Posts from Tuesday Mar 8 2011

Further further reading

For the commute home, or while wondering about Farhat Omar Bengdara’s whereabouts,

- The governor of the Libyan central bank is missing. Read more

Congressional approval sought for S Korea deal

The Obama administration is ready to submit a free-trade agreement with South Korea for congressional approval, the top US trade official said, challenging lawmakers to review the deal without delay, the FT reports. But although a broad cross-section of Congress is in favour of the South Korea deal, its swift passage could still face some obstacles on Capitol Hill.

Crackdown fears chill Vietnam’s dollar black market

The pervasive foreign exchange black market in Hanoi has ground to a halt amid fears that the government will clamp down on the illicit trade in dollars as it struggles to support the ailing Vietnamese currency, the dong, reports the FT. Soaring inflation, at one of the highest rates in Asia, has hit confidence in the dong. Late on Tuesday the central bank increased interest rates for the third time in three weeks in an effort to keep prices under control. The gold shops on Ha Trung and Tran Nhan Tong streets in central Hanoi have developed a lucrative if illegal trade in US dollars over the last few years, as Vietnamese consumers and companies worried about rising prices and the depreciating dong have hoarded greenbacks and gold. A number of Hanoi gold traders told the Financial Times that they stopped buying and selling dollars on Monday because of worries that the government may finally start to enforce the raft of circulars it has issued proscribing the trade and vowing to punish “hoarders and speculators”.

Bangladesh court upholds Yunus exit

Muhammad Yunus, the Nobel laureate and micro­finance pioneer, suffered a setback on Tuesday when the Bangladeshi High Court upheld his removal from Grameen Bank, the institution he founded 34 years ago, the FT writes. Yunus will appeal the court ruling – which backed an earlier move by the central bank to dismiss. The US meanwhile criticised Bangladesh’s handling of the affair. Robert Blake, US assistant secretary of state for South Asia, told the FT the US was “troubled” by the attempt to remove Yunus, which it saw as “out of step” with the Bangladeshi government’s behaviour on other fronts, such as poverty reduction.

Oil price slips with metals still under pressure

Oil prices are slipping from recent highs, helping stock indices recovery some of the sharp losses of the past few sessions as energy prices hit new highs, the FT reports. Brent crude is down 2.1 per cent to $112.68, about $6 off Monday’s high, after Kuwait said it was in talks with other Opec members to boost production in order to make up lost supply out of Libya, where fighting continues. The pullback in oil is lending some support to stocks. The FTSE All-World is up 0.3 per cent – but investors remain wary that potential Middle East flashpoints could occur this week, particularly in Saudi Arabia where a day of protest on Friday has been called by some activists. In addition, traders are concerned that Wall Street’s 0.8 per cent fall on Monday came in spite of oil prices easing during the US session, a signal perhaps that the market is using the energy shock as an excuse to deliver the long-anticipated risk asset correction. The S&P 500 index is up 0.9 per cent on Tuesday, and the Nasdaq Composite index, weighted heavily toward tech, is up 0.7 per cent, now well above the 50-day moving average line that it dipped below on Monday.

Libyan central bank chief missing

The governor of Libya’s central bank, the man who holds the key to the Gaddafi regime’s finances, appears to have gone to ground, confounding officials, diplomats and bankers desperate to find him, the FT reports. Farhat Omar Bengdara has reportedly spent much of the past two weeks outside Libya but it is unclear whether he supports the regime or is co-operating with the opposition. Bankers and opposition figures are scrambling to decipher Mr Bengdara’s loyalties, as they assume he is one of few officials with authority to shift funds at a time when sanctions are tightening the squeeze on Muammer Gaddafi and his family. A European diplomat said he heard the governor had been in Switzerland and had abandoned the regime. A banker, meanwhile, said Mr Bengdara visited London last week, possibly later moving to Istanbul.

Naked CDS and political nudity – a report

A timely piece of research, this.

Presented without comment, the European Union’s official – though unpublished – account on the nature of the sovereign CDS market, its impact upon bond spreads, both theoretical and empirical, with specific regard to Greece, 2008-10 in full.  Read more

For the millionth time, naked CDS is not the problem

CDS liquidity –> lower yields –> lower cost of sovereign funding. Without protection, many are less likely to buy in the first place, pushing up borrowing costs.

