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We interviewed Goldman’s Jan Hatzius yesterday about the 2012 outlook and a few other things for FT.com, but we’ve embedded below a longer version of the clip with only light edits (just enough to deal with the inexperienced host’s annoying tendency to um and ah).
Beneath the clip (permanent link here) we’ve also included a time guide for those who want to go straight to a particular topic, and the commuters can get the audio available as a podcast by clicking here. Read more
Ravi Ruia, the billionaire founder of Essar Group, has stepped down temporarily from his post as chairman of London-listed Essar Energy, following a legal ruling in New Delhi, reports the FT. The ruling stated that Mr Ruia was to face charges in front of a special court established to look into the telecoms scandal that is estimated to have cost India as much as $39bn in lost revenue, rather than in a normal court. Mr Ruia is the most senior executive yet to be caught up in the wide-ranging investigation into corruption in the granting of second generation mobile licences in 2008. He was charged two weeks ago, along with his nephew Anshuman Ruia, a director at Essar, and three other executives.
The leaders of a rebellious village in southern China, which has mounted an extraordinary challenge to Communist party power, say they have reached a tentative resolution with senior provincial officials to end a 10-day stand-off, the FT reports. On Wednesday morning the tree trunk barricades that have blocked all entrances to Wukan village since December 11 had been dismantled and villagers had hung out a sign “warmly welcoming” senior government leaders as a cordon of armed police melted away. But even as the protest appeared to be winding down, a huge riot that broke out just 100km up the coast on Tuesday flared again on Wednesday, according to eyewitness accounts posted on the internet. The outbreaks of unrest in Guangdong, China’s richest and most populous province, underscore the scale of the challenge facing an autocratic and paternalistic government.
A relapse for the euro has delivered a swift smackdown to an initial risk asset rally, signalling investors remain concerned about Europe’s fiscal difficulties and financial system stresses, the FT reports. The FTSE All-World equity index traded 0.2 per cent higher, with commodity prices struggling for traction. The dollar index is little changed and Bund yields are down 2 basis points to 1.94 per cent as “havens” recover some cachet. In the US, the S&P 500 closed 0.2 per cent higher after a volatile session, following a surge of 3 per cent on Tuesday. An appetite for risk had dominated during the first half of the global session, with traders welcoming improving signals on the US economy and easing tensions in the eurozone debt markets after a well-received €5.6bn auction of Spanish short-term debt on Tuesday.
The European Central Bank has stepped up its response to the eurozone crisis by providing €489bn in unprecedented three-year loans to more than 500 banks across the region, the FT reports. The stronger-than-expected demand, a record for the amount allocated in a single ECB liquidity operation, came after banks were urged by policymakers to take the funds as part of a concerted effort to ease severe strains across the financial system.
In the steady drip feed of anecdotes about China’s property market, Patrick Chovanec’s blog post earlier this month rounding up a series of first-hand, second-hand and media reports made for some fascinating reading. Chovanec now has a story on Foreign Affairs which builds on this theme, including this summary of why it’s such a big deal:
Understanding how this came to pass means parsing the host of distortions and mind games that characterize China’s real estate market. Residential real estate construction now accounts for nearly ten percent of the country’s total GDP — four percentage points higher than it did at the peak of the U.S. housing bubble in 2005. Bullish analysts have long argued that large-scale urbanization and rapidly rising incomes warrant such an extraordinary boom. Read more
That chart is from the latest Fitch Ratings report of the biggest US prime money market funds. Read more
On Friday, Jeffrey Snider of Atlantic Capital Management argued that finance now exists for its own exclusive benefit. The thrust of his argument is that derivatives have allowed banks to escape the bounds of actual cash assets and the real economy.
He introduced his argument by dissecting Bank of America’s derivatives disclosure, pointing out the distance between the net derivative asset that is reported ($79bn) and the market value of said asset before netting ($2,172bn). From there he goes on to marvel at the size of the derivatives market, and question whether there’s any good reason for it to be so big. Conclusion being as above: it’s so big that the link to the real economy is more or less gone. Read more
Minutes from the Bank of England’s last policy setting meeting on December 7-8 are out.
