Posts from Tuesday Jul 19 2011

Progress on debt ceiling calms nerves

A clutch of strong earnings reports and a reduction in eurozone debt angst have provided a firebreak from recent risk asset selling, reports the FT. The FTSE All-World equity index is up 1.4 per cent and commodities are firmer as the dollar index drops 0.5 per cent. Copper is gaining 1.5 per cent to $4.45 a pound and Brent crude is up 1.1 per cent at $117.37 a barrel. News that President Barack Obama is backing a proposal by a group of senators from the Republican and Democratic parties has aided risk appetite, though in an odd fashion: Seeing stocks rise and bond yields fall. The 30-year US bond yield is down 13 basis points to 4.17 per cent as traders reprice a lower risk of default, and 10-year note yields are down 6 basis points to 2.86 per cent, nearing their low for the year at 2.81 per cent. At the same time, US equities closed at their high for the day, with the S&P 500 index up 1.6 per cent at 1,326. Gold is also peeling back from its record high of $1,609.51 on a spot-price basis reached earlier in the session. The precious metal is now trading at $1,583. A sharp jump in revenues at IBM have loomed large for equity traders, as the S&P 500 tech sector, boosted by “Big Blue”, is enjoying its best day of the year so far, up 2.7 per cent. The FTSE Eurofirst 300 added 0.9 per cent as some of the banks battered on Monday attract buyers.

China cracks down on Xinjiang protest

A clash at a police station in China’s restive western region of Xinjiang on Monday has been labelled an “organised terrorist attack” by Beijing, but an exiled political group said the incident began when police opened fire on unarmed demonstrators, the FT reports. Official Chinese media reports said “rioters” carrying “explosive devices and grenades” stormed a local government office and police station in the remote Silk Road oasis town of Hotan on Monday, killing two security personnel and two hostages. State media reports said police “gunned down several rioters” after they stormed the police station, took hostages and set fire to the station. But the World Uyghur Congress, an exiled Germany-based political group that advocates independence from China for the Muslim-majority region of Xinjiang, said the incident began after police opened fire on more than 100 peaceful Uighur demonstrators.

Australia PM fights to calm carbon tax fears

Julia Gillard swept into the heartland of Australia’s coal industry in the Hunter Valley north of Sydney on Tuesday intent on heading off opposition to her government’s unpopular carbon tax proposals, reports the FT. In hard hat and orange fluorescent coat, Australia’s prime minister listened patiently to dozens of Centennial Coal miners who echoed widespread community fears that her carbon tax would destroy jobs, damage the nation’s lucrative mining and energy industries and push up living costs. A little over a week after launching plans for a A$23 (US$24) tax for each tonne of carbon emitted by the country’s 500 biggest polluters, effective from July 2012, Ms Gillard is trying to convince a sceptical electorate of the merits of a reform that will place Australia nearer to the front of global action on climate change.

Japan bans shipment of cattle from Fukushima

The Japanese government moved to contain a spreading scare over radiation-contaminated beef by banning all shipments of cattle from Fukushima prefecture, home to Tokyo Electric Power’s stricken nuclear power plant, reports the FT. The decision comes amid growing concerns over the safety of Fukushima beef after it was found that beef from more than 500 cattle, which had been fed rice straw contaminated with high levels of radioactive caesium, had been shipped to stores throughout Japan. Inspections by local authorities found that some of the beef contained radioactive caesium that was eight times the government-designated limit, while Fukushima officials said on Tuesday they detected levels in straw used at some farms that exceed official limits. The contaminated beef is the latest health scare to emerge from the Fukushima Daiichi nuclear power plant, which was severely damaged by the March 11 earthquake and tsunami.

Bank of America swings to $8.8bn loss

Bank of America on Tuesday sought to address concerns that it might need to raise capital, providing more information about its plans to meet Basel III capital requirements as the bank revealed a net loss of $8.8bn for the second quarter, reports the FT. Costs of settling cases related to lax real estate lending more than outweighed underlying improvement in credit trends, with the US’s largest bank reporting a net loss of 90 cents a share in the second quarter, compared with net income of 27 cents a share in the same period last year. The results contrasted with the fortunes of Wells Fargo, the US’s fourth-largest lender, which also on Tuesday posted a 29 per cent rise in second-quarter profit to $3.9bn, as write-offs of bad loans fell and the bank drew down $1bn in reserves against future losses. BoA’s results were in line with guidance given in June when the bank announced it had settled claims with investors in mortgage bonds at its Countrywide unit, agreeing to pay $8.5bn to holders of some 530 securities. At the time, it said the quarter would see a further $5.5bn charge to cover other claims. Before mortgage-related costs and other extraordinary items, second-quarter net income was $3.7bn, up from $3.1bn a year ago.

