Posts from Wednesday May 4 2011

Tightening talk rattles risk appetite

Broader market sentiment looks to be taking its guide from the commodity complex, where recent softness is signalling concerns of slower global growth as Bric nations, the accelerants feeding the economic fire, strive to damp inflation, reports the FT. These fears have been amplified by a much weaker than expected survey of the US service sector in April – a piece of news that has seen the dollar test 33-month lows and encouraged traders to pare risky positions. The FTSE All-World equity index is down 1 per cent and crude is at a 2-week low, following a larger than expected build in US inventories. Yields on US Treasuries are nudging lower, with the 10-year note off 3 basis points to breach the technically significant 3.25 per cent level. The S&P 500 on Wall Street is down 0.7 per cent, with the weak non-manufacturing report counteracting any uplift provided from news of M&A moves by ConAgra and Applied Materials worth a total of nearly $10bn. This latest dip leaves the S&P 500 about 1.7 per cent below Monday’s intraday cyclical high. The retracement reflects a waning of risk appetite as investors eye the often treacherous summer months and fret about the impact of an increasingly tighter – the Fed aside – global monetary environment.

White House set for trade pact talks

The Obama administration has announced it is ready to enter talks with lawmakers on the approval of free trade agreements with South Korea, Colombia and Panama that have long been stalled in Congress, writes the FT. The move follows months of negotiations with the three countries to revise deals originally signed under President George W. Bush and is the latest evidence of White House efforts to ramp up its trade policy. Republicans had pressed for all three deals to be considered by Congress as a package. Although revisions to the South Korea deal were agreed in December, there have been issues outstanding with Panama and Colombia.

Doubts cast on Asia’s sprint to domination

Prominent voices are beginning to challenge a widespread belief that Asia is set on an immutable course to global economic dominance, the FT reports. The Asian Development Bank, the region’s only continent-wide institution, will say on Wednesday that the widely predicted Asian century may not materialise. The ADB’s warning, in a report prepared for Asian governments attending its annual meeting in Hanoi, follows interventions by prominent economists sceptical about Asia’s ability to keep growing at current rates. Nouriel Roubini, chairman of RGE, the economics consultancy, forecast last month that China will suffer an economic “hard landing,” followed by a collapse in growth sometime after 2013 as a glut in productive capacity caused by over-investment in infrastructure and housing begins to take effect.

US refuses to reveal bin Laden photos

Barack Obama, US president, has decided not to release photographs of the corpse of Osama bin Laden, the al-Qaeda leader killed by US special forces, amid warnings that such a step could inflame opinion in the Middle East and beyond, the FT reports. As scattered protests took place in Pakistan against the killing of bin Laden, who was shot unarmed, the White House said Obama had decided not to publish the photos, which it has described as “gruesome”. Bloomberg adds that Obama later told CBS that the photos should not be used as ‘trophies’

Further further reading

For the commute home,

– James Hamilton on whether high oil prices bring a new recession. Read more

The headline-core CPI gap is all about motor fuel

While we’re on the subject of fuel prices, here’s a chart posted Tuesday in a paper by the St Louis Fed:

 Read more

The problems with fuel consumption data

John Kemp has an excellent column out Wednesday on the latest auto sales data, emphasising that buyers of US cars are increasingly shifting towards compact, fuel-efficient vehicles, and pointing to recent analyses arguing that $4 gas won’t reduce demand the way it did in 2008, mostly because of higher employment and better general economic conditions.

Kemp’s piece is also a handy primer on the methodology behind collecting data on US gas consumption. Read more

CMBS 1.0 vs 2.0

We’ve been monitoring trends in CMBS 2.0 — the next generation of Commercial Mortgage-Backed Securities — since early this year, when it became clear that issuance was set to begin climbing again.

And, of course, they have — with deal sizes, the number of loans collateralising each deal, and the number of tranches all continuing to increase on the initial, more conservative deals of CMBS 2.0. Read more

More from the Glencore prospectus

Remember this?

