The re-emergence of eurozone fiscal worries and fears for the US labour market are pushing riskier assets lower, even as a Treasury auction showed inflation projections may be levelling off, the FT reports. The FTSE All-World equity index is down 0.2 per cent, industrial commodities are softer and core bond yields lower as investors become more cautious. The S&P 500 on Wall Street is down 0.2 per cent after weekly initial jobless claims moved back above the psychologically significant 400,000 level, calling into question the robustness of the labour market recovery in the world’s biggest economy. However, it pared earlier steeper losses after the producer price index was reported to have grown just 0.7 per cent in March, versus the forecast of 1 per cent, with expected jumps in food prices and energy prices not materialising. An auction of 30-year Treasury bonds also saw strong demand, an indication that fears for price rises were easing. In Europe, the FTSE Eurofirst 300 fell by 0.5 per cent, with banks dropping on worries about their sovereign debt exposure, while the regional benchmark is also being hampered by an 8 per cent fall in Reckitt Benckiser on news its chief executive is retiring.
For the commute home, where you always over-deliver on expectations,
– Google misses earnings expectations. Read more
Deep divisions over the sources of global economic fragility intensified on Thursday before the Group of 20 meeting of finance ministers and central bank governors, undermining talk of greater international co-operation, reports the FT. The US strengthened its rhetoric on inflexible exchange rates as the main causes of economic imbalances, while China’s president insisted that the most pressing concern was inadequate development of emerging economies. Despite the differences, the G20 meeting on Friday in Washington was expected to avoid a breakdown and instead agree on some technical methods to measure imbalances in the global economy.
There are no signs of revolutionary ferment among the farmers unloading boxes of oranges and sacks of garlic in the warehouses of Beijing’s largest wholesale produce market. But it is places like this that the Communist party is watching closely for evidence of spiking food prices that many believe could threaten its grip on power, the FT writes. In a country where the average household spends about a third of its disposable income on basic food, persistent food inflation of more than 10 per cent in recent months is a serious concern. While the benchmark consumer price index levelled off at 4.9 per cent in January and February, food prices accelerated in February to increase 11 per cent from a year earlier, and figures on Friday are expected to show a fresh spike in overall inflation in March, to well above 5 per cent. This is bad news for the stability-obsessed government. Wen Jiabao, the premier, claims to check prices of rice, flour, pork and vegetables every day, and last month he said the government had made reducing persistent price increases its priority this year.
After years of calls from the US and its allies for China to play a more “responsible” role in global affairs, Beijing is starting to comply, although not quite in the way they had hoped or expected, the FT reports. The Brics group of big emerging nations – comprised of Brazil, Russia, India, China and, for the first time this year, South Africa – is becoming a China-dominated forum in which Beijing can push its evolving global agenda without the overbearing presence of the US. As the third annual Brics leaders’ meeting wrapped up in the swampy, half-built resort town of Sanya, on the southern Chinese island of Hainan, it was clear that Beijing was firmly in charge. The “Sanya Declaration”, issued on Thursday, was full of the kind of language Beijing loves to use at home and, in a briefing to reporters, a Chinese spokesman for the meeting said the countries had agreed that “the 21st century should be one of peace, harmony, co-operation and a century of scientific development”. It just so happens that “harmony” and “scientific development” are the key political slogans used by the Communist party of China at home. So this statement will give the impression to a domestic audience that Beijing is starting to spread its gospel abroad and exert influence over other emerging markets.
Analysts, it seems, are indefatigable on the subject of inflation expectations these days.
Not that we blame them — we’ve contributed to the cacophony of opinions. And since it’s inflation week here in the US, culminating tomorrow morning with the March CPI numbers, we’ll pass along two more notes on the subject from earlier today. Read more
Crossing the Reuters tape a little while ago, it seems members of the G20 have learned to play nice(r) since their last meeting in November:
G20 CONSENSUS REACHED ON CAPITAL CONTROLS AND EXPANSION OF IMF CURRENCY BASKET FOR SPECIAL DRAWING RIGHTS
The House is currently debating and about to vote on the budget deal struck on Friday. But perhaps its members should’ve read the small print.
There was a mini-storm in the Tea Party cup on Wednesday evening when the $38bn of “cuts” provisionally agreed to on Friday disappeared. Vanished. Abacus-cadabra! Read more
We’ve pondered before why volatility is currently so low .
One theory we presented was the rise of new strategies to fund tail-risk protection, focused on long-dated far out of the money options, funded by options sales nearer the front. Read more
And it ain’t pretty.
Nomura strategist (and former FT Alphaville guest editor) Bob Janjuah is out of hibernation again. Read more
The mortgage market — lurching from one risk to another, right?
No sooner had Fitch Ratings gotten more comfortable with credit losses than it starts warning on interest rate risk. It’s kind of back to the future for the Mortgage-Backed Securities (MBS) industry too. Because before the financial crisis, rate shifts were really the things keeping investors up at night. Read more
Greek CDS to the moon! And all because of one German finance minister.
Out this Thursday — the latest European bank report from PricewaterhouseCoopers.
In it, the accounting firm estimates the region’s banks have more than €1,300bn of non-core loan assets, which are expected to take at least a decade to run off or dispose of. Complicating matters is the fact that the level of reported non-performing loans (NPLs) at the banks was still rising in 2010. Read more
Live markets commentary from FT.com
When it comes to physically-replicated Exchange-Traded Funds (ETFs), the key criticism — if any — usually pertains to providers’ tendency to top-up management fees with stock lending revenue.
