Posts from Tuesday Apr 12 2011

Further further reading

For the commute home, where no-one criticises your fiscal policies,

- More on Goldman’s bearish commodities turn. Read more

Kan appeals for return to ‘ordinary life’

Naoto Kan, Japan’s prime minister, has appealed for a return to “ordinary life” in areas of the country not directly affected by the March 11 earthquake, tsunami and resulting nuclear crisis, the FT reports. The plea highlights worries that a widespread embrace of jishuku, or “self-restraint”, is threatening to deepen the disaster’s impact on an already struggling economy by further suppressing already anaemic consumption. While Shintaro Ishihara, the newly re-elected governor of Tokyo, has called for citizens to forgo traditional cherry blossom parties this year, Mr Kan said that one month after the tsunami hit, it was time to start “looking forwards”. “Let us maintain full consideration for the disaster victims, but avoid falling into the trap of an excessive mood of self-restraint,” he said. “As far as possible, let us return to ordinary life.” At a press conference scheduled for the one-month anniversary of the tsunami but postponed for one day because of a powerful aftershock, Mr Kan said Japan had to stand united to overcome its worst disaster since the second world war.

China suspends approval of nuclear plants

China’s freeze on new nuclear projects could last until the beginning of 2012, according to a senior industry official, underlining the gravity of China’s nuclear safety review, the FT reports. China, which accounts for 40 per cent of planned new reactors globally, halted approvals for new projects last month in a surprise move following the crisis at Japan’s Fukushima Daiichi plant. Also reacting to Japan’s nuclear emergency, Germany this week idled one-third of its nuclear capacity, while Spain, Switzerland, the UK and US have all announced safety reviews. Because power plants have a life of at least 40 years, any decision to halt construction of atomic reactors and instead build thermal coal or gas-fired plants could affect global energy and environmental policies for decades to come. While France, the UK and the US have defended nuclear power as a source of low-carbon electricity, Japan-inspired safety reviews will delay projects and increase costs, potentially making atomic plants prohibitively expensive.

Goldman triggers commodity retreat

Oil prices tumbled sharply, leading many commodities lower on Tuesday, after Goldman Sachs suggested investors should take profits and amid worries higher energy costs could drag on the global recovery, the FT reports. Raw materials from Brent crude to wheat, cotton and metals fall in unison, paring strong gains made since mid-March on lost oil output in Libya and steep falls in agricultural stocks. Dealers reacted to growing concern that higher raw materials costs would begin to eat into demand and affect the pace of economic recovery. The International Energy Agency had reported that high oil prices had begun to dent consumption growth. The benchmark Reuters-Jefferies CRB index has declined 2.6 per cent from a 2½-year high reached on Friday. ICE May Brent, the European oil benchmark, fell $2.78 to $121.20 a barrel, with losses snowballing from a $2.67 fall on Monday. CBOT May Corn, which has surged to records on tight supplies, fell 2.6 per cent to $7.56¼ per bushel. CBOT May soyabeans dropped 2.8 per cent to $13.30¼ a bushel and CBOT May wheat slid 5.1 per cent to $7.57½ a bushel.

Fukushima crisis on par with Chernobyl

Japan raised its assessment of the continuing crisis at Fukushima Daiichi nuclear power station on Tuesday, putting it on a par with the 1986 Chernobyl disaster in the former Soviet Union, the FT reports. Japanese authorities said that the two-notch increase from five to seven – the highest level on the International Atomic Energy Agency scale – did not signal new dangers or setbacks at the plant. Rather, they said, it reflected the first comprehensive contamination estimate since the March 11 earthquake and tsunami triggered the crisis. The reassessment marks only the second time in the six-decade history of commercial nuclear power that an accident received the worst rating on the IAEA scale. It will, however, be weeks or months before engineers can cool the station’s overheated uranium fuel to safe levels – a precondition for stopping radiation leaks altogether. FT Alphaville gives its view from Tokyo.

Chinese companies go on global bond spree

Chinese companies have this year embarked on an unprecedented borrowing spree in international bond markets, a trend driven by property developers starved of credit by state-owned banks, the FT reports. Mainland groups have already borrowed $12.2bn from international investors so far in 2011 – more than five times the amount they had secured by the same point last year, according to data provider Dealogic. Dealmakers calculate that within a couple of months the total will break the record $15.8bn that Chinese companies raised from offshore bond sales during the whole of 2010. ”It’s been a phenomenal start to the year for the China market,” said Terence Chia, of Citigroup’s Asian debt syndication team. “We expect this trend to continue.” Half of the offshore bond issuance this year has come from privately-owned property companies – such as Evergrande, Country Garden and Longfor Properties – that have seen funding channels dry up on the mainland. Over the last year, Chinese regulators and senior officials have issued numerous public warnings and direct orders to the state-owned banks to reduce their exposure to real estate and rein in the flood of credit that has gone to the sector in the last two years.

