Posts from Wednesday Feb 15 2012

Dick Bove has the (very short) answer to what’s going on with Greece

His latest missive, in its entirety (less all the regulatory guff):

Tongue in Cheek Read more

Oil rallies to $120 on Iran EU export fears

Crude oil hit a six-month high of nearly $120 a barrel on Wednesday amid fears that Iran, the world’s third-largest oil exporter, could pre-empt a European Union oil embargo by cutting its own exports to the region, the FT writes. The oil market was spooked after an Iranian state-owned broadcaster reported that the country had stopped sales to six European countries. The report was initially denied by the Ministry of Oil in Tehran, which later said it could neither confirm nor deny the news. The report sent oil prices sharply higher. Brent crude hit a session high of $119.99 a barrel, the highest since August last year, when the International Energy Agency ordered the release of its members’ strategic petroleum reserves to fight the supply shortage caused by the civil war in Libya. The market later pared gains after the denial by the ministry, trading at $118.42 a barrel, still up $1.07. US benchmark West Texas Intermediate rose $1.03 to $101.76 a barrel.

Fed divided on further asset purchases

Several members of the Federal Reserve’s interest rate-setting committee said more asset purchases might be necessary “before long”, given the risks to the US economy, reports the FT. According to the minutes of their January meeting released on Tuesday, members of the Federal Open Market Committee also said that strains in global financial markets continue to pose “significant downside risks” to the US economy. But other members of the FOMC indicated that “such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 per cent over the medium run”. “In contrast, one member judged that maintaining the current degree of policy accommodation beyond the near term would likely be inappropriate; that member anticipated that a pre-emptive tightening of monetary policy would be necessary before the end of 2014 to keep inflation close to 2 per cent,” the minutes said.

Greek rhetoric turns into battle of wills

The battle of wills between Athens and its eurozone lenders intensified on Wednesday, with Greece’s finance minister accusing “forces in Europe” of pushing his country out of the euro while his German counterpart suggested postponing Greek elections and installing a new government without political parties, the FT reports. The tongue-lashing by Evangelos Venizelos, who is expected to stand in April elections as leader of the centre-left Pasok party, came as his government scrambled to meet escalating demands from international lenders that must be met if Athens is to avoid a full-scale default. Greece took a step closer to meeting those demands when Antonis Samaras, head of the centre-right New Democracy party and the presumptive next prime minister, sent a two-page letter to European Union leaders vowing to implement the austerity measures included in the €130bn bail-out programme. The letter, which came along with a similar missive from George Papandreou, the former prime minister who remains head of Pasok, was demanded by EU leaders as a condition of the deal. But the letter was received coolly in Brussels, particularly as Mr Samaras reiterated his stance that “modifications might be required” to the programme.

  Read more

Further further reading

For the commute home,

– The Volcker Rule’s unusual criticsRead more

FOMC minutes for the Jan 24-25, 2012 meeting

A few items to note as we come across them:

1) Recall that at the end of the meeting, the Fed released a new “Statement of Longer-Run Goals and Monetary Policy Strategy”, making explicit its 2 per cent inflation target. The minutes revealed that the statement will be reaffirmed once a year and “the bar for amending the statement would be high.” Daniel Tarullo, a Fed governor, was the only member who abstained from the statement Read more

What to look for in the FOMC minutes

The FOMC minutes will be released in just a few minutes (2pm EST).

There will be a lot of parsing given the importance of the last meeting (first time publishing projections for the fed funds rates, extending the low rates language to late-2014, etc). The minutes will probably have the same dove-ish and recent-improvement-undermine-y tone that was embedded in the statement. But given the number of members that believed it appropriate to start tightening before late-2014, there’s a chance we’ll at least glimpse some signs of disagreement. Read more

Raisin’ Repo

(Chart via RBC.) Read more

The Japanese liquidity trap, revisited

If anyone is an expert on the unintended effects of quantitative easing, it’s the Bank of Japan.

