FT Alphaville » US Markets Live transcript 8 Apr 2011

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US Markets Live transcript 8 Apr 2011

Posted by John McDermott on Apr 08 15:02.

Markets Live chat transcript for the chat ending at 15:08 on 8 Apr 2011. Participants in this chat were: John McDermott Joseph Cotterill, FT Cardiff Garcia

Morning everyone

Cardiff just sorting himself out

He’s depressed because his govt might shutdown

Technical glitches

We’ve obviously hired the same folk that the Portugese PM used to make his speech the other day

@wphilt –both seemingly

Hello there

Let’s do a quick once round while CG fixes up

We’re back

Sorry guys

Aha, they’re you are

I missed you

Let’s get going

Yes

Thanks

but I thought you brits were the unsentimental types

Jeez, ML is glitchier than usual today

anwyays, lets’ do get going

Wait a minute!

What’s up Joseph

We need to get some British meedja navel-gazing out of the way first

S&P 1,335.94 +2.43 (0.18%)

okay, go for it — media navel gazing, always a favorite

We can’t have all this American stuff in US ML. It’s not on

Brent crude at $123!

From Pestonwire

Oh hang on the alert isn’t working – Robert Peston

10 yr treasuries testing 3.60

News International says sorry for phone hacking and sets up compensation fund to settle claims from some litigants.

that’s nice of them

or something

Big media story in the UK. Sorry, on with the macro

euro at 1.4433 at pixel time

bad day for the dollar all round

yes: Greetings from New York! where

the sh!t show begins at midnight

you mean the shutdown?

well, that too I suppose

I’m going to post the latest updates on that, but first

John, you’ve got today’s trivia question for the Rabble?

no cheating

@Rem123 — no, more on which in a bit, last days of risk on…

yup

Thinking back to the last major shutdowns

What is X when
1995 oil price = X?
Deficit as a % of GDP = X?
Debt as a % of GDP = X?

We’ll come back to that at the end

okay, on with it

first

But what’s the latest?

First off, Obama wins the prize for understatement

After a late-night meeting ending with no agreement, he says

“I’m not yet prepared to express wild optimism.”

no kidding

Anyways,two things separate the republicans and democrats

First, obviously, the cuts themselves

Now down to $5bn

Or as the Washington Post writes

“That amounts to 0.005 of the trillion dollars in spending Congress doles out each year. Five one-thousandths.”

Then there’s those damn policy riders

These are the extra provisions that Republicans inserted in their own

FY 2011 spending bill earlier this year, HR1

And some of those are just weird, or hilarious

Prohibits funds to implement or enforce the Travel Management Rule

And my favorite

Prohibits NASA from collaborating with China

But the only two that actually matter for the FY 2011 budget

are the riders that prohibit funding for

Planned Parenthood (the abortion issue) and

the one prohibiting funding for the EPA

Or as Harry Reid says

“The only thing — the only thing- holding up agreement is that the Republicans are drawing the line on ideology.”

Yep, that’s what we’re down to

Anyways, a quick scan of the headlines

@Dirck, if you spot that before us, let us know!

Fresh off the wires

Friday, April 08, 2011 10:09:41 AM RTRS – REID SAYS DEMOCRATS, REPUBLICANS HAVE AGREED TO $38 BLN IN SPENDING CUTS IN BUDGET TALKS

@wphilt, agreed — they’re taking the bigger political gamble here

woa!!

At last — but we’re still down to the riders

Friday, April 08, 2011 10:08:53 AM RTRS – REID SAYS ALL PROPOSED REPUBLICAN POLICY CHANGES EXCEPT PLANNED PARENTHOOD ARE RESOLVED

(deflates)

Friday, April 08, 2011 10:14:06 AM RTRS – REID SAYS SENATE WILL VOTE ON ONE-WEEK STOP-GAP BUDGET BILL ON FRIDAY, DIFFERENT FROM HOUSE VERSION

so close. this is like the health care debate

Friday, April 08, 2011 10:06:10 AM RTRS – REID SAYS DEMOCRATS “NOT BENDING ON WOMENS HEALTH”

which might be the funniest quote of the day

pilates politiics

*politics

well said

right then, let’s have a quick look around the markets, shall we?

wait, my scottish comrade front-ran me while i was fixing technical glitches

so let’s move on and we’ll update as relevant

John, what about the longer-term impact?

