Posts from Friday Jul 29 2011

The Weekender

This week on FT Alphaville,

– We looked in-depth at settlement failsRead more

Further further reading

For the commute home,

– The House is set to vote at 6pm New York time on the Republicans’ doomed bill. Read more

The safest of safe havens?

10-year US Treasuries just had their biggest one day rally since March 2009.

 Read more

Contingency planning in six charts

Morgan Stanley’s US interest rate strategists have included a lovely set of charts in their latest research note that portray the moves in short-term markets due to the debt ceiling impasse. The strategists stress that the price moves don’t reflect liquidity shortages but are “the functional equivalent of a tightening, which is exactly what the economy does not need now.”

Quite. Click to expand the gory details. Read more

Preparing for a US debt disaster

A deal required before an Asian markets drop on Monday. Bankers summoned to a joint meeting with officials in New York. Congress paralysed. Despite our continuing optimism and markets’ relative insouciance, it all sounds worryingly familiar.

Bloomberg reports on Friday morning that the Federal Reserve is preparing to issue guidance to banks should Congress fail to raise the debt ceiling and that the US treasury has invited all 20 primary dealers to a contingency briefing in New York. Read more

Turn on, tune in. Step out, bail out. Blow up

Therefore we need better tools to ensure that financial market reactions do not endanger countries while they are in the process of implementing reforms…

There were a few tape-torpedoes on Friday in the market, as it happens. Essentially, the EFSF can’t take over the Greece loan disbursements from September as planned, because of the time needed to secure bondholder “contributions” to the same bailout. Seems a technical hitch but bear with us. Read more

Illiquid and loopy in Cyprus

Not, in fact, a statement on the tourist denizens of Agia Napa.

There’s one thing you should know about Cypriot sovereign debt entering a full-blown crisis (S&P had just downgraded to BBB+ at pixel time, following Moody’s). There isn’t actually a lot of debt about, and what is, isn’t in bonds, but in bills, commercial paper and also medium-term notes. Read more

US Markets Live transcript 29 Jul 2011

Live markets commentary from 

US Markets Live starts at 10am New York time

The way things are going in Washington, it could be the last ever one* — you won’t want to miss it.

We’ll be “analysing” US GDP, the farcical debt ceiling impasse, a bad week for stocks, and anything else that comes to light. Read more

In a brave new world, there are no benchmarks

UK retailer John Lewis proudly boasts that it has never been knowingly undersold in the market. Its retail prices, consequently, can be used by consumers as a benchmark to compare all other retail prices against (yes, we know, the mantra doesn’t apply to their website prices, but you see our point.)

So, applying the same philosophy to financial markets, you could say, the US is the global markets’ version of John Lewis. Its securities provide the prices against which all other securities in the world are priced. Read more

US GDP fails in the past, present and futures

As if Friday wasn’t going to be messy enough, advance second quarter US GDP results have disappointed on the downside.

The US economy grew at an annualised rate of 1.3 per cent in the last quarter, less than consensus expectations of 1.8 per cent. Even more startling were the revisions to previous estimates. Annualised Q1 GDP growth was amended to 0.4 per cent from 1.9 per cent — a whopping 1.5 per cent. Read more

Terry Smith says the world is living in a fantasy

Terry Smith, CEO of Tullett Prebon, has given a remarkably bleak interview to the BBC’s Today programme on Friday.

Though it’s scarily logical. Read more

Greece as a test for auditors

Much like the rating agencies, many auditors have suffered a crisis of creditability in recent years.

That will make their reaction to the IIF’s proposed financing offer for Greece all the more interesting. Read more

Markets Live transcript 29 Jul 2011

Live markets commentary from 

BSkyB pays out $1.6bn after News Corp struggle

BSkyB will return $1.6bn in a combined shares buyback and final dividend to shareholders who suffered as News Corp’s bid for full control collapsed during the UK’s phone hacking scandal, Reuters reports. News Corp’s remaining 39 per cent stake in the satellite broadcaster will not be changed by the moves, Bloomberg reports. However, a person close to BSkyB#s board said it would keep a “watching brief” on the developing phone hacking scandal, after its chairman, James Murdoch, was unanimously reaffirmed earlier, reports the FT. Mr Murdoch continues to face questions from British lawmakers regarding the scandal.

Verizon Wireless to pay $10bn dividend

Verizon Wireless will pay a long-awaited dividend of $10bn to its US joint venture partner, the UK’s Vodafone next January, the FT says. Verizon Communications, which owns 55 per cent of Verizon Wireless,had  blocked dividend payments by the mobile operator in 2005,  a move widely seen as an attempt to squeeze Vodafone out of the joint venture. Verizon Communications will receive $5.5bn and Vodafone will get $4.5bn. The move is also likely to forestall major changes to the two companies’ relationship, such as a merger or a buyout of Vodafone’s stake, the WSJ reports.

A glance at UK GDP – across the North Sea

Things that impacted the UK’s second-quarter GDP, as announced by the ONS on Tuesday: Read more

Madoff trustee wins $1bn from fund

Hedge fund Tremont Group and its parent company Mass Mutual have agreed to pay more than $1bn to settle a lawsuit brought by the trustee responsible for collecting money for Bernard Madoff’s victims, says the FT. The award will bring the total collected by Irving Picard to $8.6bn. However, Picard also faces a major setback, after a court ruled that he could not pursue common law claims against banks including HSBC and UniCredit, putting another $8.6bn at stake, Reuters reports. The judge said Picard could not bring claims that HSBC and other banks failed to stop Madoff’s fraud before a federal court, although lawyers said the decision would not stop bank customers bringing a class action.

