Posts from Thursday May 19 2011

Japan quake safety claims face scrutiny

Defenders of nuclear power in Japan have clung to one fact since the earthquake and tsunami on March 11: the Fukushima Daiichi atomic plant suffered little damage in the magnitude-9 earthquake, and it was the huge tsunami waves that knocked out the power stations’ back-up generators. Now, a little more than two months after the nuclear crisis began, that widely held assessment is coming under scrutiny, writes the FT. Although there is little doubt that the tsunami caused the most critical problems at Fukushima Daiichi – provoking the worst radiological accident since Chernobyl in 1986 – questions are being raised about just how well the plant withstood the quake. Records of the first days of the emergency released this week by Tokyo Electric Power, the plant’s operator, suggest some radiation may have escaped before the tsunami struck. That would mean the quake caused significant damage to at least one of the plant’s reactors – a revelation that could erode confidence in the safety of Japan’s remaining nuclear facilities.

Trading mixed as market absorbs era-defining IPOs

Hopes that US interest rates will remain at ultra-low levels for the foreseeable future are lending support to selective riskier assets, though trading is mixed as the market absorbs two trend-defining flotations and some lacklustre US data, the FT reports. The FTSE All-World equity index is up 0.4 per cent, seeing gains as the dollar softens after volatile trading. The greenback’s trade-weighted index is down 0.5 per cent at 75.10. The intermittently firmer buck – and a weak Philly Fed activity survey for May – are curtailing demand for some commodities following the previous session’s strong rally, with copper down 1.5 per cent to $4.04 a pound and oil lower by 1.7 per cent to $98.45 a barrel. Gold is off 0.3 per cent to $1,493 an ounce. Investors on Thursday appear thankful that the US Federal Reserve, while discussing its “exit strategy” showed no hurry to tighten monetary policy significantly once its $600bn quantitative easing programme ends next month. There is also little chance of the world’s third-biggest economy raising rates any time soon after Japan fell back into recession in the first quarter following the March 11 earthquake, tsunami and nuclear accident. Traders seem content for now to accept that while such monetary largesse signals continuing fundamental economic weakness in the US and Japan, it will allow globally focused corporations to remain healthy – providing growth in core Europe and developing nations can pick up the slack.

Chinese buying boosts gold

China overtook India to become the largest market for gold bars and coins in the 2011 first quarter, as rising inflation drove a surge in bullion investment, reports the FT. Chinese investors bought 93.5 tonnes of gold in the form of coins, bars and medallions in the first quarter, a 55% quarterly increase and more than double the level a year earlier, according to World Gold Council data on Thursday. The surge in Chinese buying has supported prices, even as some investors in the west were cutting exposure to gold. Meanwhile, George Soros’s hedge fund sold almost all its holdings in the largest gold exchange-traded fund, SPDR Gold Shares, in the first quarter, according to a regulatory filing this week.

LinkedIn stock soars after IPO

An echo of 1990s-style dotcom euphoria reverberated around Wall Street as shares in LinkedIn soared on their debut, at one point valuing the business-focused social network at $11.6bn, the FT reports. The strong reception pointed to pent-up demand for the Facebook generation of young internet companies and is expected to be followed by a spate of initial public offers from other companies linked to the online social networking revolution. But it also drew warnings that a new internet bubble might be in the making, with investors rushing to pay prices far higher than a level that was considered extravagant only days before. At their high on Thursday LinkedIn’s shares were trading at $122.69, up 173 per cent on the $45 IPO price. At that price, it was valued at some $11.6bn, nearly quadruple what it began the week at when bankers put a price tag of $32-$35 on the shares. By the close, the share price stood at $94.25, valuing LinkedIn at $8.9bn, or 36 times last year’s sales. Facebook is valued on private markets at about 32 times estimated sales.

Strauss-Kahn to be released on bail

Dominique Strauss-Kahn has been granted bail after being indicted by a grand jury on seven charges, including two counts of sexual assault, reports the FT. Mr Strauss-Kahn, who resigned as managing director of the International Monetary Fund early on Thursday, will be kept under 24-hour armed guard at a New York residence while he awaits trial. He was expected to be released within 24 hours after a $1m bond is posted and processed. The indictment means that the grand jury, which was presented with evidence this week, has enough cause to proceed with a trial at the New York Supreme Court. Cyrus Vance Jr, the Manhattan district attorney, said the evidence presented to the grand jury was deemed “sufficient”. He also said the prosecution against Mr Strauss-Kahn would proceed “without fear or favour” despite his international status.

