Posts from Thursday Feb 24 2011

Further further reading

For the commute home,

– A devastating critique of Wisconsin coverage. Read more

A year in the life of municipal downgrades

From Moody’s on Thursday afternoon, its report on public finance rating revisions in 2010:

Rating activity in 2010 provides further evidence that the municipal market faces credit pressure not seen since the Great Depression.

 Read more

Crude prices slip, allowing stocks to recover

Oil’s grip on global investors gets ever tighter, earlier crushing risk appetite with another sharp move higher, but giving stocks some breathing room with a late fall in price, reports the FT’s global market overview. The S&P 500 on Wall Street, which fell as much as 1 per cent, ended the session down just 0.1 per cent, helped along by an improved reading for US weekly initial jobless claims. Brent crude had breached $119 a barrel during a period of frantic trading around 0745 GMT as industrial needs were hedged and traders exploited an explosion of upside momentum. But oil prices pulled back on Thursday. US crude is down 0.5 per cent, below the $100-a-barrel mark it touched on Wednesday, at $97.58 a barrel. Brent is still up 0.6 per cent, but well off $119 mark, at $111.92. The weakness accelerated after an unconfirmed rumour spread that Muammer Gaddafi, Libyan leader, had been shot, according to Reuters. The slide in risk assets is providing a boost for core bonds. The US 10-year yield is down 4 basis points to 3.44 per cent, a near 4-week low,

Dunkin’ Donuts targets India’s sweet tooth

American doughnut chain Dunkin’ Donuts is bringing its sugary, deep-fried treats to India, aiming to capitalise on fast-changing lifestyles in one of the biggest sweets markets in the world, reports the FT. The Massachusetts-based baked goods and coffee chain is setting up shop through a franchise with Jubilant Foodworks, the New Delhi-based company that also holds the India rights to Domino’s Pizza – and has been aggressively growing its home delivery pizza business.

ECB warns on high-speed trading

Automated dealing could “trigger a number of risks for orderly trading and financial stability”, the European Central Bank has warned, in an unusual intervention in the debate over the role of “high-frequency” trading in markets, reports the FT Trading Room. The comments come as the growth of high-frequency trading shows no sign of abating with exchanges continuing to upgrade trading systems to accommodate such traders.

China plans airport building spree

China will build another 45 airports over the next five years, the industry regulator said on Thursday, raising fresh questions about the potential for overcapacity in the transport sector, reports the FT. Li Jiaxing, the head of the Civil Aviation Administration of China, said that the new investments would take the total number of airports in the country to 220, even though most of the existing airports were losing money.

US warns extreme food prices will stay

The world faces a protracted bout of extremely high food prices, the US government has warned, overwhelming farmers’ ability to cool commodity markets by planting millions of additional hectares with crops, reports the FT. The US Department of Agriculture on Thursday forecast nominal record farm-gate prices for corn, wheat and soyabeans in the crop year that begins with the 2011 harvests. It added that food inflation would surge in the second half of this year as wholesale prices filtered through the supply chain, affecting consumers.

Toyota recalls 2.2m vehicles over mats

Toyota announced another huge vehicle recall in the US on Thursday in response to regulatory concerns that it had not fixed defective floor mats that can jam accelerator pedals, reports the FT. The Japanese group is recalling almost 2.2m Toyota and Lexus vehicles, bringing the number worldwide to almost 14m during the past 18 months. The recalls are one of the biggest crises ever faced by Toyota, the world’s biggest carmaker by sales, and have undermined its reputation for reliability.

Libyan uprising closes round Tripoli

Forces loyal to Muammer Gaddafi, the Libyan leader who has already lost control of a swathe of his country, struck on Thursday against protesters in strategic cities close to Tripoli, the capital which remains a heavily policed bastion of his regime, reports the FT. Eastern Libya has already slipped out of the grip of Colonel Gaddafi, who faces a popular rebellion inspired by the revolts that toppled the leaders of Egypt and ­Tunisia. Meanwhile, the FT also reports that China rushed to evacuate thousands of workers from Libya on Thursday, after CNPC and other Chinese firms were attacked in the wave of unrest sweeping the country.

