Posts from Thursday Dec 15 2011

Chinese villagers step up pressure

Villagers in Southern China kept up the pressure on Chinese authorities in a fourth day of protest despite threats by the local acting mayor to “firmly crackdown” on troublemakers, the FT reports. Wukan’s residents have been protesting for months over a land dispute. But demonstrations have grown in recent days following the death in police custody of one villager. Since Sunday villagers have prevented a force of 600 police from entering the village to arrest leaders of their protest movement. No party officials have been seen in the village since December 5 when the village governor was taken hostage for a few hours.

Chinese tycoon revives Iceland land bid

Chinese tycoon Huang Nubo has revived his controversial bid to buy a vast tract of land in Iceland, just weeks after the deal was rejected by the government. The deal, in which Mr Huang sought to buy 300 sq km of wild heathland to build a resort, has sparked a heated debate within the Icelandic government over the role of foreign investment. In China it has come to be seen as epitomising the prejudice that Chinese investors face abroad, as Chinese companies step up overseas investments. Representatives of Zhongkun, Mr Huang’s company, met on Thursday Iceland’s Ministry of Industry, Energy and Tourism to discuss the possibility of pushing through a restructured deal. “We are looking for a new way to take this forward,” Mr Huang told the FT on Thursday. “I am somewhat optimistic.”

India eyes drastic measures as economy lists

Growth in Asia’s third largest economy looks buoyant from the shores of blighted markets in the west, but India’s ruling-Congress party is firing warning flares from the deck of a listing ship, reports the FT. Pranab Mukherjee, India’s finance minister, has this week warned of faltering economies in leading emerging markets, reflecting a growing sense of pessimism at home about falling growth and high inflation. He, among others, is rattled by the currency falling to record lows of Rs54 to the dollar, an exit of foreign capital and statements by prominent business people that they would sooner invest abroad than in India. Analysts openly state that India’s high-growth economy is running out of steam after a shift of expectations from 9 per cent to 7 per cent.

Chow Tai Fook fails to sparkle on HK debut

Chow Tai Fook’s trading debut on Thursday failed to sparkle as a combination of eurozone woes and fears of a slowdown in China’s luxury retail sector sent the share price of the jewellery retailer down by as much as 9 per cent, reports the FT. The disappointing first day performance by a well-known retailer in the region was further evidence of the long winter ahead for Hong Kong’s initial public offering market. “Next year is going to be very quiet, especially in the first half of the year. Fund managers are going to be extremely cautious with so much uncertainty coming from the eurozone,” said Ben Kwong, director of local brokerage KGI Asia.

Firmer euro and US data encourage bulls

A more stable euro and better US economic data are helping western investors shrug off chronic eurozone fiscal worries and evidence of waning global growth, reports the FT. But Asian stocks have slipped back into a “bear” market, as some traders continue to see recent falls in gold and a rise in the dollar as symptoms of a broad malaise. The Stoxx Europe 600 is up 0.9 per cent after an estimate of eurozone private sector activity was not quite as weak as expected. The FTSE All-World equity index is up 0.5 per cent, having lost 4 per cent in the previous three days. Treasury yields are up 1 basis point to 1.91 per cent as money leaves perceived bolt-holes. In the US, stocks snapped three days of selling to open higher on Thursday after positive economic data cheered investors, while news of job cuts at Morgan Stanley boosted the beleaguered financial sector. Wall Street’s S&P 500 is gaining 1 per cent. The euro has oscillated mildly around the $1.30 mark, but its current 0.3 per cent rise to $1.3019 appears to be emboldening risk takers as it signifies easing stresses in eurozone credit markets.

Olympus considers use of strategic investor

Olympus is considering raising funds from a strategic investor in what would be a controversial manoeuvre to repair damage caused by its accounting scandal, the FT reports. The move by the Japanese camera maker was immediately criticised by Michael Woodford, its ousted chief executive, as a ruse designed to keep its current management in power. Mr Woodford is counting on support from foreign shareholders – who are believed to have accumulated about half of Olympus’ stock – in a looming fight for control of the company. The arrival of a management-friendly investor would dilute their influence and scuttle the Briton’s chances of winning back his job.

Fitch downgrades a slew of investment banks

Fitch follows S&P and downgrades a gaggle of investment banks.

Unlike S&P, however, this isn’t down to a change in methodology. Rather, as our emphasis below suggests, the rating agency argues that the banks aren’t as protected in “periods of exogenous financial stress” (cough, Europe; cough, Europe) as they’d like to make us believe. Read more

Indonesia regains investment grade status

Indonesia regained “investment grade” status on Thursday, the first time the emerging democracy was awarded the coveted rating since the 1997 Asian financial crisis, the FT reports. Fitch said it was lifting Indonesia’s sovereign credit rating from BB+ to BBB-, citing steady economic growth, declining debt and general macroeconomic stability.

