Posts from Friday May 27 2011

Further further weekend

For the commute home, have a great long weekend,

- LinkedIn puts are trading at a big premium to calls. Read more

The Weekender

This week on FT Alphaville,

Grimsvoetn erupted. Read more

How dare you, I’m a sovereign

Don’t mess with a non-US sovereign. They still have the power, even if they have deficits.

Risk reported reported in April that US regulators were proposing to make collateral-posting for sovereigns compulsory. Read more

US Markets Live transcript 27 May 2011

Live markets commentary from FT.com 

LME warehouse recommends upping load-out rates

An independent study by the London Metal Exchange into its authorised warehouse networks has advised much harsher recommendations than expected.

Key among them is that warehouses with large stockpiles be required to deliver greater sums of metal out of their inventories than is now the case. Read more

It’s not just Greece that was an economy with the truth

You might normally expect a European Central Bank working paper with the title ‘Fiscal Data Revisions in Europe’ to be dry as dust.

Not with these conclusions: Read more

Reminder: US Markets Live starts in one hour

Before you disappear for the long weekend…

FT Alphaville is on skeleton crew this week, so everyone on the team who hasn’t already disappeared will be there. As always, the fun begins at 10am New York time, 3pm in London. Read more

Markets Live transcript 27 May 2011

Live markets commentary from FT.com 

Oh dear oh Dexia [updated]

Update (1215 UK time): It was an accelerated asset sale, as Les Echos reported below, but quite a nasty one — into fire sale territory — with €3.5bn losses being booked this quarter.

From Dexia’s statementRead more

Bad weather poses threat to wheat supplies

Expectations for a sharp rebound in global wheat supplies were lowered on Thursday after an intergovernmental trading group said bad weather threatened key breadbaskets, the FT reports. The International Grains Council trimmed its forecast for the annual global wheat crop by 5m tonnes to 667m tonnes, citing “unfavourable weather”, especially in Europe and the US. Compared with tight stocks of corn, wheat inventories are still relatively comfortable. The price of the staple grain has risen 78 per cent in the past year, while corn has doubled. Yet in the US, the top wheat exporter, a drought has hit the winter wheat crop while farmers planting this spring have been delayed by sodden fields. France, Germany and other European producers are also suffering from dry weather.

Rapid rise in LinkedIn stock available for short selling

The volume of shares in LinkedIn that are available for short sellers has risen rapidly since the social network company listed a week ago, amid signs that some investors believe it is overvalued, the FT reports. Data Explorers, a data service provider which tracks securities lending, said on Thursday that 1.5m shares, or 16 per cent of LinkedIn’s free float of 9m, were available for lending. The amount of stock available for borrowing, has risen from 600,000 in the first days after LinkedIn’s initial public offering. But it may be difficult for short sellers to obtain the stock as the business and social network company’s recent flotation is still in the process of being settled.

Ex-Nasdaq executive pleads guilty

A former Nasdaq executive pleaded guilty to making more than $640,000 in illegal profits by trading on secret company information he learnt while employed on the US exchange’s market intelligence desk, the FT reports. Donald Johnson, 56, was a managing director at Nasdaq’s market intelligence desk, which gave him access to sensitive information, such as earnings, executive changes and drug trial results before they were announced. Until he retired in September 2009, prosecutors say, Mr Johnson helped companies anticipate how their stock prices would react based on their news. Authorities allege that Mr Johnson, from a work computer, logged on to an online brokerage account in his wife’s name eight times between 2006 and 2009 and traded stocks after receiving the non-public company information.

Fitch goes negative on Japan

Fitch has revised Japan’s outlook to negative from stable, FT Alphaville reports. “Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” Fitch said. FT Alphaville says stand by for commentators pointing at deflation-ravaged low JGB yields and concluding that Fitch is not being overly smart. Read more

Apple Macs hit by scareware attacks

One of the most pervasive and costly types of virus is now affecting Mac computers, signalling the end of an age of innocence for Apple customers, who until now have been spared many common cybersecurity problems, the FT reports. Known as rogue antivirus or scareware, the scam programs warn PC and now Mac owners that they have been infected, then demand credit card payments to clean the machines. The operators of the programs are typically criminals who may resell the card details or try to install more malicious software.

Einhorn strikes New York Mets deal

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, the FT reports. 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.

Investors protect against US default

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, the FT reports. 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.

