Without the promise of additional easing from the Federal Reserve, investors are selling equities and sending gold to a new record high amid growing concerns around US and European sovereign debt, reports the FT. Wall Street is doing its best to shrug off a possible Moody’s downgrade of US debt, and is gleaning support from some well-received earnings from JPMorgan and a jump in ConocoPhillips shares after the energy company said it would split in two. US Treasuries are little changed despite the worsening outlook. But after opening higher, the S&P 500 ended the day 0.7 per cent lower. Weighing were a retail sales report showing flat sales in the quarter, when autos and petrol are excluded, and Fed chairman Ben Bernanke stressing in comments to lawmakers that, while he was ready to act if the economy faltered, the central bank had no support programme planned at the moment. While this was the only thing he could sensibly say under the circumstances, it was taken by those betting on QE3 as reducing the chances of imminent stimulus. Small-cap stocks in the US are being hit particularly hard, with the Russell 2000 index down 1.3 per cent.
Singapore’s economy slowed sharply in the second quarter due to weakening global demand and supply-chain disruptions caused by the Japanese earthquake in March, reports the FT. Gross domestic product shrank an annualised 7.8 per cent from the previous quarter. In the first three months of 2011, the economy had expanded by 27.2 per cent. The manufacturing sector was the main drag on growth with a 20.5 per cent quarter-on-quarter contraction, largely due to a temporary output decline in the highly volatile pharmaceutical industry. Electronics makers were also hurt by a slowdown in global semiconductor demand and a shortage of components brought on by the natural disasters which hit Japan in March.
As China seeks to rein in stubbornly high inflation, measures to tighten borrowing have prompted fears that the country’s small and medium-sized enterprises (SMEs) will be hit hard, as credit is channelled instead to large state-backed companies, the FT reports. But the real picture is more complex. Rather than facing a widespread credit squeeze, the SME sector is undergoing a painful process of restructuring. Capital is being funnelled towards high-tech and green energy-related companies at the expense of traditional low-end manufacturers.
Investigators probing Wednesday’s bomb blasts in Mumbai which killed at least 18 people are focusing in on the likely involvement of the Indian Mujahideen, a domestic terrorist group that has been responsible for attacks in other Indian cities in recent years, reports the FT. Initial findings suggested that the use of improvised explosive devices could have been the work of a homegrown group such as the Indian Mujahideen, which is believed to be an offshoot of the banned Students’ Islamic Movement of India. The group, which struck in Pune in February last year and Delhi in 2008, tends to strike on the 13th or 26th of the month – a pattern that dates back to May 13 2008 when the group targeted Jaipur. But P. Chidambaram, the home minister, said that so far nobody has claimed responsibility for the attacks, which left at least 130 injured. He stressed that investigation teams and police were not making any assumptions or singling out any one group as being responsible for the attacks, adding that all groups “hostile to India” were potential suspects.
The European Union has accused China of further restricting exports of rare-earth metals essential for the production of mobile phones and other high-tech gadgets, the FT reports. After months of lobbying from Brussels, Washington and Tokyo, on Thursday China released new quota figures which would keep exports of the strategic materials on par with last year’s level. EU officials and traders contend that the new quota amounted to an effective decrease because it was recently ammended to include “ferroalloys”, which contain rare-earth metals. “This is highly disappointing,” said a spokesman for the European Trade Commission. “The EU continues to encourage the Chinese authorities to revisit their export restrictions policy to ensure there is full, fair, predictable and non-discriminatory access to rare earth supplies as well as other raw materials for EU industries.”
The Federal Bureau of Investigation has opened an investigation into an allegation that one of News Corp’s British tabloid newspapers may have sought to access to messages on phones belonging to victims of the terrorist attacks of September 11, 2001, the FT reports. “We’re aware of the reports and allegations and the FBI is looking into it,” a FBI spokesman said. The investigation risks adding to the legal and regulatory threats facing the owner of the Fox television network and Dow Jones as a phone hacking crisis that started at a single London tabloid has begun to spread across the Atlantic. The allegation, from a single, unnamed source, that representatives of the News Corp-owned News of the World newspaper unsuccessfully approached a former New York police officer seeking access to the private phone records of 9/11 victims appeared in the UK’s Daily Mirror newspaper earlier this week, but has not been substantiated by other reports.
For the commute home,
– Jamie Dimon: “There have been so many flaws in mortgages that it’s been an unmitigated disaster.” Read more
From the New York Times on Thursday afternoon:
In response to requests from members of Congress and at least one news media report, the Federal Bureau of Investigation in New York on Thursday opened a preliminary inquiry into allegations that News Corporation journalists sought to gain access to the phone records of victims of the Sept. 11 attacks, people briefed on the matter said. Read more
Pity the municipal middle man.
Wednesday’s WSJ has an interesting article on covenants that banks are attaching to direct loans made to municipalities seeking refuge from the capital markets. (The Bond Buyer reported back in February on the move toward direct lending.) Read more
As has been well documented, the Swiss franc’s relentless rise has been causing no end of headaches.
Swiss exporters, Swiss banks and even Polish and Hungarian mortgage holders have all been affected. The Swiss National Bank, meanwhile, is stuck between a rock and a hard place. Read more
If you thought the Swiss were getting tetchy about the strength of the Swiss Franc, note the following headline from the business section of Poland’s top internet portal Onet.pl on Thursday:
From Moody’s Analytics — an epic (European) week, as expressed through CDS spreads:
We’re not sure if this is the kind of changing of the subject that was wearisomely typical of his predecessors, or actually a good point on July’s paradigm shift in the eurozone bond market.
