Investors are ending a volatile quarter in upbeat mood as fears recede of a messy default by Greece. Treasury yields have pushed to 7-week highs reflecting lower demand for haven assets as risk appetite improves, and after the Federal Reserve completed its $600bn bond purchase programme. The euro dipped from early session highs after a sharp contraction in German retail sales reminded investors that even if eurozone fiscal woes are abating, the global economy is already enduring a period of stuttering growth. However, it is rallying afresh into the European close, reclaiming the $1.45 mark, up 0.6 per cent on the day – a symbol of the broadly improving mood. US weekly initial jobless claims numbers were again disappointing, falling less than expected and confirming that the labour market of the world’s biggest economy is still struggling for traction. But better news came from a stronger-than-forecast Chicago purchasing managers’ index, and traders have decided to focus on that as the Wall Street session gathers steam. The S&P 500 is higher by 1 per cent, also helped by news the Greek parliament had passed the austerity implementation law on Thursday. US Treasury yields spiked on the news, with the 10-year note yielding as much as 3.20 per cent at one point. That offer finally brought some buyers to the notes – which have seen a string of very poor auctions this week – and yields fell back to 3.15 per cent, still up 14 basis points on the day.
Germany’s leading financial institutions have agreed to roll over €3.2bn holdings of Greek government bonds falling due up to and including 2014, Wolfgang Schäuble, finance minister, announced in Berlin, the FT reports. The agreement in principle – subject to further negotiation of the details and agreement on contributions from other eurozone creditors – was described on Thursday by Josef Ackermann, chairman and chief executive of Deutsche Bank, as making a “voluntary and substantial” contribution to the support of Greece. However it was greeted with disappointment by analysts, who said the sums involved in negotiations throughout the eurozone were unlikely to add up to a major contribution to a new Greek financial rescue package, or provide any significant debt relief. “It is not that substantial,” said Silvio Peruzzo, Europe economist at the Royal Bank of Scotland. “The assumption that 80 per cent of private creditors would participate on a voluntary basis is probably too high.”
Greece has cleared the way for fresh international financial aid to avert a damaging default after its government won a second, decisive parliamentary vote on implementing sweeping austerity measures, the FT reports. George Papandreou, socialist prime minister, on Thursday secured approval for fast track implementation of €28bn ($40.6bn) in tax increases and spending cuts demanded by the European Union and International Monetary Fund. Following Wednesday’s initial vote in favour of the measures, the way is open for payment of €12bn in international aid in July and a deal on a second bail-out plan to replace a €110bn package put in place a year ago. The government won by 155 votes to 136. A defeat would have revived worries about the stability of the eurozone. Thursday’s debate took place without a repeat of Wednesday’s violent protests in the Athens streets, which saw stone-throwing demonstrators clash with police firing tear gas, although the police remained on standby for further trouble.
Taiwanese prosecutors have indicted former president Lee Teng-hui, the state’s first democratically elected leader, on corruption charges, reports the FT. Mr Lee is accused of embezzling US$7.8m in government funds during his tenure as president in the 1990s, and faces possible life imprisonment if convicted. His top economic adviser, Liu Tai-ying, was also indicted. Wellington Koo, a lawyer representing Mr Lee, said the former president insisted he was innocent and would fight the charges in court. “He was not in charge of the funds in question and has not pocketed a single cent of it,” Mr Koo said. Mr Liu and his lawyer could not be reached for comment. The former president is a dominating figure in modern Taiwanese history. Aside from pushing through major democratic reforms, Mr Lee was the first native Taiwanese to head the nationalist Kuomintang party and become president of the Republic of China – the official name for the state of Taiwan.
After fierce internal debate, Japan’s government and ruling parties agreed a plan to progressively double the 5 per cent consumption tax by the middle of this decade in order to fund a reformed social security system, the FT reports. By laying out a plan to fund rising welfare costs, the government hopes to maintain market confidence in a state with gross debt set to soar above 200 per cent of gross domestic product this year. However, implementation remains uncertain given deep divisions within the ruling Democratic party and expectations that Naoto Kan, the prime minister, would be forced to step down within the next few months. The plan, which was only agreed after the government softened its language on the tax-rise timetable, is intended to become the basis for discussions with opposition parties that Mr Kan hopes will lead to legislation early next year.
Growing manpower shortages in Australia’s booming resources sector are weighing on productivity and could prompt some big companies to shift some operations to other countries, the industry’s key employer group has warned, the FT reports. Nearly 90 per cent of companies in Australia’s resources sector face problems recruiting workers, according to the Australian Mines and Metals Association. “The labour shortage in the Australian resource industry and the detrimental impact this is having on the productivity of enterprises is now beyond doubt … unwarranted restrictions on the ability of employers to source skilled labour from overseas could limit future growth and lead to projects or parts of projects being relocated”, Steve Knott, the association’s chief executive, said on Thursday. Across Australia, 94 new resources projects worth a record A$173bn ($185.5bn) are in advanced stages of development and will require thousands more workers to “get off the ground” in coming months and years, added Mr Knott.
It is 11pm on a hot Friday in Bangkok’s red light district, and Thailand’s finance minister – wearing a T-shirt and chinos – is weaving his way between bemused tourists and pavement stalls selling knock-off Calvin Klein underwear, reports the FT. Heading to DJ Station, one of Bangkok’s best-known gay clubs, Korn Chatikavanij is in search of more votes for Sunday’s elections. His Democrat party is trailing in the polls, with most surveys indicating they are 15 percentage points or more behind the opposition Puea Thai party. The Democrats are struggling to turn the advantages of incumbency into votes. They have been hit by external factors such as rising prices, but they have also mounted a campaign that has looked lacklustre against the slick marketing of Puea Thai and Yingluck Shinawatra, their young and photogenic prime ministerial candidate. She is the youngest sister of Thaksin Shinawatra, the controversial telecommunications billionaire and former prime minister who was removed in a coup in 2006. He now lives in exile in Dubai to avoid a two-year jail sentence for corruption, but his populist policies ensure he remains a hero to many rural Thais despite a record of human rights abuses and autocratic rule.
