Posts from Wednesday Apr 27 2011

Further further reading

For the commute home, where the only press conference is on finally ironing your own shirts,

- From idea to $20bn startup in twelve weeks. Read more

Fed to remain vigilant on inflation

Ben Bernanke, Federal Reserve chairman, said the US central bank would remain vigilant over inflation, as he declared in a historic first press conference that a strong dollar was in the best interests of the US and the global economy, reports the FT. Mr Bernanke’s comments came after the Federal Open Market Committee, which sets interest rates, confirmed that the US will complete its $600bn ‘QE2’ programme of asset purchases in June as planned and revised its economic outlook to reflect slower growth, higher inflation, and lower joblessness in 2011.

J&J to buy Synthes for $21.3bn

Johnson & Johnson has agreed a $21.3bn takeover of Switzerland’s Synthes to create the world’s leading orthopaedic devices group, reports the FT. J&J, which has a diversified healthcare business including drugs and devices, said on Wednesday it would pay SFr159 a share for Synthes, a 8.5 per cent premium over the Swiss company’s closing share price on Tuesday.

Gold hits record as Fed calls price rises ‘transitory’

Ben Bernanke’s press conference gave a further lift to asset prices, with US stocks at a fresh post-crisis high and gold at a new record, even as the US Federal Reserve said it would end its $600bn “QE2” quantitative easing programme, the FT reports. The Fed held rates steady at 0 to 0.25 per cent but tweaked its statement on growth, reducing its outlook from a “firmer footing” for the recovery to a “moderate” pace of growth. It also said inflationary pressures were “subdued” and labelled pressures from energy and other commodities as “transitory”. Gold, which many investors see as hedge to future inflation, saw a boost all the way to $1,529 an ounce, another all-time nominal high. Silver jumped 5.5 per cent, rebounding from a slip earlier this week, to $47.99 an ounce, nearing its own nominal record of $50. Mr Bernanke, the Fed chairman, attempted to present a slightly more hawkish front at a later press conference. He said he was “not sure” the Fed could generate additional employment without creating more inflation risk. ”The trade-offs are getting less attractive at this point,” he said. But it was unconvincing, judging from market reaction. “The chairman appears watchful but comfortable with the Fed’s current stance,” said economics strategists at Royal Bank of Scotland. US crude oil continues its rise, now up 1 per cent to $113.33 a barrel, just 15 cents shy of its three-year high touched last week. The jump comes despite a supply report that was “unambiguously bearish for crude oil”, according to analysts at Societe Generale, citing a faster-than expected inventory build combined with a jump in imports. The five-year Treasury note yield – which is the typical purchase target for the Fed – has given up its gains to stand flat at 2.015 per cent. But 30-year yields are 7 basis points higher at 4.46 per cent, and ten-year yields are up 5 basis points at 3.35 per cent, as investors price in higher future rates and inflation.

Yum! Brands to acquire China’s Little Sheep

Yum! Brands, the US restaurant operator, said on Wednesday that it plans to acquire Little Sheep, a Chinese chain of hot pot restaurants, in a move that would deepen its presence in China, reports the FT. Yum, which owns KFC, Pizza Hut and Taco Bell and already owns 27.2 per cent of Little Sheep’s stock, said it made a preliminary proposal to acquire the Chinese company’s outstanding shares. Little Sheep’s chairman and founding shareholders would maintain their minority interests.

Sony faces fury over hacked data delay

Sony faced fierce criticism on Wednesday following its disclosure that a hacker had stolen the personal data of more than 70m users of its PlayStation Network in one of the worst such online privacy breaches to date, reports the FT. The Japanese group said it had lost real names, birth dates, e-mail addresses and Sony passwords in what it described as an “intrusion” nearly a week earlier. It had closed down the PlayStation Network and its smaller Qriocity media streaming service, which was also affected, but the delayed revelation drew criticism.

Apple pledges to curb collection of location data

Apple has blamed programming errors for its collection of data that tracked the rough location of iPhone users and pledged to drastically cut down on the practice that has alarmed consumers and privacy advocates, reports the FT. After a week of increasing criticism and regulatory attention over the issue, the company said that it should not have been compiling the information on users who turned off location-based services. It added that it should not have stored the records for a year.

The dollar-battering Bernanke presser

To quote (again) a pint-sized musical firecracker from Minneapolis, this is what it sounds like when doves cry:

 Read more

US Markets Live transcript 27 Apr 2011

Live markets commentary from FT.com 

FOMC statement – 27 April 2011

Call it a bland appetiser before the tastier main course.

Full release below. As to changes, there were only two — these two lines, in the first and second paragraphs respectively: Read more

Presenting an exceptional spike in US CDS volumes

Do you believe in coincidence?

If so, you will have no problem explaining away the following from Unicredit’s Dr Tim Brunne. Read more

Reminder: US Markets Live today at 2pm EDT / 7pm BST

We’ll be kicking off 15 minutes before the start of Bernanke’s press conference and, of course, will be joined by our colleague Gavyn Davies. See our earlier post for more detail.