Assessing the dollar’s weakness

How weak is the dollar?

A timely question asked by Goldman Sachs on Tuesday morning, what with the euro reaching a 15-month high of $1.45 earlier today. Indeed, on the face of it, there is weakness everywhere. Read more

How to make a dividend sandwich

By Theo Casey, a columnist at Futures & Options World, blogging on the back of FOW’s European Equity Options conference in Amsterdam.

It’s been fun, Alphaville. The sun has set on our Dutch adventure. Read more

Why Lloyds has lashed out at the ICB

A handy table via Morgan Stanley. It shows the impact on Lloyd Banking Group if it’s forced by the UK government to sell another 400 branches. No wonder António Horta-Osório is furious.

The inflationary Easter bunny

Some of the MPC may be exhaling a premature sigh of relief at the widely rumoured inflation *non-fail news* out Tuesday morning.

Analysts have been quick to note that the first below consensus CPI result for 10 months (4 per cent year-on-year vs 4.4 per cent expected) was driven by a fall in food prices (to 4 per cent y-o-y from 5.7 per cent in February), especially those of seasonal food. Core CPI, which excludes food, was only 0.1 percentage points off consensus expectations: 3.2 per cent year-on-year versus 3.3 per cent expected. Read more

The banking system – still broken

Here’s a perfectly nuanced view of how quantitative easing — the programme started by the Federal Reserve to avert depression following an almighty banking bubble — impacts asset prices.

First, envision part of the QE process. The Fed purchases a security — a US Treasury, or a slice of MBS — from an investor. That investor then sends the ensuing proceeds to a bank — generating an extra deposit. The bank can then lend that deposit to someone else to buy another security. So the deposit eventually returns to the bank, and it can then lend 90 per cent of it out again. And so on. Read more

Markets Live transcript 12 Apr 2011

Live markets commentary from FT.com 

Goldman jolts commodities market

A nasty (and in all likelihood temporary) fall for the FTSE 100 on Tuesday morning.

 Read more

Repo fee hits money market funds

Hundreds of billions of dollars invested in money market funds face almost zero returns after sharp falls in short-term interest rates, according to the FT. The key interest rate for funding trades in US Treasuries fell to a tiny fraction of 1 per cent on Monday. Nearly a third of the $2,750bn that sits in US money market funds is invested in the repurchase or repo sector, trading in which has been hit by a new charge levied on banks at the start of the month by the FDIC. The plunge in short-term interest rates, to just 0.01 per cent, is also due to the temporary absence of some Treasury securities, after wrangling in Washington over the US debt ceiling, that would help soak up excess cash. Reuters asks whether the repo reaction to the FDIC fee change is starting to fade, with some analysts predicting rates will stabilise.

Critical signs in foreclosure settlement

Hopes are fading for a far-reaching settlement between regulators and banks over improper home foreclosures as some regulators press ahead to reach their own settlements with banks that others involved in the talks deem weak, the Wall Street Journal says. The dispute pits federal regulators against state attorneys general, who are seeking stiff penalties and comprehensive changes in the way banks foreclose on homeowners and modify loans. Advocates of tougher sanctions accuse federal banking regulators, including the OCC and the Federal Reserve, with going easy on the banks. Federal regulators are on the verge of sending their orders, and federal and state officials are scrambling to maintain an uneasy alliance as talks reach a critical point and test whether there can be a universal settlement.

Debt limit fight looms, budget cuts revealed

The White House looks set to take a more aggressive negotiating stance against Republicans in the next fight over US fiscal policy: the vote in Congress to increase the nation’s $14,300bn debt limit, the FT says. Three days after Mr Obama helped settle a budget dispute that avoided a partial government shutdown, the White House said a decision by Republicans to “play chicken” with a vote over the debt limit would have “Armageddon”-like consequences for the US economy. Bloomberg reports that the US on Tuesday unveiled legislation identifying which programs would be cut in order to produce the $38bn in savings promised by the president and congressional leaders of both parties. The Environmental Protection Agency, high-speed rail, agriculture and law enforcement are among the programmes that would get reduced funding as part of the budget deal reached last week to avert a government shutdown.

For you Southern Europe, ze inflation is over

Cezmi Dispinar points to the below slide from a presentation by Heiner Flassbeck over at NachDenkSeiten. It’s all in German, and it’s about eurozone monetary policy, but stick with it!

