Posts from Tuesday May 17 2011

Oil price rise fuels India’s inflation woe

Last weekend, Tarachand Gupta, a 52-year-old engineer, awoke to the bitter news that India’s state-owned oil marketing companies had raised petrol prices by 8 per cent overnight, writes the FT. “This is a rude shock,” Mr Gupta, who commutes 46km a day, said angrily as he filled the tank of his tiny Maruti Estilo in New Delhi, while returning home from work. “This could lead to budgeting chaos for me at home.” Increased fuel prices are just the latest headache for Indian consumers already buffeted by high inflation. Household budgets are being squeezed, and with higher diesel prices expected to follow as early as this week, the situation is likely to get worse. “It’s so uncomfortable. Onions are already frightfully expensive, and now you have to go and buy expensive vegetables with your expensive petrol,” said Kavita, a middle-class mother of two, filling up her Hyundai Santro. Policymakers are also feeling the pressure. Since March 2010, the Reserve Bank of India has raised rates nine times, taking the benchmark interest rate to 7.25 per cent, much to the dismay of industry.

Tokyo rebuked for ‘rash’ Tepco remarks

Japanese business leaders have criticised government pressure on banks to waive loans to Tokyo Electric Power, in a rare public confrontation that highlights the problems facing Japan in the aftermath of the Fukushima nuclear accident, reports the FT. Yasuchika Hasegawa, chairman of the Japanese Association of Corporate Executives, criticised Yukio Edano, chief government spokesman, for suggesting last week that the government’s rescue plan for Tepco hinged on banks forgiving loans to the utility.

World Bank sees shift on dollar

The World Bank expects the US dollar to lose its solitary dominance in the global economy by 2025, as the euro and the renminbi establish themselves on an equal footing in a new “multi-currency” monetary system, the FT reports. The shift will be driven by the growth of emerging market economies, with six countries – Brazil, China, India, Indonesia, Russia and South Korea – accounting for more than half of global growth in 14 years, the Bank said.

Sony chief braced for cost of hacker attack

Sony will lose money and customers as a result of the hacker attack on its PlayStation Network, Sir Howard Stringer, its chief executive, has warned, the FT reports. In his first interview since taking the gaming network offline in late April, Sir Howard said Sony had not determined whether it will take a one-time charge related to the breach. But he acknowledged that the company is facing costs related to repairing and upgrading its online networks, lost revenues during the outages, and new identity theft insurance that it is offering customers.

EU wariness and US data hit sentiment

The global session has taken a bearish turn as traders become wary about the ongoing eurozone debt crisis and after earnings and economic news from the US disappoints. Worries about a slowing of global growth as central banks tackle inflationary pressures, coupled with the imminent demise of the Federal Reserve’s $600bn QE2 market support programme, are also weighing on strategies. Notably, US Treasuries are seeing a continued upswing in demand. Ten-year US paper yields fell to 3.09 per cent earlier in the session, their lowest since December. In later day trading, they are down 1 basis point on the day at 3.14 per cent. Meanwhile, technology stocks are struggling following the leak of a memo showing that Hewlett-Packard’s boss Léo Apotheker expects “another tough quarter”. HP was forced to bring forward its results following reports of the comments and its shares are sharply lower. Results from computer maker Dell will be released later, but for now the sector is weighing on European and US stocks. The FTSE Eurofirst 300 is down 1 per cent while the S&P 500 is off 0.4 per cent. New York’s benchmark is gaining little help from the earnings of Walmart, nor from news that US industrial production in April was unchanged from the previous month, a soft report that feeds into fears the recovery may be faltering. Falling housing starts and building permits completed the gloomy picture.

Strauss-Kahn faces pressure to quit

Senior European officials on Tuesday called on Dominique Strauss-Kahn to quit as head of the International Monetary Fund after he was denied bail in New York on charges of sexual assault. “Considering the situation, that bail was denied, he has to figure out for himself that he is hurting the institution,” Maria Fekter, Austria’s finance minister, told reporters as she arrived at a meeting of European finance ministers in Brussels. Elena Salgado, Spain’s finance minister, said the charges against Mr Strauss-Kahn were “extraordinarily serious” and he would have to decide for himself whether he wanted to step down. While decisions on Mr Strauss-Kahn’s leadership will be taken by the IMF’s executive board in Washington, the 24 directors will follow instructions from their national capitals. The executive board met this week but were given only a factual briefing on the case via lawyers. The Fund said that diplomatic immunity would not cover its managing director in this case. Mr Strauss-Kahn has been charged with the alleged sexual assault of a maid at a hotel in New York city on Saturday. He denies the charges. “Whatever happens, and whatever the outcome of the process, the time it will require in the weeks and months to come will hinder him from doing his job as managing director. And we clearly need a managing director who can devote himself totally, fully and freely to his job,” said Laurence Parisot, head of Medef, the French employers’ federation.

Further further reading

For the commute home,

- Raj Gupta and McKinsey, profiled. Read more

The ‘Asia connection’ to the commodity rout

Our colleagues on the paper-side drew attention last week to the fact that silver trading in Asian hours experienced a clear pickup into the lead up to the commodity rout.

