Posts from Wednesday Jul 13 2011

Rally fades as gold hits new record

Treasury yields in late trade were unchanged after Moody’s put the US’s ‘AAA’ credit rating on watch for possible downgrade, citing the risk that US lawmakers may fail to agree to extend its debt ceiling, reports the FT’s global market overview. S&P index futures briefly fell 0.8 per cent to 1,302 after the Moody’s announcement, but recovered to 1,307 – still predicting a drop of 10 points from Wednesday’s close. The dollar wobbled, dropping 0.3 per cent on a trade-weighted basis before recovering to trade nearly flat. Late in the day, the S&P 500 index gave up gains of more than 1 per cent to end up just 0.3 per cent after an auction of US Treasury notes saw strong demand and gold hit a new record, signalling a dense seam of wariness lurking beneath the market’s surface. Gold breached $1,585 an ounce for the first time as traders seek protection. The yellow metal was up 1.3 per cent at $1,586 an ounce and silver reclaimed $38 an ounce, having jumped more than 5 per cent. In trading, 10-years Treasuries yields were up 2 basis points to 2.89 per cent.

Japan PM urges nuclear power phase-out

Naoto Kan, Japan’s prime minister, has called on the country gradually to eliminate nuclear power, in his strongest statement on atomic energy since the March tsunami sparked a crisis at the Fukushima Daiichi nuclear plant, reports the FT. “Our nation should aim to become a society that can manage fine without nuclear power,” Mr Kan said on Wednesday. Mr Kan, who has vowed to step down at an unspecified date, provided few details on timing, but his comments underscore cooling sentiment in Japan toward nuclear power.

Triple bomb attack kills 21 in Mumbai

India was put on high alert after three explosions rocked Mumbai, killing at least 21 people, injuring more than 140 and sending the country’s financial capital into chaos, reports the FT. The Mumbai police said that the synchronised explosions appeared to be the work of terrorists and confirmed that there had been three bomb blasts at separate sites across the city. The National Investigation Agency was rushed to the scene and officials from Delhi were reported to be flying to Mumbai.

Sanrio seeks friends for Hello Kitty

Sanrio, which licenses the popular Hello Kitty image, could acquire new characters from outside its own development team for the first time in an attempt to diversify its portfolio, reports the FT. The company, which has developed its own range of characters, including a frog named Kerokerokeroppi and a puppy called Cinamoroll, is looking to add new brands “that do no conflict with the existing portfolio” of cute characters, according to Sanrio.

News Corp abandons BSkyB bid

Rupert Murdoch has bowed to intense political pressure and withdrawn News Corp’s planned £8.3n bid to take full control of British Sky Broadcasting, after his media group admitted public condemnation of phone hacking made the climate “too difficult”. The decision to abandon the 13-month pursuit of the UK’s most valuable commercial broadcaster means the phone-hacking scandal has forced Mr Murdoch not only to close the News of the World, but also to curtail his ambitions to consolidate his pay-television empire in Europe, says the FT.

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Bernanke sets out stimulus options

Ben Bernanke has outlined extra stimulus options the US Federal Reserve could use if the economy remains weak, acknowledging a possible return to monetary easing, writes the FT. “The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might re-emerge, implying a need for additional policy support,” the Fed chairman told the House Financial Services committee on Wednesday.

Moody’s puts the US on review for possible downgrade

Well, it said it would. And it has. After US markets closed on Wednesday, Moody’s followed S&P’s lead and put the US’s Aaa rating on review for a possible downgrade, writes FT Alphaville. US Treasuries are treating the news with a priced-in shrug. The yield on a 10-year US Treasury bond increased by 3 basis points but quickly retreated to its pre-announcement level, just below 2.89 per cent. Other securities will also be affected; see this FT Alphaville post for more details.

Moody’s puts the US on review for possible downgrade

Well, it said it would. And it has.

After US markets closed on Wednesday, Moody’s followed S&P’s April 18 less-definitive negative outlook announcement, and put the US’s Aaa rating on review for possible downgrade. Read more

Further further reading

For the commute home,

– How PROTECT IP legislation would undermine entrepreneurshipRead more

The cost of being a global Sifi

Global Sifi buffers is both the likely new name of FT Alphaville’s pub trivia team and a hotly followed piece of financial regulation.

The Financial Stability Board is not due to formally announce its capital recommendations until November, but we already have a good idea what to expect. (The Federal Reserve is also still to announce its proposals.) The very biggest banks are expected to be subject to a 250bps tier one capital surcharge, with the threat of an extra 50bps charge left over to disincentivise supersizing. Read more

Risk on… wait, never mind

Remember when risk assets bounced on Bernanke’s testimony suggesting that QE3 was now under more serious consideration within the FOMC?

That was at 10am EST on Wednesday, but then the rally lost its legs. Here’s the yield on 10-year US Treasuries: Read more

Eurozone at breakpoint

We have been waiting for this – the RBS report on eurozone debt crisis, policy options and end game scenarios.

And it doesn’t disappoint. Read more

How much is this plain vanilla derivative in the window?

Just to be totally clear we’re talking plain vanilla derivatives like, say, interest rate swaps a bank might arrange on behalf of a company. But it seems they’ve taken on a more exotic flavour, of late.

From the clever Chris Whittall over at IFRRead more

L’amore for sovereign credit indices

Generally a much quieter day in the bond and credit markets on Wednesday, after the week’s Italy panic. But we’re still wondering what on earth was moving credit indices during that time.

