Posts from Tuesday Feb 28 2012

Further further reading

For the commute home,

- ECB liquidity: “and finally, monsieur, a wafer thin mint…” Read more

Chinese toilet campaign falls foul of censors

A Chinese campaign for more women’s toilets has fallen foul of the country’s censors, in another sign of official skittishness ahead of this year’s leadership transition, the FT reports. References to the protest, dubbed Occupy Men’s Toilets, have been blocked on Sina Weibo, China’s version of Twitter. China’s internet police have also deleted information on the group’s next planned protest , scheduled for Wednesday in central Henan province.

Wall St looks on bright side

Growth-focused assets were in demand as crude oil prices slipped and traders looked ahead to another cheap boost to funds by the European Central Bank, reports the FT. On Wall Street, investors chose to focus on a solid report on consumer confidence and shrugged off economic data showing a considerable drop in durable goods orders. News that Ireland will hold a referendum on the eurozone’s fiscal treaty weighed on the euro earlier in the session. But the single currency rebounded to near a three-month high at $1.3470, as investors also welcomed the German parliament’s recent agreement to support Greece’s €130bn bail-out package. Italian bond yields traded at 5.37 per cent, their lowest since September, a sign of relative calm in the eurozone sovereign bond complex, after Rome got its latest auction of paper away much more cheaply than a month ago.

Apple joins the $500bn club

Apple has joined an elite group of companies to reach a $500bn equity valuation amid expectations it is to launch the new version of the iPad next week, the FT reports. Shares in the iPhone maker rose to $532.35 in morning trading in New York on Wednesday, lifting its equity value to $501bn. Apple shares are already up 30 per cent this year, extending gains over the past 10 years to 4,414 per cent. Despite being the world’s most valuable company – it is now valued at about $90bn more than ExxonMobil after a see-saw rivalry last year with the oil company – stock market analysts remain bullish. Of 56 analysts tracking Apple to be surveyed by Bloomberg, 51 rate the stock a “buy” with four maintaining a ”hold” stance. Only one has “sell” rating. The latest bout of optimism has been fuelled by reports that a new version of the iPad will be launched at a media event next Wednesday and by speculation that the company could pay its first dividend.

Ireland calls vote on European fiscal pact

Dublin will hold a referendum on the eurozone fiscal pact, plunging Europe into months of uncertainty and potentially placing a question mark over Ireland’s membership of the euro, the FT reports. Enda Kenny, Ireland’s prime minister, said Dublin’s head legal official had advised that “on balance” the Irish constitution required the treaty to be put to a vote. It is likely to take at least three months to organise a referendum. “I am confident that the Irish people will do what is necessary … In the end, what this will come down to is a vote for economic stability and economic recovery,” Mr Kenny told parliament on Tuesday. The UK veto of the fiscal treaty, which introduces strict targets to control eurozone countries’ debt, last December meant the pact was drawn up outside of the normal European Union treaty architecture. That in turn was a factor in the attorney general’s decision that a referendum was probably required. News of the Irish referendum sparked a sharp sell-off in the euro, which fell to a daily low against the dollar before rebounding as investors absorbed the low probability that the move would derail Europe’s fiscal treaty. The single currency later came close to three-month highs as the European Central Bank embarked on a fresh round of lending to Europe’s banks.

Isda decides to decide on Greek credit event

Stand by

ISDA Determinations Committee Accepts Question
Related to a Potential Hellenic Republic Credit Event
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Fitch on who’ll tap the LTRO

A nice visualisation from Fitch of which countries’ banks accounted for most net new liquidity provided by December’s first three-year LTRO, ahead of the second liquidity op this week:

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Blowout!

Click the image on the right for the news. Read more

Confidence bounce

It was just last October that we mockingly called it the Conference Board consumer “confidence” survey after it plummeted back down to 2009 levels.

Seems we can lose the irony quotes now: Read more

The people and austerity

*IRELAND TO HOLD VOTE ON EU FISCAL COMPACT, KENNY SAYS

Market seems not to like this… though wasn’t referendum or renegotiation risk always inherent in the treaty? (Cf. Monsieur Hollande.) Read more

The trade of half a decade: long gold, short Athens

If you had invested exactly five years ago, and done a bit of the ol’ buy-and-hold, here are the returns you would have reaped (according to Deutsche’s Jim Reid and Colin Tan — click to enlarge):

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Marking shipping to market

Let’s start with four graphs from Nomura.  Click to enlarge.

