Posts from Wednesday May 18 2011

Further further reading

For the commute home,

- Why LinkedIn’s IPO will hand even more control to its founder. And is it time to jam like 1999Read more

Fed minutes push Treasury yields higher

The release of Federal Reserve minutes showing an active debate over whether to begin exiting from “quantitative easing” sparked a risk rally, with Treasuries sold off and equities seeing their strongest gains of the day, reports the FT’s global market overview. The FTSE All-World equity index was up 0.9 per cent, bouncing off a four-week low, while commodities were sharply higher, helped by the dollar giving up mid-session gains. Wall Street’s S&P 500 was up 0.9 per cent. The benchmark 10-year note yield was up 5 basis points at 3.18 per cent, while two-year note yields were up 4 basis points, a sharp move for short-term notes, to 0.55 per cent. The West Texas Intermediate crude contract was up 2.8 per cent to $99.64 a barrel, following news that US inventories had dropped unexpectedly.

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Medvedev blames BP for Rosneft deal failure

Dmitry Medvedev, the Russian president, has criticised BP and government officials preparing Rosneft’s proposed alliance with the UK oil group for failing to take legal details into account, writes the FT. “Those who prepared the deal should have paid closer attention to the nuances of the shareholder agreement,” the president said. “It would have been necessary to conduct more careful due diligence inside the government.”

Samsonite looks to list in Hong Kong

Samsonite, the suitcase manufacturer, has fired the starting gun on a $1bn-$1.5bn initial public offering in Hong Kong, becoming the latest consumer goods group to choose to list in China, reports the FT. Prada, the Italian fashion house, is preparing to float in Hong Kong next month, while luxury shoe group Jimmy Choo may also follow in the footsteps of L’Occitane, the French cosmetics company that raised $700m in a landmark Hong Kong IPO last year.

Lack of unity on IMF successor

Emerging nations have yet to unite behind a candidate to take over as the head of the International Monetary Fund, even as they reiterate their long-held stance that the position should not be reserved for a European, writes the FT. Brazil and South Africa have expressed a desire for an end to the tradition of the IMF’s managing director’s job going to Europe, just as they oppose the convention that the head of the World Bank is always an American. Chile and China also have said that the position should be filled “on merit”, without publicly putting forward any candidates themselves.

Glencore prices IPO at 530p per share

Glencore has priced its multibillion-pound initial public offering at 530p, ending four decades of partnership as the world’s largest commodities trader submits to greater public scrutiny in return for financial firepower in a consolidating industry, reports the FT. The flotation is the biggest to date in the UK and will see Glencore become only the third company – and the first in 25 years – to enter the FTSE 100 index on its first day of trading.

Japan’s Kan urges nuclear overhaul

Naoto Kan, prime minister, has called for “fundamental reform” of Japanese nuclear power regulation, taking aim at failings exposed by the crisis at the Fukushima Daiichi atomic plant, reports the FT. At a press conference on Wednesday Kan announced a regulatory review of the sector, marking a new stage in the Japanese government’s efforts to rebuild domestic and international confidence in its ability to ensure the safety of the nation’s large nuclear power sector.

Iran sets stage for tense Opec meeting

Iran’s president, who has declared himself “acting” oil minister, might chair next month’s meeting of Opec, according to a senior aide, setting the stage for a highly politicised gathering of the cartel, writes the FT. Mahmoud Ahmadi-Nejad, who is locked in a power struggle with rivals in Iran’s conservative establishment, has put himself in temporary charge of the oil ministry at a time when Iran holds the rotating presidency of Opec. As such, he could become the first head of state to chair a gathering of the world’s biggest oil producers if he goes to Vienna for the June 8 meeting.

 

Betting on the new IMF managing director

Odds from William Hill, chart from the Economist:

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FOMC minutes from the April 27 meeting

These are the minutes from the meeting that preceded the big press conference.

While there’s been a well-publicised internal debate at the Fed about the timing of future policy tightening, it seems from these minutes that the discussion over how to tighten is less divisive. Read more

Tim Geithner and stuffed elephants at the Harvard Club

The Harvard Club of New York hasn’t survived for 124 years without a haughtily dismissive attitude to irony. Stuffed elephant heads are nailed to nearly every wall, making it an appropriate venue for Tuesday evening’s ”Conversation with Tim Geithner”.

