Posts from Thursday Feb 17 2011

Further further reading

For the commute home or while stockpiling garments,

– Retrieving Madoff’s funds is set to cost $1.3bn. Read more

Stocks wobble amid Middle East risks

Global equities were gaining strength after well-received corporate earnings reports overshadowed renewed geopolitical concerns, reports the FT’s global market overview. After modest gains in Asian and European morning trade, US markets opened lower and the dollar and higher quality government bonds – Treasuries, UK gilts and German Bunds – were sought as investor sentiment towards risk cooled. Slightly faster than expected inflation in the US, with the CPI rising 0.2 per cent in January versus a forecast of 0.1 per cent, added to fears by raising the prospect that the US Federal Reserve could cut its quantitative easing programme, as some members of the Fed suggested at its most recent policy meeting. On Wall Street, the S&P 500 index is inching higher, adding 0.2 per cent and pushing further past the 1,333 level, to 1,339, twice what it was at the post-crisis bottom in March 2009. The Vix volatility index, however, is still below 17, suggesting that traders are not buying insurance for new positions. That is often a signal that market declines are imminent. Meanwhile, Portugal’s 10-year government bond yields jumped 7.6bp to 7.26 per cent after local paper Jornal de Negócios suggested Lisbon was coming under renewed pressure from Germany to accept a bail-out.

BATS finalising deal for Chi-X

BATS Global Markets, operator of the third largest stock exchange in the US, was on Thursday night finalising a deal to merge with Chi-X Europe to create the largest platform for share trading in Europe by volume, two people familiar with the deal said, reports the FT. The move caps a week of frenetic consolidation among global exchanges, with Deutsche Börse and NYSE Euronext revealing details of a plan to build the world’s largest bourse, and the London Stock Exchange tying up with Canada’s TMX Group.

India corruption scandal spreads

Indian anti-corruption officials have questioned a second tycoon in as many days, as a probe into a multibillion-dollar telecoms scandal reached into the highest echelons of the business elite, reports the FT. Prashant Ruia, the billionaire chief executive of energy and shipping conglomerate Essar Group, was questioned by investigators on Thursday amid a widening probe into the allocation of mobile network licences in 2008, a person close to the company said. On Thursday, shares in Reliance Communications continued their slide on reports that Anil Ambani, its billionaire chairman, had also been questioned.

Cotton prices surge to all-time high

Cotton prices burst past $2 a pound for the first time on Thursday and threatened to surge higher as mills race to secure bales against a looming exchange deadline, reports the FT. The surge will add to global concern about rising inflationary pressures caused by higher energy and commodities prices. Over the past few weeks several clothing retailers have warned that they will raise their prices in response.

China plays down levels of ‘hot money’

China has not seen a surge in “hot money” coming into the country, the country’s foreign exchange regulator said on Thursday, despite the loose monetary policy in the US that Beijing has sometimes blamed for causing destablising capital inflows, reports the FT. A net $35.5bn of hot money, illegal speculative capital, entered the country last year, which was “ant-like” in comparison to the size of the economy, the State Administration of Foreign Exchange said.

China appeals to US over Huawei

Beijing has appealed to the US government to treat Chinese companies fairly, in a sign that Washington’s denial of national security clearance for a patent deal by Huawei, the Chinese telecom equipment maker, is having an impact on bilateral relations, reports the FT. Yao Jian, ministry of commerce spokesman, said past moves by Washington to block Chinese investments in the US had “affected the bilateral co-operation to a certain extent.”

US doubts over India jet fighter partner

The US government has expressed doubt about the suitability of corporate partnership with an Indian state aerospace company as Boeing and Lockheed Martin bid to supply New Delhi with 126 strike fighters, reports the FT. The US is pitching for what is one of the world’s largest military contracts, worth $11bn. Boeing’s F/A-18 Super Hornet and Lockheed’s F-16 Super Viper are vying with the Eurofighter Typhoon, Saab’s Gripen, Dassault’s Rafale and Russia’s MiG-35 in a competition expected to be decided this year.

