Posts from Friday Feb 25 2011

Further further reading

For the commute home,

Glencore, a profile. Read more

USA, incorporated and indebted

Congress continues to argue over a continuing resolution to fund non-essential parts of the US federal government past March 4.

As silly season drags on we’re still unsure whether a deal will be struck. Senate Democrats are said to be releasing details of some spending cuts Friday afternoon, which suggests movement — but it’s hard to untangle genuine compromise efforts from political posturing. Read more

Freezing Gaddafi’s billions

Or, just who is ‘sovereign’ in a sovereign wealth fund, anyway?

Western powers were starting to catch up with the Libyan people in hitting Colonel Gaddafi where it hurts on Friday. In this instance, by freezing financial assets, as part of a package of sanctionsRead more

Oily shadows of 2008

What do over $100 per barrel oil prices really mean for the global economy?

According to Stephen King, chief economist at HSBC, the situation doesn’t bode well for the recovery at all. Read more

The Bank of England’s very own, very secret liquidity

Emergency Liquidity Assistance (ELA) — or short-term liquidity programmes courtesy of national European central banks — has made headlines recently.

Not least because Irish banks are supposedly using over €50bn of the stuff. We say supposedly, because the details are still sketchy. Ireland’s central bank never actually breaks out ELA funding — it just publishes the figure somewhere in the ‘other assets’ line in its monthly balance sheet. At the end of 2010 that figure was €51.09bn. Read more

James Bullard and QE2 – oil price update

Comments on Thursday’s FT Alphaville post on James Bullard pointed out that while he was happy to show the correlation between QE2, inflation expectations and real interest rates, there was little on what it may have done to oil prices.

Fortunately, the ever-alert Reuters columnist John Kemp has provided the ‘missing slide’ which adds Brent spot prices to the St Louis Fed president’s data: Read more

Back to the future with CMBS

Blink and you might have missed it — but the market for Commercial Mortgage-Backed Securities (CMBS) reopened about 15 months ago with three transactions.

But the deals, issued in late 2009, were not CMBS as we knew them pre-financial crisis. DDR 2009-DDR1, BALL 2009-FDG and JPMCC 2009-IWST were all backed by multiple commercial properties, but collateralised with a single loan. Bond classes averaged a paltry four, and deal sizes clustered around the small-ish $450m mark. Read more

The eurozone crisis-oil shock nexus

We know higher spreads and rates can feed into the eurozone’s debt crisis.

How about oil prices? Read more

Libyan oil supply, and short-term whiplash

A confusing picture at the moment on measures to address the Libyan supply shortfall in the short term — even as Gaddafi’s end seems to be nearing, at last.

And it really is the short term that matters for those exposed to Libya. Read more

European liquidity and Irish handcuffs

Even with Ireland’s Fine Gael party leading in the polls — the market is pricing in a one in three chance of senior bank debt investors taking a haircut.

Why? Read more

Markets Live transcript 25 Feb 2011

Live markets commentary from 

AIG posts loss as stock sale draws near

The insurer American International Group reported a $2.2bn adjusted loss for the fourth quarter on Thursday, NYT DealBook reports, as it prepares to sell a large slice of the government’s stake in the bailed-out company. The loss, reported as an after-tax operating loss and driven by accounting charges, amounted to $16.20 a share, widening from $9.98 a share in the quarter a year ago, NYT said. Much of the loss is related to a previously disclosed a $4.1bn charge to shore up potential losses at its Chartis unit.

Markets calmer but crude resumes rally

European bourses have opened with their first gains in six days, following a positive session in Asia, as a calmer oil market provides some relief. The FTSE Eurofirst 300 is up 0.2 per cent as banks and miners rebound. An FT report that Saudi Arabia would try to make up the shortfall from any disruption to Libyan supplies; rumours that Colonel Muammer Gaddafi had been shot; and a 20 per cent rise in margins to trade oil, all helped knock crude off its highs on Thursday and allowed US equities to pare losses. This less febrile mood in the energy complex and Wall Street’s bounce off its lows is seeping into Friday’s trade, with S&P 500 futures up 0.3 per cent.

Does Japan really win from commodity inflation?

Growing concern in Asia that Middle East turmoil and soaring oil prices will deepen the region’s inflationary struggles has also prompted some debate on whether Japan would actually benefit from a nice little bit of inflation.

Indeed, the WSJ recently argued in favour, noting that the cost of Japan’s imports jumped 4.7 per cent in January year-to-year, in yen terms – the sharpest increase since July, according to the Bank of Japan. The upshot — a slowdown in the pace of Japanese deflation. Read more

Saudi Arabia seeks to calm oil panic

Saudi Arabia moved to calm mounting global fears of an oil supply crisis after panic buying sent crude prices to a 2½-year peak of almost $120 a barrel, the FT reports. Indicating that Opec’s biggest producer is prepared to increase supplies, the kingdom entered “active talks” with European oil companies on how to meet the shortfall caused by the turmoil in Libya. FT Alphaville adds that the feasibility of a straight Libyan-Saudi swap has been an issue.

