Posts from Thursday Dec 1 2011

Further further reading

For the commute home,

- Bloomberg has a new economic history blogRead more

Japan prepares Y2tn budget for business

Yoshihiko Noda, Japan’s prime minister, has ordered preparation of a supplementary budget worth at least Y2tn ($26bn), as he tries to ease concerns about the Japanese economy, the FT reports. The new budget, which is due to be enacted by the end of the fiscal year in March, is aimed at reducing the impact on the economy of the strong yen, Europe’s fiscal crisis and recent floods in Thailand, which disrupted Japanese companies’ supply chains. However, the prime minister said he would try to ensure that the new budget did not add to the government’s debt burden. Japan’s gross state debt is already equivalent to more than 200 per cent of gross domestic product. “We will seek to finance [the new budget] out of cost savings and not through new bond issuance,” Mr Noda said.

Clinton says too early to lift Burma sanctions

The US announced “modest first steps” towards ending the international isolation of Burma on Thursday but secretary of state Hillary Clinton said it was too soon to lift tough economic sanctions on the country, the FT reports. After meeting Thein Sein, Burma’s president, Mrs Clinton vowed to reward tentative reforms by Burma’s authoritarian government and work towards opening a “new chapter” in relations between the two countries. Mrs Clinton told Mr Thein Sein that Washington was “encouraged” by the steps undertaken in recent months as the country seeks to emerge from 50 years of repressive military rule. She said that the US would support lifting some restrictions on international aid, permit a greater role for the World Bank and International Monetary Fund and is considering returning an ambassador to the country. She was speaking after the first formal meetings on her historic visit to Burma, the first by a US secretary of state to the country in 50 years and a testament to the fast-moving and surprising climate of political change over the last year. Later in the day, she dined at the Rangoon home of Aung San Suu Kyi, the de facto opposition leader who was released from house arrest last November.

Global output picture worsens

The fortunes of the world’s manufacturers diverged last month as factories in the US churned out goods at a decent pace while those in Asia, particularly China, and Europe grappled with deteriorating conditions, the FT writes. The global picture is worsening slightly for manufacturers as the eurozone crisis seeps from financial markets into the real economy, but conditions are neither as bad nor as uniform as in the dark days of 2008 and 2009. Markit’s global purchasing managers’ index survey – which pulls together the data from a number of national surveys – fell slightly from 49.9 in October to 49.6 in November. These numbers indicate broadly stagnant activity. In contrast, the index fell to about 35 at the nadir of the downturn. Beneath the aggregate figures, manufacturing growth in the US – the world’s biggest economy – helped to offset contracting output in China, Europe and the UK. “The US does seem to be showing some signs of life again but the rest of the world is falling deeper into potentially another downturn,” Chris Williamson, an economist at Markit, said.

Draghi hints at eurozone aid plan

A last-ditch rescue plan for the eurozone has started to take shape after Mario Draghi hinted that a “fiscal compact” could pave the way for a more aggressive European Central Bank response to the region’s escalating debt crisis, the FT reports. An agreement binding governments to strong rules on public finances would be “the most important element to start restoring credibility” with financial markets, the ECB president told the European parliament on Thursday. “Other elements might follow, but the sequencing matters,” he added. His comments on Thursday indicated that the ECB could ramp up its bond buying programme after a European summit on December 9. Mr Draghi argued a fiscal compact could act as “long-term” anchor for confidence, while also boosting investor trust in the short term. Underlining the need for immediate action, he urged eurozone leaders to keep their options open on how European economic integration could be implemented. While “far-reaching” changes to European Union treaties “should not be discarded”, he argued that “faster processes are also conceivable”.