Anyway — quote du jour from Greek finance minister Evangelos Venizelos in a speech made on Thursday: Read more
Nomura’s Bob ‘the bear’ Janjuah returned to his keyboard last week.
Not much has changed since then. He still thinks Greece, Portugal and Ireland are insolvent nations, the developed world isn’t really recovering economically (hello, US jobs report) and we’ll have a short-term ‘risk-off’ period, followed by a risk-on phase from late July or early August. That should continue until late into this year, at which point things will probably turn very bearish. So far, so predictable. Read more
Italian jitters, alas, have not dissipated on Thursday. The sovereign was forced to pay severely high yields (some at records) on the sale of nearly €3bn in new bonds, in what many described as a make-or-break test of investor confidence for the eurozone.
With that in mind, it’s about time we got our hands on the now traditional “who’s exposed to xxxx” figures. Read more
Among things you can find out from reading the IMF staff’s 172-page fourth review of the Greek bailout:
1) The Greek central bank is making contingency plans for providing lenders with emergency liquidity assistance outside the European Central Bank (p. 16): Read more
Securitised subprime — it’s still not doing well. Read more
Live markets commentary from FT.com
Phew..! What a relief.
The Chinese danger is no more.
The lower-than-expected UK inflation figure for June is reviving chit chat of a second round of monetary easing, first sparked by last month’s minutes from the Monetary Policy Committee.
The economics team at Credit Suisse are joining in — not that they think it will happen any time soon; as least, not so long as PMI remains above the 50 mark. Read more
Fiscal worries are again dominating the markets, though the focus has switched from the streets of Athens to the corridors of power in Washington, the FT reports in its rolling global market overview. S&P 500 futures point to a 0.2 per cent fall for Wall Street as traders absorb the implications of a possible Moody’s downgrade of US debt should lawmakers not agree to raise the country’s debt ceiling and thereby potentially trigger a default. The FTSE All-World equity index is down 0.2 per cent, commodities are soft to mixed and gold has hit another record of $1,590 an ounce.
As big banks prepare to report their second-quarter results, federal regulators are scrutinising what these institutions are telling shareholders about possible payouts to clean up mortgage-related messes, the WSJ reports, citing people familiar. Officials at the SEC are looking closely at bank estimates of possible liability in the wake of a surprise June 29 announcement that Bank of America would take mortgage-related charges of $20.6bn during the second quarter, more than some analysts had expected. The SEC is focusing on whether banks are doing enough to disclose the so-called “reasonably possible” category of losses in their accounts.
Private equity has notched up its biggest buy-out since the financial crisis, with US woundcare specialist Kinetic Concepts agreeing to be bought for almost $5bn in cash by a consortium led by Apax Partners, the FT reports. KCI, a medical devices company, said on Wednesday that Apax, together with two Canadian pension funds, had agreed to pay $68.50 a share for the company, in a deal valued at $6.3bn including debt. Reuters notes that the transaction is one of the largest in a new series of private equity-backed deals, which are up 42 percent from a year ago.
Gold surged to a new record on Wednesday, propelled by the possibility of a third round of quantitative easing in the US, the FT says. The yellow metal, already rallying hard on the back of fiscal concerns in the eurozone, jumped to within reach of $1,600 a troy ounce after Ben Bernanke said the US central bank could take further steps to prop up the economy if needed. The Guardian notes that Bernanke still maintained that temporary factors, such as high petrol prices, had slowed the economy, and that growth should pick up when those factors ease in the second half of the year. The dollar sold off on his comments.
The IMF on Wednesday warned that the Greek sovereign debt burden risked spiralling out of control and that it would be “appropriate” for private bondholders to share in any restructuring, the FT says. The staff report comes as eurozone finance ministers have moved towards forcing private investors to accept a reduction in the value of their assets, a move regarded with great suspicion by the European Central Bank. The WSJ reports the Fund also said a temporary Greek default may be unavoidable if private bondholders voluntarily participate in a new financing program for the beleaguered country.
Citigroup is leaning toward keeping its private-label credit card arm, reversing course on a $41bn business the bank had marked for disposal in the wake of the financial crisis, the FT reports, citing people familiar. The division, which issues cards on behalf of retailers such as Sears and Home Depot, had been shunted into the bank’s Citi Holdings unit for businesses, loans and investments that no longer fit with its strategy. Citi’s new thinking reflects the difficulties it may have encountered in selling the entire business at once, the bank would have had to compete for bidders with HSBC, which plans to sell its US credit-card ops.
Rupert Murdoch has bowed to intense political pressure and withdrawn News Corp’s planned bid to take full control of British Sky Broadcasting, after the company admitted public condemnation of phone hacking at his UK newspapers made the climate “too difficult,” the FT says. The New York Times, citing unnamed sources, says James Murdoch wanted to press ahead seeking regulatory approval for the bid, but was overruled by his father and News’ chief operating officer, Chase Carey. The report says Rupert Murdoch hopes to pursue the bid at a later date. The Guardian adds that News Corp’s current 39 per cent stake in BSkyB could also still be at risk from the “fit and proper” test for ownership being conducted by regulator Ofcom.
About 10 years too late, Yell — the heavily indebted directories group — is going digital.
From Thursday’s strategic review announcement: Read more