Posts from Monday Jan 10 2011

Laos Securities Exchange to start trading

Laos Securities Exchange, the world’s newest bourse, is due to start trading on Tuesday with two listed stocks and bold plans for expansion, reports the FT. Trading will open with shares in EDL-Generation, which is controlled by the state-owned power company Electricite du Laos, and Banque Pour Le Commerce Exterieur Lao, a state-owned bank. The two companies launched their offerings at the end of last year. Although there have been no official figures, investors say they believe the issues were two times oversubscribed. The government floated 25 per cent of EDL-Generation shares and 15 per cent of BCEL’s stock, and hopes that as many as five other companies will list before the end of the year.

Eurozone worries stymie bull run

Stocks are losing ground as investors become disheartened by the disappointing US jobs data on Friday, inflation concerns, and most particularly, the eurozone’s lingering sovereign debt problems, reports the FT’s global market overview. The FTSE All-World index is off 0.6 per cent and industrial metals are mostly lower, though oil is higher because the trans-Alaska pipeline remains closed. The S&P 500 on Wall Street, which closed on Friday just shy of 27-month highs, is down by 0.3 per cent. The FTSE Asia-Pacific index excluding Japan was down 0.9 per cent, with banking shares declining in Shanghai on concerns Beijing could tighten policy to address inflation. The main mover in the region was Indonesia’s Jakarta Composite index, which has tumbled 4.2 per cent on expectations that accelerating inflation will prompt interest rate rises. South Korea’s Kospi Composite was off 0.3 per cent, with the market losing momentum after gaining 1.7 per cent in the first week of the year. China’s Shanghai Composite fell 1.7 per cent, weighed down by concerns about the pace of China’s economic growth following weaker exports data than expected.

US outsourcer iGate in $1.2bn India deal

Patni Computer Systems, a Mumbai-based software outsourcing business, is being acquired by iGate, a US rival, in a deal valuing the company at $1.22bn excluding debt, reports the FT. The deal could herald a wave of consolidation among smaller players in the highly competitive industry. In one of the largest deals in India’s technology sector, iGate’s agreed takeover comes as medium-sized IT outsourcing companies groups see their margins squeezed by larger groups.

Further further reading

For the commute home,

– What a TRILLION dollars looks like. Read more

Chinese city allows personal investing abroad

A Chinese city celebrated for its cut-throat entrepreneurs has launched a pilot project allowing individuals to invest directly overseas in a move that could signal greater opening of the country’s tightly controlled capital account, reports the FT. The eastern city of Wenzhou will allow individual residents to spend up to $200m a year in offshore investments, according to an announcement on the city government’s website. Chinese individuals are now only allowed to buy up to $50,000 worth of foreign exchange each year. But under the pilot programme, Wenzhou residents will be able to apply for much larger amounts as long as their investments meet certain criteria.

Rising imports help cut China’s surplus

China recorded its smallest trade surplus in nine months in December as export growth slowed and imports to feed the booming domestic economy surged ahead, reports the FT. The country’s trade surplus in December was $13.1bn, well below economists’ predictions and November’s $22.9bn surplus, according to Chinese customs data. The shrinking surplus is partly explained by higher prices of the commodities and raw materials China imports to power its growth.

Asia seeks soft stance on capital controls

Indonesia’s central bank governor, Darmin Nasution, is in no mood to slam the brakes on foreign capital flows, reports the FT. He describes capital controls to combat currency volatility – such as those announced last week by Brazil and Chile – as simply pouring “sand in the wheel” while foreign investment continues to grow apace. Other large Asian economies such as South Korea and Thailand are seeking a similar lightness of touch in their first moves to impede foreign capital flows. Markets have largely viewed their tentative initial capital controls as shows of willingness to take harder action should appreciating currencies prove a greater threat to exports in 2011.