Good question

Could be minimal

i ask no other kind

But we don’t know yet

These riders might not get through

So let’s imagine…

But first

Some context

1. The impact depends on how long it runs for

2. The debt ceiling runup is widely seen as more important to Treasuries, USD etc

3. The two shutdowns in 1995-6 (Dec and Jan) were in very different times

Anyway…

here’s what could happen according to the experts

Headlines have tended to focus on those furloughed employees

(furlough: from the Dutch, Dutch verlof, from ver- for- + lof leave, permission;)

Here’s what we know from last time via Nomura

According to the Office of Management and Budget (OMB), 747,000 civilian defense and nondefense employees were furloughed during the first shutdown in 1995-1996 and about
284,000 nondefense employees were affected by the second shutdown. The 747,000 federal workers laid off during the first shutdown in late 1995 accounted for 36.3% of federal, non-postal service workers.

⅔ of federal workers are deemed essential

Based on the first shutdown figure we’ve seen estimates of around 1m workers

But it’s important to remember that this is based on the first shutdown figure, not the second
We don’t yet have a good sense of this year’s number

or as one reporter said earlier: “I’ve been having way too much fun asking government employees is if they’re ‘essentia’ this week.”

haha

If the 1995-96 shutdowns are any guide

Workers will be paid retroactively once any shutdown ends.

Will also be eligible for UI

On GDP…

The BEA estimates imply that the shutdowns [of 1995-6], which occurred over 13 business days during the quarter, resulted in the loss of less than five days worth of consumption and gross investment by the nondefense federal government sector

they get back pay, right?

Given that the combined duration of the government shutdown was 26 days, 20 days of which fell in Q4 1995, the almost three-week shutdown depressed the economic growth by 0.27pp-0.5pp during the quarter. This implies that the negative impact per week of shutdown would be about 0.09pp-0.17pp, a figure that is not negligible but manageable.

when it’s over?

@Freebooter: POMO continues

@loafer, we wish

@loafer: we’ll give you 5%

yes

cardiff

they will get back pay

if it’s the same as 1995-6

so they may also get a copy of what’s the story morning glory

GDP impact then fairly small

But could really screw the figures

As could the rest of the data shortages

Because all non-Fed data will be delayed

Look what happened last time

The [GDP] data suggested the US might be “stumbling into recession” and our early April forecast update estimated Q4 1995 GDP growth at 0.5% and forecast Q1 1996 at a feeble 1.7%. With the benefit of hindsight and fully revised and refined data, we now know that real GDP grew at annual rates of 2.8% in each of those quarters on the way to a 7.1% spurt in Q2 1996 (and 4.4% for all of 1996). Judging from that experience the lesson might be to disregard the first batch of any data that arrives after any shutdown.

next week is a big week, too

Bernanke will love that

in econ indicators, i mean

Also, remember: payrolls measured on the week of the 12th of every month

yep

plus retail sales coming out

Then there’s all those essential regulatory functions

everybody excited about them after big same-store sales numbers this week

Or, non-essential more like it

@Rem123: that’s correct

They said the website might not be update either, FWIW

Fed Reserve research continues

@praxis22, the adult supervision will be here directly, probably with something about UK small caps

But stuff by the agencies, probably slows down

at which point I’ll step out for a coffee

But on to the dollar for a second

Getting battered

yes

So a few people

Saying this is because of the shutdown

EUR at 1.442 now, Yen at 85.07

Which is a little lazy

Pound at 1.638

Credit Suisse had it right in a note this morning

Budget talks drag on. With no US data, markets will focus on the budget talks as the 22 GMT deadline for avoiding at least a brief government shutdown approaches. We think a short government shutdown will have limited impact but, with the USD under pressure anyway, would likely be cited as an additional factor justifying bearish trades.

for EUR and GBP that’s the strongest since Jan 2010

More accurately

Secular trends in EURUSD are back

The carry trade is back.

From CS again

Great

A final, important point is that carry dynamics are intersecting with intervention policy with increasing force. We understand that the week to 6 March has seen essentially the largest inflows into dedicated EM debt funds this year. Within this, local currency debt is the dominant flow. Unless a new shock to risk appetite emerges soon, this implies increased reserve manager recycling into EUR, CAD, and AUD, in our view.

