Posts from February 2013

The Closer


Sequestered stocks? The S&P 500 shook off its gains in the last minutes of trading, falling 0.1 per cent after an earlier 0.6 per cent increase (Bloomberg). Read more

Bondholders, a two-pack, and “all necessary measures”

The EU’s Council and Parliament agreed on the text for two-pack laws on “enhanced surveillance” of sovereign bailouts on Thursday. It should be on the books soon.

So, if what happened in Greece last year was “exceptional and unique”… Read more

Cap and still trade

Some time ago Brussels decided that capping bankers’ bonuses is going to help prevent another financial crisis. A very fashionable move. In fact, the passage of the Basel reforms was contingent on a cap being introduced, so after months of negotiations, a deal was finally stuck this week.

From the FT (our emphasis):

Bankers’ bonuses are to be capped at twice their salary and banks will be subject to a strict transparency regime, under a provisional EU deal that includes minimal concessions to cushion the most severe pay crackdown since the 2008 financial crisis.

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A US housing ‘swirlogram’

Courtesy of Goldman Sachs.

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Lundin Petroleum mum on Sinopec talk

Swedish oil company Lundin Petroleum declined to comment on rumours that it has been in talks to sell a significant equity stake to China Petrochemicals Corporation. Read more

Ye olde Abenomics

All this has happened before and will happen again… at least, so hopes the Japanese government.

Current finance minister Taro Aso has been keen to channel the spirit of his 1930s equivalent Korekiyo Takahashi, whose polices are widely credited with pulling Japan out of the Showa Depression. It’s understandable. Read more

All you ever wanted to know about the AUD and who’s holding it*

Strong currencies are the bane of every triple-A rated, QE-less economy in currency war-torn 2013, it seems. It’s become an increasingly irksome point in Australia, where the initial exuberance over cheap foreign holidays has been slowly replaced by worries that it’s squeezing the non-mining sectors.

An FOI request by Bloomberg yielded a bunch of documents from the Reserve Bank of Australia about the currency’s overvaluation problem. Specifically, how bad it is and who’s to blame. Well, who among other central banks*, at least. Here’s list of the definitely-implicated: Read more

Markets Live: Thursday, 28th February, 2013

Live markets commentary from 

The (early) Lunch Wrap

EU secures deal to cap bankers’ bonuses || Iberia charge pushes IAG to €997m loss || RBS seeks more time for branch disposals || Apple shareholders in protest vote on pay || Shell puts Arctic ambitions on ice || JC Penney loses one-third of its sales || Markets: Bulls back in charge Read more

The battle for Bumi flares again [Updated]

We assume that the Bumi survivalists, led by Sir Julian Horn-Smith, never really expected Nat Rothschild to just retire from the scene after suffering defeat in the boardroom power struggle.

And so it has proved. Rothschild is still a subscriber to the Jakata Post and he’s noticed a curious item — the allegedly late disclosure of the sale of a stake in a subsidiary to what is reportedly a Bakrie family entity. Read more

Kuroda’s BoJ nomination is go

As was widely tipped early this week, Asian Development Bank president Haruhiko Kuroda has been nominated for Bank of Japan governor, while academic Kikuo Iwata and Hiroshi Nakaso, a BoJ official, were put forward for the two deputy governor roles.

It wasn’t a big surprise: as the FT reports, the yen briefly weakened to 92.6 from 92.4 on the news, before regaining that loss. Read more

Further reading

Elsewhere on Thursday,

– It’s Frankfurt that should be your worry – not Rome.

– Ricardian equivalence and the case of the EU.

– Aeroflot’s prospective 1-year old board member. Read more

The 6am Cut London

Asian markets up || Kuroda nomination confirmed || European bank bonus caps passed || Vivendi may suspend GVT sale || Shell pauses Arctic campaign || Argentina won’t pay holdouts regardless of ruling || Chinese provinces cut growth targets || BP ‘misreported’ vital data  Read more

The Closer


Stocks soar to five-year high. Wall Street’s S&P 500 had its biggest one-day gain, or 1.3 per cent, since the start of January, supported by a better than expected survey of durable goods orders (excluding transport). Now at 1,515 points, the New York benchmark was striving to recover last week’s five-year closing high of 1,530. The Dow jumped 175 points, or 1.3 per cent to 14,075, its highest level since Oct. 15, 2007. The FTSE All-World equity index added 0.9 per cent and the FTSE Eurofirst advanced 0.9 per cent. Milan’s FTSE MIB index recovered early losses to close higher on the day. Demand for the dollar fell, with the dollar index sliding 0.3 per cent. Copper declined 0.2 per cent to $3.57 a pound while Brent crude fell 0.7 per cent to $111.95 a barrel (Financial Times). Read more

Has Ivan started drinking what Mick was drinking?

We are talking here about Glenstrata, of course, going ex-Mick Davis and cum-Ivan Glasenberg as soon as the last bits of competition authority clearance arrive…

Ivan has already sent industry tongues a-wag with some off-the-grid comments at a BMO Capital Markets conference in Florida, as reported by Reuters:

What we’ve got to do, when the markets do get stronger, no need to keep building a new asset and let’s keep the market tight for a while…

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On negative interest rates and hoarding

Okay. Negative interest rates have now gone fully mainstream in the UK thanks to this week’s testimony by Bank of England deputy governor Paul Tucker.

