Buyers are selectively returning to risk assets after recent selling that had been predicated on rising eurozone debt fears – but a batch of uninspiring US data is keeping flows strong into safe-haven US Treasuries, the FT reports. Those concerns appeared to be in abeyance for much of the session, judging from the price action on Thursday, with the euro slightly stronger and “peripheral” bond spreads contracting. But the single currency has given up a chunk of its gains after Jean-Claude Juncker, chair of the eurozone group of finance ministers, warned that the IMF may not deliver to Greece its next tranche of bail-out funding unless refinancing guarantees are in place; a condition Mr Juncker considers unlikely. In addition, optimism is being held in check by some disappointing US data, which has added to worries that the world’s biggest economy is, at best, in a soft patch. The yield on the US 10-year note is down 7 basis points to 3.05 per cent – below the critical technical level, the 200-day moving average, at around 3.07 per cent – following Wednesday’s strong auction, which was matched by the strongest auction of 7-year paper in at least two years. The yield was 2.429 per cent at auction, the lowest since November. The FTSE All World index is up 0.7 per cent and the dollar is falling. But the “risk on” trade is deformed as confirmation that the US economy only grew at an annualised 1.8 per cent in the first quarter, has left commodities under pressure – following gains in Asian trading – and has helped push benchmark Treasury yields close to 6-month lows. WTI crude, which earlier traded 10 cents away from $102 a barrel, is now down $1.06 to $100.46, while copper was up 0.5 per cent to $4.13.
The owners of the New York Mets will sell a $200m minority stake in the baseball franchise to David Einhorn, the outspoken hedge fund manager, as they seek to right the finances of the struggling team and insulate themselves from the fallout from Bernard Madoff’s Ponzi scheme, reports the FT. Fred Wilpon, the Mets’ principal owner, was a close friend of Mr Madoff and had invested heavily in Mr Madoff’s firm. Irving Picard, the trustee seeking to recover assets for Mr Madoff’s victims, alleges that Mr Wilpon and his business partner Saul Katz knew or should have known of the fraud, and has sued them for up to $1bn. On Thursday, Mr Einhorn and the Mets announced that they had in principal reached an agreement for him to become a “minority, non-operating partner” in the team. Mr Einhorn’s $200m investment is personal, and will not involve Greenlight Capital, his $7.8bn fund. The deal is subject to the approval of Major League Baseball, the port’s governing body, and is expected to be completed in June.
Japan is hoping to win political backing this week from European leaders for a trade agreement that could help revive its economy battered by the March earthquake and tsunami and resulting nuclear crisis, reports the FT. Naoto Kan, prime minister, is expected to argue the case for world leaders to further open their economies to Japanese imports at today’s gathering of heads of state from the group of eight industrialised countries in Deauville, France. He will also take his case to Brussels with meetings scheduled at the weekend with José Manuel Barroso, European Commission president, and Herman Van Rompuy, European Union president. Japanese officials believe there could be a window of opportunity to win trade concessions in the wake of the March 11 disaster, which left nearly 24,000 dead or feared lost, inflicted damage estimated at up to Y25,000bn and caused the crisis at the Fukushima Daiichi nuclear power plant.
Attempts to refinance Europe’s largest single securitised loan backing a German residential property company controlled by Guy Hands’ Terra Firma are being stalled by flaws in the debt’s documentation, the FT writes. Deutsche Annington, acquired by Terra Firma 11 years ago, has just over two years to refinance €5.1bn ($7.2bn) of debt set to mature against a backdrop of credit-starved property markets across Europe. The debt restructuring marks another setback for Mr Hands after Citigroup’s seizure of EMI, the music group, last February. This left Terra Firma, which declined to comment, nursing £1.75bn ($2.8bn) in losses. Deutsche Annington has hired Blackstone to advise and started discussions with key lenders, but its restructuring attempt has been hampered by an omission in its documentation that makes it very difficult to assess bondholders’ voting thresholds.
Traders and investors have stepped up purchases of insurance against a US sovereign debt default, amid heated political wrangling over raising the US debt ceiling, reports the FT. The gross value of derivatives contracts that pay out in the event of a US default has doubled from year ago levels, according to the Depository Trust and Clearing Corporation, which collects data on global trading of credit default swaps (CDS). It reached $24bn at the end of last week, up from $22.7bn a week earlier and much higher then the year ago level of slightly less than $12bn. Traders would be on the hook for a maximum payout of $4bn in a default, once contracts are netted against each other, according to the DTCC.
