The Weekender

This week on FT Alphaville,

- The Sarko trade was launched. And quickly grewRead more

US Markets Live transcript 16 Dec 2011

Live markets commentary from FT.com 

US Markets Live: 10am New York time, 3pm London time

It’s the last one of 2011, which means we’ll be marking the passing of this arbitrary time period in typical research-house fashion: spurious predictions and lists, lots of them.

We’re also looking around for any news from today to talk about, so if you see some, join us here…. now(ish).

Chinese tycoon revives Iceland land bid

Chinese tycoon Huang Nubo has revived his controversial bid to buy a vast tract of land in Iceland, just weeks after the deal was rejected by the government. The deal, in which Mr Huang sought to buy 300 sq km of wild heathland to build a resort, has sparked a heated debate within the Icelandic government over the role of foreign investment. In China it has come to be seen as epitomising the prejudice that Chinese investors face abroad, as Chinese companies step up overseas investments. Representatives of Zhongkun, Mr Huang’s company, met on Thursday Iceland’s Ministry of Industry, Energy and Tourism to discuss the possibility of pushing through a restructured deal. “We are looking for a new way to take this forward,” Mr Huang told the FT on Thursday. “I am somewhat optimistic.”

Chow Tai Fook fails to sparkle on HK debut

Chow Tai Fook’s trading debut on Thursday failed to sparkle as a combination of eurozone woes and fears of a slowdown in China’s luxury retail sector sent the share price of the jewellery retailer down by as much as 9 per cent, reports the FT. The disappointing first day performance by a well-known retailer in the region was further evidence of the long winter ahead for Hong Kong’s initial public offering market. “Next year is going to be very quiet, especially in the first half of the year. Fund managers are going to be extremely cautious with so much uncertainty coming from the eurozone,” said Ben Kwong, director of local brokerage KGI Asia.

Olympus considers use of strategic investor

Olympus is considering raising funds from a strategic investor in what would be a controversial manoeuvre to repair damage caused by its accounting scandal, the FT reports. The move by the Japanese camera maker was immediately criticised by Michael Woodford, its ousted chief executive, as a ruse designed to keep its current management in power. Mr Woodford is counting on support from foreign shareholders – who are believed to have accumulated about half of Olympus’ stock – in a looming fight for control of the company. The arrival of a management-friendly investor would dilute their influence and scuttle the Briton’s chances of winning back his job.

Fitch downgrades a slew of investment banks

Fitch follows S&P and downgrades a gaggle of investment banks.

Unlike S&P, however, this isn’t down to a change in methodology. Rather, as our emphasis below suggests, the rating agency argues that the banks aren’t as protected in “periods of exogenous financial stress” (cough, Europe; cough, Europe) as they’d like to make us believe. Read more

Doubts over eurozone deal weigh on euro

The euro on Wednesday hit its lowest level against the dollar since January as European countries showed the strain of efforts to force through austerity policies and impose tough new spending rules, the FT reports. The 17-country single currency has fallen 2.5 per cent since the end of last week when European Union leaders’ agreed a package of measures to solve the eurozone debt crisis. Cracks have begun to emerge among the non-eurozone countries, where at least four governments warned that the precise legal text would determine whether they could sign up to the treaty or otherwise join the UK on the sidelines.

Gold tarnished in dash for dollar

Gold tumbled below $1,600 an ounce for the first time in more than 10 weeks and silver fell almost 7 per cent as the precious metals bore the brunt of a dash for dollars among investors and traders, the FT reports. The sell-off in the bullion markets intensified on Wednesday afternoon, recalling the darkest days of the 2008 financial crisis when prices fell as traders were forced to liquidate their positions. “This is very reminiscent of the second half of 2008,” said Tom Kendall, precious metals analyst at Credit Suisse. “There were similar funding stresses, a squeeze on liquidity, and heightened counterparty risk – and gold behaved in a similar manner.”

Opec agrees to maintain output levels

Opec has pulled off a show of unity after its last meeting ended in disarray, agreeing to keep its members’ oil output at current levels of about 30m barrels a day for the first half of next year, the FT reports. The deal on Wednesday will go some way to allaying the concerns of oil consuming countries, who have urged the producers’ cartel to maintain supplies rather than cut them in the face of slower economic activity. Even so, analysts said oil prices were unlikely to fall significantly from the current level of about $110 a barrel. The balance of supply and demand remains tight. Brent crude, the benchmark, tumbled $4.88 a barrel to $104.62 amid a wider sell-off in commodities ater Opec announced the deal. Brent prices hit a two-year high of $127.02 in February.

