Posts from Thursday Apr 7 2011

Further further reading

For the commute home, where the carry trade means helping your better half unload the car in exchange for first dibs on the remote,

- The FT visits Bernie MadoffRead more

Traders uncertain as ‘loose’ monetary era ends

A busy day for monetary and fiscal news seems to have left investors a touch uncertain and thus erring on the side of caution, leaving many riskier assets to flutter around recent peaks, the FT reports. And nervousness increased late in the European session after news hit the wires that the north-east of Japan has suffered a 7.4 magnitude earthquake and a tsunami warning had been issued. Stocks and commodities were volatile on the reports, but most recovered initial losses as traders remembered how swiftly markets had recovered from the March 11 tremor. Investors waited for news on whether the stricken Fukushima nuclear plant had been further damaged. The FTSE All-World equity index is down 0.2 per cent from its cyclical high, gold has retreated slightly from Wednesday’s record, oil is fractionally lower and core Treasury yields are mixed. Wall Street has shed early gains, leaving the S&P 500 off 0.2 per cent. The single currency is the main focus of the session after the European Central Bank confirmed that the era of ultra-loose monetary policy is coming to a close in Europe when it raised interest rates 25 basis points to 1.25 per cent.

Tokyo companies face power cuts

Big companies in the Tokyo area may be forced to cut electricity consumption by 25 per cent this summer as Japan grapples with a crippling power shortage in the wake of last month’s earthquake and tsunami, reports the FT. Tokyo Electric Power, which supplies the third of Japan’s population that lives in the capital and surrounding districts, is expected to be able to deliver about 50m kilowatts of the roughly 60m kW consumed during peak hours in July and August.

Supply and demand under the debt ceiling, then and now

Consider this post an appendix to our earlier one on the economic impact of a government shutdown. Here we look at how the approaching debt ceiling limit could disrupt the market for US treasuries. We’ve reported on this before, but here’s a bit more info, courtesy of a Nomura note out on Thursday.

As a reminder, Tim Geithner has said that the limit will be reached by 15 May, though some measures are avaialable to keep the Treasury under the legal limit until about 8 July. Read more

Quake jolts Japan’s northeastern coast

A strong earthquake hit the already devastated north-east coast of Japan, taking out electricity in some parts of Fukushima, the prefecture where Tokyo Electric is trying to get its Daiichi nuclear power station under control, reports the FT. Tepco, the owner and operator of the Daiichi plant, said there were no problems detected with the reactor coolant and the injection of nitrogen in reactor No 1, nor contaminated water levels in the trenches at Fukushima. There are no injuries among workers, who were all evacuated. Japan’s Nuclear and Safety Agency said two out of three external power lines are down at Onagawa nuclear station in Miyagi, which is operated by Tohoku Electric. But all reactor cooling systems working on one line. All plants along the northeast coast have been stopped since the March 11 quake. The 7.1 magnitude earthquake – as classified by the US Geological Survey, which hit the country late on Thursday night and caused a tsunami warning, which was lifted 90 minutes later, prompted investors in the US to sell equities and the dollar amid worries about further potential damage in the country, which is still reeling from its worst natural disaster in its history.

Trichet defends ECB rate rise

Jean-Claude Trichet, European Central Bank president, has defended a rise in official interest rates as good for the whole eurozone even as preparations began for a bail-out of Portugal, the latest victim of the region’s debt crisis, the FT reports. Acting against inflation was “in the interests of all members and partners of the single [European] market and single currency”, and would help boost economic confidence, Mr Trichet said on Thursday. His comments followed the ECB’s decision to lift its main interest rate from 1 per cent to 1.25 per cent, which economists warned would hit the eurozone’s weakest economies hardest – including Portugal and Ireland.

US nears shutdown

The US neared a government shutdown on Thursday night as President Barack Obama and congressional leaders struggled to resolve the increasingly dramatic budget impasse, reports the FT. With the first partial closure of federal operations since the mid-1990s looming on Friday night, Harry Reid, Senate majority leader, and John Boehner, speaker of the House of Representatives emerged in the early afternoon from the third White House summit in as many days to say they would continue working on a deal, even though none had yet been reached. They planned to reconvene at 7pm for another session of talks, underscoring the growing urgency of the round-the-clock negotiations.

IMF wakes up to oil price rises…

… and not a moment too soon.

It’s been quite a couple of days for oil prices, with front month WTI crude hitting $110 on Thursday for the first time in more than two years: Read more

Charts du jour, Q1 earnings

We’ve been distracted by other matters and, aside from an analysis of stock correlations, haven’t written much about something guaranteed NOT to shut down next week: US earnings season.

