Posts from Wednesday Apr 13 2011

Further further reading

For the commute home, where the only industrial policy is your children’s allowance, and returns decline by the year,

– Dani Rodrik vs Russ Roberts on industrial policy and entrepreneursRead more

Rally sputters as traders focus on economy

The S&P 500 on Wall Street, which lost 1.1 per cent in the previous two sessions, ended the session fractionally higher following Mr Obama’s pledge to tackle US budget deficits, preserving many of the Republicans’ austerity goals, reports the FT’s global market overview. In Europe, the FTSE Eurofirst 300 was up 0.9 per cent, as cyclicals rebounded. Brent crude was up 1.5 per cent to $122.77 a barrel and precious metals, whose supposed haven cachet could not protect them from the sell-off, were again finding their poise. Gold was up 0.3 per cent at $1,457 an ounce – despite Mr Obama’s pledge to curb US spending, designed in part to protect the dollar from the risks of devaluation to pay for future obligations. In fact, the US dollar index was up 0.2 per cent, the first time it has not hit a two-month low in five sessions.

Allies look for ways to end Libyan stalemate

David Cameron, UK prime minister, held hastily convened talks with Nicolas Sarkozy, French president, in Paris on Wednesday night to explore how to break the military stalemate in Libya that is keeping Muammer Gaddafi in power, reports the FT. As the leaders examined military options with their defence chiefs, Britain announced it would step up support for opposition forces by supplying the rebels with 1,000 units of body armour. It is the first time that the UK has given equipment to rebels on the ground, apart from 100 satellite phones at an early stage of the conflict.

Fujitsu plans £2bn UK broadband network

Fujitsu has unveiled plans to build a £2bn high-speed broadband network covering 5m homes in rural Britain, reports the FT. The Japanese information technology services group wants to build and operate a superfast broadband internet network based on optical fibre cables, and hopes to have TalkTalk and Virgin Media as flagship wholesale customers.

Toyota and Ford suffer Japan aftershock

Toyota and Ford will shut factories this month and next, as supply disruptions from the Japanese earthquake ripple through to operations in Asia, Europe and the US, reports the FT. The latest production slowdowns are affecting factories as far apart as Turkey, Poland and the Philippines, underscoring the vulnerability of carmakers to shocks in the global supply chain, more than a month after the earthquake and tsunami hit.

Schneider attempts to quash Tyco rumours

Schneider Electric, the French electrical engineering group, attempted to quash rumours that it was planning to purchase Tyco International on Wednesday, saying it was not “currently in discussion” with the US-listed conglomerate, reports the FT. In recent days Schneider’s shares have fallen about 7 per cent on conflicting reports that the company had appointed several US banks to advise it on early stage analysis, begun to line up financing and even launched an initial approach to Tyco.

Huawei declares truce with Motorola

Huawei and Motorola have settled their intellectual property disputes, freeing the Chinese telecoms company from damaging US litigation and paving the way for Nokia Siemens Networks’ proposed acquisition of Motorola’s wireless assets, reports the FT. Huawei Technologies and Motorola Solutions said in a joint statement on Wednesday they had agreed to drop pending lawsuits against each other.

JPMorgan beats forecasts with $5.6bn profit

JPMorgan Chase reported quarterly results that exceeded Wall Street’s expectations, as the US lender released reserves set aside for credit losses and reported investment-banking profits that approached a record high set a year earlier, reports the FT. Improving credit conditions and volatile markets, which fuelled a strong performance by the bank’s trading desks, helped lift first-quarter net income by 70 per cent to $5.56bn, or $1.28 a share. But lingering uncertainty over the costs of settling with regulators over mortgage industry practices weighed on results.

BP Russia talks facing crisis

BP’s efforts to buy out its Russian billionaire partners in TNK-BP were foundering on Wednesday night, ahead of a deadline to complete the UK energy group’s proposed $16bn share swap with Rosneft, reports the FT. According to people close to the discussions, BP and Rosneft, the state-controlled oil group, had decided to end talks with Alfa-Access-Renova, the Russian partners’ vehicle. They said the billionaires had made “unrealistic” demands for a buy-out of their 50 per cent stake in TNK-BP, BP’s existing Russian oil venture.

Obama calls for budgetary straitjacket

President Barack Obama has called on Congress to create a budgetary straitjacket that would restrict future US deficits, as part of a sweeping plan to rein in America’s debt through a mixture of spending cuts and tax increases, reports the FT. In a speech on Wednesday, the US president proposed cutting $4,000bn from deficits in the next 12 years, shrinking discretionary spending and the defence budget, and reducing government outlays to Medicare and Medicaid, the largest federal healthcare programmes.

Cash, oil and barter in Libya

Last month FT Alphaville asked: “Might access to Libyan oil decide the conflict just yet?”

News from both rebel- and regime-held parts of Libya on Tuesday and Wednesday provide a bit more help in answering this question, which could become ever more important to the ensuing civil war. And to a growing humanitarian crisis: the World Food Programme warned Wednesday that 3.6 million people may need aid given that Libya’s publicly subsidised food system is in tatters. Read more

Beige Book on the impact of the Japan earthquake

The Fed’s latest Beige Book mostly confirmed what was already known about the US recovery: continuing moderate growth, labour markets gradually improving, raw materials and energy costs putting pressure on prices, wages remaining subdued, etc…

To us, the most interesting parts of the the report were those that shed a bit more light into how the Japan disaster affected various Fed districts. We’ve posted below a few excerpts from the districts that have commented on its impact (emphasis ours in all cases). Read more

Goldman says there’s been a copper collateral crackdown

You never can tell with Goldman Sachs, can you?

