Posts from Thursday May 5 2011

Rout

A bloody day across the commodities complex.

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Further further reading

For the commute home,

- Top 5 reasons the MBS lawsuits are just beginning (HT Shanny Basar). Read more

Euro falls as Trichet signals no rate rise

The euro retreated from a 17-month peak against the dollar and a 13-month high against the pound as Jean-Claude Trichet, president of the European Central Bank, signalled that eurozone interest rates would remain on hold next month, the FT reports. Analysts said the single currency had received support in recent weeks since the ECB, in contrast to the Federal Reserve and the Bank of England, was seen as being ready to tighten monetary policy further in the coming months in a bid to stem inflationary pressures in the eurozone.

Carlyle faces questions over China investments

Carlyle, the US private equity group, is facing questions over its investments in two Chinese companies that have been accused of fraud and suspended from trading on stock exchanges in Hong Kong and New York, the FT reports. The scrutiny comes at an unwelcome time for Carlyle, as the manager of some $106bn in funds seeks to burnish its reputation ahead of a planned initial public offering.

Court backs move to oust Yunus

Grameen Bank, the pioneering Bangladeshi micro-lender, appears set for an institutional shake-up after the Supreme Court rejected the final legal appeal for Nobel laureate Mohammad Yunus to remain at the helm of the bank, the FT reports. In a widely expected ruling, the Supreme Court upheld the central bank’s dismissal of Yunus, now 70, as managing director of Grameen for exceeding the mandatory retirement age. The verdict comes after a months-long dispute with the government of Prime Sheikh Hasina, who has made little secret of her dislike for Bangladesh’s most famous citizen.

Medvedev expected to target capital flight

Russia has failed to improve its investment climate amid growing capital flight, a top aide to Dmitry Medvedev has said, as the president draws up economic reform plans on which to base a possible re-election bid, the FT reports. Mr Medvedev came to power in 2008, following his mentor, Vladimir Putin, who became prime minister after hitting the constitutional limit of two successive presidential terms. In recent weeks Mr Medvedev has begun laying markers for a re-election campaign, upsetting assumptions that he might clear the path for Mr Putin to return as president in 2012. “The assessment by the president is that we did not have real progress in improving the investment climate,” Arkady Dvorkovich, Mr Medvedev’s top economic adviser, told the Financial Times in an interview. “We need progress now in the short term. Investment is very low and capital flight is high.” Mr Dvorkovich said the president would soon unveil new measures to improve the situation for investors. Central bank data showed a net $21bn fled Russia in the first quarter of this year, in spite of near-record oil prices. Fresh central bank data on Thursday showed a further $1.6bn left last week, bringing total outflows in April to $5.3bn, up from $4.3bn in March, according to estimates by Goldman Sachs.

Oil leads commodities price plunge

A record plunge in oil prices led the sharpest sell-off in commodities in two years on Thursday as investors fled the market amid mounting concern over the strength of the global recovery, the FT reports. Brent crude, the oil benchmark, tumbled more than $10 a barrel – its biggest fall in absolute terms – as investors bet that recent sharp gains in raw material prices would sap demand and compel emerging countries’ central banks to raise interest rates to head off runaway inflation. Fears about the strength of the US economy have returned after weaker-than-expected growth and jobs figures. Petrol prices in the US are approaching $4 a gallon, hitting households hard and squeezing people’s disposable income. The steep slide in everything from cocoa to silver and other metals, including copper and tin, could mark an end to the impressive bull run that has taken the prices of many commodities to record highs. It came a day after Glencore, the world’s biggest commodities trader, unveiled details of its multi-billion dollar flotation. Some investors were yesterday drawing comparisons with the initial public offerings of Goldman Sachs and Blackstone, the private equity group, which marked the top of their respective markets. The benchmark Reuters-Jefferies CRB index, a basket of commodities, fell 4.8 per cent, its biggest one-day percentage fall since the financial crisis and one of the steepest on record. Brent fell to a session low of $109.02 a barrel, down $12.17 or 10 per cent. US crude prices sank below $100 for the first time since March.

Yen moves, reversed…

The Yen, at pixel time trading at 80.02, since the start of April:

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Food prices and crop yields

The day’s commodities focus understandably has been on the big oil sell-off, but earlier today the Food and Agriculture Organization also released its April tally for world food prices.

