Posts from Tuesday Feb 14 2012

Further further reading

For the commute home, or to the flower and chocolate store,

Love stinks: an economic manifesto. Read more

Banks institute renminbi safeguards

The world’s biggest banks have taken steps to protect themselves from the risk of a collapse of the offshore renminbi market in Hong Kong, allowing them to postpone payments and settle their transactions in US dollars in certain circumstances, reports the FT. The moves signal that although bankers view the internationalisation of the Chinese currency as a big opportunity, they see a risk that the small but fast-growing offshore renminbi market could seize up. While market participants say the chance of a collapse is extremely low, bankers say that a mechanism to settle trades in an emergency situation is essential. This is because China retains extensive capital controls that limit the flow of renminbi between the onshore and offshore markets. Under the measures taken, Swift, the global payments system operated by almost 10,000 banks, this week implemented a mechanism that would allow its members to complete trades with each other even if the offshore renminbi market became completely illiquid.

Pressure rises on private equity bosses’ tax bills

Pressure is rising across the globe to raise taxes for private equity bosses, with German and Swedish authorities pushing for legislative changes and a leading US pension fund investor calling the 15 per cent rate in America “indefensible”, the FT reports. Both the German and Swedish governments are considering proposals to lift tax rates for on the industry’s profit-sharing schemes, in what private equity executives say is likely going to trigger similarly sweeping changes across Europe. In the US, the comments about the industry’s taxes by Joe Dear, investment chief of Californian pension fund Calpers, come as US President Barack Obama is demanding the wealthy pay more. “General partners [in private equity companies] should recognise that tax treatment of their income has become indefensible,” Mr Dear said late on Monday.

China IP dispute threatens iPad exports

Apple’s long-running dispute over the iPad trademark in China could threaten global shipments of the popular tablet as the company which registered the trademark in the country is seeking an export ban from Chinese customs, the FT reports. Proview Technology (Shenzhen), a struggling Taiwanese-owned electronics company in southern China, is asking the customs administration to seize iPads passing through Chinese ports for import or export, its lawyers said on Tuesday. The move raises pressure ahead of Proview Shenzhen and Apple’s latest round of negotiations this week aimed at settling the dispute. It also highlights the risks for multinationals producing in China for the world market as Chinese law allows plaintiffs in intellectual property disputes to mobilise customs against the defendant. “This is one of the most effective tools in intellectual property disputes in China,” said Kenny Wong, head of the IP practice at Mayer Brown JSM, the law firm. “Once you complain to customs, they have to act provided you have recorded your rights with them. With a Rmb100,000 [$15,900] bond, you can hold millions of dollars in goods.”

Investors cautious after conflicting signals

Global stocks fell and the euro remained under pressure as a string of economic reports in the US failed to offset the gloom sparked late on Monday by Moody’s, which downgraded six European countries and put the UK, France and Austria on negative outlook, the FT reports. The FTSE All-World equity index fell 0.4 per cent and commodities were mostly weak, with copper shedding 0.7 per cent to $3.81 a pound. On Wall Street, the S&P 500 closed 0.1 per cent lower and the FTSE Eurofirst 300 was off 0.3 per cent. The dollar index was up 0.6 per cent and yields on 10-year Treasuries fell 3 basis points to 1.94 per cent. Gold prices were volatile and the precious metal closed 0.4 per cent at $1,714 an ounce. The credit rating agency’s move reminded traders that a bail-out agreement for Greece, which bolstered sentiment at the start of the week, does not remove sovereign debt risks in the region and might leave many growth assets vulnerable to profit-taking, given their recent good run. French and UK bonds saw sellers, nudging yields higher by several basis points. After initial gains, the single currency traded lower for most of the session and closed down 0.5 per cent at $1.3119. Demand for the euro fell as a meeting of eurozone finance ministers set for Wednesday has been postponed.

EU officials shelve Greece meeting

Eurozone officials have called off an emergency meeting of finance ministers to approve a vital €130bn bail-out for Athens amid a growing fight among the country’s European creditors about the merits of allowing Greece to go bankrupt, reports the FT. Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said the delay in Wednesday’s scheduled meeting had been prompted by the continued failure of Greece’s political leaders to commit to the bail-out’s tough terms after April elections. But senior European officials said Tuesday’s meeting of the “euro working group” – senior officials from eurozone finance ministries – was also coloured by a widening split over whether Athens should be trusted with a second bail-out. The delay heightens the risk Greece will be forced into a full-scale default next month when a €14.5bn bond is due for repayment. It also highlighted deepening divisions among eurozone governments about the consequences of such an outcome.

The Juncker statement

“What, you people thought I was joking about the €325 mil and a promise from Samaras not to renegotiate terms later? Then watch this.” — JC

Okay, that’s not what was said in the statement from Jean-Claude Juncker cancelling Wednesday’s meeting of eurozone finance ministers. Much as expected, here’s what it did say… not that it’s any more reassuring: Read more

On the promise of exports

President Obama’s announcement, in January 2010, of his aim to double US exports in five years had the “benefit” of timing, coming so soon after the historic collapse of worldwide trade had just begun to recover.

