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The Lunch Wrap

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Fiscal illusions: The IMF released an excellent, pithy staff note on ‘Accounting Devices and Fiscal Illusions’ this week – all about book-cooking of sovereign debt stats. Jospeh wondered which sovereign today would try that? He notes it would be risky to do anyway, since markets could take badly to a rude shock in the deficit numbers.

The Aussie debate: Having for so long been the darling of the high-beta FX world, the Australian dollar is having a bad time of it recently, notes David. However the Aussie’s prospects are also the subject of some marked disagreement, most of which boil down, unsurprisingly, to China.

Saudi Arabia goes Jedi: Izzy questioned the efficacy and sense of a recently penned op-ed by Saudi Arabia’s oil minister Ali Naimi in the FT which declared that high oil prices are unjustified because “there is no lack of supply.” The slightly counterintuitive argument and its rebuttal are in here.

A shock bid for International Power: Bryce was amazed by the out-of-the-blue bid for International Power from GDF Suez, its 70 per cent shareholder and cataloged the long list of reports that gently hinted at the possibility and which might have contributed to International Power’s 25 per cent advance up to the official announcement.

The Irish promissory note adventure: We have an Irish promissory notes deal but it’s not the deal to restructure the notes and it’s not a deal with the ECB. It is however weird and very complicated. Thankfully Joseph can take you through the steps involved (although we recommend skipping 8.5 unless you are very sure of the source).

NEWS

Eurozone firewall: Eurozone finance ministers are considering freezing €240bn in leftover funds in their temporary bailout scheme and keeping it in reserve through to the middle of next year in case they need an emergency rescue of Italy or Spain, according to a draft plan obtained by the Financial Times. Although the plan falls short of doubling the entire rescue system to €940bn but it would be significantly more than the minimalist plan outlined by Angela Merkel this week. (FT)

Spanish reform: Spain’s centre-right government said it would not be diverted from plans to liberalise the labour market and impose more economic austerity to cut the deficit even as it was confronted with a one-day general strike on Thursday. Spain is is expected to reveal at least €17bn of extra spending cuts and tax rises in the delayed 2012 budget on Friday. (FT)

Bric power: Leaders of the world’s most powerful emerging economies meeting in India have threatened to withhold additional financing requested by the International Monetary Fund to fight the European sovereign debt crisis unless they gain greater voting power at the Fund. (FT)

North Korea tests missiles: North Korea fired two short-range missiles off its west coast on Thursday believed to be part of a test to upgrade capabilities, said news reports published on Friday, quoting South Korean military officials. (Reuters)

Blackberry woes: BlackBerry maker Research In Motion is to conduct a major review of “strategic opportunities”, including the possibility of outsourcing device manufacturing or a sale of the company after a dramatic fall in sales in the latest quarter. RIM emphasised that a disposal was “not the main direction we are pursuing”. RIM also announced that ex-chief exec Jim Balsillie, David Yach, chief technology officer of 13 years, and Jim Rowan, chief operating officer were leaving the company. (FT)

HSBC picks up Lloyds in UAE: HSBC has bought Lloyds Banking Group’s onshore business in the United Arab Emirates as it seeks to expand in its most profitable Middle Eastern market. The deal, which is expected to complete this year subject to regulatory approval, would see HSBC Bank Middle East acquire $769m in assets. The cash sum paid for Lloyds’ commercial and retail business was not disclosed. (FT)

Kwoks arrested: The billionaire Kwok brothers who run Hong Kong’s largest property company, Sun Hung Kai Properties, were arrested on Thursday in connection with a corruption investigation that has stunned the territory’s tight-knit business community. (FT)

Roche/Illumina bid: Roche on Thursday made its long-expected improved cash offer for Illumina with a 15 per cent increase to $51 a share, valuing the US diagnostics group at about $6.7bn. (FT)

Verizon mobile video: Verizon Communications chief executive Lowell C. McAdam said the company could have a wireless video service by year-end that lets pay-TV subscribers see some content on their mobile devices if regulators approve a proposed cable partnership. (WSJ)

Apple and Foxconn: Apple sought to stem long-running criticism of its failure to ensure adequate conditions for Chinese workers making its iPhone and iPad as it threw its weight behind an independent report that detailed multiple abuses of labour codes. The Fair Labor Association said that Foxconn had agreed to improve working hours, pay, union representation and health and safety conditions for its 1.2m workers. (FT)

Japanese slowdown: Japan’s industrial production unexpectedly dropped in February, undercutting signs of an economic rebound in the first quarter as policy makers assess whether to apply further stimulus. Factory output slid 1.2 percent from the previous month, the Trade Ministry said in Tokyo today, below expectations and after a 1.9 percent gain in January. (Bloomberg)

Dealmaking slump: Investment banks face the prospect of another disappointing year as companies put off dealmaking, depressing fees for the first quarter of 2012 to their lowest level for three years. Global M&A volumes dropped to $393.2bn, down 14.6 per cent on the fourth quarter of 2011, according to Mergermarket. (FT)

Debt and IPOs: Investors in US initial public offerings are showing greater appetite for companies with high levels of debt, which could lead to more private equity-owned companies being floated. A string of recent IPOs and secondary offerings by private equity-backed companies that carry large amounts of debt have successfully priced this month. (FT) While surging debt sales this year have been a boon for banks, churning out fees in what was otherwise a lacklustre period. (FT)

Junk bond bonanza: US companies with junk credit ratings are piling into the debt markets at a record pace – some 130 U.S. junk-rated companies have sold $75bn in junk bonds this quarter, according to Thomson Reuters, up 12 per cent from the same period last year and a record for any quarter going back to 1980. (WSJ)

Commodity hedge funds: Commodity hedge funds are sitting on disappointing returns for the first quarter in spite of one of the biggest monthly rallies in crude oil in years and falling market volatility – many have shunned risk over the past three months or lost out by betting that oil markets would become more choppy. (FT)

Markets: A storming first quarter of the year is ending on a mostly positive tone as optimists outmuscle profit takers and those bears still questioning the prospects for global growth. The FTSE All-World equity index is up 0.4 per cent, having added 11 per cent since the start of the year, while the FTSE Eurofirst 300 has opened with a gain of 0.5 per cent. (FT’s Global Market Overview)

 

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