In fact, one might say, what the Fed, ECB, BoE are facing today, the BoJ has already faced. What’s more, what the BoJ is facing today, the Fed, ECB, BoE will face too. Read more

Bailout 1.3 (maybe)

It seems instructive to filter the direct quotes uttered by the various ‘officials briefed on preparations’ in this Reuters story on the promised second Greek bailout being delayed….

“There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to…They’ll discuss the options…There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they’ve held elections…This would mean we have to pay the 14.5 billion euros on March 20, which would be a total waste…But there is still money left from the first program so we could do it…This would mean that the talks on the second program, including PSI, which is part of the package, would be moved until there is a new Greek government in place.”

 Read more

A fate worse than a hard landing for China

What IS a hard landing in China?

Well, BAML’s latest survey of fund managers defines it as less than 7 per cent growth. And incidentally, only 8 per cent of those surveyed believe it will happen, half the percentage of the November survey. Read more

Is QE working?, asks the Bank of England

Linda Yueh of Bloomberg TV just asked a very sharp question of Bank of England governor Mervyn King at Wednesday’s Inflation Report press conference, at pixel time. If the UK’s money supply is contracting, shouldn’t there be more QE, and are you buying the right assets (gilts) anyway?

Mervyn dodged the last part. (Update — see below) Read more

Markets Live transcript 15 Feb 2012

Live markets commentary from 

Eurozone divisions threaten Greece aid

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, the FT reports. 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.

EU to ban Iranian banks from ‘Swift’ network

The European Union is moving to ban blacklisted Iranian entities from using a Belgium-based financial communications and clearing system , better known as Swift, in a move that could drastically cut Tehran’s ability to conduct global financial transactions, the Wall Street Journal reports. According to the paper US and European officials believe Iranian companies and banks have been using the system to evade international sanctions. Swift, short for the Society for Worldwide Interbank Financial Telecommunication, oversees the network used by most of the world’s largest banks to conduct financial wire transfers. Both houses of the US Congress have drafted legislation threatening to penalize Swift’s board of directors and owners if they don’t ban the suspect Iranian entities from using its network, the WSJ says. A formal ruling by EU financial regulators on Swift is expected by late February or early March and Swift’s board is expected to comply.

Greek bond accounting, encore encore encore

The real headline news in BNP Paribas’ end-2011 results is two figures, really. US dollar asset funding down by 30.5 per cent since June 2011, holdings of eurozone sovereign debt down by 23 per cent over the same period. Huge numbers.

The French bank’s quarterly results throughout 2011 run like a little history of “haircut creep” in the Greek debt restructuring, due to BNP’s extensive modelling of haircuts drawn from the PSI proposals. Read more

Traders scalded as robusta bubbles over

The robusta coffee market is witnessing the biggest squeeze in more than three years, leaving some investors and traders with multimillion losses, the FT reports. The market for robusta, the lower-quality bean used mainly in instant coffee, is usually uneventful, but it has had bouts of sharp volatility as hedge funds and trading houses have dipped in to create large positions for trading gains. The robusta coffee market is largely handled by roasters and a handful of trading houses led by Hamburg-based Neumann Kaffee Groupe, Louis Dreyfus Commodities of France, Volcafe, a Swiss-based subsidiary of ED&F Man, and Swiss-based Ecom Agroindustrial. In recent years new participants have arrived, including Singapore-listed Noble Group and Olam International. The squeeze has driven the contract for delivery in March at NYSE Liffe in London to an unusually large premium of $182 a tonne above the following contract, for delivery in May. Last week the two contracts were at parity. “It is a very good technical squeeze,” a leading London-based coffee trader said.

