Posts from Thursday Mar 24 2011

Shares firmer as investors embrace recovery theme

Equities are recording a sixth consecutive day of gains as residual bullishness regarding the global recovery trumps several deleterious factors, such as eurozone woes and Mideast turmoil, the FT reports. The FTSE All-World index is up 0.9 per cent and havens such as the Swiss franc and US Treasuries are losing their cachet. The S&P 500 on Wall Street rose 0.9 per cent, helped by better US weekly jobless numbers and barely hampered by disappointing durable goods orders. Caterpillar, the US earthmoving equipment maker, is one of the strongest risers in the Dow Jones Industrial Average, illustrating investors’ love of global development bets. Thursday’s advance leaves the S&P 500 above the 1,300 mark and means it is better than halfway between February’s cyclical peak and last week’s short-term trough, providing a graphical representation of the dual forces pulling at investors. Many commentators, such as Laszlo Birinyi, argue that the 2009 bull market has much further to run, and that improving market psychology as gauges trend higher is just as powerful an impetus as a recovering world economy. In addition, an idea is growing that assets may receive an extra boost from the return of the yen carry trade now that global central banks are seen placing a limit on yen gains.

Bankers repay Tepco a ‘favour’

Bankers at Sumitomo Mitsui were returning a 14-year-old favour to Tokyo Electric Power when they pulled together a consortium this week to offer Y2,000bn in emergency loans to the utility at the centre of Japan’s nuclear crisis, reports the FT. When the bank faced liquidity problems during the Asian financial crisis in 1997, Tepco, a loyal customer that had a top-notch credit rating, raised about $2bn at low rates from western banks, according to people familiar with the matter. It promptly put the cash on deposit at Sumitomo Mitsui, helping the bank through the crisis.

Portugul crisis hits debt costs

Portugal’s borrowing costs rose to euro-era highs as markets and European policymakers fretted the country could be without a government for months as prospects grow for a bail-out, the FT reports. Interest rates for Portuguese bonds with durations from one to 10 years shot up after José Sócrates resigned as prime minister on Wednesday night, leaving Portugal in a political void ahead of an EU summit on Thursday and Friday. Aníbal Cavaco Silva, Portugal’s conservative president, will on Friday meet political parties after the government’s defeat in a vote on new austerity measures. The most likely outcome is an early election, which would not take place for at least two months, according to the country’s constitution.

Credit Suisse considers bid for US securities

Credit Suisse has joined the list of financial groups considering a rival bid for the portfolio of mortgage-backed securities that has already drawn a $15.7bn offer from AIG, people familiar with the matter said, according to the FT. The Federal Reserve Bank of New York owns the 800-some securities, which are housed within Maiden Lane II, one of the special-purpose vehicles created as part of the insurer’s $180bn rescue during the financial crisis.

Nato in deal on Libyan mission

Nato clinched a deal on Thursday to break an impasse over how to manage the military campaign in Libya that would see the alliance take complete control of the operation, the FT reports. The agreement came as the US made clear it intended to stop flying combat missions within days. Ahmet Davutoglu, Turkey’s foreign minister, said a “compromise has been reached in principle” to end a week of fraught negotiations between the US and its European partners.

Further further reading

For the commute home, where your wealth funds are always sovereign,

– A quick who’s who in Yemen. Read more

More on that commodities vs global demand chart

We posted this chart from the San Fran Fed (via Mark Thoma) in yesterday’s further reading list, but it’s worth a second look:

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So long, Saleh

Just flashed across our Reuters screen:


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Oh, my precious

Gold and sliver spot prices were on a tear on Thursday.

Spot gold rose 0.71 per cent to hit a record high of $1,446.40 per troy ounce: Read more

Sorry – you still can’t buy OR swap Libyan oil easily, at all

Conversely: ‘sorry rebels – you still can’t get cash to fight the brutal dictator easily, at all’.

Oh dear: one great big flaw has emerged in any plan to buy oil from Libya’s rebels, despite them forming a parallel oil infrastructure. Read more

And the award for extreme optimism in the face of reality goes to……

…. someone other than SocGen’s Albert Edwards, who is in fine pessimistic form in his latest strategy note.