On the one hand they revise their copper market outlook and advise to take profits; on the other hand they claim not to believe in the surplus inventory story. Read more

Now the IMF is warning about ETFs

International regulator conspiracy? Unfortunate coincidence for the ETF industry? Or are regulators finally on to something via the power of group think?

We ask because hot on the heels of the Financial Stability Board’s warning about exchange traded funds on Tuesday comes “Annex 1.7” of the IMF’s latest Global Financial Stability report, entitled ETF Mechanics and RisksRead more

Obama’s deficit speech [updated with the full text]

It starts at 1:35pm EST, and we’ve embedded the live video below so that you can watch it here.

Early reports from Reuters are that the president will propose cutting $4,000bn within 12 years and will aim to hit the following targets, as leaked by a congressional source: Read more

A warning on rapid Chinese credit expansion from Fitch

There were some extremely sobering thoughts from Fitch on Wednesday related to the scale of China’s mega lending boom of the last few years.

On Tuesday the rating agency affirmed China’s A+ Long-Term Foreign Currency and AA- Long-Term Local Currency sovereign debt ratings, but changed its outlook on the latter to negative from stable. Read more

CMBS issuance update and the B-piece buyer problem

In search of further proof that the CMBS market is back, FT Alphaville stopped by a presentation on the topic hosted by S&P on Tuesday. We’re planning a deeper look into CMBS later, but for now here are some data points and trends related to issuance that we picked up while we were there:

1) Total issuance in the first quarter totaled $8.7bn, roughly on schedule to meet the expected $35bn target that analysts have been predicting since the end of last year. Here’s a slide showing all of the quarter’s multi-borrower deals (as opposed to those collateralised with a single loan), accounting for 92 per cent of total issuance: Read more

Elkjøp – the new name for Dixons

Following its recent profits warning we mused on whether Dixons Retail should consider another re-branding.

One idea was to take on the name of its profitable Scandinavian operation, ElkjøpRead more

Generation U and the greying of UK employment [updated]

The aggregate UK employment figures released on Wednesday were optimistically received although they should have been treated with caution.

The LFS unemployment rate fell to 7.8 per cent from 8 per cent in the three months to February with employment increasing by 143k. The less widely-followed monthly path data showed that spot monthly unemployment rate in February fell to 7.7 per cent from 8.2 per cent. The claimant count for March was less promising but essentially flat, up by 700. Read more

The IMF on the state of Europe’s banks

So now we know — the IMF sees European banks through yellow, green and red-coloured glasses:

 Read more

Taibbi takes aim at the Talf

Yeah, so — the Talf was a scam. That much we knew from the get-go.

What we didn’t know was that a pair of Reiki-loving Wall Street wives had a crack at it. That nugget’s contained in the latest from Matt Taibi — the hyperbolic Rolling Stones writer of vampire sqid fame. Read more

iShares responds to FSB criticism of ETFs

The industry’s response to Tuesday’s warning note on Exchange Traded Funds from the Financial Stability Board has begun predictably with a statement from iShares — the world’s largest provider of ETFs.

And it’s a well thought-out response — one which seemingly seizes on the old Chinese adage that crises can be opportunities too. Read more

If the market ignores your research…

… bang on about it.

That’s the lesson from Monday’s ‘take profits on your commodity positions’ call from Goldman SachsRead more

European bailouts make busy CDS bees

FT Alphaville recently took a look at Portugal and Spain decoupling from a bond yield perspective.

One week and one bailout later, here’s what it looks like from the point of view of CDS spreads, courtesy of Markit. The widening gap is evident, though it has moved a touch narrower of late as Portugal has tightened but Spain has stayed relatively constant. Read more

Markets Live transcript 13 Apr 2011

Live markets commentary from 

Do banks see ETFs as inexpensive funding for illiquid securities? – Part II


Here’s our favourite part from the FSB report. Read more

ASML Sees Record Year

Dutch microchip equipment maker ASML reported stronger-than-forecast profit for the first quarter, adding it was confident of posting another record year in 2011 despite uncertainty across the sector due to recent earthquakes in Japan, the Wall Street Journal reports. The world’s largest maker of lithography systems that map out electronic circuits on silicon wafers  said first-quarter net profit rose to €395m ($571.9m) from €107m a year earlier, while sales almost doubled to €1.45bn from €742m for the three months to March 31, as the company benefited from the strong recovery in the semiconductor industry. But according to Reuters, ASML’s Chief Executive Eric Meurice said semiconductor manufacturers were showing caution in assessing the impact of the Japanese quake on their  supply chain and the overall end-market. “Some customers have indeed re-timed a limited number of deliveries,” he said in a statement.

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 $3.06 to $120.92 a barrel, with losses snowballing from a $2.67 fall on Monday.

BP in race to salvage deal with Rosneft

BP is scrambling to reach a deal on a buy-out of its Russian billionaire partners in TNK-BP and save its alliance with Rosneft before an April 14 deadline, the FT reports. Pressure on BP is mounting ahead of its annual meeting on Thursday amid increasing investor concerns over its handling of the Rosneft alliance. Calpers, the biggest US pension fund, and its Florida equivalent, which between them own 0.4 per cent of BP shares, added to the pressure. The funds said they will oppose the approval of the company’s annual report and accounts as a sign of protest at the Gulf of Mexico spill. Talks between the UK oil group, the Russian billionaire shareholders and the Russian state-controlled company entered a second day on Tuesday, people familiar with the situation said, as pressure mounted on BP to reach a deal.

Do banks see ETFs as inexpensive funding for illiquid securities? – Part I

Recent trends in Exchange Traded Funds (ETFs) could create “potential financial stability issues” says the Financial Stability Board.

We say: about time someone stated the obvious. Read more