Posts from Wednesday Mar 2 2011

Markets dance to crude’s tune

Oil prices were still dominating traders’ psyche, pressuring equities on fears an energy supply shock could harm the economic recovery, while gold hit a new high and the Swiss franc was at a record high against the dollar as investors seek protection from strife, reports the FT’s global market overview. Ben Bernanke, Federal Reserve chairman, continued to stoke energy prices when his comments to US lawmakers raised hopes that further stimulus could still be in the works. Mr Bernanke said on Wednesday that there remained “a decision” to be taken on a third round of quantitative easing. “I want to be sure that you understand that I am very attentive to inflation and potential risks for inflation,” he told Congress. Crude prices hit new highs for the session after the Fed chairman spoke, with US WTI oil hitting $102, a jump of 2.5 per cent. Brent crude hit $117, a rise of 1.5 per cent. The FTSE All-World index was down 0.1 per cent and the S&P 500 on Wall Street was up 0.2 per cent.

Asia moves to shore up strategic oil reserves

As oil prices spiral higher amid turmoil in Libya, developing countries across Asia are taking evasive action, shoring up their strategic petroleum reserves against the risk of a prolonged supply shock, reports the FT. Their actions could propel crude even higher. The Philippines, citing events in the Middle East, announced on Wednesday that it would require oil companies in the country to maintain 15 days of reserves, and refineries to keep enough oil to last for 30 days.

Yahoo eyes sale of Japan unit stake

Yahoo is in talks to divest its 35% stake in Yahoo Japan, reports the FT, citing people familiar with the talks. The news drove shares in the US internet company up more than 4% on Wednesday, to as much as $16.85, gaining back some of the ground lost two weeks ago when the Yahoo reported a 4% decline in quarterly sales.

China stamps leave mark on market

The wave of Chinese money that has crashed through the markets for fine wine, art and antiques is now flooding into the altogether sleepier world of stamp collecting, reports the FT. At an auction in Hong Kong this week, a rare block of four stamps from the Cultural Revolution sold for HK$8,970,000 (US$1.1m) – an all-time record for a Chinese stamp or multiple. Including a 15 per cent buyer’s fee, the anonymous buyer paid over US$1.3m for the stamps.

China builds way to top of construction league

China’s housing boom has propelled it to the top of global construction, overtaking the US for the first time, as the country ploughed more than $1,000bn into new building projects last year, reports the FT. Spending on building work in China soared during 2010 as government stimulus-fuelled demand drove up the cost of materials and labour. Meanwhile, construction prices in the US have declined steadily during the recession and the country invested $983bn last year, down from $1,500bn in 2005.

Grameen refuses to fire Yunus

The bank founded by Muhammad Yunus, the Nobel Prize winning microfinance pioneer, has defied an order by Bangladesh’s financial regulator to remove him from office, reports the FT. Setting the stage for a battle for control of the lender, Grameen Bank said Yunus, 70, remained at the helm after Bangladesh Bank, the central bank that regulates the financial sector, said he had been “relieved of his responsibilities as managing director”.

Jobs on stage to unveil iPad 2

Apple chief executive Steve Jobs made his first public appearance since going on medical leave six weeks ago, taking the stage at a San Francisco media event to introduce the iPad 2, the second generation of the company’s hit tablet computer, reports the FT. Gaunt but energetic, Mr Jobs showed off a thinner iPad with two core processors and a claimed ninefold increase in graphics performance. “We’ve been working on this product for a while and I just didn’t want to miss this day,” he said.

Further further reading

For the commute home, to read on your shiny new YOU KNOW WHAT,

– Only one iPad2 link, from TechCrunch — and that’s all you’re getting! Read more

UAE offers poor states $1.5bn

The United Arab Emirates has responded to growing unrest in the Gulf with a pledge to invest more than $1.5bn in utilities infrastructure in the poorer members of the federation of seven emirates, reports the FT. The investment comes after Sheikh Mohammed bin Zayed, crown prince of oil-rich Abu Dhabi, last month toured the northern emirates, which are smaller and less wealthy than the capital Abu Dhabi and commercial hub of Dubai. Meanwhile, the FT also reports that Arab monarchs are nervously watching Morocco for signs of turmoil.

