Posts from Tuesday Feb 1 2011

Investors return to risk as Egypt fears ease

As fears over Egypt continue to subside – at least for the moment – traders have pushed US stock indicies to new highs, and have sold safe havens like the dollar and Treasuries, reports the FT’s global market overview. Almost without exception, the PMI reports have been strong. The result is a boost to hopes of economic growth, but with a side order of concerns about a pick-up in inflation. The latest data to confirm the trend were the US numbers, where the index beat expectations for a slight easing, jumping to 60.8 in January from 58.5. The report, coming soon after the US open, helped the S&P 500 add 1.6 per cent to 1,307.04 – its first trip above 1,300 since shortly before Lehman Brothers collapsed. The blue chip Dow Jones Industrial Average has crossed the 12,000 mark, now at its highest since June 2008 at 12,030.17.

Injunction clouds BP dividend resumption

BP announced its first dividend payment since last year’s Gulf of Mexico spill but the news was almost immediately overshadowed by a court decision to put on hold its proposed $16bn alliance with Russia’s Rosneft, reports the FT. A judge at the High Court in London granted an injunction to BP’s billionaire partners in its existing Russian venture, TNK-BP, until February 25. Alfa-Access-Renova, the vehicle through which the partners hold their stake in TNK-BP, had argued BP’s alliance with Rosneft breached their shareholder agreement

BlackBerry could face ban in India

BlackBerry services in India could be at risk after the country’s home minister said that Research in Motion had failed to provide access to customers’ corporate e-mails to the government. The Canadian company said this was technically impossible. “We will insist they give us a solution for [the] enterprise service,” P Chidambaram, India’s home minister, said on Monday, as he referred to a deal between RIM and the government, which allows Indian authorities to access BlackBerry’s basic messenger service. The Indian government has repeatedly asked RIM for access to all BlackBerry services as part of a broader effort by the country’s intelligence to monitor security threats made via mobile phones and the internet, reports the FT.

Fast food battle heats up in China

Chinese consumers may have more spending power, but they also have less time to cook: a perfect recipe for the growth of fast food in China, where western and Asian chains are battling over the increasing appetite for restaurant meals, reports the FT. In urban China, high property prices, long commutes, gruelling working hours, a later marriage age and smaller families all add up to more fast food. The country’s food service industry has recorded double-digit annual growth since 2003 but is still only half the size of the US market, says AlixPartners, a consulting firm in China. The industry, estimated at about Rmb2,000bn ($303bn) in 2009, is forecast to grow to about Rmb3,000bn by 2014, according to industry estimates.

Canada eager to increase timber exports to China

For British Columbia’s sawmills, China has become more than just a booming market. By persuading customers across the Pacific to build houses, schools and even apartment buildings out of wood instead of cement, the Canadians are realising a long-held dream: to shake off their dependence on the fickle and protectionist US. China’s importance was underlined last month when the Obama administration sought arbitration over a US claim that the BC government unfairly subsidised sales of diseased logs from provincially owned forests, reports the FT. The complaint came on the heels of a separate ruling that Canada must impose almost C$60m ($59.8m) in new taxes on lumber exports to the US to offset other illegal subsidies.

Queensland braced for cyclone

An unusually large tropical cyclone with winds potentially reaching 280km per hour is headed to the flood-ravaged Australian state of Queensland forcing the closure of mines, rail networks and ports, reports the FT. Cyclone Yasi, which is due to hit land near Cairns at about 1am on Thursday local time, has also forced thousands to evacuate their low-lying homes and is expected to inflict further damage on Queensland’s flood-hit agricultural sector as it moves inland.

PMI data raise fears on global inflation

Global manufacturing activity grew at a record rate in January as the international recovery powered into 2011, pushing up commodity prices and contributing to inflationary pressures worldwide, reports the FT. Surveys of purchasing managers in all leading economies, published on Monday, showed strong activity, order books and hiring intentions. A composite global PMI index, compiled by JPMorgan and Markit economics, stood at 57.2 in January – up from 55.6 in December and the highest reading on this measure since the series began in 1998.