India and China voice growth fears

India has warned that emerging market economies are beginning to “falter”, as China’s top economic policymakers described the global outlook as “extremely grim and complicated”, the FT reports. Pranab Mukherjee, India’s finance minister, said that India had to turn its attention urgently to “reviving growth as quickly as possible” after alarming signs that financial markets were under renewed stresses. Similarly, China’s Communist party wrapped up its most important economic meeting of the year with an agreement to focus on maintaining fast economic growth amid the worsening outlook.

Olympus meets deadline to revise results

Olympus, the scandal-hit Japanese optical equipment maker, has cleared a crucial hurdle in its campaign to retain its listing on the Tokyo Stock Exchange after it managed to meet the Wednesday deadline to file postponed quarterly results, reports the FT. The filing means the company will avoid automatic delisting under TSE rules, and the damage to its reputation and financing ability that would have entailed. In the end, Olympus completed its filing with about two hours to spare. It won unqualified approval from its external auditors for its financial statements for the quarter to September 30, which showed a Y32.3bn ($414m) net loss as well as significant but not catastrophic deterioration in the value of its assets.

China money growth slows to decade low

Chinese money growth slowed to its lowest in more than a decade last month, keeping the pressure on the government to loosen monetary policy and prevent the economy from slowing too sharply, the FT reportsBeijing has already switched to easing mode, as marked by its cut of banks’ reserve requirements two weeks ago, but the latest data showed that downside risks were still proliferating. The broad M2 measure of money supply rose 12.7 per cent from a year earlier, the slowest since May 2001 and well below the 16 per cent rate that the central bank believes is necessary to support economic growth.

China set to tax US-made car imports

China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.

Further further reading

For the commute home,

- John Paulson proposes a sovereign-guarantee scheme for Europe. Read more

Electoral maths: Presidential elections and the S&P 500

In December of last year, we read a few posts suggesting 2011 would see above average returns for the S&P 500 since it was the third year of a presidential term, which has historically proved lucrative for equity investors (chart from Credit Suisse):

 Read more

CME Group plays old-school Chicago politics

In case you missed it, last night Jon Corzine was artfully thrown under what looked like a bomb-strapped bus being driven by the Chicago Mercantile Exchange, with no Keanu Reeves in sight.

Terry Duffy, chief executive of CME group, told the Senate hearing on MF Global that the former New Jersey governor “was aware” that money had gone missing from customer accounts. Read more

Beijing urged to bolster house sales

Friction is rising over Beijing’s real estate policies, with some top Chinese policy advisers arguing that restrictions should be loosened to avoid an abrupt economic slowdown, reports the FT. In a commentary published on Tuesday, an adviser to China’s central bank recommended an adjustment of existing policies to boost the number of housing transactions and provide a “soft landing” for the property sector. “If tightening is too fast and too abrupt it will have an overwhelming impact on overall economic growth,” Li Daokui wrote in New Fortune magazine. “If housing prices drop drastically it would place an enormous burden on the sentiment of many middle-income households.”

Japan to buy Lockheed’s F-35 fighter jet

Japan’s government is set to choose the F-35 Lightning II stealth fighter made by US contractor Lockheed Martin as its new air-defence fighter, Japanese media reported on Tuesday, reports the FT. The decision, expected to be finalised by cabinet members on Friday, would provide a big boost for the troubled F-35 programme and mark a continuation of a longstanding Japanese practice of relying on the US for almost all its imports of advanced weapons platforms. The highly advanced but largely unproven F-35 is competing against the Eurofighter Typhoon and US aerospace manufacturer Boeing’s F/A-18 Super Hornet for the Japanese order for about 42 aircraft, which could be worth an initial US$6bn or more.

EU treaty hopes come under strain

Franco-German hopes for a sweeping new treaty to bind the region’s economies more closely came under strain on Tuesday as several European Union leaders warned of difficulties pushing a far-reaching pact through their national parliaments, reports the FT. The pressure was particularly acute in non-eurozone countries, where at least four governments warned that the precise legal text would determine whether they could sign up to the treaty or otherwise join the UK on the sidelines. Officials in several of those countries said their most pressing concern was whether the new rules giving Brussels powers to police national budgets would be binding only to eurozone governments or to all signatories. Officials in several of those countries said their most pressing concern was whether the new rules giving Brussels powers to police national budgets would be binding only to eurozone governments or to all signatories.