FT Alphaville popped down last night to sip port, admire the gargantuan taxidermy and listen to the US Treasury secretary give an occasionally candid interview to veteran journalist Alex Jones. Read more

All hail the negative repo regime

The repo rate normally trades closely to money market rates. This is sometimes referred to as the general collateral rate. But sometimes a particular security is in demand for borrowing purposes. This is because there are many dealers who have gone short of that security.

In this situation the cost of borrowing the security increases and depending on supply and demand conditions the repo rate can fall significantly. It can end up several percentage points beneath the prevailing money market rates. And in extreme situations a negative repo rate can occur. Read more

‘Is it dangerous to borrow dollars?’

Or, remembering the crisis dollar swap lines, and noting a funding currency elephant in the room for Australian and Swedish banks.

Moody’s downgrade of four Australian banks on Wednesday was serendipitous in a way. Note the rationale: Read more

How profitable is ETF arbitrage?

….about 6.7 per cent per year, according to this 2010 paper by Ben R. Marshall and Nuttawat Visaltanachoti of Massey University, and Nhut H. Nguyen of The University of Auckland.

The academics arrive at the figure after investigating the arbitrage opportunities that appeared between two of the most liquid equity ETFs in the world: the SPDR (SPY) and the iShares S&P 500 ETF (IVV). Read more

Standard & Poor’s speak the truth on Europe’s stress tests

Standard & Poor’s has dug into the European banking stress tests before.

But its latest review — out on Wednesday — really sums up the matter. It’s always been politically impossible for the European Banking Authority to assume real (restructuring) losses in the exercise. Read more

What a missing Libyan tanker tells us about sanctions

Reuters published a special report Monday on the Libyan rebels’ efforts to sell oil in spite of the ongoing civil war and high levels of legal uncertainty.

The last time we posted on the topic, the rebels had sold 1m barrels with the help of Qatar but were struggling with both the supply and demand for further sales. Read more

Please wait 10 months for your aluminium. Thank you

There’s never a dull moment in the metals markets these days.

The latest developments come via Metal Bulletin which reports that backlogs at some LME aluminium warehouses are now so large that warrant holders are considering taking legal action just to take delivery of their own stocks. Read more

Markets Live transcript 18 May 2011

Live markets commentary from FT.com 

Companies rush to borrow ahead of QE2 end

The Wall Street reports that companies are racing to borrow money, amid worries that interest rates might rise once the Federal Reserve ends its support for financial markets next month. Among the companies which have tapped bond the market are Johnson & Johnson, which staged its biggest bond deal on record Tuesday and Texas Instruments, which raised debt for the first time in more than a decade Monday. Google has also sold its first bond ever this week. Smaller companies like Great Plains Energy, meanwhile, are loading up on debt at some of the lowest interest rates ever. Collectively in the past two days, investment-grade companies have sold some $19bn worth of bonds in the US, according to data provider Dealogic. This sets the week up to be among the busiest so far this year, says the Journal. Bond sales in May reached $56.7bn—with two weeks left to go in the month—almost as much as the $59.6bn sold in all of April.

HP shares hit by profit alert amid overhaul

Hewlett-Packard shares dropped to their lowest level in almost two years after the top computer maker by sales cut its profit forecast on weak consumer demand and planned changes in its services unit, the FT reports. As it released second-quarter earnings early on Tuesday, HP said it had been surprised by the depth of a 23 per cent fall-off in consumer PC revenue, which will make it more dependent on its forthcoming entrance to the tablet market, albeit late, with the TouchPad. Results from Dell, meanwhile, saw the rival computer maker’s stock rise as much as 5.8 per cent in extended trading after its profit topped analysts’ estimates. Bloomberg reports this marks the second straight quarter that Dell’s results have outshined those of rival Hewlett-Packard.

