Posts from Thursday Feb 10 2011

El-Erian on Mubarak’s defiance…

Mohamed El-Erian, the PIMCO chief executive and quite possibly the best known Egyptian in finance, has been in touch. He’s not impressed by Hosni Mubarak’s refusal to resign.

As he told FT Alphaville late on Thursday: Read more

WTI-Brent price divergence hits record $16

The price difference between the world’s top oil benchmarks reached an intraday record of more than $16 a barrel, doubling in three weeks, as West Texas Intermediate oil disconnects from top global oil references Brent and Dubai, reports the FT. The spread fell back to just above $14. The divergence, which is wreaking havoc among energy investors and traders, prompted Saudi Arabia two years ago to drop WTI as its benchmark for pricing oil to US customers.

M&A activity to surge in China and India

Investment bankers are forecasting a stellar year for mergers and acquisitions in Asia following a leap in the value of both inbound and outbound transactions in 2010, the FT reports. Outbound M&A soared 166 per cent to a record $126.1bn in the region excluding Japan and Australia, according to Citigroup, with total deal flows including inbound and intra-regional transactions jumping 48.8 per cent to a record $470.5bn. Significantly, deal flows were strongest in the last two quarters, giving bankers confidence that the bull run would continue in 2011. “We expect as much as a 30 per cent gain this year,” says Colin Banfield, head of mergers for Citigroup in Hong Kong. The surge in M&A activity comes against a background of record levels of activity in the capital markets, with $163.2bn raised through 768 initial public offerings last year, according to Dealogic, compared with just $70.2bn in 354 listings in 2009. Debt issuance also hit a record, with 3,082 deals raising $466.9bn.

Hopes high for China’s push against inflation

When China raised interest rates in October – its first rise in almost three years – the move caught investors by surprise, sparking falls in equities, currencies and commodities markets, the FT writes. But there was barely a ripple this week when Beijing announced an increase in deposit and loan rates to 3 per cent and 6.06 per cent respectively, following a similar move on Christmas day. Shanghai stocks have even made modest gains. Investors have taken the last two rate rises in their stride because of a new-found confidence that China will be able to contain inflation without slamming the brakes on economic growth. “The rate hike is a sign of strength rather than something that should trigger fears of a major slowdown,” says Dariusz Kowalczyk, a strategist at Crédit Agricole, capturing the mood of many of his peers. China’s battle against stubbornly high inflation is part of a wider war being waged by central banks across emerging markets. But while many investors reckon that Beijing is “behind the curve” in tightening monetary policy, following an explosion in bank lending in 2009 and 2010, few are betting yet that inflation will get out of control.

PetroChina in $5.4bn Canada gas buy

PetroChina, China’s largest oil and gas producer, has agreed to pay $5.4bn for a gas field stake in western Canada owned by EnCana, further raising the profile of Chinese oil companies in North America after a string of similar investments, the FT reports. The deal is one of China’s largest investments in Canada’s energy sector, and its biggest in shale gas, a difficult-to-extract type of natural gas deposit for which Chinese companies are seeking to master the technology. The huge sum underscores the priority that Chinese oil companies, a key driver of global oil and gas investment, are putting on technology in their investments. EnCana, a Calgary-based firm focusing on natural gas, is considered one of the industry leaders for extracting gas from “unconventional” deposits locked inside rocks such as shale. The company in June signed an MOU on gas investments with PetroChina.

Defiant Mubarak cedes some power

Egypt’s President Hosni Mubarak gave a defiant speech to his nation on television on Thursday night, and attempted to wrap himself in the mantle of the protesters on Tahrir Square, reports the FT. Conceding he would delegate his responsibilities to the vice-president, he reiterated he intended to stay in power until September elections. He said he was fully aware of the crossroads the nation was at. He called this a defining moment in Egypt’s history. It was unclear what responsibilities he would pass on or when.

Treasury targets LCB, Hizbollah and used car salesmen [corrected]

Correction: The fifth paragraph originally included a reference to the Daedong Credit Bank, rather than Banco Delta Asia. This was a mistake — as the links to the Treasury site and New York Times article show, Daedong Credit Bank has never been subject to Section 311. Apologies.

