Risk asset bulls are struggling to gain traction in an uncertain session as traders parse conflicting catalysts, reports the FT. The FTSE All World equity index is down just 0.1 per cent, commodities are displaying no clear trend and the dollar is little changed. The S&P 500 fell 0.3 per cent from Monday’s fresh 30-month high, hurt by softer-than-forecast January retail sales numbers. Investors appear reluctant to force risk assets to fresh cyclical – and in some cases record – highs as they absorb a plethora of interlinked and sentiment-counteracting factors. Monetary tightening concerns in Asia have been assuaged somewhat by confirmation that China’s inflation rate fell in January, encouraging those whose strategies are predicated on global growth hopes. But this only provided added impetus to the oil price in early skirmishing, which in turn raises broader inflation worries and also corporate profit margin-crunch concerns. FedEx has been the latest company to warn of the impact on earnings of higher fuel costs. UK consumer price growth in January was 4 per cent, double the Bank of England’s target, data released on Tuesday shows.
Han Zheng, the mayor of Shanghai, has just delivered a pleasant surprise to the city’s workers: their minimum wage is to rise by more than 10 per cent in April, the FT reports. No one will be getting rich – the new rate amounts to a less than princely Rmb1,232 ($187) a month. But Mr Han’s announcement is part of an emerging trend. Chinese officials are seeking to head off a repeat of last year’s labour unrest amid fears that persistent and rising inflation could provide a further irritant in wage discussions. n a rash of disputes between May and August, employers were hit by strikes or other problems, including Honda’s Chinese subsidiary and some of its China-based Japanese suppliers, such as Omron. The outcome was a wave of pay rises, notably a 30 per cent increase at Foxconn, the Taiwanese owned manufacturer of electronic products such as Apple’s iPad, after a spate of suicides drew attention to working conditions.
It is no secret that China’s appetite for Treasuries has been waning. Official figures now bear out Beijing’s stated desire to diversify away from US government debt, writes the FT. The market impact is likely to be muted for now, given the Federal Reserve’s bond-buying under its “quantitative easing” programme. But what happens when QE2 ends in June? Beijing’s pull-back may then become noticeable.
Bob Diamond, new chief executive of Barclays, vowed to “eliminate or improve” the third of the bank’s business that is underperforming in an attempt to nearly double profitability over the next three years, reports the FT. Mr Diamond outlined the plans as the bank announced a 32 per cent rise in pre-tax profits in 2010 to £6.1bn. The rise, combined with his tough talk, helped push Barclays’ underperforming share price up by nearly 6 per cent. Describing last year’s 7.2 per cent return on equity as “unacceptable to shareholders”, Mr Diamond said hitting a target of 13 per cent by 2013 would be “challenging” as the banking industry would have to wrestle with lower profitability. “Average returns over the past 30 to 40 years have been 11 per cent,” Mr Diamond said, dismissing the days of 15-20 per cent ROES as a blip of the decade up to 2008. “But if banks don’t do anything to change their business models, new capital rules [will push them] down to 5 or 6 per cent.”
Deutsche Börse and NYSE Euronext have formally unveiled their plan to create what would be the largest stock and derivatives exchange run from dual headquarters in Frankfurt and New York, reports the FT. The move caps a week of frenetic merger activity among the world’s exchanges, but also carries the threat of counter-bids with speculation centred on CME Group, the new group’s main rival. In New York, the German and US groups appeared to have neutralised a backlash against the prospect of the New York Stock Exchange being absorbed in a group whose majority shareholders are from Deutsche Börse. Charles Schumer, senior Democratic senator for New York, said: “There are many things to like about this announcement, especially that it will open up new markets to NYSE and keep New York the world’s leading financial centre.” NYSE Euronext and Deutsche Börse said they were aiming to achieve extra savings of “at least” €100m ($135m) from the combination, in addition to synergies of €300m sketched out last week, through cross-selling of products. The combined group would have revenues of $5.4bn, and pro forma 2010 earnings before interest, depreciation and amortisation of $2.7bn.
In the latest Food Price Watch, the World Bank reports that its food price index climbed 15 per cent between October and January, driven largely by “increases in the price of sugar (20%), fats and oils (22%), wheat (20%), and maize (12%).”
