Markets live chat transcript for the chat ending at 12:10 on 2 Jul 2009. Participants in this chat were: Paul Murphy, FT (PM) Neil Hume, FT (NH) Izabella Kaminska, FT (IK)
PM:
Hi there
PM:
11.02
PM:
This is Markets Live
PM:
Bit of a rush this morning, for various reasons.
PM:
But Neil is here
NH:
Stocks are down
PM:
And so we are both pretty cheery
NH:
Sadly, Webby drinking funds are also down – since we lost again on Murray.
PM:
Actually, I halved my stake after The Shrewdette mailed to say it was a mad bet and a waste of Webby drinking funds – cos ferrero would never been henman on grass
PM:
So I halved the stake.
NH:
You still lost tho.
PM:
NH:
but I think we persist with laying Murray
NH:
Roddick served 42 aces yesterday
NH:
and he plays Murray next
NH:
I know Murray is a good returner
NH:
but still
NH:
what odds can we get
NH:
11-4 apparently
PM:
IRoddick
PM:
I think we should grab that price
NH:
OK
NH:
dealt
PM:
Money is on
11:06AM
NH:
come on Andy
NH:
Roddick
NH:
that is
11:06AM
PM:
Quick Footsie update
PM:
Down 26 at 4314
NH:
hmm
NH:
bobbing up and down at the moment
NH:
day one day
NH:
up the next
PM:
Short position stays in place
PM:
naturally
NH:
and then down
11:07AM
PM:
But we are going to ring the changes this morning
PM:
Off to another class asset
PM:
price of crude? Neil?
NH:
Brent 3m at just over $69.
NH:
Lots of gossip in that market this morning.
NH:
Apparent rogue trader on the loose earlier in the week – at a big big brokerage called PVM.
PM:
Got to confess I had never heard of PVM before this morning.
PM:
Luckily we have a woman here who has.
PM:
Izabella.
IK:
Hi there
PM:
Izy is going to tell us about this rogue trading scandal that has rocked the oil market.
NH:
Seems to be responsible for some strange moves in the oil price earlier in the week.
IK:
yes, that is the case.
IK:
Details still sketchy, but we hear that anything up to 9000 lots were traded by a PVM broker at around 2am on Tuesday morning.
IK:
PVM discovered the trade when everyone came in for work that morning.
IK:
The broker involved promptly resigned.
IK:
PVM then had to work very quickly to unwind the trade.
NH:
(Ptolemy, we know lots about sport!)
IK:
We are told that they managed to restrict their losses to around $10m.
IK:
But this seems to have been a huge trade – if indeed it was as high as 9000 lots
IK:
That’s equivalent to 9m barrels of oil – or substantially all of Saudi Arabia’s production on any given day.
PM:
PM:
So he did this at two in the morning
??
NH:
and he didn’t work for Morgan Stanley
NH:
they have some long lunches rounds there you know
NH:
esp on the oil desk
PM:
2 in the monring
PM:
Oil market never sleeps, eh.
PM:
What happened?
PM:
He’d been out for a drink or ten, was struggling to get a cab home – and thought – “I know, I will go to the office and trade a few tanker loads…”
IK:
Well, we don’t know
IK:
Low liquidity at that time, obviously.
IK:
Unwinding it moved the market significantly — totally against fundamentals
IK:
But crude’s been ignoring fundamentals so that in itself wasn’t weird.
IK:
What was weird was the number of lots traded overnight. Reuters says in the region of 18000, when usually 1,000 would trade in that period.
IK:
The surprising thing is this wasn’t some rookie a la jerome kerviel.
IK:
This allegedly was a very respected long-standing broker.
IK:
Actually we’ve heard some names from a number of different sources.
NH:
But are we going to name the guy you understand to be responsible?
IK:
Well we’re checking it out at the moment
NH:
Okay
IK:
We need to know it’s him
PM:
Come on Izy — risk your job, live
NH:
and a huge libel
NH:
go on
NH:
have a go
IK:
errr… rather not really
PM:
How about his initials?
IK:
have to pay for my holiday!
PM:
let you off
IK:
Might give you some initials later on…
PM:
PM:
Ta Izy
PM:
Here’s her post from earlier
PM:
And there’s a reuters story, but it is not on the open web yet
PM:
Thanks for joining us Izy
PM:
Neil…
IK:
no problem!
11:15AM
PM:
where now?
NH:
sorry
NH:
just a bit puzzled by some of the comments on the Murray bet
NH:
only a bit of harmless fun
NH:
helps the day pass
NH:
anyway
11:17AM
PM:
what’s moving this morning?
NH:
the LSE
NH:
heading south
NH:
stock off 22p at 680p
NH:
which has surprised me a bit
PM:
why?
NH:
well the fall is in response to a new fee structure being implement by the new guy at the top, Xavier Rolet
NH:
in fact, Mr Rolet seems to be dismantling everything his predecessor did
PM:
yes – the hugely over-rated Clara Furse
NH:
anyway, everyone I have talked to who has met Rolet – heads of trading, market making etc
NH:
says this guy is seriously good – and smooth
PM:
smooooth
NH:
he actually understands what they do and how a market works
PM:
so why has this move been taken so badly
PM:
and while we are it, what is he proposing??
NH:
right
NH:
here’s the bare bones of it
NH:
HT to Numis Securities
NH:
New fee structure risky: Under the new fee structure effective from 1 September 09 will see execution costs for passive and aggressive orders being aligned.
PM:
HT being hat tip
NH:
The starting charge for passive orders will increase to 0.45bps up from 0 bps, which is some 0.65bps higher than Chi-X which offers a 0.2bps rebate. The starting cost for aggressive orders is being lowered from 0.75bps to 0.45bps although this is still 0.15bps higher than the comparable cost for Chi-X.