Japanese groups turn negative on outlook

Sentiment among large Japanese manufacturers has turned negative, according to the Bank of Japan’s much-watched Tankan survey and in the central industrial heartland of Chubu it is not hard to understand one major reason why, reports the FT. “Right now the big issue is the strong yen,” says Toshio Mita, chairman of the Chubu Economic Federation, of the mood among its 700 member companies in the city of Nagoya and surrounding prefectures. “The sense of crisis is extremely strong.” Renewed gloom among big manufacturers – whose exports are a vital driver of economic growth – highlights doubts about the prospects for Japan’s stop-start recovery from its 2008-2009 slump and from the earthquake and tsunami that hit its north east coast in March. The Tankan’s headline index, which compares the number of large manufacturers reporting positive conditions with those reporting negative views, fell from +2 in September to -4, with respondents expecting things to worsen further over the next three months.

Let there be credit claim collateral

OK — you’re sick to death of hearing about the European Central Bank’s three-year liquidity may, or may not, get banks to buy sovereign debt to pledge as collateral.

So why not hear about all the other extra trash assets the ECB will now accept? Potentially much more economically critical trash. assets. (Update — well, that’s our point about these assets being diverse and difficult to value made for us… we’re sorry for calling them trash. That is indeed unwarranted hyperbole. In truth the assets here vary widely in type, quality, etc. The main thing is their basic economic importance, which is why the ECB’s move is not to be underrated.) Read more

Terminado del forebearance

Here’s an interesting exercise from Fitch — they’ve counted up 8,235 properties which were repossessed in Spanish RMBS that they rated.

These are some of their findingsRead more

More on the collateral crunch

From the ECB’s Mario Draghi on Thursday (our emphasis):


How big could the Sarko trade go?

Some €15-45bn for Spanish banks and their government’s bonds at least, according to Morgan Stanley’s Huw Van Steenis, who has just produced a very interesting note on the carry trade du jour – or to use its technical name the ECB’s 3-year LTRO.

The two 3-year long-term repo operations (LTROs) are key pieces of a welcome package to ensure that, even if term unsecured debt remains impractically expensive, Europe’s banks will be able to continue to fund their assets. But could it also be a backdoor route to help sovereign funding, as some policy makers hope? Read more

It’s the balance of payments, stupid

Just in case the point has not been hammered home over the last few years, or even the last few days, here’s a chart showing how quickly and dramatically the external debt imbalances got out of hand in the eurozone:

Euro imbalances - 2002 - 2010 -  Net international investment position - Mark Carney, Bank of Canada Read more

China’s iron ore imports mystery, solved…

Earlier this week we looked at the rebound (of sorts) in China’s iron ore imports pricing from $120/tonne to almost $140/tonne, when much of the data was pointing to a deceleration in demand. At the same time, port stocks seemed to be building rapidly:

China's iron ore port inventories - Citi Read more

Markets Live transcript 15 Dec 2011

Live markets commentary from 

Prepare for the 3-year LTRO

Well, it’s the only explanation we can come up with for this morning’s up-sized Spanish bond auction.

The government had been looking to sell up to €3.5bn of paper, but ended up knocking out almost €6bn. Read more

Disaster du jour

There’s a distinct whiff of burnt fingers in the City of London on Thursday morning.

The share price of punter’s favourite Pursuit Dynamics has crashed and burned after the fluid technology specialist announced a big revenue shortfall, a £10m rights issue and the resignation of its colourful chief executive Roel PieperRead more

SNB sticks to 1.20 franc cap

The Swiss National Bank said it would maintain its 1.20 floor on the franc per euro on Thursday, knocking back speculation it would move to weaken the currency further, Reuters reports. The central bank added that it would be prepared to take further action at any time if risks to the economy mount. In its growth forecasts for next year and the central bank predicted only slightly falling prices – leaving analysts divided over whether a rise in the franc cap was likely early in 2012. According to Bloomberg, Swiss central bank President Philipp Hildebrand said he was ready to act if deflation risks emerged. The central bank also maintained its benchmark interest rate at zero. The SNB has defended the limit for three months without a breach after pledging to buy “unlimited” quantities of foreign currency, notes Bloomberg.

Weak manufacturing data cast a pall

Evidence of waning global growth joined chronic eurozone fiscal worries to cast a pall over investors, the FT reports. Asian stocks slipped back into a “bear” market as traders continued to raise funds by selling the likes of gold while favouring perceived havens such as the dollar, which was softer on the session but sat near 11-month highs. However, the euro’s move back above $1.30 just prior to the European open delivered a knee-jerk bounce off session lows for many risk assets. The FTSE All-World equity index was down 0.1 per cent, having lost 4 per cent in the past three days. But the single currency’s mini pop saw the Stoxx Europe 600 up 0.4 per cent and S&P 500 futures gain 0.2 per cent even as the list of negative factors weighing on sentiment grew ever longer. The euro was up 0.2 per cent, but at $1.3010 remained only just above the $1.30 level, signifying investors’ residual wariness about the lack of a firewall to break the bloc’s sovereign debt contagion. The next test for the credit markets is the sale by Spain of about €3bn worth of four-, nine- and 10-year bonds later on Thursday.