Here’s another reason to never pay sticker price. Read more

Further further reading

For the commute home,

- Mubarak speech on Al Jazeera English right now. Read more

Monthly foreclosures start climbing again

Maybe we were too early in trying to assess the potential economic impact of the foreclosure slowdown, as the trend has come to a halt:

RealtyTrac®,  the leading online marketplace for foreclosure properties, today released its  U.S. Foreclosure Market Report™ for January 2011, which shows foreclosure  filings — default notices, scheduled auctions and bank  repossessions — were reported on 261,333 U.S. properties in January, a 1  percent increase from the previous month but a 17 percent decrease from January  2010. The report also shows one in every 497 housing units received a  foreclosure filing during the month. Read more

Moody’s on massive financial defaults

You probably knew this already — but the chart’s still striking.

 Read more

GDP growth and equities: a match made in… nowhere?

The Atlantic spots an interesting outlook piece from the Goldman Sachs private wealth group, which argues there is a “negligible, if not zero” chance the US will suffer a Japan-style lost decade (or two).

Phew. But we were most intrigued by the discussion of the relationship between GDP growth and equities. Read more

Prepare for a major market over-reaction

Albert Edwards is back – back, that is, from his annual search for January sun to counter the effects of Seasonal Affective Disorder (SAD).

And the sojourn looks to have been partly successful. Obviously the Soc Gen strategist remains bearish — he reckons the long-term downtrend in 10-year bond yields is under serious threat. But this could present investors with an opportunity for some bottom fishing, says Edwards. Read more

Goodbye, Mr Mubarak

Update: A snap from Reuters — CABINET SPOKESMAN TELLS REUTERS DECISION ABOUT EGYPT’S PRESIDENT STAYING OR LEAVING DUE IN HOURS

Breaking at pixel time — the Egyptian army appears to be levering the country’s president out of power: Read more

It’s midnight in Tokyo

…and that must mean the yen is weakening. Interesting observation from Nomura’s foreign exchange analysts:

The secret behind the yen’s outperformance relative to US rates is likely to be found in Tokyo. By breaking down the price action in the different time zones (Tokyo, London, New York) we show that yen strength during Tokyo trading hours has been important in overall trading dynamics. Over the last 3-4 months, the cumulative yen gain during Tokyo trading hours stands at 4%. This compares to a cumulative loss of 4.5% during London hours, and a cumulative loss of 2% during New York hours over the same period… Read more

Through a ratings loophole, allegedly

Another subprime lawsuit currently slugging its way through the courts is Cassa di Risparmio della Repubblica di San Marino SpA (CRSM) vs Barclays Plc.

The case concerns some Barclays-structured and triple A-rated CDO Squareds that were sold to the Italian bank around 2004. Cassa di Risparmio says Barclays “deliberately structured the CDO²s in such a way that they had, on Barclays’ own calculations, a very substantial risk of default, vastly higher than CRSM was led to believe.” The British bank, CRSM alleges, stood to profit from the CDOs’ decay. Read more

Claims-ian economics

Good news from the US Department of Labor Thursday morning as initial claims for unemployment insurance fell sharply last week:

In the week ending Feb. 5, the advance figure for seasonally adjusted initial claims was 383,000, a decrease of 36,000 from the previous week’s revised figure of 419,000. The 4-week moving average was 415,500, a decrease of 16,000 from the previous week’s revised average of 431,500. Read more

BarCap’s looong-term investment themes

Out now — 144 pages of the Barclays Equity Gilt Study 2011 (56th edition).

The long-term investment themes from this year’s tome… Read more

Skewed – the CBOE’s new fear indicator

The Chicago Board Options Exchange has just launched a new ‘fear factor’ index to sit alongside the now-famous Vix. Meet the Six, or the CBOE S&P 500 Skew Index.

The ‘SKEW’ is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 returns at a 30-day horizon. Basically it’s meant to measure what the equity options market thinks about the risk of a black swan event. Read more

Return of the ECB bond purchases…

After a two-week hiatus, the European Central Bank is back; reportedly intervening to buy up Portugese bonds on Thursday after yields on the Club Med debt surged.