And as it did, US exports naturally climbed along with it, impressively so. Read more

Latest eurozone downgrade…

That eurozone finance ministers meeting set for Wednesday…

You know, the one that represented the final, final deadline for Greece, dictating a weekend of rioting and a political crunch in Athens… Read more

A simple, graphic, message of love

FT Alphaville is a fundamentally romantic place, but sometimes we find it hard to give voice to our emotions.

Valentines has been a particularly rough day. Read more

On balkanisation and credit claims

We missed Willem Buiter’s comments on “additional credit claim” ECB collateral when they were published on Monday. But since it’s pretty strong stuff from the Citigroup economist…

(Might need a key. ELA = emergency liquidity assistance. GC = General Council. Rouble zone = background here; byword for monetary disintegration, basically.) Read more

Markets Live transcript 14 Feb 2012

Live markets commentary from 

Another piece of the LTRO puzzle

The point has been made before that rising deposits at the ECB do not, (repeat, not) indicate that banks are “hoarding liquidity”.

Here’s Guy Debelle, assistant governor at the Reserve Bank of Australia, on the subject, in a speech made earlier on Tuesday: Read more

Nortel hacking went on for years

Chinese hackers had undetected access to sensitive Nortel data for almost a decade from 2000, the WSJ reports. The extent to which Nortel, the once-mighty telecoms giant, was compromised shows the lack of corporate defences against hacking. Nortel didn’t disclose its hacking problem to buyers of its assets. Spy software was so deeply embedded in Nortel computers that investigators failed to spot its existence for years. The SEC last year began pushing companies to classify serious cyber attacks on their infrastructure as “material risks” that may require financial disclosure.

Low gas prices lead Chesapeake into $12bn asset sale

Chesapeake Energy plans to raise $12bn from asset sales in 2012, its latest effort to reduce debt amid the current slough in natural gas prices, the FT says. A deal to sell future output from the Granite Wash fields in Texas, rich in oil and liquid natural gas, would be included in the asset disposals. The company may also sell its entire stake in the Permian basin, an oil-rich field which will likely command a good price given the strength in crude prices, Bloomberg reports. Chesapeake, which aims to reduce its debt to $9.5bn by the end of 2012, also issued $1bn in bonds on Monday to pay off bank loans, taking advantage of calmer junk bond markets.

Surprise warning for UK from Moody’s

Moody’s has placed the UK’s AAA rating on negative outlook alongside France and Austria, in a barrage of ratings actions in response to the eurozone debt crisis, says Reuters. Italy and Spain were each downgraded to A3 though Germany’s AAA status was deemed “appropriate” by the rating agency. Moody’s said the UK was the most heavily indebted of the AAA sovereigns it rates, adding that the country remained exposed to deterioration in the eurozone, according to the FT.

iPad 3 in March, and smaller tablet also in pipeline

Verizon and AT&T will sell Apple’s latest tablet on their next-generation 4G wireless networks, after Apple unveils the third version of its iPad tablet in the first week of March, reports the WSJ. Suppliers in Asia are also helping Apple test a tablet with a smaller screen than the current iPad. The move would challenge Samsung’s and Amazon’s smaller tablets although Apple could decide not to proceed with the product, the WSJ adds. The rise in Apple stock beyond $500 on Monday meanwhile shows how important the company’s earnings have become, the FT reports. 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.

Google-Motorola Mobility clears antitrust

Regulators in the US and EU have given grudging approval to Google’s $12.5bn acquisition of Motorola Mobility, the company’s biggest gambit in the smartphone patent wars, the FT reports. The US Department of Justice said it had “significant concerns” about how Google would enforce patents acquired in the Motorola deal. Apple sued Motorola Mobility for asserting rights infringement the very same day Google won approval for its deal, in a reminder of the criticisms directed at Google’s treatment of patents used by its rivals, Thomson Reuters Legal says. Google said the deal’s approval will “supercharge Android”, its smartphone software platform, Ars Technica says.

Bank of Japan expands policy easing

Japan’s central bank has surprised markets by adding another $128bn to its asset purchases and adopting a one per cent inflation target “for the time being”, says Bloomberg. Politicians had urged the Bank of Japan to communicate its measures against deflation more effectively, following the Fed’s adoption of a two per cent inflation target, Reuters reports. But the BoJ’s buying more Japanese government bonds is more significant, as the bank will have to strongly increase the rate of its monthly purchases to meet the new target by the end of 2012, the FT notes.

UPDATED: Not German enough

UPDATE: The report is out — click to open the pdf:

 Read more

From the BoJ with love

From the Bank of Japan on Tuesday, February 14:

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided to amend the “Principal Terms and Conditions for the Asset Purchase Program” (see Attachment), with a view to further enhancing monetary easing and thereby ensuring a successful transition to a sustainable growth path with price stability.