It’s the Glencore CDS spread, courtesy of Markit, in December 2008. Read more

Emerging loan demand

If you’ve ever wondered what a survey of senior lending officers in 45 emerging markets might look like (as opposed to, say, all those stagnant developed loan market surveys) here’s your chance.

The Institute of International Finance (IIF) has just released first-quarter data from its (enlarged) emerging markets lending conditions survey, canvassing all of IIF’s emerging market member banks: Read more

Portugal, sell your gold!

The terms of Portugal’s draft bailout agreement have been revealed. But no mention within the documents about what happens to the country’s ample stash of gold bullion.

Some 12.3m troy ounces in fact, worth about $17.6bn as of March 2011, according to the IMF. Read more

Meet the $9.6bn man (and Glencore’s other billionaires)

It’s out, and longer than Tolstoy’s War & Peace.

Presenting the Glencore prospectus, which is so big we can’t upload it to our servers — but you can find the 134MB file on Scribd once it loads! Read more

Revealed: the Portuguese agreement

A great scoop from the Portuguese newspaper Expresso — they’ve managed to get a copy of the draft memorandum of understanding between Portugal and the EU/IMF/ECB, as part of its three-year bailout.

You won’t find the total cost of the bailout or its interest rate here, but there’s much fine detail on the balance of austerity. Read more

Language games, with Albert

Another missive on the US recovery from the SocGen bear-king Albert Edwards and, uh-oh, paging Ludwig Wittgenstein:

Words fail me

 Read more

Goldman ponders ‘puzzling’ dollar skew

The dollar may be dropping in the spot market, but in options world… it’s still going strong.

The option market skew in dollar crosses — the difference between the implied volatility of out-of-the-money dollar-related puts and calls — remains bid towards dollar appreciation. And Goldman Sachs figures that the “puzzling” dollar skew can be explained by cross asset hedging, in a piece of research out on Wednesday. Read more

Delaying a US default 101

We are 12 days from hitting the $14,300bn US debt ceiling. And, perhaps more importantly, just a few months away from when the Treasury will run out of accounting moves that can prevent a default.

And if you’re wondering what these accounting moves are exactly, look no further. Read more

For all the BMWs in China

From BMW’s record earnings statement on Wednesday:

“The BMW Group is well on its way towards achieving new sales volume and earnings records for the full year. We are aiming for a record sales volume of well over 1.5 million vehicles as well as new full-year sales volume records for each of our premium brands BMW, MINI and Rolls-Royce.” Read more

Man in Japan

After losing a lot (some estimated up to $2bn) as a result of Japan’s March 11 earthquake and tsunami, and giving a bit ($1m) to Japan’s relief effort, Man Group is recouping some losses and is back in serious business in Japan – and wants everybody to know about it.

The timing seems good. Man’s move comes as Japan’s stock market on Monday reached its highest level since the March 11 disasters, after plunging more than 16 per cent in the first two trading days after the earthquake. Read more

S&P sees eurozone, UK housing headwinds on swelling rates

Here’s a convenient continuation of the rising-European-rates-meets-real-estate theme.

Standard & Poor’s reckon “fresh headwinds are gaining force in Europe’s real estate markets” due to rising interest rates (or at least, expectations of them) in a report out on Wednesday. Read more

Markets Live transcript 4 May 2011

Live markets commentary from 

US earnings season, ‘extraordinary resilience’?

After a flurry of first-quarter US corporate results figures, analysts have been pronouncing the Q1 earnings-per-share season “solid”.

But, as Morgan Stanley says in a recent note, margin expectations may be too high. It begins: Read more

Portugal’s formidable adjustment programme [updated]

A few more details on Portugal €78bn bailout package were starting to emerge on Wednesday morning.

From Reuters: Read more

Here comes RenRen

UPDATE: As Reuters reported late on Tuesday, RenRen didn’t actually price until early Wednesday morning (at $14), but its American Depositary Shares started trading Wednesday on the NYSE as scheduled.