@Tim Benzedrine, very helpful indeed

And from Forex

We are in an interesting new paradigm for the markets and the next few weeks will be critical for the direction of the major FX crosses. There are some key event risks coming up. For the dollar there is potential government shut-down today and then negotiations to increase the debt ceiling in the next few weeks that could dent investor sentiment. For the euro, investors should look out for more hawkish comments from the ECB. Trichet kept his cards close to his chest yesterday and gave nothing away as to the pace and extent of future rate increases. Right now 2-hikes are priced in, to keep the euro at elevated levels we will need to see the ECB commit to further rate hikes going forward.

Shutdown?

Still a possibility

Depending on planned parenthood

of all things

(this really is the 1990s)

any impact likely to be a bit worse than 1995-6

but we don’t know

wait, joseph’s back

you can all wake up

something on the EUR

@deathy by bailout: morning!

or maybe not..

Actually, more bleeding EURUSD and the shutdown into one nice bearish puddle of gore…

So! How about that Donald Trump?

wait, he’s back

This is a nice note by Stephen Gallo of Schneider FX

Oil above $124

EUR, USD – The ‘store of value’ play: get used to it

In some very important ways, activity in the foreign exchange markets is starting to look like nothing more than a good old fashioned U.S. dollar rout. This trend has been building for some time – throwing our numerical forecasts into jeopardy – but we have to admit that the moves in foreign exchange markets this morning seem to presage a new phase of intensity in the ‘store of value’, ‘carry’ and reflationary trades which routinely tend to dent demand for dollars to one degree or another.

While ‘carry’ flows and the manner in which they affect currencies with yield advantage have definitely been captivating the short-term sector of the foreign exchange markets, we have some important questions about whether or not there are some longer-term forces at play in the dollar’s ongoing weakness. Our longer-term forecasts for USD imply an ongoing, secular shift away from USD for reserve purposes, but we wonder whether or not various factors (monetary policy stance, global imbalances, sovereign debt risks, geopolitics) are causing this shift to occur sooner, and more rapidly than we had been anticipating…

That is to say

What must all those Asian central bank dollar-buyers think of the shutdown?

Time to roll out those SDRs

(cf. dollar deval in the context of Asian currencies lately)

The world could adopt imaginary money

While the US adopts new currencies in all 50 states

Speaking of SDRs

(as per Utah)

Did anyone catch this?

IMF says worth exploring borrowing from markets

WASHINGTON, April 7 (Reuters) – The International Monetary Fund said on Thursday it was worth exploring ways that the global institution could borrow from financial markets at short notice to raise additional funding for its lending programs…

Get those low rates while you can

It’s like a throwaway line in an IMF paper on the G20

But – in a world lacking a) AAA assets b) sovereign funds for the IMF

Interesting. Anyway, I’m digressing.

3:36PM

Where next? Oil?

(nice digress: Republican budget cuts to FY2012 cld also reduce IMF contributions)

Oil, yes

Wait

Not just planned parenthood

Friday, April 08, 2011 10:36:43 AM RTRS – DEMOCRATS, REPUBLICANS STILL DON’T AGREE ON DEFENSE CUTS IN U.S. BUDGET TALKS – REPUBLICAN AIDE

GET ON WITH IT!

John is frustrated by US politics

back to oil

Things were apparently more orderly in the UK

Yes?

Right, oil

brent at 124.56

(no comment but you know who I used to work for)

WTI at 111.36

any thoughts?

Nigerian elections?

Libyan stalemate

Btw, gold at 1468

Or — the COMMODITY COMPLEX

With all these other bubble thingies – sorry, commodities – on a tear

I have a bit on Libya and Nigeria from BarCap

The whole bit. But who knows? Dollar taking a shellacking; this always happens in commods

Let’s start with Libya

Take it away…

Recent press reports suggest that there have been attacks by pro-Gaddafi forces on oilfields in areas controlled by anti-Gaddafi forces in south-eastern Libya during the last few days which have resulted in the shutdown of output at three oilfields: Misla, Waha, with the latest one being Sarir. These fields have recently been producing about 100 thousand b/d in total but have a combined output capacity of about 400 thousand b/d. Although the extent of the damage is unclear, this, in our view, is perhaps the ultimate blow to those optimists who had hoped for a speedy recovery in the Libyan situation or at least had expected a steady flow of oil exports from the Eastern part of Libya…

Though reports of crude cargoes being lifted from Tobruk continue (the facility has some 2 mb of crude in storage), without production from oilfields, the stock of oil is unlikely to go very far in ensuring a steady stream of flow out of Libya. Clearly, these attacks have stymied efforts of crude exports from areas controlled by Agoco. That some of these fields may sustain permanent damage as the battle continues cannot be ruled out, cementing our view that the sum total of Libyan exports over the course of this year is likely to be extremely minimal, with the likelihood of that duration being prolonged increasing and pushing Libya back to the brink.

