Posts from Thursday Jan 6 2011

China’s monetary tightening will be felt around the globe

China has been veering away from the easy money policies that it embraced in the wake of the global financial crisis for months. With inflation more than 5 per cent, especially for politically sensitive foodstuffs and property, dealing with rising prices has become top priority in Beijing, writes the FT.

Euro slides as peripheral debt yields spike

A sudden resurgence of stress in the eurozone debt complex is battering the euro and pulling leading stock benchmarks back from the fresh cyclical peaks hit earlier in the day, the FT reports. Shares were moving higher for much of the global session, with bourses still feeding on the sugary buzz delivered by this week’s forecast-beating US economic data, – including a 5.2 per cent jump in German industrial orders in November and news that the latest four-week average of initial jobless claims hit a two-and-a-half year low.

China’s Spanish debt buys put at €6bn

China is prepared to buy €6bn ($7.9bn) of Spanish government bonds as part of its commitment to help the eurozone out of its sovereign debt crisis, according to Spanish government sources quoted by El País, the pro-government newspaper, the FT reports. It was the first time a precise number had been attached to repeated Chinese promises to buy Spanish bonds, although it was not confirmed by Li Keqiang, China’s deputy premier, who is on a visit to Spain, Germany and the UK.

Taiwan dollar on forex seesaw

Taiwan’s foreign exchange market has followed a seesaw pattern every day since the psychological barrier of T$30 per US dollar was broken last month, the FT reports. If anyone wants to know the Taiwan dollar’s rate to the greenback, the answer depends largely on when the question is asked. Thursday, for example, began with the Taiwan dollar trading at 30.24 to the US dollar. It rose to 29.18 during the day before being pulled back in the last hour of trading to close at 30.1. Taiwan’s central bank denies the fluctuations are due to its intervention. But analysts say the movements are clear evidence that the bank is acting to ensure that the Taiwan dollar’s closing rate, at least, is kept from appreciating past the T$30 mark. It is as if the central bank were creating a “fake” T$30 exchange rate, said one finance executive. “But to what purpose? That’s not the rate people trade at.”

Five (hundred) questions on the Facebook flogged horse

There’s something ickily uncomforting about the Facebook/Goldman mash-up — and not just the scars of a well flogged horse. A well flogged horse going public with financial information by 2012, no less.

As you know, the SEC is looking into “pre-IPO Pooled Investment Funds” such as the one Goldman set up, and which may operate via private share markets. Read more

Bond issuers make strong start

Bond markets have started the year with a bang, writes the FT. A rush of deals from blue-chip companies, including Berkshire Hathaway and General Electric, and dozens of financial institutions have raised hopes that 2011 will be another big year for issuance. With $99bn of debt sold in the bond markets so far this week – about half of it denominated in dollars – it is clear that investor demand for bonds, among the most popular asset class in the past two years, remains solid.

Food prices spiral in India

Indian food prices have hit their highest level in more than a year, rising at an annual rate of 18 per cent in what economists have taken as a worrying sign that the impact of surging commodity prices is hitting the broader economy, the FT reports. Food inflation in India is being driven by many of the same factors that have pushed the price of global commodities like wheat and barley to record highs. It also highlights rising fears of a global prices in the developing world, with the UN’s Food and Agricultural Organisation warning this week that global prices had surpassed levels seen during the 2007-08 crisis.

LinkedIn planning IPO in first quarter

LinkedIn, the social networking site for business people, is planning to register for an initial public offering in the first quarter of this year, according to people familiar with the situation, reports the FT. It has selected three advisers – Bank of America Merrill Lynch, Morgan Stanley and JPMorgan Chase – as underwriters for the deal, but no details are yet known of the possible size of the offering. The advisers declined to comment.

