Posts from Tuesday Jan 18 2011

Municipal nut, meet your sledgehammer

What’s good enough for GM is apparently good enough for California and Illinois.

That’s the argument made by University of Pennsylvania law professor David Skeel in an op-ed in Tuesday’s WSJRead more

Boeing pushes back Dreamliner delivery

Boeing has announced a new delivery delay of at least six months for its long overdue 787 Dreamliner passenger jet, the seventh postponement of the troubled aircraft in three years, the FT reports. Japan’s All Nippon Airways, the groundbreaking jet’s first customer, should now receive its first 787 in the third quarter of this year, Boeing said. It had previously promised to hand one over in the middle of the first quarter of 2011. An electrical fire on a 787 test flight in November caused the latest delay, which Boeing said was “not expected to have a material impact on 2010 financial results”. The fire led some analysts to predict that the first deliveries could be put back at least six months and possibly until 2012.

Indian environment law no ‘barrier to growth’

India’s environment minister, Jairam Ramesh, has mounted a robust defence of his record in office, denying that he is obstructing industrial growth but insisting that India’s progressive environmental laws must be respected, reports the FT. Mr Ramesh met leaders of the powerful Confederation of Indian Industry on Tuesday, amid growing concern within Indian business and banking circles over what some see as the minister’s overzealous enforcement of environmental rules, which has stalled a number of high-profile projects.

Stocks hit fresh cyclical high

World stocks have hit fresh cyclical highs, though Wall Street was reluctant to join the rally, pressured by falls in Apple shares, rising interest rates and stretched technical indicators, the FT reports. The FTSE All-World index is up 0.6 per cent, breaching 223 for the first time since mid-August 2008, the dollar is weaker and commodities generally firmer as default bullishness holds sway. The S&P 500 on Wall Street is up 0.1 per cent, held back by some poorly received results from Citigroup and a softer-than-forecast New York Fed manufacturing survey. Global crude oil prices slipped after an inventory report from the International Energy Agency said there was still plenty of supply amid sluggish demand. Also weighing on sentiment is a sharp slide in Apple shares – down 2.3 per cent – after chief executive Steve Jobs said he would take sick leave from the tech giant. The iPad maker is due to deliver first-quarter results after the closing bell today.

US regulators back tougher rules

The biggest US financial groups were braced for new restrictions on their businesses on Tuesday after regulators backed higher capital charges for “systemically important” companies and a ban on proprietary trading at banks, the FT reports. In  a study on the “Volcker rule”, which prevents banks from trading for their own account among other restrictions, the Financial Stability Oversight Council, chaired by Treasury secretary Tim Geithner, recommended that banks’ compliance departments first decide whether a trade is proprietary using a raft of metrics, followed by supervision from regulators and punishment for flouting the rules.

US pins hopes on Hu visit

The US and China will attempt to reset a relationship marred by a series of diplomatic and economic disputes during a visit to Washington by Hu Jintao, China’s president, billed as the most important bilateral summit in decades, the FT reports. The opening of the four-day state visit by Mr Hu was clouded on Tuesday by Taiwan’s conduct of rare missile tests, a reminder of Beijing’s perennial pressure on Washington to curtail arms sales to Taipei. The visit will mix lavish protocol for Mr Hu with what is likely to be a much tougher tone in private from an Obama administration that has steeled itself to take a more assertive line with Beijing.

Citi shares slide as results disappoint

Citigroup highlighted the challenges it faces in regaining the ground lost during the financial crisis, unveiling fourth-quarter results that disappointed investors and sent its shares sharply lower, the FT reports. Citi’s poor performance in the last three months of 2010 overshadowed its first yearly profit since 2007 and weakened its assertions that the US bank has overcome its troubles and is ready to compete head-on with Wall Street rivals. Shares in Citi were down by more than 6 per cent to $4.78 in early afternoon on Tuesday in New York after it reported fourth-quarter earnings per share of $0.04, well below analysts’ expectations of $0.08, in spite of a $2.2bn reduction in loan loss provisions. The unusually large amount of trading in Citi stock kept the overall market subdued and weighed on the shares of peers such as Bank of America and Wells Fargo, which report results this week.

