Worries about institutional indebtedness were capping market exuberance, with concern about the loan portfolios of Chinese banks joining festering eurozone fiscal angst to keep the risk-averse on their toes, writes the FT. Beijing’s third 25 basis point rise this year softened growth-focused assets – though it has not caused too many ructions because talk had been sweeping the market of such a move. The euro was down 0.7 per cent to $1.4317 and the dollar index was up 0.5 per cent. Treasury yields, which were initially nudging higher, were now pulling back as “havens” are sought, with the 10-year benchmark down 2 basis points to 3.10 per cent. The debt worries and a weaker-than-forecast service sector survey weighed on the S&P 500, though it ended slightly higher, up 0.1 per cent, in a volatile session. Commodities were tracking the “risk off” trend and reduced China demand concerns, with copper down 0.3 per cent to $4.32 a pound. US WTI crude was off 0.2 per cent at $96.73 a barrel.
Rupert Murdoch, chairman of News Corp, denounced the alleged phone-hacking at one of his British tabloid newspapers as “deplorable and unacceptable” as investors took fright at the reputational damage being inflicted on the global media group, writes the FT. Shares in News Corp fell 5.1 per cent in midday New York trading as shareholders feared that the political firestorm enveloping the News of the World newspaper could jeopardise News Corp’s chances of taking full control of British Sky Broadcasting, its highly profitable UK satellite broadcaster.
As concerns over the outlook for the Chinese economy intensify, currency traders have scaled back their bets that the renminbi will continue to strengthen against the dollar, writes the FT. Investors have also ramped up purchases of hedges against the risk that Beijing could devalue its currency were the economy to suffer an unexpectedly severe slowdown. The bearish market moves stand in contrast to the rosier consensus among economists that the renminbi will appreciate at an annual rate of 3 to 5 per cent over the coming years.
The price of iron ore will remain above $150 a tonne for at least the next five years, according to Vale, the top miner of the commodity. The bullish prediction by Guilherme Cavalcanti, finance director of the mining group, is the latest contribution to a debate on the outlook for the iron ore market that has polarised analysts and investors. Used to make steel, iron ore is the largest contributor to the profitability for the three largest mining groups: BHP Billiton, Vale, and Rio Tinto . And if Vale’s forecast is correct, the three companies’ shares would be expected to rise sharply, says the FT.
An employee at CME Group, the US’s largest futures exchange operator, planned to steal proprietary software and pass it to a Chinese start-up, according to federal investigators, writes the FT. Chunlai Yang, a 49-year-old naturalised American, has been formally charged with stealing proprietary source code. If convicted, he faces up to 10 years in prison and a $250,000 fine.
US regulators will next week push for a deal that would allow them to inspect auditors based in China in an effort to ease rising investor concerns over the accounting of many Chinese companies, reports the FT. Officials from the US Securities and Exchange Commission and Public Company Accounting Oversight Board plan to meet counterparts in Beijing to negotiate a deal. The talks with China’s finance ministry and the China Securities Regulatory Commission will centre on proposals to allow PCAOB inspectors into the country to review auditing firms as required under the Sarbanes-Oxley law.
For the commute home,
– Why we care about the price of water in China. Read more
China has raised interest rates for the fifth time in eight months, indicating the country’s leaders are still focused on taming politically sensitive inflation, the world’s second-biggest economy is slowing. Benchmark one-year lending rates will be raised 25 basis points to 6.56 per cent from Thursday, while one-year deposit rates will go up 25 basis points to 3.5 per cent, the central bank said on Wednesday, reports the FT. The rise suggests that inflation is likely to have accelerated to a three-year high of more than 6 per cent in June, well beyond Beijing’s comfort zone.
Business Week, 29 October 2001 (annotations from… another time and place):
Just about the only thing left standing between Argentina and default is the country’s strong-willed Economy Minister, Domingo Cavallo. Every time it looks as if cash-strapped Buenos Aires is going to concede defeat, Cavallo manages to pull off another last-minute save. In May, he persuaded foreign investors to swap $30 billion worth of Argentine treasuries for paper of longer maturities and higher interest rates.
For the first time in the News of the World phone hacking scandal the share price of the mother ship is under pressure.
Here’s an interesting turn of events.
The German Economy Ministry announced on Wednesday that manufacturing orders rose 1.8 per cent in May — which was an unexpectedly large rise, given that analysts were looking for a fall of 0.5 per cent. Read more
Here is what Sino-Forest said, in its first quarter 2011 earnings call, 14 June:
Operator: And your first question comes from the line of Richard Kelertas from Dundee Capital Markets. Your line is open. Read more
Who would have guessed. The colour smokers find most repulsive is olive green.
