Posts from Monday Apr 18 2011

Further further reading

For the commute home, or while frantically dropping off your tax forms at the post office alongside the other procrastinators,

– There’s the word “transitory” again, this time describing the Q1 slowdownRead more

Apple sues Samsung over “blatant copying”

Apple filed a lawsuit in California on Friday claiming Samsung’s Galaxy line of mobile phones and tablet devices are copies of the iPhone and iPad, according to court papers seen by Reuters. The suit alleges Samsung “slavishly” copied the Apple products’ look, product design and user interface, violating patents and copyright.

Lexus redesigns to revive stodgy sales

Toyota’s upscale Lexus brand is set for a design shake-up as it battles to revive stodgy sales and a slipping image among young car buyers, writes the FT. An edgier look will be on display this week when Lexus lifts the wraps on a “concept” sedan, known as the LF-Gh, at the New York auto show.

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Sovereign debt fears spark slide in risk assets

News that S&P had revised its credit rating outlook for the US to negative  caused stocks to plunge and gold to hit a record just shy of $1,500 an ounce, reports the FT’s global market overview. The FTSE All World index was down 1.5 per cent, led by a 1.7 per cent decline in the Eurofirst 300 index and a 1.1 per cent fall in the S&P 500 index. Brent crude was down 1.7 per cent to $121.35 a barrel. At first take, there was a somewhat perverse reaction in the currency markets and the bond markets, given that S&P had essentially said that the dollar and Treasuries are not as safe as they were yesterday. US Treasury yields were lower across the curve. Yields of the longest-dated 30-year bonds, which would be the most vulnerable to the US’s fiscal troubles, were down by 2 basis points to 4.45 per cent. Ten-year and two-year notes were also lower, by 3 basis points a piece, to 3.37 per cent and 0.66 per cent respectively. Meanwhile, the dollar index was up 0.9 per cent.


Philips to spin off lossmaking TV division

Philips, the Dutch electronics group, on Monday said it would spin off its lossmaking television division into a joint venture with Chinese TV manufacturer TPV Technology, reports the FT. The venture, which will have a licence to market TVs in Europe under the Philips brand, was the first big move by chief executive Frans van Houten, who took over on April 1.

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Nestlé targets China with Yinlu deal

Nestlé underlined its determination to expand in fast-growing emerging markets with the acquisition of a majority stake in one of China’s best-known regional foods groups, writes the FT. Nestlé said the deal to buy 60 per cent of family-owned Yinlu Foods Group would spearhead its push into products geared to local tastes.

Citi puts $12.7bn portfolio up for sale

Citigroup has taken radical action to cushion the impact of new global capital rules for banks, putting up for sale a $12.7bn portfolio of bad assets that were responsible for some of its huge losses during the financial crisis, says the FT. Citi revealed the move on Monday alongside first-quarter results that showed a 32 per cent drop in net income that was narrowly better than analysts’ expectations.

S&P delivers blow for US debt

Standard & Poor’s issued a stark warning to Washington on Monday, cutting its outlook on US sovereign debt for the first time, reports the FT. The agency kept America’s credit rating at triple A but, for the first time since it started rating US debt 70 years ago, cut its outlook from “stable” to “negative”. FT Alphaville reckons that the revision was a message directed at Washington rather than Wall St. Meanwhile, cabinet ministers in Japan, the second biggest holder of US Treasuries after China, reiterated on Tuesday that US debt remains “an attractive product”, according to Reuters.

The junk rally and buyout bailouts, updated

Bloomberg Businessweek has an update on the latest refinancing efforts of Energy Future, previously called TXU and once known as The Biggest Leveraged Buyout of All Time.

Bought for $43bn by private equity groups KKR and TPG in 2007, the company’s revenues nosedived along with the price of natural gas and it is now trying to extend the maturity of its loans coming due this year — and will pay a hefty price for the privilege: Read more

S&P’s AAA public service announcement

European politicians could be forgiven for the occasional smug smile following S&P’s unprecedented revision of the US outlook to negative.