Jack Farchy wrote, citing Edel Tully, analyst at UBS: Read more

EasyEmails

How can FT Alphaville possibly have missed this set of missives, recently published on the easyGroup corporate website?

Noted without further comment (except to say that the exchange is related to this FT piece): Read more

Google adventures out along the yield curve [updated]

By John McDermott and Cardiff Garcia

Here’s a corporate bond mystery for you. Read more

Autocracy risk, Belarus edition

‘Hello? We’ve heard the IMF is still headed by a European pariah…’

RTRS-BELARUS MAY ASK IMF FOR FINANCIAL SUPPORT -LUKASHENKO PRESS SERVICE Read more

The Greek re-profiling mess

FT Alphaville has been there, done that on calling a ‘voluntary’ Greek debt maturity extension.

But it’s (at last) overtly on the agenda, and comparisons to Uruguay’s 2003 re-profiling are doing the rounds again. No one remembers the other precedent, oddly enough: Argentina’s 2001 ‘mega-swap’ of key maturities, immediately preceding its default. Read more

A colour-coded guide to the Greek crisis

From Ralf Preusser and Sphia Salim at Bank of America Merrill Lynch. Unsurprisingly, perhaps, the analysts reckon the ‘muddling through’ options are most likely:

Markets Live transcript 17 May 2011

Live markets commentary from FT.com 

Vodafone profits rise despite Spanish woe

Squeezed consumer spending, increased competition and deeper discounts have forced Vodafone to take a full-year impairment charge of more than £6bn, almost half of which came from its troubled Spanish division, the FT reports. The world’s biggest mobile operator by revenue on Tuesday said the economic woes afflicting several southern European countries including Spain, Portugal, Greece and Italy, had pushed down full-year revenues from the continent by 3.4 per cent to £30bn. However, a strong performance from its Africa, Middle East and Asia Pacific operations – which reported revenues up by a fifth to £12.3bn – enabled the telecommunications group to boost total turnover by 3.2 per cent to £45.9bn.

Nasdaq, ICE withdraw bid for NYSE on antitrust concerns

Nasdaq OMX and the IntercontinentalExchange have abandoned their $11.3bn break-up bid for NYSE Euronext after a US competition regulator threatened to sue the companies to block the potential deal, the FT reports. The Department of Justice said that combining the NYSE’s stock market operations with Nasdaq’s would have “substantially eliminated competition” in listings, trade reporting and other areas. Nasdaq and ICE were seeking to derail an agreed merger between the NYSE and Germany’s Deutsche Börse but on Monday withdrew their proposal, adding that they were “surprised and disappointed” by the DoJ’s decision. The WSJ reports that under the Frankfurt company’s pending deal to buy Big Board parent NYSE Euronext, US stock trading is likely to be eclipsed by faster-growing businesses like derivatives and futures trading, much of it outside the US.

Gasoline futures slide as US operations withstand floods

Gasoline futures slid on Monday, weighing on crude, worsening a rout in the motor fuel as southern US refineries kept up operations in the face of a flood, the FT reports. Nymex June RBOB gasoline, used to make petrol, dropped 14.33 cents, or 4.7 per cent, to settle at $2.9311 a gallon in New York. The contract has fallen 11 per cent in the past week. Retail markets have already begun to react, with the average price of petrol falling half a cent last week to $3.96 after steadily increasing since January. The declines reverse a rally in gasoline, which had outpaced crude amid falling stocks in the US and a historic deluge on the Mississippi river that threatened to affect output from refineries in Louisiana state.

Google makes bond debut with $3bn issue

Google has made its first foray into the bond markets, seeking to raise $3bn in an effort to boost its domestic cash reserves at a time when US corporate borrowing costs have returned to historical lows, the FT reports. The world’s largest internet search engine planned to raise the money with bonds maturing in three, five and 10 years. Google said that the money would replace existing commercial paper, suggesting that the debt sale was opportunistic to take advantage of low interest rates, but companies often turn to the bond market to get a foothold that lets them borrow more in future. According to Bloomberg, the company split the sale evenly between three-, five- and 10-year notes. The 1.25 percent, three-year notes yield 33 basis points more than similar-maturity Treasuries, the 2.125 percent, five-year debt pays a 43 basis-point spread, and the 3.625 percent, 10-year securities offer 58 basis points above benchmarks.

Iridium soars on high-tech gadget demand

The popularity of smartphones, tablets and flatscreen televisions has triggered a 150 per cent jump in the price of a little-known metal used in the manufacture of backlit screens, the FT reports. Demand for iridium, one of the earth’s rarest metals, more than quadrupled last year, according to Johnson Matthey, the precious metals refiner that compiles benchmark supply and demand statistics on the market. The sudden rush of buying in the tiny market has sent the price of iridium soaring to an all-time high above $1,000 a troy ounce. The 150 per cent surge in prices since the start of 2010 dwarfs the rallies in silver, gold, platinum and palladium. The market for iridium is very small, less than $500m a year compared with $30bn for silver and $10bn for platinum, but the metal is crucial for some new technologies.