Cameron team seals £2.6bn deals with China

David Cameron and Li Keqiang China’s vice-premier, have agreed trade deals between the UK and China worth £2.6bn, in what Downing Street says is an “important step change” in Britain’s trade relationship with one of the world’s fastest-growing economies, reports the FT. As Britain gave an elaborate welcome to the man who is expected to become Chinese prime minister in 2013, the UK and China signed some 15 separate deals which will help the government meet its goal of doubling the annual trade in goods and services with Beijing by 2015. Among the most significant agreements approved on Monday were a move to increase sales of Jaguar Land Rover vehicles to China; an announcement by BP and the China National Offshore Oil Corporation on deepwater exploration in the South China Sea; and a framework deal between PetroChina and the private British company Ineos to form refining joint ventures.

Seoul plans US grain trading house

South Korea is planning to set up a state-led grain trading company in Chicago in the latest sign of concern among some governments about the cost and reliability of food supplies. Seoul hopes its trading company could buy up to 30 per cent of Korea’s grain needs by 2020, purchasing directly from US farmers. In this way, the FT reports, South Korea, one of the largest importers of agricultural commodities, is seeking to wrest business away from big commodities trading houses. South Korea’s plan follows a similar scheme from Abu Dhabi, which has set up a government-backed commodities company to secure metals and food.

Defence stocks on the defensive against budget cuts

While Washington debates the why, where, what and (against) whom of defence spending, Wall Street has ordered a partial retreat.

From Goldman Sachs analysts on Monday: Read more

M&A deals show new year fire

A flurry of dealmaking by companies on both sides of the Atlantic has given the year the busiest start for mergers and acquisitions activity for a decade, firming up expectations of a bounceback in volumes as the economy recovers, reports the FT. With deals worth $34bn announced globally on Sunday and Monday, deal volumes so far this year have topped $83bn, up from $67bn last year. That puts 2011 ahead of the boom years, says Dealogic, with deal volumes higher than in any year-to-date period since 2000.

Shiny junk resists a funk

Moody’s has released its full-year 2010 default rates for high yield bonds and loans, and unsurprisingly the improvement over 2009 was impressive:

The global speculative-grade default rate finished 2010 at 3.1%, a level very close to our one year ago prediction of 3.3%. The global rate stood at a much higher level of 13.1% in 2009 and 4.4% at the end of 2008. In the U.S., the speculative-grade default rate ended at 3.3% in 2010, down from 14.1% in 2009 and 4.9% in 2008. In Europe, the comparable rate closed at 1.9% in 2010, also down from 2009’s 11.3% and 2008’s 2.1%. …

 Read more

Not just printing money — making it, too

That’s just showing off.

The Fed released its preliminary 2010 results on Monday and they show a hum-dinging whopper of a “profit”. From the release: Read more

Commerzbank fact du jour

On a day when the Markit iTraxx Senior Financials CDS index traded at a wide not seen since March 2009…

Commerzbank CDS spreads traded at their widest since 2002 on Monday, according to Markit (click chart to enlarge): Read more

The economic impact of the foreclosure slowdown

Lord, give us a housing market in which foreclosures are initiated and processed quickly and where prices reflect market fundamentals … but not yet. Or anytime soon, really.

With apologies to Saint Augustine, that seems to be the message of an article in The New York Times on Friday, by David Streitfeld: Read more

QE counter-factuals and counter-arguments

Here’s a pop quiz for macro fans: Federal Reserve asset purchases were equivalent to an X hundred basis point reduction in the federal funds rate and contributed Y million jobs. What are X and Y?

In a recent paper on zero lower bound events and the impact of quantitative easing, economists at the San Francisco Fed try to find X and Y. Read more

Petrochina and Ineos partner up in new JV

The long-rumoured partnering up of privately-owned refiner Ineos and Petrochina — China’s largest listed oil firm by capacity– is finally out of the bag.

On Monday, Ineos publicly announced that it would be entering a formal trading venture with the Chinese company, which is ultimately owned by China National Petroleum Corp: Read more

Smouldering in Belgium

Portugal is loudly occupying bond markets as they look for the next bailout candidate. But its always the quiet ones you should watch out for.

So we’d suggest looking closer at how markets have repriced Belgian risk lately. It’s getting a higher profile, but investor reactions to the country are still something to behold. Read more

‘Focus on the positives’ of the Ibanez case, Amherst says

Should banks be trembling in their boots after Friday’s “Ibanez case” ruling from a Massachusetts High Court — you know, the one that said Wells Fargo and US Bancorp couldn’t foreclose on two properties in the eastern seaboard state.