China set to tax US-made car imports

China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday. China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America. In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres.

BHL sur… the rating agencies

Some are phlegmatic about a downgrade of France’s AAA credit rating:

La possible perte par la France de son triple A vous inquiète-t-elle? Read more

Further reading

Elsewhere on Thursday,

– The physics of finance. Read more

Pink picks

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

 Read more

Snap news

Breaking pre-market news on Thursday,

– Old Mutual puts Nordic operations up for sale for £2.1bn — statementRead more

Europe gloom, Asian surveys weigh on markets

Asian shares fell into bear market territory for the year and commodities and the euro nursed stinging losses on Thursday, after fears that Europe’s debt crisis is still worsening prompted investors to dump riskier assets and huddle in the safety of the dollar and Treasuries, says Reuters. The euro fell as low as $1.2944, its weakest level since January 11, and was later steady around $1.2990. The gloomy mood was not improved by the HSBC Flash PMIs indicating China’s factory output shrinking again in December, with a reading of 49. The number was slightly high than that for November, when the HSBC survey showed 47.7. Official PMIs fell into negative territory in November, also giving a reading of 49.  Japan’s Nikkei fell 1.3 per cent and MSCI’s broadest index of Asia Pacific shares outside Japan was down 1.8 per cent, following losses of about 1 per cent on Wall Street and a steeper sell-off in Europe. The MSCI Asia ex-Japan is down 20 per cent for 2011 — the rule-of-thumb definition of a bear market — while the Nikkei has lost about 17.5 per cent. Asian airlines and shipping companies are turning to the bond market and government export agencies and seeking out new banks to fill the lending gap opening as European lenders pull back, says the WSJ. The industries are already suffering a slowdown in demand. Separately, the WSJ reports that Crédit Agricole said it will exit 21 of the 53 countries in which it operates and Commerzbank, struggling to avoid accepting a bailout by the German government, is in negotiations to transfer suspect assets to a government-owned “bad bank.” On Wednesday, German chancellor Angela Merkel defended the results of last week’s European Union summit, the FT reports, declaring that the eurozone states had already begun to create a fiscal union. She was speaking as doubts about the Franco-German plan for such an intergovernmental treaty emerged in several eurozone and non-eurozone member states. European equities dropped on Wednesday as investors continued to question the viability of the summit package.

Chevron and Transocean sued over spill

Brazil’s federal prosecutors have filed suit against Chevron and Transocean for R$20bn ($10.6bn) in damages and demanded that both companies shut their operations in the country, in the strongest response yet to an oil spill off the coast of Rio de Janeiro last month, reports the FT. At around 3,000 barrels, the spill in Rio’s Campos basin was relatively small and has been plugged, but Brazilian officials have sought to make an example out of the US oil companies as a warning to other foreign companies looking to profit from the region’s lucrative new-found reserves.


US chip tool makers in $3.3bn merger

Chip tool makers Lam Research and Novellus Systems have announced a $3.3bn merger on the same day the Gartner research firm predicted a 20 per cent decline in spending on semiconductor equipment in 2012, reports the FT. The two Silicon Valley companies said the merger was driven by significant synergies between their areas of equipment expertise: Lam supplies fabrication equipment for the etching of silicon wafers and Novellus is a market leader in enabling surface preparation and thin-film depositions on the wafers.


Overnight markets: Down

Asian shares fell for a third consecutive day after weak manufacturing data from both Japan and China, says the FT’s global markets overview. The MSCI Asia Pacific index was down 0.6 per cent with China’s Shanghai Composite index off 0.7 per cent and Hong Kong’s Hang Seng index sliding 2.3 per cent. Japan’s Nikkei 225 Stock Average slid 1.3 per cent, South Korea’s Kospi Composite index shed 1.8 per cent while Australia’s S&P/ASX 200 index fell 1.5 per cent.

Commodity producers were among the worst performers, following a massive sell-off on Wednesday in commodities and oil. BHP Billiton dipped 1.6 per cent, Rio Tinto dropped 2.5 per cent and iron ore producer Fortescue Metals Group slid 2.6 per cent in Sydney. Oil explorers and refiners were weaker in other markets as well. Inpex, Japan’s largest oil explorer, declined 1.2 per cent while oil refiner SK Innovation sank 4.4 per cent in Seoul. Cnooc plunged 3.6 per cent and PetroChina gave up 2 per cent in Hong Kong. Read more

State Street quits UK and German bond markets

State Street, the large US custodian bank, has cited new regulations including the “Volcker rule” for its decision to quit the UK and German government bond markets just three months after becoming an official dealer, says the FT. The Volcker rule bans US banks from proprietary trading – buying and selling for their own account. It contains an exemption for US Treasury securities but not foreign sovereign debt. Although market-making – buying and selling on behalf of clients – is permitted under the rule, bankers say worries that that activity will be deemed “prop” will hamper liquidity. State Street’s withdrawal is one of the first concrete signs that banks are preparing to walk away from European market-making businesses because of the new regulatory environment.