The short story: Grains, and maize in particular, were up big as bad weather has depressed stocks; but sugar and dairy were down considerably while oils/fats and meats were mostly unchanged. Read more

Commodity sell-off 2011: is this it?

Some commodity market curios on Thursday May 5, 2011:

Number 1 - Standard deviations. Read more

When indicators disappoint

For reasons we’ve mentioned before, we don’t frequently write about the US initial weekly claims number — it’s too noisy, frequently is revised later, and it isn’t adjusted for changes in the percentage of the eligible jobless who actually apply for unemployment insurance (the “take-up rate”).

But we’ll make an exception for this week’s number because of tomorrow’s employment report, and because it was the highest claims reading in eight monthsRead more

The silver crowd

The wonders of Google auto-suggest, silver vox pop edition:

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‘Monitor very closely’

Code word time again. Trichet at Thursday’s ECB rates decision (held, at 1.25 per cent) presser:

With interest rates across the entire maturity spectrum remaining low and the monetary policy stance still accommodative, we will continue to monitor very closely all developments with respect to upside risks to price stability. Read more

A ‘top’ of the market IPO from Glencore?

Related link:
Glencore’s IPO already fully covered – FT
Glencore’s Achilles heel – FT Alphaville

When commodity ETFs go wrong…

Olivier Jakob of Petromatrix observes an interesting point on Thursday regarding one of our favourite whacko ETFs, the United States Natural Gas Fund, or UNG for short.

Readers might recall how the ETF was forced to load up on natural gas swaps last year, after coming close to breaching CFTC position limits in natural gas futures. Read more

Markets Live transcript 5 May 2011

Live markets commentary from FT.com 

What’s going on in IPO land?

First it’s RenRen, then Dunkin’ Donuts and of course, the mother of them all, Glencore, to name a tiny handful of the highest-profile IPOs – planned or executed – making headlines on Thursday.

In the US alone, 31 companies filed to go public in April – including several more Chinese companies such as dating site Jiayuan.com. Oddly, there were also 31 US IPOs last April, according to Dealogic. But apart from this strange coincidence, this is the biggest monthly lineup of IPOs in America since August 2007, according to Dealogic figures. Read more

The O’Lloyds zombie, in context

Not too surprising to see Lloyds’ effort at kitchen-sinking Irish exposures in its Q1 results, with impairments up £500m more than guided to £1.14bn…

Even so, it’s a nice test case of how bad Irish property loan losses could conceivably get, and/or the appetite for recognising losses – compared to Irish lenders and the recent stress tests in Ireland. Read more

Mexican central bank buys 100 tonnes of gold

Mexico has quietly purchased nearly 100 tonnes of gold bullion, as central banks embark on their biggest bullion buying spree in 40 years, the FT reports. The purchase, reported in monthly data published by Mexico’s central bank, is the latest in a series of large gold buys by emerging market economies intent on diversifying reserves away from the faltering US dollar. China, Russia and India have acquired large amounts of gold in recent years, while Thailand, Sri Lanka and Bolivia have made smaller purchases. Central banks became net buyers of gold last year after two decades of heavy selling – a reversal that has helped propel the price of bullion to a series of record highs. On Wednesday gold was trading at about $1,510 a troy ounce, down 4 per cent from a nominal record high of $1,575.79 reached on Monday.

SocGen results hit by debt charge

Société Générale, France’s second-biggest listed bank, posted lower-than-expected first-quarter results on Thursday due to a charge tied to its own debt and provisions resulting from political turmoil in Egypt, the FT reports. Net profit for the quarter fell 13.8 per cent to €916m ($1.28bn). The average estimate in a Reuters analyst poll was €1.06bn. The bank’s revenue was up slightly to €6.62bn but also below expectations of €6.73bn. Frederic Oudea, chief executive, said the results showed the “robustness” of SocGen’s businesses “in an uncertain international, political, economic and financial environment”. Leaving aside the €362m accounting charge resulting from an improvement in the value of its own debt, the French lender’s first-quarter profit rose 9.8 per cent as consumer, corporate and investment banking earnings increased on lower bad-loan provisions.

Flybe – the latest flotation flop

The curse of the UK IPO strikes again.