Laurie Goodman at Amherst Securities thinks not. Read more

China’s crouching commercial paper, hidden loan targets

As western commercial paper continues to wither, the eastern stuff is on the up.

Bloomberg wrote on Friday about surging commercial paper sales in China — as companies tap the short-term paper instead of getting loans from banks: Read more

A slow, speedy death for BofA’s conduits

Bye, bye Bank of America commercial paper conduits. We knew you well.

From Asset-Backed AlertRead more

Next up for Barclays – a bad bank?

Here’s a brave call from UBS bank analysts on Monday.

They reckon Barclays could be moving towards a restructuring — that is, shedding some of its “value destroying” pre-crisis assets and refining its business ops in an effort to avoid a Basel III-induced earnings drag and boost pay-offs to shareholders. Read more

There will be no UK house price fall in 2011

LONDON, Jan 10 (Reuters) – British house prices fell at their fastest annual rate in more than a year in December, mortgage lender Halifax said on Monday, but it reckons there will be little movement in house prices in the coming year.

So why might that be? Read more

Markets Live transcript 10 Jan 2011

Live markets commentary from 

Eurozone, inflation worries stymie bull run

Stocks are losing ground as investors become disheartened by disappointing US jobs data on Friday, the eurozone’s lingering sovereign debt problems and inflation concerns, the FT reports in Monday’s global rolling markets overview. The FTSE All-World index is off 0.5 per cent and industrial metals are mixed, though oil is higher because the trans-Alaska pipeline remains closed. US stock futures point to Wall Street, which closed on Friday just shy of 27-month highs, losing 0.6 per cent at the open.

New stress tests for US banks

Large US financial groups are bracing for a new round of stress tests to determine whether institutions are now healthy enough to raise dividends and buy back shares, reports the FT. The Fed is expected this week to begin examining data provided by 19 groups, including Goldman Sachs, JPMorgan and Bank of America. According to the WSJ, banks had to submit their capital plans to the Fed by last Friday to be eligible to raise their dividends or repurchase stock. The central bank, after a review of the plans that is expected to take about three months, is likely to permit a large group of these financial institutions to raise their dividends, analysts say.

Ben Bernanke gets a likely backer

Narayana Kocherlakota gets his first crack at voting at Federal Reserve policy meetings later this month, and the wonky former academic said he is likely to support the Fed’s controversial $600bn bond-buying program, the WSJ reports. “The bar for dissent from the committee is going to be pretty high for me,” Kocherlakota said in his first national media interview. The president of the Federal Reserve Bank of Minneapolis also said he isn’t likely to push for tightening monetary policy any time soon.

MA foreclosure ruling to reverberate

The Massachusetts high court ruled on Friday that Wells Fargo and US Bancorp wrongly foreclosed on two homeowners in a case that could have wide implications for the way homes are repossessed, the FT reports. The Massachusetts Supreme Judicial Court upheld a lower court ruling, as explained by FT Alphaville, that Wells Fargo and US Bancorp did not have the right to claim the homes because they could not prove they owned the mortgages at the time of foreclosure. Friday’s ruling sent bank stock plunging and tongues wagging about the possible effects of the court’s decision.

QE2 is working, says Fed’s Yellen

The Fed’s asset-purchase scheme is paying off, with inflation a percentage point higher and 3m more jobs to be added in 2012, Fed vice chair Janet Yellen said at the weekend, citing Fed research, reports the FT. It is the first time a senior Fed official has detailed the benefits of ‘QE2’. The estimates suggest that, if the Fed had not started QE in 2008, the economy would now be close to deflation and 2012 unemployment would be 1.5 percentage points higher. Clearly, says the FT, “something is stirring” in the US economy. Meanwhile, Pragmatic Capitalism “commends” Yellen’s understanding of the banking system, but tears apart most of her comments about QE2’s efficacy.

Another blow for BP

BP just can’t keep out of the news these days.

After hitting the Gulf coast with its Macondo well oil spill last year, the oil major as of Saturday was seemingly involved in another major oil-infrastructure fail — the shutdown of its Trans-Alaska pipeline system due to a leak. Read more