BoE charts, risk weights you can’t trust

The Bank of England gets the claws out in its Financial Stability Report released on Thursday:

Structural vulnerabilities can amplify shocks stemming from the macrofinancial environment. Fault lines in the regulatory framework are one example of such structural risks. Read more

What ECB QE could look like

Oh Mario, you big tease. From the FT on Thursday:

Mario Draghi, European Central Bank president, has called for a “fiscal compact” between governments to restore investor confidence in the eurozone – and hinted such a step could pave the way for a more aggressive ECB response to the region’s debt crisis. Read more

Le plan, negatifs taux d’intérêt, redux

Here we go again… hints of a negative rate regime in Switzerland.

But this time it’s not the SNB that’s hinting it, it’s the Swiss government. Read more

So much for a grand settlement [updated]

On Thursday the Massachusetts Attorney General Martha Coakley sued five US banks for alleged illegal mortgage practices, further destroying hopes of a grand 50-state settlement between state lawyers and banks. This was expected but it’s still a potentially damaging blow to Bank of America, Wells Fargo, JP Morgan Chase, Citi, and GMAC, and to a housing recovery that is yet to even begin.

The contents of the suit should be familiar to FT Alphaville readers — robo-signing, Ibanez violations, Mers, and loan modification failuresRead more

Draghi’s fiscal compact

Mario Draghi’s speech to the European parliament on Thursday wasn’t just notable for what he had to say about the scarcity of eligible collateral and the impaired transmission mechanism for monetary policy.

This also stood out. Read more

BoE charts, UK banks’ gloom

Banks are being asked to not choke off the real economy and strengthen their capital levels at the same time.

They are, however, finding it rather difficult to get funding from anywhere except central banks, unless that funding is secured. And even secured markets are proving dysfunctional. As a result, banks are shrinking their balance sheets. Deleveraging is the theme of the year, and the move is only being exacerbated by the continued sovereign debt crisis. Read more

BoE governor asks the impossible

From Financial Stability Report, December 2011.

 Read more

Strong demand for Spanish debt [updated]

No, really there is.

Via Reuters on Thursday. Read more

Markets Live transcript 1 Dec 2011

Live markets commentary from FT.com 

Keeping it liquid Eurozone

An interesting data point in the wake of this week’s SMP sterlization fail.

The amount of cash on overnight deposit at the ECB has breached the ‘psychologically important’ €300bn for the first time since June 2010. Read more

SocGen to cut at Least 200 US jobs

Societe Generale, the second- biggest French bank, is to eliminate at least 200 US jobs in investment and corporate banking as Europe’s sovereign-debt crisis persists, Bloomberg reports. Naseem Haffar, who was hired as US head of loan sales and trading in March 2010, and New York-based senior credit traders Joseph Finnern and Zachary Chavis were among those dismissed, according to Bloomberg sources. Cuts may amount to 10 per cent to 20 per cent of the firm’s 2,000 workers in its US corporate and investment bank. Societe Generale’s Chief Executive Officer, Frederic Oudea, is selling assets and paring costs to reassure investors that the Paris-based lender can cope with the debt crisis. The move comes as the bank plans to cut about 2,000 jobs next year at the firm’s Russian retail-banking business and aims to free up 4 billion euros ($5.4 billion) in capital by 2013 through asset sales, the company said in September.

Ermotti ousts chief risk officer at UBS

Sergio Ermotti flexed his muscles for the first time barely a fortnight after being confirmed as UBS’s chief executive with the abrupt departure of Maureen Miskovic as chief risk officer, the FT reports. Ms Miskovic is being replaced by Philip Lofts, a UBS veteran who had previously held the top risk job between 2008 and 2010 before being appointed chief executive of UBS’s operations in the Americas. The Swiss banking group said Ms Miskovic, a Briton who is leaving after less than a year in the job, was not pushed out because of the $2.3bn unauthorised trading affair at UBS’s London equity derivatives operation. However, as the executive ultimately responsible for risk, her position had been increasingly criticised by Swiss observers questioning her seniority and experience. Ms Miskovic, who had a degree in languages rather than mathematics or economics, was formerly chief risk officer at State Street, the US bank. Before that, she had worked at the Eurasia Group, a political risk consultancy. One of her longest stints had been at Lehman Brothers, where she was chief global risk officer between 1996 and 2002. Ms Miskovic was not immediately available for comment.

