Posts from Wednesday Jan 5 2011

Indian central bank set to decide on future banking

The Reserve Bank of India is on the cusp of a critical decision about the future of Indian banking, reports the FT. Guidelines expected to be published by the end of this month will indicate whether big corporations can snap up highly desirable new banking licences on offer as India seeks to modernise its financial system. After five months of consultation, central bank officials say opinion is divided over whether big corporations, such as Reliance Industries, the Tata Group or Bharti, should be permitted to own banks, as well as how much the initial capitalisation of a new bank should be. The RBI must also decide how many licences to issue and whether to offer them in waves or in a single tranche. The issuing of new banking licences, proposed last year by finance minister Pranab Mukherjee, could serve a big political goal of greater financial inclusion among India’s 1.2bn people, most of whom have no access to formal banking. It could also help in loosening the state’s grip on the financial sector.

Indonesia holds rates amid inflation fears

Indonesia’s central bank held its key interest rate steady at a historic low but said it will keep a close eye on rising prices for staple foods such as rice, which have pushed inflation well beyond internal targets. In a widely-anticipated move, Bank Indonesia held its prime lending rate at 6.5 per cent for a 17th consecutive month, reports the FT. But climbing consumer prices, which nearly hit 7 per cent last month, drew calls from some economists for a tightening of policy as early as February.

Shenzhen workers feel shift in dynamics

At the end of a year of rising wages and spiralling raw material costs, it was not the kind of festive surprise Hong Kong businessmen with factories in southern China would have wanted, reports the FT. But just two days before Christmas, a senior government official in Shenzhen, the populous city across the border from Hong Kong, said new guidelines that could allow employees to appoint their own union representatives were “almost approved” and would be launched “as soon as possible”. The statement was another sign that the balance of power has started to shift away from factory owners in favour of their employees following a spate of suicides at Foxconn, the Taiwanese-owned electronics company that supplies products to Apple and other multinationals, and wild-cat strikes at Japanese car parts companies in Guangdong last year.

Chinese military receives funding backing

A prominent Chinese economist has called for a steep rise in the country’s defence spending, an appeal likely to reinforce US concerns about the pace of China’s military expansion ahead of a visit to Beijing by Robert Gates, defence secretary. According to the FT, Maj Gen Jiang Luming, head of the Institute for Defence Economics at China’s National Defence University, said in an article on Wednesday that China needed to increase its military spending from the current level of 1.4 per cent of gross domestic product to up to 2.8 per cent, in order to close the gap with military technology in developed countries. His appeal – which appeared in Study Times, the newspaper of the Communist party’s Central Party School – is part of intense lobbying efforts in readiness for the final draft of Beijing’s next five-year plan, which will determine funding for many departments and industries up until 2015. The military is pushing for a sustained effort to build China’s indigenous military industrial capacity.

Singapore releases detained Iranian ships

Iran’s main container shipping line has buttressed its ability to keep operating in the face of international sanctions by winning the release of three nearly-new ships that had been detained in Singapore and offered for sale to the highest bidder, reports the FT. The three Korean built ships, each capable of carrying 5,000 standard containers, are believed to have attracted more than 30 offers from a range of international bidders after they were offered for sale in November. However, Singapore’s supreme court released the ships on Wednesday after a judge ruled that Islamic Republic of Iran Shipping Lines had deposited sufficient funds to satisfy its creditors.

La Niña’s powerful punch hits commodities

La Niña belies her innocent name. The weather event, whose name translates as “the little girl” in Spanish, has wreaked havoc on the production and trade of commodities from coal to palm oil. There may be further disruption in store, reports the FT. The Australian Bureau of Meteorology, whose reports on the phenomenon are closely watched by traders, said on Wednesday that the current La Niña, the strongest in three decades, would last for another three months at least. That raises the prospect of further weather-related problems across some of the world’s key trade routes and tracts of agricultural land. Higher prices for industrial and food commodities, already rising sharply on the back of resurgent demand, could follow. Crucially, some meteorologists are concerned that La Niña may persist long enough to have an impact on the growing season in the US, the world’s largest exporter of agricultural commodities.

