Wall Street is closing near its low for the day amid what has been cautious trading after reports of further divisions over eurozone rescue funds and geopolitical tension in the wake of Kim Jong-il’s death, the FT reports. The FTSE All-World equity index is off 1.2 per cent, while traditional bolt-holes, such as the US dollar, are firmer on reports that a conference call between European Union ministers failed to agree a deal on raising the joint ceiling for the European Stability Mechanism and the European Financial Stability Fund, the eurozone’s two bail-out funds. The S&P 500 fell a further 0.5 percentage points after Bank of America’s share price slipped below $5 for the first time this year, triggering heavy selling of financials and leaving the benchmark US index off 1.2 per cent for the day. Asian markets were already weak as dealers sold exporter and commodities shares amid growing concerns about global economic growth and Europe’s debt crisis. Losses were extended after the news from Pyongyang hit the wires, sending the South Korean won and Kospi stock index sharply lower, as investors fretted about instability on the Korean peninsula following the death of the North’s Kim Jong-il. A fall of 1.8 per cent for the currency was pared to 1.4 per cent, leaving the won at 1,175 per US dollar. The Kospi shed as much as 5 per cent but settled down 3.4 per cent. The Stoxx 600 in Europe opened down 0.7 per cent, partly reflecting Wall Street’s pullback on Friday, but closed flat. Read more
Dominique Strauss-Kahn, the former head of the International Monetary Fund, made a defiant return to public life on Monday, warning European leaders that they were in denial about the Continent’s economic crisis and have only weeks to come up with real solutions, reports the FT. As the keynote speaker at a conference in Beijing, it was Mr Strauss-Kahn’s first formal address since facing a charge, which was later dropped, of the attempted rape of a hotel chamber maid in May that led to his resignation as head of the IMF. Mr Strauss-Kahn made no comments about his personal ordeal. Instead, he spoke for nearly an hour about the problems plaguing the global economy. He sounded as on top of matters as when he was IMF chief, but dispensed with diplomatic niceties in diagnosing Europe’s woes. “It appears today as a debt crisis. More than that, it is a growth crisis. Behind the growth crisis is a leadership crisis,” he said. He singled out Germany and France, saying that the history of the European Union proved the two countries needed to co-operate closely if there was to be any progress, but that the current leaders were not on the same page. Read more
The European Central Bank has warned the eurozone debt crisis could spread to engulf further member states, creating risks to financial stability that could reverberate around the world “Contagion of euro area sovereign debt strains remains the most pressing risk for financial stability in the euro area, the European Union and even across the globe,” said the ECB’s latest eurozone financial stability review, released on Monday, the FT reports. The comments hinted at ECB concern over politicians’ failure to bring the crisis under control, and at the danger of countries’ fiscal austerity plans being derailed by domestic politics. Separately, Mario Draghi, ECB president, told the European parliament in Brussels that draft changes to European treaties strengthening fiscal rules were a “first step” but could be “made much better”. Many EU leaders believe Mr Draghi’s approval of the treaty’s “fiscal compact” is a prerequisite to more ECB intervention in eurozone bond markets. Read more
The death of Kim Jong-il threw the Korean peninsula into fresh uncertainty on Monday as the North Korean regime named the dictator’s youngest son as the “Great Successor”, rattling financial markets in the south, the FT reports. In a solemn broadcast, a North Korean television newscaster announced that Kim Jong-eun would assume power after his 70-year-old father died of a heart attack on Saturday while travelling outside Pyongyang by train. “He worked day and night for socialist construction and the happiness of people, for the union of country and modernisation. He left us so suddenly,” said the teary-eyed newscaster. Kim Jong-il’s death rids the world of one of its most ruthless leaders, a man who focused on turning the totalitarian state into a nuclear-armed power while starving millions of his people to death. But the ascension of his inexperienced son, reported to be no more than 28 years of age, could threaten the stability of east Asia as the scion of the Kim dynasty may struggle to rule a country buckling under the weight of sanctions, hunger and power cuts. Read more
For the commute home,
- Calculated Risk’s ten economic questions for 2012. Read more
The FT has already reported on how hesitant banks are about buying ever more sovereign debt. In fact they outright dumped €65bn of bonds in just nine months. Hopes that banks would hold the hand of the sovereigns that back them continue to dim, as the Sarko carry-trade looks increasingly less likely in advance of this Wednesday’s offer of cheap 3-year ECB financing.