Eurozone bond auctions soothe nerves

Benchmark Italian bond yields fell decisively below 7 per cent as Spain and France both executed successful bond auctions, offering the first signs that a co-ordinated move by central banks to boost global liquidity was improving the ability of peripheral eurozone countries to borrow, reports the FT. The euro was once again rallying on the back of the successful auctions, now up 0.4 per cent at $1.3495. Asian stock markets had earlier surged, with Hong Kong’s Hang Seng index up nearly 6 per cent on Thursday as European markets opened stronger. But the mood was more contemplative than jubilant as investors reflected on the co-ordinated central bank action to ease a liquidity crunch in the financial system. In a move with other central banks, the US Federal Reserve slashed the penalty rate that it charges them on dollar liquidity from 100 to 50 basis points. Earlier, China made a decisive shift towards easier monetary policy and Brazil last night cut its benchmark Selic interest rate by 50 basis points for the third time since August, citing adverse global economic conditions. While global equities are currently on track for their best week since early 2009, there is no shortage of naysayers warning that Wednesday’s central bank action is little more than a stopgap. “These actions are addressing a symptom of the European debt crisis, not the actual crisis itself,” says Stanley Sun, an analyst at Nomura. “We still need a backstop for eurozone sovereigns and until then, banks remain in dangerous territory.”

The PBoC and that RRR decision

Did you wonder what was behind this?

Via XinhuaRead more

Chinese manufacturing activity slows

Chinese manufacturing activity has contracted for the first time in almost three years, adding to fears about the health of the global economy, the FT reports. The decline comes a day after the US Federal Reserve led a co-ordinated move to ease global liquidity concerns – particularly in Europe – and the Chinese central bank loosened monetary policy. Chinese government data released on Thursday showed that the official purchasing managers’ index fell to 49 in November from 50.4 in October. The worse than expected fall marked the first decline since February 2009. A reading of less than 50 means the manufacturing sector has contracted. In a surprise move that was clearly timed to offset the negative impact of the PMI number, China’s central bank on Wednesday kicked off a new round of monetary easing by announcing a cut in the reserve ratio for banks for the first time in three years.

Draghi: “We are aware of the scarcity of eligible collateral”

The ECB’s Mario Draghi gave a speech to the European Parliament on Thursday, making some of the following key points:

RTRS – DRAGHI-DOWNSIDE RISKS TO ECONOMIC OUTLOOK HAVE INCREASED
RTRS – DRAGHI-ECB TEMPORARY MEASURES ONLY LIMITED
RTRS – DRAGHI-ECB AWARE OF CONTINUING DIFFICULTIES ON BANKS
RTRS – DRAGHI-AWARE OF MATURITY MISMATCHES, STRESSES ON BANK FUNDING
RTRS – DRAGHI-CHANGES IN STRAINED COUNTRIES HAVE NOT YET HAD IMPACT ON FRAGILITY OF FINANCIAL MARKETS
RTRS – DRAGHI-CREDIBLE SIGNAL NEEDED TO GIVE ULTIMATE ASSURANCE OVER THE SHORT TERM Read more

Further reading

Elsewhere on Thursday,

- Swap lines are not a panacea. Read more

Pick pinks

Comment, analysis and more from Thursday’s FT,

John Gapper: Judge Rakoff is just doing his job
The US justice system is an unlovely affair of frantic litigation by too many lawyers in too many courts, with expensive and patchy results, writes the FT columnist. But occasionally a judge wields his power for the public good. The latest hero is Jed Rakoff of the Southern District of New York, the most influential – and disruptive – figure dispensing justice on Wall Street. The judge’s tussles with the Securities and Exchange Commission over the furtive manner in which it settles securities fraud cases are a delight, both for how he writes and what he demands. Judge Rakoff wants the SEC to stop striking deals with banks that allow them to settle without confirming or denying the allegations of misconduct against them, instead paying fines and attempting to forget about it. He is calling on the banks either to admit wrongdoing or to fight it out in court. Read more

