Wednesday 18:45 BST. Global stock markets continued to rally on hopes that the US Federal Reserve may still unveil a third dose of quantitative easing, after minutes released from the last Fed board meeting indicated that several policymakers backed further monetary easing to support economic growth, reports the FT. However, gains and volumes also continued to be light, as traders marked time ahead of a speech next week by US president Barack Obama, billed as a major policy address, and the US jobs report on Friday. While expectations may not have changed, traders are for the moment unwilling to bet on any worsening in economic or sentiment conditions. The S&P 500 was up 0.4 per cent at midday, paring gains of more than 1 per cent earlier, though the Dow Jones Industrial Average has inched into positive territory on the year by adding 0.4 per cent on Wednesday.
Ed Miliband has called for an immediate Group of 20 summit to chart a way out of the economic slump, insisting that David Cameron and other world leaders renounce collective austerity and instead commit themselves to a “global growth plan”, the FT reports. The Labour leader says the world is facing a “poisonous cocktail of economic peril” and bemoans a collective failure of political leadership. Mr Miliband accuses Mr Cameron of “standing on the sidelines”, although it is Barack Obama, the US president, and Angela Merkel, the German chancellor, who are more often criticised in financial circles. Mr Miliband, writing in the Financial Times, believes that world opinion is shifting towards his view that too much austerity is part of the reason for the slowdown in developed economies, citing the views of Christine Lagarde, head of the International Monetary Fund. “An immediate G20 should seek to build consensus around Christine Lagarde’s clearly expressed view that ‘slamming on the brakes too quickly will hurt the recovery’,” he says.
A Lancashire cabbage field might appear an unlikely frontier in the quest for new energy reserves. Yet 10,000ft beneath the mud and vegetables of this farm near Blackpool lies the Bowland shale rock formation, a subterranean seam holding enough natural gas to provide a significant boost to British energy supplies, writes the FT. That, at least, is the belief of Cuadrilla Resources, a UK-based company with a licence to explore for shale gas across 437 square miles of Lancashire. Its ambitions have been spurred by the example of the US, where the extraction of gas from shale rock has transformed the domestic energy market. Shale gas accounted for only 1 per cent of total US production in 2000, but 20 per cent by 2009.
Alistair Darling, Labour’s former chancellor, will expose in his forthcoming memoirs the dysfunctional relations, animosity and suspicion at the top of Britain’s economic elite, as officials battled to contain the fallout of the biggest financial crisis since the 1930s, reports the FT. The mild-mannered Mr Darling appears to have stored up his irritation towards some of his former colleagues for his memoirs, published next week, in which he reportedly calls Sir Mervyn King, Bank of England governor, “amazingly stubborn and exasperating”.
BP defended itself against a raid by bailiffs and armed special forces troopers on its Moscow office on Wednesday, describing it as “part of a pressure campaign against BP’s business in Russia”, the FT reports. Speaking in Moscow, Jeremy Huck, President of BP Russia, added that the company believed the actions were “without merit”. The raid, ordered Tuesday by a court in west Siberia, compounded the UK oil major’s woes in Russia a day after ExxonMobil stole a march on it by signing a historic Arctic exploration deal with Russian oil major Rosneft.
Britain’s biggest banks are set to escape any major restructuring until after the planned 2015 general election, amid a political consensus that they should focus on business lending to sustain the faltering economy, the FT reports. Vince Cable, the cabinet’s most vocal bank critic, has accepted it may be impossible to implement extensive banking reforms before the election, according to government officials, although the legal framework for the changes would be put in place before the poll.