Further further reading

For the commute home,

- A Freddie Mac review finds that Citigroup is still selling defective mortgagesRead more

Volcker rule — coming, slowly, to a bank near you

Look on the bright side, we now know which rules the rulemakers will follow to get us to the Volcker rule. Some of them, at least.

The Financial Stability Oversight Council on Tuesday released its six-month study into the Volcker rule and held its third public meeting. Read more

The full story of the Ibanez case

Back in 2005 in Springfield, Massachusetts…

 Read more

Is this the beginning of the end for HMV?

I have been told by two music and entertainment companies that they can no longer get credit insurance for additional sales to HMV. Here is an extract from an e-mail sent by the “head of credit and collections” at the UK arm of a major UK manufacturer and distributor of CDs and DVDs:

That’s from Robert Peston’s blog on the BBC website. Read more

Not a fat finger, just falling US Treasuries…

The spike in 10-year US Treasury yields just after November TIC data came out:

 Read more

Silver shortage rumours abound [updated]

The blogosphere has been all-a-flurry with talk of silver bullion shortages this week — although mainly down to one particular website.

Zerohedge. Read more

Doing more with less (EFSF), part two

What’s left if we’re not going to get a full-blooded expansion of the eurozone’s sovereign bailout fund?

Um, not a lot, it looks to us. A ragbag of rejigged credit enhancements; lower loan rates; possibly a small programme of buying up distressed sovereign debt markets. Other than that, we’re stumped — although, thinking about it, perhaps this bond-buying idea does have legs. Read more

Doing more with less (EFSF), part one

There was definitely yesterday a discussion about increasing [the European Financial Stability Facility] to more than 440 billion [euros], so increasing the total [to] 750 billion, but the Eurogroup has yesterday rejected that idea.

The Dutch, like the Germans, would complain — they’ve wanted a ‘comprehensive package’ of fiscal reforms to accompany any EFSF ‘increase’. But the comment is striking, and the issue of size is worth considering. It’s never been clear how much more we’re getting. Read more

The mechanics of Irish euro-printing

The Irish Independent last week drew attention to a much-missed detail in the  execution of Ireland’s emergency loan programme.

As it turns out, the Irish central bank has been partly financing the programme’s loans with the printing of its very own euros. Read more

Apple and Steve Jobs

There’s really no need to worry says Birinyi Associates.

AAPL is currently down 4.6% after CEO Steve Jobs announced he will be taking medical leave. This will be his third leave of absence since 2004. The CEO’s previous leaves have not had a long term negative effect on the stock. One month following the announcement in 2004 the stock was up 14% and one month after the announcement in 2009 AAPL was up 13%.

An update from S&P’s covered bond wars

A bad day for Standard & Poor’s.

Two rating withdrawal requests before lunchtime: Read more

Chinese inflation through surging online searches

Inflation in (simplified) Chinese is 通 货膨胀.

Standard Chartered are back with another ‘wisdom of China’s online crowds‘ piece, or a look at Chinese consumer trends through internet searches. There’s a difference this year though. Instead of just using Google Trends, StanChart have made use of a new search trends-analyser, the Baidu Index (BI). Baidu has a has an 80 per cent share of the search market amongst China’s online population of 300m, according to StanChart, and the bank says it’s the first to use the BI to gauge China trends. Read more

A 75bps rate rise could cost consumers £6.2bn, Deutsche says

With UK inflation trending above the Bank of England’s 2 per cent target (yet again), attention is now turning to the possibility of interest rate increases this year, and their potential impact on British mortgages and banking losses.