China to unveil landmark Hollywood deal

Xi Jinping, China’s vice-president and heir-apparent, will endorse the growing ties between his country and Hollywood on Friday, when he is scheduled to unveil a joint venture between DreamWorks Animation (DWA) and two state-owned Chinese media groups, the FT reports. Mr Xi, who is due to visit Los Angeles on the final leg of his US visit, is set to announce the tie-up between Shanghai Media Group, China Media Capital and DWA, the studio behind the popular Shrek and Kung Fu Panda films, according to several people familiar with the situation. His itinerary could yet change, those people cautioned. But his participation in the most significant deal to involve a Hollywood studio in China underscores the mutually beneficial relationship that is evolving between media groups in the two countries.

BNP Paribas weighed down by Greek debt

BNP Paribas, France’s largest bank by assets, sees positive signs for 2012 despite reducing its dividend for 2011 and cutting its bonus pool, the FT reports. The bank ended 2011 with a 50.6 per cent drop in quarterly net profit, weighed down by fresh Greek writedowns of €567m, but the results were better than expected and BNP is already seeing signs of improvement for this year. Jean-Laurent Bonnafé, BNP Paribas’ chief executive, said: “The beginning of the year has been quite strong in investment banking …[We see] some kind of stabilisation of the eurozone situation. “Bonuses are going to be down by half in 2011. In any case, those remunerations are always in line with the financial results,” he added. BNP’s fourth-quarter net profit of €765m beat analysts estimates of €574m. The bank posted fourth-quarter revenue of €9.69bn. BNP said it had cut its cash balance sheet excluding certain activities by 12 per cent in 2011 to €965bn, allowing it to hit an core tier one ratio of 9.2 per cent by the end of 2011.

Chinese eurozone comments spark rally

Intervention props and promises were powering global risk assets in early European trading, the FT reports. The Nikkei 225 in Tokyo jumped 2.3 per cent as investors welcomed the Bank of Japan’s unexpected move to bolster its asset purchasing programme by another Y10tn. Financials in particular liked the idea of the central bank supporting the market. And the euro leapt in early Asian action, even after eurozone officials called off an emergency meeting of finance ministers to approve a €130bn bail-out for Greece. Traders latched on to comments from Zhou Xiaochuan, China’s central bank governor, who reiterated a previous pledge from premier Wen Jiabao that Beijing was prepared to help Europe tackle its debt difficulties. This has caused the single currency to rally 0.3 per cent to $1.3162, a move that ignited bullish sentiment across the risk asset spectrum. The FTSE All-World equity index was up 0.6 per cent and commodities were mostly in demand. Copper was adding 1 per cent to $3.85 a pound and Brent crude was higher by 0.6 per cent to $118.01 a barrel. Europe’s FTSE Eurofirst 300 opened higher by 0.4 per cent.

US banks push ETF exemption under Volcker

US banks are pushing for their activities around exchange-traded funds to be exempt under the so-called Volcker rule, highlighting the importance of the funds as a tool for the big financial institutions that create and sell them, the FT reports. Banks often act as “authorised participants” for exchange-traded funds, setting up and managing shares in the more than $1tn worth of ETFs in existence in the US. But those activities could fall foul of the proposed Volcker rule, which aims to ban speculative trading at US banks. According to some interpretations, ETFs are not included in the special Volcker carve-out that allows banks to “make markets” on behalf of their clients. “Market makers in exchange-traded funds enter into a number of transactions, such as creating and redeeming ETF shares,” the Securities Industry and Financial Markets Association, which represents big banks and investors, said in its submission to US regulators on the Volcker rule.

The hedgies’ tool of choice

The letter.

From an old New Yorker story on Daniel Loeb: Read more

Further reading

Elsewhere on Wednesday,

– The LTRO effect on Target2 imbalances. Read more

Pink picks

Comment, analysis and more from Wednesday’s FT,

 Read more

Snap news

Breaking pre-market news on Wednesday,

— German economy shrinks less than forecast – story Read more

Overnight markets: Up

Asian stocks were mostly higher with Japanese shares climbing in the wake of the Bank of Japan’s unexpected move on Tuesday to loosen monetary policy, says the FT, though sentiment was curbed by disappointing US retail sales and eurozone officials’ postponement of a meeting to discuss Greece’s second bailout.

