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Citigroup downgraded three large-cap tobacco stocks (Philip Morris, Imperial Tobacco, BAT) on Friday.
Some parts of their reasoning were… unusually existential for equity analysis. Historic, even. Here are some quick drags (emphasis ours): Read more
Let’s jump right in:
1. To dispense with the obvious, the headline number of 103,000 new jobs fell a good deal short of the roughly 150,000 expected. Including subsequent revisions, this is what the payroll changes in the last six months look like: Read more
Should the Republic of France really be trading as a credit two notches above junk?
Five-year credit default swaps on the French sovereign were trading at 110bps at pixel time, according to Markit. Read more
The man with 100 per cent confidence in himself doesn’t seem to have the same belief in Congress.
Ben Bernanke was giving testimony and answering questions in front of the Senate Budget Committee at pixel time on Friday. You can watch the tail end of the hearings here or read the Fed Governor’s testimony at your leisure here. Read more
We’ll be back with analysis in a bit, but here’s the link and the main part of the report:
The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.
The latest (and as usual, substantial) note from Willem Buiter, chief economist at Citigroup, has landed in the FT Alphaville inbox.
The bulk of its 84 pages can be summarized in one line though: “no sovereign is really safe” and there are “likely to be several sovereign debt restructurings in the euro area in the next few years”. Read more
Currently winding its way through the Massachusetts Supreme Court — a little court case that could end up having big consequences for mortgage securitisations.
It’s called the ‘Ibanez case’ and here’s the story. Read more
Live markets commentary from FT.com
An EFSM crowding out effect? Not necessarily in Spanish or Portuguese bonds.
Europe sold the first (€5bn) tranche of its Ireland-bailout bond on Wednesday. The Commission will pay 2.59 per cent interest on the debt, according to the European Commission press release, which means Ireland’s interest rate will be 5.51 per cent, or the EU’s cost of borrowing plus a margin of 2.925 per cent. Read more
Traders in Asian and European markets have delivered a mixed but generally downbeat session, as wariness about Friday’s US jobs numbers crimp underlying optimism regarding the improving health of the global economy, the FT reports. The euro fell below $1.30 against the dollar, plumbing a four-month low. Payrolls predictions have varied widely, Reuters reports, with some going beyond the consensus of 175,000 to forecast additions of up to 450,000. FT Alphaville has a quick round-up of pre-payrolls comment.
The eurozone is not having a happy new year so far, FT Alphaville says, noting continued widening on Friday in bonds and CDS spreads for its fiscally-challenged governments. Belgian government credit has joined Spain and Portugal in deteriorating over the week, following a collapse in talks on forming a coalition government, Bloomberg adds. The broader trigger is probably a regulatory consultation paper that has considered bailing-in the senior debt of European banks that fail in the future, FT Alphaville reports — and not coincidentally notes that CDS on banks in Spain and Portugal are implying credit ratings around 12 notches below those given by ratings agencies like Moody’s.
AIG is on track to complete a recapitalisation as soon as next week after its board approved the next step of a restructuring plan, the FT reports. The insurer, bailed out by the US government during the 2008 financial crisis, announced on Thursday night that it had approved a plan to give warrants to shareholders enabling them to buy shares at $45. It is a sweetener to a broader transaction that will see the US government’s stake rise to 92.1 per cent, cushioning the blow of the ensuing massive dilution. People close to the situation added that the Treasury would likely move to sell in 2011’s first half as much of its stake as the market could sustain, following a January recapitalisation.
It’s been a record week for corporate debt issuance in US markets, says Bloomberg — $48.2bn has been sold, eclipsing a previous week high of $46.9bn in May 2009. While General Electric Capital got the largest single offering away, 57 per cent of the week’s issues came from foreign sellers. Looking at investment-grade debt alone, the WSJ estimates that at least $35bn has been sold, making 2011’s market the busiest in this sector since 2010’s first week. There is one caveat to the current optimism, the FT warns: yields on Treasuries are rising at a faster pace than corporate bonds, which may make investors far more selective over the credits on offer.
