Posts from Wednesday Feb 2 2011

Further further reading

For the commute home,

– China to create the world’s largest cityRead more

Rally ends as markets await fresh data

Inflation, not Egypt, was the key concern in markets on Wednesday, as stocks took a breather from climbing to new highs while Treasuries and oil continued to push higher, reports the FT’s global market overview. The market focus, however, was already turning to Friday’s non-farm payrolls report, arguably the most eagerly awaited and hard-to-predict number of any month. On Wednesday, bulls took heart from the ADP employment survey, which showed 187,000 workers were added to payrolls last month – above expectations. That economic rebound, plus the continuing rise of oil – Brent crude saw a new 28-month high on Wednesday, above $102 a barrel once again, and copper tested $10,000 a tonne – is clearly causing a rise in traders’ fears of inflationary pressures. US Treasury bonds neared the top of their recent trading range, with 10-year notes adding 6 basis points to 3.495 per cent. Traders have been focused on the 3.50 per cent mark as potential break-out toward much higher rates. Meanwhile, the S&P 500 was down 0.3 per cent at 1,304.03, though the Dow Jones Industrial Average was up fractionally at 12,041.97 as traders continued a shift into larger companies whose dividends and steadier growth are reassuring as the economy enters unknown territory.

Indian IT groups shift their focus

Indian information technology companies intend to reduce their dependency on a US ­market they regard as “protectionist”, citing a decision to increase visa fees for skilled workers that will raise their ­personnel costs by up to $250m a year, reports the FT. Tata Consultancy Services and Infosys, the two largest Indian outsourcing companies, told the Financial Times that while the US would remain an important market, they wanted to boost revenues in Europe and emerging markets.

Overseas expansion hits Nomura profits

Nomura reported lower third-quarter profits than expected as the cost of its aggressive push into foreign markets overshadowed solid perfomances by its retail brokerage and asset management businesses, reports the FT. Overall, net profits rose 31 per cent to Y13.4bn ($164m), Nomura’s seventh consecutive profitable quarter. But they fell well short of the Y17bn consensus estimate of analysts surveyed by Thomson Reuters. The investment banking division recorded its third quarterly pre-tax loss in a row, of Y2.4bn.

Wheatley to head UK consumer champion

Martin Wheatley, the outgoing chief of Hong Kong’s financial regulator, will head up Britain’s new consumer champion when it is spun out of the Financial Services Authority, reports the FT. As head of the Consumer Protection and Markets Authority, Mr Wheatley will serve as the main regulator for UK securities markets and oversee how all financial firms treat their customers and counterparties. The CPMA will also oversee smaller financial companies, such as independent financial advisers and brokers, for safety and soundnesss. Wheatley, 51, has headed HK’ Securities and Futures Commission since 2005 and had already announced plans to step down later ths year.

Ex-Indian minister arrested in telecoms probe

A former Indian telecoms minister has been arrested over corruption allegations linked to the award of mobile licences that an official audit claimed cost the exchequer $39bn, reports the FT. The arrest of Andimuthu Raja on Wednesday is the first since the investigation was launched in October 2009 into irregularities in the awarding of 2G spectrum licences in 2008.

Weather whips up commodity pressures

Prices of agricultural commodities have jumped to new highs, with sugar hitting a 30-year peak, as global weather conditions continued to adversely affect production prospects, reports the FT. Indeed, as the FT also reports, tropical cyclone Yasi struck Australia’s far north Queensland coast on Thursday, cutting power to more than 150,000 people and causing widespread damage to homes and businesses. Food commodities traders and agriculture officials increasingly believe that the worst effects of the current spike in agriculture inflation are still to be felt, both in terms of further price rises and the potential for civil unrest. Ric Deverell, commodities economist at Credit Suisse in London, said that, despite large price increases over the past year, he expected agricultural commodities to “continue to move higher through to the middle of 2011”.

Yemen president says will not run again

Yemen’s president sought to check rising public dissatisfaction on Wednesday by announcing he would not seek re-election when his term expires in 2013, reports the FT. Ali Abdullah Saleh’s statement came on the eve of a mass rally in Sana’a on Thursday by Yemen’s opposition parties, who brought thousands to the streets last week to protest over corruption and the failure of democratic reform. Meanwhile the FT reports that Jordanians seek reform but there is little appetite for wholesale regime change.