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Markets Live transcript 28 Feb 2012

Live markets commentary from FT.com 

Gordon Gekko tells Wall St greed is not good

Michael Douglas is playing a new and unlikely role as spokesman for the US Federal Bureau of Investigation in its war against corruption on Wall Street, the FT reports. The Hollywood actor – famous for his line “greed is good” in the 1987 film Wall Street – is sending a new message in a public service announcement, telling traders and brokers that insider trading is a serious crime. The FBI’s New York office, which prioritises white-collar crime, hopes the 60-second segment will reach traders and hedge fund portfolio managers who might be tempted to cross the line between trading on legal stock research and trading illegally on secretive non-public information. The WSJ reports that federal authorities are currently pursuing insider trading cases against 120 individuals. Since late 2009, prosecutors have won 57 convictions or guilty pleas out of the 66 individuals that have had cases bought against them.

Stocks challenge fresh highs

Many growth-focused assets are in demand as crude oil prices slip and traders look ahead to another cheap fund booster by the European Central Bank, according to the FT’s Global Market Overview. The euro is up 0.3 per cent to $1.3436, just 40 or so pips off a three-month high, as investors also welcome the German parliament’s agreement to support Greece’s €130bn bail-out package. Europe’s FTSE Eurofirst 300 is enjoying a gain of 0.1 per cent, with banking stocks advancing. Italian bond yields at 5.35 per cent, their lowest since September, speak of relative calm in the eurozone sovereign bond complex ahead of Rome’s latest auction of paper. The FTSE All-World equity index is up 0.3 per cent and sitting just shy of a seven-month peak. The global gauge has bounced 25 per cent since its intraday low at the start of October, powered by hopes the eurozone debt crisis was past its worst and some better economic data of late, particularly out of the US. Indeed, it was a stronger than expected reading on US home sales that helped Wall Street close the previous session at a post-financial crisis high. Tuesday sees S&P 500 futures pointing to another 0.3 per cent gain that will take the benchmark to its best level since June 2008.

World Bank warns China on growth fears

China must urgently implement sweeping economic and political reforms if it is to maintain growth of even half the level it managed over the past three decades, the World Bank said in a report released Monday. “China has now reached a turning point in its development path,” Robert Zoellick, World Bank president, said in Beijing on Monday. “As China’s leaders know, the country’s current growth model is unsustainable.” According to the FT, the report warned China faces the prospect of being ensnared in a “middle-income trap” if it does not address a wide range of pressing issues, from government interference in the economy to social inequality, weak rule of law and terrible environmental pollution.

Israel gets ready for Iran retaliation

As they ponder the option of a military strike against Iran, Israeli leaders have started to worry about targets closer to home, the FT says. Prompted by concern over a possible Iranian counter-attack, they are debating how well their own country is prepared for war. Iranian leaders have left Israel in no doubt that a strike on its nuclear facilities would invite harsh retaliation. The latest threat came on Saturday, when Gen Ahmad Vahidi, the Iranian defence minister, warned that “a military attack by the Zionist regime will undoubtedly lead to the collapse of this regime”. Separately, the FT reports on the impact of sanctions on Iran on oil prices. Efforts to deprive Iran of revenue may be reducing the volume of Iran’s oil sales, but higher prices are more than making up for reduced flows. Higher prices are also taxing consumers, jeopardising a precarious recovery.

KKR chiefs take home $94m each

Henry Kravis and George Roberts each took home a pay-out of around $94m last year from KKR, the private equity group they helped to found, the latest sign of the riches available to industry executives at a sensitive time in the US presidential election, the FT says. Private equity has faced intense scrutiny in the US for the way executives, including Mitt Romney, the former head of Bain Capital who faces a tight vote in the Michigan primary election on Tuesday, have built fortunes aided by beneficial tax treatment. In addition to dividend payments totalling $64.2m each, the two cousins were paid around $30m each, mostly from the share of investment profits from private equity funds managed by KKR. So-called carried interest is usually taxed as a capital gain, which is levied at a 15 per cent rate, rather than the 35 per cent paid on ordinary income.

Yahoo says Facebook infringes its patents

Yahoo is threatening to entangle Facebook in a patent infringement dispute, claiming it holds right to intellectual property that is central to Facebook’s social networking business, the FT reports. The claim comes just months ahead of Facebook’s highly anticipated initial public offering, which could give Yahoo a bargaining edge and potentially position it to ask for a stake in the social networking group. The patents in question, between 10 and 20 altogether, cover social networking, advertising and personalisation, according to a person familiar with the matter. Facebook said it only learnt about the matter on Monday, adding: “We haven’t had the opportunity to fully evaluate their claims.” Meanwhile, the WSJ reports that California is set to reap an estimated $2.5bn of tax from the social network’s IPO.

Foreign issuers rush to sell bonds in US

The FT highlights that most investment-grade corporate bonds sold in the US this year have, for the first time, been issued by companies based abroad, highlighting the strength of the US market. Sales have been driven by companies from Brazil, the UK, Japan, Australia and France. In 2012 so far, issuance by non-US borrowers, excluding financial companies, has nearly doubled from the same period a year ago to $53.9bn, or 53 per cent of high-grade non-financial corporate issuance, according to Dealogic, which has been tracking the market since 1995.