That will change soon, but in the meantime here’s a chart constructed by Capital IQ (sent to us by S&P equity analysts) showing consensus Q1 earnings per sector: Read more

QEased commodities charts, part deux

The QEased commodity debate continues…

Our latest contribution to the “Yes, quantitative easing is making commodity prices go bananas” comes from Vivin Oberoi, head of global macro research and Trading at Telluride Asset Management — a hedge fund based in Wayzata, Minnesota. Read more

Quake watch: Japan hit yet again

Just as anxious, sleep-deprived and quake-traumatised eastern Japan was beginning to relax – just a little: a fresh earthquake struck the already ravaged region of Tohoku and rocked Tokyo at 11:32pm local time, triggering fears of another tsunami and more problems at the crippled Fukushima nuclear power plant.

The 7.4 magnitude earthquake (quickly downgraded by the US Geological Survey to 7.1 but maintained at 7.4 by Japan’s Meteorological Agency, for what that’s worth), hit the northeast coast, close to the city of Sendai, which on March 11 had seen its airport engulfed by surging water from the tsunami. Read more

A complete shut-show [updated]

Moving at a pace reminiscent of potentially visitor-less animals at the National Zoo, US lawmakers are still negotiating the size and shape of a budget deal before the current continuing resolution runs out at midnight on Friday:

POLITICO: President Obama is calling House Speaker John Boehner and Senate Majority Leader Harry Reid back to the White House to negotiate on the budget at 1 p.m. Just before the announcement from the White House, Reid said on the Senate floor that “the numbers are basically there” but that “the only thing holding up an agreement is ideology.” He said he was not nearly as optimistic about reaching a deal as he was last night. Read more

Yen weakening after initial post-earthquake gains

Details remain hard to come by after the 7.1 earthquake that hit Japan late Thursday night local time, but recent flashes from Kyodo News indicate that its damage has thus far been limited, though a tsunami warning has been issued for the northeast coast where it hit:

As for the earthquake’s impact on the Fukushima Daiichi power plant and other nuclear facilities, the FT has a bit more: Read more

Commerzbank burns some fingers

If you’re wondering how to scare a short seller then look no further than Commerzbank’s mind-numbingly complex €11bn cash call.

Either by accident or design (probably design) its structure has caused a measure of discomfort those short of Commerzbank stock. Read more

Cut out and keep – Portugal aid timetable

At pixel time Portugal’s government was busy announcing that it’ll formally request EU loans later on Thursday. Looks like they have ‘discovered’ they can negotiate without elections after all.

(It seems to be combination of asking the president to lead talks and conferring with opposition political parties.) Read more

Vix wagging

What do dividend futures have in common with the Vix, and Vix futures?

Our hypothesis: both have seen excessive demand from structured products desks skew price discovery in their markets. And in the case of the Vix, there’s been a breakdown in its function due to the effect of the so-called Bernanke-put too. Read more

ECB hikes 25bps — and so it begins…

… the tightening cycle at the ECB that is.

Vix up, look Sharpe*

By Theo Casey, a columnist at Futures & Options World, blogging live from FOW’s European Equity Options conference in Amsterdam.

(*With apologies to Dizzee Rascal.) Read more

Missing – Portuguese dead cat

What next for Portuguese government bonds?

At pixel time on Thursday morning there hadn’t been so much as a dead cat bounce, which was not the case with Greece or Ireland when they went cap in hand to the IMF/EU. Read more

A trip through peripheral bank vortices

Equities and CDS sometimes have an odd relationship with reference to the same entity.

‘Cross current circularity’ (aka the vortex of fear) — the effect whereby equities and CDS price off each other in a crisis. Read more

Markets Live transcript 7 Apr 2011

Live markets commentary from FT.com 

Libyan concerns push Brent crude beyond $123 a barrel

Brent crude rose above $123 per barrel on Wednesday, a 2½-year high, as supplies in Libya appeared at risk of a prolonged outage, the FT reports. Col Muammer Gaddafi’s forces battled opposition fighters around the oil port of Brega on Wednesday, suggesting Libya’s valuable light, sweet crude output will remain bottled up for the foreseeable future.  The threat of losses in Gabon, the small oil-producing nation in Africa, appeared to have lifted after an oil workers’ union agreed to end a four-day strike, according to foreign oil companies. West Texas Intermediate crude’s discount to Brent, meanwhile, extended to about $13 per barrel. Bloomberg reports the New York Mercantile Exchange is now considering tightening specifications on the oil contract to differentiate between the variability of crudes being delivered into Cushing Oklahoma. They believe blenders who are capturing a profit by mixing cheaper grades into more expensive oils, along with an increase in storage tanks and pipeline links, are adding to deviations in WTI-tied blends. A quality assurance programme could be in place by the second half of 2011, they said.

Online gaming and the Schleswig-Holstein question [updated]

It’s been a baptism of fire for the ludicrously named bwin.party digital entertainment Plc.

Shares in the merged bwin and Partygaming only started trading a week ago but already they have fallen sharply: Read more

Basketball star takes Liverpool FC stake

LeBron James, the Miami Heat basketball star who is one of the world’s most bankable athletes, has become an unlikely part-owner of Liverpool football club, after striking a deal with Fenway Sports Group, the company that owns the team, reports the FT. James’s LRMR Marketing & Branding group will take a “minority interest” in the club as part of a sponsorship deal agreed with Fenway Sports Management, a subsidiary of FSG. Financial terms were not disclosed. English football has received a wave of investment from the US, ranging from the Glazer family, which owns Manchester United, to Randy Lerner, who owns Aston Villa. But the deal between James and FSG, which acquired Liverpool last year for £300m ($490m), marks the first time that a top-tier athlete has joined the soccer fray.