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PPI charge pushes Lloyds into loss

Lloyds Banking Group was thrust back into the red in the first quarter of this year after taking a £3.2bn provision for potential compensation claims arising from payment protection insurance, a controversial type of loan cover, the FT reports. The bank – the biggest provider of PPI – is the first to take a hit following last month’s decision by the High Court to throw out an appeal from the industry against regulatory changes that would force lenders to refund past policies. The provision by Lloyds is far larger than expected – the Financial Services Authority had estimated that the changes could cost the whole industry £4.5bn and analysts had expected Lloyds’ share to be about £1.5bn. The hit, along with higher than expected loan losses from its tattered Irish real estate portfolio – higher than analysts had anticipated, at £1.1bn – pushed Lloyds into a first-quarter pre-tax loss of £3.47bn, compared with a £721m profit a year ago.

Traders cautious ahead of ECB and US jobs data

Investors were back selectively nibbling at riskier assets on Thursday, reports the FT’s global market overview. A couple of days of declines appeared to dilute, but not fully dissolve, the undercurrent of bullish belief in the health of the global economy and prospects for corporate earnings. But trading was cautious ahead of monetary policy decisions from the European Central Bank and Bank of England, and Friday’s US non-farm payrolls numbers. Weekly initial jobless claims for the US will be published at 1330 BST. The FTSE All World equity index was flat and Treasury yields were marginally higher as dealers became a tad more optimistic. Shanghai recovered 0.4 per cent from the previous session’s 2.3 per cent slide and the FTSE Eurofirst 300 opened higher by 0.2 per cent as miners rebounded. Japan was closed for a holiday.

UBS pays $160m to settle US bid-rigging charges

UBS has agreed to pay $160m to settle allegations by the Department of Justice and the Securities and Exchange Commission that the Swiss bank rigged bids in the US municipal bond market, reports the FT. Christine Varney, assistant attorney-general, said on Wednesday that the settlement was part of an “active and ongoing” investigation, which has led to criminal charges against 18 executives allegedly involved in the local debt scam, including four UBS employees. Ms Varney declined to identify other banks under investigation, but it follows a similar settlement with Bank of America that led to the bank paying $137m in fines and payments to victims in December.

Intel claims 3D chip revolution

Intel has claimed the biggest breakthrough in microprocessor design in more than 50 years, raising the stakes significantly for rivals in the increasingly capital-intensive global chip industry, reports the FT. The world’s biggest chipmaker said on Wednesday that it would begin producing chips this year using a revolutionary 3D technology that has been nearly a decade in the making, and which it said would act as the foundation for generations of computing advances to come. Microchip transistors, the building blocks of electronics, have to date been produced in flat structures – akin to printing on a sheet of paper. Intel’s breakthrough involves producing more complex three dimensional transistors on chips.

Glencore’s IPO already fully covered

Glencore’s initial public offering is already fully covered, only hours after the world’s largest commodities trading house officially launched the process with the publication of its much awaited 1,600-plus page prospectus in London, the FT reports. “Glencore is getting enormous interest,” said a person familiar with the deal. An investor added: “From what I hear, the order book is very, very, very busy.” The trading house on Wednesday announced it had secured the support of a roster of blue-chip “cornerstone” investors, including Aabar, one of Abu Dhabi’s sovereign wealth funds. The cornerstones invested $3.1bn. Glencore priced its IPO at a level that gives it a valuation of $48bn-$58bn, or 480p-580p a share, shy of the average forecast of $62bn provided by the banks underwriting the offering. For more on the possible downsides of owning Glencore, see FT Alphaville.

Spanish covered bond disclosure. It’s the (unheeded) law

Moody’s is on the warpath against sketchy Spanish structured finance data again.

But this time the agency’s sites are firmly set on the mother of all SF — covered bonds. Read more

Glencore’s Achilles’ heel

FT Alphaville has been poring over the Glencore prospectus overnight and we’ve come across a few further points of interest on the matter of funding.

As we noted earlier last month, Glencore’s marketing business is very much focused on tried and tested arbitrage strategies unconnected to the ‘flat-price’ of commodities, meaning its profit potential is actually relatively unaffected by large commodity price moves. Read more

Antonio Horta-Orsorio clears the deck at Lloyds

RTRS-LLOYDS CEO SAYS “I REALLY DO NOT SEE ANY KITCHEN SINKING IN THESE RESULTS”

Well, Antonio Horta-Orsorio might see it that way, but it’s very unlikely the City will agree. Read more

Further reading

Elsewhere on Thursday,

- ‘Until you lose a decent amount, you don’t really understand how the market works.’ Read more