Posts from Monday Feb 28 2011

Stocks firmer despite Middle East tensions

Oil prices remain the focus of global investors, although they appear to be loosening their grasp on the market’s risk appetite, the FT reports. Continuing turmoil in Libya and the spreading regional unrest pushed the Brent contract above $114 a barrel during Asian trading, benefiting perceived havens such as gold and US Treasuries. But late in New York, Brent is trading lower for the session at $111.76. Equity markets are looking more sanguine, while other industrial and agricultural commodities were mixed even before crude turned lower, suggesting investors could be starting to develop a degree of immunity to the oil price machinations. A monthly Reuters poll of large investment institutions in the US, Europe and Japan shows that while fund managers reduced their average equity holdings in portfolios from 54.2 per cent in January to 53.6 per cent this month – adding to bond positions – the proportion of stocks held remains higher than it was for most of 2010. The panic button has clearly not been hit during recent weeks as Middle East worries mounted.

Congress nears deal to avert shutdown

Republicans and Democrats were on Monday close to averting a US government shutdown with a short-term deal that would keep the government funded until March 18, the FT reports. The deal gives the new Republican majority in the House of Representatives the upper hand in longer term negotiations over the budget. Democrats’ agreement to cut $4bn out of the budget over two weeks would keep the government funded until March 18. Analysts said on Monday it would make it more difficult for Democratic lawmakers to resist big spending cuts as they sought to reach a final deal on the rest of the budget. The temporary agreement would buy both parties more time and avoid a Friday deadline that, were it missed, would shut down the government.

Indian business mildly positive about budget

Indian business broadly welcomed a budget that contained few surprises but lacked the sort of big push on reform necessary to disperse the clouds over the countries’ markets, the FT reports. The benchmark Sensex index, which had declined by 13.7 per cent this year, rose by up to 3.2 per cent as Pranab Mukherjee, finance minister, delivered his budget speech, before falling back to close up by less than 1 per cent. Govind Sankaranarayanan, chief financial officer of Tata Capital, the financial services arm of the Indian conglomerate, said: “Overall, most parts of industry should not be unhappy with this budget”. The combined effect of souring sentiment towards emerging markets internationally and concerns over corruption scandals and stubbornly high inflation at home have weighed on Indian markets since late 2010.

China warned on pollution threat to growth

China’s environment minister has issued an unusually stern warning that pollution threatens to imperil growth, positioning it as a central theme of the next five-year plan to be launched at the annual National People’s Congress this weekend, the FT reports. “Natural resources are shrinking, degenerating and drying up. Ecological and environmental decay has become a bottleneck and a serious obstacle to our economic and social and development,” said Zhou Shengxian in a statement posted on Monday on the ministry website.

West moves military assets around Libya

The Pentagon is deploying naval and air forces around Libya as the US and UK governments consider tougher measures to force Muammer Gaddafi from power, including the possible establishment of a no-fly zone, reports the FT. “We must not tolerate this regime using military force against its own people,” David Cameron, UK prime minister, said. “In that context I have asked the Ministry of Defence and the Chief of the Defence Staff to work with our allies on plans for a military no-fly zone.” “Nothing is off the table so long as the Libyan government continues to threaten and kill Libyans,” added Hillary Clinton, US Secretary of State, at a UN meeting in Geneva. According to Colonel David Lapan, a Pentagon spokesman, US military planners are working on “various contingency plans … [and] repositioning forces to be able to provide for that flexibility once decisions are made”. The military manoeuvering coincided with US and UK efforts to ratchet up financial pressure being brought to bear on Colonel Gaddafi, whose forces remain in control of Tripoli, the capital.

Further further reading

For the commute home,

- Move the people to the growth, not the growth to the people (or, What to do about Michigan?). Read more

Magnus on a chronic under-reporting of private sector surpluses

UBS senior economic adviser George Magnus addresses the issue of Washington’s budgetary crisis on Monday.

As he points out, to some there is a major fiscal imbalance that has to be addressed, but no crisis — while to others the US is bust and nothing short of an immediate downsizing will neutralise a looming austerity crisis. Read more

US deleveraging and consumption, in progress

There was some good news in this morning’s Personal Income and Outlays report for January, though not quite enough to get excited about.