Household deleveraging and consumer-led growth

The onslaught of chart porn begins with the changes in the US personal savings rate for the last five years, updated to reflect Monday’s income and outlays report from the BEA:

 Read more

Hundreds injured in Cairo clashes

Hundreds of people were injured in central Cairo on Wednesday in protracted clashes between supporters and opponents of Hosni Mubarak, the Egyptian president whose promise not to contest this year’s election failed to satisfy protesters calling for his immediate departure, reports the FT. The government said one person was killed and 350 injured in fighting that erupted hours after thousands of anti-government protesters occupying Tahrir Square in the capital defied a military announcement urging them to end the demonstrations and return the country to normal. Most of the violence seemed to have been initiated by the pro-Mubarak demonstrators, many of whom appeared to be thugs rather than genuine supporters of the president. Meanwhile, the US and its European allies have strongly condemned Wednesday’s violence in Cairo, with Britain saying it would be “completely and utterly unacceptable” if the fighting was triggered by loyalists of President Hosni Mubarak, reports the FT.

‘The Middle East convergence trade’

Pricing political risk in a crisis is hard. Exhibit E: the “orderly transition”.

1. Hosni Mubarak says he will not run for re-election. Reuters flash at 9am GMT (H/T FT Tilt): Read more

US bank earnings: a wrap

Just passing along a few highlights from KBW’s latest analysis of Q4 earnings for the 131 banks they cover (emphasis theirs):

Banks continue to beat or meet expectations. For our sample of 131 banks, on an operating-per-share basis, 65 banks (50%) beat consensus estimates, 16 (12%) met consensus estimates, and 50 (38%) missed consensus estimates. This compares to 4Q09 and 3Q10, when 46% and 35% of the banks missed consensus estimates, respectively.

 Read more

IFS: beware the UK labour market

If policy wonks had their way, the publication date of the IFS Green Budget would be a national holiday.

We exaggerate — slightly — but for an arid testament to the prose potential of Excel spreadsheets, it’s a good read. Not least because across its twelve chapters it meticulously meanders through the high stakes game the UK economy is currently in. Read more

Moans of the monolines

Assured Guaranty Ltd. doesn’t like Standard & Poor’s new proposed rating methodology for bond insurers like (ahem) Assured Guaranty Ltd.

In fact, Assured’s CEO let rip in a Tuesday conference callRead more

Sovereign-bank loops, S&P and Ireland edition

Usually in Europe’s debt crisis, it’s been the sovereigns that have been downgraded first — and only then have their domestic banks followed.

In this, as in so much else, Irish banking just broke the mould. Read more

Markets Live transcript 2 Feb 2011

Live markets commentary from 

When Irish eyes are crying

Coming soon — Michael Lewis, of Liar’s Poker fame, does Ireland in the March edition of Vanity Fair. Click on the link for a Q&A preview:

Quantifying corruption risk in India

Egypt’s grabbed all the headlines in the ’emerging market risk’ category so far this month, but there’s been a touch of controversy elsewhere in the EM category too.

India’s been rocked by a series of corporate and political scandalsRead more

Wall Street pay hit $135bn in 2010

Total compensation and benefits reached a record $135bn at twenty-five Wall Street banks in 2010, fuelled by revenue of $417bn — itself a record, reports the WSJ. Compensation increased by 5.7 per cent and revenue by one per cent. However, much more of this pay packet represents deferred compensation than before: around half has been deferred, compared to a third before the crisis. 2010’s pay figures also include awards deferred in 2009 or in previous years.

M&A matchmaking

There’s been an outbreak of fantasy M&A this Wednesday morning.

Credit Suisse reckons Anheuser-Busch InBev should respond to the continuing ills of the US domestic beer market by making a blockbuster bid for SABMiller: Read more

Military calls for Egypt protests to stop

The Egyptian military has told the thousands of anti-govenment protesters occupying central Cairo that their message had been heard and it was time for them to help the country to return to normal, the FT reports. The call comes hours after President Hosni Mubarak announced that he would stay in office, but decline to run for re-election later this year. The economy is close to breaking point after ten days of protests, with the new government aiming to reopen banks by the weekend, the WSJ says. Other leaders in the region have scrambled to contain the spread of unrest. Jordan’s king threw out his government and appointed new ministers on Tuesday, Reuters says, while Yemen’s president has promised not to run for re-election, BBC News reports.