The presumption that banks are going to use the 3-year Long Term Refinancing Operation (LTRO) to buy sovereign bonds comes not just from the dreams of certain politicians, but also from the observation that yields at the short end of peripheral curves have come in dramatically. Read more
It’s taken more than a day and a half but Gulf Keystone Petroleum (GKP) has finally responded to speculation that Exxon Mobil was considering a £7bn, or 800p a share, cash offer.
And guess what, the Kurdish explorer is not in takeover talks but it remains committed to creating value for shareholders blah, blah, blah, blah…. Read more
It’s taken a while but our second podcast, a discussion with Sal Arnuk about high frequency trading, is now live.
(You can find our first podcast with Michael Pettis, on the Chinese economic model, here.) Read more
Alternative title: What happens when lenders take effective control of an ailing PLC.
The answer to that, of course, is they make you sell decent businesses to pay back debt. To wit, we learn on Monday morning that HMV has been forced to put its profitable HMV Live business up for sale. Read more
The BIS quarterly review, which was published last week, provided some interesting thoughts on current liquidity and funding conditions (both secured and unsecured) — and how central bank transmission mechanisms have been affected as a result.
An important consideration, yet to be fully appreciated, is the divergence between private and public collateral and funding markets. Read more
Live markets commentary from FT.com
According to the Independent on Sunday, Exxon Mobil is contemplating a £7bn ($10.9bn) takeover of Britain’s Gulf Keystone, which has discovered large reserves in Kurdish areas of Iraq. Spokesmen for both companies declined to comment. While Exxon recently made its own move into the region, the deal it struck with the local government angered the central government in Baghdad, that declared that any such deals were illegal. Read more
European finance ministers will hold a conference call on Monday to discuss gathering aid to solve the crisis and to hammer out further details of the fiscal pact that was negotiated at the December 9th EU Summit. Fitch’s move of France to negative outlook citing that the summit’s proposed solutions may be “technically and politically beyond reach” have weighed on markets, Bloomberg reports. The UK’s reluctance to join the effort is dimming chances of reaching the proposed €200bn target, with a €150bn contribution to the International Monetary Fund now looking more likely, the FT reports. A spokesman for the Bundesbank had stated on Friday that it doesn’t see the urgent need to make a decision on such loans today, according to Bloomberg. The central bank’s president, Jens Weidmann has, however, said that a contribution will be forthcoming if certain conditions are met, such as big countries outside of the EU participating. Read more
The traditional 2012 outlook report is not for Bob ‘The Bear’ Janjuah and his sidekick Kevin Gaynor. The Nomura strategists want to keep things simple and to the point.
So their final note of the year comes in the form of Q&A. Read more
Kim Jong-il, North Korea’s dictator, has died, piling pressure on his inexperienced son to ensure the stability of his impoverished, nuclear-armed state, the FT reports. A North Korean television newscaster, clad in black, announced on Monday that the 70-year-old had died of a heart attack, caused by overwork, while travelling by train on Saturday. South Korea put its military on an emergency footing in case North Korea started to show immediate signs of disintegration, but added it had so far not observed any unusual military activity north of the border. In Washington, the White House said it was “closely monitoring reports that Kim Jong-il is dead”. South Korean officials have consistently identified the death of Kim Jong-il as one of the events that could accelerate the unification of the peninsula that has been divided since 1945. In Japan, Yoshihiko Noda, prime minister, canceled a planned speech and returned to the premier’s residence to confer with advisers. According to a report by Bloomberg, North Korean officials had stated that there was support from the people and military for successor Kim Jong Un, the little-known third son of Kim Jong-il. As of 3:25pm in Seoul, the Kospi index was down 3.4 per cent. However, South Korean markets often regard unexpected news from the North as a buying opportunity. The MSCI Asia Pacific Index was down 1.3 per cent and South Korea’s won lost 1.4 per cent in value against the US dollar.
The fate of a compromise deal to extend stimulus measures for the US economy for two months was thrown into doubt on Sunday after John Boehner, the Republican Speaker of the House, said he was opposed to the plan, the FT reports. Speaking a day after the Senate overwhelmingly approved a deal reached by the Democratic and Republican leaders in the upper chamber to extend payroll tax cuts, Mr Boehner said the bill would be rejected by rank-and-file Republicans in the House when it was taken up this week. Mr Boehner said that negotiations should be reopened and should focus on finding a solution for the entire year, rather than just the two months covered by the Senate compromise. However, Senate Majority Leader Harry Reid said that while he favoured a year long extension too, he wouldn’t negotiate a longer deal until the two month extension is passed by the House, reports the WSJ. The development raises the spectre of a year-end tax increase, says the NYT. While the House is expected to take up the bill on Monday, Senators have already finished up the last bits of their business on Saturday with the vote on the payroll tax extension and a large spending bill, said their goodbyes and left for the holidays.
