Posts from Friday Dec 9 2011

Further further reading

For the commute home,

– Diet craze leaves Norwegians starved of butterRead more

The Weekender

This week on FT Alphaville,

– Post-euro currencies and post-euro economies were both charted. Read more

The SGP without stability or growth

Ah, the Stability and Growth Pact. You remember. Joining the SGP, members promised fiscal restraint, and in return were allowed to junk their soggy old currencies for a Deutschemark with a suntan. They all promised to keep the gap between revenue and spending to below 3 per cent of GDP, or if they weren’t quite there, they’d get there jolly soon, and never mind if they had to invent the numbers to do so.

So, your starter for 10: which country was the first to exceed the 3 per cent limit? No, not Greece, Italy, Spain, Portugal or Ireland, but Germany. Oddly, there were no calls for austerity measures in Berlin. A decade on, and the game’s up. Fiscal continence in the periphery is a distant dream, so to save the euro we’re promised the European Stability Mechanism and a new “fiscal compact”, which looks like the SGP, but without the growth or stability. Read more

Dove, actually…

… is all around, though in this case not until after the holidays.

The FOMC meeting on Tuesday of next week isn’t expected to produce any major policy decisions (more on which in our next post). Read more

The gap between summit rhetoric and reality

Judging by markets’ immediate responses to the EU summit, Gavyn Davies’ summary of the new reality seems spot on:

My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.

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“The 60’s. Cool Decade. Lousy Age.”

That’s the title of the Citi research note on US managed care where we came across this chart:

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Where not to buy your sovereign CDS

As part of their recommendations for the recapitalisation of banks, the European Banking Authority released some shiny new data around credit derivatives that are linked to European sovereigns on Thursday.

DTCC data on credit default swaps are released on a weekly basis. However, these data are aggregated such that it’s impossible to know anything about individual banks’ exposures. The banks disclose some information themselves, but it’s often netted and marked in a way that makes it pretty challenging to compare, contrast, and interpret meaningfully. Read more

US Markets Live transcript 9 Dec 2011

Live markets commentary from 

US Markets Live: 10am NY time, 3pm London time

Okay, so we’re not holed up in a convention centre in the city of permanent meetings. But Merkoky’s latest patchwork policy quilt is all anyone is talking about so we’ll be doing the same at the usual time and place. We will do a bit of Soros and FOMC, too.

So in portmanteau spirit, join your US FT Alphaville team, McDarcia, at 10am New York time, 3pm London time. Read more

Please give generously – The FT’s Christmas appeal

Do you dream of discussing wine with Jancis Robinson, the FT’s wine correspondent, over lunch? Would you like a personal briefing on the global economic crisis over a meal with Martin Wolf, our chief economic commentator? Or how about lunch in New York with Gillian Tett, our US managing editor and columnist? Or what about a spot of luncheon with this man at Le Gavroche?

 Read more

Chinese CNH – YOURS!

Something is happening in China.

That’s the ominous title of an FX note posted by George Saravelos of Deutsche Bank on Friday morning. Read more

Nomura on Draghi’s failure to address the collateral problem

There are a growing number of voices suggesting that much of the Eurozone funding crisis could be simmered by addressing one of its most identifiable symptoms. The quality collateral crunch in the system.

As we’ve noted before, there are many reasons to think that the trend towards ‘quality’ collateralised funding is having as much of an impact on the valuation of bonds in both private and central bank funding markets, as the perception that European sovereigns might be insolvent. Read more

Markets Live transcript 9 Dec 2011

Live markets commentary from 

Europe’s fiscal union plan ends in divorce

Eurozone economies will press on with a “fiscal compact” treaty after Britain vetoed a wider pact for all European Union states, the FT says. France and Germany have corralled 21 other governments into greater integration of national budgets, through a treaty that will arrive early next year, Reuters reports. German Chancellor Angela Merkel said that the EU had avoided a “lousy compromise”. Asked if the euro was safe as a consequence of the agreement, Poland’s prime minster said, “I’m not sure.” The new fiscal rules will cap structural deficits at 0.5 per cent of GDP on pain of “more intrusive control” if governments fail, reports Bloomberg.

