The European debt crisis continued to occupy investors’ minds, with a steep decline in the euro driving the FTSE All World equity index down 2 per cent and sending traders fleeing to the safety of core government bonds, writes the FT’s global market overview. That is the worst one-day performance for global equities since the Japanese earthquake hit on March 15. Wall Street’s S&P 500 fell 1.8 per cent, and the FTSE Eurofirst 300 was 1.5 per cent lower, with financials showing severe weakness across regions. The dollar, which often rallies during fearful periods, was up 1.1 per cent on a trade-weighted basis, and benchmark 10-year Treasuries were once again yielding less than 3 per cent. The euro was trading at $1.4028, up slightly from the day’s low in the $1.39 range, but off by more than 1.5 per cent compared with its close on Friday.
Moody’s on Monday released a report on 61 Chinest firms to “highlight issues meriting scrutiny to identify possible governance or accounting risks for non-financial corporate issuers in emerging markets”. Of the 61 firms, 49 have speculative-grade ratings, says the WSJ. The warning from the rating agency — which did not include ratings changes — comes on the back of ongoing worries about Chinese companies such as Sino-Forest Corporation.
An investment vehicle controlled by one of Asia’s richest men has underscored its willingness to pay chunky premiums for UK infrastructure assets, tabling a takeover proposal for Northumbrian Water that gives the FTSE 250 utility an enterprise value of £4.7bn, writes the FT. Northumbrian, chaired by former Northern Rock director Sir Derek Wanless, disclosed on Monday that it had opened its books to Li Ka-shing’s Cheung Kong Infrastructure after the bidder made a revised 465p-a-share proposal.
For the commute home,
- This defies description; just watch it. Read more
Peabody Energy of the US has joined forces with steelmaker ArcelorMittal to make a A$4.7bn (US$5bn) bid for Macarthur Coal, the Australian coal miner that was at the centre of a failed three-way bid battle last year, reports the FT. With Chinese-driven demand for coal pushing up prices, Peabody is attempting to expand overseas. ArcelorMittal is seeking to buy mines to secure its steelmaking ingredients at reasonable prices. Macarthur is the world’s top exporter of a coal variety that is one of the hottest commodities in metals and mining.
Nestlé, the Swiss food group, is set to acquire Hsu Fu Chi, the Chinese sweets company, for S$2.1bn ($1.7bn) in a deal that marks one of the largest foreign acquisitions in China and underscores the race for the country’s food sector. According to the WSJ, if the deal goes through it would be one of the largest foreign takeovers of a Chinese company and would give Nestlé control of the second-biggest confectionery company in China, after Mars Inc.
Shan Weijian, one of private equity’s most successful dealmakers in Asia, has raised more than $1.7bn for a new fund focused on China at a time of increased scepticism about such investments in the country, reports the FT. The announcement of the first close of PAG Asia I, expected on Tuesday, is a huge personal endorsement for Mr Shan, formerly of TPG and associated with some of the most lucrative deals completed in Asia by the US private equity group.
Europe’s debt crisis escalated on Monday as Italy and Spain saw their borrowing costs soar by record amounts, hitting bank shares and stock markets globally, reports the FT. Italy, the eurozone’s third-largest economy and home to the continent’s biggest bond market, saw the premium it pays to borrow over German debt rise by more than a quarter to 3 percentage points, a euro-era high. Spain’s benchmark borrowing costs rose above 6 per cent, also a euro-era high. Little progress was made by eurozone officials on Monday to fix the contours of a second bail-out deal for Greece, says the WSJ.
The benchmark yield on an Italian 10-year reached 5.718 after the largest one-day fall in the bond’s value since 1994.
Earlier on Monday we looked at China’s pork-led inflation and declining imports, only the latest data that would seem to reinforce increasing concern among market observers about the potential impact of a Chinese slowdown on global growth.
The US economy has hit a proverbial “soft patch” of uncertain transitoriness (TM), Europe remains mired in sovereign debt problems, Japan is still recovering from its earthquake, and the next commodities price shock always seems just round the bend. So, to be understated about it, now would be a bad time for China to grind to a halt. Read more
Another weekend of business casual negotiations in Washington failed to deliver a deal to raise the debt ceiling.
In response, President Obama held a press conference on Monday morning to urge a compromise and repeat his position on the size and shape of a deal. Read more
A bit odd how everyone focuses only on whether or when Italian bond yields will rise 200bps. Isn’t the real problem why a 200bps move would send everything in Europe overboard in the first place?