Saudi Arabia in talks to boost oil supplies

The FT reports that Saudi Arabia is in “active talks” with European oil companies to meet the production shortfall left by Libya, the clearest indication to date that the leader of the Opec oil cartel is about to boost supplies to stop further rises in the oil price, which surged to near $120 a barrel on Thursday. Riyadh is asking “what quantity and what quality of oil they [the European refiners] want,” a senior Saudi oil official said on condition of anonymity.

BA bitten in web protest over bed bugs

British Airways has become the latest airline to face a sophisticated internet protest after a passenger posted graphic photos of what she alleges was an “absolutely disgusting” attack of bed bugs on two recent international BA flights, reports the FT. Zane Selkirk, a 28-year-old Yahoo product manager from Los Angeles, has published her own website,, to make people aware of what she alleges is BA’s “unhelpful and unfriendly” response to her complaints.

An Egyptian diaspora bond?

Remittances are a fascinating and oft neglected slither of global capital markets.

Flows are inherently difficult to measure but the World Bank estimates ‘developing’ countries received in excess of $300bn in 2009 and 2010 — around three times more than official aid flows. Read more

Cypriot contagion

A two-notch Moody’s downgrade of Cyprus on Thursday (Aa3 to A2). Long-term fiscal factors were involved, but then there was this:

Moody’s decision to downgrade Cyprus was also informed by its concerns about the country’s banking sector. “Cypriot banks’ exposure to macroeconomic stress in Greece is substantial, and prolonged macroeconomic stress increases the probability that these contingent liabilities will crystallise on the sovereign’s balance sheet,” says the rating agency. Although current capital and liquidity levels are not a source of concern, the country’s credit profile is affected by the banking sector’s large size relative to the size of the economy; bank assets total around 650% of GDP if we exclude foreign banks’ subsidiaries/ branches and 925% of GDP if these are included. Its exposures to Greece are significant, as in aggregate the three largest domestic banks have over 40% of their total lending in Greece.

 Read more

James Bullard on QE2 and the ‘global output gap’

James Bullard delivered an interesting, chart-rich speech on inflation, QE2 and global output gaps on Thursday. (And yes, ‘interesting’ is all subjective.)

The now non-voting St Louis Fed President was a strong advocate of QE2 as a way to reverse alleged deflationary pressures. FT Alphaville noted in December that Bullard was keen to suggest that QE2 was just hunky-dory, impacting on key indicators as predicted. Read more

A risk management review of Citi, revealed

That’s an old Valentine’s day letter — sent on February 14, 2008 — from John Lyons at the Office of the Comptroller (OCC) to Citigroup CEO Vikram Pandit. We bring it up because it’s the subject of a new column by Bloomberg’s Jonathan Weil, provocatively titled; “What Vikram Pandit Knew, and When He Knew it.” The document itself was released recently by the the Financial Crisis Inquiry Commission. Read more

Eurozone bond buybacks, unmoored

Portuguese government bond yields — still unmoored:

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From inflation to stagflation

Some grumbling from the belly of the US Treasury curve.

US Treasuries had a rollercoaster day on Wednesday as soaring crude sent the 10-year yield lower by 6 basis points. UST gains then reversed within a couple of hours. Meanwhile five-year breakeven rates (the spread between inflation-linked and regular US debt notes) rose to the highest since July 2008 on inflation concerns. Read more

Scrambling to swap Libyan crude for Saudi

Hitting the wires at pixel time — an astonishing promise:

RIYADH, Feb 24 (Reuters) – Saudi Arabia is willing and able to supply high quality, light oil to replace any lost Libyan crude, senior Saudi sources said on Thursday.

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Markets Live transcript 24 Feb 2011

Live markets commentary from 

Can you trust the Vix?

It’s official. Volatility is back in vogue.

On Wednesday the Vix index, which is derived from the value of S&P 500 options, posted its biggest two-day increase in nine months following a sharp fall in S&P 500 equities on renewed fears about the robustness of the global economic recovery. Read more

Berlin reinforces eurozone rescue stance

The German parliament is set to approve sweeping proposals to reinforce Berlin’s hard-line negotiating position in Brussels, ruling out any European crisis response measures that involve buying government bonds or issuing loans to help debt-strapped governments buy back their own debt, the FT says. The resolution, drafted by the government’s own supporters, seems certain to be passed in the Bundestag on March 17 – one week before a European Union summit in Brussels that has to agree on a comprehensive package of measures to head off any future crises in the eurozone.