Beijing pursues European charm offensive

China has launched a charm offensive in Europe with repeated promises by Li Keqiang, the visiting deputy premier, to buy Spanish sovereign bonds and help the eurozone emerge from its public debt crisis, reports the FT. “China will continue to look into the market and carry on buying,” Mr Li was quoted as saying by the Chinese foreign ministry. On Wednesday he met José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, and King Juan Carlos, as well as business leaders and cabinet ministers. His visit to Madrid, to be followed by trips to the UK and Germany, was accompanied by the signing of at least 16 business agreements worth some $7.5bn.

Strong US jobs report sparks growth hopes

A big jump in US private sector employment during December gave the dollar a boost and pulled stocks off their session lows, as traders welcomed further evidence that the world’s biggest economy is picking up steam, reports the FT’s global market overview. The FTSE All-World equity index was down 0.3 per cent, pulling back from Tuesday’s 27-month high. An ADP Employer Services report showing 297,000 jobs added last month – compared with forecasts of 100,000 – lead to a resurgence of growth hopes for the US, especially with a non-farm payroll report coming on Friday. The S&P 500 index rose 0.5 per cent, to its highest since early September 2008, before the fall of Lehman Brothers, and US crude oil is back above the $90-a-barrel level that it has struggled to maintain. The yen was one of the worst performers versus the dollar, down 1.5 per cent to Y83.26, as buck strength was compounded by an earlier claim from Toyota that the cross should be a minimum Y90 if Japanese jobs are not to be cut by struggling exporters, alerting investors to possible Bank of Japan intervention. In Asia-Pacific, stocks were lower for the first time in eight days as a stronger dollar and lower prices for gold and oil overnight sent commodity shares into retreat. The FTSE Asia-Pacific index was down 0.5 per cent, with most major exchanges on the soft side.

Another good day for Disney

Like a modern day Aesop’s tale, Mickey Mouse is outfoxing a bull market.

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Further further reading

For the commute home,

- The world’s riskiest debtor nations (and USA states). Read more

James Hamilton on the strange politics of the debt ceiling

One thing we didn’t bring up in our previous post about House Republicans’ backpedaling on their deficit-reduction pledge is the ongoing meme that they might refuse to raise the debt ceiling.

We’re not exactly sure how serious a problem this is, as it seems a number of Republicans have come out and said that doing so would be irresponsible (they’re right). Others, like Paul Ryan (in this Reuters article) say that raising the debt ceiling shouldn’t be done without extracting concessions from Democrats on spending. Read more

More yuan appreciation…for real?

A report Wednesday morning from Reuters, which spots an article in a Chinese-language newspaper:

China will let the yuan rise about 5 percent against the dollar in 2011 to combat inflation, an official newspaper said on Wednesday, while a former central bank adviser said the country needs to free up the currency. … Read more

New Congress, old deficit

Like its predecessor, the 112th Congress has proven it’s possible to shoot oneself in the foot while putting it in one’s mouth.

House Republicans said in their Pledge to America that: Read more

When is the SPY ETF’s value not really its value?

Here’s a market curio for Wednesday.

The following chart shows the historical indicative net asset value (iNav) of the SPDR S&P 500 ETF versus its actual net asset value at the end of the day: Read more

Presenting the Irish bailout bond…

Results from the issuance of the European Union’s first ever AAA-rated collective EFSM bond are in.

And here they are (via the market): Read more

Every little trinket helps…

For those worried about food price inflation, we bring you the news that some supermarkets might be making contingencies (already).

Specifically, this is the story of Tesco, which according to the Telegraph quietly entered the Cash for Gold market last year with the launch of its ‘Tesco gold exchange’Read more

Great mysteries of our time

No, not birds falling out of the sky in Louisiana, but this…

… the recent share price performance of Webvan 2.0. Read more

Casualties of the currency war

This is ironic, Brazil.