Bahrain military takes control of capital

Bahrain’s military took over much of the capital, Manama, and banned further protests on Thursday after security forces launched a night-time raid on a pro-democracy camp, killing at least four people and wounding hundreds of others, reports the FT. The tiny island kingdom sandwiched between Saudi Arabia and Iran, which hosts the US Navy’s Fifth Fleet, has become the latest test of strength for the region’s regimes as they try to contain the fallout from the collapse of the autocracies in Egypt and Tunisia. The crackdown on protesters in Bahrain came as anti-government demonstrators again took to the streets in Iraq, Libya and Yemen.

Gratuitous sovereign AAA

From now on we’ll have to tell you that we practically give AAA sovereign ratings away, Standard & Poor’s said on Thursday (or something like that anyway):

Kingdom of Belgium (AA+/Negative/A-1+) Read more

Chart du jour, cross-border M&A edition

2011 has seen the biggest start for global M&A in a decade.

And this chart from Credit Suisse on Thursday neatly captures the story so far: Read more

Offshore adventures in Chinese property

With bank credit being tightened across the country it seems clear that China’s property developers increasingly desire to fund via the bond markets.

Some, though, have been increasing bond sales more than others. Read more

The LSE’s millennium bug

The London Stock Exchange has (finally) broken its silence on those migration issues. And surprise, surprise they are not to blame.

The London Stock Exchange’s UK cash markets successfully migrated to the Group’s new ultra-low latency trading platform, Millennium Exchange on Monday this week. Read more

US banking stress tests 2.0 – an update

Aka — could your desire to release dividends survive a double-dip?

FT Alphaville reported back in November that the US Federal Reserve was looking at whether bank holding companies could distribute capital again without putting themselves — and everyone else — in danger. Read more

The eurozone’s €15.8bn fat finger?

Marginal Lending from the European Central Bank … to the moon!

 Read more

CPI climbs just a bit more

The US Consumer Price Index climbed 0.4 per cent in January, and the core number was up 0.2 per cent. Each was slightly above consensus, with two thirds of the increase in the headline number driven by food and energy prices.

Here’s the chart showing recent trends in the headline: Read more

MERS tells members not to foreclose in its name

Fresh from Mortgage Electronic Registration Systems (MERS) on Wednesday — what looks like some (they say temporary) capitulation in the face of legal setbacks.

MERSCORP — which acts as a centralised and electronic registry for about half of the mortgages in the States — issued the below mid-week statement to its members: Read more

Another bank non-call, an entirely new reaction

Cast your minds back to the (heady) final days of 2008 — when Deutsche Bank rattled the bond market by opting not to call one of its Tier 1 subordinated bonds.

The decision spooked bank debt investors. These kinds of callable bonds had usually always been called at par, at the first available date. Deutsche said it didn’t want to call because it would be more economic not to. Investors accused the German bank of “narrow financial logic” and threatened never to invest in their bonds again. Read more

Econ bloggers still cool (on the economy)

The latest Kauffman Foundation survey of economics bloggers lacks the wisdom and perspicacity of FT Alphaville has just been released.

Like the Fed, our compadres throughout the interwebs have become increasingly optimistic about the US economy since the last survey, though still quite nervous about the pace and sustainability of the recovery: Read more

Markets Live transcript 17 Feb 2011

Live markets commentary from 

Selling England by the pound…

… is the title of the 1973 album from ‘prog rockers’ Genesis, and it also sums up the UK’s inflation problem, according to Bank of England hawk, Andrew Sentance.