PM:
right
PM:
I think I can understand why the market doesn’t like it
PM:
basically, Rolet is reversing the idea that Clara had to attract more black box trading via lower fees
PM:
and fight back against the multi-lateral trading facilities
NH:
correct
NH:
now, the debate is whether this is a bad move
NH:
it is certainly a risky one
NH:
Rolet seems to have decided that the passive black boxes are not worth having
NH:
they have already made their decision to trade elsewhere, so what’s the point of a price war
NH:
much better to concentrate on his bread and butter clients and give them a better deal
PM:
any analyst comment?
NH:
yep
NH:
(Chartist – yes he worked at the FT. Education correspondent!)
NH:
here’s the rest of the Numis note
NH:
The new fee structure announced by the LSE at face value looks like a risky strategy. In effect the new pricing is penalising passive orders and reducing costs for aggressive orders. The new pricing structure based on the first £2.5bn traded leaves the LSE more expensive for both passive and aggressive orders. Chi-x has around 25% market share and given the move to increase costs on the passive side there is potential that passive trades my migrate further to Chi-X. Starting costs of trading on Chi-X vs the LSE for passive trades are now 0.65bps cheaper and 0.15bps cheaper on aggressive orders.
NH:
We believe that despite the scope for the LSE to move into new areas such as derivatives the existing cash equities business is continuing to experience structural difficulties and we remain cautious on the recent pricing changes. Retain target price of 630p and recommendation is Reduce.
We believe the risk from this new strategy is that passive business that can migrate may consider leaving the LSE order book to benefit from more favourable pricing on other MTFs, especially Chi-X. We suspect that the LSE rationale is that the those seeking to migrate have already done so and therefore there is limited further migration.
NH:
Chi-X could gain further market share: Chi-X has been the main MTF that has managed to gain significant market share (c25%) and we believe the recent changes to pricing particularly on the passive side may present further opportunities for Chi-X to expand their market share.
No forecast changes at this stage: We have not changed our forecasts at this stage as the new pricing does not come into effect until 1 September and the impact on volumes is difficult to predict until we have at least a few data points for volumes under the new pricing.
NH:
here’s Sanford Bernstein
NH:
LSE trading charges have recently benefited from smaller order size. LSE’s pricing has actually remained resilient through 2009 (see Exhibit 2) as smaller order size (increased algo trading and low market caps) meant that minimum order charges were increasingly hit, and lower overall volumes meant traders saw lower volume discounts. The new pricing scheme reduces minimum order charges from 25p
to 10p.
to 10p.
• New pricing scheme is simpler and abandons the maker-taker model. The new pricing scheme is considerably less complicated than the current maker-taker model, where pricing differentiates between aggressive and passive pricing, with both being a function of traded volume. In their discussions with traders, LSE said that participants favour a transparent pricing scheme where the cost of trading is simpler to calculate. Customers also wanted equal pricing for aggressive and passive orders. Under the
new scheme, passive and aggressive trades are now charged equally, with volume discounts for the larger
traders.
NH:
• We expect further pricing cuts to come. Given that the European incumbents are considerably more expensive than MTF entrants (see Exhibit 3), we expect continued pricing cuts in equity trading. DB1
recently announced it was reducing equity trading pricing by ~13% (starting November 09).
recently announced it was reducing equity trading pricing by ~13% (starting November 09).
• We continue to see upside potential in the LSE, outperform, TP £9.50. We are positive on the LSE as a result of attractive valuation and the potential of cost savings from introducing a new trading platform. LSE’s new CEO Xavier Rolet has suggested that the exchange is looking to replace its TradElect trading
system. We believe there are considerable savings to be made in the LSE’s platform given that MTF entrants provide Pan-European trading and market data information at a fraction of the cost of incumbents, likely because the systems are designed from scratch and haven’t inherited legacy costs associated with upgrading old, structurally more complicated platforms.
PM:
is he really thinking of ditching Tradelect??
PM:
Clara spent load on that
NH:
apparently, he is.
NH:
and finally here’s something from our former colleague Sarah Spikes
NH:
We have raised our forecasts based on improved markets
and on our view of the growth and expansion potential in
the business. We believe we are now at the beginning of an
earnings upgrade cycle, as increasing value traded, an
increased focus on derivatives, the development of Baikal,
and cost cutting will more than offset the prospect of
continuing competition in cash equities. Value traded is the
single biggest driver of earnings. Sharp shifts in market
levels prompt increased volumes – this wields so much
influence over the total value traded that even when
markets fall, the value traded will rise (as it did in 2007-
2008). The FTSE100 was around 4350 in June – up 11% from
the LSE’s year end (3962) and value traded statistics from
the LSE also suggest that numbers could rise further from
current forecasts. BUY.
and on our view of the growth and expansion potential in
the business. We believe we are now at the beginning of an
earnings upgrade cycle, as increasing value traded, an
increased focus on derivatives, the development of Baikal,
and cost cutting will more than offset the prospect of
continuing competition in cash equities. Value traded is the
single biggest driver of earnings. Sharp shifts in market
levels prompt increased volumes – this wields so much
influence over the total value traded that even when
markets fall, the value traded will rise (as it did in 2007-
2008). The FTSE100 was around 4350 in June – up 11% from
the LSE’s year end (3962) and value traded statistics from
the LSE also suggest that numbers could rise further from
current forecasts. BUY.
NH:
Competition overplayed: The new entrants into equities trading are still yet to
be profitable, we believe. This diminishes the likelihood of further new entrants,
making concerns about further intensifying competition appear unrealistic
be profitable, we believe. This diminishes the likelihood of further new entrants,
making concerns about further intensifying competition appear unrealistic
PM:
thanks for that
PM:
the talented Mr Rolet
PM:
we should put up his CV again
PM:
Xavier Rolet joined the LSE Group Board on 16 March 2009 and became CEO on 20 May 2009. Prior to joining the London Stock Exchange, Xavier was Chief Executive Officer of Lehman Brothers in France from July 2007 to 7 January 2009. He was appointed a member of the Lehman Brothers’ European Operating Committee in 2003, having joined the firm in February 2000 in New York as deputy co-head of Global Equity Trading. In June 2000, he was promoted to co-head Global Equity Trading and in Oct 2001 transferred to London to take up the position of head of European and Asian Cash Equities, as well as becoming a member of the firm’s Global Investment Banking Operating Committee. In September 2003, Xavier was asked to lead the newly-created European Senior Client Relationship Management Group a role in which he focused on managing the firm’s relationships with its most senior corporate and institutional clients across the region.
