Posts from Monday Oct 29 2012

The Closer


US equity markets were closed and debt markets closed early because of Hurricane Sandy, while trading in Europe and elsewhere was light. From the FT’s markets round-up: “By early afternoon in New York the FTSE All-World equity index was down 0.3 per cent, while the FTSE Eurofirst 300 index had slipped 0.35 per cent. The Asia-Pacific index had dipped 0.2 per cent. The mood across asset classes was mildly “risk off”, with the dollar index up 0.2 per cent, copper down 1.4 per cent to $3.50 a pound and Bunds attracting buyers, pushing 10-year yields down 6 basis points to 1.48 per cent. Gold see-sawed, shedding $3 to $1,707 an ounce after trading as high as $1,713 an ounce.” (Financial Times) Read more

Early estimates of Sandy’s economic impact

Again, we hope all of our US readers are staying safe.

Estimating the economic impact of a storm is always imprecise, even after the storm has passed. With that caveat in mind, we’ve come across a few early forecasts and thought we’d pass them along. Read more

Expectations management at the BoJ

Here’s a trend for ya:

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Soy Sareb

It includes an almost 80 per cent haircut on buying foreclosed land assets from banks. (“The transfer price is not a reference for the valuation of nontransferred bank assets.” – OK then) Useful to remember that pricing will be based on “real economic value” – which Ireland’s Nama showed can be an elastic term – but the presentation also says further “adjustments” will be made on top of that.

There’s also a “conservative” target of 14 to 15 per cent return on equity over 15 years for working out loans… while Sareb will spend €45bn on a first wave of loans transferred from Bankia and other particularly weak banks.

Overly processed accounting — who eats this stuff?!

Heavily processed foods are generally unhealthy. Those looking after their waistline may wish to read ingredients lists and follow food journalist Michael Pollan’s advice: “Don’t eat anything that your great-great grandmother would not recognize as food.”

Could the same be said of financial accounts? That is: “Don’t trust anything your grandparents wouldn’t recognise as a justifiable line item.” Read more

Could Funding for Lending actually be working?

Lending to UK households picked in September, driven mainly by a sharp rise in unsecured lending, according Bank of England data out on Monday.

Total lending to individuals (excluding student loans) rose by £1.7 billion in September, compared to the previous six-month average increase of £0.6 billion. The twelve-month growth rate was 0.7% (Table A). Read more

‘Two plus two equals four, even at the Bank of England’

Credit Suisse’s answer last week to the (rather odd) idea of the British government “cancelling” (restructuring) the gilts held by its central bank under quantitative easing…

From the bank’s credit analyst William Porter, it’s worth a read:

Any financial problem can be solved at a stroke if double-entry book-keeping can be ignored as a constraint. The problem is, it cannot. So debate in the private-sector financial community about “solutions” to the UK’s financial challenges based on ignoring it worry us. In the UK, Mervyn King has been quick to debunk the fallacies. But if they can exist even for a while in the very simple UK, then the infinitely more complex euro area (which we do not address in detail here) is fertile ground for solutions based on fallacious reasoning…

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Putting a new drachma in historical perspective

Here’s a chart from Nomura:

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Money market charts du matin

It might look a little underwhelming but that’s US prime money market funds increasing their exposure to eurozone banks for the third month in a row. At the end of September they were 16 per cent more expoosed on a dollar basis compared to the month before, according to Fitch. Read more

Markets Live on half-term break

Paul and Bryce seem to think they are 16 or something. Found this on the office door: Read more

Antipodean intervention (probably) [updated]

As Neil picked up on already there is a suggestion that the Reserve Bank of Australia is practising some ‘passive intervention’ to hamstring the Aussie’s strength a touch.

