Posts from Wednesday Mar 9 2011

Libyan fighting pushes oil higher, hurts stocks

Riskier assets were struggling after reports that a pipeline had been hit in Libya pushed oil prices higher, reports the FT’s global market overview. The S&P 500 index rose 0.1 per cent, while gold and Treasury bonds recovered early losses, reflecting residual wariness. Industrial metals were seeing sharp falls. Brent was up 2.5 per cent to $115.87 a barrel, though the US-based Nymex product was down 0.6 per cent to $104.38, helping to damp the impact on stock prices. Meanwhile, an auction of Portuguese two-year notes did not go very well, with demand lower and yields jumping to almost 6 per cent. Lisbon’s 10-year notes are yielding a record 7.68 per cent, while contagion has taken the yield on Italian 10-years to 5 per cent for the first time since November 2008. At the same time, the US Treasury market was suggesting that it did not believe the threat from oil prices had ended. Strong demand at an auction of 10-year notes – the highest bid-to-cover ratio since October – was followed by a wave of buying as short-sellers covered their positions, pushing yields down by 8 basis points, to 3.46 per cent.

Prospect of China bank crisis dismissed

The chairman of Bank of China has dismissed suggestions that China could face its own banking crisis as a result of an unprecedented expansion of state-directed credit in the past two years, reports the FT. “Some analysis and estimates from outside say there could be a financial crisis in China in the next few years,” Xiao Gang, chairman of the country’s third-largest lender by market value, said on the sidelines of the annual National People’s Congress in Beijing. “But I think the chances of a big increase in bad loans in the banking sector are very small.”

Pimco cuts US Treasuries holdings to zero

The world’s biggest bond fund has cut its holdings of US government-related debt to zero for the first time since early 2008 in the latest sign of increasing investor expectations of rising interest rates, reports the FT. The move by the $237bn PimcoTotal Return fund follows warnings by its fund manager Bill Gross of rising bond yields as the US Federal Reserve nears the end of its massive bond buying programme, known as quantitative easing, or QE2.

Libya’s main oil terminal ablaze after raid

Libya’s main oil terminal was in flames on Wednesday night after Muammer Gaddafi’s airforce bombed the complex, in an escalation that pushed the cost of the benchmark Brent above $115 a barrel, reports the FT. The attack on the Es Sider terminal, in the country’s rebel-controlled eastern region, was the first against a critical oil facility since unrest in the North African nation erupted last month. Rebels retaliated with rockets as a fireball exploded from four of the oil tanks and the sky above the terminal filled with black smoke.

Borrowing costs soar for eurozone periphery

The cost of borrowing for Portugal, Ireland and Greece has hit euro-era highs, amid concern in the market that European leaders will fail to take concerted action to dispel fears of sovereign defaults, reports the FT. The long-term market interest rate for Spain has come close to setting a record and Italy’s borrowing cost rose above 5 per cent for the first time since November 2008. The moves came as Portugal was forced to pay a sharply higher premium in a debt auction on Wednesday, raising renewed fears that it will be forced to seek an international bail-out.

Asahi hits roadblock in Australia push

Asahi Breweries has suffered a blow to its attempt to take a bigger slice of Australia’s carbonated soft drinks market after the country’s competition regulator blocked the Japanese group’s proposed A$364m ($367m) purchase of unlisted P&N Beverages, reports the FT. Asahi is already Australia’s second-biggest soft drinks manufacturer by sales after agreeing to buy Schweppes Australia from the UK’s Cadbury for £550m in 2008.

Gome chairman Chen steps down

Chen Xiao, the chairman of Gome Electrical Appliances, has resigned in a sign that the drawn-out battle between senior management and the company’s imprisoned founder, Huang Guangyu, could be drawing to a close, reports the FT. The Huang family controls 30% of the shares in Gome, one of China’s biggest retailers, and has been locked in a bitter contest over the company with management and Bain Capital, which took a 10% stake in 2009.