Bit of a stunner from the SEC on Thursday (emphasis ours throughout):
Washington, D.C., May 26, 2011 — The Securities and Exchange Commission today charged a former managing director of The NASDAQ Stock Market with insider trading on confidential information that he stole while working in a market intelligence unit that communicates with companies in advance of market-moving public announcements. Read more
The US economy has stumbled deeper into the mud of another soft patch, with revised data showing a weaker pattern of growth in the first quarter, the FT reports. The Bureau of Economic Analysis kept its growth estimate at an annualised 1.8 per cent, dashing hopes that it would be revised upwards, and said that consumption growth was weaker than it previously thought. The latest data suggest the recovery will continue to be slow and painful, with average growth of about 3 per cent. That is only slightly above the long-run trend and will mean only a slow reduction in unemployment. The US economy has flattered to deceive for the past couple of years, never sustaining any run of stronger growth but never falling back towards recession either. “The GDP report is a little disappointing and will likely fan concerns that the economy will not grow as solidly as previously expected,” said John Ryding and Conrad DeQuadros of RDQ Economics. But they said they still expected the economy to grow between 3 and 3.5 per cent in 2011 “on stronger wage income growth as employment improves”. Consumer spending grew at an annualised rate of only 2.2 per cent in the first quarter, well below the 2.7 per cent initially reported, and the 4 per cent increase in the final quarter of 2010.
The world’s richest countries have agreed a multibillion-dollar aid package for Tunisia and Egypt, the two countries at the forefront of toppling autocratic regimes in the Arab spring, reports the FT. Members of the Group of Eight economic powers, led by the US, pledged at their summit in Deauville, France, to provide a combination of debt relief, aid and assistance to the two Arab countries to help build their democracies. Meanwhile, Qatar has been talking to oil-rich Gulf partners about a new plan to create a Middle East Development Bank to support Arab states in transitions to democracy. It has been inspired by the European Bank of Reconstruction and Development that helped to rebuild the economies and societies of eastern bloc countries at the end of the cold war. One person familiar with the Qatari plan for a Middle Eastern development bank said it envisaged tens of billions of dollars of yearly lending for political transitions. He said Qatar was seeking the support of Saudi Arabia, Kuwait and the United Arab Emirates for the initiative.
For the commute home,
– SEC charges former Nasdaq managing director with Insider Trading. Read more
The price action in the euro on Thursday afternoon.
Here’s something for the Chancellor and the Office for Budget Responsibility (OBR) to chew on: a warning from Dr Tim Morgan, the global head of research at Tullett Prebon, that the deficit reduction plan won’t work and the UK is headed for a debt disaster.
Morgan says sectors that account for nearly 60 per cent of UK economic output are critically dependent on debt (public or private) and set to contract rather than expand. This will render economic growth implausible and means the burden of public and private debt will prove too heavy for the nation to carry: Read more
A great find from Lorcan — the ECB valuation haircut on Portuguese government bonds collateral has gone up by about five percentage points overnight:
Thursday’s political risk datapoint:
DIFC – Dubai, May 26, 2011 — Moody’s Investors Service has today downgraded Bahrain’s government bond ratings by one notch to Baa1 from A3, and assigned a negative outlook to the rating. Today’s rating action concludes the review for possible downgrade that Moody’s initiated on 23 February 2011…
The commodities rout confused a lot of people because it didn’t seem to have an obvious cause.
Analysts at Bank of America Merrill Lynch, however, are getting mystified about another element related to the slide. Why have coal prices remained largely unaffected? Read more
Live markets commentary from FT.com
Right, some much needed revisionism on Autonomy’s plan to acquire Iron Mountain’s digital archiving, eDiscovery and online back-up and recovery businesses for $380m.