Snap news

Breaking pre-market news on Thursday,

- UBS removes chief risk officer after less than a year in the job — statementRead more

AT&T and T-Mobile consider deal alternative

AT&T and Deutsche Telekom have discussed forming a joint venture that would pool network assets from A&T and Deutsche’s T-Mobile USA if their current deal falls apart, says the WSJ, citing people familiar with the matter. The discussions were described as a plan that is on the back burner, but one that the companies were likely to take a closer look at a joint venture as AT&T’s planned $39bn acquisition of T-Mobile USA faces mounting opposition from regulators.

Zynga said to seek $10bn IPO valuation

Zynga, the fast-growing online game maker, plans to value itself at as much as $10 billion in its forthcoming IPO, says NYT Dealbook, citing two people briefed on the matter. The company plans to file an amended prospectus on Friday with an estimated price range of about $8 to $10 a share, these people said. At that range, Zynga would raise roughly $900m or so. The company plans to sell up to 10 percent of its stock to public shareholders.

 

Lenders move in on Battersea Power Station

Lenders to Battersea Power Station have moved to take control of the building, drawing an end to months of speculation about the latest plans for the derelict London landmark, the FT reports, citing people familiar with the situation. Lloyds and Ireland’s National Asset Management Agency will on Thursday notify Battersea Power Station Shareholder Vehicle (BPSSV), the holding company behind the Grade II listed building, that they intend take the site into receivership.  Real Estate Opportunities, the majority owner of BPSSV, has been seeking a partner to help develop the site, which it bought for £400m five years ago. Recent rumours have included takeover bids from Roman Abramovich’s Chelsea Football Club and a £262m offer from Malaysian property developer SP Setia to take over the senior debt. However, Lloyds and Nama, the Irish bad bank, which hold almost equal shares of a total £325m of debt on the site, are understood to have tired with REO’s failure to find a buyer, and plan to run an open-market auction process to try and offload the development.

Overnight markets: Up

Asian markets
Nikkei 225 up +195.27 (+2.32%) at 8,630
Topix up +14.66 (+2.01%) at 743.12
Hang Seng up +1,052.01 (+5.85%) at 19,041

US markets
S&P 500 up +51.77 (+4.33%) at 1,247
DJIA up +490.05 (+4.24%) at 12,046
Nasdaq up +104.83 (+4.17%) at 2,620 Read more

Boeing reaches deal with union

Boeing has struck a four-year deal with its biggest union that would protect production from strike action and end a high-profile attempt to force the aircraft maker to close a new factory, the FT says. The company was hit by a damaging 52-day strike in 2008, the last time the contract was up for renewal, which cost the company about $5bn in lost revenue, halted production of all its commercial aircraft models and caused delays to the introduction of the 787 Dreamliner. If members of the International Association of Machinists agree to ratify the deal, the union has agreed to drop its grievance against the company over a new 787 factory in South Carolina, which is at the heart of a dispute between Boeing and the National Labor Relations Board that has been widely cited by business in the US as an example of regulatory over-reach.

Buffett buys his local newspaper

Berkshire Hathaway is to buy the local newspaper read by Warren Buffett, in spite of his longstanding view that the press faces a future of dwindling profits. The FT reports Mr Buffett on Wednesday announced the purchase of the Omaha World-Herald Company, which operates several daily and weekly titles across Omaha and south-west Iowa. Berkshire will pay $200m, including the assumption of debt, according to the newspaper. Mr Buffett began warning on the economics of the newspaper industry as early as 1991, but on Wednesday he said the World-Herald “delivers solid profits and is one of the best-run newspapers in America”. The investment follows another recent departure from a longstanding industry view by Mr Buffett, who last month disclosed a 5.5 per cent stake in IBM worth $12bn, his first big investment in a technology sector that he had shunned in the past as too complex and opaque.