Mervyn, crucified [updated]

UK CPI annual inflation came in at 4.5 per cent in April, up from 4.0 per cent in March, according to the Office of National Statistics. As FT Alphaville points out, that’s the biggest year-on-year rise since October 2008; the second-biggest one-month increase on record and a record high in core CPI. It’s also all down to a stupid seasonal quirk: A late Easter.
 Read more

Eurozone wariness weighs on sentiment

There was a mixed start to the European portion of the global session, with the underlying tenor one of caution as traders remained wary about the ongoing eurozone debt crisis, the FT’s global market overview reports. Worries about a slowing of global growth as central banks tackle inflationary pressures, coupled with the imminent demise of the Federal Reserve’s $600bn QE2 market support programme, were also weighing on strategies. Technology stocks were struggling following reports that Hewlett-Packard’s boss Leo Apotheker expected “another tough quarter”, leaving the FTSE Eurofirst 300 down 0.1 per cent. S&P 500 futures were up 0.2 per cent. The FTSE All-World equity index was down 0.3 per cent after an Asian session thinned by various national holidays absorbed Wall Street’s decline to a three-week low into Monday’s close, the FTSE Asia Pacific index losing 0.4 per cent.

BP’s Rosneft share-swap deal collapses

BP‘s bid for a strategic alliance with Rosneft, the Russian state oil champion, collapsed on Tuesday after the UK oil group failed to reach agreement to salvage its $16bn share swap before a midnight deadline expired, the FT reports. Rosneft was not willing to extend the deadline further, a person close to the state company said, after talks failed over a deal to buy out BP’s partners in TNK-BP, its existing Russian joint venture. A person familiar with the matter said Rosneft would now seek new partners for the Arctic exploration deal it had proposed for the alliance with BP. The lapsing of the Rosneft agreement will be seen as a blow to the UK oil group’s ambitions to find new areas of growth in the Russian Arctic after last year’s Gulf of Mexico spill.

Wall St enforcer scrutinises mortgage bonds

New York’s attorney-general has opened an investigation into the way mortgages are securitised and sold to investors, and has requested meetings with at least three US banks to discuss the industry’s practices, the FT reports. Eric Schneiderman, who succeeded Andrew Cuomo as the state’s top lawyer earlier this year, has sought to meet executives from Bank of America, Goldman Sachs and Morgan Stanley, people familiar with the matter said. A full-blown inquiry would mark Mr Schneiderman’s debut as Wall Street enforcer, a role at times relished by his predecessors, Eliot Spitzer and Mr Cuomo. It may also emerge as yet another headache for large banks already facing numerous legal and regulatory skirmishes stemming from their mortgage units’ actions before and during the financial crisis.

IMF chief is denied bail

Dominique Strauss-Kahn, the head of the International Monetary Fund, was denied bail on Monday after being formally charged in New York court over an alleged sexual assault on a maid at a hotel in the city, the FT reports. The prominent French politician, who has considering running in next year’s presidential race in his home country, arrived at the Rikers Island prison complex Monday evening and is to remain there until a hearing on Friday. A judge at the Manhattan criminal court decided against releasing him on bail. Mr Strauss-Kahn’s wife had wired $1m to New York for that purpose. The Guardian now speculates that either France’s Christine Lagarde, Turkey’s Kemal Dervis or former UK prime minister Gordon Brown may be possible candidates to succeed Strauss-Kahn as the head of the International Monetary Fund.

China’s trusts – still booming

Beijing may have cracked down on bank trust products– the unholy alliance of off-balance sheet banking and wealth management — but more traditional trusts? Those that function without banks?

They’re still going strong, according to Standard Chartered’s Stephen Green and Lan Shen: Read more

Further reading

Elsewhere on Tuesday,

- DSK, the loony philosopher’s angle. Read more

Pink picks

Comment, analysis and other offerings from Tuesday’s FT,

Market insight: George Magnus – China’s central bank is new key player
Good suspense drama is when an unlikely character emerges slowly as the principal hero or villain, writes the senior economic adviser to UBS. There is a compelling analogy in financial markets. Everyone is focused on the capital market and real resource implications of the great economic convergence between the east and west, but the markets tend to pay attention largely to the actions and intentions of the Federal Reserve and, periodically, the European Central Bank. Meanwhile, the People’s Bank of China (PBoC) is emerging as an increasingly important player. It matters more than is widely recognised. Read more

Snap news

Breaking pre-market news on Tuesday,

- Talks between BP, Rosneft and AAR shareholders fail to reach agreement – Reuters. Read more

Google in $3bn debut bond sale

Google has made its first foray into the bond markets, seeking to raise $3bn in an effort to boost its domestic cash reserves at a time when US corporate borrowing costs have returned to historical lows, writes the FT. The world’s largest internet search engine planned to raise the money with bonds maturing in three, five and 10 years.

Overnight markets: down

Asian markets

Nikkei 225 up +6.90 (+0.07%) at 9,565
Topix down -3.23 (-0.39%) at 826.32
Hang Seng down -24.79 (-0.11%) at 22,936 Read more