Japanese exporters rallied on a fall in the yen to a three-month low against the US dollar, after the BOJ signaled an increase in purchases of government bonds to boost the slowing economy. Honda rose 1.5 per cent, Toyota gained 2.1 per cent, and Sony rallied 2.3 per cent. Read more

Claims Amazon’s Prime numbers lower than thought

Amazon;s Prime service, a linchpin of its effort to keep customers loyal and fuel long-term profit, has attracted fewer than half as many members as analysts estimate, says Bloomberg, citing three people familiar with the matter. As of October, 3m to 5m people subscribed to Prime, a program begun in 2005 that provides two-day shipping for $79 a year, said the people, who asked not to be named because the figures are private. Amazon is working to reach 7m to 10m in the next 12 to 18 months, the people said. Analysts have pegged the current number at 10m or more, with expectations for it to climb higher this year.

Paulson calls for Hartford split

John Paulson, the billionaire investor, has taken public his efforts to get The Hartford Financial Services Group to split into two companies, says the FT. The Hartford, like other insurers, has been under pressure in its life insurance business as interest rates hover near zero, making it difficult to generate the income to cover pay-outs on products like annuities. At the same time, it has participated in an industry-wide increase in pricing in its separate property and casualty business to make up for disaster-related losses last year. Mr Paulson, the largest shareholder in The Hartford with an 8.4 per cent stake, published a letter to the company on Tuesdayblaming its underperformance on the combination of its two businesses. He said it is too complex for analysts to properly value and that most other insurers have chosen to focus on one or the other business. Meanwhile Bloomberg reports Mr Paulson sold his entire stakes in Citigroup and Bank of America in the fourth quarter before the shares rallied. Paulson & Co, which owned $643m worth of Citigroup at the end of the third quarter, had sold its entire 25.1m shares as of December 31, the firm said on Tuesday in a filing with the SEC. He also sold $394m worth of Bank of America, or 64.3m shares. It also sold its 998,900 shares of BlackRock valued at $146m.

US banks push ETF exemption under Volcker

US banks are pushing for their activities around exchange-traded funds to be exempt under the so-called Volcker rule, the FT says, highlighting the importance of the funds as a tool for the big financial institutions that create and sell them. According to some interpretations, ETFs are not included in the special Volcker carve-out that allows banks to “make markets” on behalf of their clients. “Market makers in exchange-traded funds enter into a number of transactions, such as creating and redeeming ETF shares,” the Securities Industry and Financial Markets Association, which represents big banks and investors, said in its submission to US regulators on the Volcker rule. Meanwhile the CME Group has warned that the proposed Volcker rule could impede the primary dealer system used by the US Treasury to sell government debt, reports the FT separately. In a comment letter filed this week, Craig Donohue, chief executive of CME, the US’s largest futures market, wrote that the Volcker rule’s exemption for US Treasury debt did not go far enough by failing to extend to the use of Treasury derivatives such as futures and options contracts. And the WSJ reports Goldman Sachs submitted two letters pushing to rein in the proposed regulation that aims to restrict bank risk-taking. Goldman asked that regulators take years rather than months to introduce the rule, arguing that it overstepped their bounds and went beyond Congress’s intentions in passing Dodd-Frank.

SFO faces inquiry into operations

Dominic Grieve, the Attorney-General, has ordered the first inquiry into the UK’s anti-fraud authority to help improve its operations only weeks after it was forced into a climbdown. The FT says it has learnt that Mr Grieve asked the head of the Crown Prosecution Service Inspectorate – the independent body that monitors the work of the CPS – to undertake a review of the Serious Fraud Office’s cases and the way it selects files to investigate, to begin next month. This will be the first time the SFO has been surveyed by the inspectorate, and comes as the agency is grappling with high-profile cases and sweeping new powers, while dealing with stringent budget cuts. Investigators suffered a serious blow in December when they were forced to admit to having made factual errors in the search warrant used to raid the offices of Vincent Tchenguiz, the property tycoon.