BarCap have been warning of long-term output problems for weeks

On the ball

(Agoco = the rebels’ oil company)

Yes, BarCap are very much ‘Goodbye Spare Capacity’ in the oil market

And were warning of tightness well before Egypt. Prescient

So, apparently, is the IMF

showing up a bit late to the party, but

The increases in the trend component of oil prices suggest that the global oil market has entered a period of increased scarcity. The analysis of demand and supply prospects for crude oil sug- gests that the increased scarcity arises from contin- ued tension between rapid growth in oil demand in emerging market economies and the downshift in oil supply trend growth. If the tension intensi- fies, whether from stronger demand, traditional supply disruptions, or setbacks to capacity growth, market clearing could force price spikes, as in 2007–08.

In Libya

Are we seeing the impact of a stalemate sans ground troops

Bureaucratese for ‘Peak Oil’, that

+ Gaddafi still managing to keep some form of govt going despite the defections?

Not ending as fast as some thought

Reuters

There are signs now the internal crisis has passed. Gaddafi’s son Saif al-Islam has given interviews to the media, officials are back at work and the state media has reported a flurry of instructions from government ministries.

Dunno about that. Usually when Saif opens his mouth they come a cropper

True.

As per the ‘bloodbath’ threat to the rebels before the no-fly zone

But still, no Libyan light sweet crude for a good year, it looks like

Just commenting that despite the defections there is more functioning than has been expected in DC, Whitehall, etc.

Dictators don’t go easily, etc etc

True. So long as they get cash from somewhere.

Anyway, back to a democracy, you had stuff on Nigeria?

(Rem123 – Cushing syndrome as bad as usual)

Yep – just back to BarCap

Making matters worse for the oil market are the approaching elections in Nigeria (where elections have already been postponed by a week due to logistical issues), as more light, sweet crude production remains prone to disruption. Violence in oil rich states of Akwa Ibom and Balyesa has already risen sharply (states that have usually witnessed less violence during past elections) and thus even higher volumes of outage from this current election cycle is likely a strong possibility. With Nigerian crude quality similar to that of Libyan crude, any loss from Nigeria is likely to put further significant upward pressure on light-heavy differentials, along with posing outright upside risk to benchmark oil prices.

Elections start this weekend and go on for a few weekends yet.

time for the saudi special brew?

There have been delays / some violence. One to watch

Speaking of delays though

Well, no – the Great Saudi Oil Swap has really been predicated on safe supplies from West Africa

Interesting

And there are other ways Nigeria is important

It provides 7% of global LNG supply, mostly Europe’s LNG needs

And LNG is tight atm because of Japan’s needs owing to the nuclear shutdowns

Definitely one to watch then

natgas prices

Thus, plenty of supply chain risk ahead.

+ widespread reports of further violence in Yemen and Syria

but back to your side of the pond JC

anything you want to add on Europe

I see the Greeks are playing ball

3:51PM

Well, on Greeks and playing ball…

Friday, April 08, 2011 10:43:55 AM RTRS – RPT-GREEK ADVISER PAPADEMOS SAYS GREEK PM FULLY COMMITTED TO FULL IMPLEMENTATION OF ECONOMIC ADUSTMENT PROGRAM

@Lorcan: what!?

They’ve just come the closest yet to admitting the 2010 deficit will be over 10 per cent of GDP, versus the target of 9.4

Lots of gossip about this – the official figures aren’t out yet

RTRS-PAPADEMOS SAYS BELIEVES GREECE’S 2010 DEFICIT-TO-GDP RATIO LIKELY TO BE MORE THAN 10 PER CENT

Interesting. Anything else going on over there?