For the commute home,
– Geithner to consider leaving Treasury after debt debate. Read more
The Department of the Treasury Read more
The last QE2 open market operation: $12.47bn of Treasuries tendered by primary dealers, $4.91bn accepted by the Fed, $4.4bn of which was yesterday’s new seven-year bond.
As highlighted in FT Alphaville’s tombstone (data via Reuters): Read more
Once toxic, always toxic.
If there’s something Greek and strange in your neighbourhood (bank contagion risk to sovereign credit in emerging Europe, to be precise)…
…Who are you going to call? Read more
Once was enough for Glencore.
After releasing its maiden set of quarterly results just two weeks ago — sparking a rout in its its shares because of a disappointing performance from its key metals trading business — the company appears keen to remedy the situation. Read more
Don’t get them wrong. Rating agency Standard & Poor’s appreciates investment banking.
“Global banks need to service their client base with an investment banking arm,” they write in a report out on Thursday. It’s just that, well, they think its dominance in bank earnings is rapidly declining. Read more
A big hat-tip to Lorcan for this — the Irish 2011 census, which includes a nice chart of increases in housing stock, 2006-2011:
Yield, like love, can cause trouble when you search too hard for it.
Paul Fisher, executive director for markets at the Bank of England, on Wednesday gave a speech surveying the current state of financial markets. Read more
From Data Explorers — a chart to show how shares on loan in iShares’ iBoxx high-yield corporate bond ETF have basically trebled since June 10:
Live markets commentary from FT.com
Global merger and acquisition volumes fell 17.5 per cent in the second quarter compared with the first three months of 2011, totalling $516bn, according to data from Mergermarket, the FT reports. While volumes for the first half of 2011 were up 27.7 per cent year on year to over one trillion dollars, emerging markets M&A fell 4.8 per cent in the year to date and volatility from the sovereign debt crisis has begun to weigh. Deals in the oil and gas industry have fallen to their lowest volume since the end of 2008, reports Bloomberg, with Asian buyers falling out of the market.
Bank of America is likely to see profits wiped out in the second quarter after taking a $14bn provision to cover investor claims against Countrywide mortgage bonds, the FT reports. BofA will settle $8.5bn of outstanding claims and record charges to cover another $5.5bn. The bank added that it could face further claims totalling $5.5bn, over underwriting standards. There is another $6.6bn in lawsuits, foreclosure trouble, and write-offs that would send charges to $20.6bn, although far lower than the $50bn that investors had feared, the WSJ says.
The rally in Treasury prices has come juddering to a halt just as the Federal Reserve’s asset purchases come to an end on Thursday, the WSJ reports. Ten-year Treasury yields reached 3.11 per cent after low demand in a seven-year auction on Wednesday, suggesting that primary dealers are unlikely to bid aggressively now that the Fed is unable to take unwanted paper. The central bank absorbed 85 per cent of net Treasury issuance in the last eight months, say Morgan Stanley economists. Pimco’s Bill Gross believes that the Fed could signal a return to markets as early as August, but few believe it possesses the ammunition, or willpower, for QE3, Reuters says.
For UBS economist Paul Donovan it’s not even a question, really
In a 16-page piece of research out this Thursday, he argues that “the issue of prejudice in society is not an abstract concept that investors can afford to ignore.” Discrimination based on race, gender, nationality, religion or sexual orientation, he says, are firmly linked to a country’s economic development. Read more
Maple Group, the consortium of Canadian banks and funds bidding to take control of TMX, have seen the London Stock Exchange bow out as a rival but must still convince competition regulators, reports the Globe and Mail. Maple’s plans for TMX involve combining it with an alternative trading exchange, leaving 80 per cent of the Canadian stock market in the combined entity’s hands. The banks could close down the alternative market in order to comply with regulators, but also face a large minority of hostile shareholders, the FT says.
Nasdaq is eyeing a bid approach for the London Stock Exchange following LSE’s failed merger with the Canadian bourse TMX, reports Fox Business. LSE shares jumped 3 per cent in European trading on Thursday, as investors calculate that it will become a bid target for Nasdaq, says the FT. Nasdaq stock rose 4.7 per cent on Wednesday, the largest daily gain since the exchange announced a joint bid with ICE for NYSE Euronext, Bloomberg reports. But the LSE’s biggest shareholders bought at the top of the market and may not be immediate sellers, FT Alphaville says, while LSE’s underlying business is improving, notes the FT Trading Room.
He’s finally done it.
Antonio Horta-Osório has finally said something that’s made the Lloyds share price rise: Read more
The Federal Reserve has approved setting the cap on debit card interchange fees at 21 cents per transaction, above the 12 cents proposed by the central bank last year, the FT reports. Shares in Mastercard and Visa rose 11 and 15 per cent respectively on the announcement, Bloomberg says. The Fed decision effectively offers banks a reprieve from the wider effects of interchange reform, which will see revenue from swipe fees collapse, the Washington Post says. Banks will also be allowed to claw back one cent per transaction conditional on anti-fraud measures.
Required: another corporate mercy killing.
The target? Read more
You know, a certain FT reporter took a lot of shtick for a this article.
The gist — European sovereigns were increasingly turning to the kind of pre-crisis financial engineering to shift them out of crisis. The European Financial Stability Facility, you’ll remember, was often likened in principal to a giant Collateralised Debt Obligation, with its emphasis on credit enhancement. Read more