For the commute home,
– James Hamilton’s preferred economic policies in a world that doesn’t exist. Read more
Tesco has put its poorly performing Japanese business up for sale after failing to build scale in a country that is notoriously competitive and difficult for foreign retailers to crack, the FT reports. The UK retailer, which has 129 stores predominantly in the greater Tokyo area, entered Japan in 2003 with the acquisition of C Two Network, a discount supermarket chain. But Tesco’s commitment to Japan, where it employs 4,000 people, had come under question even before Wednesday’s announcement. It was the weakest country for sales growth in its 2010-11 financial year, with like-for-like sales down by 8.1 per cent, well below the performance of other countries in the region like South Korea and Thailand. Philip Clarke, the new chief executive of Tesco, conceded the retailer had failed to grow fast enough in the country and would therefore sell the business. “Having made considerable efforts in Japan, we have concluded that we cannot build a sufficiently scalable business,” he said. A formal sale process would take place over the coming months.
Global markets for raising capital mostly shut down in August, especially for smaller and riskier companies, amid a surge in volatility and a pullback in investor flows, the FT reports. August is normally a slow summer month. But even on those terms, markets saw a dramatic reversal of attractive financing conditions for even low-rated corporate issuers, sparked by worries that the burden of sovereign debt in the US and Europe is going to make it harder to rescue a slowing global economy. The high-yield, or junk bond, market had the slowest August globally since at least 1995, according to Dealogic, when it began tracking the market. The small to midsized companies that typically issue equity also had a hard time, especially in the US, which had been seeing healthy deal flow earlier this year as strong debuts for the likes of LinkedIn, the social networking site, sparked interest in start-ups. “When people are in a risk-off mode, these are the deals that become hardest to do,” said Craig Orchant, partner at EA Markets, a capital markets advisory. August was the first month with no euro-denominated, investment-grade corporate bond sales since the European common currency was introduced in 1999.
Japan spent a record Y4,510bn ($58bn) on one day’s currency intervention in August as it tried to stem the rise of the yen, according to figures released on Wednesday by the country’s Ministry of Finance, the FT reports. The MoF data did not specify which currencies were bought and sold, nor the date on which the action took place. Traders said, however, that the Bank of Japan only intervened on behalf of the government on August 4, and only in the dollar against the yen. That meant the amount of intervention, which was in line with market estimates, was more than double the previous daily record of Y2,125bn that Japan sold on September 16 last year to rein in its currency. The intervention effort on August 4 initially pushed the dollar up from around Y77 against the yen to over Y80. But the Japanese currency, which has been driven higher as investors have sought a haven from concerns over eurozone and US debt and a slowing global economy, quickly pared its losses, rising to a record high of Y75.93 on August 19. The yen currently stands around Y77 against the dollar.
Global stock markets continued to rally on hopes that the US Federal Reserve may still unveil a third dose of quantitative easing, after minutes released from the last Fed board meeting indicated that several policymakers backed further monetary easing to support economic growth, the FT reports. However, gains and volumes also continued to be light, as traders marked time ahead of a speech next week by US president Barack Obama, billed as a major policy address, and the US jobs report on Friday. While expectations may not have changed, traders are for the moment unwilling to bet on any worsening in economic or sentiment conditions. The S&P 500 was up 0.4 per cent at midday, paring gains of more than 1 per cent earlier, though the Dow Jones Industrial Average has inched into positive territory on the year by adding 0.4 per cent on Wednesday. “Investor cyclical fears may have gone too far, too fast,” said Lena Komileva, global head of G-10 strategy at Brown Brothers Harriman. “But it is unclear if this corrective drift…can be extrapolated into the final months of the year and early 2012, and this uncertainty about the macro-economic outlook may serve as a self-reinforcing drag on business, consumer and investor activity into the year end.”
BP defended itself against a raid by bailiffs and armed special forces troopers on its Moscow office on Wednesday, describing it as “part of a pressure campaign against BP’s business in Russia”, the FT reports. Speaking in Moscow, Jeremy Huck, President of BP Russia, added that the company believed the actions were “without merit”. The raid, ordered Tuesday by a court in west Siberia, compounded the UK oil major’s woes in Russia a day after ExxonMobil stole a march on it by signing a historic Arctic exploration deal with Russian oil major Rosneft. BP faces a lawsuit by minority shareholders in TNK-BP, its existing Russian joint venture, who are suing for Rs87bn ($3bn) over the collapse of a similar proposed tie-up between BP and Rosneft which fell apart this year. Andrei Prokhorov, a Russian businessman who filed the suit in July, alleged that two BP executives who sit on the board of TNK-BP must have known about the UK group’s negotiations with Rosneft, and their failure to inform TNK-BP caused damage to the company. The lawsuit was upheld by a court in Siberia’s Tyumen region in July.