 Read more

Further reading

Elsewhere on Tuesday,

– It’s deflation and inflation. Read more

Pink picks

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

Gideon Rachman: Germany faces a machine from hell
The press review from around Europe does not make pleasant reading for the German foreign ministry these days. “Look at this stuff, it’s just unacceptable,” laments one diplomat – pointing to a front-page article from Il Giornale, an Italian newspaper owned by Silvio Berlusconi. The piece links the euro crisis to Auschwitz, warns of German arrogance and says that Germany has turned the single currency into a weapon. The Greek papers are not much better, says the FT’s Gideon Rachman. Any taboos about references to the Nazi occupation of Greece have been dropped long ago. Read more

Snap news

Breaking pre-market news on Tuesday,

— Cairn Energy return-of-cash update – statement Read more

UK car trade deficit at 36-year low

Britain’s trade deficit in cars is at its smallest since 1976 as the country’s automakers profit from buoyant overseas demand for their vehicles, reports the FT, citing unpublished official statistics. Car exports are surging and Britain’s niche premium producers, such as Jaguar Land Rover, Bentley and Mini, are doing especially well selling expensive cars to overseas customers, including the newly rich in China and Brazil. At the same time, car imports have been relatively weak for several years as Britons suffer the sharpest decline in real disposable incomes on record. Registrations of new cars dropped by 4 per cent last year to 1.94m, and industry forecasters expect that to shrink again this year.

Rangers lodges papers for administration

Rangers, the 140-year-old Scottish football club, has lodged legal papers signalling it intends to enter administration, reports the FT. The move came as the defending Scottish champion – which with Glasgow Celtic forms the “Old Firm”, one of football’s oldest rivalries – awaits the verdict of a tax tribunal that could cost it £49m.  The HM Revenue & Customs case concerns the use of employee benefits trusts, under which clubs pay players’ wages into offshore trusts to avoid national insurance. HMRC last week lost a high-profile case alleging tax evasion against Harry Redknapp, the Tottenham manager, when he was formerly at Portsmouth. In the event of victory against Rangers, the Revenue is expected to pursue other football clubs and businesses.

Moody’s shifts outlook for UK and France

Rating agency Moody’s warned on Monday it may cut the triple-A ratings of France, the United Kingdom and Austria, and it downgraded six other European nations including Italy, Spain and Portugal, reports Reuters. Putting the United Kingdom’s rating in jeopardy for the first time, Moody’s said it was worried about Europe’s ability to undertake the kind of reforms needed to address the crisis and the amount of funds available to fight it. It also said the region’s weak economy could undermine austerity drives by governments to fix their finances. The US rating agency said it changed the outlooks for the ratings of France, the UK and Austria to negative due to “a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns’ balance sheets.”  George Osborne, the UK chancellor, said the move supported the government’s tough austerity measures and was “a reality check for anyone who thinks Britain can duck confronting its debts”, reports the FT. But Ed Balls, Labour’s shadow chancellor, described the decision as a “significant warning to a chancellor who himself made balancing the books by 2015 and the views of the credit rating agencies the key benchmarks for the success of his economic policy”.

BoJ introduces more easing

The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy, says the WSJ. The actions follow mounting political pressure on the Japanese central bank to taking more aggressive action to fight deflation and the strong yen, which has been blamed for weakening domestic manufacturers by raising the relative cost of producing goods in Japan. Bloomberg reports Governor Masaaki Shirakawa’s board unexpectedly expanded an asset-purchase program to 65tn yen ($835bn) from 55tn yen, including a credit loan facility, and set a price stability goal of 1 per cent inflation. The central bank maintained the overnight lending rate at between zero and 0.1 per cent.

Hedge funds ride European bank rally

Leading hedge funds have profited heavily from a rally in European banking stocks in recent weeks and are wagering that their gains will continue amid fresh measures to inject liquidity into the financial system from central banks, says the FT. This year has seen some of the strongest performance numbers from equity-focused hedge fund managers since 2009. The average equity long/short hedge fund returned 3.8 per cent in January and is provisionally up 1.6 per cent for February, according to Hedge Fund Research. Bets in banks such as Italy’s UniCredit, Spain’s Santander and the UK’s Barclays have made some hedge funds millions. Among big hedge fund gainers in the past six weeks have been Toscafund, run by the former Tiger Management star trader Martin Hughes, which has seen its flagship fund gain 7 per cent. A more specialist fund run by Mr Hughes himself is up more than 18 per cent. Crispin Odey’s flagship European hedge fund rose 14.7 per cent in January alone while Lansdowne Partners saw its flagship UK fund rise 5.7 per cent. Fund managers are unequivocal that it has been the European Central Bank’s Long Term Refinancing Operations lie behind their gains.

Overnight markets: Mixed

Asian shares drifted lower on renewed concerns about the fallout of the eurozone debt crisis after Moody’s Investors Service downgraded six European countries including Italy and cut its outlook on the UK, France and Austria to “negative”, says the FT. However the yen weakened and stock markets rallied after the Bank of Japan’s surprise announcement of more easing, says the WSJ.

Asian markets
Nikkei 225 up +62.43 (+0.69%) at 9,062
Topix up +3.29 (+0.42%) at 784.97
Hang Seng down -0.71 (0.00%) at 20,887 Read more