Regulators are turning to techniques pioneered in the fight against money-laundering to crack down on proprietary trading by banks as part of the Dodd-Frank financial reform act, the FT says. Draft guidelines circulated among members of the Financial Stability Oversight Council point to a ‘multi-tiered test’ for defining the limits of banks using their own funds to trade. The first tier would involve automatic ‘tripwires’ based on the size, position or riskiness of trades, drawing inspiration from similar measures used to spot illegal money transfers. The second tier would involve internal risk compliance checks and the third would bring in spot checks on trades by regulators. The better analogy is to drug testing, say Stone Street Advisors — who aren’t hopeful that proprietary trading will be controlled.
Securities regulators in China have approved roles for Morgan Stanley and JPMorgan in joint ventures with locally based partners, allowing them to underwrite debt and equities in Chinese markets, Reuters reports. Both banks must still wait another five years to open potentially more lucrative brokerage businesses. JPMorgan’s venture with First Capital is its first in China, based in the Shenzhen market, while Morgan Stanley is opening a new joint venture with Shanghai-based China Fortune Securities after its exit from a deal with China International Capital Corporation last year, the FT says — noting that the approvals come despite Wall Street having long since abandoned initial ambitions to grab large chunks of the securities business in China.
It’s 24 years since England last tasted cricketing success in the Ashes down under and to mark this historic event we present some spurious stock market correlation via Shore Capital strategist Gerard Lane.
Citigroup is seeking buyers for CitiFinancial, the largest consumer finance company in the US, sources have told the FT. The deal could raise hundreds of millions of dollars and mark a milestone in the bank’s efforts to break with its troubled past attempts to become an all-purpose ‘financial supermarket’. People close to the deal process said that talks were at an early stage, but executives looking at the CitiFinancial said it could sell for up to $1bn, depending on the package Citi offers to help fund the business. Private equity investors snapped up AIG’s consumer finance division last year, amid strong interest in taking advantage of fallout from the financial crisis. Selling CitiFinancial would dramatically shrink CitiHoldings’ assets, which account for 20 per cent of Citi’s overall balance sheet.
The Securities and Exchange Commission has opened an inquiry into whether the Californian Public Employees’ Retirement System failed to give adequate disclosure of risks in its pension investments, the NYT reports. Calpers, America’s biggest pension fund with $220bn of assets, shed a quarter of the value of its investments during the crisis. The SEC has been studying states’ pension disclosures since an enforcement action against New Jersey last year, concerned over whether weaknesses were hidden from municipal bond buyers. Alongside California, Illinois remains under the spotlight for its poor state finances, the WSJ reports. Its bonds have the widest spreads of any US state.
Facebook has told investors in its $2bn fundraising that a much-anticipated stock-exchange listing could come as early as April 2012, the FT says. The details were revealed in a 100-page memorandum sent to Goldman Sachs clients taking part in the cash call. Facebook states in the document that it expects to exceed more than 500 shareholders by 2011, which would force it to report financial data within 120 days of the end of that year. Either an offering or the company’s first comprehensive filings of financial data could come at that point, the WSJ adds. The memo already had some details of Facebook’s performance, Reuters reports. The social network earned $355m in net income on $1.2bn of revenue in the first three quarters of 2010.
Comment, analysis and other offerings from Friday’s FT,
Samuel Brittan: Look behind the myth of global imbalances
Internationally, everything depends on what the surplus countries do with their surpluses, the FT columnist writes. Where then are the surpluses going? Into productive assets worldwide, sometimes in direct investment, but increasingly in the form of sovereign wealth funds. Of course it is idle to expect funds owned by authoritarian governments to play by the Queensberry rules. But a remarkable number of their investments make commercial sense and contribute to world development. Read more