Markets Live chat transcript for the chat ending at 11:21 on 18 Aug 2011. Participants in this chat were: Neil Hume, FT bryce.elder
NH
Bonjour markets rabble
NH
welcome to Markets Live
NH
with added headgear this morning
NH
that’s right
NH
we’ve had to stick the
NH
NH
back on
NH
chin strap still fairly loose
NH
but it could be tightened as the day goes on
NH
Dow futures looking down 180 points
BE
Yeah, there’s not much to be cheery about this morning.
BE
FTSE currently 1.9% lower.
BE
Down a tonne at 5230.
NH
well
NH
England have won the toss at the Oval
NH
and are batting
NH
and I have a ticket
NH
so it’s not all bad
NH
right
NH
this market swoon
NH
I have one question
11:07AM
NH
What’s been the trigger?
NH
What’s sparked it?
NH
any offers?
BE
Um ………………
BE
“Eurozone crisis.”
BE
Even though there’s nothing much new to say there.
BE
Um ………… A-Level results?
BE
All the fund managers have realised that sending their kids to Eton …..
BE
Cost them £20k a year.
BE
And for that, they got an ungraded in Geography?
BE
That’s the best I can offer.
BE
You got anything better?
NH
well, I’m going for global growth fears
NH
on the back of the Morgan Stanley downgrade
NH
and the fact we went up on nothing
NH
no volume, no reason
NH
so we can come down on it
NH
and then
BE
(@Milky: yellow for schadenfreude.)
NH
there’s the shorting ban
NH
apparently people are being told
NH
in Europe anyway
NH
they can’t roll future positions on the Dax and Cac
NH
and everyone has suddenly realised
NH
there not as hedged as they thought
NH
Here’s how it was explained to me
NH
Outside of the recession, the Financials short ban did not really trigger any response until today/tomorow (expiry day). – In short, People can’t roll their EuroStoxx shorts (expiry tomorrow), especially in the restricted stocks as regulator is saying they are New short positions, the same for the DAX components too & therefore, not allowable. – Then throw in the the fact that the SX5E/DAX Index traders (with non shortable Bank components) is distorting the ‘cash and carry arb’ traders calculus & as a result, the Regulators intention to ‘calm’ the mkt is causing the exact opposite. To summarize, all your index hedges are not as hedged as you thought they were prior to this expiry. (And to think SSR was SO 2008!)
BE
Hm.
BE
This is interesting.
BE
Unexpectedly unhedged to have to sell longs.
BE
It’s plausible.
BE
I’m not sure I can believe it’s the lone catalyst, but it’s certainly a neat theory.
NH
well
NH
I’m sure it’s not helping
NH
Reuters are blaming nagging worries over Europe’s debt situation for the fall
NH
on top of that
NH
there was a pretty worrying report in the WSJ today
BE
Go on.
NH
Federal and state regulators, signaling their growing worry that Europe’s debt crisis could spill into the U.S. banking system, are intensifying their scrutiny of the U.S. arms of Europe’s biggest banks, according to people familiar with the matter.
NH
The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.
NH
Officials at the New York Fed “are very concerned” about European banks facing funding difficulties in the U.S., said a senior executive at a major European bank who has participated in the talks.
Regulators are seeking to avoid a repeat of the 2008 financial crisis, when the global financial system began to seize up. This time the worry is that the euro-zone debt crisis could eventually hinder the ability of European banks to fund loans and meet other financial obligations in the U.S. While signs of stress are bubbling up, the problems aren’t yet approaching the severity of past crises.
NH
Something?
NH
Nothing?
NH
I don’t know
NH
but following news
NH
someone tapped the ECB for $500m yesterday
NH
and if we look at the fallers today
NH
well, they are banks
Barclays PLC (BARC:LSE): Last: 165.30, down 8.65 (-4.97%), High: 172.45, Low: 164.30, Volume: 18.04m
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 23.49, down 1.26 (-5.09%), High: 24.55, Low: 23.41, Volume: 27.77m
NH
and the global growth scare stocks
Xstrata PLC (XTA:LSE): Last: 1,030, down 52 (-4.81%), High: 1,065, Low: 1,016, Volume: 4.85m
Glencore International PLC (GLEN:LSE): Last: 377.20, down 17.8 (-4.51%), High: 392.60, Low: 373.80, Volume: 2.03m
Kazakhmys PLC (KAZ:LSE): Last: 1,002, down 42 (-4.02%), High: 1,027, Low: 983.50, Volume: 734.80k
NH
and
Burberry Group PLC (BRBY:LSE): Last: 1,294, down 53 (-3.93%), High: 1,337, Low: 1,275, Volume: 417.58k
BE
Right.