Fears over new CFTC derivatives rule

Leading US exchanges are gravely concerned about proposed rules that could hamper the launch of new derivatives products – a key strategy in the current round of exchange mergers, the FT reports. The issue revolves around a rule proposed by the Commodity Futures Trading Commission that 85 per cent of annual trading in a futures contract or swap must occur on an exchange, or what is called a Designated Contract Market. The rule has aroused the enmity of 11 exchanges in a series of comment letters posted on the CFTC’s website this week.

Swiss franc touches record against dollar

Increasing demand for havens drove the Swiss franc to a record high against the US currency on Thursday, as crude oil prices surged in the wake of the latest wave of violence to strike north African oil producer Libya, the FT reports. Meanwhile, the yen returned to levels at which Japanese authorities become uneasy and speculation about Bank of Japan intervention added to volatility on foreign exchanges. The Wall Street Journal says investors still seem calm about currency volatility, but that may change. One-week volatility expectations for euro/dollar jumped more than 1 percentage point on Thursday thanks to “a few large flows” from “one name,” the WSJ adds.

GM in first full-year profit since 2004

General Motors said it was getting ready for shifting consumer demand following the rise in fuel prices as it reported its first annual profit since 2004, the FT says. During the next five to 10 years “energy is going to be more expensive, so we’ve got to prepare”, Dan Akerson, the Detroit carmaker’s chief executive, said on Thursday. “It’s coming a little earlier than the industry or the economy expected.” The Washington Post reports GM sales during the past fiscal year totaled $136bn, and the company’s earnings hit $4.7bn. GM shares were down 4.7 per cent in late afternoon trading.

Toyota investors cheer end of US probe

Stock market investors are seeing the bright side of Toyota’s latest recall of nearly 2.2m more vehicles for possible problems with the floor mats, as it marks the end of a highly damaging US investigation into the Japanese carmaker’s safety standards, the FT reports. Toyota shares were up 1.6 per cent at the end of Friday morning trading in Tokyo. Detroit News says the US National Highway Traffic Safety Administration asked Toyota to recall more models after reviewing more than 400,000 pages of company documents. The investigation has been closed after Toyota agreed to the recall.

Boeing beats EADS to US tanker prize

Boeing has clinched a fiercely contested contract to supply the US Air Force with refuelling aircraft, beating rival EADS, the European aerospace and defence company, to win the $35bn prize, the FT reports. The victory caps a decade of false starts, political controversy and international intrigue over which of the two dominant global aerospace companies would eventually build a new fleet of “flying petrol stations” for the US military. Bloomberg adds that the Boeing win was a surprise for the aerospace industry.

US warns extreme food prices will stay

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

Oil surge puts fragile US recovery at risk

The sharp rise in oil prices has created a series of economic risks and, once again, threatens the US economic recovery just as it seemed to be getting back on track, according to the FT. In the US, however, the direct effects should be limited. According to published information on the Federal Reserve’s economic model, a sustained $10 rise in the oil price cuts growth by 0.2 percentage points and raises unemployment by 0.1 percentage points for each of the next two years. However, the Guardian, echoing research by Capital Economics, says that a 10 per cent increase in pump prices would cost consumers $40bn a year, or a reduction in real incomes of 0.4 per cent. That would be enough to wipe out much of the stimulus effect of the cut in payroll taxes.

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 against protesters in strategic cities close to the capital Tripoli, which remains a heavily policed bastion of the regime, the FT reports. Eastern Libya has already slipped out of the grip of Colonel Gaddafi, who faces a popular rebellion inspired by the recent revolts that toppled the leaders of Egypt and Tunisia. The Guardian adds that international responses to the crisis are gaining pace — with no-fly zone or sanctions among options being considered. Arab News says Obama condemned Gaddafi’s violent crackdown and will send Hillary Clinton to Geneva for international talks Monday to discuss what actions can be taken to stop the violence.

Lloyds’ first (£8bn) HTM accounting switch

A new line on Lloyds just-released banking results:

 Read more

Swinging on an oil VaR

Oil price volatility is no doubt producing ample trading opportunities for many in the market, but as of Friday it has become much more expensive to take advantage of them.

The CME on Thursday announced it would be raising margins on trading crude oil by about 20 per cent for both speculators and hedgers, as of February 25. Read more

LSE order data goes down [updated]

First Borsa Italiana and Euronext this week, now problems at the LSE this Friday.

Trading is halted in the main order book as of 8:30am London timeRead more

Your cut-and-paste guide to the Irish elections

Voting booths are open and Ireland’s snap general election is underway on Friday. Here’s a handy table of the parties’ financial policies from Morgan Stanley:

 Read more

Further reading

Elsewhere on Friday,

– US IPOs: king of the world, again. Read more

Pink picks

Comment analysis and other offerings from Friday’s FT,

Editorial comment: Time to muzzle Libya’s mad dog
Although his own cause must surely now be lost, Colonel Muammer Gaddafi continues to lash out viciously against the Libyan people, says the FT. Having tried to take a leaf out of Hafez al-Assad’s book by shelling his own people, as the Syrian leader did in 1982, the dictator may yet seek to emulate Saddam Hussein. Were he to torch Libya’s oil fields, the consequences not just for Libya but for the world economy could be severe. Read more

Snap news

Breaking pre-market news on Friday,

– Lloyds posts pre-tax profit of £2.21bn, Irish impairments rise — statementRead more