The euro slumped as disappointed investors sold the single currency after European Central Bank president Mario Draghi dashed the prospects of more aggressive bond buying the central bank, reports the FT. Risk assets rallied right after the ECB announced a 25-basis point interest rate cut and unveiled a range of measures designed to support the eurozone financial system. But declines resumed after Mr Draghi said the decision to ease monetary policy was not unanimous, sparking concerns that national rivalries within the ECB could hobble decision-making. The euro earlier touched its lowest level against the dollar this month, but pared some of its losses after the draft for a summit of EU heads on Friday said leaders are committed to a new “fiscal compact” for the eurozone. The euro also showed limited reaction to news that Standard & Poor’s had placed 15 Spanish banks on watch for downgrade. In later afternoon trading in New York it was 0.6 per cent lower to $1.3332, the FTSE Eurofirst 300 was off 0.9 per cent and Wall Street’s S&P 500 was down 1.2 per cent, despite a bigger than expected fall in US weekly initial jobless claims. The FTSE All-World index was down by 1.9 per cent, reflecting a souring of risk appetite that can be seen across commodities, currencies and bonds, where perceived havens are in demand. The dollar index was up 0.5 per cent, while US and German bonds were seeing buyers. US 10-year Treasury yields were down 6bp to 1.97 per cent and German 10-year debt slid 9bp to 2.01 per cent. Gold, which has changed to a more positive correlation with equities of late, was down 2 per cent to $1,706.26 an ounce.
For the commute home,
– Tweeting survives the end of history as Francis Fukuyama signs up (his take on Europe here). Read more
New China Life Insurance, the country’s third-largest life insurer by premium income, has raised $1.9bn from an initial public offering in Shanghai and Hong Kong, reports the FT. The move is the first in a new wave of listings needed to revive the flagging growth of the Chinese insurance sector. The shares were priced on Thursday near the bottom of the state-backed insurer’s target range. But its success in pushing through the listing despite rough market conditions will be a shot of confidence for the several other Chinese insurers waiting in the wings to go public.
The US has sought to reassure China that its recent diplomatic and military initiatives in Asia were not directed against Beijing, reports the FT. “The US does not seek to contain China, we do not view China as an adversary,” said Michele Flournoy, US undersecretary of defence, after bilateral military talks. The defence consultative discussions took place despite Beijing’s anger over Washington’s announcement of a $5.9bn arms deal with Taiwan in September, indicating that military dialogue between the world’s only superpower and the country often seen as its most likely future challenger had become less prone to disruption.
A significant order from a Chinese buyer for new crude-oil tankers has fuelled speculation that China is preparing a series of huge ship orders, reports the FT. The orders would support employment in the country’s shipbuilding industry but flood struggling shipping markets with excess capacity. China Rongsheng Heavy Industries (CRHI), China’s largest privately controlled shipbuilding group by order book size, announced on Thursday that it had received an order for 10 Suezmax crude oil tankers, plus options for a further 10, for delivery in 2013 and 2014. Suezmax tankers, the second-largest commonly-used size, carry 1m barrels of oil.
Tokyo Electric Power, owner of Japan’s tsunami-crippled nuclear plant, is facing renewed financial pressures that could prompt the government to inject capital and effectively nationalise the company, according to people familiar with the matter, the FT reports. Tepco’s shares – already down 85 per cent since reactors at its Fukushima Daiichi facility melted down in March – lost 11 per cent of their remaining value on Thursday, amid reports that the government would take an equity stake in return for Y1,000bn or more in fresh funding.
Eurozone authorities are pushing for a deal to lend around €150bn to the International Monetary Fund, a boost which would give it more firepower to help with the eurozone debt crisis, the FT reports. At a meeting of senior officials on Wednesday night, eurozone governments signalled proposals for €150bn in bilateral loans, expected to come through their central banks, which they said could be augmented by another €50bn from outside the eurozone. Denmark, a non-euro country, said on Thursday it would contribute €5.4bn through its central bank. But the German government has not yet given its final approval for the move. According to a senior German official, Berlin wants to ensure that a leveraged €440bn eurozone rescue fund is up and running before considering new IMF resources, adding that even if new IMF funding is needed, Berlin is not prepared to finalise any package by the end of the summit Friday. The official also said the German government must also consult the Bundestag first.
Germany’s banking system was shown to be far weaker than previously thought in a new round of European stress tests, raising the prospect of further taxpayer bail-outs, reports the FT. The European Banking Authority said late on Thursday that German banks had a capital shortfall, which must be made up by next June, of €13.1bn – nearly triple the result of a previous test in October – pushing up the Europe-wide deficit from €106bn to €115bn. Analysts said Commerzbank, Germany’s second-biggest private sector bank, which emerged with a capital shortfall of €5.3bn from the test, up from €2.9bn six weeks earlier, was now facing the prospect of nationalisation. The German banking association said the EBA had “lost credibility”. Earlier on Thursday, the ECB announced new measures to support the continent’s ailing banks.
Well, it wouldn’t be Summit Eve without rumours and counter-rumours. But the clown show might have outdone itself this time.
Forty minutes before US markets closed, Reuters reported that the ESM would receive a banking licence and run side-by-side for one year with the EFSF, according to a draft summit statement. Read more
After a break for voting, it’s back to the MF Global hearing, where Jon Corzine is facing questioning. Click through for the live feed:
Something we stumbled across while working on a separate post:
Update — FT Alphaville has heard that the answer to this question is in fact… yes. See below for more details.
