Posts from July 2012

The Closer


The FT’s markets round-up: “Vows to protect the euro from Mario Monti, Italy’s prime minister, and François Hollande, French president, did little to encourage equities late on Tuesday. Earlier in the day, the FTSE All-World equity index had reached its highest level since mid-May after the Asia-Pacific region added 1.1 per cent. But the global index closed 0.1 per cent lower as the S&P 500 on Wall Street fell 0.4 per cent. The FTSE Eurofirst 300 declined 0.9 per cent amid some heavyweight earnings disappointments from BP and UBS. The dollar index retreated 0.2 per cent, a potential sign that there were still patches of risk appetite. Hopes have remained high in some quarters that the Fed might produce fresh economic monetary easing to bolster waning growth as it started two days of meetings on Tuesday.” Read more

The right swap

Arvind Krishnamurthy and Annette Vissing-Jorgensen have an interesting variation on what the Fed should do next: start buying MBS while selling longer-term Treasuries.

Buying MBS, of course, has been widely discussed as a potential option if the Fed chooses to begin another round of large-scale asset purchases, but Krishnamurthy and Vissing-Jorgensen are the first economists we are aware of to advocate also dumping long-term Treasuries. Read more

More on those endangered exit consents

Loads has already been written about last week’s judgement by The Hon Mr Justice Briggs against Anglo Irish, taking a hammer to ‘exit consents’, a key bit of legal engineering in debt restructurings for banks and, sometimes, sovereigns. (There’s a great take by Credit Slips here for instance.)

It was that kind of case. Read more

Negative rates as a precursor to the death of banking

FT Alphaville has presented its case on negative rates and zero deposit rates here and here (amongst other places).

What we believe is that rather than stimulating the lending market — and the economy along with it — such a rate policy could have a disastrous impact on collateral markets and money market funds, not to mention the net interest income of lending institutions. All of which could unleash a protracted deflationary spiral. Read more

Hacking Herman

Seek bailout secrets!
Hack mail passionately, oh
Byzantine candour

That’s how FT Alphaville imagines Herman van Rompuy, President of the EU Council – and a keen haiku writer – might respond to news of his hacked email. Read more

Regional debt in Italy is not like regional debt in Spain

Although Sicily is a bit like Scotland, but there’s plenty of time to get to such illustrative (if slightly annoying) comparisons later.

The Spanish region of Valencia has already requested funding support from the central government and it sounds like Catalonia might also do so. Look at the autonomous region of Sicily in Italy, which is/was reportedly on the edge of default according Italy’s own prime minister, and it’s a parallel made in media heaven. Read more

The changing ingredients of that Swiss cake

Switzerland is the new China and it owns a cake, some of which it just doesn’t find all that appetising. (We admit this might be getting confusing but there is method to our madness.)

The Swiss National Bank has pledged to hold the euro-Swiss franc exchange rate at SFr1.20 no matter how many euros come flying its way (Chinese style currency manipulation.. or, at least, it was) while building up a stack of unwanted euro denominated assets which it has to try and shift via diversification (into a cake of many ingredients rather than a cake made entirely of icky euro). Read more

Robbie is innocent, ok? (updated)

Long running saga, this one. Following a ruling last month that Vincent Tchenguiz should not have been arrested on suspicion of defrauding Iceland’s Kaupthing, his brother Robert has now been formally cleared by the High Court in London.

The court has issued a “summary to assist the media.” It’s utterly baffling. Have a read. Read more

The (early) Lunch Wrap

Good morning New York…


BP hit from many angles

From BP’s second quarter results:

 Read more

About that $120 iron ore floor

Iron ore prices have breached the $120/tonne floor in recent days, something that most analysts expect can’t be sustained for very long (for reasons explained here yesterday).

Or… can it? Read more

Further reading

Elsewhere on Tuesday,

– China’s restructuring is now on hold, says Barry Eichengreen. Read more

The 6am Cut London

Asian shares inched higher, with investors optimistic but cautious ahead of monetary policy meetings by the European central bank and the US Federal Reserve (Financial Times). The MSCI Asia-Pacific Index was 0.8% higher just after midday in Tokyo (Bloomberg). This week will be a critical test for both the Fed and the ECB, as markets question how much effect monetary policy will now have (Wall Street Journal).