Markets Live transcript 10 Feb 2011

Live markets commentary from FT.com 

The Bank of England’s big dilemma

All eyes on the Bank of England ahead of Thursday’s rate decision.

With inflation persistently above the Old Lady’s target, and with a couple Monetary Policy Committee members voicing their dissent over recent rate decisions, there’s an ever-so-slightly heightened chance of a hike. Still though, the vast majority of BoE-watchers expect the central bank to stay on hold. To that end, CreditSights have a Thursday note out on the relationship between the UK economy and interest rates. Read more

Portugal, unmoored

Over in a quiet corner of the eurozone — Portugal’s government bonds have been slowly getting worse:

 Read more

Soaring debt pushes Portugal towards bail-out

Portugal’s cost of borrowing hit a euro-era high on Wednesday amid growing concerns that Lisbon will have to turn to bail-out funds to revive its stagnating economy, the FT says. Hedge funds were selling Portuguese debt after purchasing bonds at a syndication of five-year bonds just 24 hours earlier, brokers said. FT Alphaville notes that Portugal’s syndicated debt auction was supposed to promote debt to investors beyond usual buyers and help provide a way to lock in borrowing costs at a certain level.

ARM(ed) and dangerous

Chip designer ARM Holdings is under pressure on Thursday morning.

 Read more

Risk asset rally struggles for traction

The global risk asset rally-wagon is spinning its wheels for a second session as traders look for additional impetus to push stocks and commodities to fresh cyclical highs, the FT reports in its rolling global markets overview. The FTSE All World is down 0.3 per cent, the dollar is firmer and industrial raw materials are mixed. S&P 500 futures are down 0.2 per cent, suggesting Wall Street will start the day with another minor pullback from Tuesday’s two-and-a-half-year peak. However, many of the factors that have powered stocks and commodities over the past months continue to underpin sentiment.

Funds accuse banks of overcharging on forex

Some of the nation’s largest investment firms have been overcharged by banks for currency trades, the Wall Street Journal reports, citing claims by bank insiders and others. BlackRock, the world’s largest fund manager, became concerned at the rates it and its clients were charged for some currency trades by custody banks, according to an internal BlackRock investigation undertaken a year ago, the paper says. The claims may broaden the scope of alleged abuses in the $4,000bn foreign-exchange market.

Bernanke strikes more upbeat note on jobs

Ben Bernanke, the chairman of the Fed, has issued a more optimistic assessment of the state of the US jobs market, suggesting the central bank believes at least some of the drop in the unemployment rate in recent months reflects an improvement in the economy, the FT says. Speaking to the House of Representatives, Bernanke added that further rounds of quantitative easing would depend on whether “the recovery is on a sustainable track” and whether “inflation is low and stable at around 2 per cent or a bit less.” Bernanke’s prepared testimony is available here.

Corn soars as US inventory forecasts drop

Corn surged above $7 a bushel, the highest since the peak of the 2007-08 food crisis, after the US government said inventories of the staple would this year fall to match their lowest level on record, the FT reports. The latest forecast from the US Department of Agriculture comes on the back of a series of downgrades to key agricultural crop forecasts that have sent prices spiralling higher and raised fears of a new global food crisis. Reuters says the US is now projecting the tightest supply since the Great Depression as a record amount of the crop is used to make ethanol.

New Jersey rating is cut by Standard & Poor’s

S&P on Wednesday cut New Jersey’s credit rating on risks tied to underfunded pensions, while another troubled state, Illinois, was attempting to sell about $4bn of bonds to investors from Hong Kong to New York to meet its annual pension bill, the FT says. The New Jersey downgrade will increase the interest rates that the state must pay when it borrows money, the New York Times adds. Meanwhile FT Alphaville reports on Wednesday’s Congressional hearings into municipal debt.

PetroChina goes where BHP failed to tread

PetroChina on Wednesday gobbled up another chunk of the world’s resources, agreeing to pay C$5.4bn ($5.4bn) for a 50 per cent stake in a large natural gas field in Canada owned by Encana, the Calgary-based oil and gas producer.

Or rather, China’s largest oil and gas producer said on its website it had agreed to the deal and had “for years” been seeking opportunities to work with Canadian oil and gas companies in areas including LNG and oil sands in Canada, as well as projects in China. Read more