The official EBA numbers on European bank capital shortfalls are out. In aggregate it’s €114.7bn. Read more
What links Hershey to the eurozone debt crisis? Well, aside from making a product that cracks under pressure, the confectioner has recently renewed a syndicated lending deal that Nomura’s analysts say augurs further European bank deleveraging.
Although European banks can now post lower rated collateral to access ECB funds, continuing funding pressures, EBA requirements and Basel regulations will ensure further sell-offs. We’ll know more later on Thursday, when EBA stress test results are disclosed. Thus far, European banks have announced around €1,200bn worth of planned sales and run-offs, as this chart from Nomura depicts: Read more
MF Global lost ‘effective control’ of its sovereign bond assets. This gifted the broker some rather favourable accounting treatment. The broker’s clients, meanwhile, wanted to keep effective control of their own assets, and not just in the accounting sense, but in a very real sense.
As creditors and clients pick over the corpse of MF Global, reaching into its pockets for anything that can compensate them, we’re learning a lot about accounting for repos, and about what does and doesn’t work when it comes to protecting client assets. Read more
Have you been flummoxed by Mario Draghi’s talk of three-year LTROs, reserve cuts and collateral adjustments on Thursday? We have.
Thankfully, the details have been outlined in the ECB press release, which offers a little more insight. Read more
Crystal-ball charts via Mark Cliffe of ING (click to enlarge):
Sadly, the London Stock Exchange’s plan to fix the broken UK IPO market is unlikely to work for the simple reason that it doesn’t really believe there’s a problem. Read more
Here they are (via Reuters):
Today 13:31 – ECB’S DRAGHI – UNDERLYING PACE OF MONETARY EXPANSION CONTINUES TO BE MODERATE Read more
We now await the main course. Read more
We’ve discussed why the ECB’s policy of applying different haircuts to eurozone government debt collateral may be adding to dysfunctions in the repo market.
It’s one reason why broadening the ECB’s list of accepted collateral to include lower-quality assets won’t make much of a difference on a policy scale. Read more
Live markets commentary from FT.com
Offshore safety regulators have issued BP with five more charges related to last year’s Deepwater Horizon well explosion, the FT reports. BP failed to do proper tests and checks for leaks on the well, according to the US Bureau of Safety and Environmental Enforcement. The issues “played no causal role in the accident”, the company said. In addition to raising the fines that BP may have to pay for the oil spill, the fresh charges also come amid a war of words between BP and Halliburton over the companies’ responsibilities on the well ahead of a civil trial in New Orleans, the WSJ says.
A poll of analysts indicates a 60 per chance that the European Central Bank will cut policy rates by 25bps to 1 per cent at its meeting on Thursday, one day before another make-or-break debt crisis summit, says Reuters. Rules affecting collateral for ECB liquidity are also expected to be relaxed, to stop eurozone banks from entering a full-blown credit crunch. German officials continue to insist that their eurozone partners might sign up to a complete treaty overhauling fiscal rules instead of using “little tricks”, reports the FT. Even central banks inside the eurozone are making contingency plans for a break-up of the euro, by checking they would have access to printing presses to roll out new currencies quickly, the WSJ says.
Whatever is decided at the Save the Euro summit, it seems certain the eurozone is heading into recession.
But not just any recession, this will be a protracted one reckons Citigroup. Read more
Fifty money managers ranging from Warren Buffett to Carl Icahn have used exemptions from the SEC to avoid disclosing large investments in companies this year, affecting 154 quarterly filings, the WSJ reports. While the SEC usually requires that managers owning more than $100m disclose acquired stakes in quarterly filings, this can be waived if the disclosure would cause “substantial harm” to their competitiveness. Other investors argue that the SEC is not doing enough to explain why it gives the exemptions. Warren Buffett’s recent disclosure of a $10.7bn stake in IBM has reignited debate over the practice.
CVC has failed to seal a deal to “amend and extend” $2.7bn of senior debt of an Australian TV company it bought in 2006, Reuters reports. The failure to refinance Nine Entertainment may leave CVC with a $2bn loss on its buyout, possibly the single largest realised loss on a single private equity deal, the FT says. The outcome of negotiations with Nine’s creditors also leaves a Goldman Sachs mezzanine fund fighting to preserve holdings of $700m of junior debt in the company, which may have to be marked down to zero on conversion to equity. Elsewhere in the industry, the volume of European private equity deals has dropped to its lowest level in two years as refinancing markets freeze, the FT adds.
Back in October 2008, when the ECB first announced its list of extraordinary liquidity measures to help combat the financial crisis, most eyes were drawn to such things as widening eligibility of collateral and the announcement of long-term refinancing operations (LTROs) .
But there was one other very significant change, which *perhaps* went under the radar for most people. Read more
Agencies who investigated MF Global before its collapse will give different accounts of when they first became concerned about its trades, when they appear before a Congressional hearing later on Thursday, the FT reports. Terry Duffy, chief executive of CME Group, said that MF Global seemed to be in “full compliance” with segregating its customers’ funds until the day before its collapse, only for CME and CFTC auditors to be told on 2am on the day the broker filed for bankruptcy that some funds had been transferred. The CBOE said it was receiving data from the broker in August, while Finra said it had been watching MF Global’s trades in euro sovereign debt since May. A”turf war” may meanwhile be opening between Chicago and New York prosecutors on bringing criminal charges over the collapse, Reuters says.