And what moves. The Markit SovX Western Europe was hugely blowing out by early Tuesday, peaking over 300bps for the first time. As you would expect, both the number of contracts and the notional amount traded (the total amount of protection bought or sold on an entity or index) increased too. The SovX saw 412 trades worth just over $4bn on Tuesday, versus 50/$1.1bn a week earlier. Read more

Search for the proverbial one-armed economist continues

On the one hand…

…the possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support.

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More smiles with ETF options

Here’s an interesting observation from a new paper published by the International Journal of Business and Finance (and flagged up by the CXO Advisory Group).

It pertains to the pricing of ETF options, which it turns out are not a like-for-like substitute for index options in the underlying indices they track. Even though you might think they should be. Read more

The bull market in doom rhetoric, FOMC minutes edition

Chart via RBC Capital Markets:

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BSkyB deal OFF

… says, er. Sky News.


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Repairing risk-weightings … with ratings

It’s not a great time to recommend more reliance on ratings.

But that’s just what Barclays Capital are discussing in a 29-page note on Risk-Weighted Assets (RWAs), which have become a hot-button topic in recent weeks. The debate was first opened when US banks started complaining that their European competitors had much lower risk-weightings than they did. That difference, BarCap says, is nothing more than a giant RWA-shaped red herring. Read more

Great British contingent liabilities of the crisis

Government liabilities at 84.5 per cent of UK GDP, anyone?

Out on Wednesday — the government’s first ever attempt at WGA, (Whole of Government Accounting) applied to the 2009-2010 fiscal year in this case. Click the above image for the full report. Read more

Markets Live transcript 13 Jul 2011

Live markets commentary from 

A look ahead to that vital/key BTP auction…

… with Citigroup.

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TBTF not dead yet, says S&P

Standard & Poor’s believes that the US Treasury, Federal Reserve and Congress might rescue a large financial group rather than allow it to fail like Lehman Brothers despite changes wrought by the Dodd-Frank act, says the FT. “We believe the government may try to avoid contagion and a domino effect if a Sifi [systemically important financial institution finds itself in a financially weakened position in a future crisis,” S&P said. If S&P continues to provide ratings uplift to large banks on the assumption of government support, funding markets are likely to remain hostile to smaller lenders.

Are USDA crop stats unreliable?

It’s almost like a scene from “Trading Places“, in which traders conspire to use and abuse the release of the US Department of Agriculture’s crop report.

Except this time it’s the reliability of the report which is being questioned. Not the way it’s being traded. Read more

New York AG probes BofA settlement

New York’s attorney general has sought client data from investors taking part in Bank of America’s $8.5bn settlement of mortgage securitisation claims as part of a probe into the matter, Bloomberg reports. Firms including Goldman Sachs and BlackRock were asked to provide information on clients affiliated with New York public authorities that had invested in Countrywide trusts The letter will increase suspicions that BofA’s settlement deal failed to consult investors before it was made, Yves Smith writes at Naked Capitalism.

Brazil tears up deal for biggest retailer

The Brazilian government has withdrawn financing commitment for Carrefour’s proposed merger deal with Pão de Açúcar, the country’s biggest retailer, Bloomberg reports. The move effectively scuppers Carrefour’s chances, and follows attacks from Groupe Casino, a rival French partner for company and its largest shareholder, reports the WSJ. Casino has an option to increase its 40 per cent stake next year and is likely to press ahead with its own acquisition plans. But it faces difficulties working with local management after the suspension of the Carrefour offer, says Reuters.

Debt ceiling talks on verge of collapse

House Republicans are increasingly dead set against any fiscal deal to raise the debt ceiling, with none of the current deficit reduction plans having gained acceptance, Politico reports. The fresh sign of stalemate has led to a darkening mood on whether the US can stave off sovereign default, with even a Republican plan to allow a limit increase without a vote being attacked from within the party, the FT reports. Senate Minority leader Mitch McConnell’s proposal would place the decision in President Obama’s hands, the Washington Post says.

Scale of Wall St wire-taps revealed

Prosecutors listened in on nearly a hundred money managers over 2009 during their probe into the Primary Global Research expert-network firm, revealing the extent of government secret recording throughout Wall Street, reports the FT. The details were contained within a motion to suppress government wiretaps filed by James Fleishman, a former employee of Primary Global. A federal judge approved the FBI to tap two Primary Global phone lines in 2009, including PIN numbers used 97 hedge fund and mutual fund clients.

Pimco buying Italian, and US, debt

Pimco has used this week’s fall in Italian bond prices to load up on the country’s debt from an underweight position, according to the fund’s head of fixed income portfolio management, says Reuters. The sell-off underrated Italy’s institutional strength and was exaggerated, Pimco said. Meanwhile the Total Return fund managed by Bill Gross upped holdings in US “government-related securities” in June for a second consecutive month, moving its overall position back to zero, says the FT. Gross had argued before the end of QE2 that yields were likely to rise.

Chinese growth robust, but slowest in two years

Interest rate rises held down Chinese economic growth in the second quarter to 9.5 per cent, although the deceleration was lower than had been expected, Reuters says. Economists had predicted 9.4 per cent. While the growth rate is at a two-year low, analysts said the relatively robust figure, combined with inflation that hit a three-year high of 6.4 per cent in June, meant Beijing was unlikely to loosen the “prudent” monetary policy introduced late last year, according to the FT. Bank lending is however up 15 per cent from May to June, above analyst expectations and a warning for inflation, the WSJ reports.