Toyota sets cautious targets in shake-up

Akio Toyoda, president of Toyota Motor, has unveiled plans to streamline the Japanese carmaker’s management and pursue conservative long-term profit goals as part of an effort to rebuild the company, reports the FT. Mr Toyoda, grandson of the group’s founder, said on Wednesday that Toyota would seek to earn an operating profit margin of 5 per cent – higher than the current level of 2.9 per cent but well below its pre-financial crisis peak. “It may be boring, but we should be a company that can earn profits, pay taxes and guarantee jobs under even difficult conditions.”

Brics becoming billionaire factory

The number of billionaires in leading emerging economies has surpassed the number of those in Europe for the first time and is quickly closing in on the US, according to new figures from Forbes, reports the FT.  The US still has the world’s most billionaires with 413 individuals with a total net worth of $1,500bn. At the beginning of this year, the Brics countries – Brazil, Russia, India and China – had 301 billionaires, 108 more than in the previous year, and one more than Europe.

Further further reading

For the commute home, and to help you qualify the recovery,

– David Wessel spots three storm clouds in the US recovery: oil, rich-country government policy, and emerging market slowdown. Read more

US Markets Live — tell us what you want to know… [updated]

Update (9:16pm GMT): Yup, that’s right, we’ve just splashed out on a new logo. Hope you like it. (H/T @tombrammarRead more

More proof the Chinese have been using copper as collateral

The disconnect between oil prices and copper prices is gaining increasing attention.

Naturally, the curiosity boils down to the fact that while oil prices are rising, copper prices are doing anything but: Read more

The where and what of regulatory arbitrage

Get the little flags at the ready: on Tuesday JP Morgan Cazenove published the final installment of its trio of reports on regulatory arbitrage.

It is stirring patriotic sentiment up on Capitol Hill, with some lawmakers worried that the US’s comparative advantage will be blunted, according to PoliticoRead more

Two years of sovereign debt solitude

We’re not inclined to call Portugal’s €1bn auction of 2013 bonds on Wednesday a failure exactly. At least the bonds were actually sold.

Even if at a yield of 5.99 per cent, versus the last auction price of around 4 per cent. Read more

A big Treasury short

US Treasury repo rates are back in negative territory.

According to Reuters, both 10-year and 30-year bonds are currently trading “special” in the general collateral market. Read more

Gross dumps his US government debt

Holdings of US Treasuries at the world’s largest bond fund — Pimco’s Total Return — have fallen to zero. Bill Gross really isn’t hanging around for the waitress’s reaction.

 Read more

Dual track no more

Nestled in the 27-page mortgage settlement term-sheet which surfaced earlier this week, is a clause that could have big consequences for mortgage investors.

It looks like this: Read more

A Greek diaspora bond odyssey

Filed to the SEC on Tuesday — Greece’s shelf registration for the diaspora bonds aimed at widening the Hellenic Republic’s investor base. All the way to the US.

A key point — regarding jurisdiction: Read more

Synthetic junk

Here’s an interesting Wednesday story from the Financial Times’ Aline van Duyn.

It concerns growing demand for a synthetic product — this time linked to junk, or high-yield, bonds. The market size of the product (which is tranched and linked to Markit’s CDX index) is still relatively small. But demand for actual junk bonds has been strong recently — with average junk prices even hitting par value during 2010. Read more

‘Robert Tchenguiz knows a good deal when he sees one’

From page 75 of the Kaupthing annual report, 2006:

Robert Tchenguiz knows a good deal when he sees one. In fact, it is precisely this business acumen that enabled him to grow an enterprise, which began with rental housing for students and tourists, into one of the most prosperous property groups in the UK. Robert Tchenquiz’s relationship with Kaupthing Bank is characteristic of his eye for sustainable performance. The Investment Banking division has repeatedly demonstrated why Robert Tchenguiz calls on Kaupthing Bank, and it is this reliability and capability to deliver on projects that keeps him coming back time and again. Robert Tchenguiz is known among entrepreneurs for his financial savvy, unconventional funding strategies, and ability to realise a good opportunity when it presents itself. Interestingly enough, these are exactly the same qualities that make Kaupthing Bank his investment bank of choice.