Oh, just Portugal falling apart

I have fatigue about Portugal fatigue

We’ve finally got official details on when the bailout deal can be completed

May 16

Euro-area and EU financial support will be provided on the basis of a policy
programme which will be supported by strict conditionality and negotiated with the
Portuguese authorities, duly involving the main political parties, by the Commission,
in liaison with the ECB, and the IMF. The preparations will start immediately to reach
a cross-party agreement ensuring that an adjustment programme can be adopted by
mid-May and implemented swiftly after the formation of a new government.
The programme will be based on three pillars:
- An ambitious fiscal adjustment to restore fiscal sustainability.
- Growth and competitiveness enhancing reforms by removing rigidities in the
product and labour markets and by encouraging entrepreneurship and innovation,
allowing for a sustainable and balanced growth and unwinding internal and
external macroeconomic imbalances, while safeguarding the economic and social
position of its citizens. This should include an ambitious privatisation programme.
- Measures to maintain the liquidity and solvency of the financial sector.

Ambitious… ambitious…ambitious

Portugal ten-year bond yield hasn’t really budged post-bailout, sadly.

Ireland, however – big drop from 10 to (er) 9.2 per cent since last week’s stress tests

Someone’s actually buying

Bold

Thanks JC

Lorcan – indeed

Interesting comments from @Lorcan

Thanks Joseph

Cardiff is back

Now that the non-US talk is over

Friday, April 08, 2011 10:52:33 AM RTRS – SENATE REPUBLICANS WOULD ALLOW A VOTE TO AVERT GOVERNMENT SHUTDOWN IF A BUDGET DEAL IS IN PLACE — AIDE

THERE IS A DEAL IN PLACE

yes, don’t want to talk over my friends with the funny accents

GET ON WITH IT

allow a vote?

@Rem123, watching

live feed of beohner: http://www.washingtonpost.com/wp-dyn/content/video/2005/04/12/VI2005041201139.html

He’s been chain smoking

That should be Obama’s tactic

that was quick

Friday, April 08, 2011 10:58:57 AM RTRS – U.S. HOUSE SPEAKER BOEHNER SAYS STILL NO AGREEMENT ON BUDGET SPENDING CUTS, BUT CLOSE ON POLICY ISSUES

JB will take it to the wire

horse shoes and hand grenades

He needs to show he’s being as “tough” as possible

not budget talks

@opamp, nice spot

yeah, well, there’s a lot of talk this morning about

Breaking

Friday, April 08, 2011 11:00:00 AM RTRS – U.S. EXTENDS LIBYA ASSET-FREEZE SANCTIONS TO 5 SENIOR LIBYAN GOVERNMENT OFFICIALS, TWO ENTITIES CONTROLLED BY GADDAFI’S CHILDREN

how a shutdown should happen now if it’s going to happen at all

Friday, April 08, 2011 11:00:00 AM RTRS – U.S. SANCTIONS AGAINST LIBYA PRIME MINISTER, OIL MINISTER, FINANCE MINISTER, GADDAFI’S CHIEF OF STAFF AND LIBYA’S INTERNAL SECURITY DIRECTOR

News Corp

@Paul, down 1.47% last i checked

17.03
-0.26 (-1.47%)

US markets overall flat on the day

i’m guessing volumes still very thin

anyways

it’s time to close up shop

No report on News Corp on the WSJ home page btw

Funny, that

and hey Lorcan, come by and say hello next week if you’ve got time

John, any parting shots?

we skipped BP-Rosneft

and the start of earnings season next week

Only that I’m not doing a midnight Shutdown live

we’ll kick that off Monday, if it’s still relevant

Bye everyone

Rabble, thanks again

we’re out of here

Ciao

Murphy/Lorcan… take it offline Emoticon

@wphilt

Great point

Here we go

What is X when
1995 oil price = X?
Deficit as a % of GDP = X?
Debt as a % of GDP = X?

The trivia questions!

In order

$18 (WTI)

so long as taxloss didn’t answer right, in which case we’d have to change the answers

2.2% (deficit)

49.1% (debt)

Compared with…

$18, a different world

$110 ish

62%

(and rising)

Still, at least Newt Ginrich isn’t still around

Wait

Friday, April 08, 2011 11:04:09 AM RTRS – US SENATE DEMOCRATIC LEADER REID SAYS “VERY HOPEFUL” CAN REACH BUDGET DEAL TODAY

So are we Harry, so are we

Bye everyone

for real this time, we’re out

ciao

See you at 11:59pm

This entry was posted by John McDermott on Friday, April 8th, 2011 at 15:02 and is filed under Uncategorized. Edit this entry.

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US Markets Live transcript 8 Apr 2011

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