Further further reading

For the commute home,

– President Obama’s Asset AllocationRead more

Build America Bonds, redux

John Bellows, Acting Assistant Secretary for Economic Policy, has a post on the US treasury blog calling for the reintroduction of Build America Bonds. It’s quite interesting — honest.

Babs expired in December 2010, but the President’s FY2012 budget asks for their reintroduction. They were popular. There were 2,275 separate issues totaling $181bn, $30bn more than the total grants given to state and local governments also included as part of the Recovery Act. Read more

DSK granted bail at $1m bond

The most famous Rikers Island guest since Tupac Shakur has been granted bail:

NEW YORK, May 19 (Reuters) – Dominique Strauss-Kahn was granted bail by a New York judge on Thursday, and the former IMF chief has vowed to fight charges that he tried to rape a hotel maid in Manhattan. Read more

A post not about LinkedIn

Just kidding. (This is getting a little too postmodern – Ed.) ((You’re telling me – Ed.))

Here’s something we wrote in December of last year: Read more

Post-bubblicous posterity

A chart from RenCap showing the top ten Day 1 Pops in the post-bubble era (since 2001):

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Competition time! LinkedIn valuation edition

The (collateral) walls of Piraeus

Now this is a Greek banks + ECB collateral puzzle, pointed out to us on Thursday:


The ECB goes all-in

Central bank brinkmanship in full display this Thursday:

FRANKFURT (MNI) – If Greece were to restructure its sovereign debt, its bonds would cease to be accepted as collateral by the European Central Bank, Executive Board member Juergen Stark said Wednesday, according to an ECB spokesman on Thursday.

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ESM seniority, from haircuts to scalpings

So the European Stability Mechanism will rank senior to other bondholders, but not explicitly so:

May 18 (Bloomberg) –The euro area’s planned permanent debt-crisis mechanism will probably refrain from detailing its seniority status in lending contracts, following the practice of the International Monetary Fund, said the head of Europe’s temporary rescue facility. Klaus Regling said a political commitment exists in Europe to let the future entity, the European Stability Mechanism, “claim seniority just below the level of the IMF seniority but above everybody else.”

 Read more

Markets Live transcript 19 May 2011

Live markets commentary from 

Par-don me, what was that about Greek CDS?

Why are London’s lawyers thumbing the below section of the 2003 Isda definitions?

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Glencore shares rise but fail to rally

Glencore rose on its debut on the London Stock Exchange from its flotation price of 530p per share, the FT reports. The rise, however, was less than the company’s advisors hope for a strong rally of between 5 and 10 per cent on the first day of trading. Glencore’s shares rose on “conditional trading” to as high as 553.1p, up 4.3 per cent but later pared gains to 539p, up 1.7 per cent. The FTSE 100 bluechip index, to which Glencore will join on May 24, the first day of unconditional trading, rose 0.6 per cent. The long-awaited multibillion-pound initial public offering ends 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. The Swiss-based company confirmed on Thursday that it priced its shares at 530p. People familiar with the IPO said the valuation, below earlier estimates mooted by the company and its advisors, was an attempt to “leave something on the table”.

Cautious optimism ahead of era-defining IPOs

Hopes that US interest rates will remain at ultra-low levels for the foreseeable future were lending some support to selective riskier assets – though trading was mixed and cautious ahead of two trend-defining flotations. The FTSE All-World equity index was flat, as currencies displayed “risk off” characteristics, with the dollar index up 0.2 per cent to 75.56. The stronger buck in turn was curtailing early demand for commodities following the previous session’s strong rally, with oil down 0.5 per cent to $100.15 a barrel, copper down 0.7 per cent to $4.07 a pound and gold off 0.4 per cent at $1,490 an ounce. S&P 500 futures were fractionally lower, but the FTSE Eurofirst 300 was up 0.4 per cent after Wall Street closed overnight near session highs after cracking a three-day losing streak. Earlier, in Asian trading, the mood was broadly positive as commodity shares gained ground on growing confidence in a global economic recovery after the Fed signalled US interest rates would remain low.

GE plans $12bn share buy-back

General Electric plans to make share buy-backs totalling about $12bn over the next few years, its chief executive said on Wednesday, joining a succession of US companies setting out plans for large repurchase programmes, the FT reports. Low interest rates and the shortage of profitable investment opportunities have encouraged several US groups to announce multibillion-dollar share buy-backs. At an investor conference in Florida, Jeff Immelt, GE’s chairman and chief executive, said: “I want to reduce the float . . . I’d like to get the float back down to where it was pre the offering in 2008.” Mr Immelt reiterated that GE planned no further acquisitions for the time being, having spent $11bn on energy companies over the past few months, and held out the prospect of continued growth in GE’s dividend, which has been rising again having been cut by two-thirds in 2009.