Morgan Stanley reshuffles top executives

James Gorman, chief executive of Morgan Stanley, continued to reshape the bank’s upper echelons with a shuffling of top executives, the FT reports. The moves, discussed in a memo sent to employees on Thursday, include an expansion of duties for Colm Kelleher, the co-president of institutional securities. Mr. Kelleher will relocate from New York to London, where he will assume responsibility for Europe, the Middle East and Asia, excluding Japan.

Brazil in push to curb rising currency

Brazil has launched a fresh attempt to limit the appreciation of its currency, as fast-growing economies renew efforts to restrict damaging inflows of “hot money”, reports the FT. In a bid to curb speculative trading, the central bank announced that domestic banks would have to hold higher reserve requirements against foreign exchange positions. The move followed Chile’s decision this week to intervene in currency markets to hold down the peso. Chile has traditionally taken a hands-off attitude to its floating exchange rate. The Brazilian currency fell sharply on the news. By midday in New York, the real had fallen 1.1 per cent to R$1.6912 against the dollar.

Further further reading

For the commute home,

- The Daily Show for MBAsRead more

The Fed in 2011

We noted a few weeks ago that the futures market was probably  getting ahead of itself in predicting that the Fed would begin tightening policy sometime after August of this year.

This passage from the minutes of the last FOMC meeting… Read more

Japan: land of rising contrasts

The spokesman, Japan’s chief cabinet secretary Yoshito Sengoku, was explaining the sentiments behind PM Kan’s pledge in a TV interview on Wednesday night to stake his “political life” on addressing Japan’s rising social welfare costs and increasing public debt, a day after he said “now is the time” to face these problems.

The prime minister “was expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Sengoku said on Thursday. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.” Read more

The Belgians are still waffling

It’s Day 207 in the Big Belgium waffle house:

RTRS-BELGIAN GOVERNMENT MEDIATOR STEPS DOWN AFTER PROPOSAL FOR COALITION TALKS FAILS-PALACE Read more

What the China risk is

There’s been a bit of (somewhat post hoc?) concern in recent days over the cash crunch in Chinese interbank markets.

The one-week Shanghai Interbank Offered Rate went up, up… and then came down. Same stuff in the seven-day repo rate, which probably tells you more as it’s a more developed market than Shibor. That follows the Christmas Day interest rate hike, and could be the market reacting to heavier tightening ahead by the People’s Bank of China in 2011. Read more

President Trichet are you watching? [updated]

Because it looks like it might be time to fire up the Securities Markets Programme again.

RTRS-PORTUGUESE/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS FURTHER TO 414 BPS, 26 BPS WIDER ON DAY Read more

Burdensharing for bank bondholders is here!

It’s arrived! Straight from the European Commission — the much-anticipated consultation paper on haircuts for (dum dum dum) investors in future bank debt.

The press release, with our highlights: Read more

Thomas Hoenig: Why I dissented

Thomas Hoenig, Kansas City Fed President — who is retiring next year — obviously feels a bit hard done by when it comes to how his role as an FOMC dissenter was portrayed by the press.

The full extract of his Wednesday speech to the Central Exchange, a greater Kansas City’s business women’s association, is now available on the BIS website, and paints an interesting account of his views on the topic. Read more

Lowering claims, lowering expectations

Another day then and another round of jobs numbers to put the cautiously into cautiously optimistic.

Payrolls are out Friday and with them a better idea of the extent and pace of improvement — Reuters reports that nonfarm payrolls are expected to have increased 175,000 last month, up from 39,000 in November. Read more

Claiming less

One labour market indicator that has steadily improved in the last several months is initial weekly unemployment claims.

There was a slight increase last week, but as we normally point out, this is a volatile number and we pay more attention to the four-week average, which actually declined. Here’s the top line (from the release): Read more

Shadow inventory backlog still growing

From S&P’s latest shadow inventory report, released earlier this week:

Because of the volume of distressed homes either on the market or waiting to be remarketed for sale, our estimate for how long it will take to clear the backlog continues to grow. At the end of the third quarter, we estimate that the principal balance of these distressed homes amounted to more than $450 billion, representing about one-third of the nonagency residential mortgage-backed securities (RMBS) market currently outstanding. Read more

The problem with Europe’s bail-ins

Here’s something to ponder while we wait for the European Commission’s consultation document on haircuts for senior investors in Europe’s banking debt.

