Posts from Monday May 23 2011

Cisco accused over China crackdown

Senior executives at Cisco Systems worked closely with Chinese government security agents to tailor hardware and software they knew would be used to track, detain and torture followers of the banned Falun Gong spiritual movement, according to a US federal lawsuit filed last week, writes the FT. The suit accuses the networking company’s chief executive John Chambers and leaders of Cisco’s China business of close collaboration with Beijing, citing statements on company websites, at trade shows and in internal documents.

Australia’s property market softens

Pierson Allen’s two-year hunt for a home with a view of Sydney’s Bondi Beach ended last week when he splashed out A$1.35m on a four-bedroom semi-detached property in the Australian city, the FT reports. The vendor wanted A$1.5m, about the same as a neighbour’s sale price last year, but when the property’s auction failed to elicit a single bid, Mr Allen pounced. “Their expectations were based on a benchmark six months out of date,” he said. After a decade-long boom, Australia’s property market appears to be coming off the boil, as higher interest rates and the withdrawal of a government stimulus package for first-time buyers feeds through into lower or stagnating prices. Few property markets in the developed world have sustained the big annual rises witnessed, until recently, in Australia. RP Data, a property research group, said that during a 10-year period, house prices nationwide rose an average 7.8 per cent each year, or 111 per cent over the decade.

China growth and eurozone debt woes batter risk assets

Markets are enduring a classic “risk off” session as traders are rattled by evidence of slowing growth in China and, particularly, the debilitating eurozone fiscal crisis, the FT reports. The FTSE All-World equity index is down 1.7 per cent and industrial commodities are sliding. Wall Street is starting a fourth consecutive week of declines as the S&P 500 dropped 1.2 per cent and the FTSE Eurofirst 300 fell 1.7 per cent. Miners, financials and technology groups suffered selling. Investors are seeking the refuge of the dollar, Swiss franc, Treasuries and gold. A clue to the session’s risk aversion is provided by the euro, which hit a record low against the Swiss franc of SFr1.2323. The dollar’s strength also knocked the price of crude oil, off $2 a barrel to $76. A sour batch of eurozone fiscal morsels is causing indigestion. The leftover from Friday’s downgrade of Greece’s debt is sitting heavy, as is news that Standard & Poor’s has lowered Italy’s credit rating outlook from stable to negative. The Greek government is due to meet to discuss budget cuts and privatisation plans. In addition, a poor showing in local elections by Spain’s incumbent socialist government has raised fears about the implementation of austerity measures designed to rein in Madrid’s budget deficit.

Further further reading

For the commute home,

– The recovery of world trade and industrial output Read more

RMB rising

The past, present, and future of international currency dominance for Dummies:

 Read more

“The FX market has lost its anchor of reason”

Take everything you ever thought you knew about foreign exchange and bin it.

According to HSBC’s stellar FX guru David Bloom, currency markets are trading through the looking glass, and will continue to do so for some while. Read more

Solving the EU debt cris–oh look, a rainbow!

To criticise this feels a bit like kicking a puppy (H/T Lorcan):

 Read more

The depressed market for Greek default recoveries

Or, will Greece eventually be the first sovereign default to leave private investors with nothing?

There’s another glitch in credit default swaps on Greece which is worth considering at the moment. It goes beyond the ‘will they trigger?’ question a bit, but it’s related: Read more

Beware the ‘Splash Crash’

Introducing ‘the splash crash’.

Like the flash crash but worse because it involves the “flash” spreading cross-asset class to everything from forex to commodities. Read more

Markets Live transcript 23 May 2011

Live markets commentary from 

Bank gave pension fund least-favorable FX rates

Bank of New York Mellon is been fighting accusations that it took advantage of clients while trading currencies, the Wall Street Journal reports. An analysis by the paper of more than 9,400 trades the bank processed over the past decade for a large Los Angeles pension fund showed BNY Mellon priced 58 per cent of the currency trades within the 10 per cent of each day’s trading range that was least favorable to the fund. As a result, the trades cost the pension fund, the Los Angeles County Employees Retirement Association, $4.5m more than if the average trade occurred at the middle of the trading range for each day, according to the analysis. A BNY Mellon spokesman confirmed the accuracy of the data and said the bank’s employees “tend” to price foreign-exchange trades at one end of each day’s “interbank” trading range—the rates at which major banks like BNY Mellon buy and sell foreign currencies. But the bank said there was nothing improper about the practice. It said clients like the Los Angeles pension fund knew—or should have known—that the bank doesn’t act in their interests when pricing the trades.

US senator investigates hedge fund trades

A US senator is investigating about 20 instances of suspicious trading by SAC Capital, the hedge fund run by billionaire Steve Cohen, amid a recent crackdown on insider trading, the FT reports. Charles Grassley, a Republican from Iowa and the senior member of the Senate Judiciary Committee, previously had pressed the Financial Industry Regulatory Authority for information on “the potential scope of suspicious trading activity at SAC Capital.” In a letter sent on April 26, Mr Grassley asked Richard Ketchum, Finra chairman, for details of all referrals related to SAC Capital sent to the brokerage regulator since January of 2000. Finra sent Mr Grassley information on about 20 suspicious instances of trading by SAC and SAC executives met with Mr Grassley’s staff earlier this month.

