Posts from Tuesday Mar 15 2011

Moody’s downgrades Portugal to A3 from A1

So concludes the credit rating agency’s latest review of the eurozone periphery, which began in December.

From the Moody’s release on Tuesday evening (extracts): Read more

Further further reading

For the (rather late) commute home,

– If only the Tea Party went downtown. Read more

Meanwhile, in Bahrain…

Call it the first response to the Abdullah-Brehznev doctrine.

The FT reports Tuesday that Bahrain has declared a state of emergency and asked the military to reassert its control over the capital, Manama, as clashes between Shia and Sunni groups spread across the country. Read more

Nasdaq sounds out NYSE bid

Nasdaq is edging closer to a possible hostile offer for the New York Stock Exchange and has been sounding out bankers about a financing package for a bid, a FT reports. People familiar with the situation said that no decision had yet been made and Nasdaq could shy away from what would be an ambitious attempt by the smaller exchange to break up its rival’s agreed deal with Deutsche Börse. But Nasdaq was working with its advisers, led by Bank of America and Evercore, and could shortly agree funding for a counter-offer to the deal announced last month, these people added.

Libya intervention hopes fade

The UK and France have lost all hope of launching military action to halt Muammer Gaddafi’s attack on rebels in Libya, according to  European officials who acknowledge the regime may be in a position to crush the uprising within weeks, the FT reports. As forces loyal to Gaddafi attacked the rebel-held Ajdabiya, a strategic town in eastern Libya, Britain and France continued to press for a new UN Security Council resolution to maintain pressure on the regime.

Big banks investigated over Libor

Regulators in the US, Japan and UK are investigating whether some of the biggest banks conspired to “manipulate” the benchmark interest rate used to calculate the cost of billions of dollars of debt, the FT reports. The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor – the estimated cost of borrowing for banks between each other.

Speculation on further central bank boost

The Bank of Japan is often accused of doing too little too late, but that was not the case on Monday when most analysts applauded its decision to make Y21,800bn available to financial institutions to ensure there is plenty of cash in the system as the country recovers from its worst natural disaster, the FT reports. The move also eased upward pressure on the yen, after the earthquake and tsunami generated a large dose of risk aversion.

US Fed says recovery on ‘firmer footing’

Federal Reserve officials said the US economic recovery was on a “firmer footing”, upgrading their outlook on the back of a gradual improvement in the labour market but pledging to press on with monetary stimulus as planned, the FT reports. The Federal Open Market Committee, which met for the second time this year on Tuesday, made a reference to the jump in oil prices in recent weeks, but said the upward pressure on inflation was expected to be “transitory”.

Bahrain declares state of emergency

Bahrain has declared a state of emergency and asked the military to reassert its control over the capital, Manama, as clashes between Shia and Sunni groups spread across the country, the FT reports. Bahrain has been gripped by deepening political unrest and widespread protests for over a month, with the Shia majority and some Sunni liberals calling for democracy and an end to discrimination. The crisis escalated this week after protesters over-ran the police on Sunday and took effective control of large swaths of the capital, spurring the arrival of more than 1,000 Saudi Arabian troops and light armour on Monday.

Markets take fright at nuclear crisis

Equity markets across the world fell sharply on Tuesday as investors took fright at the threat of nuclear meltdown in Japan and the biggest two-day sell-off in the country’s Nikkei index for 24 years, reports the FT. Investors showed their anxiety by indiscriminately selling riskier assets and moving into perceived havens such as US and German government debt. Japanese equities fell 10.6 per cent, their third-worst drop in history, while German shares dropped more than 5 per cent at one stage. “The stock market has been remarkably resilient over the past two years. So have the US and global economies … and the US consumer. However, all of them may be about to face their greatest challenge as Japan’s disaster may be turning into an unmitigated catastrophe,” said Ed Yardeni, founder of Yardeni Research. Atsushi Saito, president of the Tokyo Stock Exchange, appealed for calm after the panicked selling of Japanese shares. “I would appreciate it if all investors and trading participants would respond in a calm and orderly manner,” he said

Meanwhile, in Washington…

We covered the economics of a government shutdown earlier this month, when we found ourselves awaiting passage of another continuing resolution to fund the government a few more weeks, buying time for negotiators on both sides to hammer out a deal for the Fiscal Year 2011 budget.

Two weeks have passed and we now find ourselves… awaiting passage of another continuing resolution to fund the government a few more weeks, buying time for negotiators on both sides to hammer out a deal for the Fiscal Year 2011 budget. Read more

Betting on a Nikkei rebound

Well, tomorrow’s Nikkei surely can’t be any worse than today’s.

