The Fed twisted (again), US stocks were shaken but not stirred. The S&P 500 broke four days of gains to fall 0.17 per cent, closing down at 1,355.69. The Dow Jones Industrial Average also fell, by 0.1 per cent, while the Nasdaq barely edged up 0.02 per cent (Reuters). Read more
What can Europe do? SocGen has a handy little chart:
Live markets commentary from FT.com
The wait is finally over (well, not entirely — the new Statement of Economic Projections will be out later and we’ll have much more during US Markets Live starting at 2:10pm), and the headline news is that Operation Twist has been extended through the end of the year.
We’ll also have rolling updates to this post, but for now: Read more
Q: In the case of Spanish bank recapitalization, why are you assuming that the public debt does not increase? We now know that government debt has increased by as much as EUR100bn.
A: The losses in the Spanish banking system existed prior to the announcement of the official loan. Most investors/analysts now estimate public recapitalization needs of close to EUR100bn. The official loan from the European Stability Mechanism (ESM) or the European Financial Stability Facility (EFSF) per se does not make the losses any bigger. Once the losses are acknowledged, the realistic choices are between Spain issuing bank recapitalization bonds or a bank recapitalization bond issued by the EFSF/ESM to the sovereign that subordinates the rest of government creditors (with the recapitalization bonds, Spanish banks can tap eurosystem liquidity). According to our calculations, existing bondholders are better off, all else being equal, with senior EFSF/ESM financial support at the concessional rate that is being suggested (3-4%) than with recapitalization bonds that would otherwise have to be issued. Read more
Kinda nutty this. For months now unusually firm bid speculation has swirled round Invensys. Accompanying press articles have carried progressively more detail. As recently as May 12 the Sunday Times named Siemens, ABB, Emerson and General Electric as all eyeing the British engineer.
But each time the share price has risen in anticipation of a fully-formed takeover, the lack of a confirmatory statement has burned the speculators. Read more
Like us, Reuters’ Robert Campbell has been pondering the paradox of backwardation in an oil market that appears to be plentifully supplied.
We missed his article when it originally came out last week, but think it’s worth taking a late look — especially since it complements our abundance series so well, and supports our views on artificial scarcity in commodity markets. Read more
CNBC is reporting on Wednesday that JPMorgan has sold a substantial amount of its loss-making synthetic credit portfolio:
JPMorgan Chase has sold off 65 percent to 70 percent of its losing “London Whale” position, which led to a multibillion-dollar trading loss for the bank, CNBC reported on Wednesday. Read more
We’re quick to tell you when bond yields spike, so it seems only fair to highlight Spanish 10-year bond yields heading for their biggest one-day dive since December:
It’s been an eventful couple of weeks since last we heard from Ben Bernanke as he spoke in front of the Joint Economic Committee.
And by “eventful” we mean “mostly crap”… Read more
From an engaging speech by Robert Jenkins — former F&C chairman, now a member of the Bank of England’s interim Financial Policy Committee — to the “trillion dollar generation” of hedgies at the Gaim conference in Monaco…
My third and final observation is that the days of instant market pricing and limitless liquidity may be fading. The “great moderation” conditioned many to underestimate credit risk. It also bred a generation of traders, money managers, bankers and risk officers to presume an unfettered flow of capital and instant access to narrow bid/offer spreads. Those of you who operate in less liquid instruments do not need reminding. You deal with it daily. Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear. Yet despite these examples, many continue to assume that at the currently liquid end of the trading security spectrum “liquidity” is free and will be freely available. Short term traders count on it; algo-trading depends on it. Long/short strategies presume you can short. Stop-loss disciplines demand you can cover – and cover quickly. Read more
The minutes from the latest MPC meeting are out, and it seems the doves are gaining ground:
Regarding the stock of asset purchases, five members of the Committee (Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale and Martin Weale) voted in favour of the proposition. Four members of the Committee voted against the proposition. The Governor, David Miles and Adam Posen preferred to increase the size of the asset purchase programme by £50 billion to a total of £375 billion. Paul Fisher preferred to increase the size of the asset purchase programme by £25 billion to a total of £350 billion. Read more
Robert and Edward Skidelsky, emeritus professor of political economy at the University of Warwick and lecturer on moral and political philosophy at the University of Exeter respectively, have penned what FT Alphaville feels is a must read essay on the impact of abundance and post-scarcity dynamics on price stability and the nature of labour, and work itself.
Entitled “In Praise of Leisure“, it picks up beautifully from where our own “Beyond Scarcity” series left off, echoing many of the same points. Read more
Live markets commentary from FT.com
From the FT:
LCH.Clearnet [SA] has raised the margin, or extra deposit, it requires from clients to hold Spanish government debt, in a move that could have implications for the cost of funding for the country’s banks. Read more
Elsewhere on Wednesday,
- Inflationistas, still wrong. Read more
G20 leaders ended their summit in Mexico without a detailed plan for dealing with Spanish and Italian borrowing costs or creating a eurozone-wide deposit insurance scheme, the WSJ reports. ‘Euro Area members of the G20 will take all necessary policy measures to safeguard the integrity and stability of the area,’ the G20 declared. Specific proposals for a European banking union are not likely before September, Reuters says.
The hedge fund elite is increasingly willing to bet against German debt, reports the FT. More than half of fund managers polled at an industry conference in Monaco said they expect Bund yields to double within a year as the eurozone crisis hits German credit, despite current record low borrowing rates for Berlin. Read more
Click the image for the full G20 declaration:
There’s something called the Los Cabos Growth and Jobs Action Plan. Read more