Posts from Monday Feb 13 2012

Moody’s vs Europe — in full

Spain and Italy downgraded, France (and the UK) on negative outlook. The EFSF affirmed. A slew of Moody’s ratings actions on the eurozone crisis late on Monday…

(Click image for full ratings statement)

Google wins Motorola Mobility deal approval

Google has won approval from Brussels for the $12.5bn purchase of Motorola Mobility, the FT reports. However, the European Commission warned the search group and its technology rivals on Monday about their use of patent arsenals to stymie competition. The takeover of the US smartphone maker, announced last August, had partly hinged on regulators’ concerns about how Google would use Motorola’s 17,000-strong patent portfolio. The green light will give Google the means to compete head-to-head with Apple in the lucrative smartphone market. Google owns the popular Android operating system, but has so far not manufactured its own devices, preferring to make its software available to third parties – an arrangement that is not expected to change with its Motorola purchase. “This is an important milestone in the approval process and it moves us closer to closing the deal,” Google said on Monday. “We are now just waiting for decisions from a few other jurisdictions before we can close this transaction.”

France to push on with trading tax

France is determined to press ahead with a financial transaction tax inspired by the UK’s stamp duty and supported by at least eight other eurozone countries, the country’s finance minister has said. François Baroin, French finance minister, said the the tax will be levied at 0.1 per cent, raising €1bn a year on share trades. By contrast, the British stamp duty on shares stands at 0.5 per cent, and raised £2.7bn in the 2010/11 tax year. In an interview with the Financial Times on Monday, hours before parliament was due to kick off a debate on a so-called Tobin tax announced by President Nicolas Sarkozy last month, Mr Baroin said he hoped the initiative would put pressure on the European Commission to accelerate the implementation of a controversial Europe-wide levy which is staunchly opposed by the UK. Asked whether the tax would end up bolstering the position of London’s financial services sector, Mr Baroin said: “We don’t think about it like that. But it is difficult for the UK to criticise this tax as madness, since stamp duty served as its inspiration.” The French Banking Federation has so far vociferously opposed a unilateral FTT – derided by many as part of Mr Sarkozy’s re-election bid – as being both “ineffective and counter-productive to the French economy”. However, Mr Baroin said France was prepared to implement the tax alone in August and was confident that other countries would follow suit either at the same time or shortly after. Germany is among the countries that support its introduction.

Chinese defence budget set to double by 2015

China’s defence budget is expected to almost double by 2015 as Beijing accelerates its spending on fighter jets and other military equipment, according to defence forecasts, the FT reports. The country’s official military spending has increased at a double-digit rate for all but one of the past 23 years. This has raised concerns about its ambitions among its Asian neighbours and the US, especially because China’s official numbers are generally viewed as underplaying the full extent of its military spending. China is expected to unveil another double-digit increase when it releases its defence budget for 2012 in the coming weeks.

Apple shares reach $500 milestone

Apple shares hit $500 for the first time in early morning trading on Monday, taking the market capitalisation of the world’s largest public company to more than $466bn, the FT reports. Apple’s shares have risen 23 per cent this year after blockbuster fourth-quarter results and record sales of iPads, iPhones and MacBooks. Apple now represents 1.9 per cent of the MSCI World stock market index and 3.8 per cent of the S&P 500. Since the S&P 500 closed at 1,363.61 points on April 29 last year, its highest level since the financial crisis, Apple shares have climbed 44 per cent against a 1 per cent fall for the S&P 500. At midday in New York, the shares had pared gains slightly to trade at $499.59, a gain of 1.3 per cent on the day. The technology group’s success has also given a healthy glow to corporate America. Were Apple’s results stripped out, Barclays Capital estimates earnings growth at S&P 500 companies that have reported fourth-quarter results would be 2.9 per cent rather than 7 per cent.

Greek bail-out hopes bolster bulls

The euro is firmer and stocks are rising as investors absorb the news that the Greek parliament has passed a further package of austerity measures, the FT writes. Athens will next attempt to reach a bond restructuring agreement with its creditors that should allow the heavily indebted nation to receive its second €130bn bail-out package. That should reduce the risk of a default. The FTSE All-World equity index was up 0.7 per cent, as the US and Europe follow Asia by pushing higher. The FTSE Eurofirst 300 gained 0.6 per cent, as the banking sector saw buyers, and Wall Street’s S&P 500 advanced 0.5 per cent, with Apple breaching $500 a share for the first time. Shares in the world’s largest company by market capitalisation are 22 per cent higher this year. The rally has accelerated since late January after the company reported a record $7.3bn revenue, which also helped push the S&P 500 back into bull market territory. Still, news of Greece’s austerity programme failed to provide a sustained lift to the single currency. In midday trading in New York, the euro was nearly flat at $1.3214, after touching $1.3283 earlier in the global session. The dollar index was down 0.3 per cent, while gold added 0.2 per cent to $1,723 a troy ounce. Brent crude was also in demand, rising 0.4 per cent to $117.87 a barrel.

