Posts from Thursday Mar 17 2011

UN Libya NFZ resolution — with added asset freezes [updated]

Update (11:41pm, GMT): The UNSC vote passed with 10 nations in favour, plus five abstentions including Russia, China and Germany.

The UN Security Council is voting on a new resolution that would endorse a no-fly zone over Libya and the use of force to protect civilians from attacks by Muammer Gaddafi’s troops. Watch here.  Read more

Risk assets rally with all eyes on Japan

US and European stocks closed higher and commodity prices, led by oil, are firmer as traders navigate a more positive session, the FT reports. The lack of fresh news of substance regarding the Fukushima plant seems to have encouraged buyers of recently battered stocks – though investors remain wary of headline risks from Japan and the Middle East which are propelling oil sharply higher. The FTSE All-World equity index is up 1.3 per cent, bouncing off 3-month lows having slipped more than 5 per cent in 5 days, while funds have stopped flowing into havens such as Treasuries and the Swiss franc, suggesting a relative calm is being restored. The S&P 500 on Wall Street has closed up 1.3 per cent, following its 2 per cent drop to a 2011 low on Wednesday, with sentiment helped by a benign consumer inflation report and another fall in weekly initial jobless claims. The less frenetic tone to trading has allowed the Vix measure of equity volatility to drop 10 per cent from a nine-month high. Recently hard-hit “growth-focused” sectors, such as mining and technology, are seeing buying, helping push the FTSE Eurofirst 300 up 1.8 per cent. But the more optimistic mood belies the volatility seen overnight and during Asian trading. Whipsaw action in currency markets and extreme gyrations for stock gauges illustrated how investors are still finding it difficult to get a handle on the global implications of Japan’s earthquake and the nuclear crisis at the Fukushima power plant.

Foreign governments step up evacuations

Governments stepped up efforts to evacuate foreign nationals from Japan as attempts by authorities to cool radioactive fuel at an earthquake-hit nuclear power plant reached a critical point, the FT reports. The Japanese government deployed helicopters, water cannon and finally military fire trucks through the day in a desperate bid to cool radioactive fuel at the Fukushima nuclear power station, 240km north east of Tokyo, but said it was too early to say whether the operation had been successful in reducing the amount of radiation spewing from the site.

Tokyo’s plight raises prospect of G7 action

World finance ministers will hold a conference call on Thursday evening US time to discuss Japan, raising the possibility of large-scale co-ordinated currency intervention for the first time in a decade, the FT reports. France convened the call of finance ministers and central bankers from the Group of Seven industrialised nations to discuss the yen, prompting speculation about co-ordinated action to stabilise the Japanese currency.

Bahrain moves to quash opposition

Bahrain’s security forces have continued their attempts to break the back of the island kingdom’s mainly Shia opposition movement with a series of arrests and more attacks on Shia villages outside the capital, the FT reports. Clashes between protesters and security forces continued throughout Thursday, with the sounds of live gunfire and teargas canisters exploding ringing out of dilapidated Shia villages. Army checkpoints kept journalists at bay.

Workers battle to regain control at Fukushima

The situation at the Daiichi nuclear reactor in Fukushima continued to baffle experts and governments on Thursday, the FT reports. As emergency workers battled to regain control of the dangerously overheated nuclear complex, concern focused on overheating of the spent fuel rods.

UN action against Libya draws closer

France, Britain and the US on Thursday pressed the UN Security Council for a resolution to allow them to take military action aimed at containing Muammer Gaddafi’s assault on rebel forces in Libya, the FT reports. Alain Juppé, France’s foreign minister who flew to New York to attend the meeting, said it was urgent to act. “It’s a question of days, perhaps hours,” he told reporters.

Further further reading

For the commute home, good luck with the St Patrick’s Day crowds,

Highlights from the WaMu lawsuitRead more

Prepare to buy Japan… with both hands

So says SocGen’s resident value investor Dylan Grice, who doesn’t go in for saloon bar nuclear physics.

From his latest ‘Popular Delusions’ note: Read more

Tomorrow: US Markets Live, Reformed Broker edition

From Cardiff Garcia and John McDermott

We promise to stop sending out these reminders once we’ve beaten you into submission and broken your will to withstand our hectoring at some point, but as it’s still early… Read more

Beware the simple sectarian story in Bahrain

In Bahrain, 5-year CDS spreads are widening as the violent crackdown continues. Sheikh Ali Salman, the leader of Al-Wefaq (the largest of the protest groups), called for the withdrawal of the 1,000 or so Saudi Arabian security forces that arrived on Monday.

Chart from CMA. Read more

UN (finally) to vote on Libya no-fly zone

It’s taken a while, but Thursday afternoon should see a UN Security Council resolution (click here to read the draft) to endorse a no-fly zone over Libya and to “take all necessary measures to protect civilians and civilian objects in the Libyan Arab Jamahiriya”.

Thursday, March 17, 2011 14:13:32 PM UN council to vote on Libya no-fly zone at 2200 GMT – RTRS

 Read more

Mrs Watanabe fears a global market dislocation

Talk of Japanese investors repatriating their foreign exchange holdings continues.

And with headlines like “Japan’s Mrs. Watanabe says: ‘hold off on carry trade,” how could it not? Hold the thought, though — because Nomura is back to quash it. Read more

The headline-core CPI gap

Well, the warning signs were all there in this week’s earlier releases.

Import prices in February climbed much faster than expected, as did producer prices, and the Federal Reserve adjusted the language in its latest FOMC statement to reflect the “upward pressure” on inflation from higher commodities prices. Read more

PRDCs, the 30-year swap spread and Japan

FT Alphaville has already cautioned about the chaotic effects the Japanese crisis is having on variance swaps. But here’s another potential (derivatives) spillover.