Just look at this note from Deutsche Bank’s Jason Napier and David Lock: Read more

Universal banking [updated]

The Financial Services Authority (FSA) has fined Barclays Bank plc (Barclays) £7.7 million for failures in relation to the sale of two funds. Barclays will contact customers and pay redress where appropriate…

Between July 2006 and November 2008 Barclays sold Aviva’s Global Balanced Income Fund (the Balanced Fund) and Global Cautious Income Fund (the Cautious Fund) to 12,331 people with investments totalling £692 million. Read more

Markets Live transcript 18 Jan 2011

Live markets commentary from FT.com 

Record-breaking, forecast-busting UK inflation

UK CPI inflation surged to 3.7 per cent in December, notching up the biggest ever month on month rise of 1 per cent. The market had been expecting a figure closer to 3.3 per cent, a fact which now creates some uncomfortable reading for the Bank of England’s Monetary Polciy Committee, says FT Alphaville. Another point to bear in mind is that the 3.7 per cent rise comes even before January’s VAT increase has taken effect. Key drivers for the increase came from price rises in air transport, petrol, diesel, gas and food between November and December, according to the Office of National Statistics said. Read more

Approval expected for NBCU Comcast

US regulators will approve Comcast’s purchase of NBC Universal from General Electric and Vivendi as early as Tuesday, people close to the review process say. The FT reports that the Federal Communications Commission has been working over final conditions for the deal since December, when chairman Julius Genachowski circulated a draft order for the approval to the FCC’s other four commissioners. Since then the commissioners have been hearing last-minute appeals from lobbyists and public interest groups who have emphasised the need for strict conditions that will prevent Comcast from exploiting its control of both content and distribution to harm competitors. Even if regulators approve the deal this week, the Wall Street Journal reports it is unlikely the transaction will close before the end of the month on account of its mechanics.

GSK takes record £2.2bn charge

GlaxoSmithKline has unveiled a record-breaking £2.2bn ($3.5bn) charge to settle product liability lawsuits and regulatory fines linked to past sales practices by the UK-based pharmaceutical company in the US, the FT reports. The fourth-quarter provision, which the company said would be reduced to £1.8bn after tax deductions, outstrips the previous largest settlement imposed on a pharmaceuticals company, when Pfizer paid $2.3bn to US regulators last year. GSK’s latest charge comes amid a series of escalating legal actions launched against drug companies in the US by regulators and patients over allegations of aggressive marketing and side-effects caused by medicines.

Opec lifts output as oil flirts with $100

The Opec oil cartel is quietly increasing its production as oil prices flirt with $100 a barrel, the western countries’ oil watchdog said on Tuesday, according to the FT. The revelation by the International Energy Agency comes in spite of a string of public comments from Opec countries such as Iran and the United Arab Emirates suggesting that there was no need for more oil and playing down the impact of high oil prices. The cartel left its official production levels unchanged at a meeting last month in Quito, Ecuador. But the IEA said on Tuesday that Saudi Arabia and other Opec countries were quietly lifting their output in response to higher prices.

Stocks hit fresh cyclical high

Stocks hit fresh cyclical highs on Tuesday, though trading was wary as US equity futures suggested Wall Street would return from its day off on the back foot, pressured by falls in Apple shares and stretched technical indicators, the FT reports. The FTSE All-World index was up 0.5 per cent, touching 223 for the first time since mid-August 2008, the dollar was weaker and commodities generally firmer as default bullishness held sway. However, S&P 500 futures were down 0.1 per cent, pointing to New York pulling back from 27-month highs following the Martin Luther King Jr holiday on Monday.  Apple shares were expected to fall sharply after chief executive Steve Jobs said he would take sick leave from the tech giant. The iPad maker was due also to deliver first- quarter results after the New York close today.

IG’s disastrous Japanese foray

Spread better IG Group has taken a full write down of the goodwill associated with its Japanese business FXOnline — its biggest operation outside of the UK, reports FT Alphaville. The £123m impairment follows new leverage limits being introduced in Japan’s forex and equity index markets. Leverage in FX was restricted to 50 per cent in August, while a limit of 10 times leverage was introduced for equity indices at the start of this year. IG Index had warned investors in December that its foray into the Japanese retail foreign exchange market had been “something of a disaster”.  Read more

Chinese consumers, going platinum

One for super-cycle fans and/or commodity bulls. A chart from a Citi note on metals and mining, arguing that slower industrial growth in China’s new five-year plan (and the one after that) will be replaced by lots and lots of commodity-munching Chinese consumers:

 Read more

Further reading

Elsewhere on Tuesday,

- The crucial thing to watch when investors dump Apple on Tuesday. Read more