The theory is that the practice exposes investors to unnecessary counterparty risk, not always easily identified. The justification on the providers’ part, though, is that the funds sit on literally mountains of securities, which are otherwise not being used to their full potential. Read more
Crude oil doesn’t necessarily spring to mind when one thinks of natural wealth redistributors.
Yet in 2010 the transfer of income from oil-importing countries to oil-exporting countries amounted to some $1,600bn — or 2.6 per cent of the importers’ GDP. With oil prices now hovering around $110 a barrel that redistribution will only increase. The barrel bill, so to speak, is about to get bigger. Read more
Nagging inflation concerns are challenging investors’ ingrained optimism over the global economy, leaving markets struggling to establish a clear direction, the FT reports in its rolling global market overvie.. The FTSE All-World equity index is flat, commodities are mixed and core bond yields are higher. US stock futures are down 0.1 per cent and the FTSE Eurofirst 300 has opened down 0.2 per cent as banks and tech groups are weaker. But the dollar index has hit a fresh 16-month low and its Australian namesake, which is usually a good gauge of risk appetite, is approaching a record high against the greenback, moves that suggest underlying bullishness remains a force.
BP has agreed a one-month extension to a $16bn share swap with Russian state oil champion Rosneft, just hours before what is expected to be a difficult annual meeting for the UK energy group on Thursday in London, the FT reports. The swap, which has been blocked under an interim injunction by an arbitration tribunal, was to have expired on Thursday. BP said the deadline had been extended to May 16 and that it intended to continue with the arbitration process. Bloomberg says Rosneft may pick another company to help explore the Kara Sea given BP’s failure to win over its partners in the TNK-BP venture before Thursday’s deadline.
Courtesy of consumer goods company Reckitt Benckiser, which has had £1.8bn sliced from its market valuation following the surprise retirement of chief executive and driving force Bart Becht.
Large US banks are eyeing prepaid cards as a way to recoup lost fees and cater to the 9m Americans who do not have traditional checking or savings accounts, say industry executives, the FT says. Early movers include PNC Financial, which will introduce a prepaid card this summer aimed at the “unbanked”, and BB&T, which launched a card that did not require customers to undergo a credit check or have a bank account. Citigroup is also considering rolling out a prepaid card and the banks are marketing them as a way for consumers to spend within their means. The cards are also exempt from “swipe fee” rules, set to be introduced in July, which limit the amount banks can charge retailers when a debit card is used.
Courtesy of Glencore’s intention to float filing on Thursday an insight (finally!) into the previously shy commodity powerhouse’s closely held trading strategies.
From the document: Read more
Greece needs time to convince international investors about its reform programme and may not be able to return to financial markets next year as planned, its finance minister has admitted. George Papaconstantinou’s comments in an FT interview highlight how Greece continues to struggle to turn its economy round almost a year after the launch of an €110bn EU and IMF bail out. They may fuel speculation that European leaders will have to find fresh ways of alleviating Greece’s debt problems to avert a default scenario. Greece’s budget plans are fully funded this year but Athens will have to raise between €25bn-€30bn on financial markets in 2012 – the first stage of its international rehabilitation.
JPMorgan Chase reported the biggest quarterly profit in its history, aided by the release of loan-loss reserves and investment-banking results that approached a record high set a year ago, the FT says. Improving credit conditions and volatile markets, which fuelled a strong performance by the bank’s trading desks, helped lift first-quarter net income by 67 per cent to a $5.56bn, or $1.28 a share. However, revenue fell 9 per cent to $25.2bn and the bank also recorded pre-tax charges of $1.75bn to account for higher mortgage-servicing and foreclosure-related expenses. The Wall Street Journal adds that the earnings failed to cheer investors, with big bank stocks slipping Wednesday, and JPM down 39 cents, or 0.8 per cent, at $46.25.
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, the FT says. The 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 target is roughly in line with the $4,400bn in deficit reduction over a decade that Republicans in House of Representatives proposed last week and the $3,900 in cuts by 2020 recommended by the bipartisan fiscal commission in December. FT Alphaville has a full copy of Obama’s Wednesday speech.
After weeks of speculation (and spin) Glencore has finally published its Intention to Float document.
A lot of it is has already found its way into the public domain, but there are some additional nuggets like details of Glencore’s trading strategies (to follow in a separate post). Read more
US Senate investigators probing the financial crisis will refer evidence about Wall Street institutions including Goldman Sachs and Deutsche Bank to the justice department for possible criminal investigations, officials said on Wednesday. Carl Levin, Democratic chairman of the powerful Senate permanent subcommittee on investigations, said a two-year probe found that banks mis-sold mortgage-backed securities and misled investors and lawmakers, the FT reports. According to the LA Times, the senate report also said Goldman “profited from the financial crisis,” with $1.2bn made in the bank’s mortgage unit alone in 2007. Forbes thinks criminal charges could follow. Reuters has a summary of the report.
From Bank of Ireland’s just-published annual report for 2010:
The Central Bank requires that banks have sufficient resources (cash inflows and marketable assets) to cover 100% of expected cash outflows in the 0 to 8 day time horizon and 90% of expected cash outflows in the 8 day to 30 day time horizon. The Group notified the Central Bank of a temporary breach of regulatory liquidity requirements in January 2011 (that breach was remediated in January 2011) and a breach in April 2011. The breaches have been associated with the contraction in unsecured wholesale funding, changes in the eligibility criteria of the ECB and increased usage of Monetory Authority funding. The Actions agreed with the Central Bank to de-lever the balance sheet post the PLAR exercise are expected to reduce the Group’s funding and liqudity risk.