Posts from Wednesday Feb 9 2011

Further further readiing

For the commute home,

- Planet Money does Dodd-Frank rule-writingRead more

Treasury yields drop after auction

The Chinese market set a poor tone for the day, making its return from holidays with a negative reaction to Beijing’s rate increase, reports the FT’s global market overview. That mood has carried over globally, as investors eased their buying of growth assets, reflecting caution about the global economy’s pace of recovery. The FTSE All-World index is down 0.5 per cent, retreating from fresh two-and-a-half year highs. Optimism about the US economy can only carry traders so far, it seems. An auction of 10-year US Treasury notes saw a record level of demand from mutual funds and foreign governments, and US rates fell sharply after seven straight sessions of rising. US 10-year yields pulled back sharply from their highest levels since April following an auction of $24bn of notes. The benchmark was down 8 basis points to 3.64 per cent. The S&P 500, Wall Street’s benchmark, fell 0.3 per cent, siting just shy of its best level since June 2008, having gained 26 per cent since the start of September. The euro is the main mover of note, recovering from a wobble on reports that German central bank chief Axel Weber would not stand as a candidate to replace ECB president Jean-Claude Trichet. The single currency is up 0.8 per cent to $1.3732. The euro’s rise has pused the dollar index down 0.5 per cent at 77.60, but haven currencies are generally in demand.

Peugeot plans expansion into India

PSA Peugeot Citroën plans to expand into India and build a mid-size saloon car as part of a broader plan to build its business overseas and reduce its reliance on Europe’s anaemic car market, reports the FT. The French carmaking group made the announcement as it reported an expected return to profitability in 2010 and predicted higher earnings this year, supported largely by its business in faster growing emerging countries.

Warning to Japan on bank reserves

A senior International Monetary Fund official has warned that Japanese banks may be undercapitalised because of the lingering risk of a global economic slowdown and a potential increase in non-performing loans, reports the FT. The comments by Naoyuki Shinohara, deputy managing director of the IMF, stand in contrast to the prevailing view among banking executives and analysts who believe that Japanese banks, with some exceptions among small lenders, have adequate capital after a series of fund-raisings to help them meet Basel III international banking rules.

Nokia boss warns of ‘burning platform’

A leaked memo written by Nokia’s chief executive has delivered a blunt assessment of the company’s predicament, likening it to a man standing on a “burning platform”, torn between burning alive and jumping into icy waters, reports the FT. The memo, the authenticity of which was confirmed by people familiar with Nokia, represents a candid and starkly worded account by Stephen Elop of his efforts to stem decline in the biggest mobile phone maker.

Japanese growth prospects lure buyers

What is Asia’s best performing stock market in 2011? Not China, not Indonesia, certainly not India. As investors have pulled out money from emerging market equity funds, they have poured it into developed markets. Long unloved by investors, Japan is the region’s biggest gainer, reports the FT. The draw is the country’s strengthening industrial growth and exports, just as developing economies such as China and India face a bruising battle with inflation. “Suddenly people are seeing that they can get some form of growth without the tightening risk in the developed markets,” says Jonathan Allum, strategist at Mizuho International.

Obama urged to revive China investment talks

The Obama administration should revive discussions with China over a bilateral investment treaty, a senior Republican in the House of Representatives said as he pressed the White House to adopt a more aggressive trade policy, reports the FT. Dave Camp, chairman of the House Ways and Means Committee, accused the administration of a “lack of action” on the China investment treaty, saying it was “as confusing as it is damaging to the interests of US businesses and their workers”

India arrests first executive in graft scandal

Indian agents have made the first arrest of an executive over corruption allegations linked to a multi-billion-dollar telecoms scandal that has hit Manmohan Singh’s government, reports the FT. Shaid Balwa, vice-chairman of Etisalat DB, the Indian joint venture of the United Arab Emirates’ telecoms operator Etisalat, was arrested on Tuesday in connection with the probe into alleged irregularities in the awarding of 2G spectrum licences in 2008.