Strauss-Kahn resigns as head of IMF

Dominique Strauss-Kahn resigned late on Wednesday night as managing director of the International Monetary Fund after being charged earlier this week with alleged sexual assault, asserting his innocence and saying he wanted to avoid damaging the organisation, the FT reports. His resignation will also effectively end his potential candidacy for French president, in which he was a leading contender for the Socialist Party nomination. Lawyers representing the IMF chief will make a fresh attempt in a Manhattan court on Thursday to have him released on bail, adds the FT Separately, the FT reports that a poll shows the majority of French people are convinced that French-born Strauss-Kahn is the victim of a smear campaign,  Some 57% of respondents said Strauss-Kahn, a popular Socialist politician and frontrunner to launch a campaign for the presidency next year, has been stitched up. The figure rose to 70% among Socialist voters. Some 29% believe the incumbent president, Nicolas Sarkozy, would gain most with Strauss-Kahn out of the race.

Greek debt talks cast doubt over sovereign CDS

If eurozone leaders press ahead with plans to extend Greek bond maturities in a “soft” or voluntary debt restructuring, then traders in credit default swaps could be one of the main casualties, the FT reports. Sovereign CDS, which insure investors against the risk of a bond default, are facing a critical moment in their short history. The first sovereign CDS trades were made about 10 years ago and the question of whether or not this insurance will pay out could soon be put to the test. A voluntary restructuring of Greek debt, or “reprofiling”, as European Union policymakers describe it, threatens to undermine the intrinsic value of buying the derivatives because such a restructuring is unlikely to amount to a so-called “credit event”. This means that the banks and investors who had bought CDS protection against any restructuring would receive nothing in recompense for any losses in interest due or principal invested in Greek bonds.

Takeda buys Nycomed for €9bn

Takeda, Japan’s largest drugmaker, has agreed to buy Nycomed of Switzerland for €9.6bn ($13.7bn), in the country’s second-largest outbound deal on record, in a move to bolster its European and emerging market operations, the FT reports. The acquisition excludes Nycomed’s US dermatology unit, leaving annual revenue for the company at over $2.8bn, the two drugmakers said in an announcement on Thursday. Takeda will partly fund the deal through bank loans of between Y600bn-Y700bn ($92m- $107m). The purchase highlights Takeda’s push to expand overseas and particularly in emerging markets, where it has yet to gain a strong foothold. It also gives it some more access to the generics market, an area where the Japanese government is pushing for broader use as it faces rising medical costs.

SEC probes electronic platform failures

The Securities and Exchange Commission is investigating computer system failures at electronic marketplaces including Nasdaq to determine whether internal controls are sufficient, according to people familiar with the matter, the FT reports. The investigation is being handled by the enforcement division’s market abuse unit and is part of a broader regulatory review of stock exchanges following last year’s “flash crash”, recent hacking attempts and trading glitches. Mary Schapiro, SEC chairman, signalled in March that exchanges could face new rules governing their technology policies, which would formalise guidance issued following the 1987 stock market crash. The guidance, known as Automation Review Policies, advises exchanges to “acquire appropriate technology and assure its functionality”.

Japan’s ‘temporary’ recession?

The news from Japan on Thursday reinforced some of the worst fears about the state of the economy, but not everyone is gloomy — far from it — although the latest growth figures are truly horrible.

As the FT reportsRead more

Vix settlement weirdness

News comes our way of there being some concern in the market about the Vix settlement process.

In one phrase: It’s off. Read more

Another commodities crash layer – the $100bn intervention

Tracking the causes of the commodities crash is starting to feel like peeling an onion.

One layer gets pulled back only to reveal another, and then another — and then you start to cry. Last week we had UBS analysts blaming “extreme positioning short the dollar and long commodities.” Read more

Attention à Lagarde

DSK is gone, the press is already glowing, and if you thought Christine Lagarde was a steal for next IMF MD at 14/1 on Wednesday

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Credit-enhancing a Greek restructuring

In which Greece’s grim sovereign-bank loop of ECB collateral and liquidity really starts to hit home.

Fresh signals were received from Planet ECB on Wednesday: Read more

Glencore debuts… [updated]

Up 3 per cent from the IPO price of 530p at pixel time and trading on a conditional basis — chart via Reuters:

 Read more

Further reading

Elsewhere on Thursday,

– A routine OPEC meeting is suddenly is full of intrigue. Read more