The 6am Cut London | FT Alphaville

The 6am Cut London

Markets looked askance at the ECB’s promise that it may buy bonds and ‘address’ seniority fears if the eurozone rescue funds are also activated. Mario Draghi told the ECB’s monthly press conference that the central bank could buy up shorter-term debt subject to “strict and effective conditionality” by the EFSF, which requires member states to request market aid. The euro tumbled against the dollar – while Mr Draghi advised markets it was “pointless” to short it – and 10-year Spanish and Italian bond yields rose sharply. An equity market sell-off continued into Asia on Friday, with the Nikkei falling 1.1 per cent (Wall Street Journal).

The ECB president’s ‘guidance’ of ‘outright open market operations’ in planning stages takes it into new territory, possibly including quantitative easing. Despite linking bond-buying to action by fiscal bailout funds, Mr Draghi did not rule out other ‘non-standard measures’ by the central bank (Reuters). He also took the unusual step of naming the Bundesbank’s Jens Weidmann as a bond-buying opponent, but argued that intervention in short-term rates would be ‘classical monetary policy’ (Financial Times).

Knight Capital lost some of its largest clients, and scrambled to shore up capital, a day after being hit by computer trading losses of $440m. Vanguard, TD Ameritrade and E*Trade all routed trades away from the broker (Financial Times). Glitched trades affected 140 stocks on Wednesday. Knight’s market capitalisation shrank to $253m at the end of Thursday trading, a quarter of its value at the start of the week. Announcing the loss and a search for “strategic alternatives”, Knight approached Sandler O’Neill to advise on a possible sale, with JPMorgan providing funding (Wall Street Journal). Interest in buying Knight was unclear at the end of Thursday, after talks involving Virtu and Citadel (NYT Dealbook).

BHP Billiton will take a $2.84bn write-down on its Fayetteville US shale gas assets. Prices have halved since the miner acquired its Fayetteville and Petrohawk shale gas businesses. BHP will also write down Australian nickel operations by $450m (Reuters).

Alistair Darling came close to ordering the full nationalisation of RBS in 2009, foreshadowing UK government debate this week over completing the crisis takeover of the bank to force it to increase lending. The former Chancellor said he remained sceptical of the case for nationalisation, and that “there are quicker and easier ways to get credit flowing into the economy” (Financial Times).

Japan Airlines will relist in Tokyo with a $8.5bn IPO next month, the largest in Asia so far this year. Posting record profits in March, JAL has staged a turnaround since filing for bankruptcy three years ago (Financial Times).

Bank of America is in talks to resolve its dispute with Fannie Mae over mortgage putbacks. Relations broke down last year after Fannie Mae brought billions of legal claims relating to soured loans, with the bank refusing to sell new mortgages to it in response. Though the parties remain some way apart, even the resumption of talks is a potentially positive signal (Financial Times). BofA faces $10.1bn of claims from Fannie (Reuters).

LinkedIn reported above-forecast revenues of $228m. Its shares rose 7.2 per cent above $100 in after-market trading. LinkedIn went public last year at $45 a share (Financial Times).

COMMENT AND CURIOS

- HSBC’s Stephen King reviews Draghi’s “monetary medicine”. (Financial Times)

- China slowdown watch: retail discounting edition. (Bloomberg)

- Gillian Tett, on when anthropologists meet actuaries. (Financial Times)

- Meanwhile, in Spain’s bad-banking plans… (WSJ Brussels Beat)

- Why Britain’s fiscal cuts should have waited. (Financial Times)

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 down -102.81 (-1.19%) at 8,550.37
Topix down -10.26 (-1.40%) at 722.72
Hang Seng down -173.91 (-0.88%) at 19,804

US markets
S&P 500 down -10.14 (-0.74%) at 1,365
DJIA down -92.18 (-0.71%) at 12,878.88
Nasdaq down -10.44 (-0.36%) at 2,909.77

European markets
Eurofirst 300 down –12.86 (-1.20%) at 1,055.34
FTSE100 down -50.52 (-0.88%) at 5,662.3
CAC 40 down -89.10 (-2.68%) at 3,232.46
Dax down -148.37 (-2.20%) at 6,606.09

Currencies
€/$ 1.2177 (1.23)
$/¥ 78.19 (78.01)
£/$ 1.5519 (1.57)

Commodities ($)
Brent Crude (ICE) up +0.39 at 106.29
Light Crude (Nymex) up +0.38 at 87.51
100 Oz Gold (Comex) up +2.80 at 1,590
Copper (Comex) unchanged 0.00 at 329.25

10-year government bond yields (%)
US 1.46
UK 1.48
Germany 1.23

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.3bps at 262.70bp
Markit iTraxx Europe +12.9bps at 168.75bp
Markit iTraxx Xover +2.8bps at 646bp
Markit CDX IG -0.1bps at 108.98bp

Sources: FT, Bloomberg, Markit