In a speech at the Institute of Economic Affairs ‘State of the Economy’ conference on Thursday, the Monetary Policy Committee member says the value of the pound needs to be a key area of focus (not neglect) for the UK’s central bank, if it is to have any hope of mitigating the impact of global inflationary pressures. Read more

Dodd-Frank de-funding debate hots up

The first Senate Banking Committee hearing under new chairman Tim Johnson will convene on Thursday with Republicans pushing more than ever to delay the implementation of Dodd-Frank financial reforms, says Reuters. Republicans argue that comment periods for some rules are far shorter than normal and are calling for ‘rigorous’ cost-benefit analysis, the Bond Buyer reports. The real battle may lie in funding for the Consumer Financial Protection Bureau, which may be capped at $80m rather than a pencilled-in $143m budget, should House Republican changes go ahead.

Time to go bargain-hunting in the retail sector?

Probably not with cotton futures now through $2/lb.

Senators outline deficit limits plan

A bipartisan group of senators has outlined proposals to enforce spending cuts and new taxes if Congress failed to meet specified budgetary targets, reports the WSJ. The plan would place separate caps on programs tied to security and on other spending programs. Targets in the legislation are inspired by a deficit commission recommendation last year that spending on discretionary items should be cut by $1.7 trillion by 2020. Failure to reform the tax code within two years of the draft bill’s passage would also lead to a crackdown on all tax deductions. However, Social Security would remain free of fixed targets attached to all other programs.

Shanghai forges bourse link with Brazil

The Shanghai Stock Exchange and BM&F Bovespa, Latin America’s biggest exchange operator, are set to sign an agreement that is expected to lead to the cross-listings of stocks, the FT reports. Cross-listings, which would give benchmark Brazilian stocks access to liquidity in China and would increase trading of them during the Asian day, will add another element to one of the world’s most important emerging bilateral trade relationships. BM&F Bovespa’s move will help it win back market share in the trading of Brazil’s biggest benchmark stocks. About 50 per cent of the trading in shares such as Petrobras and Vale is in their American Depositary Receipts, which are listed on the NYSE. In December, Vale became the first Brazilian company to dual list in Hong Kong.

Britain’s banks on the (upward) run

Well, the lobbying seems to be paying off…

 Read more

Fed stress-tests banks

The Federal Reserve’s latest stress test of the 19 largest US banks uses a recessionary scenario where unemployment reaches 11 per cent, reports Bloomberg. Banks submitted their results last month ahead of completion of the test by the Fed in March. The Fed also asked banks to give data on how earnings would be affected by Dodd-Frank, the impact of new Basel III capital rules, and to give details on how many mortgage buybacks may be necessary. The recession scenario assumes a 1.5 per cent drop in GDP growth from the last three months of 2010 to the end of 2011. Jobless rates would peak at above 11 per cent in the first three months of 2012. Separately, the Fed has raised its 2011 growth forecast to between 3.4 and 3.9 per cent at the latest FOMC meeting, the FT says.

Fitch warns on muni downgrades

Cash-strapped US states and cities face the prospect of downgrades after Fitch Ratings changed the way it analyses their burgeoning pension bills, according to the FT. In valuing pension liabilities in its credit analysis of states and local governments, the rating agency will now assume a return on assets of 7 per cent, lower than the average return of 8 per cent used by most pension plans. That translates to an increase in the average plan liability of 11 per cent. Plans in Montana, Hawaii, Vermont and New Jersey are among those whose funding ratios fall under 60 per cent using Fitch’s assumptions. The Illinois State Employees Retirement System is the weakest at 37 per cent, compared with 44 per cent using its reported 8.5 per cent assumed rate of return.

Brutal crackdown in Bahrain

Bahrain sent tanks into the capital Manama on Thursday morning after at least two protesters were killed and hundreds injured when riot police broke up an encampment of thousands of demonstrators, the FT reports. The brutal break-up of the peaceful protest threatens to inflame tensions further as the two dead are due to be buried later on Thursday. Bahrain’s largely Sunni rulers face unrest from a large, politically disenfranchised Shia population. While the country produces little oil, its status as a Gulf financial hub is in danger, Reuters says. Unrest in Libya, which contains Africa’s largest proved oil reserves, continues in the meantime, says the FT. Protesters have called for a ‘day of rage’ on February 17.