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
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
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
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
Seek bailout secrets!
Hack mail passionately, oh
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
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
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
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
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
Elsewhere on Tuesday,
– China’s restructuring is now on hold, says Barry Eichengreen. Read more
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