It’s what all this talk of Basel III — plus burdensharing, CoCos and bail-ins has been leading up to — one almighty hike in financials’ funding costs and retrenching banks. Read more

Victims of Greek austerity – Greek clubbers

The Greek government’s crackdown on tax evasion has taken it all the way to…

… Some nightclubs in Athens. Read more

Markets Live transcript 6 Jan 2011

Live markets commentary from FT.com 

Does RBS need to take an Irish hit?

Will RBS be the next bank to increase bad loan provisions for Ireland?

That’s the question traders are asking on Thursday morning after KBC followed Lloyds Banking Group and warned of a deterioration in its Irish loan book (alongside irregularities in a British leasing subsidiary). Read more

Boehner vows to cut size of government

The new speaker of the House of Representatives has painted a bleak picture of US life after the downturn, the FT reports. John Boehner is aiming to make cutting government programs a priority — but aides suggested that only half of a promised $100bn of cuts look achievable. Business can at least hope for a consensus between Republicans and the White House on overhauling corporate tax rates, the WSJ reports, but it also notes that healthcare spending took up a record slice of US GDP in 2009, as the economy shrank and federal Medicaid outlays rose.

Microsoft leaves ‘Wintel’ behind with tablet plan

‘Whatever device you use, Windows will be there,’ said Microsoft CEO Steve Ballmer at the International Consumer Electronics Show. Intel probably won’t be. Microsoft has decided to ally with the UK’s ARM Holdings over its traditional relationship with Intel in planning new smartphone and tablet products, Reuters reports. But the new devices won’t likely appear for another two to three years, suggesting Apple’s dominance in the sector will go unchallenged for a while yet, the FT says. There’s also little value in Microsoft’s favouring of ARM, and an Intel acquisition of the latter looks unlikely, argues FT Alphaville.

Waiting for a senior bank bond haircut…

Here’s the action in European financial CDS as the market waits for the European Commission to release a consultation paper outlining its plans to haircut senior bank (not sovereign) bondholders. According to Ambrose Evans-Pritchard of the Telegraph this will happen today, Thursday, which means we’re seeing this:

Markit iTraxx Senior Financials 186.5bp (+7)
Markit iTraxx Subordinated Financials 350bp (+10)
 Read more

Nikkei hits eight-month high as yen slips, data gain

US equity futures point to the S&P 500 pulling back from recent multi-month highs on Thursday, but Japanese markets have stood out for a burst of optimism, the FT reports. The Nikkei 225 average climbed 1.4 per cent, as the weaker yen and improving economic data boosted exporters’ outlook, sending the benchmark index to its best level since mid-May. The dollar has consolidated gains from a Wednesday surge against other currencies, borne aloft on a raft of good US economic data, says Reuters. Traders said that another surge would need a strong positive surprise from Friday’s nonfarm payrolls numbers — expected to come in at 175,000 — towards 250,000 or 300,000.

Hedge funds bet on revival of fortunes

After one of their most disappointing years, hedge fund ­managers are hoping for a better 2011 with less macro­economic volatility and more corporate events to bet on, such as takeovers, the FT reports. Many investors anticipate event-driven funds will see a surge in inflows in 2011 as performance picks up. Equities and global macro funds are drawing a veil on a disappointing 2010, by contrast. As of the end of November, the average hedge fund had returned just over 7 per cent for the year, according to Hedge Fund Research – underperforming leading stock market indices over the same period. Equity long/short managers averaged returns of 6.7 per cent, while global macro strategies averaged just 4.5 per cent.