China rate rise due within the month

Economists and bankers close to Chinese policy-makers are forecasting an interest rate hike within the month, the NYT reports. The NYT didn’t cite sources. The move would come just as commodities that depend on strong Chinese growth surge to record highs. Copper could test $10,000 a metric ton on the London Metal Exchange soon, Bloomberg says. Chinese interest rate hikes would slow down industrial growth but possibly favour consumer spending, given that most ordinary Chinese are strong savers rather than borrowers, the NYT argues. It may not be as simple as that: rate hikes may also entice bigger inflows of hot money into the country, as FT Alphaville previously argued.

The impact of inflation is ‘greatly exaggerated,’ MS says

In the current environment of growing “inflation anxiety“, particularly in Asia, Morgan Stanley strategist Gerald Minack looks at the extent to which inflation affects equity values.

And in his view, its impact has been greatly exaggerated in the past few decades. Read more

Dow and S&P close at June 2008 highs

Strong earnings reports and promising manufacturing data have sent stock indices above key technical levels, the FT says. The S&P 500 closed above 1,300 while the Dow finished above 12,000. The Dow has now risen 4 per cent in 2011 and 20 per cent since last August, the WSJ reports, although a question mark now hangs over what equities will do when Federal Reserve quantitative easing halts in June. At the same time, in signals of short-term economic strength, the S&P materials index and the Nasdaq posted some of the strongest gains on Tuesday. Volumes, including large-scale institutional block orders, are also showing signs of sustained recovery, Reuters reports.

Amazon preparing Netflix rival

Amazon is developing a film streaming service that would compete directly with Netflix, the FT says. The company is planning to bundle access to the service with Amazon Prime, a premium service that guarantees customers unlimited free shipping of books and other items sold by the online retailer after paying an initial fee. Engadget released a purported screenshot of the leaked service recently. A source confirmed that Amazon was working on a streaming service. However, Amazon faces an uphill struggle if it is to overhaul Netflix in subscription video. Netflix shares have risen almost fourfold in the past 12 months as the company has built a dominant position in online film viewing beyond DVD subscriptions.

Fed owns more Treasuries than China

The Federal Reserve has surpassed China as the leading holder of US Treasuries even though it has yet to reach the halfway mark in its latest round of quantitative easing, the FT reports. Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn. According to the most recent US Treasury data on foreign holders of US government paper,China holds $896bn and Japan owns $877bn. The Fed has devoted 67 per cent of its QE2 purchases to Treasuries with a maturity of four-and-a-half to 10 years. That has helped pull back yields in that part of the yield curve from their highs of December.

Borders bankruptcy later this month

The United States’ second-largest book store may file for bankruptcy this month or even as soon as next week, sources familiar with the matter have told Reuters and Bloomberg. The plan would likely involve Borders closing around 150 stores, while private equity groups are considering providing a junior loan, Bloomberg adds. Borders currently operates 650 stores. Moves toward filing for protection began in December, when the company warned that it faced a ‘liquidity shortfall’ at the start of 2011 after lenders reduced its borrowing capacity. A $550m financing commitment from GE Capital emerged in January, but is dependent on Borders restructuring stores and finding other lenders.

More and more macroprudential

In case you were unsure — macro-prudential is the new policy buzzword.

From a just-published working paper on the topic, by the BIS: Read more

Prosecutors target Rajaratnam brother

Prosecutors in the Galleon Group insider trading case have alleged that the younger brother of the group’s founder was a co-conspirator, the WSJ says. The naming of Ragakanthan Rajaratnam, who worked as portfolio manager at Galleon between 2006 and 2009, comes as Raj Rajaratnam faces intense pressure to plead guilty to charges ahead of a criminal trial this month. The federal tactic of investigating relatives has been common in Wall Street cases over the last decade. The government’s move to investigate Ragakanthan emerged following the decision of Michael Cardillo, a former Galleon trader, to make a plea bargain last week. Nineteen of 26 defendants in the case have now pleaded guilty.

BP investigated over gas market manipulation

Regulators may file charges against BP relating to alleged manipulation of natural gas markets, Reuters reports. The energy company said that the CFTC and Federal Energy Regulatory Commission were investigating the role of several BP entities regarding trading in the next-day natural gas market at Houston Ship Channel during October and November 2008′. BP paid $303m to settle charges of manipulating the market for propane gas, admitting to attempts to manipulate prices in 2003 and 2004, Bloomberg says.