Posts from Wednesday Mar 23 2011

Stocks gain despite fears over Fukushima and Middle East

“Extraordinary speculative activity” in the US, as described by a Federal Reserve official, appears to be helping stocks climb back from losses, even as worries about Japan, the Middle East and the eurozone still weigh heavily, reports the FT’s global market overview. The global benchmark FTSE All-World index up fractionally, while the S&P 500 on Wall Street fought to a 0.3 per cent gain. The market opened lower on news that US home sales fell to a record low in February. Oil prices were mixed, with unrest continuing in Syria and Yemen not quite able to help Brent crude extend its rally further. Brent crude was down 0.2 per cent at $115.45 a barrel and the Nymex May contract up 1.7 per cent at $105.50. Gold was up 0.7 per cent at $1,437 an ounce, just a few dollars off its record, while silver was  $37.33 an ounce, a fresh 31-year high. Currency traders sold the euro – pushing to just above the $1.41 mark – after a crucial vote on Portugal’s austerity package, which saw the parliament reject the measure. The yen was inching higher again following last week’s intervention by G7 central banks to weaken it. The Japanese unit was up 0.1 per cent to Y80.89 relative to the dollar.

Further further reading

For the commute home, and for sticking to your austerity budget (or rejecting it and telling the bond markets where they can get off; it’s up to you),

- Portugal’s parliament has rejected the prime minister’s austerity plan. Socrates has since resigned. Read more

Sócrates quits as Portuguese PM

José Sócrates, Portugal’s prime minister, resigned on Wednesday night after losing a crucial vote on austerity measures, potentially pushing the country towards early elections and an international bail-out, reports the FT. The prime minister said he had tendered his resignation to Aníbal Cavaco Silva, Portugal’s president. His government will stay on in a caretaker capacity for the immediate future.

Samsung and LG in war of words on 3D TVs

Samsung Electronics and LG Electronics, the world’s two largest flatscreen television makers, have in recent weeks been embroiled in rare public mudslinging about their rival 3D TV technologies, reports the FT. The clash is not simply normal competitive tension between South Korea’s largest consumer electronics makers. They are major suppliers of the panels used for making 3D televisions and each company is backing a different technology. Only one type of panel will become industry standard.

Yen action sets scene for return of carry trade

The billions of dollars in yen sold by the world’s most powerful central banks have sent a strong message to speculative investors, notes the FT. Those daring to bet that the Japanese currency will again test Y76.25, the record high against the dollar it hit last week before the G7’s intervention, better have deep pockets. Indeed, now that the world’s richest nations have pledged to back Tokyo in its efforts to halt the yen’s appreciation, some strategists are predicting a new set of trading patterns in foreign exchange markets. The yen, they say, could make a return as investors’ currency of choice for making so-called “carry trades”.

Fed rejects BofA plan to increase dividend

The US Federal Reserve has rejected Bank of America’s plan to raise its dividend in the second half, dealing the lender and its shareholders an unexpected blow just as rivals prepare to increase quarterly pay-outs, reports the FT. The setback stands in contrast to the triumphant tone struck by JPMorgan Chase and Wells Fargo as they announced plans to return more capital to shareholders. BofA’s proposal was part of a battery of stress tests the Fed conducted on 19 large US financial institutions.

Radiation fears over Tokyo water

Fears over the impact of radioactive contamination in Japanese food supplies spread to Tokyo’s tap water on Wednesday after the US banned milk products, fruit and vegetables from areas near the stricken Fukushima nuclear power plant, reports the FT. Japanese authorities said the level of radioactive iodine found in Tokyo’s tap water was double the recommended limit for infants and advised against using the water for mixing milk formula.

Crisis-hit Tepco taps lenders for $25bn

The power company at the centre of the world’s worst nuclear crisis in 25 years is tapping Japan’s biggest banks for an emergency loan of up to Y2,000bn ($25bn) as it faces escalating clean-up and rebuilding costs, reports the FT. Engineers from Tokyo Electric Power have been struggling to contain the situation at the Fukushima nuclear plant since it was damaged beyond repair by this month’s devastating earthquake and tsunami. On Tuesday the Japanese government estimated total rebuilding costs from the twin natural disasters at Y25,000bn – almost 5 per cent of GDP and dwarfing the Y10,000bn spent after the country’s 1995 Kobe quake.

Portugal on the brink

By John McDermott and Cardiff Garcia

The eurozone finds itself in another fine mess on Wednesday evening — and it can’t say it wasn’t warned. Read more

Inflation and debt, lurking in the UK budget small print

For all the talk of operation Odyssey Dawn, it was Wednesday’s Budget that tried to navigate between two monsters: rising inflation and slowing growth.

Guest editor Gavyn Davies made this point during FT Alphaville’s special Markets Live session this afternoon: Read more

Costing the Japan ‘quake, the official version

Not that “official” = “accurate”, of course.

Seemingly everyone else has had a go; now the Japanese government has put forward its own estimate for the ultimate economic cost of the earthquake and tsunami. Read more

US covered bond conundrums

Our colleague Jennifer Hughes cites the worries of fund managers over the underlying collateral that backs covered bonds in Europe, which reminds us that we’ve been meaning to write something about another recent proposal meant to jumpstart a covered bond market here in the US.