It’s the effect on “Power Reverse Dual Currency Notes” also known as PRDCs. Read more

The situation in Tokyo, a view from the ground

The US embassy website said it all about the situation in Japan on Thursday:

The U.S. Embassy in Tokyo informs U.S. citizens in Japan who wish to depart that the Department of State is making arrangements to provide transportation to safehaven locations in Asia.

 Read more

The derivatives hour for the Japanese yen

Variance swaps strike again!

Did anyone notice that the curious timings in Wednesday yen currency-cross slumps? Societe Generale’s head of currency research, Kit Juckes, certainly did: Read more

Markets Live transcript 17 Mar 2011

Live markets commentary from 

Chinese fuel publicity stunts in action?

There are ongoing reports of fuel shortages across northern Japan.

However, as we pointed out previously, Japan’s inventory stock is actually pretty well positioned to deal with these sorts of shortages. Hence — if the problem lies anywhere — it is with the internal distribution network. Read more

The unintended consequences of the nuclear scare

This is just the start of it, and one tiny aspect of the rapidly widening impact of Japan’s worsening nuclear crisis.

Not only did the failed attempts by Tepco, operator of Japan’s cripplied Fukushima nuclear power plants, to cool down over-heating fuel rods spark a selloff in global stock markets. Investor fears of the widening impact of a potential disaster  at the plants is hitting demand for new equity. Read more

Global industries consider supply chains

Supply chain specialists at companies around the world are struggling to assess the extent of the disruption to their manufacturing capability amid chaos in Japan following last Friday’s earthquake, the FT says. While few large businesses are admitting to any serious problems, many are examining contingency plans that could help to keep their factories around the world stocked with parts in the event that supply chains become badly affected in the next few weeks. The WSJ says insurers could be on the hook for some of the lost profits at manufacturers whose supply chains are disrupted.

European stocks rally but all eyes on Japan

European bourses are higher and commodity prices firmer as traders enter another session dominated by headline risks from Japan and the Mideast, the FT says in its global market overview. The FTSE All-World equity index is up 0.3 per cent – though near 3-month lows having slipped more than 5 per cent in 5 days – while funds have stopped flowing into havens such as Treasuries and the Swiss franc, suggesting a relative calm is being restored. Recently hard hit “growth-focused” sectors, such as miners and technology are seeing buying, helping push the FTSE Eurofirst 300 up 1 per cent. But the more optimistic mood belies the volatility seen overnight.

Tab for failed US banks nears $9bn

US banking regulators have paid out nearly $9bn to cover losses on loans and other assets at 165 failed institutions that were sold to stronger companies during the financial crisis, the Wall Street Journal says. The payments were made under loss-sharing agreements struck by the FDIC that shield buyers from much of the risk associated with loans inherited from failed banks. As of January the FDIC has paid out $8.89bn to banks under the loss-share agreements. Such deals are in place at 236 financials, with the FDIC agreeing to assume most future losses on $160bn of assets.

On top of everything, Mizuho bank is having ATM problems

From Reuters on Thursday:

TOKYO, March 17 (Reuters) – Mizuho Bank said its automatic teller machines failed for a second time Thursday across Japan after a shutdown earlier in the day. A spokesman for the company said its ATM network failed at 0840 GMT, with its internet banking services also down. Japan’s second largest bank said it did not know the reason for the latest trouble.

 Read more

Support rises in US for covered bonds law

Look at a list of the 10 biggest dollar-denominated covered bond deals and one thing stands out: the only US bank present is Bank of America, and it lies at the bottom, notes the FT. Last year, foreign banks sold $30bn of the bonds to US investors, and watchers expect those sales to nearly double in 2011. Yet only two US banks have ever issued covered bonds and none seems likely to do so this year. US legislators are looking to boost the market with the launch of a bill in the House of Representatives.

Yen sets fresh high against dollar

The yen soared to its highest level against the US dollar since the second world war in late New York trading, rapidly accelerating to reach Y76.36, the FT says. The move reflected growing expectations that Japanese investors would sell foreign assets and bring money home for reconstruction efforts following its earthquake and tsunami. FT Alphaville notes that the move may have more to do with technical factors, as the Japan’s government pledged to fight speculative activity arising from the quake.

Ex-Freddie Mac chief faces SEC civil suit

The former CEO of Freddie Mac has received a formal notice that the SEC plans to pursue civil claims against him over failures to appropriately disclose the company’s exposure to risky mortgage loans, said a person familiar with the situation, reports the FT. Richard Syron, who ran Freddie Mac from 2003 until the company was taken over by the government in 2008, is the latest executive to receive a letter known as a Wells Notice from the regulator informing him that it intends to commence enforcement proceedings. American Banking News says the government is ramping-up an investigation of disclosure practices at Freddie and Fannie Mae.

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, says 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. BNET noted earlier that more than 25 reactors are already under construction in China.

More banks served Libor subpoenas

Regulators probing alleged manipulation of a key interbank lending rate have focused their demands for information and interviews on five global banks, according to people familiar with the investigation, the FT says. UBS, Bank of America, Citigroup and Barclays have received subpoenas from US regulators probing the setting of the London interbank offered rate, or Libor, for US dollars between 2006 and 2008. The Telegraph says allegations of possible manipulation have been “met with suprise by traders.”

US banks plead to limit range of swap rules

US banks are urging regulators writing new rules for the derivatives markets under 2010’s Dodd-Frank Act to keep their hands off the banks’ swaps businesses in London and other overseas financial centres, the FT reports. The lobbying efforts highlight the fact that regulations are being written at different speeds in different countries, allowing for “regulatory arbitrage”, which officials have sought to stamp out.