Barack Obama, US president, called for new infrastructure investments in the US to revitalise the stagnant economy and boost the beleaguered labour market, the FT reports. Speaking after new data showed US private sector jobs growth slowed in August, the president urged Congress to pass an extension of a federal transportation spending bill that expires at the end of September. Mr Obama said that failure to do so would put thousands of jobs at risk and delay vital infrastructure projects and funding for the nation’s highways and airports. “It’s inexcusable to put more jobs at risk in an industry that’s already been one of the hardest hit in the last decade,” the president said on Wednesday in comments at the White House. “We shouldn’t just be playing patch-up or catch-up, we should be leading the world,” he said. A report from ADP, the payroll processor, said US companies added 91,000 jobs in August, missing expectations of 100,000 new jobs and coming in below the downwardly revised 109,000 positions created in July.
International Monetary Fund staff have provoked a fierce dispute with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt, the FT reports. The analysis, which has been discussed by the IMF’s executive board, has been strongly rebutted by the European Central Bank and eurozone governments, who say it is partial and misleading. The IMF’s work, contained in a draft version of its regular Global Financial Stability Report (GFSR), uses credit default swap prices to estimate the market value of government bonds of the three eurozone countries receiving IMF bail-outs – Ireland, Greece and Portugal – together with those of Italy, Spain and Belgium. Although the IMF analysis may be revised, two officials said one estimate showed that marking sovereign bonds to market would reduce European banks’ tangible common equity – the core measure of their capital base – by around €200bn ($287bn), a drop of 10-12 per cent. The impact could be increased substantially, perhaps doubled, by the knock-on effects of European banks holding assets in other banks.
The US Department of Justice has moved to block AT&T’s $39bn takeover of T-Mobile USA, threatening to unpick plans to unite the number two and number four US telecommunications operators in a deal that aimed to reshape the sector, the FT reports. In a lawsuit filed on Wednesday, the DoJ said the takeover would “substantially lessen competition for mobile wireless telecommunications services … resulting in higher prices, poorer quality services, fewer choices and fewer innovative products”. The agency said T-Mobile played a valuable role as a scrappy, aggressive competitor and challenged AT&T’s assertion that the deal was needed to bulk out network capacity and expand the availability of broadband in the US. “AT&T could obtain substantially the same network enhancements that it claims will come from the transaction if it simply invested in its own network without eliminating a close competitor,” the DoJ said. AT&T has leaned heavily on public policy arguments in selling its deal to politicians and the public.
Wherein John McDermott and Cardiff Garcia try to understand the deal of the day and realise they should’ve gone to law school and become antitrust attorneys.
What just happened? Read more
Bloomberg’s Christopher Donville has combed through Sino-Forest’s regulatory filings and found evidence that its senior executives have sold $83m of shares in the firm since 2006. Excerpt below, with our emphasis:
[Allen] Chan, who stepped down Aug. 28 after the Ontario Securities Commission suspended trading in Sino-Forest, sold C$3 million of stock, the filings show. Kai Kit Poon, with whom Chan founded the tree-plantation company in 1992, sold more than C$30.1 million. Chief Financial Officer David Horsley sold C$11.2 million of shares. Simon Murray, a director and also chairman of Glencore International Plc, sold $10.8 million.
Breaking: regulator grows a Bachmann-like titanium spine, markets caught by surprise.
Report from Bloomberg: Read more
The Dow Jones is back in positive territory for the year, after rising to about 11,669 at pixel time on Wednesday morning, according to Bloomberg. It closed around 11,577 at the end of last year.