Saudi Prince Alwaleed bin Talel has purchased a $300m stake in social media site Twitter, via the Kingdom Holding Company that he owns 95 per cent of, as a strategic investment in a company that is changing the media landscape, the WSJ reports. The shares represent a three per cent holding in the company. Prince Alwaleed is thought to be the Arab world’s richest man, with more than $21bn in wealth. He already owns a 7 per cent stake in News Corp and plans to start a cable news channel, reports Reuters. While investors have been eagerly anticipating a Twitter IPO, the company has stated it’s in no rush, having raised $400m in venture capital financing over the summer. Read more
Kim Jong-il could hardly have chosen a better time for his departure from this world, in terms of spooking the capitalist system.
"When I give the signal, RISK OFF!"
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The price action in
Webvan 2.0 Ocado on Monday morning following a warning of lower than expected underlying profits because of further capacity problems at its state of the art warehouse in Hertfordshire. Read more
Jürgen Stark told Germany’s WirtschaftsWoche magazine what had already been guessed at — he decided to step down from the ECB not because of “personal reasons”, but because he didn’t like the bond-buying programme.
He also had some, er, stark words for those who think the ECB needs to be buying even more bonds (from the FT): Read more
Elsewhere on Monday,
- The ECB’s cunning plan? Read more
Comment, analysis and other offerings from Monday’s FT,
Edward Luce: The long haul in Washington gridlock
At this stage in America’s electoral calendar, hopes start to shift on to the year after next, writes the FT’s Edward Luce. “Nothing’s going to happen before 2013,” goes the refrain. In this (if not every) cycle, that is likely to be true. In what counts as an accomplishment nowadays, Washington last week staved off the latest in a straight flush of threatened government shutdowns by passing a bill to keep the federal system going until September. Congress also prolonged last year’s mini-stimulus by another two months. As with the earlier rounds of fiscal chicken that have dominated 2011, both moves were better than failure. But in the process they have pencilled two further possible showdowns into what was an otherwise sparse 2012 legislative calendar.
John Gieve: A better plan for Bank of England governance
Even if European leaders avert a disastrous collapse of the eurozone, the prospects for the coming year are bleak. Much of Europe, including the UK, seems to be slipping back into recession, writes Gieve, deputy governor of the Bank of England from 2006 to 2009. Growth was slowing anyway as confidence ebbed and real incomes declined but the ill-judged decision to give European banks nine months with the option of shrinking their balance sheets to raise core capital ratios to 9 per cent is adding a fierce credit squeeze to the mix. It is a painful illustration of how prudential measures can affect the broader economy and of the tensions that can arise between policies to stabilise the economy and policies to safeguard the financial system. It shows how desirable it is that both are decided together and therefore bears on the current discussions of the Bank of England’s governance.
Wolfgang Münchau: UK will fare better in this Anglo-French spat
Last week’s series of comparative statements were obviously co-ordinated. What I find intriguing about them is their sheer desperation, writes the FT’s Wolfgang Münchau. The French economic policy elite no longer understand the world. They genuinely believe that they are doing better than the British. The French private sector is in much better shape. The country is committed to the righteous path of fiscal austerity. So why should the rating agencies be downgrading France and not Britain? It is just not fair. Or is it? Read more
Breaking pre-market news on Monday,
- Ocado warns on its measure of profits; sees full EBITDA between £27.5m to £28.5; analysts expecting £34.3m — statement. Read more
Eldorado Gold, the Canadian-listed gold miner, has agreed to buy European Goldfields for C$2.5bn (US$2.4bn) in stock, upending a plan by Qatar’s sovereign wealth fund to take a stake in the London-listed miner, reports the FT. European Goldfields, which is also quoted in Toronto, in October said that Qatar Holding, the Qatari sovereign wealth fund, would lend it $750m to fund the development of its flagship mines in Greece. The loan agreement was a coup for the Qataris, who are planning to build an investment vehicle focused on gold. The fund, which owns nearly 10 per cent of the company, could have ended up with about 30 per cent under the deal. But on Sunday, European Goldfields said its board had recommended a C$13.08-a-share offer from Eldorado, based on the buyer’s closing price on Friday, with European Goldfields shareholders receiving 0.85 Eldorado shares and a token amount of cash C$0.0001 per share. Read more
Asian markets dropped as investors sold exporter and commodities shares amid growing concern about global economic growth and Europe’s debt crisis, extending losses after North Korean state television reported that North Korean leader Kim Jong-il has died, says the FT global markets overview.