This was Renaissance Capital’s shadow US IPO backlog at the end of last year, as we then reportedRead more

Tightening talk rattles risk appetite

Broader market sentiment looks to be taking its guide from the commodity complex, where recent weakness is signalling concerns of slower global growth as Bric nations, the accelerants feeding the economic fire, strive to damp inflation, the FT reports in its rolling global markets overview. The FTSE All World equity index is down 0.3 per cent, crude is near a 2-week low, while US benchmark Treasuries are seeing buyers, nudging down yields. US stock futures are off 0.3 per cent, meaning Wall Street is slated to open 1.3 per cent below Monday’s intraday cyclical high.

Steep drop tarnishes big bets on silver

Silver prices plunged, suffering their worst one-day drop in dollar terms in three decades, the Wall Street Journal says. Silver’s fall of $3.50, or 7.6 per cent, and a 1 per cent drop in gold prices Tuesday, came as some major investors have been selling. George Soros’s big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, the WSJ reports, citing people close to the matter, after furiously accumulating precious metals for much of the past two years. FT Alphaville notes that much of the silver sell-off was was attributed to the CME imposing tougher margin requirements for speculative traders for the second time in a week.

Prospect of shortage drives T-bill yields down

Interest rates demanded by investors to hold short-term Treasury bills sank to record lows on Tuesday and were approaching zero, amid the prospect of lower sales by the US Treasury in coming months, the FT reports. The Treasury announced late on Monday a sharp reduction in borrowing needs for the second quarter due to higher tax receipts and less spending outlays. The issuance of Treasury bills is now pegged at $142bn versus an original estimate of $298bn. The Wall Street Journal says UST bulls risk corralling themselves by pushing prices higher in anticipation of smaller auctions. The Treasury is scheduled to release sizes for next week’s auctions in three-year, 10-year and 30-year bonds later on Wednesday.

CVC Capital Partners considers F1 stake sale

CVC Capital Partners, owner of Formula 1, acknowledged for the first time that it could sell at least part of its stake in the sport, saying it had been contacted by a consortium of News Corp and Exor, the Agnelli family investment company that controls the Ferrari F1 team, the FT reports. The private equity group was responding to a statement released on Tuesday by the consortium partners that they were “in the early stages of exploring the possibility of creating a consortium with a view to formulating a long-term plan for the development of Formula 1”. Reuters adds that Exor and News Corp plan to talk to potential minority partners and the main operators involved, in the next few weeks.


Deutsche Bank hit by $1bn US lawsuit

The justice department has sued Deutsche Bank for more than $1bn, accusing the German lender and a subsidiary of lying their way into a government mortgage scheme and “recklessly” endorsing risky loans for federal insurance, the FT reports. The suit marks the latest effort by US officials to hold lenders accountable for the financial crisis. FT Alphaville has a copy of the court filing and details the skeletons (or mortgage audits) in Deutsche Bank’s closet, while pondering the naiveté of the FHA mortgage insurance programme. Separately, the FT says the DoJ is also reviewing the findings of a Senate report that found Goldman Sachs misled clients buying mortgage-related securities in the run-up to the financial crisis.

Bahrain bank flight, quantified

Q. What happens when your prized offshore banking system is occupied by Saudi Arabia?

A. This: Read more

Banks anxious over Fed regulations

Wall Street banks are warning they may have to cede much of the European derivatives market to the likes of Deutsche Bank and Barclays Capital if US regulators follow through on proposals to apply new regulations extraterritorially, the FT says. The Fed and other regulators recently proposed rules that would force the non-US arms of US banks to collect collateral, or “margin” in the form of cash or securities, “without regard to whether the counterparty is located inside or outside the US”. Some banks said it was the first inkling that US regulators wanted to enforce the Dodd-Frank Act beyond US shores. Seperately, Bloomberg reports that two federal committees are scheduled to this week take action on 11 pieces of legislation aimed at changing, delaying or repealing sections of the Dodd-Frank Act.