PM:
Xavier started his career working for Robert E. Rubin on the International Arbitrage desk at Goldman Sachs & Co. in New York in January 1984. In 1990, he was promoted to co-head of European Equity Sales and Trading at Goldman Sachs International Limited and moved to London. He joined Credit Suisse First Boston in 1994 as global head of European Equities before moving to Dresdner Kleinwort Benson as global head of Risk and Trading, and deputy head of Global Equities in 1997.
Xavier served as a Second Lieutenant and Instructor at the French Air Force Academy in 1981 prior to attending Columbia University Graduate School of Business, where he gained an MBA in 1983. He is also a 2008 graduate of the post-graduate Institut des Hautes Etudes de Defense Nationale in Paris
NH:
yep
NH:
he has done it all, and his owns vintage racing cars, a vineyard, a chateaux
PM:
NH:
and when he was at goldman he worked 22hrs for 3 years
NH:
he really did
PM:
PM:
oh yeah had forgotten that
NH:
sorry that should have been 22hrs a day for three years
NH:
without stimulants
NH:
what a guy
11:25AM
PM:
You know how we are always mean to Bloomberg.
NH:
Yeah. Rude not to be.
PM:
Well this really mean.
PM:
PM:
NORWALK, Conn., July 1 /PRNewswire-FirstCall/ — Diageo, the world’s leading spirits, beer and wine company is setting the record straight in light of a Bloomberg story that erroneously stated that Diageo received funds from the Troubled Assets Recovery Program (TARP). Diageo has never sought, and will not receive TARP funds.
The suggestion by Bloomberg that Diageo is receiving TARP funds is false (“Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit… The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company,” Bloomberg, June 26, 2009). The public-private initiative that is bringing Captain Morgan to St. Croix is based on cover over, not TARP.
The suggestion by Bloomberg that Diageo is receiving TARP funds is false (“Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit… The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company,” Bloomberg, June 26, 2009). The public-private initiative that is bringing Captain Morgan to St. Croix is based on cover over, not TARP.
NH:
that’s not mean
NH:
its cruel
NH:
really cruel
NH:
What did the original Bloomie story say?
PM:
It’s here
PM:
June 26 (Bloomberg) — In June 2008, U.S. Virgin Islands Governor John deJongh Jr. agreed to give London-based Diageo Plc billions of dollars in tax incentives to move its production of Captain Morgan rum from one U.S. island — Puerto Rico — to another, namely St. Croix.
DeJongh says he had no idea his deal would help make the world’s largest liquor distiller the most unlikely beneficiary of the emergency Troubled Asset Relief Program approved by Congress just four months later.
Today, as two 56-foot-high (17-meter-high) tanks for holding fermenting molasses will soon rise from the ground on the Caribbean island of St. Croix, the extent to which dozens of nonbank companies benefited from last October’s emergency financial rescue plan is just beginning to come to light.
DeJongh says he had no idea his deal would help make the world’s largest liquor distiller the most unlikely beneficiary of the emergency Troubled Asset Relief Program approved by Congress just four months later.
Today, as two 56-foot-high (17-meter-high) tanks for holding fermenting molasses will soon rise from the ground on the Caribbean island of St. Croix, the extent to which dozens of nonbank companies benefited from last October’s emergency financial rescue plan is just beginning to come to light.
PM:
The hurried legislation adopted by a Congress voting under the threat of sudden global economic collapse led to hidden tax breaks for firms in dozens of industries. They included builders of Nascar auto-racing tracks, restaurant chains such as Burger King Holdings Inc., movie and television producers — and London’s Diageo.
“It’s kind of like the magician’s sleight of hand,” says former House Ways and Means Committee Chairman William Thomas, a California Republican who ran the committee from 2001 to 2007 and oversaw all tax legislation. “They snuck these things in a bill that was focused on other things.”
Congress inserted the tax benefits for companies other than banks in a fog of confusion and panic after the House of Representatives rejected the first attempt to fund the bank support effort urged by then President George W. Bush and Treasury Secretary Henry Paulson.
“It’s kind of like the magician’s sleight of hand,” says former House Ways and Means Committee Chairman William Thomas, a California Republican who ran the committee from 2001 to 2007 and oversaw all tax legislation. “They snuck these things in a bill that was focused on other things.”
Congress inserted the tax benefits for companies other than banks in a fog of confusion and panic after the House of Representatives rejected the first attempt to fund the bank support effort urged by then President George W. Bush and Treasury Secretary Henry Paulson.
NH:
Just looking at that Diageo statement.
NH:
They help you with the pronunciation.
NH:
ABOUT DIAGEO
Diageo (Dee-AH-Gee-O) is the world’s leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wines, and beer categories. These brands include Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo, Tanqueray, Captain Morgan, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines.
Diageo (Dee-AH-Gee-O) is the world’s leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wines, and beer categories. These brands include Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo, Tanqueray, Captain Morgan, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines.
PM:
PM:
Alf-A-vil
PM:
Knee-ill
PM:
So basically Dee-AH-Gee-O are saying these tax breaks already existed and it just happens that the provisions were stapled on to the TARP legislation.
PM:
Called the rum cover over program
PM:
Which kinda defies grammar.
PM:
The rum cover over program — the economic financing mechanism behind the USVI-Diageo public private partnership — has been the cornerstone of the US-USVI relationship since Congress enacted the Revised Organic Act more than a half century ago. With the USVI-Diageo Agreement, the USVI finally is making progress toward Congress’ long-stated objective that the USVI apply rum cover over revenues to achieve economic stability and fiscal autonomy. Congress, in 1983 and again in 2000, enacted laws vesting exclusive discretion in the USVI legislature to expend rum cover over revenues as it may determine. The USVI-Diageo public-private initiative is grounded in the letter and the spirit of the rum cover over law.