Gulf spill lawyers eye BP’s $13bn

The FT reports on a plan to use about $13bn remaining in BP’s trust fund for victims of the 2010 Gulf of Mexico oil spill to pay claimants suing the company for damages is being discussed in negotiations over a possible settlement of the legal action, according to lawyers close to the case. The final value of a deal to resolve claims from an estimated 116,000 private sector plaintiffs could be larger or smaller than that amount, the lawyers said, but the fund is being talked about as a starting point for paying compensation to individuals and businesses. Reuters reports that with just 24 hours to go, the trial to decide the case was postponed by a week in order to enable the talks on a settlement between the parties to continue.

HSBC faces surging overseas pay costs

HSBC is facing rapidly rising wage costs in fast-growing economies, including China, India and Brazil, as it ploughs money into these markets to offset more difficult conditions in the west, the FT reports. Disclosures published alongside the bank’s annual results showed that top executives outside the UK were paid almost double their British-based colleagues last year. A group of senior employees known as “code staff” received an average of $1.2m in salaries and bonuses in the UK last year, compared with $2.3m for similar level staff overseas. Unveiling a 6 per cent fall in Britain’s biggest bank’s underlying pre-tax profits to $17.7bn, Stuart Gulliver, chief executive, said the bank had spent an additional $1.1bn hiring staff across key emerging regions last year. Separately, the FT reports that HSBC Finance, the US consumer lending subsidiary of the UK-based bank, has halted foreclosures for more than a year amid allegations it illegally seized homes using false documents, the bank revealed on Monday.

A little case of copper collateral double counting

A relatively important development in the Chinese copper collateral scheme via the Bloomberg wire on Tuesday (H/T Sean Corrigan):

Feb. 28 (Bloomberg) — Some Chinese banks have stopped approving loans to companies using warehouse receipts of copper as a pledge, the Oriental Morning Post reported today, citing an unidentified executive at a state-owned bank. Approval will only be given to companies that have fixed buyers of downstream products, the newspaper said, citing the bank executive. The suspension came after banks found that companies used the same collateral to apply for loans from more than one bank, posing risks amid volatile metal prices, according to the report. Read more

ECB (temporarily) suspends Greek collateral

We assume this is just while the PSI is underway and follows S&P’s selective default move overnight. From the ECB on Tuesday….

The Governing Council of the European Central Bank (ECB) has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurosystem monetary policy operations. This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer. Read more

Further reading

Elsewhere on Tuesday,

- Why doesn’t OpenTable think about our needs? Read more

Pink picks

Comment, analysis and more from Tuesday’s FT,

FT logoFelipe Larraín: Emerging economies should all prepare for the worst
The fear of another crisis is still here and the question is whether anyone can help to alleviate its impact, writes Larrain, Chile’s finance minister. In this context, emerging markets could have a new and important role to play. Their relative importance in the world economy has increased dramatically. Currently, they represent 50 per cent of global gross domestic product (in purchasing power parity terms) up from only 30 per cent 20 years ago. Yet, if things worsen in the global economy, countries should be ready to react quickly. Read more

Snap news

Breaking pre-market news on Tuesday,

– A “year of good growth” at GKN – statement Read more

Overnight markets: Mixed

 

Asian markets
Nikkei 225 up +21.63 (+0.22%) at 9,656
Topix down -2.36 (-0.28%) at 832.89
Hang Seng up +84.79 (+0.40%) at 21,303 Read more

TransCanada push ahead with Keystone segment

TransCanada said on Monday it will build the southern leg of its $7bn Keystone XL oil pipeline first, skirting a full-blown US review and giving President Barack Obama ammunition to hit back at Republicans who have blasted his energy policy, says Reuters. Building the portion of the contentious pipeline that would run to Texas refineries from the Cushing, Oklahoma, storage hub before the northern section would help remove a pinch-point that has led to deep price discounts for US and Canadian crude and forced refiners to rely more heavily on imports. TransCanada said it wants the $2.3bn southern leg in service by mid- to late 2013. It said construction would create 4,000 US jobs, compared with its previous estimate of 20,000 for the overall project, a figure environmental groups disputed.

US company ordered to halt Shanghai lead processing

Authorities in China directly linked lead pollution that they said had sickened local children to emissions from a battery plant of US company Johnson Controls, and indicated the facility would not be allowed to process lead in the future, says the WSJ. On Sunday, the Shanghai Municipal Environmental Protection Bureau said the Johnson Controls plant in an area of the city called Kangqiao had a role in lead pollution that sickened 49 children. Johnson Controls rejected the claims. The move comes amid rising worries in China over pollution. Last September, townspeople in the eastern city of Haining demonstrated, sometimes violently, over pollution they blamed on a solar panel factory. In January, Beijing began offering additional data on air quality amid a public outcry over the city’s air pollution.