The credit rating agency stress tested Washington, DC and — unsurprisingly — found that a separation of powers, practically useless debt ceilings and a highly polarised body politic do not make for easy and predictable fiscal planning. Read more

Bob Janjuah – told you so America

Nomura’s sceptical strategist Bob ‘the bear’ Janjuah is feeling very pleased with himself, following S&P’s decision to revise its long term outlook on the USA to “negative”.

As well he might. Read more

EMs to IMF on capital controls: nice try

So much for learning to play nice.

According the Wall Street Journal on Monday morning, the tentative consensus on capital controls found last week has already unraveled (or was never there to begin with): Read more

US Treasuries – they are a-changing

The below chart and commentary come from the IMF’s global financial stability report released last week (picked up by Macroman and Barry Ritholtz) — and they show recent trends in US debt:

In sum, this analysis suggests that fiscal concerns do not appear to have led to a higher cost of funding during the most recent run-up in nominal bond yields. Rather, improving growth prospects and higher term premia are the main factors pressuring long-term rates higher. Furthermore, QE2 does not appear to have contained long-term rates. While the anticipation of QE2 initially led to a sharp compression in term premia, that impact was either fleeting or has been more than offset by other factors.

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El-Erian: A warning for the US, and for the global economy

Mohamed El-Erian, chief executive and co-chief investment officer at PIMCO, responds to Standard & Poor’s latest action on US debt.

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US Treasury responds to S&P

Via Reuters (with a nod to how the UK Treasury spun S&P’s negative outlook on Britain’s AAA rating back in 2009):

This morning, S&P affirmed the AAA rating of the U.S., but emphasized the importance of timely bipartisan cooperation and action on fiscal reform. In addition, Moody’s commented today that ‘we view the changed parameters of the debate, with broadly similar goals as to government debt levels, as a turning point that is positive for the long-term fiscal position of the U.S. federal government. Read more

S&P goes negative on the United States of AAA/A-1+merica

Fresh from Standard & Poor’s on Monday — a bit of a headache for the United States:

We have affirmed our ‘AAA/A-1+’ sovereign credit rating on the United States of America. Read more

Who’s afraid of Comex gold delivery?

The answer is the University of Texas Investment Management company.

Via bullion brokers Goldcore’s daily note on Monday: Read more

More on the literal Bernanke put

Central banks using options as a monetary policy tool — crazy, right?

But there’s history here. The Bank of Spain reportedly sold put options on the peseta to fight devaluation pressures back in the ERM crisis days of 1993, though it denied this emphatically at the time. Read more

Markets Live transcript 18 Apr 2011

Live markets commentary from 

Bid hopes fade for Smith & Nephew

No prizes for guessing one of the biggest fallers in the FTSE 100 on Monday morning.

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Fed set to signal end to QE

The Federal Reserve is likely to signal at its April 27 meeting that it will conclude asset purchases in June as planned, while declining to rule out further quantitative easing after QE2 ends, the FT says. Even dovish members of the FOMC acknowledge that economic risks have changed since QE2 was announced last year. However, they are cautious on signalling hiking interest rates while the economy is fragile. Ben Bernanke’s first post-FOMC press conference will likely emphasise this ‘extended period’ of low rates, Bloomberg reports, creating an outlet for Bernanke to dial back rogue statements by Fed hawks between FOMC meetings.

Oil supplies sufficient, says Opec

Opec countries do not need to increase oil output, with markets currently well-supplied, the organisation’s secretary-general has announced, according to the WSJ. Saudi offerings of blended crude designed to replace high-quality Libyan grades had not received buyers, Abdalla Salem El Badri added. Brent crude fell below $123 and US crude fell $1 to $108 on Monday, Reuters reports, with reports of Saudi cuts to production and forecasts of oil demand destruction continuing to sway the market from different directions.