Italy dismisses S&P downgrade

Italy’s Treasury has dismissed a report by Standard & Poor’s in which it downgraded the country’s credit rating outlook to negative on concerns that political gridlock could affect debt reduction plans, saying this is “out of the question”, the FT reports. S&P, in a report published at the weekend, affirmed Italy’s A+ long-term rating, the fifth highest, and its top-ranked A-1+ short-term rating. But it lowered Italy’s credit rating outlook to negative from stable on the basis of slowing economic growth and “diminished” prospects for a reduction of government debt. The rating agency said Italy’s debt had a one-in-three chance of being downgraded in the next two years.

Short sellers set to target LinkedIn

Shares in LinkedIn are expected to come under downward pressure this week, as they attract the attention of aggressive traders who are prepared to bet on a fall in the business network’s stock price, the FT reports. On Tuesday, restrictions on short selling the stock will be lifted. A short sale involves borrowing stock and selling it, in the hope that the price falls and it can be bought back more cheaply – generating a profit. “Brokers are forecasting, in the near term, that the stock is way overbought and that we should see a price decline as soon as the stock is available to short next Tuesday,” said Timothy Murphy, of Trade Monitor Idea, a platform that connects brokers’ trading recommendations with more than 170 hedge and quant funds, as well as “long-only” asset managers.

Sony results hit by hackers and quake

Sony has posted a Y260bn ($3.18bn) net loss for the year ended March 31 due to the impact of Japan’s quake and tsunami and the hacker attacks that forced it to shut down its PlayStation Network, the Japanese electronics company revealed in a preliminary earnings statement Monday, the FT reports. The company had called a news conference on Monday for 5.30pm local time to announce the revision. Companies listed on the Tokyo Stock Exchange are required to inform investors if they believe they will miss earnings targets by 30 per cent or more. Sony was scheduled to report fourth-quarter and full-year results on Thursday. Analysts had been expecting a Y76bn profit and the company had forecast net income of Y70bn.

Airline shares fall on volcanic ash fears

A volcanic eruption in Iceland sparked a selloff in airline shares on Monday as investors worried about the extent of the possible  impact of flight bans on European carriers, Marketwatch reports. Air-traffic control authorities said ash from the Grimsvotn volcano was due to reach parts of the UK by Tuesday raising concerns that the plume of ash and smoke could close some air space. The eruption of another Icelandic volcano last year caused weeks of severe disruption to the European air space and cost airlines millions of dollars. European airline shares were all trading lower at the open. Easyjet shares were down 4.14 per cent, Ryanair was off 4.9 per cent, while Air France-KLM was quoted down  -3.92 per cent. For more on the story see FT Alphaville.

China growth and eurozone debt woes batter risk assets

Markets were enduring a classic “risk off” session as traders were rattled by evidence of slowing growth in China and the debilitating irritant that is the eurozone fiscal crisis, the FT’s global market overview reports. The FTSE All-World equity index was down 1.1 per cent and industrial commodities were sliding. US stock futures pointed to Wall Street opening lower by 1 per cent, starting a fourth consecutive week of declines, while the FTSE Eurofirst 300 was down 1.3 per cent as miners, financials and technology groups saw sellers. Investors were seeking the refuge of the dollar, Swiss franc, Treasuries and gold. A clue to the session’s risk aversion was being provided by the euro, which was down 0.9 per cent to $1.4008 and had hit a record low against the Swiss franc of SFr1.2352.

Fears rise over BoE governance

Corporate governance at the Bank of England is coming under increasing scrutiny from senior bankers and politicians concerned that its court of non-executive directors is not robust enough to hold its executives to account for the central bank’s greatly expanded functions, reports the FT. They warn that the court – which in earlier years was more like a sounding board rather than a corporate board – may not have the expertise, experience or authority to challenge senior Bank officials as they extend their responsibilities beyond monetary policy into broader financial regulation.

Ryanair to double number of jets grounded in winter

Ryanair plans to double the number of aircraft it grounds in the weaker winter period amid concerns about the economic outlook and high fuel prices as it announced it expected to report flat earnings this year, the FT reports. Europe’s largest low-cost carrier by passenger numbers said it would temporarily stop flying 80 jets in the winter schedule, between November and April next year, up from 40 last winter, leaving with a modest 4 per cent growth in capacity in its financial year to the end of March 2012. At the end of March, the airline had a fleet of 272 aircraft.

Meanwhile, in the Spanish periphery…

Zapatero! Zapped!