North-South Korea military talks collapse

North Korean officials have stormed out of talks with their South Korean counterparts, dealing a blow to efforts to reduce tensions on the Korean peninsula, reports the FT. In the first talks between the countries since North Korea shelled a South Korean island in disputed waters in November, South Korean military officials told the North Korean delegation that Seoul could not agree to higher-level diplomatic contacts unless Pyongyang admitted responsibility for two military attacks last year. “The North Korean delegation just marched out,” a South Korean defence ministry spokesman said on Wednesday.

Emerging markets drive Coca-Cola

Coca-Cola, the US beverage company, reported strong worldwide growth in sales volumes during its fourth quarter, supported by growth in emerging markets, including a 31 per cent increase in sales volumes in Russia, and a 12 per cent increase in India, reports the FT. Coca-Cola’s worldwide sales volumes increased by 5 per cent, excluding sales in the US of cross licensed brands related to its $12.6bn acquisition of the US assets of Coca Cola Enterprises, its largest bottler.

Egyptians stage fresh strikes and protests

Egypt was hit by fresh strikes and protests on Wednesday as more than two weeks of demonstrations against Hosni Mubarak, the president, emboldened Egyptians to vent their frustrations, reports the FT. At least three people were reported killed during clashes between security forces and several thousand protesters in New Valley, a western province. It was believed to be first significant protest in that area and the first deadly use of force by security forces since Friday.

D Börse and NYSE in advanced talks

Deutsche Börse is in advanced talks with NYSE Euronext as part of an all-stock deal that would create the world’s largest exchanges operator by revenues and profits, reports the FT. A deal would see Deutsche Börse shareholders holding about 60 per cent, and NYSE Euronext shareholders approximately 40 per cent of the equity of a combined holding company, based in the Netherlands. Deutsche Börse shares were up 1.7 per cent at €58.42 just before trading was halted, while NYSE Euronext shares were up 5.1 per cent to $39.13 in New York.

Fact du jour, mortgage loan mod edition

Out of Ohio State University, and unlikely to surprise anyone (HT Mark Thoma):

Researchers found that mortgages owned by lenders were 26 to 36 percent more likely to be renegotiated than very similar mortgages that the original lenders sold to other companies, which turned them into securities. Read more

The metamorphosis of the muni market

Wednesday’s House hearing into state and municipal debt had a touch of the “Scottish play” about proceedings.

When Meredith Whitney was finally mentioned, Chairman Patrick McHenry quipped that the rules had been broken. Read more

EM debt markets and capital flows freak-outs

A tip of the top hat to the excellent Sid Verma of FT Tilt, who sends us to a recent paper by PineBridge Investments analysing the state of emerging market debt as an asset class.

Consistent readers will remember that we’ve been trying to keep a watchful eye on the capital flows story, which we think has generated too much heat and not enough light. At issue is to what extent these flows are now driven by impatient hot money versus the post-crisis resumption of a secular trend. Read more

Conspiracies and a lack of contango in silver

It’s finally happened.

Last week silver on the Comex closed in a nearly-complete state of backwardation — that curious situation where the price for future delivery of the metal is lower than for immediate delivery. There is now almost no contango anywhere in Comex silver. Read more

Domesticating the debt

Forget Europe’s PIIGS. How about the big (American) hog?

Bob McKee of Independent Strategy, and author of ‘Sovereign DisCredit,’ makes the case in an eight-page note out on Wednesday. It’s worth taking a look given recent machinations in the US Treasury market — including a Tuesday sale of three-year US Treasuries which saw the lowest demand from long-term and foreign central bank investors in over three years. Read more

UK banks sorcery

The Government today welcomed the commitment by the UK’s biggest banks on lending expectations and capacity, the size of the 2010 bonus pool, pay disclosure and support for regional growth and the Big Society.

This statement by Barclays, HSBC, Lloyds Banking Group, RBS and, with respect to lending, Santander, follows a period of discussion between the Government and the banks, known as Project Merlin… Read more

SEC downgrades credit rating agencies

The first of the 12 steps is to admit powerlessness; the second is to believe that a power stronger than yourselves can restore sanity.

