Posts from Monday Mar 7 2011

Surging oil price casts pall while US tech stumbles

A surging oil price again threw a suffocating pall over market sentiment – crushing a mid-session rally as US technology stocks flopped on fears over global growth, reports the FT’s global market overview. The FTSE All-World equity index was down 0.8 per cent, while a search for “safety” took gold to a new record. The S&P 500 in New York was down 1 per cent, and the tech-rich Nasdaq Composite was off 1.8 per cent after an initial rally on Wall Street. In oil, the US-based Nymex crude contract was up 1.1 per cent to $105.57 a barrel, having earlier touched $106.94, the highest point since September 2008. The more globally representative Brent product was down 0.6 per cent to $115.29. The dollar was strengthening thanks to the decline of Brent prices, even as US stocks continue to tumble on US economic concerns. The dollar index was up 0.1 per cent at 76.48, having earlier hit a fresh four-month low of 76.12. Not even news of a downgrade of Greece’s credit rating by Moody’s could overly damage the euro as traders priced in expectations of an interest rate rise from the European Central Bank next month. The single currency was down just 0.1 per cent versus the greenback to $1.3976.

Barbie shuts up shop in Shanghai

Barbie, the slender symbol of American consumerism, has shut up shop in Shanghai just two years after opening her biggest flagship store in China’s most populous city, reports the FT. Mattel, owner of the iconic doll brand, said the bright pink, six-storey store had served its purpose of building brand awareness in the new market. But analysts say the investment was a failure because it did not adjust to the local market.

Gaddafi battles to retake oil terminal

Troops loyal to Muammer Gaddafi fought rebels outside Ras Lanuf and launched air strikes against the eastern oil town on Monday, in a counter-offensive to stop opposition fighters from advancing west, reports the FT. Pro-regime forces drove the opposition from Bin Jawad, a small town west of Ras Lanuf on Sunday, halting the rebels’ attempts to march on Sirte, Colonel Gaddafi’s birthplace which lies along a coastal highway linking the west and the opposition-controlled east. Ras Lanuf is one of the oil-rich state’s main export terminals and normally handles about 200,000 barrels a day.

Opec members rush to raise oil output

Influential members of Opec, the oil cartel, are joining Saudi Arabia in raising output to cool soaring prices and allay fears of a supply crunch in the west, reports the FT. The behind-the-scenes move by Kuwait, the United Arab Emirates and Nigeria reflects growing unease among Opec members over the threat to the global economic recovery from crude’s runaway rise amid the worsening crisis in Libya. US oil prices increased to their highest levels since September 2008 on Monday, trading at an intraday high of $106.95 a barrel, as Brent, the European benchmark, hit a session high of $118.50.

Xstrata chief hints at Glencore merger

Xstrata has sent a strong signal it expects eventually either to merge with Glencore or for the commodities trading group to sell its stake in the miner, reports the FT. Mick Davis, Xstrata chief executive, told analysts that for both Glencore and his company to be independently listed was “unsustainable in the longer term”. The comments were made in early February at a meeting after Xstrata’s results but came to light on Monday in a research note by Andrew Keen, mining analyst at HSBC, looking at the appointment of Sir John Bond as chairman.

Airlines rebound as Indians take to skies

Indian low-cost carrier, IndiGo, raised eyebrows in January when it ordered 180 Airbus A320s, the largest single order in commercial aviation industry. Just two years ago, Indian airlines were rolling in red ink, reeling from the double blow of soaring oil prices, and plummeting passenger numbers, as a result of the global economic crisis. IndiGo’s ambitious aircraft order – albeit to be delivered gradually between 2016 and 2025 – reflects an industry that is bouncing back and newly confident about its long-term prospects. Indian airlines carried 52m passengers on domestic trips in 2010, an increase of nearly 20 per cent over the 44m passengers they carried in 2009, reports the FT.

Taiwan’s trade link with China set to grow

Taiwan is only “a quarter to a third” of the way through opening its economy to the Chinese mainland, President Ma Ying-jeou has said, indicating that he intends to expand greatly a free-trade deal that Taiwan’s opposition says has already gone too far. Mr Ma told the Financial Times: “There is still much work to be done.” He added – in a sop to those who fear deeper economic integration could lead to political concessions – that there was “no pressing need to deal with political issues”.