After a markets update and a quick review of the FOMC statement (to be released at 12:30 EDT), we’ll have rolling updates throughout the presser alongside Gavyn’s real-time commentary. Read more

ECB bond-buying, 2010-2011: in memoriam

There is no body, but we fear the Securities Market Programme (current holdings: €75bn) has been killed off.

Something to inscribe on the tombstone: Read more

Bye, bye Cushing syndrome (possibly)

By now, anyone following oil markets will be familiar with Cushing syndrome. The one-way flow problem which affects the Cushing delivery point for Nymex WTI futures in Oklahoma preventing oil that’s gathered there to travel to alternative domestic or sea-borne markets where demand is higher.

The dynamics have resulted in an almost permanent discount of WTI crude to sea-borne Brent crude for nearly a year now. Read more

US earnings: Q&A with Doug Cliggott

The last time we checked in with Doug Cliggott, chief US equity strategist at Credit Suisse, he was joining us for the launch of US Markets Live in early March.

At the time he thought the market was modestly overvalued and had a year-end target for the S&P 500 of 1250. He worried that the combination of high oil prices and the impending end of QE2 would eventually pressure earnings multiples and lead to a pullback, and he was advising investors to “move up in size, up in quality and down in economic sensitivity.” Read more

Markets Live transcript 27 Apr 2011

Live markets commentary from FT.com 

S&P has another go at Japan

Amid a stream of gloomy forecasts for Japan’s economic outlook this year, it was a downgrade that had to happen at some point, though some were left wondering whether S&P’s move on Wednesday to cut its outlook for Japan’s sovereign debt from “stable” to “negative” was slightly – err, hasty.

S&P cited concerns about the effect of massive reconstruction costs following the March 11 earthquake and tsunami disasters on Japan’s already wide fiscal deficits. Coming on the heels of the agency’s January downgrade of Japan’s sovereign credit rating, and its shock move last week to cut its outlook on US sovereign debt, it makes S&P look rather zealous – perhaps overly so, given that Japan is yet to detail how it proposes to pay for reconstruction. Read more

Amazon profits fall on data investment

Amazon, the world’s largest online retailer, reported a 33 per cent fall in net income for the first quarter as new investments in data storage and distribution eclipsed a rise in sales, the FT reports. The company had told investors to expect a drop in earnings, but the fall in net income to $201m from $299m was steeper then anticipated – and Amazon warned of a further drop this quarter. Amazon’s shares slid nearly 2 per cent in after-hours trading, having fallen 1.7 per cent in the run-up to the results report at the end of official trading. Tom Szkutak, chief financial officer, continued to champion Amazon’s investment plans. But some analysts are concerned about Amazon’s willingness to sacrifice profitability to fund its young “cloud computing” data storage business as well as new distribution centres for the physical goods it sells.

Ericsson boosted by mobile broadband demand

Shares in Ericsson rose more than 8 per cent on Wednesday after the Swedish network equipment maker announced better than expected first-quarter results driven by surging use of mobile broadband services, the FT reports. Net profits more than tripled to SKr4.1bn ($674m) from SKr1.3bn in the same period last year, easily exceeding analysts’ consensus forecasts for about SKr3bn.  Hans Vestberg, chief executive, attributed the strong results to rising demand for network infrastructure, such as radio base stations, as increased use of bandwidth-hungry smartphones and other mobile broadband devices prompts telecoms operators to increase capacity.

GBP, GDP and HSBC

Stagflation or not, sterling has responded positively to Wednesday’s GDP release.

From Reuters: Read more

Stocks mixed as traders await Bernanke

All eyes and ears are on Big Ben, the FT’s global market overview reports. Equity markets were treading water on Wednesday ahead of the inaugural press conference by Ben Bernanke directly after the US Federal Reserve’s meeting. Few expect any fireworks from the Fed chairman when he speaks at 19.15, following the FOMC statement at an earlier time of 17.30. But there are lingering hopes that while confirming the end of the QE2 bond purchases in June, Mr Bernanke might leave the door open to “QE2.5”, in which the Fed reinvests any proceeds from maturing debt. The FTSE All-World Index was up 0.2 per cent while the dollar was flirting with three-year lows against major currencies. The Australian dollar, the risk-on currency of choice, hit a 30-year high against the greenback of $1.085 earlier on Wednesday and the euro is up 0.2 per cent to $1.468.

BP profits fall after selling fields to pay for Gulf spill

BP’s earnings fell in the first quarter from a year earlier after it sold assets to pay for repercussions from the Gulf of Mexico oil spill, the New York Times reports. The company also booked an extra $400m charge related to last year’s Gulf of Mexico spill. Excluding one-time items and inventory changes, earnings fell to $5.37bn from $5.6bn a year earlier, even despite higher oil prices. According to Bloomberg, BP was expected to earn $5.6bn. Production at the oil major dropped 11 per cent after the sale of more than $24bn of assets to help pay for the disaster. According to the New York Times, BP has now set aside $41bn to cover costs related to the oil spill in the Gulf of Mexico, one of the largest ever and is still trying to get regulatory approval to resume drilling in the Gulf of Mexico.