While Dodd-Frank recognised the addictive and palliative qualities of CRA ratings, it felt it wasn’t yet able to restore sanity. Apparently this has changed. Read more

Do you believe in coincidence? [updated]

Via Reuters on Wednesday afternoon:

RTRS-D.BOERSE<DB1Gn.DE> SHARES SUSPENDED – REUTERS DATA 15:21 09Feb11 RTRS-D.BOERSE<DB1Gn.DE> SHARES SUSPENDED FROM TRADING IN FRANKFURT – REUTERS DATA Read more

‘The real sugar community’ vs ‘parasitic computer-based traders’

The FT reported on Wednesday that an industry body representing big sugar traders has launched an attack on their high-frequency and algorithmic-based counterparts — along with the New York-based futures exchange that hosts both groups.

The attack came in the form of a letter from the World Sugar Committee to the ICE Futures US exchange. We’ve reprinted it below courtesy of the FT’s Javier BlasRead more

Where did Ireland’s secret liquidity go?

Eonia went a bit doolally at the end of January.

Many blamed a lack of front-loading in bank liquidity management as they watched Europe’s key overnight lending rate drift above one per cent for the first time since June 2009. Read more

The inflation disconnect, charted

Atlanta Fed President Dennis Lockhart was talking about discrepancies between Americans’ view of inflation and that of the US central bank in his Tuesday ‘disconnect’ speech. But you can see that disconnect most clearly in the discrepancy between market interest rate expectations and the Fed’s actual rates.

Here’s a recent chart from Bank of America Merrill Lynch: Read more

The earnest importance of being systemic

It’s the question that’s seemingly stumped Tim Geithner: how to identify a priori systemically important non-bank financial institutions.

The Federal Reserve on Tuesday suggested further rules regarding who might be considered for attention by the Financial Stability Oversight Council (FSOC) as per section 113 of Dodd-Frank. In short, they need to be “financial” and “significant”. Read more

Irish bank bond haircuts by the numbers

With talk of haircuts for holders of senior Irish bank bonds swirling among politicians and the market, here’s a number-laden note from Goodbody Stockbrokers.

The Irish house has crunched some bond-specific figures in a blockbuster piece of research sussing-out Ireland’s debt sustainability. And Goodbody reckons there is currently €21bn of unsecured, unguaranteed Irish bank debt outstanding. (Not that that entire €21bn could be wiped out in the name of Ireland’s debt-to-GDP ratios). Read more

Markets Live transcript 9 Feb 2011

Live markets commentary from FT.com 

‘Nokia, our platform is burning.’

Perhaps Nokia chief executive Stephen Elop is going to ditch the Meego OS and go with Windows Phone 7 after all.

Breaking on Reuters this Wednesday morning: Read more

Trading mixed as rally consolidates

European traders are inheriting a mixed, but on the whole downbeat, session from Asia after the Chinese market marked its return from the lunar new year holiday with a negative reaction to Beijing’s rate hike, the FT reports in its rolling global markets overview. The FTSE All-World index is down 0.3 per cent, retreating from fresh two and a half year highs, but no clear investment theme is evident. Dealers appear content to tinker with various asset classes, noting the meagre hit to sentiment from the PBOC’s tightening of monetary policy but clearly reluctant to believe it provides an excuse for challenging the recent strong risk asset rally.

Reform blueprint gives G20 authority over IMF

A more representative Group of 20 leading economies should take ultimate authority over the International Monetary Fund to give the Washington-based organisation greater political clout in resolving global crises, according to a panel of former policymakers cited by the FT. The recommendation is made in a report by 18 former ministers and central bank governors led by Michel Camdessus, former head of the IMF, and including Paul Volcker, former US Federal Reserve chairman.

Long-term investors shun Treasuries sale

US Treasury yields rose sharply on Tuesday, extending their run of losses for seven straight sessions, after a substantial drop in demand from long-term investors for the sale of new three-year paper, the FT reports. Treasury dealers were left holding 62.3 per cent of the $32bn three-year sale, their highest stake since January 2009, as investors backed away from buying. Bloomberg says the sale drew the lowest demand in the category of bidders that includes foreign central banks since May 2007.