Internet chiefs unite against regulation

Internet entrepreneurs confronted their would-be regulators in Deauville on Thursday as the leaders of Facebook, Google and other technology companies warned the G8 leaders to tread carefully in attempting to police the web, the FT reports. Mark Zuckerberg, founder of Facebook, and Eric Schmidt, executive chairman of Google, said that mooted rules on copyright or privacy could stymie innovation and inhibit the free expression that fuelled the recent Arab uprisings. Usually fierce competitors, the two groups joined forces to resist proposed new rules to “civilise” the internet, championed by French president Nicolas Sarkozy, the meeting’s host.

Dollar slide supports stocks and commodities

A switch in the way the dollar reacts to disappointing US economic data was providing support to stocks and commodities, as traders found the gospel of the buck’s inverse correlation to risk assets difficult to denounce, the FT reports. The FTSE All-World index was up 0.7 per cent, WTI crude reclaimed the $100 a barrel mark and high beta “growth” currencies, such as the Australian dollar were firmer. S&P 500 futures pointed to a 0.3 per cent advance for Wall Street at the open, helped by a 0.7 per cent gain for Asia and a 0.7 per cent pop for the FTSE Eurofirst 300 at the start of trading. Such a bullish tone would normally be met with noteworthy softness in the prices of core bonds, nudging yields higher as investors shifted funds to racier plays. But benchmark US Treasury 10-year yields were little changed at 6-month lows of 3.06 per cent, reflecting continued evidence that economic activity in the US is stuttering.

Basel III break for banks in EU

Banks in the European Union could evade part of the tighter Basel III capital requirements under draft legislation implementing the new globally agreed standards across the 27-member bloc, the FT reports. The 500-plus page draft, which has not been officially released, could allow EU banks to count more of the capital in their insurance subsidiaries than the global rules call for. It will also allow some banks to continue issuing hybrid capital – preference shares and other debt-like instruments – for longer than expected. The biggest French financial companies, including Société Générale and BNP Paribas, and the UK’s Lloyds Banking Group have insurance arms. They would benefit disproportionately from the exception.

Basel and a widowed Lloyds balance sheet

Funny coincidences, Lloyds Banking Group edition.

Last night Bloomberg reported that Lloyds has ruled out a sale of its insurance arm Scottish Widows. A sale had been seen bullish for the bank, by disciplining its vast post-crisis balance sheet a bit more and allowing return on equity to drift into the high teens. (RBS is targeting about 15 per cent ROE from its own balance sheet repair.) Read more

Should the US adopt the euro?

Here’s some innovative thinking courtesy of Bill Bonner at the Daily Reckoning blog.

He wonders if the US might be looking at its problems the wrong way round. Read more

Further reading

Elsewhere on Friday,

- The Fed’s $80bn subsidy facility. Read more

Pink picks

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

Adam Posen: Now is not the time to raise UK interest rates
The UK’s economic performance over the past year is no surprise, Posen, an an external member of the Bank of England’s monetary policy committee, writes. When you tighten fiscal policy significantly after a major financial crisis, both history and mainstream economics would tell you to expect what we have now : no growth in broad money or credit, persistently high interest spreads for small businesses and households, flat or contracting private consumption and retail sales, a dearth of construction and declining real wages – all only partially offset by some expansion in exports. In such a situation, you should expect little domestically generated inflation, and that is also just what the UK has. Read more

Snap news

Breaking pre-market news on Friday,

- Piraeus Bank posts small Q1 profit, provisions up – statementRead more

Europe and US worries idle Asian stocks

Asian shares were mixed as investors continued to chew over the impact of Europe’s sovereign debt problems and slowing US economic growth, although strong corporate earnings gave some stocks a lift, reports the FT. The MSCI Asia Pacific index was up 0.5 per cent with Japan’s Nikkei Stock Average off 0.2 per cent, Australia’s S&P/ASX 200 up 0.3 per cent, South Korea’s Kospi Composite 0.6 per cent higher, and New Zealand’s NZX-50 inching up 0.1 per cent. In Tokyo, Sony dropped 3 per cent on the view that its forecast of a Y80bn profit this year may be overly optimistic given its ongoing struggle with the aftermath of the March earthquake and security breaches on the internet. But Hitachi Construction, Japan’s second-largest maker of construction equipment, gained 2.2 per cent after reporting a 56.5 per cent increase in operating profit in the year ended March 31. Senshu Electric, a supplier of electric cables, rallied 6.9 per cent after raising its full-year profit target. Nippon Sheet Glass advanced 2 per cent after Nomura Securities upgraded the stock to Buy from Neutral. The resumption of foreign buying provided some support in Seoul but the stock market was still set for a fifth consecutive week of losses. Hyundai Motor, South Korea’s largest automaker, was up 2.9 per cent and oil refiner SK Innovation was 0.7 per cent higher. Hanwha Engineering & Construction rose 3.8 per cent on a $7.25bn order from Iraq to build a new town. LG International added 2.7 per cent after Korea Investment & Securities raised its stock price target by 31 per cent. Hana Financial Group fell 2.1 per cent while Korea Exchange Bank rose 1 per cent on media reports that Hana may buy a 10 per cent stake in KEB ahead of regulatory approval to keep its $4.3bn deal alive. A 10 per cent stake would not require regulatory approval.