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Iceland vs Greece

The comparison between Iceland’s banking crisis and Europe’s debt version has been made before — most notably by Paul Krugman, and regarding Ireland specifically.

Iceland, the theory goes, declared a swift bankruptcy and devalued the krona. Ireland, locked into the eurozone union, has been unable to do the same. Read more

A call for a global independent central bank

Lorenzo Bini Smaghi, European Central Bank executive board member, has made a beautifully coherent argument for the need for a global independent central bank.

In a speech made on March 4 (via the Bank of International Settlements), he points out: Read more

Markets Live transcript 9 Mar 2011

Live markets commentary from 

Hedge funds attack European debt swap curbs

Hedge fund managers have strongly criticised new proposals approved by European Union lawmakers to ban the use of credit default swaps on “uncovered” sovereign debt, warning that the move could do significant damage to Europe’s troubled government bond markets, the FT reports. “We’re agile. If the shorting of sovereign risk is outlawed, funds will move on to the next best thing – short European banks,” said one fund manager. FT Alphaville has got its hands on a copy of an official EU report that found naked CDS actually helped sovereign liquidity, and was later suppressed.

More on Japan’s odd metamorphosis…

No, it wasn’t Wednesday’s earthquake, even though it prompted the normally staid fixed income commentators at RBS Securities Japan to end their daily Japanese government bond market note thus:

Northern Japan was hit by a 7.3-magnitude earthquake at lunch time. We were likely on a ship as the building where our office is located in central Tokyo (around 300-kilometer away from the earthquake center) shook more than 5 minutes!

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Icahn returns investors’ cash

Carl Icahn, the activist shareholder, has decided to return money to outside investors, citing an unwillingness to be responsible to limited partners ‘through another possible market crisis,’ reports the FT. A letter to investors also cited unrest in the Middle East. Icahn joins a growing list of high-profile managers choosing to return capital to investors. Chris Shumway, founder of Shumway Capital Partners, announced last month that he would return cash to his $8bn hedge fund’s clients, after investors sought redemptions over a decision to step back from his role as chief investment officer. Oaktree Capital and Level Global have also returned money in recent weeks.

Sprint in talks to merge with T-Mobile USA

Deutsche Telekom has held talks with Sprint Nextel about merging their underperforming US mobile phone businesses, the FT reports. Discussions have considered the possibility of Deutsche Telekom and Sprint each holding a 50 per cent stake in a combined US entity, said a person familiar with the situation. No decisions have been made. A merger would be tricky because of different wireless technologies in the two networks, and a less ambitious choice would be for Deutsche Telekom to buy more spectrum for T-Mobile USA. Merger talks are also hung up on Sprint’s condition that it owns more than half of the combined business and decides who runs it, says the WSJ.

Europe’s stress tests failing even before start

Europe’s second round of stress tests is a Goldilocks exercise, notes FT Alphaville: trying to convince investors of the tests’ rigour, but not scaring them with bank failures, either. The test is accordingly now being eaten by bears. Regulators will rely on each country’s individual definition of bank capital, the WSJ reports. That’s despite similar sops to national regulators failing to register Irish banks’ collapsing balance sheets in 2010’s stress test, says FT Alphaville. Furthermore, simulated haircuts for Greek government debt are lower for 2011’s test than even last year’s very low estimates. The authorities may yet have to go back to the drawing board.

What’s going on at the Tchenguiz bros’ offices? [updated]

Curzon Street in London’s Mayfair, Wednesday morning:

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Gaddafi ‘bombs the hell’ out of key city

Gaddafi loyalists have “bombed the hell out of Zawiya”, a rebel-held city close to Libya’s capital, according to the opposition, says the FT. Residents fleeing the city said troops were roaming the streets and tearing the city down to ashes. Gaddafi himself has made a defiant speech warning the west not to intervene in the conflict, Al Jazeera reports. There were no signs of a willingness to compromise or open talks with the rebels, the BBC says. Rebels continue to hold on to Ras Lanuf, an important oil terminal, despite heavy regime attacks. The opposition is nevertheless struggling to coalesce into a united front, reports the NYT.