FT Alphaville has talked volumes about China’s cash-for-copper collateral obsession.
Recently, however, speculation has picked up that these trades have started to be unwound — mainly because the Chinese government caught up on the funding loophole, and moved to restrict it. Read more
Games of spoof can be very expensive. Just ask Mike Ashley, who reportedly lost £200,000 when playing against his advisors at Merrill Lynch. Or ask Peter Beck, the Canadian day-trading evangelist who has lost £8m to the FSA.
These are, of course, different types of spoof. While Mr Ashley used the drinking game to settle a legal bill, Mr Beck’s SwiftTrade equities trading network was — in the FSA’s judgement — spoofing the market: Read more
It used to be that lending was done on unsecured term durations, all the time.
Then we had the credit crunch, and unsecured term lending died. Read more
Negative rates have arrived! In Switzerland, anyway.
Which means the risk of the Swiss franc becoming a funding currency for carry trade — à la the Japanese yen — is very real. Read more
Bob ‘the Bear’ Janjuah and sidekick Kevin Gaynor are ready for a new school year at Nomura.
To help prepare, the strategists have compiled a smorgasbord of “stylised facts” to guide investors. Read more
A debate over disclosing investors’ commodities positions will come to a head on Wednesday, when a CFTC advisory committee member publishes a letter calling on the agency and Congress to mandate disclosures, the WSJ reports. Tyson Slocum will call for trading positions to be unveiled on a regular basis, in the teeth of industry arguments that the move would limit some trading strategies and force investors out of the market. The CFTC is the source of another challenge to the market after it hosted a seminar giving more weight to arguments that speculation has driven recent price volatility as much as fundamentals, the FT says.
Companies including General Electric, Boeing and Verizon paid more to their chief executives in 2010 than they did to the government in taxes, according to a new study, Reuters reports. The left-leaning Institute of Policy Studies compared chief executive pay to current US taxes paid, excluding foreign and local taxes and a number of deferred taxes. The results show the scale of corporate use of offshore havens and tax credits, according to the IPS. While companies have lobbied fiercely recently to lower the top statutory corporate tax rate of 35 per cent, the study also found that many companies pay far less than the statutory rate, the NYT reports.
Federal officials are probing Oracle’s software sales to governments in Africa for possible violations of bribery laws, the WSJ says. The Justice Department has led a criminal investigation for at least a year while the SEC is conducting a civil inquiry. The probes focus on whether Oracle or its agents made improper payments to officials in order to secure sales. Enforcement of the Foreign Corrupt Practices Act has markedly stepped up in recent years, with $2bn of fines collected in 2009 and 2010 versus $11m in 2004.
Have you heard about this new euro daaaahling? Is great. Lets buy thingz with it!
Bank of America plans to sell its business in correspondent mortgages, chipping away at another legacy of its foray into mortgage lending, the WSJ reports. Loans purchased from correspondents accounted for just under half of BofA’s mortgage originations in the first quarter, but the bank decided within the last four to six weeks that the unit is no longer part of its mortgage strategy. BofA used correspondent originations to build up mortgage volumes, profiting from re-selling and servicing them, Reuters says. BofA has rushed to offload non-core assets this year as its shares took a pounding over concerns it has insufficient capital.
A former Primary Global sales manager is set to go to trial on Wednesday defending allegations that he was part of an insider trading scheme that matched hedge fund clients with company insiders, according to the FT. James Fleishman’s trial is the latest step in a government crackdown on insider trading that has seen 52 people charged in two years, all but three of whom have pleaded guilty or been convicted at trial. The case will also showcase expert network firms, a bugbear of recent prosecutions, while prosecutors are likely to draw on extensive wire-tapping of phone calls between Fleishman and experts, NYT Dealbook reports. Wiretaps were critical in bringing a conviction in the recent Raj Rajaratnam insider trading case.