Here’s the movement in the yen since the Japan earthquake on March 11:
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Key stock benchmarks are idling near cyclical highs, as not even wariness over rising interest rates, sparked by tightening in China and hawkish sentiment from the US, or continuing concerns about Libya and Japan can keep a lid on underlying optimism regarding the global economy, reports the FT. A belief that interest rates could start rising after years of decline has been bolstered by bullish minutes from the Federal Reserve’s last open market committee meeting, which revealed that a faction of Fed members – the minutes did not say how large – believed it may be “appropriate to reduce the pace or overall size of the purchase programme”. Following the report, stocks fell back from their intraday highs, US Treasuries were sold off and the yen fell to its weakest level versus the dollar since September. It is down 0.9 per cent to Y84.87. Gold and silver are extending their highs, with the yellow metal seeing a new record price of $1,456 an ounce, and silver at $39 an ounce, its highest since 1980. The FTSE All-World equity index is off fractionally, but still a stone’s throw from February’s post-credit crunch high of 228.9. The S&P 500 on Wall Street is also off by just a fraction of a point, having given up earlier gains, but it is still less than 1 per cent away from its 2011 high.
The International Monetary Fund has proposed its first ever guidelines for using controls on flows of speculative capital, legitimising a controversial tool that it once campaigned against, the FT reports. The guidelines – which are not yet official Fund policy – say that countries can control capital inflows when their currency is not undervalued, when they already have enough foreign exchange reserves, and when they are unable to use monetary or fiscal policy instead.
China raised interest rates for a fourth time in five months as Beijing struggles to reduce bank lending, rein in inflation and slow economic growth, the FT reports. The central bank said the official one-year lending and deposit rates would be increased by 25 basis points from Wednesday, raising the deposit rate to 3.25 per cent and the lending rate to 6.31 per cent. Analysts said the increase came earlier than many anticipated and suggested that price rises for March, to be published next week, were probably higher than expected. Consumer price inflation in China rose 4.9 per cent in February from a year earlier, the same as in January. But politically sensitive food prices accelerated and producer prices increased 7.2 per cent, their most since October 2008. Even after the latest rise in official rates, the return on bank deposits in China is deeply negative once adjusted for inflation. Beijing has made fighting inflation its priority, amid fears that runaway price rises could lead to social instability in the one-party state, as they often have in the past. “Inflation is like a tiger: once it is set free it is very difficult to put it back in its cage,” Wen Jiabao, the Chinese premier, told reporters last month.
The US moved closer to its first government shutdown since the mid-1990s after a high-stakes White House summit ended without a deal to resolve differences between Democrats and Republicans over the budget, the FT reports. With Congress and government agencies preparing contingency plans for a federal closure on Friday, Barack Obama, the president, on Tuesday hosted John Boehner, Republican speaker of the House of Representatives, and Harry Reid, Democratic Senate majority leader, in a last-ditch effort to narrow the differences between the feuding parties.
The FOMC on Tuesday released the minutes of its March 15 meeting, and we excerpt a few things below.
Our earlier post on the March 15 statement summarised the language changes from the FOMC’s statement in February. The biggest were an acknowledgment of upward inflationary pressure driven by commodities and a line noting that the recovery was now on a firmer footing. Read more
Across the tape a little while ago, from Reuters:
NO BUDGET AGREEMENT REACHED AT WHITE HOUSE MEETING, REPUBLICAN HOUSE SPEAKER JOHN BOEHNER’S OFFICE SAYS
FOMC minutes are out Tuesday afternoon and we’ll be at the ready for signals of an exit strategy for the Fed.
In a short note out in advance of their release, Morgan Stanley adds its name to those warning a “tightening moment” for equities (in this case European) will likely come way before a Fed rate hike. Read more
Or, an interesting walk on the wild side in political risk.
From Bloomberg on Tuesday morning:
Apple’s representation will be reduced to 12.33 percent of the index on May 2, from 20.49 percent, Nasdaq OMX Group Inc. (NDAQ) said in a slide show on its website today, after previous rules caused its proportion in the gauge to grow disproportionately. The weightings of Microsoft Corp. (MSFT) and Cisco Systems Inc. (CSCO) will more than double.
Live markets commentary from FT.com
Boring title, we know. But stick with us ’cause there’s all sorts of thematic points in here — from sovereign debt crises to the weakness of short-term financing to interest rate shocks.
After the financial crisis, governments sought to avert depression by bailing out their banks and upping their spending. Fast forward a couple years and now you’ve got all these heavily indebted countries — the UK, the US, Japan — who will be fighting to shrink their debt burdens in the near future (hopefully). Read more
Since March 11, analysts in Tokyo have widely predicted that the Japan’s triple disasters – earthquake, tsunami and nuclear plant crisis – would heighten risk averseness among Japanese investors.
Indeed, the publication on Monday of the Bank of Japan’s quarterly Tankan survey of business sentiment, while not as negative as feared, set off a whole new round of “gloom and doom” predictions, reinforcing the view that caution will dominate Japan’s investment outlook for some time to come. Read more
Google’s dominance of the internet-search industry is being considered for a broad antitrust investigation by the US Federal Trade Commission, Bloomberg reports, citing two people familiar with the matter. The FTC is awaiting a decision by the Justice Department on whether it will challenge Google’s planned acquisition of ITA Software as a threat to competition in the travel-information search business, said the people. Separately, the FT says Google has sought to bolster its weak position in the smartphone industry’s patent wars, bidding $900m for a stack of patents put up for sale by Nortel, the bankrupt Canadian communications equipment maker. A criminal investigation has also been launched in the US into suspected privacy lapses in the applications that run on Apple and Google smartphones, the FT adds.