Bwin.PartyGaming dealt winning hand

Finally some good news for shareholders of the absurdly named Bwin.PartyGaming Digital Entertainments (BPDE).

Its shares have rallied hard on Monday morning after the US Department of Justice moved to shut down several US facing power sites – namely Pokerstars, Full Tilt Poker and Absolute Poker. Read more

Street’s CFO attrition rate raises eyebrows

Wall Street banks have been losing chief financial officers at an unusually high rate since the crisis, a trend that is unnerving investors who remain wary of risk and regulation, the FT reports. Bank of America’s replacement of Chuck Noski on Friday leaves Goldman Sachs as the only major bank not to have replaced its finance chief in the last two years. David Viniar has served at Goldman since it went public in 1999 — a normal tenure for CFOs throughout corporate America, but increasingly rare at banks. Analysts said BofA’s move was a ‘red flag’ and ‘eyebrow-raising’, following concerns over how banks will respond to fresh capital requirements and regulation.

Smoke, mirrors, and Greek maturity swapping

A confusing morning for Greek debt restructuring watchers on Monday, with CDS spreads up to 1,220 bps at pixel time, Markit said.

From the Greek newspaper Eleftherotypia, meanwhile: Read more

Underwriters value Glencore up to $69bn

Banks underwriting Glencore’s initial public offering have given research to potential investors arguing that the commodities powerhouse is worth between $53bn and $69bn, Reuters says. Barclays Capital and Credit Suisse research also predicts high earnings growth. Barclays forecasts that EBITDA will more than double to $12.9bn in the next two years. With research done before a flotation typically excluding sales of new shares, the estimates imply that Glencore’s valuation will hit $78bn after the IPO. However, the complex parts of Glencore’s operations — trading, mining, and its stake in Xstrata — make a valuation difficult to pin down.

NYSE seeking Nasdaq fee before talks

NYSE Euronext will likely ask Nasdaq OMX for a $2bn reverse break-up fee before it is ready to engage in talks about merging, people familiar with the matter have told Reuters. NYSE wants guarantees that any deal would survive antitrust scrutiny, but its request far outweighs the amount Nasdaq is prepared to offer, of around $250m, the sources added. Nasdaq’s joint bid with ICE suffered rejection by NYSE’s board last week over antitrust issues. NYSE’s $5bn valuation of its derivative business also contrasts with Nasdaq’s $6.3bn offer, creating concerns over taxable gains in the deal, a source said.

The literal Bernanke put

Okay. This theory comes attached with a big “fringe” belief warning.

However, it is worth flagging up since it was explicitly mentioned by the Federal Reserve as a possible unconventional monetary tool back in 2003. Read more

FDIC drive to ring-fence banks

FDIC chairman Sheila Bair has taken a leaf out of recent British regulatory moves and proposed that US banks ring-fence their investment banking operations from retail business, the FT says. Regulators now have the power to break banks into smaller parts during the exercise of resolution authority, allowing this retail-investment split, Bair said. On Monday, the FDIC will publish its report of how Lehman Brothers would have been liquidated under Dodd-Frank — a copy can be found here. The FDIC says it could have used new powers to encourage Barclays to acquire the failing US bank and to persuade UK regulators to approve the deal.

Synthes confirms J&J merger talks

The Swiss surgical products and medical services group Synthes has confirmed it was in takeover talks with Johnson & Johnson, reports the FT. Shares in Synthes rose more than 12 per cent in European markets on Monday, on speculation the deal could value it at $20bn. However, Synthes warned that it could give no assurances on the terms of a deal. The mooted capitalisation would make any takeover J&J’s biggest ever deal, Bloomberg reports. J&J’s previous biggest acquisition, of Pfizer’s consumer health unit in 2006, totalled $16.6bn. J&J is pushing ahead with due diligence on Synthes’ books, the WSJ says, noting that the acquisition would give J&J ‘immediate presence’ in the trauma market and in orthopaedic devices.