FT Alphaville is taking Monday 27th May off, for the spring bank holiday in the UK and Memorial Day in the US. Regular posting and our emails will resume on Tuesday.
We wish our readers a restful long weekend, and leave you with an eclectic mix of further readings: Read more
Just something to ponder the day after Obama’s speech…
Defense spending has already been a negative influence on GDP of late, and the majority of the sequestration cuts scheduled for 2013 are in defense. Read more
Live markets commentary from FT.com
BoJ governor Haruhiko Kuroda promises to stabilise bond market || Proctor & Gamble brings back AG Lafley || States’ rift on taxes widens || Icahn seeks up to $7 billion for Dell bid || Tokyo denies ‘ghosts’ keeping PM out of residence || Spanish banks will need to provision up to another €10bn || Draghi wants UK to become ‘more European’ || German IFO rises || Private consumption helps German economy to meager growth || An agreement opens some Chinese audit papers to the U.S || EU rushes out corporate tax transparency rules || Gold is having a good week || Markets wrap || FTAV’s latest Read more
John Calverley and team at Standard Chartered have a big report out looking at how a selection of developed economies are doing post-2008. The short answer is that the US has largely recovered from the crisis, with growth there likely to be above trend in 2014. The UK and Japan, meanwhile, are still behind in terms of balance sheet adjustment and effective monetary policy, while poor Spain “still has a long way to go.” Read more
Elsewhere on Friday,
- Just give people cash.
- Public debt/GDP ratios have had a poor track record in predicting crises.
- The best and the worst. Read more
Nikkei slides again after Kuroda remarks, yen strengthens || P&G brings Lafley back as CEO || Spanish banks need another €10bn to provision refinanced loans || EU rushes new corporate tax rules || Draghi says UK should be more European || Wolf: Osborne should take IMF concerns seriously || Abe’s big agenda isn’t economics || Carbon market slump more than a technical problem Read more
FURTHER FURTHER READING
- Krugman on the Japan sell-off: the easing should continue until morale improves. Read more
Necessary but insufficient:
1) Be a dude…
2) …. but not the kind of dude who gets overly attached to his newborn children. That’s only appropriate for people who have “bosoms”. Read more
We’ve been combing through an interesting new Pew report on attitudes towards a number of economy-related issues.
Among the dominant themes are that people in advanced economies are more likely to report increasing inequality in the past five years, while respondents in emerging and developing economies had more faith in their prospects for economic mobility than their developed-country counterparts. Read more
UPDATE (Friday) – Judge Griesa said he won’t comment on Citibank’s request, at least until the Second Circuit’s final ruling on objections to the form of his order:
Citibank asserts that it needs clarification as to its obligations in the event that the Court of Appeals affirms the District Court’s November 21,2012 rulings. The District Court declines to make any further comment on matters now before the Court of Appeals. What further ruling or action is required from the District Court will obviously depend on the holding from the Court of Appeals. No more can be said at this time.
Now back to Thursday’s original post for the stakes involved…
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Hat-tip to Bloomberg — it looks like we have a new entrant in the pari passu saga.
Citibank.
Technically it’s Citibank’s Argentine branch. They’ve made a slightly curious request for ‘clarification’ of Judge Griesa’s order last November for Argentina to pay bond holdouts alongside other, restructured creditors. (Payments just to the latter could be seized, and ultimately launch Argentina into a sovereign default… just to catch you up.) Read more
David Keohane and Kate “Frenzy” Mackenzie* are joined by Citi FX strategist Steven Englander to discuss all things Abenomics — the risks and the possible rewards, why Steven is bearish, and what Kate’s baby daughter thinks of it.
Remember this? (WSJ, Feb 2012)
MSCI Probes ISS Employee’s Alleged Sale of Proxy Data Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
Blame Bernanke, China or the BoJ but this Nikkei rout has apparently been led by the little guys. From the FT:
Over the past few weeks, individual investors’ share of trading had risen steadily, to a record 35 per cent last week. Brokers say their share was almost certainly higher over the past few days, judging by huge volumes in popular stocks such as Fast Retailing, owner of Uniqlo, and Mitsubishi Motors [...]