Nomura appoints female finance chief

Nomura has appointed its first female chief financial officer and promoted Jesse Bhattal, former Asia head at Lehman Brothers, to deputy president, in a further effort to transform itself into a global player, reports the FT. The promotion of Junko Nakagawa to the top finance job is an unusual move for a large Japanese company. Japanese companies have attempted to diversify over recent years, particularly by handing senior roles to foreign executives in their pursuit of faster-growing markets abroad. However, it is still extremely rare for women to be appointed to senior positions.

Further further reading

For the commute home,

– Today in competing Fed president speeches: Fisher says tighten, Lockhart says loosen, in response to rising oil pricesRead more

A flight to quality to… munis?

That’s what this chart, released on Friday by Citi’s municipal bond team, apparently suggests:

 Read more

A stress test mugged by reality

The thing you want from a bank stress test is for the ‘stress’ to be much tougher than anything that could really happen in reality. A good kitchen-sinking, in other words.

By that standard, European stress-testing is in the toilet. Read more

Clear and present danger

This is barking — but rather readable if you’re the sort of person who enjoyed Oliver Stone’s JFK.

It’s a report commissioned by the Department of Defense Irregular Warfare Support Program which claims the US is facing an ‘Economic Pearl Harbor’ and the attack has entered its third and most critical phase. Read more

This is not normal ECB tightening

In which ‘strong vigilance‘ = ‘token gesture’.

Three charts on the European Central Bank and the euro periphery, from Credit Suisse’s global equities team on Monday: Read more

In the midst of a permanent oil-equity correlation breakdown?

Harry Tchilinguirian at BNP Paribas observes the curious breakdown in correlation between oil and equities of late:

 Read more

Markets Live transcript 7 Mar 2011

Live markets commentary from 

Little sign of early exit for QE2

Federal Reserve officials are likely to decide to continue quantitative easing at their March meeting, the WSJ reports. A surprisingly strong recovery or burst of inflation would be need to halt QE2 before the scheduled endpoint in June. Even inflation hawks on the Fed’s board remain wary of pointing to current commodities inflation, given the experience of calls for the Fed to start tightening in 2008 during a similar bout of rising prices. Officials are also cautious of proposals to ‘taper off’ QE by purchasing the planned $600bn over a longer interval.

Moment of truth for Raj Rajaratnam

Nearly 18 months after his arrest, Raj Rajaratnam, the hedge fund billionaire, will face his accusers at a high-stakes, criminal insider trading trial this week, the FT reports. The drama, which begins on Tuesday with the jury selection, is expected to unfold over two months, with prosecutors from the US Attorney’s office in Manhattan, aiming to prove that Mr Rajaratnam, co-founder of Galleon Group, made more than $45m in illicit profits by trading on insider information. Hours of recorded phone calls are expected to be among key evidence. Mr Rajaratnam’s decision to testify on his own behalf, by contrast, may prove one of his biggest gambles, says the WSJ.

Moody’s downgrades Greece three notches

Moody’s has downgraded Greece’ sovereign debt to B1 from Ba1, nudging it even further into junk credit territory, says FT Alphaville, which has the full statement. The rating agency cited concerns with revenue collection, ‘very ambitious’ fiscal cuts, and the increasing likelihood that Greece will seek a ‘voluntary’ bond exchange with its investors. The Greek government lashed out in response and said ratings agencies should be regulated more tightly, FT Alphaville adds. Moody’s is now the first agency to classify Greece as ‘highly speculative’, says Reuters.

LVMH takes control of Bulgari

LVMH, the French luxury goods conglomerate, is to take a controlling stake in Bulgari, the Italian jewellery house, in a $5.2bn all-share deal, reports the FT. Under the deal, the Bulgari family will swap its 51 per cent shareholding, making it the second largest family shareholder in LVMH. The deal strengthens LVMH’s competitiveness with Richemont, the Swiss luxury goods conglomerate, which boasts the Cartier brands and has traditionally been stronger in watches and jewellery. With the Bulgari deal amounting to its largest acquisition in ten years, LVMH is nevertheless keeping hold of its stake in Hermes, which the Hermes founding family wants to see reduced, Bloomberg reports.

