Posts from Monday Mar 14 2011

Further further reading

For the commute home,

– A collection of economics papers on monetary policy at the zero lower boundRead more

Stocks dip as traders assess Japan crisis

Global stocks are under pressure after shares in Tokyo plunged 6 per cent, while gold and Japanese government bonds jumped as the market coldly assessed the human and financial devastation wreaked by the earthquake, tsunami and nuclear crisis in the world’s third-largest economy, reports the FT’s global market overview. The FTSE All-World index is down 0.7 per cent, with many Asian bourses in positive territory. The S&P 500 on Wall Street is down 0.7 per cent, dipping below 1,300. There is little evidence of heavy flows into perceived currency havens, however. The Swiss franc is firmer, but with a gain of 0.5 per cent versus the euro, not dramatically so. The US dollar is weaker. Uranium producers lost ground over fears that a nuclear meltdown in Japan could reduce demand for nuclear energy worldwide. The yen has added to the gains it recorded on Friday when traders speculated that the Japanese unit would benefit from the repatriation of funds. It is up 0.2 per cent Y81.68 versus the dollar, compared with last week’s close of Y81.89. Benchmark core Treasuries are stronger, with the US 10-year yield down 6 basis points at 3.35 per cent. US-based Nymex crude is up, also well off its lows. Having dropped to $98.47 a barrel, it is now up 0.4 per cent to $101.52 on reports that Saudi Arabian military vehicles are moving to support the authorities in Bahrain. Brent crude is still down slightly, by 0.2 per cent, at $113.64.

Nippon Life to take stake in Reliance unit

Nippon Life Insurance, Japan’s biggest life assurer by assets, has agreed to buy a 26 per cent stake in India’s Reliance Life Insurance for $680m, the largest foreign direct investment in the country’s insurance industry, reports the FT. Monday’s deal, which values the Indian insurer at Rs115bn ($2.6bn), was welcomed by investors. Shares in Reliance Capital, the financial services group that controls Reliance Life, rose 9.72 per cent in Mumbai trading.

Rising Indian inflation confounds forecasts

India’s headline inflation rose in February, increasing the likelihood of the country’s central bank raising lending rates later this week and threatening to wreak havoc with optimistic government forecasts, reports the FT. Figures released on Monday showed that the wholesale price index had edged up to a year-on-year rate of 8.31 per cent last month compared with 8.23 per cent in January. The data overturned many forecasts by economists who had expected inflation to fall last month.

Wen rejects Mideast comparison

China’s premier rejected any comparison between his country and the troubled autocracies in the Middle East and north Africa, while outlining steps Beijing is taking to reduce the potential for social unrest and dissent at home, reports the FT. In his annual press conference on Monday, Wen Jiabao said his government has paid close attention to the political upheaval in “western Asia and north Africa” but any attempt to draw an analogy between events there and the situation in China was “not correct”. Mr Wen also stressed the importance of slowing rising prices, fighting official corruption and narrowing the growing wealth gap – all potentially destabilising issues that have been key themes at this year’s annual parliamentary session, which ended on Monday morning.

BoJ releases $265bn to calm markets

The Bank of Japan on Monday made Y21,800bn ($265bn) available to financial institutions and doubled its asset-buying programme to Y10,000bn in a bid to stabilise markets following the country’s worst ever earthquake disaster, reports the FT. In its largest ever one-day liquidity operation to calm markets, Japan’s central bank said it would make Y15,000bn available immediately and a further Y6,800bn over the next two days in order to deal with an expected rise in demand for funds.

Berkshire Hathaway in $9bn Lubrizol deal

Warren Buffett, the billionaire investor behind Berkshire Hathaway, has made good on his pledge to seek out larger deals, agreeing to buy Lubrizol, the speciality chemicals company, for $9bn in cash, reports the FT. Just weeks after Mr Buffett told shareholders in Berkshire Hathaway that his “elephant gun” was ready for big acquisitions, Berkshire said it would pay $135 a share for Lubrizol, a 28 per cent premium to the stock’s close last week and higher than it has ever traded. That values Lubrizol at $9.7bn, including net debt.