This week sees the perma bear take Reuters to task for a recent report on US home sales. Read more

Plummeting in Iberia

Chart via Lombard Street Research. Who add that ‘either Spanish CDS are trading some 100bp too low or Portugal is some 200bp too high…’

Bond buyback irony in Europe

Strange days when a specialist in frontier market sovereigns has the most convincing advice on how to fix the western European ones…

We’ve often delved — at length — into the mechanics of using bond buybacks to achieve debt reduction for the eurozone periphery. It could be at market prices, or it could not; it could be done by EFSF financing, or it could not. Oh, it’s complicated. Read more

Don’t be surprised if NYSE volumes drop

… on account of Citigroup’s reverse share split.

Jeffrey Rubin at Birinyi Associates points out on Thursday that so far in 2011, Citigroup has on average represented 11 per cent of the entire daily volume of the New York Stock Exchange. An average 520m shares transacted to be precise: Read more

Markets Live transcript 24 Mar 2011

Live markets commentary from 

Disgraced Deutsche banker seeks donations

Spotted on a purported Linked-in profile for the Deutsche banker who was fired after waving money at NHS workers — a solicitation for, erm, cash:

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A FTSE 100 hit job

What is going on at Invensys?

The chief executive of the FTSE 100 controls company, Ulf Henriksson,  has just been unceremoniously bundled out of the boardroom on Thursday morning without any explanation. Read more

Goldfish, memories and markets

Contrary to popular myth — goldfish have a memory capability that spans months.

But that doesn’t stop Nomura’s chart of the day, titled “markets’ goldfish memory,” from making its point. Assets have very quickly reversed their post-March 11 moves. Read more

Tokyo: TSE takes on the ‘flyjins’

While media commentators laud the inimitable Japanese sense of orderliness, politeness and dignity in the wake of the March 11 earthquake and tsunami that devastated the northeast region, it’s also reassuring to see a senior Japanese figure lash out.

The Tokyo Stock Exchange chairman Atsushi Saito might not be making any friends in Tokyo’s foreign community – having aimed a broadside at foreigners who fled the city last week amid aftershocks, power cuts and radiation fears. But he doesn’t care. As the Wall Street Journal reported on Thursday: Read more

Calculating the size of a Portugal rescue

More on the topic du jour, Portugal.

Harvinder Sian at RBS has taken a stab at estimating the size of a bailout if (as many commentators now expect) the country does approach the IMF and the European Financial Stability Facility (EFSF). Read more

Fish in Japan at low risk of nuclear contamination

Fish sold in Japan’s sushi restaurants and shipped overseas have a low risk of nuclear contamination because radiation is diluted in seawater, says Japan’s Agriculture Ministry according to Bloomberg. The statement follows Tokyo Electric Power’s announcement that cobalt, iodine and cesium had been detected in the sea near water outlets from reactors at its stricken Fukushima Dai-Ichi nuclear plant this week. The news saw the government restrict shipments of milk, spinach and other vegetables in Fukushima and neighboring prefectures as radiation from the damaged reactors contaminated agricultural products. While many sushi restaurants and hotels have cut fish from their menus, the government insists leafy vegetables are actually at greater risk of radiation. For more on the reaction from fish markets see FT Alphaville.

BP gulf spill probe uncovers design flaw

BP’s Macondo well continued to spill oil into the Gulf of Mexico after the Deep water Horizon rig explosion last year because a piece of pipe was wedged in the valves that were supposed to shut it off, an investigation into the accident has found.  The FT reports that the blow-out preventer, the stack of valves on the sea bed intended to prevent escapes of oil and gas, failed to close properly because a section of drill pipe had buckled inside the well, obstructing the “rams” deployed to seal it, according to Det Norske Veritas, a consultancy hired by the US interior department.  The WSJ adds that the investigation concludes that the blowout preventer failed as a result of a design flaw, not because of misuse by BP or any of the other companies involved. In fact, they write, BP came within 1.4 inches or less of preventing the worst offshore oil spill in U.S. history. DNV’s conclusions could now see Cameron International, the US engineering group that manufactured the BOP, more deeply embroiled in the ongoing compensation case.