We’ve said it beforeRead more

QE as ‘shock therapy’

Most of the world’s focus is on Libya-related contagion spreading into other Middle Eastern countries and kingdoms.

But, suggests a report from Standard & Poor’s research arm on Tuesday, it may be time to start looking a little further afield. Read more

Introducing: US Markets Live, every Friday at 10am EST

Like a decent payrolls report, this has been a long time coming.

On Friday, FT Alphaville will launch the first US edition of our popular real-time service, Markets LiveRead more

Settling an ‘average’ mortgage servicing industry

That’s the 27-page term sheet handed out to mortgage servicers by regulators, and obtained by Cheyenne Hopkins at American Banker on Monday. The document itself is part of a mass Spitzer-style settlement currently being eked out with the mortgage industry, in the wake of the robosigning and various foreclosure scandals. Read more

China’s yuan-child policy, relaxed

Relax, kids: a demographic tidbit from Citi’s emerging market round-up on Monday:

China will relax the one-child policy in five provinces this year and probably switch to the two-child policy within five years. According to the Chinese Liaowan Weekly, under the new policy, all couples with a one-child family can have two children. Read more

Hedging the Sauds

How to hedge the Saudi monarchy?

We’ve asked it before on FT Alphaville, given how unrest would throw the oil market into extreme volatility. We’re sceptical you could even try, but we’re sure there’s more to it than the ‘all bets are off’ line we often hear about the prospect of Saudi protests. Read more

Greek spreads… the day after the downgrade

The 10-year spread is wider by almost 47 basis points following Monday’s three notch move by Moody’s. Chart via Citi:

 Read more

From dollar debate to playground insults

Roll up, roll up.

See a Federal Reserve economist call anti-Fed campaigner and congressman Ron Paul a “pinhead” in the course of reviewing Paul’s 2010 book, End the FedRead more

The Chinese debt shuffle

Chinese regulators have relaxed the extra reserve requirements they had imposed on some banks in 2010 to stop too much lending, says Reuters.

So goodbye, crazy Chinese lending growth? Read more

An explanatory CoCo death spiral

Investors are tired of hedging against unrealised tail risks. That much we know.

What happens, though, when that tail risk does emerge and investors rush to hedge the unthinkable, once it’s a bit more thinkable? Please meet the CoCo death spiralRead more

The Saudi capacity puzzle

Could Saudi Arabia be telling porkies when it comes to its spare capacity capabilities?

It’s something Goldman Sachs analysts are wondering on Tuesday. Read more

Markets Live transcript 8 Mar 2011

Live markets commentary from FT.com 

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, the FT reports. 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 HSBC research note. Glencore is preparing an initial public offering in the second quarter of the year which analysts expect to value the trader at more than $60bn — but they also warn that Glencore could instead merge with Xstrata at the last minute.

Galleon case: judge, jury and lawyers profiled

Jury selection in the insider trading case against Raj Rajaratnam, founder of Galleon Group, begins on Tuesday, Reuters says. The selection will involve questioning potential jurors on their views of Wall Street and the financial crisis, in addition to offering lawyers their first chance in 16 months to spar over the trial, reports the WSJ. It will not be the first time that John Dowd, Rajaratnam’s lawyer, has faced off against Preet Bharara, the US Attorney in Manhattan, the FT reports. The two lawers clashed in the Bush attorney dismissal case four years ago. Finally, Judge Howell is known for his tough reputation in insider trading cases, the WSJ reports.

Heavy (covered bond) encumbrance

Research on covered bonds rarely screams ‘READ ME!’ — but here’s something to catch your eye from Bernd Volk, at Deutsche Bank’s fixed income team:

We shortly describe the few publicly available covered bond issuance limits set by regulators. In our view, as soon as financial stress allows it, regulators are likely to take a closer look at total asset encumbrance. However, for the time being, we expect issuers closely checking out all possibilities to issue covered bonds, probably also outside specific legal frameworks and with other asset classes. Read more

Hedge funds gain on Libya turmoil

The growing political crisis in Libya and the Middle East is driving huge gains for some of the world’s largest commodity hedge funds, reports the FT. A handful of prominent specialists have made hundreds of millions of dollars in the past few weeks thanks to the significant market movements in oil, agricultural commodities and metals, including Clive Capital (up 5 per cent last month), BlueGold (up 7.5 per cent on its main fund) and Astenbeck Capital (4.2 per cent). The $5bn flagship Clive fund benefited from buying long-dated instruments in oil several months ago in anticipation of a price shock, according to an investor.