Ford resurrects dividend

Ford will pay a quarterly dividend for the first time since September 2006, marking another step in its turnaround after the auto-maker’s decline five years ago, the WSJ reports. Investors will receive the five-cents-per-share dividend on March 1, after Ford ran a series of stress tests on its cash position. The stress tests mean that the dividend will return even if there is another economic downturn, Ford said. Chief executive Alan Mulally will collect about $875,000 each quarter in dividends on his 17.5m shares, having led the company from $12.7bn losses in 2006 to $6.6bn in earnings for the first nine months of 2011, the FT says.

Hedge funds braced for worst year since 2008

Hedge fund managers have lost 4.37 per cent on average in the year to the end of November, en route to their worst performance since 2008, according to Hedge Fund Research data, reports the FT. Big-name funds including Paulson & Co and Highbridge have been unable to recoup double-digit losses incurred in recent months. But other big macro bets have succeeded. Brevan Howard is up almost 13 per cent this year, having wagered that Treasury yields would fall, while Marshall Wace’s Global Opportunities fund, also macro-focused, is up 29 per cent so far in 2011.

Lloyd C. Blankfein wants YOUR feedback

Well, not yours, obviously. But random market professionals in the City of London who in recent days have been contacted by the mighty Goldman Sachs.

From: Lloyd C. Blankfein []
Sent: 08 December 2011 19:33
To: xxxxx
Subject: Goldman Sachs requests your feedback: ADV solicitation materials from Goldman Sachs Read more

Shadow banking and the seven collateral miners

In the words of Goldman Doc, Morgan Grumpy, JP Happy, Bank of Sleepy, Barclays Bashful, Sneezy Citi, and Dopey Deutsche:

We dig dig dig dig dig dig dig from early morn till night
We dig dig dig dig dig dig dig up everything in sight
We dig up diamonds by the score
A thousand rubies, sometimes more
But we don’t know what we dig ’em for
We dig dig dig a-dig dig

 Read more

Soros bought MF Global’s leftover euro debt

The family fund managed by George Soros bought up $2bn of MF Global’s eurozone government bonds after the broker’s collapse, according to the WSJ. MF Global had positioned $6.3bn of Italian, Spanish and other peripheral countries’ debt in a series of repo-to-maturity trades which eventually foundered. MF Global’s liquidators sold $4.8bn of the bonds in the days after its bankruptcy, with Soros purchasing $2bn of them below market price. Italian debt has since slightly recovered from its most distressed price levels.

Chinese inflation lowest since September 2010

Consumer price inflation in China steeply fell from 5.5 per cent in October to 4.2 per cent in November, the FT says. Data also showed growth in industrial production fell below to 12.4 per cent in November from a year earlier, substantially slower than the 13.2 per cent recorded in October. Growth in industrial output is now the slowest in two years, reports Reuters. With no let-up in the eurozone debt crisis, the Chinese economy is increasingly expected to post less than 9 per cent growth in 2012, for the first time since 2001.

Moody’s downgrades a trio of French banks

Showing a flair for irony we would not expect from a US-based company, Moody’s has made Europe’s morning complete by downgrading the three big French banks.

  Read more

Quotes du jour – Eurofudge edition

For those of us of a certain age, the fiscal language looks to be copied and pasted from the original Stability and Growth Pact with a few bells and whistles added to imply that ‘this time we mean it.’ – Steven Englander, Citigroup

More to follow. Read more

Want to boost tier one capital? Make losses and prosper

The EBA results came out on Thursday and for all of the discussion around what constitutes high quality core tier one capital, there was faint mention of the massive countercyclical component contained therein.