BE
So we have wholesale funding showing signs of ceasing up.
BE
At the same time as global growth threatens to drop off a cliff.
BE
And, on top of that, an unintended consequence of a dumb legal action creating selling pressure.
BE
I thin I’m getting the picture now.
NH
want a blast of this Morgan Stanley note
NH
which is getting lots of play today?
BE
Sure.
BE
(@Loafer: I’m in no mood for gittishness today. Straight red.)
NH
US and Europe – Dangerously Close to Recession
Our US and Europe Economics teams are now more
concerned on the growth outlook for their respective regions
primarily due to the expected fiscal tightening. As our team has
been highlighting, in a post credit bubble world, with the private
sector in deleveraging mode, the role of fiscal policy tends to be
important in supporting aggregate demand. Recent debate in
both Europe and US around the sustainability of sovereign
debt has increased the risks of fiscal tightening and hence the
downside risks to growth. Here is a quick summary on the
framework of views on global growth outlook from our Head of
Global Economics, Joachim Fels:
Our US and Europe Economics teams are now more
concerned on the growth outlook for their respective regions
primarily due to the expected fiscal tightening. As our team has
been highlighting, in a post credit bubble world, with the private
sector in deleveraging mode, the role of fiscal policy tends to be
important in supporting aggregate demand. Recent debate in
both Europe and US around the sustainability of sovereign
debt has increased the risks of fiscal tightening and hence the
downside risks to growth. Here is a quick summary on the
framework of views on global growth outlook from our Head of
Global Economics, Joachim Fels:
NH
We cut our global GDP growth forecasts by a combined full percentage point in 2011/12, to 3.9%
combined full percentage point in 2011-12, to 3.9% from
4.2% in 2011, and to 3.8% from 4.5% in 2012. We now see
growth in the developed market (DM) economies averaging
only 1.5% this year and next (down from 1.9% and 2.4%
previously). While we had been calling for a BBB recovery in
DM all along, the path now looks even more bumpy, below-par
and brittle than previously thought. EM economies won’t be
immune to the DM slowdown, in our view. We now see EM
growth decelerating from 7.8% in 2010 to 6.4% this year (6.6%
previously), and further to 6.1% (6.7%) in 2012. While this
keeps EM GDP cruising above its 20-year trend rate of 5%, it
implies a significant further cooling of growth compared to last
year’s bonanza.
combined full percentage point in 2011-12, to 3.9% from
4.2% in 2011, and to 3.8% from 4.5% in 2012. We now see
growth in the developed market (DM) economies averaging
only 1.5% this year and next (down from 1.9% and 2.4%
previously). While we had been calling for a BBB recovery in
DM all along, the path now looks even more bumpy, below-par
and brittle than previously thought. EM economies won’t be
immune to the DM slowdown, in our view. We now see EM
growth decelerating from 7.8% in 2010 to 6.4% this year (6.6%
previously), and further to 6.1% (6.7%) in 2012. While this
keeps EM GDP cruising above its 20-year trend rate of 5%, it
implies a significant further cooling of growth compared to last
year’s bonanza.
NH
2. A policy-induced slowdown. There are three main
reasons for our downgrade. First, the recent incoming data,
especially in the US and the euro area, have been
disappointing, suggesting less momentum into 2H11 and
pushing down full-year 2011 estimates. Second, recent policy
errors – especially Europe’s slow and insufficient response to
the sovereign crisis and the drama around lifting the US debt
ceiling – have weighed down on financial markets and eroded
business and consumer confidence. A negative feedback loop
between weak growth and soggy asset markets now appears
to be in the making in Europe and the US. This should be
aggravated by the prospect of fiscal tightening in the US and
Europe.
reasons for our downgrade. First, the recent incoming data,
especially in the US and the euro area, have been
disappointing, suggesting less momentum into 2H11 and
pushing down full-year 2011 estimates. Second, recent policy
errors – especially Europe’s slow and insufficient response to
the sovereign crisis and the drama around lifting the US debt
ceiling – have weighed down on financial markets and eroded
business and consumer confidence. A negative feedback loop
between weak growth and soggy asset markets now appears
to be in the making in Europe and the US. This should be
aggravated by the prospect of fiscal tightening in the US and
Europe.