Personal income climbed 1 per cent, well above expectations, and the savings rate increased for the first time since last July, from 5.4 per cent in December to 5.8 per cent. Read more

Underestimate the force of a supply shock, do not

David Bloom’s currency strategy team at HSBC looks at the issue of oil and foreign exchange rates on Monday, arriving at a clear-cut conclusion.

Determining which currency in which to park one’s money when oil prices are on the rise is dependent on one thing and one thing only — whether said price rises are the result of demand forces or of a supply shock. Read more

HSBC’s fat cats

From page 213 of HSBC’s mighty 2010 annual report and accounts.

 Read more

The ‘depreciation doomsday machine’

There are prognostications of doom for the US economy, and there are highly specific prognostications of doom for the US economy.

Here is one, from Charles Dumas of Lombard Street Research: Read more

All together now: “The forward curve is not a forecast”

We’ve touched on the issue of the forward curve not being a forecast a few times on FT Alphaville before.

But just in case it still hasn’t hit home — since many are seemingly still confused — here’s a little more from former energy analyst John Kemp, now a columnist at Reuters, on the matter of what futures curves in commodities tell investors. Read more

The FSA is concerned about ETFs

The UK financial regulator the FSA appears (finally) to be on to the complexity issue that has been affecting the ETF industry for a long while now.

From the FSA’s ‘Retail Conduct Risk Outlook 2011″ out on Monday — emphasis FT Alphaville’s: Read more

Elasticity *alert* — or, at what point demand destruction?

Bank of America Merrill Lynch is out with a whopper of an oil note on Monday.

Amongst other things, it makes a number of bold predictions, least of all this: Read more

Peak Testosterone

An interesting application of political science to the market, from Deutsche Bank analysts:

Youth bulges in emerging markets likely to decline sharply from 2010–2020 Read more

What Libya crude cuts mean for tanker rates

Icap’s shipping analysts have on Monday come up with an interesting hypothetical take on how an extended Libyan crisis might impact the shipping market.

In a nutshell, think more bearish than bullish for shipping rates. Read more

Markets Live transcript 28 Feb 2011

Live markets commentary from FT.com 

Costs and Basel III undermine HSBC

Thud.

That’s the sound of the HSBC’s annual report and accounts hitting the FT Alphaville desk — all 397 pages of it. (Download at your peril.) Read more

Egypt markets prepare to open as MENA unrest spreads

Egypt’s main exchange was preparing to resume trading on Tuesday even as unrest in Libya and Oman continued to cause stocks to tumble in the region on Monday, Bloomberg reports. The Egyptian bourse has now been shut for almost a month due to the popular uprising which ousted President Hosni Mubarak. According to the FT, thousands of Omani youths confronted police in the industrial port of Sohar on Sunday after witnesses reported that two protesters had been killed in clashes with the security forces. In Libya, meanwhile, Muammer Gaddafi’s grip continued to weaken as protesters against his regime maintained control of a city west of Tripoli, fought off government troops in another city and consolidated a council set up in the east to give a political face to the revolution sweeping the oil-rich north African country. The FT reports that international journalists invited into the country were taken to Zawiya, 40km west of the capital Tripoli, only to find the centre of the town in rebel hands. Dubai’s DFM General index plunged 4.5 per cent on Monday. The index — an important regional benchmark — is now at its lowest intraday level since June 2004.

Webvan man delivers burnt fingers

What’s that smell in the air?

Of course, it’s the unmistakeable stench of burnt fingers wafting across the City of London, from those investors who were foolhardy enough to buy the 10 per cent stake John Lewis sold in Ocado just two weeks ago. Read more

Pearson beats profit guidance with 28% rise

Earnings per shares at Pearson, the education and publishing group and owner of the Financial Times, beat analysts’ expectations and the company’s own guidance on Monday when it announced a 9 per cent increase in its dividend. The FT reports that adjusted for currency fluctuations, divestment and acquisitions, full-year revenues grew 5 per cent to £5.66bn with pre-tax profits up to £670m, a 28 per cent increase. Adjusted earnings per share were 77.5p, ahead of the 76p indicated by Pearson last month. The dividend rises to 38.7p (35.5p), the biggest increase in a decade. Pearson said in a statement it was expecting growth in sales, profit margin and EPS in 2011, but did not give a figure. Dame Marjorie Scardino, chief executive, said: “These numbers add up to another excellent year for Pearson.