It’s easy enough to see why this conclusion has been drawn, even as questions abound about China’s demand, its effect on commodity prices which Australia relies s0 heavily upon and the RBA repeatedly cuts still high interest rates the Aussia has stubbornly refused to fall versus the US dollar:

But there is a potential difficulty attaching the label intervention, even ‘passive’, to this build up at so early a stage.  Read more

Questioning China’s governance

The New York Times story on assets held by relatives of China’s prime minister Wen Jiabao led to some interesting ponderings on Chinese kleptocracy by the New Yorker’s Evan Osnos.

Osnos highlights a book by Andrew Wedeman published this year, Double Paradox, which attempts to understand how China has grown rapidly despite its widespread corruption.

“Although there is no good corruption,” Wedeman writes, “there is clearly bad and worse corruption: the corruption that has negative effects, and the corruption that can have potentially catastrophic effects.”

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The (early) Lunch Wrap

Good morning, New York… we hope everyone’s ok out there!

Public service announcement: the clocks went back an hour on Sunday in Europe, but they won’t go back in the US until this coming weekend. So, for the time being, 6am NYC time is 10am London time. Put differently, it’s going to be easier to arrange mutually convenient times for transatlantic conference calls this week. We are sure you are ecstatic about this. Read more

Lloyds dips toe in base-salary-only pool

Monday morning’s FT covered this announcement:

Lloyds Banking Group has launched a scheme that scraps all incentives linked to product sales in the latest attempt to clean up bad practices that have been blamed for causing mis-selling scandals.

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Penguin-Random House tie-up confirmed

Here is the full statement on the agreement between Pearson, owner of the Financial Times, and Bertelsmann. Some excerpts below:

Under the terms of the agreement, Penguin and Random House will combine their businesses in a newly-created joint venture named Penguin Random House. Bertelsmann will own 53% of the joint venture and Pearson will own 47%. The joint venture will exclude Bertelsmann’s trade publishing business in Germany and Pearson will retain rights to use the Penguin brand in education markets worldwide. Read more

Further reading

Elsewhere on Monday,

– Why the meteorologists are scared of Sandy.

– Some hurricane-Wall Street links.

– David Rosenberg’s rules to rememberRead more

The 6am Cut London

US stock markets to close as Hurricane Sandy nears New York: The NYSE, the Nasdaq will all close on Monday and possibly Tuesday. US bond trading is expected to remain open on Monday morning although Sifma told the FT late on Sunday that it was still recommending that US fixed income markets close at midday on Monday. The CBOE also said it would be closed. The CME said its US equities index futures and options and its NY trading floor would be closed. Transportation networks including the subway system and railways were shut down on Sunday and the City issued evacuation orders for residents in low lying parts of Manhattan. (Reuters live blog)(Financial Times)

Asian stocks swung between gains and losses after mixed earnings at companies from Honda Motor Co. to Sumitomo Mitsui Financial Group Inc. and LG Display Co. Hong Kong developers slid on a new real-estate tax.” The MSCI Asia Pacific was 0.1% lower and volumes were lower than average across the region. (BloombergRead more

NYSE Euronext and Nasdaq: markets to close Monday, possibly also Tuesday

NYSE Euronext Statement on Closure of U.S. Markets on Monday Oct. 29 and Pending Confirmation on Tuesday, Oct. 30, 2012

NEW YORK–(BUSINESS WIRE)–In consultation with other exchanges and market participants, NYSE Euronext (NYX) will close its markets on Monday, Oct. 29, 2012 and pending confirmation on Tuesday, Oct. 30, 2012. We support the consensus of the markets and the regulatory community that the dangerous conditions developing as a result of Hurricane Sandy will make it extremely difficult to ensure the safety of our people and communities, and safety must be our first priority. We will work with the industry to determine the next steps in restoring trading as soon as the situation permits.

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The RBA – leaning against the wind

Is the Reserve Bank of Australia intervening in the market to hold down the remarkably resilient Aussie dollar? That’s the question commentators and economists are asking themselves following the publication of data at the end of last week that showed a significant increase in the pace of foreign exchange accumulation (admittedly from a low very low base) in August and September. Read more