BoJ: A more focused ‘QE3′, Japanese style

It might signify the evolution of what some have already dubbed ‘QE3, Japanese-style’ into something more limited but focused on disaster relief and reconstruction. The effects, however, may be felt in markets around the world.

The Bank of Japan decided at its two-day policy meeting that ended on Thursday not to ease monetary policy further in response to the March 11 earthquake, tsunami and nuclear crisis. But the central bank said it would provide Y1,000bn ($11.7bn) in loans for Japan’s damaged north east region, on top of a previous Y5,000bn increase in asset purchases. Read more

Brazil takes fresh ‘currency war’ action

Brazil has stepped up its “currency war”, a day after the International Monetary Fund tacitly endorsed the use of capital controls, with the announcement of the fourth set of measures within a month to help control its exchange rate, the FT reports. Guido Mantega, the finance minister, said the government would extend a 6 per cent tax on repatriated foreign borrowings to loans or bonds with a maturity of up to 720 days, compared with the previous limit of up to 360 days. “The government has to take action to avoid any type of excesses,” said Mr Mantega. The IMF proposed its first guidelines this week on the use of measures to control inflows of speculative capital, in a move seen as legitimising a tool it had once staunchly opposed. Brazil has been fighting to keep its currency, the real, trading at about 1.65 to the US dollar – a level that is almost 40 per cent higher than two years ago. But in recent weeks, the currency has strengthened further.

Lehman’s negotiation with creditors stalls

A new faction of Lehman Brothers creditors, including global banks and hedge funds, have signalled their intention to file a competing pay-out plan, should negotiations with the bankrupt investment bank break down, the FT reports. Lehman’s bankruptcy managers, the restructuring firm Alvarez & Marsal, presented a plan earlier this year to pay out $60bn against roughly $320bn in claims after selling assets such as the Archstone property group and subsidiary depositary banks. The plan reduced the pay-outs to creditors who traded derivatives with Lehman, such as Goldman Sachs, Credit Suisse and Deutsche Bank, in favour of paying more to investment funds that bought Lehman bonds in the months before its collapse in September 2008. A group of those bondholders, including Pimco, Paulson & Co and Calpers, last year filed a competing plan that would pay out even less to bank creditors.

M&A lawyer charged in $32m insider trading scheme

A mergers and acquisitions lawyer and a stock trader were accused by federal prosecutors of masterminding a 17-year insider trading scheme that reaped $32m in illegal profits by stealing deal information from three corporate law firms, the FT reports. Prosecutors filed charges in a New Jersey federal court against Matthew Kluger, a former senior associate at Wilson Sonsini Goodrich & Rosati, and Garrett Bauer, a trader who worked at several proprietary trading firms, over the alleged scheme. Mr Kluger allegedly stole confidential information from Wilson Sonsini about deals involving high-technology companies including Oracle, Sun Microsystems, McAfee and 3Com, and passed tips to Mr Bauer through a third unnamed co-conspirator, with instructions on how many shares to buy, according to the Federal Bureau of Investigation.

Traders uncertain as ‘loose’ era ends

A busy day for monetary and fiscal news seems to have left investors a touch uncertain and thus erring on the side of caution, leaving many riskier assets to dip from recent peaks, the FT’s global market overview reports. The FTSE All-World equity index was down 0.1 per cent from its cyclical high, gold was retreating from Wednesday’s record, and oil was lower. Core treasury yields were softer and the FTSE Eurofirst 300 opened with a 0.1 per cent gain. US stock futures pointed to a 0.3 per cent fall for Wall Street at the open, while the euro was pulling back from its best level in 14 months versus the dollar. The euro is the main focus of the session as traders prepare for confirmation that the era of ultra-loose monetary policy is coming to a close in Europe, with the bloc’s central bank expected to raise interest rates by 25 basis points to 1.25 per cent, the first rise in almost three years.

Parties fail to break US budget deadlock

President Barack Obama said late on Wednesday that key outstanding issues in the US budget talks had been clarified though there was still no agreement with congressional leaders to avert a looming government shutdown, the FT reports. Mr Obama, making brief remarks following the second summit in as many days with top lawmakers, said negotiations would continue through the night, and there was no reason a deal could not be reached before Friday’s deadline. The White House meeting with John Boehner, Republican speaker of the House of Representatives, and Harry Reid, Senate majority leader, came at the end of a day which saw the US finalise preparations to stand down nearly 1m workers and suspend services ranging from processing tax returns to national parks. The brinkmanship over the budget is unnerving both parties, most of all the Republicans, who took the political blame last time the government shutdown, in the mid-1990s.