King of Jordan promises reform

The king of Jordan has fired his unpopular government and appointed a new prime minister, Marouf al-Bakhit, to take “practical, swift and tangible steps to launch a real political reform process”. Abdullah II’s latest response to weeks of street protests across Jordan marks an attempt to calm mounting disaffection, reports the FT. It provides the clearest evidence yet that the wave of unrest sweeping the Arab world is starting to affect Jordan, one of the most stable regimes in the region and a key western ally. Regimes in Syria, Algeria and Bahrain are bracing themselves for fresh upheaval.

Mubarak defies 1m-strong protest

Hosni Mubarak said late on Tuesday that he had no intention of running in the September election, after at least 1m Egyptians turned out in nationwide protests determined to sweep him from power and open the way for a democratic regime in the Arab world’s most populous country, reports the FT. Speaking on state television, Egypt’s ruler for the past 30 years insisted he would serve out his term and work for a transition so that people could chose who they want to represent them. His statement came after Frank Wisner, a former US diplomat, was sent by the Barack Obama, US president, to Cairo to urge Mr Mubarak personally not to run in the September election, people briefed on the conversation said.

Further further reading

For the commute home or for enjoying with a cool glass of Sakara beer

– The melting pot qualities of cities Read more

The Terra Firma response — IN FULL

After three years and a £1.75bn loss, is that it?

Terra Firma is pleased that EMI’s debt burden has been reduced through Citi agreeing to write down a substantial proportion of EMI’s debt.

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Chart du jour, US tax cuts edition

A bit of eurozone-US fiscal divergence, anyone?

In a post on Tuesday the IMF blog compares its current projections for fiscal consolidation in advanced economies with those it made in November 2010. Read more

Meredith Whitney and the muni fifth dimension

Bloomberg has tracked down Meredith Whitney, bought her scrambled eggs, and demanded an explanation.

In an article out on Tuesday, Whitney is asked about her prediction that “You could see 50 sizable defaults, 50 to 100 sizable defaults” amounting to “hundreds of billions of dollars’ worth of defaults” in the municipal bond market: Read more

Guy Fawked [updated]

Hands-free at last, etc. Terra Firma — boss: one Guy Hands — just lost control of EMI to a Citigroup manoeuvre. Click for full statement (PDF):

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A week is a long time… for the UK economy

The 10-year gilt yield hit an eight-month high on Tuesday…

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Value for money, with the FSA

The Financial Services Authority (FSA) has today announced its proposed Annual Funding Requirement (AFR) for 2011/12. The AFR for 2011/12 is £500.5m, up from £454.7m in 2010/11, a gross increase of 10.1% in overall funding. The increase will be borne by larger firms, reflecting the resources applied to intensive supervision of high impact firms…

(Note — net of discounts after fines, companies will actually be paying 2 per cent less to the FSA than in the last AFR.) Read more

John Kemp: There is no global output gap

It’s no secret we at FT Alphaville ♥ John Kemp.

And we output gaps. Or at least, certain policymakers’ over-reliance on them. Read more

Another reason to flee north

It’s probably safe to say the Norwegian krone has already been pretty well tipped in 2011, given a certain well-known correlation:

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Goldman’s Tourre says show me the inexperience!

Fabulous Fabs is back, and this time he has a subpoena.

The Goldman Sachs trader is still fighting SEC litigation alleging he failed to tell investors in the Abacus CDO that hedge fund Paulson & Co. had helped pick out some of the underlying securities and planned to bet against them. Read more

Six scenarios in search of a eurozone solution

Chart via Andrew Garthwaite’s global equities team at Credit Suisse:

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Markets Live transcript 1 Feb 2011

Live markets commentary from 

Will nothing deter Mrs Watanabe?

Mrs Watanabe — Japan’s famous retail currencies investor — laughs in the face of emerging market political instability. In fact, she laughs then invests some more.

From Yunosuke Ikeda at Nomura’s global FX team: Read more

Bond sell-off lifts buyout funds

Funds that specialise in bank loans used to finance corporate buyouts have seen a surge of interest from investors fleeing bonds and increasing interest rates, the WSJ reports. Floating rates on the buyout loans will pay out more to investors if rates rise further. Last quarter’s inflows into the funds  were more than double the last quarterly record, set in 2004. In another sign of loans becoming more available, the equity contribution to new buyouts has fallen 30 per cent, compared to 40 per cent at the beginning of 2010. KKR’s recent $5.3bn deal for Del Monte Foods is among the buyouts that have witnessed huge demand from investors hungry for yield.