Oil market ponders reserves use

There are four ‘known unknowns’ in oil markets at the moment, notes FT Alphaville – how much supply is at risk; how the market can adapt; what the effect will be on demand for oil; and the long-term outlook for oil as the Middle East crisis continues. The answers look to be worrying ones for Monday’s trading: US crude futures hit $106, a 30-month high, as fighting in Libya flared into civil war, says Reuters, adding that the Obama administration could yet be pushed into tapping the Strategic Petroleum Reserve. Japan and South Korea nevertheless said that the Libyan crisis did not require accessing their own reserves so far. The biggest mystery of all, perhaps — just how much Saudi Arabia could support supplies, with few details so far given, says the FT.

LVMH: One brand’s pariah is another one’s shiny knight

As Luxist blog remarked on Monday: “We’ve been so busy watching the drama as luxury mega-conglomerate LVMH Moët Hennessy Louis Vuitton makes moves on French luxury brand Hermès that we didn’t even see them sneaking up on Bulgari”.

The FT, however, scooped the story, reporting on Sunday night (updated on Monday): Read more

Traders queue up to short dollar

The Dollar Index hit a four-month low of 76.233 early on Monday, Reuters reports. Indeed, hedge funds and foreign exchange dealers are betting record amounts against the dollar, reflecting a growing belief that the US currency has lost its haven appeal and that eurozone interest rates will soon rise, says the FT. Figures from the Chicago Mercantile Exchange showed that short dollar positions surged from 200,564 contracts in the week ending February 22 to 281,088 on March 1. The value of bets against the dollar now totals $39n, $3bn more than the previous record, set in 2007.

Libya descends into civil war

Forces loyal to Colonel Gaddafi were seen moving towards Ras Lanuf, one of Libya’s main oil terminals, on Monday as fierce counter-attacks on rebels continued, the FT reports. The two sides are also fighting in towns near the city of Sirte, a critical area that controls access to the coastal highway linking the Gaddafi-held west and the rebel east. UN officials are seeking access to Misrata, another city fought over at the weekend, to assess humanitarian needs, reports the BBC. Republicans are calling on the White House to arm the rebels, according to the WSJ. Pentagon officials are planning for special forces advisors or military supplies to be sent in even without a no-fly zone, the NYT reports.

The big four ‘known unknowns’ for oil

Citi analysts raised their Brent oil estimate to $105 and $100 for 2011 and 2012 respectively, from $90/barrel, on Monday.

That’s as Brent crude sits tight around the $115 per barrel mark, with WTI not far behind at $105 per barrel. Read more

Brazil plans curbs on farmland speculators

Brazil is preparing rules that will block foreign governments, state-owned companies and speculators from buying agricultural land while allowing in “genuine” private sector investors, reports the FT. The country is eager to attract new capital to the sector to increase its share of world agricultural exports while continuing to screen out unwelcome “sovereign investors” according to Wagner Rossi, the agriculture minister. He declined to name any foreign countries that were of concern, but analysts said the main target was clear. “‘Sovereign funds’ means the Chinese,” said André Pessoa, director of Agroconsult, a consultancy.

Nasdaq targeted by LSE and TMX: report

The London and Toronto stock exchanges are preparing a bid for Nasdaq later this year, once their own $5bn tie-up is completed, according to Reuters citing the UK’s Sunday Times. LSE and TMX are currently preparing to confront regulatory objections to their merger and have not held talks with Nasdaq yet. Nevertheless the two bourses are keen to consolidate further following the alliance of Deutsce Boerse and NYSE Euronext. While that deal suggested that Nasdaq would be better off merging with CME Group, the bourse appears to be keeping its options open, if withdrawals from recent investor conferences are anything to go by, says the WSJ.

Shoot the messenger [updated]

How’s this for an ad hominemRead more

Forth Ports opens its books

Better late than never.

Forth Ports has finally got around to confirming Friday’s takeover rumoursRead more

Moodys downgrades Greece to B1 from Ba1 [Updated]

Moody’s has downgraded Greece to B1 from Ba1 on Monday, a move which follows Greek five-year credit default swaps hitting 1049 basis points last Friday.

Here’s the statement: Read more

Further reading

Elsewhere on Monday,

– A falling demand for brains? Read more