This deal received a warm welcome in the City of London with Autonomy CEO Mike Lynch proclaiming it would make the UK software company the world’s biggest cloud platform with 25 petabytes of data. Read more
Linkedin’s recent IPO ‘pop’ has done little to hide the fact that stock listings in the United States have fallen 43 per cent since 1997, even as listings abroad have doubled over the same period, reports the WSJ. While a series of mergers and lower listings costs outside the US have compounded the move, it is also a sign that US exchanges have lost their power to host the world’s biggest IPOs, which are draining away to London or Hong Kong. The average annual supply of U.S. IPOs since 2000 has fallen 71% from the pace in the 1990s, according to Capital Markets Advisory. Investors in giant stock offerings have also changed style. Stock-picking is out of fashion and big institutional investors’ portfolios have become too large to bother with small firm holdings.
Kathleen Brooks, FX research director at Forex.com, has spotted something of curiosity regarding the euro.
It seems to have detached itself from interest rates and its own fundamentals. Read more
The Canadian banks and pension funds seeking to win control of the TMX Group of exchanges have taken their bid hostile, saying they will go directly to the company’s shareholders with a C$3.6bn offer, reports the FT. Last week, the board of TMX, owner of the Toronto and Montreal exchanges, rejected the bid from the so-called Maple group and endorsed its already agreed merger with the London Stock Exchange. Maple’s move to go hostile follows LSE-TMX bringing shareholder votes on the deal forward to June 30. TMX’s board cited antitrust and leverage concerns in its initial rejection of the Maple bid.
FT Deutschland has an interesting interview with Dutch finance minister Jan Kees de Jager who is spearheading the campaign to have an outside agency run Greece’s privatisation programme.
He tells the paper that Greece should surrender operational control of the programme an external agent, like the Treuhandanstalt, which was in charge of privatising state assets from East Germany when the wall came down. Read more
Steve Ballmer’s leadership is “the biggest overhang on Microsoft’s stock” and he should resign to make up for new blood, according to David Einhorn, Reuters says. Einhorn’s Greenlight Capital recently began buying Microsoft stock and now holds 0.11 per cent of the company’s outstanding shares. “Ballmer does not care what Wall Street thinks and maybe that’s a good thing”, said Einhorn at the Ira Sohn investor conference, but he then went on to describe the imposing chief executive as “stuck in the past” and attacked Microsoft’s moves to build its online services offerings, the FT reports. But Einhorn argued that Microsoft still had a chance in cloud computing and smartphone markets stemming from its recent co-operation with Nokia.
UBS plans to hive off its investment banking operations and incorporate them in London, New York, or Singapore instead of Switzerland in a bid to placate Swiss regulators, the WSJ reports. Officials hope that the failure of a legally separate investment bank would prevent losses being taken at its parent company, which includes UBS’ wealth management arm. The move would require UBS to increase capital for its units abroad, but may still not be enough to prevent regulators in jurisdictions outside Switzerland pressing for the Swiss parent to absorb loss in a crisis. Dividing up the balance sheet would also reduce the firepower UBS could call upon to borrow against when competing for deals.
The Federal Reserve Bank of New York is investigating allegations that the mortgage servicing arm of Goldman Sachs failed to conduct appropriate reviews before denying borrowers a chance to lower their payments through a government loan modification programme, according to the FT. The claims about Litton Loan were brought to the NY Fed’s attention by an employee letter seen by the FT. A person familiar with the unit said loans were denied without the proper review under a “denial sweep” strategy devised to clear a backlog of applications. The letter added that at the same time that loan modifications under Hamp were being denied, Goldman was increasing non-government modifications for loans it retained on its books, contrary to the priority normally given to Hamp.
Though, only in China, of course.
The title refers to the latest anecdote from China markets guru Michael Pettis regarding China’s growing copper debt pile. Read more
The price action in the UK June gilt on Thursday morning:
(Click to enlarge) Read more
There is a lot of debate on whether the market is actually getting a decent picture of the UK economy at the moment — typified by the latest GDP release, though there’s also construction output and all sorts of indicators playing up and becoming highly volatile.
So we thought we’d pass along this observation from Marchel Alexandrovich, an economist at Jefferies (H/T Bryce Elder): Read more
These are the silver lending rates for 2011 from the London Bullion Market Association, as derived from Libor minus the silver forward rate (Sifo):
You’ve read the FT story — now see the document unearthed by Global Witness:
We’ll go through it later but needless to say, it confirms FT Alphaville’s worst fears about how badly the LIA mismanaged the Libyan people’s oil wealth… Read more
Elsewhere on Thursday,
– Prepare for the false growth scare. Read more