Greek cabinet reshuffle expected

Lucas Papademos, Greece’s prime minister, is expected to reshuffle his caretaker cabinet on Monday after winning parliamentary approval for an austerity package, against a backdrop of violent anti-reform protests in Athens, reports the FT. The vote on Sunday night cleared the way for the group of eurozone finance ministers to approve a second €130bn bail-out for Athens on Wednesday, provided that political party leaders agree in writing to implement the measures, regardless of who wins the snap general election that is expected in April.

Further further reading

For the commute home,

- New report on trade agreements in a post-Doha world. Read more

Bankers and bonuses

In the first post about our meeting with Yves Smith, purveyor of the blog Naked Capitalism, we discussed the blogosphere and what prompted her to join it. Here we ask Ms Smith about her involvement with the Occupy movement and her opinions about banking and the contentious topic of bonuses.

AV: Naked Capitalism has a badge on it: “We support Occupy”. What drew you to the Occupy movement? Read more

Volcker defends Volcker

UPDATE: FT.com has just pubbed a Volcker op-ed, this one directly responding to European critics of his rule. A few lines:

There is a certain irony in what I read. In Europe, there are plans to introduce a financial transaction tax, justified in part by officials because it puts “sand in the wheels” of overly liquid, speculation-prone securities markets. For reasons analogous to those behind the Volcker Rule, the UK is planning to “ring fence” trading and investment banking from retail banking, creating airtight subsidiaries of larger organisations. The commercial banks responsible for what are deemed essential services to the economy will be insulated from all trading and only then will they be protected by the official safety net of access to the central bank, deposit insurance and possible assistance in emergencies. Read more

The Obama budget

It’s out, and you can find the overview here.

The highlights: Read more

Bored of the eurozone crisis?

So too is the ECB, clearly.

 Read more

LTRO credit claims, not so carry trade

Just as “free lunch” appears in a Bloomberg headline on the ECB’s three-year liquidity…

Here’s a pair of interesting analyst reactions to Friday’s details on eurozone central banks’ rules for accepting additional credit claims. It’s an expansion of eligible ECB collateral. But neither a free lunch – nor a source of easy carry – given the haircuts these assets (bank loans, from French real estate to Spanish public sector to Italian lease finance to Austrian SME, etc) will bear, it seems. Read more

Bailouts and obsolescing bargains

The central administration lacks the management, oversight and co-ordination structures to support effective implementation and long-term management of policy measures, including structural reforms to support sustained economic growth. This is a fundamental obstacle upon which many reforms have already stumbled…

Legal formalism has generated a culture and legal framework which provides no incentives for initiative on the part of civil servants, discourages any policy actions which are not accompanied by a legal text, privileges the observance (and development) of administrative processes rather than attention to the policy substance of civil service work, and slows down the work of the administration… Read more

The Roubini-Rosenberg indicator

Roubini and Rosenberg contrary indicators chart, by Nomura FX desk

We missed this on Friday… H/T the delightful Brazilian BubbleRead more

Markets Live transcript 13 Feb 2012

Live markets commentary from FT.com 

News Corp hit by trouble at second UK tabloid

Rupert Murdoch will fly to the UK this week to troubleshoot another crisis in his British newspaper business which threatens to reach to the heart of News Corp, reports the FT. UK police arrested five journalists of The Sun on Saturday, in the latest stage of an investigation into potentially corrupt payments. Executives have relayed to Sun staff Mr Murdoch’s “personal assurance” that the newspaper will not be closed down. Nevertheless, News Corp has faced the potential enforcement of the US Foreign Corrupt Practices Act over the scandal. Calls for News Corp to sell its newspaper arm have grown, the WSJ says.

Bubble warning over Toronto’s condos

Almost three times as many skyscrapers and high-rises are being built in Toronto than in New York, reviving fears that Canadian property prices are unsustainable, reports Bloomberg. Investors have rushed into Canadian housing in response to record low interest rates. Toronto’s condominium market has grown rapidly, with over a hundred housing units either under construction or in the planning stages. The “condo surge” of supply alone could drive down prices in the next few months even if interest rates remain low well into 2013, Bank of America analysts have warned.