It’s an Irish bank eat Irish bank world

A Monday morning reminder to Ireland’s new government of a not so small banking problem, this.

Overnight borrowings from the ECB jumped (again) on Monday — this time to €17.115bn. And this time, the dynamic in Irish banking that has driven this newest spike is fairly clear, if no more sustainable in the long term. Read more

HSBC lifts pay-out but cuts profitability

HSBC sent a mixed message to shareholders on Monday, increasing its dividend but cutting its targeted profitability by a fifth, the FT reports. The news, combined with the announcement of full-year profits that fell short of some analysts’ expectations, sent the shares down more than 3 per cent to 689.2p in early trading. The emerging markets focused bank reported pre-tax profit for 2010 of $19bn, up from $7.1bn a year earlier, as the drag from its troubled US consumer business abated. Loan impairment charges across the bank reduced by almost half to US$14.0bn. HSBC announced a final dividend for 2010 of 12 cents, up from 10 cents, and said there would be a higher payout of 9 cents a quarter for the first three quarters of 2011. It also promised a benchmark payout ratio of 40-60 per cent of attributable profits in future.

Stocks firmer but traders wary over Mideast tensions

Oil prices remained the focus of global investors, although they appeared to be loosening their crude grasp on the market’s risk appetite, the FT’s global markets overview reports. Continuing turmoil in Libya and the spreading regional unrest pushed the Brent contract above $114 a barrel during Asian trading, benefiting perceived havens such as gold and US Treasuries. But equity markets were more sanguine while other industrial and agricultural commodities were mixed, suggesting investors may be starting to develop a degree of immunity to the oil price machinations. The FTSE All-World equity benchmark was up 0.2 per cent, Asia was firmer and European bourses opened only fractionally softer. The FTSE Eurofirst 300 index was 0.1 per cent lower and London’s FTSE 100 was down by the same amount, with no clear stockpicking trend particularly evident. US stock futures were down 0.2 per cent.

The Libya effect on crude differentials, charted

We’ve highlighted the Libyan crude substitution problem on FT Alphaville here and here already.

But, as ever, we like charts. And here’s a nice one from JBC Energy reflecting the Libyan substitution effect across the light sweet crude complex as of last week: Read more

LSE under attack

Technologically speaking all is still not well at the London Stock Exchange, reports FT Alphaville. Prices were being disseminated on Monday morning but anyone trying to enter the LSE website via Google was getting hit with a “reported attack” message. Still, the LSE is not the only exchange with a red face this morning. The Australian Stock Exchange, which like the LSE is merging with a rival, has also suffered an outage. Quotes on Nasdaq’s OMX Nordic exchanges were also failing to update. While this is probably nothing more than coincidence (and note the ASX did install a patch over the weekend), it does make one wonder if there’s something in these industrial sabotage theories. Read more

The imprecise science of revolting indexes

It’s the perfect season to roll out what TheSource calls a “revolting index”. As the blog’s Alen Mattich remarks, investors — not just autocrats — are also spending “a lot more time these days looking over their shoulders”, amid the wave of rebellion and revolution sweeping North Africa and the Middle East.

The Economist came out with a “who’s next” index of the Middle East and North Africa in early February, concluding that the next leader to go could be Yemeni president Ali Abdullah Saleh. Indeed, although Muammer Gaddafi is looking very precarious right now, Saleh is neck-to-neck with the Libyan leader in a race towards the political precipice. In fact, on Sunday Saleh even borrowed the good Colonel’s words, vowing to fight “with every drop of blood” to stay in power. Read more

Mirror, mirror on the wall — who’s really the riskiest of them all?

This — in case you were wondering — is a list of what some academics see as today’s most systemically risky financial firms in the US:

 Read more

Further reading

Elsewhere on Monday,

- Updates from LibyaRead more

Pink picks

Comment, analysis and other offerings from Monday’s FT,

David Gardner: Citizens not serfs can save Saudi Arabia
On his return from months of medical treatment in the US and Morocco, King Abdullah of Saudi Arabia was characteristically unstinting in his generosity, writes the FT’s international affairs editor. He lavished $36bn on his subjects, in pay rises and debt forgiveness, and to help them buy houses and start businesses. As munificence goes, this was princely. Whether it was politic is another question. Read more