT.com 

M&A league tables: what’s in a few numbers?

Isn’t it nice when arch rivals in the unseemly scramble for M&A business can both kick off the new year claiming they’re on top?

The main arbiters of the all-important annual league tables for investment banking deals, Thomson Reuters and Dealogic, have managed to respectively anoint Goldman Sachs and Morgan Stanley the top dealmaker of 2010. Read more

Does Carlos Slim really ❤ silver?

Here’s some juicy stock market RAW to kick off 2011 — Carlos Slim, the world’s richest man is looking to enter the silver market in a big way.

And that big way, according to KingWorldNews, is a bid for Fresnillo, the Mexican based mining company that is poised to become the world’s biggest silver producer. Read more

MySpace set for mid-year sale

NewsCorp is ratcheting up the pace on plans to sell off its social network MySpace this year, CNBC reports. Up to half of employees are set to be laid off this month as part of an ambitious restructuring plan, reports the WSJ. NewsCorp executives say that all options remain open for MySpace, including a sale. More layoffs are probable before the company becomes attractive to buyers, following sharp falls in revenue and earlier layoffs in summer. CNBC names Zynga, the social gaming outfit which has recently seen high valuations, as a potential suitor.

Fiat signals desire to raise stake in Chrysler

Fiat has signalled it would like to raise its 20 per cent stake in Chrysler ahead of the listing of the US automotive group this year, as the Italian carmaker marked its split from its industrial arm, the FT reports. Fiat’s chief executive said that it was possible the company’s stake would be increased to over 50 per cent if Chrysler listed in 2011. Fiat bought an initial 20 per cent stake as part of the US carmaker’s bankruptcy reorganisation, and is due to get a further 15 per cent of Chrysler this year if the US carmaker meets sales and production targets. Analysts are sceptical that the stake will increase beyond more than 35 per cent, however.

Borders on the brink

It is not a good 2011 so far for bookstores. Borders executives will meet publishers this week to discuss the company’s future, after telling them that payments would be delayed, the NYT reports. The company must prepare for the meeting without its general counsel or chief information officer, who have both resigned, the WSJ adds. Borders has at least one vote of confidence from a supplier which said it would continued to send books to the company’s stores. Other publishers remain on the sidelines ahead of more information on Borders’ plan to refinance its loans, which might involve asking publishers to convert receivables into debt.

Un-Desire-a-ble

For Desire Petroleum, 2011 has started the way 2010 ended — with another duster.

This time it’s the Dawn prospect that is dry (last week it was Jacinta and before that Rachel and Liz). Read more

Facebook privacy settings high after cash deal

Swift capital raising; a large cash war chest; major strategic allies in the form of Goldman Sachs and Russian investors — Facebook increasingly bears all of the advantages of a public company tapping Wall Street, but none of the regulatory scrutiny, the FT says. The SEC may not tolerate that for much longer, with one operator in ‘pre-IPO pooled investment funds’ receiving a request for information from the agency on Monday. Regulators could effectively discount Goldman’s new SPV for allowing clients to trade in Facebook shares in counting how many investors the company has, Bloomberg reports. That could lead to Facebook being forced to go public without an IPO. Ironic, given Facebook founder Mark Zuckerberg’s distrust of Wall Street, as reported by NYT Dealbook.

Is BP being Shelled?

BP shares opened more than 4 per cent higher on Tuesday after the Daily Mail reported that Shell had come close to making a bid for the distressed oil major during the peak of its Gulf of Mexico oil-spill crisis last summer.

 Read more

BofA agrees $2.6bn Frannie buyback

Bank of America has taken a big step towards resolving claims that its Countrywide Financial unit sold loans based on faulty information by agreeing to pay $2.6bn to Fannie Mae and Freddie Mac, the FT reports. BofA will make a $3bn provision in its fourth-quarter results, which includes the money paid to Fannie and Freddie plus $200m set aside for the potential of additional restitution. As of the end of the third quarter, reserves for such claims totalled $4.4bn. The deal creates a precedent for other lenders, such as Citigroup and JPMorgan-owned Washington Mutual, to settle with Fannie and Freddie, NYT Dealbook reports.

Stocks surge on gobbets of good US data

Financial and technology stocks have powered US markets to continued multi-month highs as evidence of accelerating global recovery builds up, report the FT and the WSJ. Japanese stocks led further Asian gains on Tuesday as investors made hopeful bets on Friday’s US payrolls data, Reuters says, including taking oil prices to a 27-month high. PMI figures from the US ISM suggest manufacturing was still growing robustly in December despite missing forecasts, the FT reports. December retail sales will also post strong gains — but few expect this part of the economy to remain frothy in 2011, Reuters warns. The WSJ provides another sharp warning — personal bankruptcy filings rose 9 per cent in 2010.