NH:
Yeah, well you can see why Bloomie went for the story.
NH:
Still looks like they had TARP money – just that they were already getting the money before the TARP existed
PM:
Strangely, this actually came out yesterday and yet I can’t find any trace of a clarification on Bloomberg.
NH:
Must just be a fault with the search.
NH:
PM:
Anyway, what’s the price of Dee-AH-Gee-O ??
NH:
up 20p at 916p
NH:
and apologies to any French readers out there
NH:
sorry pretty rude comments going up
PM:
We distance ourselves from comments by Taxloss
PM:
i love france
PM:
and the french
PM:
And Monkey
PM:
Note Izy’s chart on the oil move from this PVM rogue trader
PM:
allegedly
NH:
vive la France
11:31AM
PM:
back to the market
PM:
what’s moving?
NH:
WPP and like the LSE they are heading south
NH:
one of the biggest fallers in the FTSE 100
NH:
off 10.75p at 402.75p
NH:
big note out from Citi on the sector
NH:
and they are pretty gloomy. They reckon the trough for ad agency earnings won’t come this year but next
NH:
so cue red pen being taken to earnings forecasts
NH:
here’s the note
NH:
Downgrading WPP to Sell — A continuation of 2Q trends (on a 2-year rolling basis)
would suggest a FY09 organic decline of -7.5% and limited growth in FY10. We
now assume this as our base case. Combined with FX moves, this leaves us c.15%
below consensus. Valuation is not outrageous, but above trough levels. We like the
company LT but see it as a trading Sell on EPS risk.
would suggest a FY09 organic decline of -7.5% and limited growth in FY10. We
now assume this as our base case. Combined with FX moves, this leaves us c.15%
below consensus. Valuation is not outrageous, but above trough levels. We like the
company LT but see it as a trading Sell on EPS risk.
Agencies Are Late Cyclical — Reflecting their largely fee-based revenue model, we
see agencies as fundamentally late cycle. Just as revenue trends have lagged
media owners into the downturn, we expect a similar lag before inflection and
recovery. Asymmetrical operational gearing (on severance) is a further risk as
agencies adjust their cost bases to the new revenue opportunity.
NH:
Valuation at Trough Levels But 2009 May Not Be Trough EPS Year — Even on our downgraded forecasts for 2009, WPP is only on 9.1x P/E. This is not outrageous vs. previous lows (c. prospective P/E of 8.1x in 1995 and 9.0x in 1998). The problem is that 09 may not be a trough year. WPP is on 9.7x 10E.
2010E Consensus Could be 20% Too High — We now forecast 45.3p of EPS in
2009E and 42.2p in 2010E. This compares with consensus of 48.9p and 49.0p
respectively. While some of the difference is undoubtedly currency, consensus is
clearly banking on 2H recovery. Even Sir Martin Sorrell is only looking for a
‘recovery of sorts’. We base our forecasts on a continuation of 2Q trends.
We See WPP as a Sell; Would Reconsider at 300p-350p — Reflecting the EPS risk, we see WPP as a Sell. We think the 1H results in August will be a negative catalyst, partly because of the risk of disappointment at the margin level, but also because it will be a focal point for downgrades. We set our price target at 340p (8x 2010E P/E) and would revisit the thesis around this level
NH:
Aegis also weal on teh back of that
NH:
down 4.25p at 88p
PM:
weak even
NH:
sorry can’t type well this morning
11:33AM
NH:
any macro stuff?
PM:
I have hardly had time this morning Neil
PM:
I haven’t been able to keep up with all the stuff this morning
PM:
bank of england etc
PM:
This is Tim Besley talking about QE
PM:
I havent read , but i bet it says “It’s compliated and we will have to wait and sese
PM:
sorry, i cant type either
PM:
Correction: i am worse than usual
PM:
My fingers are actually tired
NH:
WTF
NH:
tired fingers
NH:
not heard that one before
NH:
you’d better take the day off
NH:
stick them in an ice-bath
PM:
Oh yes, was reading about that
PM:
Murray’s secret, eh
NH:
all you have to do
NH:
is get a wheelie bin
NH:
stand in it
NH:
get a mate to fill it with water
NH:
and then finish with a load of ice
NH:
four bags from Tesco should do it
NH:
and stand in it for ten mins
NH:
muscles refreshed
NH:
or in your case fingers
PM:
It’s not exactly new, is it?
NH:
no
NH:
runners been doing it for years
NH:
and cricketers
PM:
Maybe would could have special ice baths here
PM:
Daddy — he was just copying it from the Evening Standard
PM:
plagurist]
NH:
sorry
NH:
was a great article
NH:
I am trying it myself this evening
NH:
came with pictures as well
NH:
Daddy you are obviously not from round these parts
11:38AM
PM:
Someone asked about the non-farms earler
PM:
v helpful broker mate has jsut sent a preview over
PM:
Have you got that Neil?
NH:
I have
NH:
After last month’s surprise -345K print, with +217K attributed to the birth/death adjustment, the market will be
closely scrutinizing this month’s report to determine whether the economy has turned a corner. Some analysts
dubbed last month’s number as a sign of so-called ‘green shoots’, though this would seem somewhat premature,
especially as the number was higher than any month in the 2001-02 recession and greater than the month
succeeding 9/11. Worth noting that some analysts believe that the birth/death adjustment (used to capture net
small business job creation) is overstating job creation. If this is the case than earlier payroll readings could be
revised down.
closely scrutinizing this month’s report to determine whether the economy has turned a corner. Some analysts
dubbed last month’s number as a sign of so-called ‘green shoots’, though this would seem somewhat premature,
especially as the number was higher than any month in the 2001-02 recession and greater than the month
succeeding 9/11. Worth noting that some analysts believe that the birth/death adjustment (used to capture net
small business job creation) is overstating job creation. If this is the case than earlier payroll readings could be
revised down.