Libyan rebels urge US bomb attacks

A coalition of Libyan rebels has urged the US and its allies to bomb mercenary forces supporting Muammer Gaddafi and to impose a no-fly zone as the opposition repelled a fierce assault by pro-regime troops, reports the FT. The attack on Brega, which hosts Libya’s second largest hydrocarbons complex, was the first significant assault by pro-Gaddafi forces on an eastern town held by the opposition since anti-government rebels seized control of the region more than a week ago. An oil official said there was no damage to the oil facilities in the fighting. But oil prices surged higher, to nearly $118 a barrel, on news of the assault. Meanwhile, the FT reports that global powers are weighing the cost of a military response.

Beige book: signs of recovery and price rises

The Fed’s latest survey of economic conditions in Reserve Bank districts was released Wednesday afternoon.

Here’s the top line: Read more

The “autocracy risk premia” of frontier market bonds

In responding to the direct action of protestors, investors (indirectly) may never before have attached so much weight to democratic credentials, and we suspect there have been few such moments in history when a small number of institutional characteristics can explain so much variation in bond prices.

That’s in a new paper by frontier market investment shop Exotix (full paper in the usual place; hat tip Sid Verma at FT Tilt), which has applied “a model-based approach that focuses only on variables directly related to the underpinnings of unrest” and found that “democratic credentials have been a key determinant of relative frontier bond performance so far in 2011.” Read more

Shutdown averted, for now

A two-week stay of compromise, we suppose.

The Senate has approved the continuing resolution that the House passed yesterday, keeping the government funded for two more weeks. Read more

Get specific on muni bonds, say Roubini analysts

Municipal bonds, doctor doom will see you now.

The WSJ reports Wednesday that Roubini Global Economics analysts David Nowakowski and Prajakta Bhide estimate there will be about $100bn of muni bond “defaults” over the next five years. Read more

Irish bank bonds — handy haircut hit list

‘In the interests of providing public information…’ Ireland’s central bank just released details on outstanding senior and subordinated debt issued by Irish banks. You know, the stuff in the bail-in firing line (notably the bonds in the third column of this chart):

Mr Contagion, 1989-2009

No, this isn’t a festering collection of mutant organisms…

 Read more

Why you really can’t swap Libyan crude easily, at all

It’s not just about finding enough quality crude to replace Libya — it’s about the not insubstantial political risks hanging over those supplies, too.

Fighting in Libya worsened on Wednesday, as rebels counter-attacked an offensive by Gaddafi forces into the country’s east — which is where much of the oil production is (was), incidentally. Read more

Byzantine insurance sagas: Axa-ed

It’s not quite on the level of the Pru’s ill-fated $35.5bn (reduced to $31.38bn) attempt to acquire AIG’s main Asian unit in 2010.

But to anyone who has followed – even in passing – one of the most Byzantine takeover sagas in the insurance world, the vote by shareholders of Axa Asia Pacific Holdings on Wednesday in favour of the $13bn joint bid by Axa APH parent, French insurer Axa, and Australian insurance giant AMP, is definitely a moment. Read more

Eurozone PPI déjà vu

On Wednesday, official data showed that Eurozone producer prices in January had risen at their highest rate since the launch of the single currency.

As Reuters reported, prices at factory gates in the zone’s 17 countries rose 1.5 per cent month-on-month in January achieving a 6.1 per cent year-on-year rise. Read more

Bahrain’s strategic importance, graph du jour

Wondering why Saudi Arabia is so fussed about Bahrain?

JBC Energy encapsulates the reason in one helpful chart: Read more

Markets Live transcript 2 Mar 2011

Live markets commentary from 

José Sócrates’ German haircut

We can’t be a fly on the wall at Wednesday’s meeting in Berlin between Chancellor Merkel and José Sócrates so, dear readers, you will have to make do with this desk note from RBS.