That’s a Nomura chart showing the Brazilian government as the biggest ‘loser’ of the currency war. You know the war we’re talking about: Brazil was the first and loudest to declare it in 2010. Oops. Read more

Hank Greenberg takes on the government, Goldman, taxpayers

Oh, Hank.

In Wednesday’s Wall Street Journal, the AIG godfather inquires “why did we nationalise AIG?” Read more

ADP surprise

Wow:

Private-sector employment increased by 297,000 from November to December on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from October to November was revised down but only slightly, from the previously reported increase of 93,000 to an increase of 92,000. Read more

Sovereign debt burden-sharing, and free-riding

Collective action clauses in eurozone sovereign debt.

What if they don’t work? Read more

When (derivatives) counterparties collapse

Lehman Brothers — not just the catalyst of the recent financial crisis, but also the reason for a helluvalot of legal wrangling, notably in the heady sphere of derivatives.

In fact, just before FT Alphaville left for Christmas, an interesting case covering a vital piece of derivatives documentation made its way through the English courts. Now that we’ve had time to digest it (and our Christmas cookies) we’d like to share. Read more

An unjustified WTI distortion?

JBC Energy has picked up on the ongoing problem of the WTI-Brent forward curve disconnect on Wednesday.

In a nutshell, while Brent futures prices have been jostling nicely into a flattish curve structure (and even a touch of backwardation at the very front end), WTI futures have remained firmly gripped by contango — the condition in which futures prices are higher than spot prices. Read more

Markets Live transcript 5 Jan 2011

Live markets commentary from FT.com 

Eurobond launch intended to aid Ireland

The European Union is to launch a multibillion-euro bond on Wednesday 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. The EU is to 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. The triple-A rated bonds are expected to price at yields of about 2.5 per cent, about 70 basis points over German Bunds and well below those of Italian and Spanish debt.

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, reports the FT. 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. Ford owes its improved market share to a string of well received new models as well as public support for its decision to break from its two Detroit rivals, GM and Chrysler, by refusing a US government bail-out in the depths of the recession.

Bond wave strikes on both sides of Atlantic

Companies on both sides of the Atlantic have embarked on an early-year rush to issue debt in an effort to secure financing before any rise in borrowing costs, the FT reports. The surge in bond issuance on Tuesday came amid optimism about the US economy’s growth prospects and corporate earnings. An estimated $35.6bn in dollar-denominated bonds were priced on Tuesday, according to Dealogic. In the US, General Electric’s finance arm led the issuance wave with the sale of $6bn of debt. Europe’s banks also raised more than €7bn ($9bn) in covered bonds – that market’s busiest day in more than a year. On Monday,Warren Buffett’s Berkshire Hathaway had sold the first corporate debt of the year. The $1.5bn bond offering set a positive tone for the dollar markets, the most important source of debt financing for companies and banks around the world.

Forget non-performing loans, how ’bout performing ones?

Non-performing loans — those defaulted or nearly-defaulted loans — have naturally grabbed headlines during the US housing crisis. In fact, they tend to be a focus for nearly every bond or bank investor in gauging investment risk. What though of their current counterparts, asks FT Alphaville? Laurie Goodman over at Amherst Securities makes the case this week, that the market is significantly underestimating the default probabilities of loans made to borrowers who have been paying on time — in other words current loans. Read more

Stocks hit by commodities sell-off

Stocks and commodities suffered a new year wobble as a batch of weak European service sector data encouraged further profit taking on Wednesday, the FT reports. The FTSE All-World index was down 0.4 per cent, pulling back from Tuesday’s 27-month high, while industrial commodities, whose rally had helped the Reuters-Jefferies CRB index at the start of the week reach its best levels since October 2008, were again weaker. Haven bonds were in demand, pushing Treasury yields lower, as the strategy of buying risk that was predicated on improving US economic data was tested. The S&P 500 futures suggested Wall Street would open lower by 0.5 per cent. In Asia, stocks were lower for the first time in eight days as a stronger dollar and lower gold and oil prices overnight sent commodity shares into retreat.

Where now for HMV?

The price action in HMV on Wednesday:

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