Haldane sips at market-based, simplified CoCo

To understand Andrew Haldane’s latest — all you have to do is glance at these charts.

One is regulatory bank capital, the other is a market-based signal of bank solvency: Read more

Wary traders eye eurozone troubles

Markets seemed to thrash themselves to a standstill on Thursday, reports the FT’s global market overview. Recent volatility gave way to an uneasy calm as underlying optimism on the global recovery battled a raft of deleterious factors. The FTSE All-World index was down just 0.08 per cent, major forex crosses were barely changed, as were core bonds. Commodities were providing a bit more excitement, with much of the complex weaker – though this partly reflected some trimming of “long” positions after a strong rally in the previous session. US stock futures were down 0.1 per cent. Leading stock benchmarks, such as the S&P 500, sat pretty much halfway between February’s cyclical peak and last week’s short-term trough, providing a graphical representation of the dual forces pulling at investors. In Europe, bourses opened in keeping with the directionless trend. The FTSE 100 in London was down 0.1 per cent and the FTSE Eurofirst 300 was off 0.2 per cent as banks fretted about eurozone sovereign debt exposure.

Portugal PM resigns after parliament rejects austerity

José Sócrates, Portugal’s prime minister, offered his resignation on Wednesday night after losing a crucial vote on austerity measures, potentially pushing the country towards early elections and an international bail-out, the FT reports. His resignation increases the likelihood of a financial rescue led by the European Union. It also threatens a political vacuum that would complicate negotiations on a bail-out package.
Reuters reports that the president said in a statement that he would hold meetings with all political parties on Friday and that the government would retain full powers at least until then. That leaves Socrates’ government in place for the duration of a European summit in Brussels on Thursday and Friday. Portuguese bond yields hit fresh life-time highs in response to the news as fears grew about how the country would be able to get its heavy bond issuance schedule away without a government. For more see FT Alphaville.

Goldman chief says ex-director broke board rules

Lloyd Blankfein, chief executive of Goldman Sachs, said that a former board member at his bank violated bank confidentiality when talking to Raj Rajaratnam, the billionaire Galleon fund manager accused of insider trading, the FT reports. Prosecutors allege that Rajat Gupta, the former Goldman Sachs board member, relayed secret information about Goldman’s earnings and strategy, often just minutes after board meetings, to Mr Rajaratnam, who then traded on it. Mr Blankfein said that the board approved the investment during a special meeting on September 23, 2008. The investment was “significant” for the bank, he said, adding “the implication of his investment means we were a good investment”.  Reuters reports that in a show of courtesy for the accused hedge fund founder Blankfein did however extend his hand to Rajaratnam in 30-second encounter.

Charts du jour, European bond yields

There’s a fresh lifetime high for the Portuguese 10-year bond yield on Thursday — now well on its way towards 8 per cent:

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Tepco taps lenders, eyes govt support

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, the FT reports.  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. While Tepco does not face any immediate funding problems, bankers say the utility is looking to build up an emergency war chest, much like BP did when faced with unknown liabilities following last year’s oil spill in the Gulf of Mexico. Of its $64bn in outstanding bonds, the company is due to repay $4.8bn this year and another $5.6bn in 2012. Reuters, meanwhile, reports that the Japanese government is also looking to pay off the compensation the company will owe to evacuated residents, local farmers and others affected by accident. That figure, they say, could amount to several trillion yen. Tepco will likely forgo its year-end dividend for the first time in 59 years as well.

Further reading

Elsewhere on Thursday,

– The ESM/EFSF’s inverted capital structure. Read more

Pink picks — UK budget special

Comment, analysis and other offerings from Thursday’s FT,

Kate Barker: Rebalancing is a distant promise
A Budget for growth? We have been here before, says Barker, a former member of the Bank of England monetary policy committee. Under Gordon Brown the Treasury unveiled numerous plans to raise productivity and rebalance the economy. These bore fruit for only a short time, if at all. As George Osborne, chancellor, now faces the unenviable challenge of promoting private sector growth with little cash at his disposal, his measures may not prove more successful. Read more