Well, that’s the finding of researchers working for the Australian government which on Wednesday launched a bill aimed at banning any form of branding on cigarette packs. Read more
With China hiking interest rates by 25 basis points on Wednesday, reportedly to counter faster inflation, now is probably a very good time to bring up the issue of the country’s GDP deflator calculation.
Simon Hunt of Simon Hunt Strategic Services, a veteran copper market analyst with great connections in China, believes the deflator may be a much bigger concern for Chinese authorities than the CPI inflation figure. Read more
So here it is — the fifth Chinese rate hike since October last year.
As Reuters reported on Wednesday: Read more
That the European Central Bank has stepped in to replace much of the eurosystem liquidity that used to be provided by the banks’ themselves is well-known. Did you know, however, that one measure of the ECB’s liquidity provision is now higher than in the depths of the 2008 financial crisis? Read more
Live markets commentary from FT.com
Almost 95 per cent of trading volume in US crude futures is driven by day-trading or trades in calendar spreads, rather than long-term bets from large traders, according to CFTC data, the FT reports. “The data show that, in many cases, less than 20 per cent of average daily trading volume results in traders changing their net long or net short [positions],” said Gary Gensler, the CFTC chair. Regulators have incentives to blame commodities speculation, with crude prices having risen to three-year highs amid considerable volatility. Even the IEA release of oil stocks in June appeared to target technical trades in calendar spreads specifically, FT Alphaville wrote at the time.
International revenue has slipped at JPMorgan despite a high-profile push to expand its worldwide corporate lending business, with Jamie Dimon admitting that executives prevaricated over whether to buy a major global bank, the WSJ reports. JPMorgan has spent $1bn on its international expansion but has watched as Citigroup continues to pull down more revenue from its own, larger, global network — 60 per cent of total revenue compared to JPMorgan’s 20 per cent. Executives have concluded that it is now too late to buy a big retail bank abroad, facing the prospect of slowly grinding up loan share while seeking to avoid bad debts.
Mortgage lenders are already cautious over a government plan to reduce guarantees for large mortgages in October, the WSJ says. Currently federal agencies can provide backing for mortgages up to $729,750, but this will drop to $625,500 in pricey markets like the Washington, DC area or New York. Lenders said that the change is likely to force home buyers into the jumbo loans market, leading to higher borrowing costs and falling house prices. But jumbo loans are among the few private-label mortgage markets to have recovered quickly from the financial crisis, and the price drops involved will be relatively small, according to Housing Wire.
Regulator powers to claw back up to two years of executive pay in the event of a bank failure go too far, banks have warned on the eve of the FDIC creating a formal rule on the matter, according to Reuters. Bank associations said the powers, introduced under the Dodd-Frank act, did not allow for circumstances when a bank’s failure was beyond its control and wrongly tied clawbacks to job titles over actual decisions. Regulators are sympathetic to the second objection but are unlikely to concede the powers in a climate of public anger over executive compensation. ‘Say on pay’ shareholder votes on compensation are meanwhile now being used with gusto across corporate America, says the FT.
Are we about to see some action at struggling private equity group 3i? Chairman Sir Adrian Montague must be hoping so.
Amid talk that several large shareholders are planning to abstain or vote against re-election of chief executive, Michael Queen at today’s AGM he’s moved to install a new high profile chief investment officer. Read more
Berkshire Hathaway has joined a consortium in exclusive talks to buy OneMain, the Citigroup consumer loan unit once known as CitiFinancial, says the WSJ. The consortium also includes Centerbridge Partners and Leucadia National, and may pay $8bn for the deal. OneMain has a book value of $2bn. Berkshire previously allied with Leucadia to purchase a commercial mortgage origination and servicing unit from Capmark in 2009. Citi restructured and rebranded OneMain earlier this year, says Reuters, as it prepared for a sale to remove the loans from its balance sheet.
Bondholders have combined to challenge an $8.5bn deal that Bank of America struck last week with other investors to settle claims that its Countrywide Financial unit mis-sold MBS, the FT reports. The Walnut Place group of investors has accused BNY Mellon, the trustee on the MBS deals, of putting its interests ahead of other shareholders in the Countrywide trusts, and failing to force Countrywide to repurchase faulty and poorly-underwritten loans. The investors therefore argue that BofA should be held liable for up to $242bn of buybacks across the 530 trusts involved in the settlement.
Here’s an interesting chart from Société Générale compiled using data from EPFR Global.
It shows recent flows in and out of European money-market funds. Read more