NH:
On a positive note ISM manufacturing reached a 9 month high, which could suggest a smaller decline in factory
payrolls, consumer confidence job availability measures have held on to their recent gains and initial jobless has
been in a range of 605K-674K since February, which indicates some stabilisation of labour market conditions.
However, yesterday’s ADP showed a loss of 473K private sector jobs in June which gives significant downside
risks to today’s NFP report, with some talk of losses of 450k jobs or more when discounting the birth/death
adjustment.
With some risks to a lower print RANsquawk expects NFP to come in around -400k.
payrolls, consumer confidence job availability measures have held on to their recent gains and initial jobless has
been in a range of 605K-674K since February, which indicates some stabilisation of labour market conditions.
However, yesterday’s ADP showed a loss of 473K private sector jobs in June which gives significant downside
risks to today’s NFP report, with some talk of losses of 450k jobs or more when discounting the birth/death
adjustment.
With some risks to a lower print RANsquawk expects NFP to come in around -400k.
NH:
UNEMPLOYMENT RATE
Unemployment rate (June) Exp: 9.6% (Low 9.3% High 9.7%) vs. Prev. 9.4%
Unemployment rate is expected to rise by 0.2% to 9.6% in June and could receive more coverage than NFP after
last month saw an unexpected increase of 0.5%. The market expects the unemployment rate to edge higher
throughout this year, although Fed’s Fisher said that he does not expect it to reach 11%.
Stabilisation in continuing claims and the consumer confidence job availability indices could point to little change
in unemployment however some technical changes in the federal extended unemployment insurance benefits
program may push unemployment higher. These changes mean that job seekers now may be labelled as
unemployed as opposed to workers that have dropped out of the labour market. If the unemployment rate comes
in way above estimates then we could see stocks and bond yields plunge.
Unemployment rate (June) Exp: 9.6% (Low 9.3% High 9.7%) vs. Prev. 9.4%
Unemployment rate is expected to rise by 0.2% to 9.6% in June and could receive more coverage than NFP after
last month saw an unexpected increase of 0.5%. The market expects the unemployment rate to edge higher
throughout this year, although Fed’s Fisher said that he does not expect it to reach 11%.
Stabilisation in continuing claims and the consumer confidence job availability indices could point to little change
in unemployment however some technical changes in the federal extended unemployment insurance benefits
program may push unemployment higher. These changes mean that job seekers now may be labelled as
unemployed as opposed to workers that have dropped out of the labour market. If the unemployment rate comes
in way above estimates then we could see stocks and bond yields plunge.
11:39AM
PM:
okay
NH:
couple of bits
PM:
got any RAW Neil?
RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.
NH:
Travis Perkins is all cashed up following its recent rights issue
NH:
and apparently the money is burning a hole in its pocket and it wants to buy something
PM:
such as?
NH:
well, the story today is Galiform
NH:
that’s the last remaining bit of MFI
NH:
makes kitchens for jobbing builders like yourself
PM:
I would have one of their kitchens. you know that Neil
NH:
in fact I am surprised you haven’t been there
PM:
I go to Selco
NH:
of course you are a member
PM:
Got an account as Murphy Builders
PM:
opens 6.30 in the morning
PM:
Signs in polish as well as English
NH:
nice touch
PM:
And you can get a 10 item breakfast for 2.99 in Fat Boys Caf
PM:
NH:
NH:
do they do a gigantor?
PM:
Didnt check. Not sure what polish is for Gigantor
PM:
Probably Gigantor
NH:
anyway
NH:
not sure how seriously to take this story because the other day, TP was said to be looking at Topps Tiles
PM:
didn’t Moneky apply for a job there recently
NH:
you know what, I think he did. on the shop floor
11:42AM
PM:
any more RAW?
NH:
oh yes
NH:
Old Mutual
PM:
NH:
been a very good market in the past week
PM:
so they have
PM:
up around 10%
PM:
and moving higher again this morning
PM:
Price is up 0.12 at 86
NH:
volume has been pretty good as well
NH:
now, apart from the fact that there is a short position which is being squeezed
NH:
also picking up bid rumours
NH:
specifically that this could be the first target for Clive Cowdery’s Resolution
NH:
and in many ways it makes sense
NH:
the company could be broken up — one day
PM:
NH:
and no one would weep if it came under the control of new management
PM:
But this remains red raw
PM:
Broker chatter
NH:
oh yeah, I still think Res are more likekly to go after the UK bis of the Pru
NH:
although that might be off the agenda
NH:
as Pru have put in new management their today
PM:
hang a minute we’re just digging out the interview Paul Davies, our insurance correspondent, recently did with Clive
PM:
I think it gave some idea of the types and size of targets he was looking at
PM:
here’s the link
PM:
and the first few pars
PM:
Clive Cowdery’s Resolution investment vehicle is targeting a larger-than-expected initial acquisition in the £5bn-£7bn price range, using its shares to help fund part of a deal.
The price range would put most of the UK listed life and pensions sector apart from Prudential and Aviva, the two largest, within reach of Resolution, which raised £600m when it listed in December last year. Resolution could also buy businesses
Market speculation over Resolution’s targets has focused on a small initial deal, funded with a mixture of cash raised from investors and a relatively modest amount of debt. But Mr Cowdery said that using new shares to help fund deals would increase the size of company they could target.
“Our investors are expecting to put up £2bn-£3bn for deals. With new retained equity participation by vendors this becomes £5bn-£7bn,” he said.
The price range would put most of the UK listed life and pensions sector apart from Prudential and Aviva, the two largest, within reach of Resolution, which raised £600m when it listed in December last year. Resolution could also buy businesses
Market speculation over Resolution’s targets has focused on a small initial deal, funded with a mixture of cash raised from investors and a relatively modest amount of debt. But Mr Cowdery said that using new shares to help fund deals would increase the size of company they could target.
“Our investors are expecting to put up £2bn-£3bn for deals. With new retained equity participation by vendors this becomes £5bn-£7bn,” he said.