An example of a countercyclical accounting buffer would be DVAs — the gains that banks can book as a result of a deterioration of their own credit worthiness. When they are doing badly, they get a boost to their earnings. When things start to get better, they have to take corresponding losses as the earlier gains are reversed. Read more

Is this enough to save the eurozone?

… or at least to agree a date for the next summit.

The first day’s negotiations went on until 5am Brussels time and culminated in this statement from European leaders (click through to read)… Read more

Further reading

Elsewhere on Friday,

– “I thought [EU summit] disasters were all meant to happen over the weekend?” Read more

Pink picks

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

Philip Stephens: Now the Franco-German question
Germany will have to learn leadership, and France followship. Both will find it a wrenching experience. The rules of the European game changed for ever with the reunification of Germany, says the FT’s Stephens. It has taken the euro crisis to spell out the brutal implications. One has to feel some sympathy for Angela Merkel. Germany’s chancellor has been excoriated in turn for absent and for oppressive leadership. At one moment she is said to be standing idly by while the euro burns, and at the next of issuing teutonic diktats about the terms of its survival. Germany, the rest of us have been reminded, has always been too big for Europe. The new German question asks whether Europe – whether it is the European Union or a more closely integrated eurozone – can find a new equilibrium now that Germany is so visibly the preponderant power. Read more

Snap news

Breaking pre-market news on Friday,

– ECB President Draghi says new intergovernmental treaty is a very good outcome for the Euro area —statement and reportRead more

Euro, stocks slide on eurozone doubts

Asian shares, commodities and the euro fell on Friday on growing doubts that European leaders could forge a credible plan to solve the eurozone’s debt crisis, says Reuters. Losses accelerated and the Australian dollar, a bellwether for investor appetite for risk, dived after EU diplomats said it had been agreed that a new permanent bailout fund would not have a banking license, meaning it would not be able to borrow from the ECB. MSCI’s broadest index of Asia Pacific shares outside Japan slid 2.2 per cent, led by the risk-sensitive materials sector, while Japan’s Nikkei stock average .N225 dropped 1.4 per cent. The euro hit a session low of $1.3318 after the update from EU diplomats, having recovered from a one-week low of $1.3289 touched the day before, while Wall Street stock futures dipping 0.3 per cent.

Overnight markets: Down

Asian markets
Nikkei 225 down -137.34 (-1.59%) at 8,527
Topix down -6.52 (-0.88%) at 738.59
Hang Seng down -501.89 (-2.63%) at 18,606

US markets
S&P 500 down -26.66 (-2.11%) at 1,234
DJIA down -198.67 (-1.63%) at 11,998
Nasdaq down -52.83 (-1.99%) at 2,596 Read more

EU leaders agree eurozone-plus-six accord

The president of the European Council said Friday that a new intergovernmental treaty meant to save the single currency will include the 17 eurozone states plus six other EU countries – but not all 27 EU members, reports AP, and the bloc’s permanent bail-out fund was capped at €500bn, after talks in Brussels that went well into Friday morning. German Chancellor Angela Merkel praised the plan, saying “I have always said, the 17 states of the eurogroup have to regain credibility,” she said. “And I believe with today’s decisions this can and will be achieved.” Herman Van Rompuy, president of the European Council, said the countries would provide up to €200bn in extra resources to the IMF. French President Nicolas Sarkozy said early Friday he would have preferred a treaty among all EU members, but that was not possible because the British proposed that they be exempted from certain financial regulations. “What is on offer isn’t in Britain’s interest so I didn’t agree,” said British prime minister David Cameron, according to the BBC on Twitter. Reuters says the EU leaders decided that the currency bloc’s future permanent bailout fund, the ESM, would be capped at €500bn at Germany’s insistence. It will also not get a banking license, which would have allowed it to draw on ECB funds to increase its firepower, another move Germany objected to.  However AP also reports Mr Sarkozy also said two bailout funds would be managed by the ECB, though the details still need to be worked out.