Posts from Monday Dec 5 2011

The S&P statement

Fifteen eurozone countries placed on CreditWatch negative, not just the six AAAs, as we’d expected earlier.

Here’s the statement: Read more

CME to allow renminbi as collateral

CME Group, the world’s largest futures exchange, will allow international investors to use the Chinese currency as collateral for trading in all its futures products from January 2012, the FT reports. The move, announced on Monday, means investors holding renminbi deposits in Hong Kong or other financial centres outside mainland China can use the cash to bet on markets including metals, grains and energy. “It has symbolic significance that the best-known futures exchange in the west has put a stamp of legitimacy on the Chinese currency by accepting it as collateral,” said Dariusz Kowalczyk, Hong Kong-based strategist at Crédit Agricole. However he added that CME’s move was unlikely to have any immediate market impact. The exchange said it would cap the amount of renminbi it accepts at $100m, a relatively small figure that reflects the fact that the offshore renminbi is only a few years old and is less liquid than most major currencies.

China throws climate talks into confusion

China has thrown the UN climate summit into confusion as more than 100 senior ministers from around the world fly into the South African coastal city of Durban for a final week of increasingly fraught talks on how to tackle climate change, the FT reports. In a distinct shift in rhetoric from last week, the head of the Chinese delegation, Xie Zhenhua, told reporters on Monday that Beijing was prepared to agree to some form of legally binding agreement that would cover all countries. But he said this could only happen if five conditions were met and probably not before 2020, when the current round of voluntary pledges agreed a year ago are due to end. The conditions include the European Union and other countries signing a new round of legally binding pledges under the Kyoto protocol; developed countries delivering financing to poorer ones to help them tackle climate change; and respecting the relative capacity of countries to deal with global warming.


France and Germany agreed on new rules

France and Germany have reached a “comprehensive” agreement on new fiscal rules for the beleaguered eurozone, as a package of measures designed to save the single currency begins to take shape, the FT reports. The proposals, which include a commitment not to force private sector bondholders to take losses on any future eurozone bail-outs, were announced by German chancellor Angela Merkel and French president Nicolas Sarkozy in Paris on Monday. Together with tough budgetary measures drawn up by Mario Monti’s new Italian government, they will form part of the “fiscal compact” demanded by the European Central Bank to enforce budgetary discipline in the single currency region. Mario Draghi, ECB president, has hinted that such a compact could be followed by aggressive action by the central bank to stop the recent crippling flight from eurozone sovereign debt. The Franco-German agreement was welcomed by financial markets. Italy’s benchmark 10-year borrowing costs fell below 6 per cent for the first time since October, while Spain’s came close to 5 per cent in a day of huge drops in their rates.

S&P ratings warning to top euro nations

Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc, the FT reports. The US ratings agency is poised to announce later on Monday that it is putting Germany, France, the Netherlands, Austria, Finland, and Luxembourg on “creditwatch negative”, meaning there is a one-in-two chance of a downgrade within 90 days. It warned all six governments that their ratings could be lowered to AA+ if the creditwatch review failed to convince its experts. Markets have been braced for a potential downgrade of France but few expected Germany’s top rating to be called into question. With regard to Germany, S&P said it was worried about “the potential impact (…) of what we view as deepening political, financial, and monetary problems with the European economic and monetary union.”

Further further reading

For the commute home,

– WSJ reports that all 17 eurozone countries will be put on watch by S&P. Read more

Flipping ‘eck — the size of the second home bubble

Finance writers and television shows have used flipping houses as a symbol of the pre-crisis housing bubble.

But we weren’t aware of any statistical evidence until we saw this post on Monday from Liberty Street Economics, the New York Fed’s blog. The post is well worth a read and if you’re really interested here’s the underlying paperRead more

S&P plays Grim Reaper for the upcoming death of AAA

A major FT exclusive on Monday:

Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc. Read more

Post-euro currencies, charted

Click Nomura chart to enlarge:

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Spot the Dog let off the leash

Who or what does the following quote refer to?

Far too much mediocrity is rewarded for nothing other than destroying value.

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Signor Monti, sensazionale [updated]

The price action in on Italian bonds on Monday, that is.

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Tracking the ‘dollar for euro’ arbitrage

These two charts, courtesy of Icap’s Euro Repo Weekly, tell it all:

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The Occupy Wall Street bank

Presented below is a note prepared for the December 4th meeting of the Occupy Wall Street General Assembly by its alternative banking working group. We present it – without comment – as a document for understanding the aims of OWS (as per John Gapper’s recent column).

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Germany 1 – France 0

Danger, danger: Merkozy tape bombs exploding on Monday afternoon.

They have a deal! Read more

Micro and negative yields in Germany

Who said demand for German debt was floundering?

Monday’s auction of six-month Bubills pulled in an impressive average yield of no less than 0.0005 per cent — yes, that’s to the fourth decimal point. Read more

Missing piece of the puzzle – US housing to bottom in 2012?

As Monday’s Lex notes regarding the US stock bounce has a sting in the tail

Don’t look now but amid the negative news on everything from the shambles in Europe, America’s debt wranglings or worries over China, the good old US of A seems to be stringing together a nice run of positive data… Read more

Markets Live transcript 5 Dec 2011

Live markets commentary from 

When you depend on collateralised collateral

We know from the ICMA European Repo survey that European repo market participants have been using more covered bonds for collateral in 2011 than ever before.