China gets some can-kicking practice

Just last week, Patrick Chovanec was warning about the looming need to roll over debt in China:

 Read more

Volcker fires back on prop trading

Paul Volcker is set to launch a strong defence of banning proprietary trading in a comment letter on the rule which bears his name, says the WSJ. The Volcker rule would stop investors bidding up asset prices in the hopes of always finding a buyer, the former Fed chairman will argue. Volcker’s letter on the rule, which comes into effect in July under the Dodd-Frank Act, will be met by several responses penned by industry opponents. BlackRock will argue that the Volcker rule will hurt corporate bond liquidity. Volcker’s letter will however dismiss foreign governments’ claims that the rule will make it harder for US banks to trade their sovereign debt.

Mass loan rollover and a property U-turn in China

China’s bank regulator has ordered lenders to roll over more than $800bn of local government loans coming due in the next three years as it bids to avoid a wave of defaults hitting the system, the FT reports. Officials had moved towards a “one-off” maturity extension in recent months but are unlikely to give all local governments, which loaded up on debt under China’s 2009 stimulus, the same benefit of the doubt. Meanwhile an industrial city in eastern China has confused observers by seeming to ease, then tighten, controls on property lending within a weekend, the WSJ reports. Wuhu’s authorities announced subsidies for home-owners, only to backtrack after consultation with “every level of society”.

Oil rush for private equity

The shale gas and fracking boom in America’s oil industry is attracting ever more private equity money, with funds signing three times the value of energy deals in 2011 compared to 2010, the WSJ reports. Overall deal-making in the sector rose seventeen per cent in 2011, by contrast. Oil & gas explorers need ever more capital for complicated drilling techniques to open up shale fields, offering handsome windfalls to PE investors along the way. However, the risks of entering the industry in the late stages of its boom, and amid a trough in gas prices, may store up trouble for funds.

Election-year budget projects $901bn deficit

The White House will unveil $350bn of jobs measures and $1,500bn in tax increases in its budget proposal for the 2013 fiscal year later on Monday, Reuters reports. The budget projects a $901bn deficit in 2013, 5.5 per cent of GDP, compared to $1,330bn, or 8.5 per cent of GDP, this year. It will be the first Obama budget to incorporate a deficit of less than a trillion dollars, Bloomberg says. House Republicans are likely to put up strong resistance to the budget in Congress, having already attacked tax hikes in the plan, which would mostly target the rich, in previous deficit reduction packages.

C&WW&Voda

A major telecom company said it was in the early stages of thinking about euthanising a corporate basket-case on Monday.

Cable & Wireless Worldwide shares were up 28 per cent at pixel time: Read more

One Greek hurdle down, but more ahead

A tense Sunday in Athens as the Greek parliament approved an austerity budget amid violence in the streets that included riot police firing tear gas and stun grenades at protesters while buildings throughout the city were firebombed:

The legislation passed by 199 votes in favour to 74 against, a convincing majority for Lucas Papademos, the caretaker prime minister who has been given the job of pushing through painful reforms demanded by the European Union and the International Monetary Fund in return for a second €130bn bail-out. … Read more

Further reading

Elsewhere on Monday,

- Best of the #FedValentines Read more

Pink picks

Comment and analysis from the FT on Monday…

 Read more

Snap news

Breaking pre-market news on Monday,

- Vodafone considering an all-cash offer for Cable & Wireless Worldwide — statement Read more

SEC scrutinising private equity

The SEC has begun a broad examination of the private equity industry, says NYT DealBook, citing two people with direct knowledge of the matter. The regulator’s enforcement unit sent a letter late last year to several private equity funds as part of what it called an “informal inquiry” into the industry, according to the sources, but the blog said it was not clear which firms received the letter. While the SEC. emphasised that the request should not be construed as an indication that it suspected any wrongdoing, its goal in gathering information was to investigate possible violations of securities laws, the sources said. The way private equity firms value their investments and report performance was said to be one aspect of the investigation.

Overnight markets: Up

Most Asian markets edged higher as investors took heart from the Greek parliament’s approval of painful austerity measures crucial for getting a second bail-out package, but gains were limited as Athens has yet to reach a final deal with private creditors over a debt write-off, and because of continuing street protests by Greek citizens, says the FT.

The MSCI Asia Pacific index was up 0.3 per cent with Japan’s Nikkei 225 Stock Average advancing 0.3 per cent, and both Australia’s S&P/ASX 200 and South Korea’s Kospi Composite adding 0.1 per cent. Hong Kong’s Hang Seng index slipped 0.4 per cent and China’s Shanghai Composite index shed 0.8 per cent. Banks benefited across the board. Mizuho Financial Group was up 1.3 per cent and Mitsubishi Tokyo Financial Group was 1.1 per cent higher in Tokyo while Mitsubishi UFJ Financial Group, Japan’s biggest lender, gained 1.3 per cent. ANZ Bank rose 1 per cent in Sydney while in Seoul, Hana Financial Group climbed 1.1 per cent. Japanese shares were damped by disappointing fourth-quarter economic data. Read more