 

Further further reading

For the commute home,

- Breaking: CME head says he was told by an MFG employee that Corzine did know about the missing money. Read more

FOMC statement, 13 December 2011

Go back to watching Mario. See you in 2012.

Not quite, of course, but as expected, there’s nothing to see in the December FOMC statement. Rates remain the same and Twist continues. The doveish Charles Evans again dissented. Read more

European banks ‘need tons of money’, says GMO

In a note released on Tuesday, GMO, the global asset management firm headed by Jeremy Grantham, writes that ”European banks need tons of money” to correct capital shortfalls. This much, we know.

But the five scenarios used by Richard P. Mattione, the firm’s head of macroeconomic research, for why banks will need to raise much more capital should prove familiar to FT Alphaville readers. Mattione uses data from the July EBA tests and July BIS data, so be warned. In fact, there are a few points here that seem to be behind the results of the latest EBA efforts. Read more

Chinese gold imports from HK hit record

Chinese gold imports from Hong Kong, a proxy for overseas buying, hit a fresh record high in October and accounted for more than one-quarter of global demand, the FT reports. Data from the Hong Kong government showed that China imported 85.7 tonnes of gold via Hong Kong in October, up 50 per cent from the previous month and up more than 40 times from October last year. It is the fourth consecutive month that China’s gold flows through Hong Kong have hit new highs. Tom Kendall, precious metals analyst at Credit Suisse in London, said: “It is a big but credible number as the price arbitrage between London and Shanghai was definitely favourable for Chinese imports during late September and throughout October.”

Chelsea striker Anelka heads to China

Chelsea striker Nicolas Anelka is moving to Shanghai to play in the Chinese Super League, the biggest name recruited to a division that has been dogged by corruption scandals and poor performance, reports the FT. The former Arsenal and Real Madrid player will join Shanghai Shenhua, which said on Monday it had agreed with Chelsea for the 32-year-old French player to arrive next month with a two-year contract. The club would not divulge Anelka’s salary details, other than to say it would pay him more than Chelsea did. Chelsea confirmed the deal in a brief statement on its website.

Sino-Forest admits default

Is it all over for Sino-Forest?

The timber firm can’t even keep its own deadlines, never mind those of bondholders. Read more

India’s CBI charges Essar executives

Billionaire Essar Group founder Ravi Ruia has become the latest senior executive to be charged as part of sprawling investigations into alleged corruption in India’s telecoms sector, the FT reports. India’s Central Bureau of Investigation on Monday filed charges against Mr Ruia, vice-chairman of Essar. Charges were also brought against his nephew Anshuman Ruia, a director at the group, and three other executives at Essar and other companies. The new charges are not directly related to the broader investigation of corruption in the issuance of second-generation mobile licenses in 2008, which is said to have cost India’s government up to $39bn in lost revenue.

China market regulator in new show of strength

China has exposed its biggest-ever case of stock market manipulation in a show of strength by the new securities regulator, who has vowed to crack down on rampant illegal trading, reports the FT. An investment company was accused by regulators of orchestrating “pump-and-dump” schemes related to 552 different stocks for a profit of Rmb426m ($67m).The company, identified by the China Securities Regulatory Commission as Guangdong Zhonghengxin, was a small player in the industry, but the prominence of the reports about the case in the country’s leading financial newspapers on Monday suggests authorities wanted the announcement to have a big impact.

“Financial repression” part II: a critique

So, “financial repression” is everywhere — or is it? In Part 1, we gave you a recap of the concept from a recent BIS paper.

At the back of the paper are critiques from Ignazio Visco and from Alan M. Taylor. Both commentators commend the paper while introducing some important caveats that are worth bearing in mind when trying to relate the idea to the current crisis. Read more

“Financial repression” part I: a recap

“Financial repression” was common in the four decades after the second world war and is essential to understanding policymakers’ responses to current credit problems in the US, Europe and China.

These are the conclusions of a BIS working paper by Carmen M. Reinhart and M. Belen Sbrancia, which was released on Friday as an updated version of this IMF paper published back in March. It’s an excellent starting point for understanding what is meant by “financial repression” and its policy consequences. And this version is especially interesting for the critiques contained in the appendix, which caution against reading too much into the idea. Read more