(Emphasis ours.) Read more

US regulators discuss tougher mortgage rules

Regulators have tentatively agreed on stringent new rules that will require lenders to retain a greater portion of loans they originate, instead of selling most of them to investors, a practice that helped to create the housing bubble, according to a person familiar with the situation. The FT reports the broad outlines of the new rule will require mortgages to carry a down payment of at least 20 per cent before banks can fully securitise them. Banks will be forced to retain 5 per cent of the credit risk on loans they originate with down payments of less than 20 per cent, this person said. Regulators are hoping to avoid some of the problems that created the recent housing bubble by forcing banks to either tighten their underwriting standards or keep some skin in the game, essentially making them more responsible for the performance of loans they originate.

Commodities, bouncing back Down Under

After New Zealand’s earthquake and Australia’s floods and cyclones — not to mention raging fires that preceded — anyone would think someone up there had it in for the Antipodes.

Despite the ravages of weather, however, Australia seems to be living up to its “Lucky Country‘ tag. Amid fears about the economic fallout from the weather disasters of December and January, the government on Wednesday reported 0.7 per cent quarterly growth. Softer than hoped for but not nearly as bad as some feared. Read more

Cargill faces jump in trading costs

Cargill has told regulators it expects to register as a swap dealer under new US derivatives rules, a stance that puts in the same bracket as Wall Street banks and threatens to increase its trading costs, the FT reports. The world’s biggest food commodities trader said it “anticipates that it may be required to register as a swap dealer” based on the activities of its risk management divisions, according to comments filed with the US Commodity Futures Trading Commission. The change to swap dealer – the same category as investment banks such as Goldman Sachs – would increase Cargill’s cost of trading as the company would have to hold more capital and add collateral. The CFTC and the Securities and Exchange Commission have proposed regulating swaps dealers for the first time. The new rules may apply not only to banks but a broader group of traders. Cargill’s stance is at odds with other physical commodity companies.

Alarm over plans for Libya no-fly zone

US and British moves to consider military action against Muammer Gaddafi in Libya triggered international alarm on Tuesday, with Turkey and Russia opposing the idea and France and Germany expressing deep unease, the FT reports. With a refugee crisis growing on Libya’s western border after Colonel Gaddafi’s attacks on opposition forces, the US and Britain said they were making contingency plans for a possible no-fly zone over the country. Both made clear there had been no final decisions on such a zone to stop Col Gaddafi from deploying jets and helicopter gunships. Robert Gates, US defence secretary, said the US was moving two amphibious warships, with about 2,000 marines aboard, through the Suez Canal into the Mediterranean, although he highlighted that they would be for emergency evacuation and relief operations. He noted there was no unanimity within Nato on using military force.

Markets dance to crude’s tune as Mideast worries persist

Oil prices continued to dominate traders’ psyche, pressurising equities on fears an energy supply shock could harm the economic recovery, the FT’s global overview reports. Gold sits near a record as dealers seek protection from strife. The FTSE All-World index was down 0.6 per cent and non-energy commodities were generally weaker after the US crude contract breached the $100 a barrel mark as the unrest in Libya and other countries in the oil-rich region showed little sign of abating. The Saudi Arabia stock market was down another 2.4 per cent, while the cost of insuring the kingdom’s sovereign debt against default, one of traders’ favourite risk gauges, was up 7 basis points to 143 basis points, according to Markit. S&P 500 futures pointed to Wall Street adding another 0.3 per cent to the previous session’s 1.6 per cent slide. This would leave the benchmark poised above the 1,300 level, with strategists warning that any decisive breach of that mark could see stocks test support at 1,275.

Portugal, a broken debt market [updated]

FT Alphaville asks the ‘If the ECB won’t, who will buy this stuff?’ question…and gets an ominous silence. Portuguese investors bought the equivalent of their government’s total net issuance of debt in 2010 (banks about €10bn, insurers and so on about €5bn — both sets of institutions having had extremely few holdings before). Excluding the ECB, foreign investors liquidated €20bn of holdings last year, going from owning almost all Portuguese government debt in 2009, to about half of it in 2010. Read more

Worth every penny

How about this as a reward for failure…

Jeffrey Meyer, who masterminded a truly spectacular destruction of shareholder value as chief executive of Gartmore, has landed a $6.1m payoff. Read more

Further reading

Elsewhere on Wednesday,

– Why the dollar’s reign is near an endRead more