 

Divisions over foreclosures settlement

Officials are divided over a $20bn “mega settlement” of the foreclosure crisis, with some fighting a plan to force banks to cut outstanding debt on struggling homeowners’ mortgages, people involved with the inter-agency talks have told the FT. Principal reduction is among measures to be imposed on 14 US mortgage servicers for failures that led to foreclosures being halted last year. Instead of the $20bn fine being paid into federal and state coffers, officials are working on a plan that would use the pot of money to cover writedowns of mortgage principal. Objectors are concerned that the move could be struck down in court.

China dropping bank reserve requirements

Chinese regulators have rowed back additional reserve requirements for some banks that had been imposed on top of mandatory reserves, suggesting some success in battling bad loans, two sources have told Reuters. Chinese banks extended RMB 600bn of loans last month, versus predictions of RMB 650bn, according to data out last week. Chinese property developers are also confident that squeezes on the flow of credit, and measures to stop speculation, will not harm their business. China Vanke, the biggest developer by market value, has seen 2010 profits beat analyst estimates, Bloomberg says. Fitch is still warning that China has a two-thirds chance of a banking crisis by mid-2013, Bloomberg adds.

Gaddafi offers talks but Libya war goes on

Libya’s rebel national council has rejected talks with Colonel Gaddafi but might not pursue him for crimes if he stepped down, Al Jazeera reports. ‘We are not negotiating with someone who spilled Libyan blood and continues to do so,’ a spokesman said. Both sides are still fighting for control of Ras Lanuf, a key oil terminal, and Zawiyah, a western city close to the capital, the FT says. Washington remains divided over increasing calls to assist rebels with a no-fly zone, says the NYT, although the UK and France continue to push for a United Nations resolution setting out an air exclusion zone, Reuters reports.

Round two for auction of Warner Music

At least five groups have been told they are through to the second round of the auction for all or parts of Warner Music, including Platinum Equity and Ron Burkle’s Yucaipa Companies, people close to the process have told the FT. Sony Music, BMG Music Publishing and Len Blavatnik’s Access Industries are also through. At least one initial offer has been made for the entire company, while others have targeted just the recorded music business or Warner/Chappell, the group’s music publishing arm. Analysts remain unconvinced that a private equity bid will be able to overcome a ‘strategic’ offer from the music industry, such as Sony or BMG.

Ivory Coast nationalisation plan rocks cocoa

Ivory Coast’s disputed President Laurent Gbagbo has announced he would nationalise the cocoa sector in a surprise move that threatens to drive the cocoa price sharply higher, the FT reports. A state radio announcement aid cocoa and coffee purchases and exports in Ivory Coast would now be “exclusively done by the state”, replacing trading houses. Alassane Ouattara, Mr Gbagbo’s rival who is regarded by the international community as having won elections last November, has meanwhile extended a ban on cocoa exports for a second month. The stalemate will go on so long as Mr Gbagbo has the military’s support, says Bloomberg, with a key May crop of cocoa in doubt. Ivory Coast is the world’s largest cocoa exporter.

Kuwait confirms Opec output talks

Opec is indeed in consultations about increasing oil production in response to disrupted supplies in Libya, according to Kuwait’s oil minister on Tuesday, Reuters reports.  The FT reported a behind-the-scenes move by Kuwait, the United Arab Emirates and Nigeria towards increasing production in early April. While Saudi Arabia has responded quickly by pumping more oil and some members are now quietly following, others including Iran and Algeria oppose an increase and see no shortage of in the market. Industry officials said that Kuwait, the UAE and Nigeria were to ramp up their production by as much as 300,000 barrels a day in coming weeks. Riyadh has raised its output by about 700,000 b/d.

Black Swan fatigue

We bring up this dangerous malady, because Citi FX strategist Steven Englander does in his latest piece. But first, take a glance at these charts. The first is the S&P 500 — which is almost at the second anniversary of rebounding from its cycle low:

 Read more