Ratings dispute unsettles CMBS market

S&P has suspended its rating on a new CMBS transaction brought to market by Goldman Sachs and Citigroup, setting up a battle over its methodology which could overturn the CMBS market, according to Bloomberg. The banks have pulled the deal. The agency said there were potentially conflicted methods for calculating debt service coverage ratios in the security, a so-called “CMBS 2.0” issue which includes a conduit/fusion structure that has so far under-pinned the market’s fragile recovery, Housing Wire reports. The unprecedented move has exposed both inconsistencies in how raters approach CMBS and the industry’s continued reliance on ratings shopping, IFR says.

Goldman loses several rates traders

Goldman Sachs has lost more than a dozen traders in North American bonds and derivatives as it switches from proprietary trading to client sales, Reuters says. The departures include Brian Mooney, a veteran interest rates derivative trader who has left for Merrill Lynch. Junior traders have also left for other investment banks and to hedge funds, seeing Goldman as becoming less prestigious. While the ‘Volcker rule’ under the Dodd-Frank Act allows prop trading in Treasuries and the interest rate swaps market in order to hedge positions, traders said they felt limited by risk managers.

Debt ceiling confusion reigns in markets

The Fed is readying detailed guidance for banks for contingencies if Congress does not raise the debt ceiling by August 2, Reuters says. Officials are awaiting the Treasury’s own operational plan, which is expected to appear on Friday evening. Investors have felt kept in the dark over matters including whether payments to bondholders would be prioritised, and over the support for repo markets in a default or ratings downgrade, the FT’s Gillian Tett says. Money market funds have already restricted repo lending largely to overnight terms and begun selling ABS, the WSJ reports. Investors in a Treasury bill that matures on August 4 have also sold holdings off, the WSJ adds.

Race to revive Republican debt ceiling plan

House Speaker John Boehner has delayed a vote on his plan to raise debt limits until Friday, after failing to secure a “handful” of the 217 votes necessary, the Washington Post says. A core of South Carolina lawmakers is proving particularly difficult to crack, reports Politico. Back-channel negotiations with the White House are likely to become more important if Congress remains in an impasse five days ahead of the hard deadline for the debt ceiling, the FT says. While Democrats plan to vote on an alternative plan in the Senate on Saturday, they might also struggle to gain the 60 votes necessary there, reports the WSJ.

When footballers become collateral

Can someone please stop the world? We want to get off.

Things are seemingly moving quickly from the ridiculous to the absurd, in sovereign debt crises. Read more

Gold’s not as stretched as you might think, Citi says

One for the gold bugs, this.

The possibility of a surge in the price of gold is growing, according to the commodities team at Citigroup. Read more

Moody’s puts Spain on review for downgrade

So much for a quiet August.

Just a week after eurozone authorities announced a new bailout package for Greece (and just before the start of Europe’s traditional August holiday period), Moody’s has put Spain on review for downgrade. Read more

Further reading

Elsewhere on Friday,

– When government shuts down. Read more

Pink picks

Comment, analysis and other offerings from Friday’s FT,

Gillian Tett: Five questions for the Fed and Treasury
This week, a cacophonous hubbub is overwhelming America’s airwaves, notes the FT’s Tett. For with the debt ceiling deadline approaching, almost every pundit and politician worth their salt has been expressing views on what could – or should – happen next. There is, however, one notable exception: the mighty Federal Reserve and Treasury. In recent weeks, senior officials at both institutions have warned in general terms about the risks of failing to raise the debt ceiling. They have also tried to reassure investors that this risk is small. Read more

Snap news

Breaking pre-market news on Friday,

– BSkyB says will launch £750m buyback, announces 20 per cent dividend hike – statementRead more

Republicans abandon vote on debt ceiling

Republican leaders in the House of Representatives on Thursday abandoned efforts to vote on a plan to raise the nation’s borrowing authority, deepening the US debt ceiling crisis five days ahead of a possible default, the FT reports. Several days of arm-twisting by top Republicans failed to quash a rebellion by conservative lawmakers, who say the plan remains short on spending cuts and lacks a constitutional amendment to force a balanced federal budget. With markets increasingly unnerved about the lack of progress, pressure is rising on the White House to make a new effort to broker a deal, after allowing Congress to take the lead for several days. Asian stocks fell on the news, reports Bloomberg.


Overnight markets: Down

Asian stocks remained under pressure amid the persisting stalemate in talks over raising the US debt ceiling, with poor earnings putting extra weight on Japanese technology shares.  Sony and Nintendo the biggest drags on the regional index as investors vented disappointment over their earnings reports. Nintendo was down 18.6 per cent in Osaka trade, the most in 20 years, after it cut the price of its 3DS handheld game console by up to 40 per cent as poor sales led to a Y25bn quarterly loss. The maker of the Wii computer games also slashed its profit forecast on Thursday. Sony slid 1.9 per cent after reporting a net loss in the fiscal first quarter and slashing its full-year earnings target. Panasonic retreated 0.9 per cent and Toshiba was off 1.5 per cent after reporting heavy earnings declines. TDK Corp dipped 5.3 per cent as the world’s largest maker of magnetic heads for disk drives by sales posted an 83 per cent profit drop.

Asian markets Read more