Refinance woes deal fresh blow for Hands

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 reports. 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. 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. The property group has started trying to resolve the issue, which highlights how some highly complex loans used by private equity groups to buy companies in the years leading up to the credit crisis are now causing huge refinancing headaches when dealing with hundreds of lenders involved in numerous layers of debt. Terra Firma bought Deutsche Annington, one of Germany’s largest real estate groups with 190,000 flats, in 2000 and expanded it five years later by adding Viterra in a €7bn deal.

Hong Kong tests banks’ ability to survive outflows

The Hong Kong Monetary Authority is forcing the city’s banks to undergo stress tests to gauge their ability to survive a potential outflow of almost HK$700bn ($90bn) in deposits as liquidity tightens in the Chinese territory, reports the FT. The de facto central bank of the Chinese territory wants commercial banks to slow lending amid concerns about rapid credit growth and soaring property prices. One person familiar with the HKMA move said the regulator wanted to keep the banks “on their toes” to ensure they were not easing underwriting standards and were maintaining lending discipline. Norman Chan, HKMA chief executive, recently warned borrowers to expect higher interest rates in the US, which could lead to an outflow of deposits. “When US rates rise, I anticipate that the HK$640bn inflows into Hong Kong in late 2008 to 2009 would gradually flow out,” Mr Chan said.

Low-skill jobs data stir migration debate

The number of foreign-born workers filling low-skill jobs has more than doubled in nine years, reigniting debate about immigration and whether welfare reform can encourage more Britons to take jobs such as hotel porters and cleaners, reports the FT. The Office for National Statistics said 20.6 per cent of low-skill jobs were held by foreign-born workers in the first quarter of this year – up from 9 per cent in 2002. Workers from eastern or central Europe were the biggest factor. The figure carried on rising through and beyond the recession, despite high unemployment and the fact that the total number of people in low-skill jobs remained steady at 3.2m. Separate figures from the ONS showed overall net migration had risen to a five-year high. An extra 367,000 people born outside the UK are now working in low-skill jobs, taking the total to 666,000, up from 298,000 in 2002. The number of UK-born workers in these occupations fell 480,000 to 2.56m. Workers from the eight eastern European countries that joined the European Union in 2004, who are subject to few immigration controls, were responsible for two-thirds of the rise. Their numbers in low-skill categories increased by 4,000 to 239,000.

Ratko Mladic arrested in farmhouse

Ratko Mladic, the former Bosnian Serb general who is one of the world’s most wanted war crimes fugitives, has been arrested in Serbia, ending a 16-year manhunt often denounced as half-hearted, the FT reports. Mr Mladic is sought by the International Criminal Tribunal for the Former Yugoslavia for alleged genocide and war crimes during the 1992-1995 Bosnian war. He is accused of orchestrating the siege of Sarajevo and the massacre of 8,000 Muslim men and boys at Srebrenica – the worst atrocity in Europe since the second world war.

Low-skill jobs data stir migration debate

The number of foreign-born workers filling low-skill jobs has more than doubled in nine years, reigniting debate about immigration and whether welfare reform can encourage more Britons to take jobs such as hotel porters and cleaners, the FT reports. The Office for National Statistics said 20.6 per cent of low-skill jobs were held by foreign-born workers in the first quarter of this year – up from 9 per cent in 2002. Workers from eastern or central Europe were the biggest factor. The figure carried on rising through and beyond the recession, despite high unemployment and the fact that the total number of people in low-skill jobs remained steady at 3.2m. Separate figures from the ONS showed overall net migration had risen to a five-year high. An extra 367,000 people born outside the UK are now working in low-skill jobs, taking the total to 666,000, up from 298,000 in 2002. The number of UK-born workers in these occupations fell 480,000 to 2.56m.