It’s a single point of failure, no? Read more
This must be the fastest moving corporate story of recent times.
Just hours after Jeremy Hunt, UK culture secretary, fired off a letter to media regulator Ofcom asking them to help kick the buyout into the long grass, News Corp has responded. Read more
Earlier on Monday — Italy’s financial regulator hits the shorts:
Europe’s biggest fallers at pixel time (via Reuters). Notice a trend?
Only in the eurozone can you make sovereign defaults “partial” and without any effects on actual debt burdens…
We’d emphasise that last point for Greece, but we’re also quite interested again in what the CDS market does here, despite its small size in relation to Greece and general lack of priority. Read more
The FT reported last week that because investor inflows into gold exchange-traded funds have recently stagnated, many analysts have begun questioning if the decade-long rally for the gold market might be nearing exhaustion.
As the FT noted: Read more
It’s a changed, changed world.
The introduction of bail-ins and burdensharing means capital markets will never be the same. Read more
What price sovereign risk within a bank bond? BIS answer here:
Live markets commentary from FT.com
… please help rid me of this wretched BSkyB buyout.
The upward trend in Italian government bonds, of course.
You wouldn’t want to be a Chinese local government official, just now:
(Reuters) - China will link local officials’ performance appraisals to the level of debt held by local governments, state media reported Monday, an apparent move to cap borrowing and address worries that possible defaults could damage China’s economy.
Nestlé, the Swiss food group, is set to acquire Hsu Fu Chi, the Chinese sweets company, for S$2.1bn ($1.7bn) in a deal that marks one of the largest foreign acquisitions in China and underscores the race for the country’s food sector, the FT says. China’s food market is becoming a hot target for foreign investment, as rising incomes feed a growing appetite for packaged foods. Separately, the Wall Street Journal reports that chemicals conglomerate Sinochem is in advanced discussions with Monsanto to deepen their ties significantly, an important sign of China’s growing appetite for US crops and biotechnology. Although China is the world’s largest producer of wheat and rice, and the second-largest producer of corn, behind the US, the country isn’t producing enough for its inhabitants, the WSJ adds.
The best currency forecasters say the dollar’s 13 percent slide over the past year is coming to an end as Europe’s deepening debt crisis discourages bets against the world’s reserve currency, Bloomberg reports. Led by Schneider Foreign Exchange Ltd., the five most- accurate firms during the six quarters through June 30 as measured by Bloomberg see the dollar trading at $1.42 per euro on average by year-end, compared with $1.43 on July 8. Against the yen, they predict the greenback will rise to 83 from 80.64.
A large selection of sour points are nobbling risk appetite at the start of the week. The FTSE All World equity index is down 0.5 per cent, core bond yields are dipping, while softer commodities and currency movements point to a meagre paring of racier plays, the FT reports in its rolling global market overview. S&P 500 futures suggest Wall Street will start with a loss of 0.6 per cent and the FTSE Eurofirst 300 has opened 0.3 per cent lower as financials again show weakness. Asia investors have had their first chance to react to Friday’s news that just 18,000 net jobs were created last month in the world’s biggest economy, and the FTSE Asia Pacific index is down 1 per cent as a result.
European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing, the FT says. The new strategy, to be discussed at a Brussels meeting of eurozone finance ministers on Monday, could also include new concessions by Greece’s European lenders to reduce Athens’ debt. ECB member Lorenzo Bini Smaghi also gave a speech outlining his frustration with last minute, politically-driven decisions and partial solutions, as well as outlining his opposition to including private creditors in the financing of the Greek program. Kathimerini says Greece may have inadvertently ducked the rollover bullet.
US hedge funds are placing large bets against the value of Italian government debt, directly shorting the bonds of the eurozone’s third-largest economy, the FT says. The funds have increased the size of short positions in the last month, speculating that investor concerns over the country’s ability to fund itself may spread from Europe’s periphery to Italy, according to investors in the funds briefed on the strategy. FT Alphaville notes that in recent weeks, Italian bonds are reacting more to eurozone stress than Spanish ones. Reuters adds shares in Italian banks, some of the biggest buyers of the country’s debt, are falling again on Monday morning. Meanwhile Bloomberg reports Consob, the Italian regulator, has moved to curb short-selling by ordering short sellers to reveal positions of more than 0.2 per cent.