Saudi soldiers enter Bahrain

More than 1,000 Saudi troops rushed to the rescue of Bahrain’s royal family on Monday as neighbouring Gulf states backed the Sunni rulers’ attempts to confront a popular uprising popular uprising by a mainly Shia opposition, reports the FT. As the Saudi troops crossed into Manama, the capital of Bahrain, the United Arab Emirates said it had also sent 500 police officers to help quell unrest in the tiny kingdom of less than 600,000 people. Bloomberg adds that this contingent is part of the Gulf Co-operation Council’s six country military coalition, the Joint Peninsula Shield. The Manama regime appealed on Sunday for help from its partners in the Gulf Co-operation Council, the regional grouping. The Saudi-led move is against US wishes, according to the Wall Street Journal.

Rescue workers struggle to reach almost 500,000

Japanese authorities continued to struggle to respond to the aftermath of Friday’s earthquake and tsunami as thousands remained missing and nearly half a million survivors huddled in temporary shelters, reports the FT. Official figures put the death toll at 1,834 on Monday, although reports of bodies lying unclaimed, due to the difficulty of approaching large parts of the worst-hit areas in northern Japan, suggest this will rise considerably. The human toll and infrastructure damage wreaked by the disaster is likely to be the worst in Japan’s postwar history; far exceeding the 1995 Kobe earthquake, which devastated the city and much of the surrounding area.

Japan calls on global nuclear aid

Japan issued a call for international reinforcement in its battle to prevent a potential nuclear disaster amid signs that a third reactor had gone into partial meltdown on Monday at the Fukushima power plant crippled by last week’s devastating earthquake, reports the FT. As the death toll from Friday’s disaster mounted inexorably, engineers struggled to control reactors at Tokyo Electric Power’s Daiichi plant in Fukushima, north east of the capital, whose cooling systems were damaged by the 8.9 magnitude quake and subsequent tsunami.Early on Tuesday morning in Japan, Tepco said coolant water inside the reactor had fallen dangerously low for a second time in 24 hours on Monday night, leaving its fuel rods completely exposed and at risk of partial meltdown.

Rocky Balboa

FT Alphaville was all set to work through the early morning examining the release of allegedly damning documents relating to the actions of Bank of America Merrill Lynch or its subsidiaries in the ongoing struggle to provide settlements in the foreclosure crisis.

In the end, the midnight EST release of internal emails from November 2010 via the hacker group Anonymous by a former employee of Balboa Insurance proved far less interesting than some feared and others hoped. A BofA spokesperson on Monday said “we are confident that his extravagant assertions are untrue,” reports ReutersRead more

What Japan’s earthquake could mean for reinsurers – part two

A guest post in two parts by Paul J. Davies, the FT’s insurance correspondent. This is part two.

So, to the really interesting question, how long will any upswing last and what might it look like? Here’s a chart from Guy Carpenter, Marsh’s reinsurance arm, that shows the impact of previous events on global catastrophe reinsurance rates. It is indexed and based on 100 at 1990: Read more

What Japan’s earthquake could mean for reinsurers – part one

A guest post in two parts by Paul J. Davies, the FT’s insurance correspondent. This is part one.

There are two big questions for reinsurers following the Japan quake. Number one: will it put a floor under the weak pricing for catastrophe risk of recent years and even lead to sharp increases? Number two, if there is a market turn, how long will it last? Read more

The surprise party is over

A chart courtesy of JP Morgan Asset Management on Monday:

 Read more

Shorting Japan with ETFs

No prizes for guessing what triggered this halt on short-selling. From Reuters on Monday:

Several Japanese Exchange Traded Funds (ETFs) triggered the newly created short-sale restriction shortly after the market’s open on Monday.

 Read more

The need for an IOER-fed funds spread

Here’s an interesting view we caught sight of in Bank of America Merrill Lynch’s latest ‘US rates weekly’ note.

The Fed’s interest on excess reserve (IOER) policy — which currently pays out 25 bps in a bid to set a floor for money market rates —  may have opened up a risk-free arbitrage for banks which can borrow from Government-Sponsored Enterprises (GSEs) that do not qualify for the programme. Read more

A quick look at the US nuclear sector

With Japan’s nuclear crisis still uncertain, analysts on Monday began to tentatively assess the potential read across to sectors, companies and funds in the US.