Goldman earnings disappoint

Goldman Sachs reported lower than expected second-quarter earnings of $1.1bn and announced 1,000 job cuts, as the bank was hit by a slowdown in trading and reduced its risk exposure to torrid financial markets, reports the FT. While Wall Street had been braced for a weak earnings season, last week’s better-than-forecast results from JPMorgan Chase and Citigroup had raised hopes that the pessimism was over-done. Goldman reported earnings per share of $1.85 for the three months to the end of June, compared with expectations of about $2.27, and announced lay-offs, representing 3 per cent of its workforce Lloyd Blankfein, chief executive, said in a statement on Tuesday that Goldman had been hurt by “macroeconomic concerns” and “certain of our businesses had disappointing results as we reduced our market risk”. Net revenues were $7.3bn, compared with $8.8bn in the same period last year and $11.9bn in the first quarter. Net earnings increased by $613m from a year ago, but only because that reporting period was affected by a $550m legal settlement and a $600m charge related to UK taxes.

Murdoch humbly pleads ignorance

Rupert Murdoch on Tuesday denied responsibility for alleged phone hacking at his News of the World newspaper, as he appeared before a British parliamentary committee, blaming his company’s size and bureaucracy for the failure of executives to inform him of key developments as the scandal unfolded, the FT reports. The chairman and chief executive of News Corp, flanked by his son James, described his appearance before the media select committee as “the most humble day of my life”. But he said he had not considered resigning over the scandal that has damaged his global media group and convulsed British politics.

Further further reading

For the commute home,

- William Cohan is worriedRead more

Inflation expectations: frequency and focal points

The importance of inflation expectations to central bank policy is well-understood.

Equally well-known is that there are different, sometimes conflicting measures of these expectations. Surveys of households will show different expectations than surveys of professional economists, and markets-derived inflation expectations (from inflation-indexed debt and the like) will show different results than these survey-based measures. Such subtleties as how a question is framed can change the result. Read more

Moody’s puts NM, SC, VA, TN and MD on downgrade review

That’s the great Aaa states of New Mexico, South Carolina, Virginia, Tennessee and Maryland, for those unfamiliar with US postal abbreviations.

Moody’s Tuesday action was forewarned last week when it placed the US sovereign’s AAA rating on review for possible downgrade. The credit rating agencies are busy at the moment, working out the consequences of any sovereign action on the thousands of securities directly or indirectly linked to the hub of the global bond market. Read more

US financials still lagging

US stocks are up slightly today, and the rally is happening entirely in the so-called “real” economy.

As per the norm since earnings season kicked off last week, financials are underperforming — here’s a look at the S&P vs the KBW bank index: Read more

The IMF wakes up

Both the Commission and the ECB considered that a sovereign default or a credit event would likely trigger contagion to the core euro area economies with severe economic consequences. [IMF] Staff however also saw serious risks of contagion, even under a strategy which tries to avoid default or credit events…

Just a taste from the IMF’s Article IV consultation on the eurozone, published on Tuesday. Grim reading: Read more

Markets Live transcript 19 Jul 2011

Live markets commentary from FT.com 

Presenting… Murdochs Live

LIVE AT 1430 LONDON TIME – 0930 NEW YORK TIME

We’re doing a special Markets Live session for the appearances of Rupert Murdoch and James Murdoch, before the Parliamentary Culture, Media and Sport committee. Read more

The world’s most credible central bank, cont.

Compare:

 Read more

The UK bonus doldrums

The UK’s Office of National Statistics published its latest bonus data on Tuesday, and as can be seen below there’s been very little change on the year when it comes to bonus payments in “financial and insurance activities”:

 Read more

Markets Live transcript 19 Jul 2011

Live markets commentary from FT.com 

Diary management the Autonomy way [updated]

It’s a while since Autonomy, the famously acquisitive and sensitive FTSE 100 software company, came on to our radar screen.

