Posts from Wednesday Mar 16 2011

Tin hats at the ready

The futures market is pointing toward another gut-wrenching sell off in Tokyo on Thursday.

Price via IG Index. Read more

Wall St turns negative for year as Yen reaches record high against the dollar

Wall Street closed down 2 per cent and pushed the S&P 500 into negative territory for the year, reports the FT’s global market overview. The Japanese yen hit a record postwar high against the dollar as currency traders bet on repatriation flows, FT Alphaville reports. Risk aversion flared after the European Union’s energy chief said the Japan nuclear reactor situation was “out of control”, triggering renewed fears over the world’s third-biggest economy. Traders quickly realised that the statement by Guenther Oettinger was not predicated on any new information relating to the conditions at the stricken Fukushima plant. That helped send European stocks down for the sixth straight day, and as the selling accelerated in New York, the S&P’s Vix volatility index jumped 19 per cent to 29, its highest since July. Oil lost a chunk of its gains, while key US Treasury yields fell to levels last seen in December. The Swiss franc had risen 1 per cent versus the dollar and was up nearly 2 per cent against the euro as traders again scrambled for perceived havens.

“The yen has gone berserk”

… as overheard by the Bloomberg terminal in the FT NY newsroom.

Back to 77.66 at pixel time after hitting 77.33 (a record postwar high against the dollar). Read more

Markets Live – St Patrick’s Day/Betfair special (updated)

Markets Live is off the races!

On Thursday, FT Alphaville’s daily markets chat will come live from the Cheltenham festival — the most prestigious event in jump racing’s calendar. Read more

Further further reading

For the commute home, otherwise known as your flight to quality,

– A special report from Reuters on the US budget delaysRead more

Power cuts cause havoc in western Japan

Swathes of western Japan continued to suffer power cuts and disruption to supplies and services on Wednesday, jolting confidence in a country where efficiency and material abundance are taken for granted, reports the FT. Japan’s worst earthquake has put power plants, oil refineries, roads and production facilities out of use, raising concerns that the country’s economy could suffer prolonged disruption. Of particular concern are the power cuts and damage to infrastructure affecting the entire Kanto region, which encompasses Tokyo and six other prefectures and generates about 37 per cent of Japan’s gross domestic activity.

India to charge suspects in telecoms case

Charges are to be brought against India’s former telecoms minister and two companies suspected of corruption by the end of March, the country’s investigating authorities have told the Supreme Court, reports the FT. The Central Bureau of Investigation said on Wednesday that it was preparing charges against Andimuthu Raja, the former minister, for his alleged role in a corruption scandal that an official audit claimed had lost the national exchequer an estimated $39bn in revenues in the auction.

China suspends approval of nuclear plants

Beijing announced on Wednesday that it had suspended approval for nuclear power plants across the country, putting the brakes on a development programme that accounts for almost 40 per cent of the world’s planned reactors, reports the FT. The decision, both unexpected and uncharacteristic of a government that usually races ahead with ambitious infrastructure projects, was taken in response to the Japanese nuclear crisis triggered by last week’s devastating earthquake and tsunami. The confirmed death toll from the twin natural disasters rose to 4,340 on Wednesday.

Toyota extends car plant shutdown

Toyota has extended the suspension of its Japanese vehicle production until at least March 22, but said that it would resume producing spare parts for its cars beginning on Thursday, reports the FT. Rival Nissan said on Tuesday that its two plants on the southern island of Kyushu would resume production as Japan’s carmakers continued to regroup and take stock of their supply chain after last week’s earthquake and tsunami.

Bahrain’s army calls partial curfew in capital

Bahrain’s army on Wednesday called a curfew in a section of the capital and banned gatherings and protests anywhere in the kingdom until the situation was “back to normal”, reports the FT. The communiqué said the curfew would run between 4pm and 4am from Wednesday, covering the island’s highway between Pearl roundabout and a bridge towards the airport. Later, gunfire erupted in the Shia stronghold of Sitra, where a witness said security forces, who had surrounded the village, were opening fire with live ammunition at protesters, who had fled into buildings.

Fresh nuclear concerns hit Japan

Helicopter pilots attempting to dump water into the overheated fuel-storage tank of a Japanese nuclear reactor were forced to abandon the emergency manoeuvre because of high levels of radiation over the plant – the latest setback in Japan’s battle to avert an atomic disaster, reports the FT. Earlier on Wednesday Tokyo Electric Power ordered its skeleton crew of 50 remaining workers to move away temporarily from reactors inside the plant after radiation levels jumped. Plumes of white vapour were seen pouring from what authorities identified as the station’s No 3 reactor. The workers returned after about 45 minutes. Tepco said late on Wednesday that it had almost completed a new power line that could restore electricity to the complex and help solve the crisis that has threatened a meltdown.

Bahrain: Saudis in, violence up and capital out

Further crackdowns took place in Bahrain on Wednesday with the army calling a curfew in parts of Manama and banning gatherings until the situation was “back to normal”, reports the FT on Wednesday. Other Gulf monarchies have, as you know, provided military, financial and political support to the ruling Khalifa family.

The violence has picked up; Al-Jazeera reported at least six deaths on the island on Wednesday and the FT included reports of shootings in Sitra, amongst other places: Read more

Günther Oettinger gets lost in translation

Presented without comment.

Dear all, Read more

International yen rescue [updated]

Updated (10:04 GMT): Spotted sometime around 10pm GMT, the Yen reaching a record high against the dollar: ¥79.30.