US pushes mortgage servicing settlement

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could make the US’s biggest banks pay for reductions in loan principal worth billions of dollars, the Wall Street Journal reports, citing people familiar with the matter. Terms include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers in negative equity. Some government officials are pushing for banks to pay more than $20bn in civil fines or to fund a comparable amount of loan modifications for distressed borrowers. FT Alphaville adds that $20bn of losses would classify as ‘a benign scenario’ under estimates produced by JP Morgan last year.

Hedge funds wary of high leverage

In spite of a growing appetite for risk and a sense of a once-in-a-generation set of market opportunities, hedge fund managers continue to be wary in their use of leverage, according to the FT. According to data from Credit Suisse, made available to its hedge fund clients last week, the average hedge fund started 2010 with leverage of about 2.53 times and ended the year with leverage of about 2.52 times, rising to as much as 2.68 in March. The level has since risen to 2.65 times, says Credit Suisse. Financial News adds that the Swiss bank found that investors are looking for uncorrelated returns further afield, beyond just emerging markets strategies.

Global trade rises back to pre-crisis levels

World trade has regained the levels it reached before the financial crisis, driven by rapidly rising emerging-market exports and im­ports, research suggests, the FT says. A monthly measure of trade compiled by the Bureau for Economic Policy Analysis, a Dutch research institute, shows that the volume of world goods traded surged by 15.1 per cent last year after contracting by 13 per cent in 2009. Strong December data capped robust growth in the fourth quarter. Trade imbalances, which shrank during the crisis, have started opening again as import demand from rich nations has recovered.

Libya, the Asian fall-out

The tidal wave of analysis centring on Libya-related concerns about the soaring oil price has become an overnight growth-industry, fuelling further jitters about the fall-out from Middle East turmoil on everything from Korean construction stocks to transport companies.

In geographic terms, Italy, with its heavy exposure to Libya, “looks set to bear the brunt of a fall-out if Libya descends further into chaos”, as BreakingViews put itRead more

Surging grain boosts farmland prices

US farmland prices are surging alongside grain markets, drawing investment funds and raising worries about an incipient bubble, the FT reports. Federal Reserve banks in the US heartland report double-digit percentage increases in values last year, in some cases exceeding 1980s peaks. Irrigated farmland in a district including Kansas, Missouri and Nebraska surged 14.8 per cent in the fourth quarter from a year before, while rain-fed land rose 12.9 per cent, the Federal Reserve Bank of Kansas City reported. Investment International says that investors are “waking up” to farmland, with research showing that last year the proportion of investment motivated-buyers doubled to 31 per cent.

Goldman sees danger in US budget cuts

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned, the FT says. The note from Alec Phillips, a forecaster based in Washington, was seized in the ongoing US budget fight by Democrats as validating their argument that the legislation approved by the Republican-led House of Representatives last Saturday would do significant damage to the US recovery. ABC News has a copy of the report.

Calpers wins Apple shareholder vote

Calpers won a victory for shareholder rights at the Apple annual meeting as the California pension fund succeeded with a resolution in favour of majority voting for director elections, the FT says. However, investors, in voting that attracted a high turnout for a shareholder meeting on Wednesday, also appear to have been swayed by arguments in favour of board discretion at the high tech company and rejected calls for a detailed succession plan. Reuters adds that the shareholders rejected demands that the company disclose a succession plan for ailing chief Steve Jobs.

Credit Suisse included in US tax probe

US prosecutors have expanded their investigation into offshore tax havens to include Credit Suisse and announced criminal charges against four bankers who allegedly conspired to help US citizens evade paying taxes for decades, according to court documents and a person familiar with the matter, the FT reports. A criminal indictment against the four bankers alleges that they worked at an international Swiss bank, which people familiar with the matter confirm is Credit Suisse. AP says the four bankers are accused of helping US taxpayers hide as much as $3bn in assets from the IRS.

Saudi’s in $36bn bid to beat unrest

King Abdullah of Saudi Arabia announced financial support measures, worth an estimated SR135bn ($36bn), in a bid to avert the kind of popular unrest that has toppled leaders across the region and is now closing in on Libya’s Muammer Gaddafi, the FT reports. The measures include a 15 per cent salary rise for public employees to offset inflation, reprieves for imprisoned debtors, and financial aid for students and the unemployed. FT Alphaville, echoing emerging markets offering, FT Tilt, notes it’s also the first time the Saudi government has made unemployment payments.