As FT Alphaville noted on Friday, the iShares MSCI Japan Index Fund (EWJ) is proving an interesting barometer for investor sentiment about where the Nikkei is heading the next day. Read more

FOMC statement – 15 March 2011

Full release below and here are a few things to note:

— The FOMC reiterated that the fed funds rate would remain low for “an extended period”. Read more

Jefferies: limited risk of TSY selloff by insurance companies

The 1995 Kobe earthquake took place on January 17, but it wasn’t until September of that year that Japanese investors became net sellers of US treasuries:

 Read more

Simply amazing commodity collateral shenanigans in China

Last week FT Alphaville drew attention to a seemingly ingenious financing strategy being implemented by some Chinese commodity firms — the use of copper inventories as collateral for loans.

We only had a few sketchy details at the time, but to our understanding the arrangement’s main purpose was serving as an elaborate inflation hedge. Read more

Nuclear meltdowns and the S&P 500

Via Birinyi Associates:

 Read more

A quick US morning market round-up

This isn’t a flight to quality, it’s a flight from disaster.”  [Via Bloomberg]

That, from Colin Embree from Bank of Nova Scotia Asia, sums up movements on Tuesday morning. Read more

Funding Europe’s bailouts, a callable conundrum

OK — here’s one last thing we don’t get about the weekend’s EU summit, which rolled out several fixes for the euro crisis.

We now have some first details on how eurozone member states will finance the European Stabilisation Mechanism, which begins operating in 2013. The details include the ESM’s full lending capacity (€500bn) and somewhat less clearly, proposals on how to secure this capacity. Read more

Libor fixings! UBS subpoenaed for interbank rate

Libor — the interbank rate set by, erm, the banks and curated by the British Bankers’ Association (BBA) — has not been without its critics in recent years.

And the creation of the rate has been also not been without scrutiny. The BBA started a review into possible manipulation of the rate back in early 2008 — even before Libor skyrocketed to its financial crisis highs. We can’t remember what the outcome was, though the review centred on banks ‘providing misleading quotes.’ Read more

Isda says ‘no’ to Irish credit event

So that was a quick deliberation on the anonymously-submitted question to Isda, asking whether sovereign CDS should be triggered following Ireland’s bailout:

Supplying Japan’s fuel needs, inventory edition

Media are starting to report on fuel shortages affecting most of the earthquake and tsunami-torn area in Japan, including the capital Tokyo.

With the area having suffered major logistic and transport infrastructure collapse, re-supplying it with much-needed fuel could prove much more difficult than anticipated. Especially given one of the most direct resupply options — external imports — could be hindered by huge damage to the region’s ports. Read more

Japan’s banks already facing stock losses, CreditSights says

In addition to being big Japanese government-bond buyers, Japan’s megabanks are also (wait for it) heavily invested in equities. Though not as much as they used to be.

There’s a slightly ironic backstory here that has to do with Japan’s very long banking crisis. During the bubble years, Japanese banks rushed to invest in the country’s booming stock market — often booking any share price gains as ‘unrealised gains’ or ‘hidden reserves’ that fed into their regulatory capital. Once the market crashed, the banks posted huge equity losses. The financials subsequently cut down on their share holdings (relatively) and Japan’s regulators reacted with some new rules. Read more

Rio Tinto, irony du jour

From the outlook section of Rio Tinto’s freshly released Annual report on Tuesday:

Global demand for uranium is expected to remain strong due to a desire for base load electricity generation with reduced greenhouse gases, as well as the need for energy security, diversity of supply and strong growth plans in China.

 Read more

YoYo-ing yen

Some price action in the yen/dollar exchange rate on Tuesday:

 Read more

Markets Live transcript 15 Mar 2011

Live markets commentary from 

Homo Britannicus Inflatus [updated]

Desperately chugging the champagne as the lights go out — or, 2011’s new and improved UK inflation basket:

Sparkling wines are also being added due to their increased consumption, showing that despite difficult economic times, people still want to enjoy themselves

 Read more

More Protium indigestion at Barclays

Protium (Pantoprazole) is used to treat or prevent indigestion — A feeling of discomfort or pain within the lower chest or abdomen caused by gastric acid irritation within the upper part of the gut namely the oesophagus, stomach or duodenum. For other causes of abdominal pain see indigestion.

Protium (Protium Finance LP) is used to cure mark-to-market accounting — A feeling of discomfort or pain within the balance sheet caused by the residual exposure to toxic assets or monolines. For other causes of toxic asset pain see indigestion of Protium.

 Read more

Another market overreaction?

It’s probably not the time to say this, given Tuesday’s sharp sell-off, but are some financial markets overreacting to the Japanese earthquake?

From Nomura: Read more

Euro nuclear, paralysed and paralysing [updated]

A nasty stasis in shares in E.ON, RWE and EDF at pixel time:

 Read more

China’s Japan syndrome

For those wondering about the wider implications of Japan’s earthquake crisis, don’t go too far. Consider how it will impact China — the country’s top trading partner.

BNP Paribas took a closer look at the effects of ruptured trade flows between the two countries on Monday. Their findings suggest that this — if anything — could be the Achilles heel in the recovery that everyone is looking for, since — as we all know — the world economy is so dependent on Chinese growth for staving off recession. Read more