The all-time low of ¥79.78 (set in 1995) is now within spitting distance. Read more

The final COP Tarp report

Because estimates for the ultimate cost of Tarp have been declining continuously for some time now, it’s easy to forget that the CBO once expected the program to cost taxpayers a staggering $356bn.

Now the CBO pegs the final cost at just (erm, “just”) $25bn, slightly less than the $28bn loss estimated in the President’s 2012 fiscal year budget. But the price tag has always been only one part of the Tarp story. Read more

Sovereign wealth, a Gulf ‘supply chain’ risk

From our field research, it would appear that the Gulf States assumed that breaking with the past by adopting the SWF institution was preferable to remaking their inherited institutions. By this logic, the SWF is symbolic of a commitment among the Gulf states to adopt the instruments of advanced financial management to facilitate the modernisation of what were otherwise semi-feudal states. The SWF is more than just a tool for managing resource wealth; it is a step towards modernity and economic development…

According to official literature and formal communications, the process of SWF adoption appears to be going extremely well. On the surface, these funds are operating like any other globally-oriented financial institution… Upon deeper examination, interviews with current and former financial market-oriented employees at Gulf States’ SWFs have identified a variety of problems with these official characterizations.

 Read more

Japanese repatriation pressure points

Useful table, this.

It’s from Citigroup and shows the size of foreign investments by Japanese investment trusts — i.e. retail investors. And it’s a bit more detailed than the one we had on Friday: Read more

A fresh (IMF) sovereign contingent liability

Here’s a story that seems to have sneaked past undetected last Friday (albeit understandably).

It’s the final ratification of the IMF’s New Borrowing Arrangements (NAB) deal, complete with fresh details of exactly who is participating and on what terms. Read more

Radioactive contamination – the uninsurable

Here’s a useful breakdown of who pays for what after Japan’s massive earthquake:

Which might help explain (some) of why Japanese government bonds are sliding on Wednesday. Japanese insurers could well be selling some of their bonds to help cover losses in their stock portfolios, just as the outlook for Japan’s finances might worsen. Read more

Uranium prices, before and after Japan

We know uranium stocks were hit badly by events at Fukushima, but here’s the effect on actual uranium ore prices, as quoted weekly by the Ux Consulting group:

 Read more

That tricky ESM seniority – still tricky

So the International Swaps and Derivatives Assocation had a swift reply to the question of whether a restructuring credit event occurred after Ireland’s bailout.

But don’t expect questions over credit rankings in eurozone bailout policies to go away too soon. Some details of the European Stability Mechanism ESM were finalised last weekend, and so far this particular facility ranks decidedly senior to bondholders. Read more

Markets Live transcript 16 Mar 2011

Live markets commentary from 

Portugal: finally about the banks

Portugal’s fiscal plight is dire: but unlike in Spain or Ireland, the country’s banks are not major burdens on the sovereign. Where was the big 2000s Portuguese housing bubble, after all. Right?

No. Read more

Goldman sees no earthquake impact on Japan’s GDP

Proving that not even a natural catastrophe and a potential nuclear meltdown can dent Goldman’s unerring global financial optimism — Goldman Sachs has published a Q&A concerning the potential economic effects of Friday’s quake and tsunamis.

From economists Chiwoong Lee and Naohiko Baba, with our highlights: Read more

Towards the limits of covered bond bank funding…

Covered bonds + bank funding ≠ the sexiest of financial topics.

But stick around — because Deutsche Bank’s Matt Spick has something interesting to say. He’s adding to the running for covereds meme — or the idea that some European banks have been forced into issuing loads of covered bonds for funding: Read more

Calpers’ report critical of asset managers

A scathing report prepared for the California Public Employees’ Retirement System has found that asset managers paid about $180m over the past decade to win business at the largest US public pension fund, the FT reports. As state and federal investigations into the use of so-called “placement agents” continue, the conclusions of the 17-month review recommended policy changes at the pension fund and point to further action at Calpers and other funds. Bloomberg adds that Calpers said it will take steps to prevent investment decisions from being corrupted by middlemen.

Moody’s downgrades Portugal to A3

Moody’s has cut Portugal’s credit rating by two notches citing “subdued growth prospects” and high government borrowing costs, the FT says. The agency’s decision came as a further blow to the Lisbon government as it struggles to persuade financial markets that it has no need of an international bail-out. FT Alphaville has a copy of the full statement, which concludes Moody’s latest review of the eurozone periphery.

Food, metals fall foul of reactor worries

The price of commodities from wheat to palladium suffered a precipitous plunge on Tuesday as traders hastily liquidated positions amid the escalating nuclear crisis in Japan, the FT reports. The benchmark measure of raw materials prices, – the Reuters-Jefferies CRB index, tumbled 2.8 per cent – the biggest one-day fall in four months. The steepest falls were in food commodities, of which Japan is the world’s biggest importer, and palladium, a precious metal whose main use is in car manufacturing.

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 says. The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor — looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said. FT Alphaville adds that the probe came to light on Tuesday after UBS revealed in its annual report that it had received subpoenas relating to the investigation.

Fed says US recovery on ‘firmer footing’

S&P 500 futures suggest US stocks will open up 0.1 per cent after Federal officials said the US economic recovery was on a “firmer footing”, but pledged to press on with monetary stimulus as planned, reports the FT. The FOMC met on Tuesday amid heightened concerns that turmoil in the Middle East and the earthquake in Japan could threaten the reviving US economy. The FOMC statement is available on FT Alphaville.