PM:
John Tiner, chief executive of Resolution and the former head of the Financial Services Authority, said: “Our investors would prefer us to do larger deals with this vehicle.
NH:
just checking the market cap of Old Mut
NH:
£4.2bn
NH:
so it could be on the menu
NH:
big mouthful in these markets
NH:
but Cowdery is an ambitious man
PM:
interesting bit of raw that
11:46AM
NH:
and here’s another bit
PM:
you are spoiling us this morning
NH:
Dana Petroleum
PM:
ah
NH:
the rumoured bidder is holding a credit day
NH:
today
PM:
what, RWE?
NH:
yep
NH:
and here’s the interesting bit, presentation is already available on the RWE website and slide 6 states “Grow equity gas business organically”
NH:
and here’s what an analyst made of it
NH:
This is a reiteration of previous targets that also featured the word
“organically” so there isnt a deliberate insertion, but it hasn’t been
withdrawn either.
“organically” so there isnt a deliberate insertion, but it hasn’t been
withdrawn either.
Will see if they are prepared to comment at the meeting but the
retention of the word “organically” may dampen some of the Dana bid
spec.
PM:
hmmmm
PM:
not sure whether we should read anything into that
PM:
they may have forgotten to take it out
PM:
Or, then again, they might have purposefully left it in
NH:
I guess we will know when it comes to the Q&A session
NH:
and there is a another bid of goss on Dana
NH:
apparently it has just announced a hiring freeze
NH:
now this is completely RAW and may not be true
NH:
and even if it is it could be in response to the economic climate and not because it has received a bid
PM:
OK
PM:
PM:
sounds like you are cooling on this story
NH:
not all
NH:
I wouldn’t read too much into a power point presentation
NH:
especially if RWE behaves like other German companies on the acquisition trial such as Linde and Deutsche Post
PM:
ha
PM:
Dana price?
NH:
off 33p at £13.84
11:49AM
PM:
Anything else
NH:
yep, on the miners there is some huge monsterous note out of Morgan Stanley today on commodities
NH:
and it is bullish
NH:
basically the message is use any short term pullback to pile in
NH:
here’s a flavour of the note
PM:
anyone wants to see it all, I could stick it up in the Long Room
NH:
and at the stock specific level, Xstrata seems to be their fav
NH:
have increased, as seasonal factors and an end to Chinese re-stocking could
trigger profit-taking after the recent strong gains, medium-term drivers of
recovery are drawing on:
trigger profit-taking after the recent strong gains, medium-term drivers of
recovery are drawing on:
China’s domestic growth recovery, which continues to widen and deepen, even though external demand remains very weak;
Leading indicators of global industrial production such as the global PMI, which have
started to reverse the strong downtrend that became evident in H2 2007;
Supply constraints, which persist for a number of commodities as a result of industry
discipline, despite recent increases in price and declines in cost;
NH:
Unprecedented global fiscal and monetary policy stimulus, which is expected to remain in place well into 2010, despite some nascent inflationary concerns;
Further cyclical weakness in the US dollar, despite recent indications that the US
currency is oversold in the short term;
A progressive resurgence in fund flows and asset allocations into commodities.
Short-term profit-taking would, therefore, provide an attractive re-entry point
to a strengthening recovery in industrial metals. However, the early and
fragile nature of the current macro environment prompts us to be selective
about commodity exposures for now:
NH:
In base metals, our preferred exposure is copper, with short-term downside price risk
providing a new entry point after the recent strong rally;
providing a new entry point after the recent strong rally;
In bulk commodities, our preferred exposure is to the metallurgical and thermal coal
markets, as China’s sustained appetite for imports is set to reverse the recent supply
overhang and price weakness;
In precious metals, we have upgraded our forecast for platinum, consistent with the
recovery profile in industrial production outlined in this report and on expectations of
continuing investment demand.
PM:
thanks for taht
PM:
let’s have a quick price check on the miners
NH:
OK
NH:
they are moving higher, broadly
Kazakhmys (KAZ:LSE): Last: 664.00, up 2 (+0.30%), High: 677.00, Low: 653.00, Volume: 747.96k
Eurasian Natural Resources Corp (ENRC:LSE): Last: 686.00, down 8.5 (-1.22%), High: 701.50, Low: 669.50, Volume: 416.78k
Xstrata (XTA:LSE): Last: 687.60, down 5.6 (-0.81%), High: 700.00, Low: 682.10, Volume: 3.71m
Fresnillo (FRES:LSE): Last: 528.50, down 10 (-1.86%), High: 543.00, Low: 520.50, Volume: 186.74k
NH:
and RIO
Rio Tinto (RIO:LSE): Last: 2,115, down 43.5 (-2.02%), High: 2,149, Low: 2,088, Volume: 4.72m
NH:
good take up for the rights issue
NH:
rump being placed
NH:
or may already have been plaved
NH:
was around £15m shares
NH:
covered at £21 I heard
PM:
thanks for that
11:51AM
PM:
Now lok
PM:
i think you have kicked something off in Old Mut
PM:
Stock heading higher
PM:
Are you at all convinced by this Resolution rumour??
NH:
look, this is RED RAW
NH:
just broker chatter
NH:
could be looking to put a reason to teh move
NH:
and
NH:
anyway
NH:
Old Mut is difficult to buy because of its South African roots and connectsions
PM:
indeed
NH:
and on TP
NH:
some brokers noting that the company raised the money
NH:
so they would not breach covenants
NH:
not so they could go on the acquisition trial
NH:
the view seems to be that there is not enough clarity on the outlook for them to make an acquisition
NH:
and I have another bit of RAW
NH:
Talk that the Fed are going to stop paying interest for bank deposits
NH:
not clear
NH:
what that refers to
NH:
but doing the rounds
NH:
and didn’t they raise last November?
PM:
They did as preparation for QE
PM:
Well have to do some background research on that
11:55AM
NH:
OK, we have confirmation on Izy’s story
NH:
LONDON, July 2 (Reuters) – Oil broker PVM Oil Futures Ltd said on Thursday it lost “a little under $10 million” due to unauthorised trading earlier this week.