 Read more

Goldman commodities call takes shine off risk

A batch of negative catalysts is damping risk appetite and encouraging investors to seek out traditional havens, the FT says in its rolling global market overview. The FTSE All-World equity index is down 0.7 per cent and much of the commodities complex is under pressure. S&P 500 futures are down 0.6 per cent after Alcoa disappointed when it kicked off the US first-quarter earnings season. Traders’ wariness towards growth plays was compounded by news that Goldman had advised clients to lock in profits on commodities as they looked vulnerable to a short term correction. The bank’s comments seemed to hit a nerve in a sector that many saw as vulnerable after many months of strong gains and “long” speculation. FT Alphaville has a summary of Goldman’s commodities market-jolting report.

Pimco’s Gross bets against Treasuries

Bill Gross, manager of the world’s largest bond fund, is now actively betting against the value of debt issued by the US government, the FT reports. Pimco’s $236bn Total Return Fund held minus 3 per cent of its assets in government related securities at the end of March, down from zero the month before, according to a report issued by the company on Monday. Pragmatic Capitalism says Pimco’s latest move is eerily reminiscent of what happened during the first bout of US quantitative easing, when Bill Gross predicted surging UST yields. He top ticked the market to the day and yields immediately tanked.

UK inflation *non fail* shock

Cue sighs of relief at the Bank of England on Tuesday morning following news UK CPI had fallen to 4 per cent YEAR-ON-YEAR in March from 4.4 per cent YEAR-ON-YEAR in February.

Sechin stands down as head of Rosneft

Igor Sechin, the deputy prime minister of Russia, stepped down as chairman of the board of Rosneft just nine days after an order from the Russian president that ministers should leave the boards of state companies, the FT says. Sechin had been a key architect of BP’s landmark alliance with the Russian state oil champion. Rosneft said Mr Sechin had “decided to set a good example” by following through so quickly on the president’s orders as part of overall “reform of the state monopolies”. Reuters adds that president Medvedev’s board purge is viewed as part of a wider bid to assert his authority and gain support within the elite to run for a second term as president in the March 2012 election.

UK bank rules to converge with US

Global banking regulation took a step towards convergence on Monday as a UK commission proposed measures that will bring the country’s financial rules closer to the US, reducing fears that British lenders will flee London for New York, reports the FT. The Independent Banking Commission stopped short of forcing banks to split their securities businesses from their retail and commercial lending operations – a radical plan that had been bitterly opposed by the industry. FT Alphaville has a list of IBC miscellany and describes the commission’s idea of ringfencing ‘Too Big To Fail’ banks. That ringfencing is similar to regulations in the US, where banks are limited in the amount of deposits they can use for investment banking and commercial banking activities.

Japan, nuclear accident upgrades, economic downgrades

It was a sobering start to Tuesday, after an equally sobering Monday evening punctuated by strong tremors in Tokyo and the northeast, followed by yet another big aftershock and many more nasty tremors throughout much of Tuesday.

Added to that was news that the Japanese government had extended the evacuation zone around the stricken Fukushima nuclear power plant to beyond the already-widened radius of 30km. The move was seen as acknowledgement that concerns about radioactive contamination from the plant were more serious than first thought. Read more

Arsenal edition

Some further thoughts on Stan Kronenke’s £731m cash offer to take control of Arsenal Holdings from the ever informative Andersred blog.

One is the whacking multiple the US sports franchise billionaire is prepared to pay for the Premier League club. Read more

ESM contingent liabilities, quantified

From Standard & Poor’s on Monday — a little Q&A on the European Stabilisation Mechanism:

Will the ESM mechanism have implications for the creditworthiness of the ‘AAA’ rated sovereign guarantors? Read more

Further reading

Elsewhere on Tuesday,

- Pimco‘s not-so-great timing. Read more

Pink picks

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

Philip Stephens: The banks get away with it, again
There are a couple of things to say about Britain’s banks, says  the FT columnist. They still pose a serious threat to the nation’s long-term stability and prosperity. They rely for their profits – and for the huge bonuses paid to senior staff – on the fact that taxpayers are underwriting the risks. Thus public subsidy is turned into private profit. Read more

Snap news

Breaking pre-market news on Tuesday,

- Allied Irish Banks declares €10.2bn loss – statementRead more

Exchange chiefs mount deal defence

The chief executives of NYSE Euronext and Deutsche Börse are presenting shareholders with a defence of their proposed tie-up to fend off interest in a rival bid to break-up the deal by Nasdaq OMX and the IntercontinentalExchange, reports the FT. Following the NYSE Euronext board rejection on Sunday of the joint Nasdaq-ICE $11.3bn cash and share bid for the company – versus the $9.7bn value of the Börse all-share offer for NYSE – Duncan Niederauer, chief of NYSE Euronext, and Reto Francioni, Deutsche Börse chief, plan to meet shareholders. Robert Greifeld, Nasdaq chief executive, and Jeff Sprecher, ICE chief executive, have already been meeting shareholders. The rival bidders said on Sunday they would step up their outreach to shareholders.