Back in August 2010 FT Alphaville quoted BarCap’s Joseph Abate on the notion that wrapping up the ‘Supplementary Financing Program’ (SFP), which sells bills on behalf of the Fed, could be a useful stealth easing/liquidity measure.
Key stock benchmarks are idling just shy of cyclical highs as wariness over inflation joins concerns about Libya and Japan to keep a lid on underlying optimism regarding the global economy, the FT reports in its rolling global market overview. The FTSE All-World equity index is down 0.2 per cent to 228.2, a stone’s throw from February’s post-credit crunch high of 228.9, while US stock futures suggest the S&P 500 will open down 0.1 per cent, leaving it less than 1 per cent below this year’s peak. European equities are a touch firmer, with the FTSE Eurofirst 300 up 0.1 per cent, helped by strength in energy stocks.
Fed chairman Ben Bernanke on Monday downplayed inflation threats to the US economy, despite recent warnings from some of his central bank colleagues that their easy money policies may need to be tightened this year to keep prices in check, the WSJ reports. Bernanke said the recent rise in commodities prices is likely to be temporary and won’t translate into a broader inflation problem. However, the Fed chief was quick to add that if his prediction is wrong and inflation begins to mark strong gains, the central bank would respond. Bloomberg adds that US Treasuries also fell for the first time in three days after Bernanke said the Fed needs to monitor inflation expectations “extremely closely.”
Europe’s top securities watchdog has embarked on a far-reaching probe of automated trading firms by asking them to disclose trading strategies and details about the computer algorithms they use to drive their deals, the FT says. A questionnaire has been sent to dozens of firms across the region by the European Securities and Markets Authority, the new pan-European body representing the bloc’s national securities regulators. It’s the first sign that regulators are making direct contact with the firms to understand HFT as watchdogs prepare to formulate regulations designed to tackle the growing industry.
Financial markets expect a Portuguese bail-out soon given that the country’s cost of funding has leapt too high to sustain, says the FT. Even in Portugal, views have hardened that an international rescue is inevitable. Reuters reports that Moody’s also cut Portugal’s sovereign debt by one notch on Tuesday, saying it believed any incoming government would need to seek financing support from the EU as a matter of urgency. By mid-Tuesday morning in Lisbon yields on 10-year Portguese bonds had reach 9.99 per cent — higher than levels seen on Irish bonds when the country was bailed out in November.
Pfizer has agreed to sell its Capsugel business to private equity group KKR for $2.375bn in cash, in a move analysts said could be the first in a series of spin-offs and sales, the FT reports. The disposal, announced on Monday, will allow Pfizer to buy back common stock this year in excess of its planned $5bn in repurchases. Pfizer also lowered its revenue forecasts for 2011 from $66bn-$68bn to $65.2bn-$67.2bn and trimmed its 2012 revenue guidance. Pfizer’s sale of Capsugel, which earned about $750m in revenue last year, and its unchanged earnings guidance despite the resulting drop in sales suggest Pfizer may spin off other businesses. The company this year unveiled a strategic review to take place under CEO Ian Read. The WSJ says other units that Pfizer could sell include those producing animal drugs, nutritional products including Promil infant formula, and consumer health-care goods as Advil pain and cold medicine.
Republicans in the House of Representatives are gearing up for a federal shutdown, amid stalled talks on a deal to fund the government for the rest of the fiscal year, the FT says. John Boehner, House speaker, on Monday night said lawmakers would be given guidance on how the lower chamber of Congress would function in the event of a shutdown, which could come as early as Friday night if no deal is reached with Senate Democrats and the White House. Amid the standoff, President Barack Obama on Monday launched his re-election campaign for the November 2012 presidential poll, seeking to gain a fundraising jump on Republicans in what is expected to be by far the most expensive race in US history. The Caucus adds that the US government is expected to hit its $14,290bn debt ceiling “no later than May 16.”
The introduction of a new insurance charge on overnight borrowing by banks in the US has led to the collapse of a profitable arbitrage opportunity that financial groups have used to rebuild their balance sheets after the financial crisis, the FT reports, citing traders. The FDIC on Friday began levying the charge on funds borrowed by banks in the overnight money markets. Banks are now abandoning trades in which they borrowed in the overnight Fed funds market at about 10bp-15bp, then deposited the money at the Fed at an overnight rate of 25bp. Some dealers estimate these trades could have allowed banks to lock in profits of about $200m since late 2008, when the Fed began paying overnight interest of 25bp on excess reserves. Reuters adds that the FDIC charge has also sparked a squeeze on Treasuries collateral.
Texas Instruments announced its biggest deal in more than a decade with the $6.5bn all-cash acquisition of Silicon Valley’s National Semiconductor, the FT says. Dallas-based TI said on Monday that the move would strengthen its market leadership in analogue chips, which carry out functions such as power management, amplification and convert audio and video to digital signals in phones and media players. Bloomberg reports that National shareholders will get $25 a share in the all-cash transaction — a 78 per cent premium to the company’s most recent closing price, and one that’s four times bigger than the chip industry’s average over the past year. The Wall Street Journal says the bid’s hefty premium “casts light on a large but unglamorous” business, while NYT DealBook has a rundown of recent semiconductor M&A.
Libyan rebels are set for their first crude export as soon as Tuesday as they seek funding to sustain their uprising against Muammer Gaddafi’s rule, the FT reports. The Liberia-flagged Equator tanker was off Port Said, Egypt, early on Monday and is expected to dock at the Marsa el-Hariga crude oil export terminal near Tubruq, in east Libya, on Tuesday morning, according to Lloyd’s Intelligence, the shipping industry data provider. The owner of the tanker, Greek-based Dynacom Tankers Management Ltd, declined to comment. FT Alphaville says it’s difficult to confirm the rebels’ claims that their three oil fields are producing 100,000-120,000 barrels of oil per day.