“PVM Oil Futures Ltd can confirm that it was the victim of unauthorised trading on Tuesday, June 30,” the broker said in a statement.
“As a result of a series of unauthorised trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion. PVM suffered a loss totalling a little under $10 million.
“PVM informed its clearer, the FSA and ICE compliance immediately. The company’s margin calls have been met and PVM is conducting business as normal.”
PVM said it was conducting a full investigation and could not comment further until the investigation had been completed.
“PVM Oil Futures Ltd can confirm that it was the victim of unauthorised trading on Tuesday, June 30,” the broker said in a statement.
“As a result of a series of unauthorised trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion. PVM suffered a loss totalling a little under $10 million.
“PVM informed its clearer, the FSA and ICE compliance immediately. The company’s margin calls have been met and PVM is conducting business as normal.”
PVM said it was conducting a full investigation and could not comment further until the investigation had been completed.
11:57AM
PM:
Reuters had it at the same time, of course
PM:
Wouldnt want to claim full exclusivity on this
NH:
we’d never do that
NH:
anyway
NH:
it is almost midday
PM:
Or change time stamps — like certain well known online financial journalists…
NH:
yeah, it always makes me laugh when the flashes appear before the statement
NH:
how do they do that?
PM:
didn TMZ get news of Michael Jackson’s death before he died?
NH:
they did
NH:
talk about going on risk
PM:
Nah, they just took a view
PM:
They’d be good traders round at TMZ
11:59AM
NH:
Right
NH:
almost out of time
NH:
and we have not even discussed Frank Timis yeet
PM:
oh yeah!
NH:
he’s raised $100 this morning
NH:
yes $100m
NH:
for his company African Minerals
PM:
The Philanthropist and former stock promoter
NH:
the new Sir Bob Geldof
NH:
bringing hope to Africa
PM:
Soros, Gates, Buffett, Timis
NH:
actually we have been musing on who might Timis
NH:
sorry back
NH:
Timis
NH:
and Mike Savage at Killik might have the answer
NH:
African Minerals, the Sierra Leone iron ore play, has raised £63.8m (c.
$105.3m) by way of a cash placing with institutional investors at 250p, a
slight premium to last night’s close. The proceeds of the placing are to be
used to: undertake further drilling at the Tonkolili iron ore project to
delineate further magnetite iron ore mineralisation, proving a JORC
compliant resource target of 10 billion tonnes; undertake further drilling
with the objective of delineating one billion tonnes of JORC compliant
hematite iron ore in the cap overlying the magnetite deposits; fast track
the Definitive Feasibility Study for the Tonkolili iron ore body and the
port, rail and power infrastructure projects; and provide general working
capital.
$105.3m) by way of a cash placing with institutional investors at 250p, a
slight premium to last night’s close. The proceeds of the placing are to be
used to: undertake further drilling at the Tonkolili iron ore project to
delineate further magnetite iron ore mineralisation, proving a JORC
compliant resource target of 10 billion tonnes; undertake further drilling
with the objective of delineating one billion tonnes of JORC compliant
hematite iron ore in the cap overlying the magnetite deposits; fast track
the Definitive Feasibility Study for the Tonkolili iron ore body and the
port, rail and power infrastructure projects; and provide general working
capital.
NH:
and talking of things Timis related
PM:
(Lorcan — if it was Goldman, i think Stacy was busy with the pixel tipex. some comments got a little extreme. Sure some fine comments got brushed at the same time.)
NH:
very bullish note out of merrill’s this morning
NH:
they reckon the share price could double
NH:
but then again they did do the recent share placing
NH:
here’s the note
NH:
Buy, PO set at our core NAV of 130p/sh
We upgrade Regal from Neutral to Buy with a PO of 130p/sh, suggesting 100%
upside potential from current levels. Following a recent c.US$100mn equity
raising, we view the risk/reward profile of the stock as highly attractive. The
investment themes we see are: (1) material near-term catalysts, (2) strong M&A
potential, and (3) an extremely attractive valuation
We upgrade Regal from Neutral to Buy with a PO of 130p/sh, suggesting 100%
upside potential from current levels. Following a recent c.US$100mn equity
raising, we view the risk/reward profile of the stock as highly attractive. The
investment themes we see are: (1) material near-term catalysts, (2) strong M&A
potential, and (3) an extremely attractive valuation
NH:
Catalysts: drilling results, reserve upside and M&A
The results of two appraisal wells are expected by September 2009, positioning
Regal for a reserve recertification in 2H09 – potential c.100% increase in 2P
reserves and c.60p/sh uplift to our NAV. An attractive valuation, sound balance
sheet, potentially c.350mn boe of P50 resources and the strategic importance of
the Ukrainian domestic gas market also make Regal an attractive M&A/JV
candidate for both the international oil and gas companies (NOCs and IOCs) and
the Russian Oils, in our view.
The results of two appraisal wells are expected by September 2009, positioning
Regal for a reserve recertification in 2H09 – potential c.100% increase in 2P
reserves and c.60p/sh uplift to our NAV. An attractive valuation, sound balance
sheet, potentially c.350mn boe of P50 resources and the strategic importance of
the Ukrainian domestic gas market also make Regal an attractive M&A/JV
candidate for both the international oil and gas companies (NOCs and IOCs) and
the Russian Oils, in our view.
NH:
Regal’s NAV most geared to the oil price…
While we think the key catalysts for Regal are operational updates and M&A, we
also like its oil price gearing, given a positive long term oil outlook. Regal’s NAV is
the most oil price-sensitive in the sector, thanks to a favourable Ukrainian tax
regime. We estimate that a US$1/bbl rise in the crude oil price boosts Regal’s
NAV by c.2.7% compared to less than 2% for the European peers.
…and the stock is the cheapest in the sector
Regal is currently the cheapest stock in our coverage universe on both NAV and
reserve valuation, trading at: (1) a c.65% discount to our new 180p/sh total risked
NAV (based on a long-term US$72/bl oil price) vs the peer average discount of
20%, and (3) US$0.7/boe (US$1.5/boe booked 2P reserves), more than a 90%
discount to the European E&P average of US$10/boe.