On the scale of hidden copper stocks

An interesting report comes our way from Frank Veneroso of RCM, who has been looking more closely at the scale of the global copper inventory overhang.

He cites the work of Simon Hunt, an independent copper market expert, who has been warning of untold surplus inventory for many years now. Read more

Data breach hits 70m Sony customers

More than 70m users of Sony’s online gaming network have had their names, e-mail addresses and passwords stolen by a hacker in one of the largest privacy breaches to date, the FT reports. Sony announced on Tuesday that the information had been taken – six days after it closed the PlayStation Network – as it began e-mailing users of the free service with warnings to be on the lookout for scams. The Japanese electronics and entertainment powerhouse said it was possible that credit card information had been taken as well, recommending that customers who had supplied those numbers online should review their bills carefully. The breach is troubling because many Sony gamers are likely to have used the same passwords for e-mail and social networking accounts. The hacker could resell user name and password combinations to other criminals, who could take control of those accounts and mine them for bank account passwords or send bogus e-mails to friends’ addresses.

S&P sounds fresh alarm on Japan debt

Standard & Poor’s has downgraded its outlook for Japan’s sovereign debt from “stable” to “negative,” citing concerns that reconstruction costs following the March 11 disaster would increase Japan’s fiscal deficits, the FT reports. The rating agency cited concerns that the Japanese government would face difficulty providing a clear plan for paying for reconstruction, which S&P estimates as ranging from Y20,000bn ($245bn) to Y50,000bn. “The negative outlook signals that a downgrade is possible if Japan’s public finances weaken further over the next two years in the absence of fiscal consolidation to offset them,” S&P said. Japan’s fiscal position was a concern even before last month’s earthquake and tsunami. In January, S&P cut Japan’s credit rating for the first time since 2002 to AA-from AA. The following month, Moody’s downgraded its outlook on Japan’s Aa2 rating, from “stable” to “negative”.

J&J to buy Synthes for $21.3bn

Johnson & Johnson on Wednesday confirmed it had agreed a $21.3bn takeover of Switzerland’s Synthes to create the world’s leading orthopaedic devices group, the FT reports. J&J, which has a diversified healthcare business including drugs and devices, said it would pay SFr159 a share for Synthes, a 8.5 per cent premium over the Swiss company’s closing share price on Tuesday. Synthes shareholders will receive SFr55.65 in cash and the equivalent of SFr103.35 in J&J stock – approximately 1.7-2 shares – for each share they hold. The net cost to J&J will be about $19.3bn, given that Synthes has about $2bn in cash. Shares in Synthes, which is based in the US but quoted in Switzerland, have risen sharply in recent weeks on takeover talk. Synthes confirmed earlier this month it was discussing a deal, but gave no assurances about the outcome.

Credit Suisse fails to match 2010 results

Credit Suisse’s profits and revenues in the first quarter failed to match its bumper results of 2010 but were well ahead of the depressed levels of the final three months of last year, the Swiss lender announced on Wednesday, the FT reports. Net profits of SFr1.14bn ($1.3bn) left the Swiss banking group overshadowed by arch rival UBS, which on Tuesday reported buoyant earnings. But Credit Suisse continued to outshine its bigger rival in terms of attracting money from private clients, with net new money of SFr15.7bn compared with UBS’s SFr11.1bn. Earnings were hit by a SFr617m pre-tax charge based on accounting changes to the value of the bank’s own debt, compared with a SFr59m hit last year.

Putting the ‘stag’ in stagflation

Abstracting from the snow
We have an economy
On a plateau

That’s the (Haiku-ised) verdict of Joe Grice, chief economist of the Office of National Statistics, on Wednesday’s UK GDP release. Read more

UK GDP grows by 0.5% in first quarter

The UK economy grew by 0.5 per cent in the first quarter as it rebounded from a contraction of 0.5 per cent in the fourth quarter of last year that had been largely caused by heavy snow, the FT reports. The figures from the Office of National Statistics suggest the economy was at best stagnant over the last six months, with the level of gross domestic product the same in the first quarter as it was in the third quarter of 2010. The data are in line with the average expectation of economists for growth of 0.5 per cent. The independent Office for Budget Responsibility had predicted 0.8 per cent growth. The weak growth came as construction output fell by 4.7 per cent in the quarter, and the output of utilities such as electricity and gas fell by 3.5 per cent after the cold December had boosted demand for heating.

Barclays buys back £6bn Protium assets

Barclays is buying back a troublesome £6bn ($9.8bn) portfolio of assets, just a year and a half after it sold it to a fund dominated by former employees in an elaborate manoeuvre designed to make its profits less volatile, the FT reports. The British bank announced on Wednesday that it was taking back full ownership of the credit market assets from a vehicle called Protium Finance, which had been backed by a loan from Barclays. It revealed the u-turn as it released first-quarter results that showed it had made a pre-tax profit of £1.66bn during the January to March period, down 9 per cent on the same period a year earlier. Bloomberg reports that much of the profit decline was due to a drop in revenues from fixed income, currencies and commodities in Barclays Capital’s investment banking unit, on account of a “challenging” market. For more on the story, see FT Alphaville.