The general view of the monetary policy committee was that while inflation remained well above the 2 per cent target, this was largely due to the increase in VAT in January, as well as higher energy and import prices — all temporary factors. Given that, the committee felt inflation would fall sharply in the first part of 2012, justifying its current policy stance and asset purchases. Read more
Live markets commentary from FT.com
On Tuesday, California’s attorney general filed suit against housing giants Fannie Mae and Freddie Mac, the WSJ reports. The suit seeks to force the firms to answer an extensive list of questions about the mortgages they purchased in the state, including details on which properties are vacant and those that have been foreclosed upon. The move is particularly contentious as the companies are under the conservatorship of the federal regulator, the Federal Housing Finance Agency, that has already rebuffed previous requests for information from the California attorney general’s office. The two housing agencies guarantee more than half of the $10.3 trillion of mortgages in the US.
Readers may remember how Portuguese banks resorted to government guarantees on existing bank bonds to make them more appealing for use as collateral at ECB funding operations back in May this year.
The government guarantees essentially reduced the haircuts that would be charged — making it much more cost effective to use the ECB facilities, while respecting the central bank’s graduated haircut policy. It was a type of collateral transformation, if you will. Bank bonds would receive the same treatment as sovereign debt. Read more
On Tuesday, data released by the Commerce Department indicated that residential construction had surged in November. Similar levels of housing starts hadn’t been seen for 19 months, and represented a 24.3 per cent increase from a year ago. However, the WSJ reports that this level is still only around half of the annual pace of building that would be considered healthy for the market. Much of the increase in construction came from apartments and other types of properties that tend to be rented rather than bought. The FT reported that the market’s fortune turns on single-family homes and the data for those only showed a relatively minor increase in activity.
On Tuesday night, the US House of Representatives voted 229-193 to reject a bill passed by the Senate that would have extended a cut in payroll taxes by two months. Failure to act will cause an increase in the taxes from 4.2 per cent to 6.2 per cent, affecting 160m workers, the WSJ reports. Senators have already left the capitol for the holidays, but members of the GOP-controlled House have demanded their return in order to hammer out a deal that would extend the cuts for a year. The short-term stopgap measure, designed to allow negotiations to continue in the new year, was deemed unacceptable. Senate majority leader Harry Reid has already stated that he has no plans to return to the negotiating table unless the stopgap measure is passed first.
A chill fell across information technology stocks after Oracle reported an unexpected slowdown in sales growth in its latest quarter and earnings that fell short of forecasts. The world’s second-biggest software company after Microsoft, Oracle had previously proved one of the most resilient tech companies amid the recent financial crisis and ensuing economic headwinds, reports the FT. However, news on Tuesday that its revenues had grown by only 2 per cent to $8.8bn, compared to the 7 per cent growth that had been expected in the three months to the end of November, wiped more than 9 per cent from its share price in after-market trading. The sales weakness was caused by delays in finalising big purchases late in the quarter, said Safra Catz, Oracle co-president. This reflected changes by some companies in the way they approve big new tech purchases, leaving the final decision with their chief executive officers, she added.
Ahead of Wednesday’s main event – the 3-year Long Term Refinancing Operation – we present a brief preview via Rabobank.
It brings together much of what we have been writing about over the past couple of days – the sharp decline in demand for the Main Refinancing Operation on Tuesday and the take up for the one-day fine tuning, or bridging, facility – to make a couple of points Read more
HSBC said on Wednesday it is pulling out of private banking in Japan, the latest in a series of moves by major banks to streamline operations as they try to cope with volatile markets, profit-hurting economic jitters and regulatory pressure to conserve capital, reports the WSJ. HSBC said in a statement it agreed to sell its Japanese private-banking business to Credit Suisse in line with a global business restructuring it announced earlier this year that will see it cut 30,000 jobs as it pares back small or inefficient operations.
The ECB is expected to report strong demand for an offer of unlimited three-year loans after banks were urged to take the funds as part of concerted efforts to ease severe strains across the eurozone’s financial system, the FT says. Lenders across the region have been locked out of public funding markets in recent months due to fears of a worsening of Europe’s sovereign debt crisis. However some banks have historically been keen to avoid turning to the ECB for fear of signalling weakness to their peers. One market participant said: “Large banks have been given a call by national central banks, encouraging them to use the LTRO to cover next year’s funding needs … They’re trying to reduce the stigma. It all feels very well orchestrated.” FT Alphaville says little of the borrowing is expected to be used on the carry trade.