The MSCI Asia Pacific index fell 1 per cent, heading for a three-week low, in the wake of Friday’s warning from Fitch Ratings that it may downgrade France and six other eurozone countries, as a comprehensive solution to the region’s debt crisis was “technically and politically beyond reach.” Read more
The fate of a compromise deal to extend stimulus measures for the US economy for two months was thrown into doubt on Sunday after John Boehner, the Republican Speaker of the House, said he was opposed to the plan, the FT reports. Speaking a day after the Senate overwhelmingly approved a deal reached by the Democratic and Republican leaders in the upper chamber, Mr Boehner said the bill would be rejected by rank-and-file Republicans in the House when it was taken up this week. Mr Boehner said that negotiations should be reopened and should focus on finding a solution for the entire year, rather than just the two months covered by the Senate compromise. The NYT there was little indication on Saturday that the House Republicans were expected to reject the Senate-brokered bill. Senators finished up the last bits of their business, including the vote on the payroll tax extension and a large spending bill, said their goodbyes and left for the holidays. The development raises the spectre of a year-end tax increase. Read more
China will open more channels for foreign institutions to invest in its stock markets, a move aimed at supporting share prices and helping to counter capital outflows as the economy slows. The FT says the Chinese securities regulator announced late on Friday that renminbi held offshore could be used to buy equities within China, a long-awaited reform that is critical to promoting more international use of the Chinese currency. Local media also reported that the government was preparing to expand significantly the number of quotas that allow foreign institutions to invest in China’s closely guarded markets. Foreign funds play a tiny role in China, accounting for just about 1 per cent of total market value, and the new openings are unlikely to change that, at least initially. But together they underline Beijing’s desire to liberalise capital controls gradually and to bring more institutional money into markets that often resemble casinos. Read more
Weekend headlines from the FT and other UK media:*
From The FT,
- Global bank regulators have overwhelmingly sided with Britain and poured cold water on a French effort to dilute the new rules requiring banks to hold more capital against unexpected losses
- Anthony Bolton, Fidelity’s star fund manager, has hired five external research firms to spot Chinese companies that are overstating their sales growth, in a bid to turn round the performance of his China Special Situations fund
- UBS’s ‘mega-client’ comes under scrutiny
- George Osborne will on Monday throw his weight behind measures aimed at introducing more competition to UK high-street banking and buttressing taxpayers against a future financial crisis Read more
Kim Jong-il, North Korea’s dictator, has died, piling pressure on his inexperienced son to ensure the stability of his impoverished, nuclear-armed state, the FT reports. A North Korean television newscaster, clad in black, announced on Monday that the 70-year-old had died of a heart attack, caused by overwork, while travelling by train on Saturday. Shares on Seoul’s Kospi index of leading shares fell by 3 per cent by 1pm. However, South Korean markets often regard unexpected news from the North as a buying opportunity. South Korea put its military on an emergency footing in case North Korea started to show immediate signs of disintegration, but added it had so far not observed any unusual military activity north of the border. In Washington, the White House said it was “closely monitoring reports that Kim Jong-il is dead”. South Korean officials have consistently identified the death of Kim Jong-il as one of the events that could accelerate the unification of the peninsula that has been divided since 1945.In Japan, Yoshihiko Noda, prime minister, canceled a planned speech and returned to the premier’s residence to confer with advisers. Read more
Talks on asset sales intended to help AT&T win approval for its acquisition of T-Mobile USA have gone cold, the WSJ reports, citing people familiar with the matter. The development is another sign that AT&T may abandon the $39bn deal. Alternatives to a full-blown merger appear, such as AT&T taking a stake in a smaller carrier or sharing network technology, were more likely than AT&T fighting the Justice Department, which in August sued to block the deal on antitrust grounds. AT&T and Deutsche Telekom had been looking to sell off mainly T-Mobile USA assets to other wireless carriers to mitigate government concerns about the merger. Read more