The scale of the fall [says says Stefan Worrall, director of equity sales at Credit Suisse in Tokyo], “just shows the extent to which this market has become abducted by retail.”
Live markets commentary from FT.com
Nikkei crash || QE fears and Bernanke || Poor Chinese data || Risk on currencies benefiting || Hewlett-Packard showed signs that its turnaround is working || IMF considering the biggest changes to its policy on sovereign debt restructuring in over a decade || Ford exits Australia amid mounting losses || Shrinking subsidiaries || EC plans to make investor “burden sharing” a bigger part of the conditions for EU banks to receive state aid || General Electric is considering an IPO of its consumer finance business || Rating agencies under MBS attack || Markets roundup || FTAV’s latest Read more
The Nikkei 225 was clearly over-cooked. But just how over-cooked, we found out on Thursday…
Elsewhere on Thursday,
- The real Fed story from yesterday.
- A giant carry trade, gone wrong.
- Bargaining power matters, everywhere. Read more
ROUND-UP
Ben Bernanke suggested the Federal Reserve could begin ending QE “in the next few meetings” if the jobs market continues to improve. “If we do that, it would not mean that we are automatically aiming towards a complete wind-down,” he cautioned, in testimony to Congress (Financial Times). Minutes of April’s FOMC meeting showed some officials were ready to “adjust the flow of purchases downward as early as the June meeting” (Wall Street Journal). Read more
FURTHER FURTHER READING
- On Bangladesh, labour standards, and ethics.
- The portfolio manager’s strategy cycle.
- Four reasons the housing recovery isn’t yet boosting the economy. Read more
Now here’s a sign of the times…
The Network aims to promote collaboration in international financial matters to help facilitate cost-effective resolution of disputes and avoidance of duplicative and inconsistent adjudication of the same matters in different jurisdictions, thus increasing the likelihood of resolving financial disputes in a way that all market participants will find to be substantively and procedurally fair… Read more
Highlights follow, beginning with inflation:
Both headline and core PCE inflation in the first quarter came in below the Committee’s longer-run goal of 2 percent, but these recent lower readings appeared to be due, in part, to temporary factors; other measures of inflation as well as inflation expectations had remained more stable. Accordingly, participants generally continued to expect that inflation would move closer to the 2 percent objective over the medium run. Nonetheless, a number of participants expressed concern that inflation was below the Committee’s target and stressed that future price developments bore careful watching. Read more
This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF. This is the second part of a series looking at the role of pledged collateral in an IS/LM framework.
Price of money and Price of collateral
In some countries like the US and the UK, the price of money and money market rates are not market-determined due to IOER (interest on excess reserves), and this affects other short end rates. In the US, for example, Fannie Mae and Freddie Mac and other non-depository institutions are not eligible for IOER. This leads to market segmentation and forms a wedge in the money market rates.[1] Read more
This is a guest post by Manmohan Singh, a senior economist at the IMF. Views expressed are his own and not those of the IMF.
The concept of financial collateral (or pledged collateral that can be re-used in the markets) was not fully developed in academia in the late 1990s. Activities such as securities lending, repo, OTC derivatives and rehypothecation were still in their infancy—both in volume and sophistication. Read more
The chart above is from Credit Suisse economists, who add: Read more
It’s starting now, and you can watch it live at C-SPAN.
We have a feeling that the nuances of this passage will be lost on some members of the Committee: Read more
Yes, the rally in Japanese equities has caught many an eye. There’s been hardly a step backwards in six months.
Yet prices seem to be accelerating from here. With the Nikkei 225 already up 1.6 per cent on Wednesday, closing at 15,627. Here is the after-hours action, courtesy of the CME: Read more
Everyone has an open mind about negative rates these days… Swiss National Bank chief Thomas Jordan has said he certainly does following this piece of repeat advice from the International Monetary Fund’s annual report on Switzerland (our emphasis):
The conjuncture of Switzerland may render some of the potential drawbacks [of negative interest rate] less relevant than in other countries. Activity in the interbank market is already very low, as all banks have excess liquidity. Switzerland is experiencing strong credit growth, particularly in the mortgage market. The impact of negative interest rates on mortgage rates depends on the pass-through.
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