The US Federal Reserve has proposed new rules requiring the largest financial firms to hold more capital and detailed for the first time since the financial crisis how the central bank will deal with giant banks in distress whose failure could threaten financial stability, the FT reports. The biggest banks will be required to achieve a 9.5 per cent ratio of core capital to risk-weighted assets by 2019 as part of the so-called Basel III reforms, the Fed announced on Tuesday, in an expected move that mirrors proposals by a group of global banking regulators known as the Basel committee. Under the proposal banks’ boards of directors would be required to review regular reports from senior management on capital adequacy and sign off on plans to fund institutions in times of liquidity stress and economic strain, says Bloomberg. The boards would annually need to approve internal liquidity proposals and set levels of risk gauged to companies’ “financial condition and funding capacity on an ongoing basis,” the central bank said.
A well-received €5.6bn auction of Spanish short-term debt helped reduce fears about sovereign funding difficulties across the eurozone, says the FT’s global markets overview. Sentiment also improved after US builders broke ground in November on the the most houses in over a year and a half, adding to evidence the struggling housing market may be gaining traction, while German business confidence unexpectedly rose for a second month in December.
Exporters gained ground across the board, withToyota Motor up 1.6 per cent and Sony up 2.8 per cent in Tokyo. Mazda Motor was up 3.8 per cent, Honda Motor advanced 2.2 per cent andAdvantest gained 2.9 per cent. In SeoulSamsung Electronics advanced 2.5 per cent andLG Electronics surged 4.1 per cent while Hyundai Motor jumped 2.2 per cent. Li & Fung, a supplier to Wal-Mart, rose 2.9 per cent in Hong Kong. Read more
Olympus’ Tokyo offices have been raided by prosecutors and police, Japanese public broadcaster NHK reports, in connection with the huge accounting scandal that has been revealed at the company over the past three months. NHK says a special investigative team from the Tokyo Public Prosecutor’s Office, along with Tokyo police and members of the Securities and Exchange Surveillance Commission, looked for evidence at the company’s headquarters and searched the home of former Olympus president Tsuyoshi Kikukawa. An Olympus spokesman said he could not confirm the report when contacted by Bloomberg. The $1.7bn fraud dates back to the 1990s. Olympus shares were down about 1.4 per cent in the early session in Tokyo.
Research In Motion turned down takeover overtures from Amazon.com and other potential buyers, preferring to concentrate on fixing its problems on its own first, says Reuters, citing people with knowledge of the situation. Amazon hired an investment bank this summer to review a potential merger with RIM, but it did not make a formal offer, said one of the sources. It is not clear whether informal discussions between Amazon and RIM ever led to specific price talk, or who else had approached RIM about a takeover. The board wants RIM co-chief executives Mike Lazaridis and Jim Balsillie to focus on trying to turn around the business through the launch of new phones, better use of assets such as BlackBerry Messaging and restructuring. The WSJ meanwhile says Microsoft and Nokia “flirted with the idea” of making a joint bid for RIM in recent months, citing people familiar with the matter, but said the status of the talks remains unclear. RIM shares rose 11 per cent in late trading after the two reports, says Bloomberg.
Vale is looking to sell off its large iron ore carriers, the FT reports, after the second-largest mining company’s venture into the business has faced fierce opposition from Chinese shipowners and embarrassing teething problems. José Carlos Martins, Vale’s executive director for iron ore and strategy, said that the Brazilian company would sell its so-called Valemaxes, most of which have not yet been built, if it could take long-term leases on them. The multi-billion dollar plan to control shipments to China by building 35 ships with decks the size of three football fields – the biggest dry bulk carriers ever – was dreamt up by Roger Agnelli, Vale’s former headstrong chief executive, but it has faced heavy criticism since. None of the new carriers has been able to dock in China, Vale’s biggest market, because of opposition from local shipowners and technical difficulties, while a mysterious leak aboard the Vale Beijing on its maiden voyage this month has raised safety concerns.
Nike, the US sporting goods group, reported strong growth in sales and a modest rise in earnings that beat market expectations even as its profit margin fell due to higher costs, reports the FT. Net earnings rose by 3 per cent to $469m on sales that grew 18 per cent to $5.7bn in the three months to November 30, thanks in large part to the continued strength of its North America business, Nike said on Tuesday.