The FT reports on Monday that initial results from the weekend’s Spanish regional elections show hefty losses for the ruling Socialist party — with the right-wing opposition making inroads into towns run by the Socialists since the 1970s. That outcome, the FT says, reflects widespread discontent with the way prime minister José Luis Rodríguez Zapatero has handled the economic crisis. Or, la austeridadRead more

Iceland’s second volcano e-raptures

Uh oh. Remember this time last year when Iceland’s Eyjafjallajökull volcano was causing £130m worth of losses a day for airlines?

Well, bang on time for the rapture, Iceland’s second and most active volcano Grimsvoetn has began erupting: Read more

A shiver of core contagion

A surprisingly strong reaction to S&P’s late Friday negative revision of Italy’s credit rating, plus Greek torpor, plus Spanish elections

Either way — the euro’s at a two-month low and just above $1.40 at pixel time. Bonds throughout the periphery are selling off, including Spain and Italy, who are both at their widest spread to Bunds since January…

The biggest hedgies in Asia, and the world

Here’s something worth noting, amid the flux in Asian investment circles and the steady exodus of hedge funds from Japan to more investor-friendly climes of Singapore and Hong Kong — even as investment interest revives among Japan-focused funds:

Business Insider has helpfully compiled a list of the 15 biggest Asia-focused hedge funds, ranging from Hong Kong-based HT Capital Management at No 15, with assets under management of $637.2m, to Hong Kong-based Value Partners at No 1, with AUM of $8.6bn. Read more

Further reading

Elsewhere on Monday,

– Sudden wealth syndrome, now whatRead more

Pink picks

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

Clive Crook: America’s deepening default chasm
A United States sovereign default is a stunning prospect, you might think. Washington views it with equanimity, the FT columnist writes. The May 16 deadline on the statutory debt ceiling, despite having been talked about for months, exerted no detectable pressure on the budget negotiations. Congress glided through it as though it did not exist. The current view is that a deal will in fact be done at the last minute before August 2 – the new “real” deadline. But one wonders. Read more

Snap news

Breaking pre-market news on Monday,

– Asian stocks drop to two-month low after Greece downgrade – Bloomberg. Read more

Morrisons eyes Iceland Foods

Wm Morrison, the UK”s fourth-biggest grocer, will look into buying Iceland Foods as an auction for a controlling stake in the frozen food retailer gets underway, reports Reuters, citing a person familiar with the situation. Buying Iceland Foods, which analysts think could fetch around £1.5bn, would lift Morrison’s market share towards rivals J Sainsbury and Asda and give a significant boost to plans to expand into smaller format and convenience stores. Morrison could face competition from Malcolm Walker, the founder and chief executive of Iceland Foods who with other managers owns 26% of the business, as well as other supermarket groups and private equity firms.

Crushing defeat for Spain’s Socialists

Spain’s governing Socialist party suffered a crushing defeat in regional and local elections on Sunday, earning the lowest share of the vote in municipal polls in the post-Franco democratic era, reports the FT. Leaders of the opposition Popular Party took control of regions and towns run by the Socialists since the 1970s. A PP victory in a general election due within 10 months is now almost assured. Initial results suggest the autonomous regions of Castilla La Mancha will shift from Socialist to PP control, as may Extremadura, reflecting discontent with the way José Luis Rodríguez Zapatero, the prime minister, has handled the economic crisis. The Socialists also lost control of Barcelona, the capital of Catalonia, to Catalan nationalists and local allies. Bloomberg adds that with 91% of votes counted, the PP won 38% of the vote in municipal elections, compared with 28% for the ruling Socialists.

Overnight markets: Down

Asian stocks fell the most in two months on Monday, the euro hit a record low versus the Swiss franc and oil slid as signs Europe’s debt crisis is worsening eroded demand for riskier assets and dimmed the outlook for the global economy, reports Bloomberg.

The MSCI Asia Pacific Index sank 1.6% as of 11:03am in Tokyo, headed for its worst close since March 21. S&P500 Index futures fell 0.4%. The euro weakened to a record low of 1.2349 francs before trading at 1.2373. The Dollar Index rose 0.7% to its highest since March and Treasuries gained for a third day. Crude oil lost 1.1% in New York. Corn futures jumped 1.7% while wheat snapped a two-day loss. Read more

Short sellers set to target LinkedIn

Shares in LinkedIn are expected to come under downward pressure this week, as aggressive traders prepare to bet on a fall in the business network’s stock price following its successful IPO last week, reports the FT. On Tuesday, restrictions on short selling the stock will be lifted. Timothy Murphy, of Trade Monitor Idea, which connects brokers’ trading recommendations with investors, said ‘sell’ recommendations on LinkedIn are based on a short time horizon of five to 20 days. Nicole Sherrod  of retail brokerage TD Ameritrade said shorting the shares was a trending discussion topic among day traders. In the past, tech companies, notably Amazon, have been big targets for short sellers betting that lofty valuations sparked by bullish growth prospects are too high. DealJournal meanwhile plays down the hype over LinkedIn’s IPO last week.