The thinking, we imagine, is that in a world where there isn’t enough ‘risk free’ collateral to support outstanding funding needs, the next best thing is collateral which itself happens to be collateralised. Read more

Euro-plagued forex market sees volumes drop

Foreign-exchange traders are expecting a volatile close to 2011 after an earlier-than-usual drop-off in liquidity, the FT says. Banks said that major clients have withdrawn from trading, partly on being burned by the euro’s continued strength despite the eurozone crisis. One bank estimated that its volumes had fallen by 15 per cent in November. While hedge funds shorting the euro would have suffered in recent weeks, institutional investors and companies seeking currency hedges have been less willing to enter markets, given the uncertainty over the eurozone’s final fate. Even US rock bands touring Europe are factoring in how much further the euro may stay strong against the dollar, the WSJ reports.

UK on brink of recession — QE2.2 to the rescue?

This is how Goldman Sachs sees the UK economy in the next few months:

We now expect an outright recession in the UK, with two consecutive quarters of -0.1%qoq growth in 2011Q4 and 2012Q1 (where previously we expected marginally positive growth in these quarters). The changes, together with lower growth in 2012Q2, have reduced our 2012 annual GDP forecast from +1.3%yoy to +0.7%yoy.

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White House turns populist in CFPB fight

President Barack Obama will lend his weight to the nomination fight for Richard Cordray to head the Consumer Financial Protection Bureau, in advance of a Senate vote this week, Bloomberg reports. Without a full director, the CFPB’s ability to regulate non-banks, including pay-day lenders, is limited. The campaign to induce Senate Republicans to accept Cordray, former attorney-general of Ohio, will also bolster the White House’s push to present the president as an economic populist ahead of the 2012 election, Reuters says. Newt Gingrich’s rise to the top of the Republican presidential race has benefited from his insistence to voters that he will be the “paycheck president” to Obama the “food-stamp president”, notes the Economist.

Another week to rescue the eurozone

Italy’s new government has promised a “multitude of sacrifices” in a $40bn austerity plan, beginning a crucial week for the eurozone, reports the FT. A leaders’ summit on 9 December will call for an EU treaty change to harden fiscal integration, although France remains wary of Germany’s demand for national budgets to be subject to veto by a central authority, Reuters says. Italy’s labour minister wept as she announced increased retirement ages under the government’s plan, according to the WSJ. A raft of grim PMIs underscored on Monday that the eurozone already faces recession, with a composite PMI for November signalling that the eurozone economy has contracted 0.6 per cent in the fourth quarter, Reuters adds.

Fresh and final board for Lehman

The Lehman Brothers estate is on the cusp of appointing a new board of directors, says the WSJ. The seven board members will be tasked with completing the liquidation of Lehman’s remaining assets. Lehman has lacked a board of directors since its September 2008 collapse. Liquidation of its assets may take another three to five years, with a stake in the apartment company Archstone providing the latest flashpoint for the Lehman estate’s bid to maximise value. The estate could scupper a plan to sell Archstone to Equity Residential because of concerns about its valuation, the FT reports.

Dexia’s collateral-crunching guarantee

It is an irrevocable, unconditional, direct, autonomous and first demand guarantee. The guarantee is joint but not several, and the allocation between the States (respectively 60.5, 36.5 and 3% for Belgium, France and Luxembourg) remains the same. The guarantee covers financial contracts and securities…

Yep. DexiaRead more

EU zeroes in on Google antitrust probe

European regulators have narrowed down a list of concerns about Google’s business practices in the region, pushing their two-year probe into a new stage, the FT says. While the European Commission has still not decided on whether to launch a formal complaint or to file a “statement of objections”, officials are looking closely at Google’s ranking of search results to include its own services near the top. Eric Schmidt, Google’s executive chair, flies into Brussels this week to meet Joaquín Almunia, the competition commissioner, reports the NYT.

The decline of “safe” assets

Presenting the unwanted mutant offspring of the most important chart in the world*…

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Fed readies communications overhaul

The Federal Reserve board will put the finishing touches to a new plan for communicating its strategy to the public at its December meeting, ahead of unveiling the plan early next year, the WSJ reports.  To make its stance on interest rates clearer, the Fed could divulge more of its forecasts for growth, employment and inflation each quarter. Fed officials have already sought to guide markets away from expecting a rate increase before “mid-2013”. The new communications regime may also see a formal declaration of the Fed’s informal 2 per cent inflation target, accompanied by a description of its goals with regard to the unemployment rate.

The Fed hath spoken

The Fed has been talking for some time about, er, how it talks. And writes.

According to Fedwire, a move to more explicit communication of the central bank’s long-term goals looks like being finalised early next year — and it could be quite explicit indeed: Read more

Further reading

Elsewhere on Monday,

– Eurozone leaders: not quite getting it. Still. Read more

Pink picks

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

Edward Luce: Now on Broadway! Waiting for Euro
It used to be that when American policymakers looked across the Atlantic they would quote Henry Kissinger: “Who do I call if I want to call Europe?” Nowadays the answer is obvious – Angela Merkel. The problem is that she doesn’t always pick up. And when she does, Barack Obama’s advice is not always welcome. Whether or not Ms Merkel and her colleagues manage to pull Europe back from disaster in the next few days, the euro crisis has offered the US a sobering lesson in the changing ways of the world. To put it bluntly, American advice comes at a deep discount nowadays – even if, ironically, Washington’s strictures have been bang on target about fixing the eurozone morass, writes the FT columnistRead more