Research reports from Citi and Credit Suisse both look at risks to the nuclear sector from fears of a seismic disaster in the US and from increased regulatory and/or public scrutiny. Read more

Weirdo bond-buying in Europe

Lest it be overshadowed — Europe’s bailout fund will finally be given an effective lending capacity of €440bn, judging by an EU summit decision. Long awaited, this…

Lest it be forgotten, however — the bond-buying feature they’ve also come up with for the EFSF and the ESM on the side. A little strange, this… Read more

The UK’s Japanese natgas exposure

As we reported earlier, liquefied natural gas (LNG) cargoes are being diverted to Japan to help it overcome its fuel shortages.

This, though, is having an impact on European natural gas prices — British national balancing point (NBP) prices in particular. Read more

Super-catastrophe and super-banking risk

We ♥ John Hempton.

So we thought we’d present the Australian hedge fund manager’s latest thoughts on the financial fallout (no pun intended) from Japan’s devestating earthquake: Read more

Japan’s ever more exposed nuclear plant

Fukushima Daiichi has now become the focus of Japan’s earthquake fallout.

So far authorities have been at pains to point out that the nuclear plant, owned by Tepco, will not be the next Chernobyl. The primary containment area of the reactor remained intact — even if the secondary containment was broken apart by Saturday’s explosion. Here’s a pic from CreditSights to give you an idea: Read more

How stress tests make Europe’s bank funding worse

Set aside those unrealistic macroeconomic assumptions in Europe’s stress tests.

Focus instead, on the complete lack of a sovereign bond ‘shock; in the 2010 version. And that’s despite the whole sovereign-bank loop thing, which has worried investors. Read more

Markets Live transcript 14 Mar 2011

Live markets commentary from 

Greek debt: restructured

Given questions over Irish sovereign credit events (for which there’s full background here, via Lorcan)…

…Did anyone notice this weekend’s Greek debt restructuring? Read more

Time to start watching the uranium-fossil spread

If energy markets were ever confused, it’s now.

On the one hand the Japanese earthquake immediately implies bearishness for crude oil on account of lower demand. On the other hand it implies a hike in demand for refined products. Read more

Japan’s megabank-bond tremors

This is not your typical Japanese government bond post.

After Friday’s almighty earthquake, Japanese government bond futures rallied (the cash market was closed immediately after the event), reportedly on safe haven demand. But there’s still plenty of JGB bearishness around too — with worries that new liquidity measures and the cost of rebuilding could eat into Japan’s finances. Read more

Lehman auditor may bear the brunt

Federal investigators have conceded that Lehman Brothers executives won’t likely face charges for an accounting tactic that obscured the Wall Street firm’s true financial condition, the Wall Street Journal reports. However Lehman’s auditor, Ernst & Young, has already been hauled into court. The company is fighting fraud charges filed in December by the New York attorney general for, among other things, allegedly failing to adequately follow up on a whistleblower’s claim that Lehman was misstating the value and size of its assets.

Another blast at Japanese nuclear plant

An explosion rocked Japan’s Fukushima Daiichi nuclear plant on Monday, hours after the US navy began moving ships away from the area as the emergency escalated at the earthquake-damaged power station north of Tokyo, the FT says. The blast, captured by television cameras, occurred at the plant’s No. 3 reactor building, according to Tokyo Electric Power, the operator. Tepco engineers have been struggling since Friday’s quake to cool the overheated cores of three reactors at the site. Meanwhile, Japan’s nuclear worries have sparked a worldwide debate about the use of the energy type.

Bank of Japan steps up support

The Bank of Japan poured a record amount of cash into the financial system and doubled the size of its asset-purchase plan to shield the economy from the effects of the nation’s strongest earthquake on record, Bloomberg says. The central bank pumped 15,000bn yen ($183bn) into money markets to assure financial stability amid a plunge in stocks and surge in credit risk. Governor Masaaki Shirakawa and his board also enlarged a program buying assets from government bonds to exchange-traded funds to 10,000bn yen. The BoJ chief told reporters cash injections will continue as needed.

Stocks dip as traders assess Japan crisis

Stocks in Tokyo plunged 6 per cent while gold and Japanese government bonds jumped as global markets coldly assessed the human and financial devastation wreaked by the earthquake, tsunami and nuclear crisis in the world’s third-largest economy, the FT reports in its rolling global markets overview. Credit Suisse estimates that the economic losses in the regions of Japan hit by the earthquake will be about $171bn-$183bn. But the action across the broader market on Monday suggests investors believe the tragedy will not derail the global recovery, with some commentators even suggesting the need for such large-scale rebuilding can provide an economic boost. See also FT Alphaville for a market reaction rundown.