Another Egypt downgrade – S&P cuts to BB

Just when things were beginning to look up for Egypt…

… Standard & Poor’s has followed Moody’s and downgraded the country’s ratings. Read more

Brazil’s Banco PanAmericano sold off

Banco PanAmericano, the Brazilian bank that came close to collapse following the financial crisis, has been sold to a local investment bank amid growing speculation that its losses may have been higher than earlier thought, says the FT. Banco PanAmericano’s controlling shareholder, Brazilian television host Silvio Santos, sold his 37.6 per cent stake to BTG Pactual for R$450m. The deal comes as police are probing alleged accounting fraud at the bank, which nearly collapsed, requiring a R$2.5bn rescue from deposit guarantee funds, last November. Brazil’s central bank found that the lender had kept some loans on books even after selling them, and may have sold portfolios more than once.

Mass march to topple Mubarak begins

Around 600,000 demonstrators have so far gathered in the centre of the Egyptian capital to oust President Hosni Mubarak, Al Jazeera TV reports. The country’s army has promised not to resist the protests, while the new vice-president has offered to talk with the political opposition, reports the NYT. As the country’s political crisis comes to a head, uncertainty over its economic effects linger. Convoy systems for shipping on the Suez Canal continued as normal on Monday even as concerns over the canal’s role in supplying oil edged the price of Brent crude above $100, the FT says. A broader fear is any domino effect of unrest on other Arab regimes which supply far more oil to global markets than Egypt, the FT adds.

Hedge funds get back to fundamentals

Hedge fund managers have begun to switch from the technical, correlated trades of 2010 into old-fashioned fundamentals, the FT reports. In the first nine months of 2010. the average equity hedge fund returned 3.56 per cent compared with 8.17 per cent for the average relative value fund. But this year seems to continue a contrary trend started in the final quarter. Equity long/short managers have been among the biggest gainers in January. By the middle of last month, several big-name funds were outperforming significantly, according to investors. But positioning remains tentative. January saw many long/short managers de-risk heavily mid-month, as a result of big market rotations attributed to large quantitative hedge funds.

BofA chief’s bonus tied to future profits

Bank of America has tied its chief executive’s 2010 bonus to the lender’s performance over the next four years, highlighting the spread of longer-term compensation schemes on Wall Street, the FT says. Brian Moynihan will receive $9.1m in restricted stock if the bank’s profits remain above 0.80 per cent of its assets from 2011 to 2015, according to a regulatory filing on Monday. In 2009, before taking over as chief executive, Moynihan’s bonus totalled $6.1m, Dealbook reports. Moynihan’s 2010 bonus is overshadowed by $14.3m of restricted stock given to the company’s investment banking chief, Thomas Montag — bigger even than Goldman Sachs chief executive Lloyd Blankfein’s $12.6m of awarded shares, according to Bloomberg.

Japan’s silver linings

For Japan, at least, there was a silver lining to Egypt’s gargantuan cloud, which swept the media fall-out from last week’s S&P’s downgrade of Japan’s debt rating right off the front pages.

Another glittering lining emerges from the downgrade itself, which has been widely seen as giving Japan’s ever-worried prime minister, Naoto Kan, a stronger hand to push through some tough tax reforms. Read more

SEC muni probe turns to Harrisburg, Pa.

The Securities and Exchange Commission is studying whether Harrisburg, the capital of Pennsylvania, has provided the bond markets with enough information about its troubled finances, the FT reports. A spokesman for Harrisburg’s mayor confirmed that a request for documents was received two months ago. Harrisburg has been unable to pay guarantees it made on $300m of debt issued to finance a local incinerator project, veering close to default and becoming a symbol of the municipal debt market’s problems. A a slew of lawsuits have also been launched over the incinerator bonds and the local authority that owns the incinerator has hired accountants for a forensic audit on the bond deals.