Nothing too surprising, but there’s some mouth-watering detail in the report itself: Read more
For new issues of securities beginning February 14, 2011, EMMA will display information about whether the issuer or other obligated person has undertaken to provide continuing disclosures in accordance with Securities and Exchange Commission Rule 15c2-12. EMMA also will display the identity of any obligated persons other than the issuer and the timing by which issuers or obligated persons have agreed to provide annual financial and operating data. This information is available on the continuing disclosure tab for each security. Read more
Ahem, sadly for Chuck Schumer, we don’t know yet. NYSE Euronext and Deutsche Börse just unveiled their vision for a Premier Global Exchange Group without quite giving it anything so important as a name: Read more
Many manufacturers and retailers are no longer able to absorb sharp price increases in several commodities since the summer, and are preparing to pass them on to consumes this fall, the NYT reports. Jones Group, owner of the Nine West brand, has warned that it will raise prices by up to 20 per cent. Kraft and Polo Ralph Lauren are among other companies warning of cost pressures. Among the more egregious price increases — a 133 per cent rise over two years in the cost of polypropylene, a plastic found everywhere from flooring to household items, the Economist says. The material’s price once closely tracked that of oil, but the relationship has broken down with the advent of new natural gas markets.
US banks’ commodities revenue fell by an average of 40 per cent in 2010 despite record increases in gold, copper and cotton prices, according to the WSJ. Commodities earnings are not disclosed in banks’ results but people familiar with the matter told the Journal that JPMorgan’s earnings in the market fell 43 per cent in 2010, despite a high-profile push. Credit Suisse, which is among the few banks to disclose commodities revenues, recently said they had fallen 42 per cent last year. The problem is that the largest banks in commodities are focused on oil and gas markets, where volatility and trading levels were low, compressing profit margins compared to the metals and agriculture sectors.
General Electric and a joint venture partner are looking to sell their GE SeaCo container-leasing business for about $2.5bn, as the conglomerate continues to reshuffle its portfolio and the pair try to capitalise on the hot market for companies in the sector, the FT reports. The container leasing industry has boomed during the past year. Manufacturers in China stopped producing during the downturn, creating a shortage in 2010 when the economy recovered and trade picked up. GE SeaCo, which is 50 per cent owned by GE Capital, has the fifth-largest container fleet in the industry. Tal International and Textainer, the sector’s two biggest public companies, have rushed to buy up containers as cargo volumes rebound.
Banks and regulators are at loggerheads about the volume and quality of liquid reserves they must hold under new rules, the FT reports. Banks in Europe in particular are lobbying against national rules that require even stricter definitions of ‘liquid’ assets than under Basel III, arguing that the costs of hoarding securities will constrain lending growth. Bankers say that if the market for subordinated corporate bonds is to be maintained, they must be made eligible for a key liquidity buffer outlined in the Basel rules. Securitised assets should also be admitted, they add, otherwise the securitisation markets that will be vital to funding markets as central bank liquidity is withdrawn will never take off.
Pimco’s Total Return Fund has reported that its holdings of government-related securities, including Treasuries, fell from 22 per cent in December to 12 per cent in January, the FT reports. The proportion of holdings is at the lowest level held by the $239bn fund since January 2009 when it held 15 per cent of its assets in the category, which also includes agency bonds, derivatives and bank debt backed by the FDIC. Analysts caution that Pimco’s use of numerous derivatives as a substitute for direct positions in securities means that independent interpretation of portfolio exposures for the Total Return Fund is extremely difficult. However, Pimco’s founder, Bill Gross, has recently warned on exposure to US government debt.
Some of the world’s biggest banks are privately expressing concern over the market power of the proposed tie-up between Deutsche Börse and NYSE Euronext, the FT reports. With final details due to be announced later on Tuesday, the new entity is likely to control 90 per cent of market share in European derivatives, 28 per cent of European equities volume, and 40 per cent of the US options market. Bankers added that the group could also wield considerable power in the over-the-counter derivatives markets. Deutsche Börse will meanwhile take 10 out of 17 board seats in the new company, according to Bloomberg. Reports that CME may yet try a hostile bid for NYSE – possibly with Nasdaq OMX – continue to circulate, Reuters says.