Taiwan’s GDP unexpectedly shrank in the three months to June, falling 0.16% from a year earlier. Economists’ median forecasts were for 0.5% growth (Bloomberg). Read more

The Closer


US stocks ended their recent rally despite hopes that policymakers on both sides of the Atlantic would undertake further measures to buoy the US and Eurozone economies. The S&P 500 closed down 0.05 per cent (Financial Times). Meanwhile, the US bond market quelled fears that the country could be heading into a period of deflation (Bloomberg). Read more

Wayne Rooney in a SEC filing

Manchester United’s filing for its $383m IPO, finally. Click to enlarge. Enjoy!

Related link:
Man Utd in deal with Chevrolet on jerseys – FT

Quantifying “convertibility risk”

We thought Mario Draghi’s reference to “convertibility risk” in eurozone bonds — which might “come within our remit” — was pretty big news last week.

Though we wonder if it’s still being underrated. Read more

A painful Greek symbol

Greek cabinet ministers are meeting later today to finalise how they’re going to come up with €11.5bn in savings over the next two years as demanded by the Troika. Unsurprisingly, the most contentious and sensitive part is the €1.5bn in pension and wage cuts that are needed.

From the FTRead more

When are insurers systemically important?

Banks are interconnected, and carry systemic risk to the economy. One doesn’t need the experience of a crisis to know this, it’s just intuitive.

On a similarly intuitive basis, are insurers systemically important? Read more

A response to market monetarists on IOER

A big thanks to economist David Beckworth, one of FT Alphaville’s favourite bloggers, for his characteristically smart and polite post in response to our thoughts on why lowering or eliminating IOER is a problematic idea.

(In our post we had asked what the market monetarists thought of the issues we raised.) Read more

Markets Live takes an Olympic hiatus

We apologise but Paul and Bryce partied so hard over the opening weekend of the Olympics that they need two weeks to recover…

A fellow reveller mirrors ML's slumber

 Read more

The (early) Lunch Wrap

Good morning, New York…


HSBC join the results, redress and remorse camp

… with their 2012 interims.

The TL;DR version goes like this: Read more

The SNB eats euro cake

How many reserve assets does it take to screw a Swiss franc into a euro-sized peg?

Answer: this much (so far): Read more

Iron ore going down, down, down

We related last week a forecast from Nomura that iron ore was going to keep falling, and probably more steeply, as it tends to follow Shanghai rebar futures (the most-traded steel futures) and those have plummeted of late. It looks like spot iron ore prices are indeed catching up (or down) with rebar, and that’s taken iron ore below the critical $120/tonne mark.

Why is $120 important? Because of the cost curve. This comes up a lot in the world of iron ore, so it might be worth revisiting what that means. Read more

Further reading

Elsewhere on Monday,

– The euro is like a bumblebee.
 Read more

The 6am Cut London

Asian shares extended their gains on Monday, supported by expectations of stimulus from the Federal Reserve and the ECB, but the euro fell. MSCI’s Asia-Pacific ex-Japan index gained as much as 1.1% to a three-week high, after posting its biggest daily rise in a month on Friday with a 2.2% climb.  (Reuters).

Japan’s industrial output fell unexpectedly in June. Output fell 0.1% compared to the previous month while economists surveyed by Dow Jones and the Nikkei had expected a 1.6% increase. The third consecutive month of decline, the country’s Ministry of Economy, Trade and Industry revised its outlook of industrial production, saying it was “flat” rather than in a recovering trend. (Wall Street JournalSouth Korea’s manufacturers’ confidence index for August is 70, compared to 81 for July (BloombergRead more

FTfm on AV

Some highlights from Monday’s FTfm.

Battle over protection for investors
The European parliament is trying to scale back the sum asset managers will have to pay into an investor compensation pot by €8.7bn, but they want it accrued in half the previously allotted time Read more

Winning over Buba

This’ll surely liven up next Thursday’s ECB meeting…

Via Bloomberg late on Friday (which was citing two central bank officials): Read more

Bail-ins, an exit consent challenge

On this quiet, Olympics Friday — some bank bail-in reading, courtesy of a judgement by the High Court of England and Wales.

It’s come down surprisingly hard on a small, but very important, weapon in the armoury of bailing-in bank bondholders: exit consents. Read more

Can Draghi bluff as well as Trichet?

“Such a speculation [on whether Greece will default] would be a sure-fire way of losing money given the decisions taken last Thursday.”

– JeanClaude Trichet, in an interview Le Point on 22 July 2011 (published 27 July). Read more