Even the Daily Mail is writing about it.

But a number of major misunderstandings are popping up as a result. So let us try to clear some of them up. Read more

Markets Live: Wednesday, 27th February, 2013

Live markets commentary from 

The (early) Lunch Wrap

Convexity in Vix futures || Deflating shadow credit in China || BoE deputy on NGDP || Italian election aftermath || JPMorgan job cuts || New US defence secretary || Online gambling approved in New Jersey || Visa & Samsung agree on mobile payments || Markets cautious but more stable Read more

Some early morning Bean on NGDP

It’s Charlie Bean, the Bank of England’s deputy governor for monetary policy, on nominal income targets. An old wine in a new bottle apparently, even if it is edging closer to the establishment.

Some excerpts (with our emphasis):

The question is: would outcomes have been materially better under an alternative framework, such as a nominal income target?

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Deflating shadow credit in China

First, a reminder of the degree to which China’s growth has been increasingly fuelled by credit over the past few years:

China credit to GDP ratio (including shadow financing) - Credit Suisse

The chart above doesn’t quite show it, but non-bank credit growth outpaced bank loans last year. The rise of China’s shadow banking scene has happened very rapidly — much of the growth only happened since 2009. Read more

Further reading

Elsewhere on Wednesday,

– A perfectly fair and reasonable way to rank central bankers.

– Draining excess reserves and the Fed’s exit strategy.

– Who’s going to move on China’s aluminium stockpiles? Read more

The 6am Cut London

Asia ex-Japan stocks higher after Bernanke comments; yen strengthens || Capital problems could affect Co-op’s Lloyds deal || Kuroda probably in, Iwata possibly not || BP says all Macondo players to blame || Hong Kong grows at fastest rate in a year || Barclays loses confidentiality bid on US energy trading dispute || Martin Wolf on austerity’s sad record Read more

The Closer


The rebound. The Dow managed a triple-point gain to close up 0.84 per cent at 13,900.13, while the S&P 500 rose 0.61 per cent at 1,496.94, aided by Bernanke’s dovish comments. The S&P 500’s still off 1 per cent where it was before the last FOMC minutes (Reuters). Read more

A powerful convexity in short-term Vix futures

Before we comment about the strange behaviour of the Vix this week, we’d like to engage in a bit of a thought experiment.

There are two hypothetical scenarios that we’d like you to consider.

The first relates to the rampant nationalisation of everything:

What happens to market prices and volatility in an economy where government intervention becomes de rigeur every time prices misbehave?

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Beppe Grillo at market’s close

Some thoughts from Beppe Grillo (really):

I’m here on the settee at home. They’ve made me lie down. They don’t want me to have any upsets. They’ve covered me up with one of those checkered rugs. Outside there are the floodlights beaming in through the bathroom window. I don’t know what they want to see. This adventure that we’re having is fantastic…

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Tucker goes Jedi (ish)

Throwing around the negative interest rates idea has become very trendy all of a sudden with Draghi, Praet and Constancio weighing in and, we’d argue, using the threat to substitute for policy impotence.

So, was Bank of England deputy governor Paul Tucker doing the same thing on Tuesday morning in front of a Parliamentary committee? Using a jedi-trick to talk down sterling perchance? It’s not a phrase you use lightly and it seems unlikely he would have whacked it out completely unintended. But it has to be said, if he was going Jedi here, the effect didn’t last all that long. Read more

Keeping New York gasoline prices pumped

This is a cracking *cough* little note from Bank of America Merrill Lynch on soaring gasoline crack spreads… which are being driven by a spate of refinery closures which, as it turns out, are specifically impacting the New York Harbour market, known as PADD I, beyond all others.

This has generally resulted in a divergence in regional prices across the United States (mostly to the disadvantage of East Coast drivers).

As BofAML notes:

Despite being the middle of the winter, US RBOB gasoline crack spreads to Brent crude oil have soared by an astonishing $16/bbl in the past month (Chart 2).

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Food for thought on digital news consumption

With the freedom to publicise at a low cost at will, what place is there for the subset of writers and editors doing this for a living? Andrew Betts, director at FT Labs, opined in a recent TEDx talk that if media organisations are to weather the changing habits of consumers of news and analysis, technological innovations must occur. Read more

The burning of Rome spreads

The political picture in Italy is looking deeply uncertain. We all know that.

But what’s possibly more interesting is the scale of the market reaction to that uncertainty. Read more

Hey, spendy miners, operate Glencore style

Alternate working title: Opec-cartel style

We’ve already heard from Oleg Deripaska on the matter. And we’ve started to see the consequences hit Rio Tinto and BHP Billiton. But the latest “we must rein in supply” Opec-cartel style talk, actually emanates from Glencore CEO Ivan Glasenberg.

Bloomberg has the story ( hat tip to Reuters’ John Kemp) and it offers few cracking paragraphs to say the least: Read more