While we think the key catalysts for Regal are operational updates and M&A, we
also like its oil price gearing, given a positive long term oil outlook. Regal’s NAV is
the most oil price-sensitive in the sector, thanks to a favourable Ukrainian tax
regime. We estimate that a US$1/bbl rise in the crude oil price boosts Regal’s
NAV by c.2.7% compared to less than 2% for the European peers.
…and the stock is the cheapest in the sector
Regal is currently the cheapest stock in our coverage universe on both NAV and
reserve valuation, trading at: (1) a c.65% discount to our new 180p/sh total risked
NAV (based on a long-term US$72/bl oil price) vs the peer average discount of
20%, and (3) US$0.7/boe (US$1.5/boe booked 2P reserves), more than a 90%
discount to the European E&P average of US$10/boe.
Regal Petroleum (RPT:LSE): Last: 70.00, up 3.75 (+5.66%), High: 71.75, Low: 67.00, Volume: 7.11m
12:04PM
PM:
good point at which to end this session, i think
PM:
Thanks for joining us today
PM:
Thanks for comments
PM:
hang on — Neil has something late
PM:
For those with an interest in the middle east…
NH:
yes
NH:
buy Saudi real estate
PM:
PM:
Who says that??
NH:
Credit Suisse
PM:
A Saudi broker?
NH:
shall we put some into the H&M portfolio?
PM:
Er, no
NH:
Event: We initiate coverage of two Saudi real estate developers: Saudi Real
Estate Company (Al Akaria) and Dar Al Arkan (DAAR).
Estate Company (Al Akaria) and Dar Al Arkan (DAAR).
Al Akaria (Outperform, TP SAR34.1 per share) has a differentiated business
model from other real estate developers in the region as it owns and manages
its real estate developments instead of selling them. Al Akaria owns and
manages various residential, retail and office centres in Riyadh with high
historical occupancy rates of 90% across its portfolio.
PM:
We’d never visit to check the assets
NH:
Dar Al Arkan (Neutral, TP SAR25.5 per share) is the largest real estate developer
in Saudi Arabia and offers direct exposure to the housing market. The company has
historically depended on high-margin land sales, contributing c75% on average of
revenues from 2006.08. We are concerned about the long-term sustainability of this
model given its high sensitivity to land and property sales prices.
in Saudi Arabia and offers direct exposure to the housing market. The company has
historically depended on high-margin land sales, contributing c75% on average of
revenues from 2006.08. We are concerned about the long-term sustainability of this
model given its high sensitivity to land and property sales prices.
NH:
We believe that the Saudi real estate market offers a strong growth
opportunity and is better positioned than other GCC markets:
1. The government is committed to development expenditure in the
2009 fiscal budget (an increase of 36% from 2008) and efforts at
diversifying into non-oil sectors should put the economy back on track.
2. We have a positive view on Saudi Arabia.s housing sector from a
top-down perspective on the back of favourable demographics and a
strong demand outlook (we estimate demand for housing in Saudi
Arabia to reach at least 1m units over the next five years)
3. New mortgage law: We believe the new mortgage law (currently in the
final stages of approval) could potentially lead to an increase in the
number of first-time home buyers as less than half the population own
their homes (consumer finance was less than 0.9% of GDP in 2008).
4. Saudi is an attractive real estate market in a regional and global
context with average residential selling prices at a 58% discount to the
MENA average. In addition, Saudi residential and office markets offer
above-average rental yields.
5. The KSA is yet to experience retail growth: Despite Saudi
accounting for 65% of the total GCC population, its total retail Gross
Leasable area (GLA) is only 45% of the GCC total, offering the
opportunity for growth.
opportunity and is better positioned than other GCC markets:
1. The government is committed to development expenditure in the
2009 fiscal budget (an increase of 36% from 2008) and efforts at
diversifying into non-oil sectors should put the economy back on track.
2. We have a positive view on Saudi Arabia.s housing sector from a
top-down perspective on the back of favourable demographics and a
strong demand outlook (we estimate demand for housing in Saudi
Arabia to reach at least 1m units over the next five years)
3. New mortgage law: We believe the new mortgage law (currently in the
final stages of approval) could potentially lead to an increase in the
number of first-time home buyers as less than half the population own
their homes (consumer finance was less than 0.9% of GDP in 2008).
4. Saudi is an attractive real estate market in a regional and global
context with average residential selling prices at a 58% discount to the
MENA average. In addition, Saudi residential and office markets offer
above-average rental yields.
5. The KSA is yet to experience retail growth: Despite Saudi
accounting for 65% of the total GCC population, its total retail Gross
Leasable area (GLA) is only 45% of the GCC total, offering the
opportunity for growth.
NH:
we could never visit, much too hot
PM:
And you cant drink
PM:
Well, can drink apple juice, bu tthat gets boring
NH:
deffo rules us out then
NH:
Saudi off the investment list
NH:
and Lorcan
NH:
not sure what happened to the post
NH:
you must have been caught in the spam filter
NH:
and finally
NH:
the LSE have been in touch
NH:
they want to point out that the volume discount scheme
NH:
will benefit the black boxes
NH:
as well as the aggressive traders
NH:
‘black box’ traders employ lots of different strategies, and they will all benefit from the fact that we’ve made the volume discount scheme much cheaper, as well as the predictability of the new fees structure and greater execution certainty because of lower costs on the demand side
NH:
hope that’s cleared things up
12:08PM
PM:
And finally here is some lunch time reading
PM:
although i am having difficulty with the link
PM:
From Naked Capitalism
PM:
Michael Lewis has done a fresh number in Vanity Faire
PM:
fair
PM:
The Man Who Crashed the World Michael Lewis, Vanity Fair
PM:
On AIG
PM:
But gotta go
PM:
Thanks — we will be back tomorrow at 11am
NH:
see u all then