Posts from Tuesday Feb 15 2011

Traders struggle to digest conflicting catalysts

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.

Rising Chinese wages pose relocation risk

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.

China’s pull-back paints unsettling rate picture

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.

Barclays vows to double profit over three years

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.”

D Börse and NYSE unveil deal terms

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.

Further further reading

For the commute home, and to help you score your travel budget,

- The return of structural unemployment concerns. Read more

Emerging resistance

Here’s a chart that might spook investors in emerging markets, at least those in equities:

 Read more

Table du jour: world food price menu

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

A gurgling sound in Chinese cashflow

Revealed alongside (massaged?) Chinese inflation data on Tuesday: sharply lower bank lending growth.

Which — given that China’s lending restrictions may well be more effective than rate hikes at halting liquidity — was quite an odd drop all round, actually. Read more

Regulators and hedge funds in muniland

From the Municipal Securities Rulemaking Board on Tuesday, a little bit more light for all those new investors in the metamorphosising municipal bond market:

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

A brilliant cut (Bob) Diamond

Diamond Bob has sparkled at his maiden results presentation as Barclays CEO.

At pixel time its shares were trading 15.5p higher at 326.25p. Read more

I name this premier global exchange group…

Time to think like a brand consultant and come up with a name for this:

 Read more

Raging bulls

And the overwhelming theme of the latest BofA Merrill Lynch fund managers survey is…

Complacency. Read more

Going Dutch, with NYSE and D Börse

BUT WILL NYSE COME FIRST IN THE NAME?

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

Good books, bad books at the banks

Spotted on the Financial Accounting Standards Board website:

 Read more

Protium-powered no longer at Barclays

Barclays has been burned by monolines. Again.

Some particle finance from Tuesday’s 2010 results announcementRead more

Nokia’s rebel alliance [updated]

They’re calling it Plan B, which isn’t nearly as fun. This has been doing the rounds in recent days and we offer it in light of debate on the deal with MicrosoftRead more

Markets Live transcript 15 Feb 2011

Live markets commentary from FT.com 

Pimco – the giant shifts weight

* Money has become the economic and political wedge for profound changes in American society.

* Perhaps the most deceptive policy tool to lessen debt loads is the “negative” or exceedingly low real interest rate that central banks impose on savers and debt holders. Read more

Mervyn explains himself

What he actually said:

Dear Chancellor, Read more

Wm Morrison shops online

Wm Morrison, the UK’s fourth biggest supermarket group, has taken its first step into the world of e-commerce.

Sadly, it’s not buying Webvan 2.0 Ocado but Kiddicare, an online retailer of baby products based in a 160,000 square foot warehouse in Peterborough. Read more

Retailers hit by cost pressures at last

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.

Nomura calls the end of risk on/risk off

The last time Nomura talked ‘risk on/risk off‘ they thought it had ruptured.

Now they think the market phenomenon — which had seen correlations intensify in recent (QEased and crisis-ed) years — might be ruined for good. Read more

Wall Street’s commodities failure

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.

GE offloading container leasing unit

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.

Dear Chancellor…

Time to get the quill out again, Governor.

From the Office for National Statistics on Tuesday morning: Read more

Liquity rules trigger bank fightback

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 sharply cuts US government holdings

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.

Fir Tree Capital’s (Anglo Irish) beef

Investors in a distressed Irish bank are suing the company for merging with …

… another distressed Irish bank. Read more

Banks worry as D Börse and NYSE near deal

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.