Chrysler restructures debt deal

Chrysler, the US carmaker run by Fiat, has restructured a landmark debt refinancing meant to distance itself further from its bankrupt past and pave the way for the Italian company to solidify its control, the FT reports. The refinancing includes institutional loans, which are arranged by banks and syndicated to investors, and junk bonds to replace high-interest government loans associated with its restructuring two years ago. The market for risky corporate debt has rallied for months as investors look for better returns and safeguards against rising rates. Institutional loans pay interest that floats over three-month Libor. On Tuesday, Chrysler shifted $1bn of the deal, cutting the institutional loans to $2.5bn from $3.5bn and increasing an accompanying bond sale from $2.5bn to $3.5bn, people familiar with the transaction said.

Dell results give bulls excuse to gambol

A well-received earnings report from computer group Dell appeared to spark a risk rally after several dour sessions, though low Treasury yields suggested underlying caution about US growth remains, the FT’s global market overview reports. The FTSE All-World equity index was up 0.5 per cent, bouncing off a four-week low, while commodities were mostly firmer and the dollar weaker – a classic “risk-on” sweep for traders. S&P 500 futures were pointing to a 0.3 per cent gain for Wall Street at the open, with the FTSE Eurofirst 300 was up 0.6 per cent following a 1.1 per cent advance for the Asia region.

Oaktree Capital sows seeds for listing on NYSE

Oaktree Capital Management is planning to list its shares on the New York Stock Exchange in a deal that would value the asset manager at between $8bn and $9bn, people familiar with the matter said. The FT reports that Oaktree, which manages $85bn, mostly in debt investments, listed shares four years ago on a quasi-public exchange set up by Goldman Sachs. But the effort proved a disappointment because investors found it difficult to trade the stock. At that time, Oaktree raised about $700m through the sale of about 30 per cent of its shares. The rest remained with its founders, Bruce Karsh and Howard Marks, and other Oaktree principals. Now, Oaktree has hired Goldman to lead an exercise that will involve the transfer of the shares on the quasi-public exchange to the NYSE, a person familiar said. As a result, no new money will be raised for the asset manager.

Fed seeks annual US bank stress tests

The Federal Reserve wants to subject US banks to annual capital tests, reserving the right to veto dividend pay-outs if they do not pass, the FT reports. A draft of the new rule is set to be approved by the Federal Reserve Board and put out for public comment within weeks. Bank executives told the Financial Times that they have begun discussing the proposal with Fed officials, who remain wary of a return to the over-generous shareholder pay-outs that left financial institutions under-capitalised during the crisis. Stress tests conducted by the Fed in 2009 helped rebuild confidence in the battered US financial system. In March, the central bank reviewed capital plans submitted by the country’s 19 largest lenders.

World Bank sees end to dollar’s hegemony

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 increasing power and strength 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. According to the World Bank report – released on Tuesday – emerging economies will grow at a rate of 4.7 per cent between now and 2025, a much faster pace than advanced economies which are expected to grow by 2.3 per cent over the same time-frame. “The balance of global growth and investment will shift to developing or emerging economies,” said Mansoor Dailami, the lead author of the report.

Pressure mounts on Strauss-Kahn to quit

Tim Geithner, US Treasury secretary, is calling on the International Monetary Fund to formally appoint an interim managing director after Dominique Strauss-Kahn was denied bail in New York on charges of sexual assault, the FT reports. “He [Strauss-Kahn] is obviously not in a position to run the IMF and it is important that the board of the IMF formally put in place for an interim period someone to act as managing director,” Mr Geithner said. John Lipsky, second-in-command at the IMF, has stepped up to run the fund but he is due to leave later this year. Mr Geithner’s comments come after senior European officials called on Mr Strauss-Kahn to quit as managing director of the IMF on Tuesday. “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, said as she arrived at a meeting of European finance ministers in Brussels.

Spain’s peripheral problems – €26.4bn of hidden debt?

This was a Tuesday headline to catch one’s eye:

‘Hidden’ debt raises Spain bond fears Read more

If it bleeds…

With hedge funds going into the meedja sentiment business this is probably worth exploring:

Finance news articles mentioning ‘crisis’ are at a three-year low, say Société Générale’s cross-asset research team using a famed indicatorRead more

Chart du jour, zen and the art of inflation-targeting

If a 2 per cent inflation target is hardly ever reached, does it still exist? Oommmm:

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Further reading

Elsewhere on Wednesday,

- ‘The peak oil model for housing’s future prospects is now dominant.’ Read more