But that’s just changed. Read more

Contagion at the core

It’s safe to say we didn’t take this entirely seriously when it landed in the FT Alphaville inbox a couple of weeks ago.

GBP: The Closure of The News Of The World could be the start of a deeper and more lengthy commentary on Politics and the Press in the UK. The Cameron Government is well entrenched with the Media, and we would be surprised if we do not hear of Higher Level Goverment employees resigning in the next few weeks as the Government ‘Inquiry’ digs deeper. Though we are negative the USD, for the time being we are not negative the USD against the GBP. It is sitting on support at 1.5940, with the 50 DMA about to Cross the 100 DMA. The Possibility of Government Corruption and the eventual Clarity is never positive for a Currency – Douglas Borthwick, MD of Faros TradingRead more

US and eurozone push gold to $1,600

Gold surged to a fresh record above $1,600 as fears of escalating debt crises in the US and eurozone invigorated precious metals markets, the FT reports. Bullion, seen as a haven in times of economic turmoil, rallied to a peak of $1,600.40 a troy ounce on Monday morning, marking the latest record in its decade-long bull market.The move came as risk aversion swept financial markets, with other traditional havens such as the Swiss franc and the Japanese yen trading at or close to record highs against the US dollar. Bullion dealers said that the escalation of the eurozone debt crisis, which last week touched Italy for the first time, had triggered a rush among European investors to buy physical gold. The bullion sales desk at UBS in Zurich witnessed its highest gold coin sales in a year on Friday, according to Edel Tully, precious metals strategist at the bank. The buying “came from multiple European locations, indicating that the fear trade is becoming more widespread,” she said.

AIG eyes sale of lease-unit

The Wall Street Journal reports that American International Group (AIG) is looking to sell part of its giant airplane-leasing business through an initial public offering, according to people familiar with the matter. It is believed the sale of International Lease Finance Corp (ILFC) could raise between $1.5-2bn if market conditions are favorable, helping the company chip away at its government debt. The sale would represent roughly 25 per cent of Los Angeles-based ILFC and rank as one of the largest IPOs in the US so far this year, says the WSJ. AIG, which sold of its own stock in May, has been assessing strategic options for ILFC. The business is not seen as core to its business of selling insurance and had a book value of $8.2bn, representing its assets less liabilities, at the end of March. “Management has suggested a willingness to part with ILFC at the right price,” analysts from Bank of America Merrill Lynch noted in a research report last month. The insurer has considered selling all or part of the business, the WSJ cited people familiar with the matter.

IBM results and bank rebound calm nerves

Well-received earnings from IBM were offering some support to US stock futures and striving to provide a firebreak from recent selling, the FT’s global markets overview reports. The FTSE All-World equity index was up 0.2 per cent and commodities were firmer, with copper gaining 0.3 per cent to $4.41 a pound and Brent crude up 0.2 per cent at $116.20 a barrel. “Big Blue” may have helped overcome the red for now. But other amber market flashes signalled continued caution as traders remained wary of eurozone and US debt problems. Gold was hovering near record highs – up 0.2 per cent to $1,606 an ounce after touching $1,607.55 – and its strength came in spite of a stronger dollar. The buck’s advance, though meagre – up 0.1 per cent on a trade-weighted basis – suggested underlying risk aversion had not been dispelled. The FTSE Eurofirst 300 opened with a gain of 0.2 per cent as some of the banks battered on Monday attracted buyers.

Clorox rejects $12.6bn Icahn bid

Clorox, the US household products maker, has rejected an unsolicited $12.6bn bid from Carl Icahn, the activist investor, who last week sought to spark a bidding war with his move, the FT reports. Don Knauss, chairman and chief executive of Clorox, told the Financial Times: “We’re not opposed to a sale, but we’d certainly be opposed to a steal.” Mr Icahn had offered to acquire Clorox for $76.50 a share, valuing the group at $12.6bn including debt. But he made clear in his bid letter that he wanted Clorox to seek a higher price from a corporate buyer and he floated $100 a share as plausible. Several analysts said they doubted that companies named by Mr Icahn as possible buyers, including Procter & Gamble and Colgate-Palmolive, would want to own Clorox. Gary Michael, Clorox’s lead director, said on Monday: “Our board has unanimously determined Mr Icahn’s unsolicited proposal is neither credible nor adequate.”