We say “another” because politicians pushing covered bonds in the US isn’t a new trend. FT Alphaville has been writing about the possibility for some time now, and there have been several attempts since the crisis ended to get this market moving. Read more

The world’s economic centre of gravity

Danny Quah at the London School of Economics has recently released a complex but interesting article on the world’s economic centre of gravity.

What’s that? Read more

Salmon market shrugs off Japan radiation fears

To say fish is important to the Japanese is an understatement. The country boasts one of the largest fish markets in the world and maintains a fishing fleet which accounts for nearly 15 per cent of the global catch.

In 2009, fishery production totaled 5.43m tonnes in 2009, according to the Japanese Statistics Bureau. Read more

Why Europe’s bailouts are turning to callable capital

Before reading on — we highly recommend you read this guest post over on Self-Evident on the very subject of the risks facing Europe’s bailout funds. It’s excellent and well worth your time.

OK, done? Read more

Budget 2011 – fine print follow-up

Before we begin, Gavyn Davies’ post on the 2011 Budget is up here and offers a great take.

Meanwhile, the main budget doc can be read here (pdf) and the supplemental documents hereRead more

Osborne’s windfall tax on North Sea oil profits

From a stock market perspective one big loser from Wednesday’s budget are North Sea oil producers.

They have been hit with a £2bn windfall tax, that will be used to pay for the removal of progressive fuel tax increases. Read more

Markets Live transcript 23 Mar 2011

Live markets commentary from FT.com 

The covered bond premium is over, Goldman says

Remember this?

 Read more

Markets Live — UK Budget special

Join us at 1530 UK time for a special edition of Markets Live to discuss the market impact of Britain’s 2011 Budget, just unveiled by Chancellor George Osborne on Wednesday.

Once again taking the controls will be today’s FT Alphaville guest editor, Gavyn Davies — former Goldman Sachs economist, adviser to No 10 and chairman of Fulcrum Asset Management. Read more

What Osborne did today

So what did the Chancellor actually do today to change macro-economic strategy in the UK Budget?

In one important sense, he seems to have done little or nothing. The path for the structural budget deficit has been left almost exactly the same as it was after the 2010 Budget. Therefore, the big strategic decision taken last year, which was to tighten fiscal policy by about 6 per cent of GDP over the current Parliament, has remained intact. This was the key element of Plan A, and it does not seem to have been changed. Read more

Weekly indicators for the US economy

And, following my earlier post on global growth, here is one on US growth.

Vasileios Gkionakis, my colleague at Fulcrum, has been producing weekly estimates for US GDP growth for several years now, and they have given consistently good signals about the past and future course of the economy. Read more

ETFs are proving not so tradeable during crises

FT Alphaville has been keeping tabs on the odd goings-on in Japan-related ETFs recently. And we’ve got another issue to add to our bundle of concerns…

… It’s just how difficult trading in some ETFs has proven to be during the crisis. Read more

The good, the bad and the ugly

At Fulcrum, we scan the behaviour of asset markets each week to make sure that we are not missing what the markets are trying to tell us. It is surprising how often this forces us to focus on a pattern of developments which we might otherwise overlook.

Among the many things we do, we throw up ideas by segregating assets into “the good, the bad and the ugly”, by using various measures of market momentum. We also look for signs that momentum has gone too far, or that assets are in overbought/oversold territory.

I want to emphasise that the following are not forecasts for expected asset price changes. Please do not take them as such. They are intended only as food for thought. Read more

Moody’s gives CLOs a (big) ratings break

Quelle convenience.

Just as the market for new Collateralised Debt Obligations is heating up (in the US anyway, the European market is still frozen by those new skin-in-the-game securitisation rules), one of the biggest CLO-rating agencies around announces it may decide to tweak its methodology for rating the structured finance products. Read more

Tokyo, the water effect – another day, another scare

Another day, another jolt and more contamination fears which led to what you could call a “water effect” on Japan’s stock markets, after the Tokyo metropolitan government fanned resident’s fears by warning that the city’s tap water may be unsafe for infants …

This from Bloomberg on WednesdayRead more

Markets Live transcript 23 Mar 2011

Live markets commentary from FT.com 

Tasting the difference at Sainsbury

Ouch!

 Read more

MPC still split in four directions

The minutes of the Bank of England’s MPC meeting in March released on Wednesday morning show that the committee lines up in exactly the same way as it did last month.

One member (Posen) wants to ease monetary policy, by increasing QE. Five members (King, Tucker, Fisher, Bean, Miles) voted for no change at all. Two members (Weale, Dale) voted for a 25 basis points increase in bank rate. And one member (Sentance) voted for a 50 basis point increase. Read more

ESM panic! Subordination, restructuring, CDS, oh my!

Out, erm, yesterday. The term sheet for the ESM.

Details of the European Stability Mechanism, released on Tuesday, promptly sent European peripheral bond yields in a reverse tail spin. As we’ve noted before, the big aim of the ESM is to force the private sector to share in debt losses — which is a nice way of saying it will allow sovereigns to restructure or even (gasp) default once the thing comes into effect after 2013. And in the meantime, there’s lots of talk that Greece or even Ireland, could try to restructure their debt ahead of the 2013 date. Read more