IBM lifts profit forecast after sales jump

IBM raised its earnings forecast for the year as it reported a 12 per cent surge in second-quarter revenues, surpassing Wall Street expectations, the FT reports. “In the second quarter, our long-term strategic investments in the company’s growth initiatives again helped drive strong revenue performance,” said Samuel Palmisano, IBM chief executive, on Monday. “Hardware, software and services revenue grew at double digits, and we achieved strong profit and free cash flow growth.” Net earnings rose 8 per cent to $3.7bn as the company reported $26.7bn in revenue, $1.35bn more than had been expected by analysts. IBM lifted its full-year earnings forecast to at least $13.25 a share, ahead of analysts’ average estimate of $13.21. The company’s shares rose 3 per cent in after-market trading to $178.30.

Cisco loses 6,500 jobs in drive to cut costs

Cisco Systems is to cut its workforce by 9 per cent as it struggles to improve its performance and refocus on its core network equipment operations, the FT reports. The Silicon Valley company said 6,500 employees would leave the company as part of a $1bn annual operating expenses reduction announced in May. This includes about 2,100 staff opting for voluntary early retirement.The cuts were fewer than anticipated, with sources indicating last week that 8,000-10,000 jobs could be cut from a global workforce that totalled 73,400 at the end of April. Its headcount is set to be reduced by another 5,000, however, after the sale of a factory in Mexico to the Taiwanese contract manufacturer Foxconn, also announced on Monday.

The FSB shopping list

The Financial Stability Board on Monday night declared the capital surcharge requirements for global ‘SIFIs’, as drafted by the Basel Committee last month, shall go ahead. Ditto “living wills”.

The real fun will come later this week, when the methodology for determining who is a G-SIFI will be published, along with proposals for measures that can be taken to deal with failing SIFIs, such as the living will. Read more

Calpers reports best performance in 14 years

The California Public Employees’ Retirement System, the largest US public pension fund by assets, announced its best investment performance in 14 years on Monday, while returns at its sister fund, the California State Teachers’ Retirement System, reached a 25-year high, the FT reports. Yet while both Calpers and Calstrs reported the second successive financial year of double-digit investment growth, both pension funds remain significantly underfunded, with performance in the past decade that has failed to match assumed rates of return. Calpers reported an increase for the 2010-11 fiscal year of 20.7 per cent, led by a 30.2 per cent gain for its stock portfolio. The $238bn fund was also boosted by double-digit returns for private equity, property and its inflation-linked asset class, which includes commodities, infrastructure, forest land and inflation-linked bonds. Global fixed income was the laggard, gaining 7 per cent.

Reader’s Digest puts itself up for $1bn sale

Reader’s Digest Association, the 90-year-old publishing and marketing company that emerged from bankruptcy last year, is looking to sell itself for at least $1bn, according to people with knowledge of the plans. The company publishes more than 90 magazines, including the eponymous title with which it made its name in the postwar US, and Every Day with Rachael Ray. It also runs a successful direct marketing operation. Reader’s Digest UK is owned and operated independently. The FT reports that potential buyers include private equity groups and other magazine groups, but no bidders have yet come forward. The company recently hired advisers to explore the sale, and could sell itself in parts. Reader’s Digest Association declined to comment.

Inside Ireland’s secret liquidity

A tidy scoop from RTE, who’ve uncovered key Irish government documents setting up Emergency Liquidity Assistance to banks:

 Read more

Facebook ad prices soar more than 74%

The cost of placing ads on Facebook is rising rapidly as more big brands begin to move their television and print spending on advertising onto the world’s largest social network, two recent reports have revealed. The FT reports that the “cost per click” of an ad placed on Facebook has increased by 74 per cent over the last year in four of the world’s largest media markets, according to TBG Digital, an independent marketing firm specialising in social media. The price of display advertising, charged per thousand “impressions” or ads seen, rose 45 per cent year-on-year, across the US, UK, France and Germany in the second quarter, TBG found. Facebook’s dominance of the social networking market and rapid growth in advertising revenues have prompted comparisons with Google.