NH
3. US and Europe dangerously close to recession: Our
revised forecasts show the US and the euro area hovering
dangerously close to a recession – defined as two consecutive
quarters of contraction – over the next 6-12 months. The US
growth disappointment in 1H11, when GDP advanced by an
annual average rate of less than 1%, illustrates the brittleness
of the US recovery in the face of external shocks (oil, Japan
earthquake), despite ongoing QE2 and fiscal stimulus at the
time. While the current quarter should still show some rebound
in growth to around 3% from the very low bar in 1H, much of
this rebound is likely due to temporary factors such as the
ramping up of auto production as supply disruptions from the
Japan situation ease. The most critical period for the US
economy will likely be 4Q11, when we may see some fallout
from the heightened volatility of risk markets, and 1Q12, when
we get an automatic tightening fiscal policy if, as our US team
currently assumes, this year’s fiscal stimulus measures will
expire.
revised forecasts show the US and the euro area hovering
dangerously close to a recession – defined as two consecutive
quarters of contraction – over the next 6-12 months. The US
growth disappointment in 1H11, when GDP advanced by an
annual average rate of less than 1%, illustrates the brittleness
of the US recovery in the face of external shocks (oil, Japan
earthquake), despite ongoing QE2 and fiscal stimulus at the
time. While the current quarter should still show some rebound
in growth to around 3% from the very low bar in 1H, much of
this rebound is likely due to temporary factors such as the
ramping up of auto production as supply disruptions from the
Japan situation ease. The most critical period for the US
economy will likely be 4Q11, when we may see some fallout
from the heightened volatility of risk markets, and 1Q12, when
we get an automatic tightening fiscal policy if, as our US team
currently assumes, this year’s fiscal stimulus measures will
expire.
NH
4. Europe’s woes to continue. The ECB’s past rate hikes and,
more so, the sovereign crisis and the additional fiscal policy
tightening as well as the banking sector funding stress it
produces, will take an additional toll on growth, in our view. Our
European team now sees euro area GDP broadly stagnating
later this year and in early 2012. Thus, it won’t take much to tip
the balance towards recession, especially as a final resolution
of the debt crisis (in the form of fiscal transfers or common bond
issuance) is likely to be very slow in coming. Against this
backdrop, our European team has slashed its already
below-consensus 2012 euro area GDP forecast from 1.2% to a
mere 0.5%. In our view, despite the problems in the US, the
euro area is clearly the weakest link in the global chain.
more so, the sovereign crisis and the additional fiscal policy
tightening as well as the banking sector funding stress it
produces, will take an additional toll on growth, in our view. Our
European team now sees euro area GDP broadly stagnating
later this year and in early 2012. Thus, it won’t take much to tip
the balance towards recession, especially as a final resolution
of the debt crisis (in the form of fiscal transfers or common bond
issuance) is likely to be very slow in coming. Against this
backdrop, our European team has slashed its already
below-consensus 2012 euro area GDP forecast from 1.2% to a
mere 0.5%. In our view, despite the problems in the US, the
euro area is clearly the weakest link in the global chain.
NH
It goes on
NH
but I’m sure you get the picture
BE
I do, yes.
BE
Something interesting from Citigroup’s just dropped through as well.
BE
Extended bear market declines occur almost exclusively around a corporate profits recession…to get an earnings collapse from here, we need to see a combination of: 1) considerably higher RoEs, 2) faster capex growth, 3) more extreme stress in inter-bank markets, and 4) wider credit spreads… our analysis suggests the probability of a global profits collapse is rising but is still low: in with lower GDP forecasts, we now expect 9% global EPS growth for 2012… to be sure, bottom-up consensus expectations look too high at 15%… however, our analysis suggests stock prices are implying a 5-10% fall, which is too low… so while we lower our MSCI ACWI end-2011 target to 360 (from 380), we believe stock prices can continue to grind higher over the next 18 months with EPS… our current target is 17% higher than where the market is now… and for 2012, we forecast market gains of a further 8% to 390’.
NH
nice to have
NH
the counter argument I guess
BE
Indeed. It’s a different conclusion based on largely the same evidence.
11:21AM
NH
Oh another theory on the sell off
NH
how about this
NH
threat to any more bailouts
NH
Aug. 18 (Bloomberg) — Austria will join Finland in asking Greece for collateral in exchange for new emergency loans, highlighting obstacles to the approval of the Mediterranean country’s second bailout package.
“It always was our position in the council that if there is a collateral setup, Austria will participate,” Harald Waiglein, a spokesman for Austria’s Finance Ministry, said today in a telephone interview from Vienna.
“It always was our position in the council that if there is a collateral setup, Austria will participate,” Harald Waiglein, a spokesman for Austria’s Finance Ministry, said today in a telephone interview from Vienna.
NH
Finland’s collateral demands were included in a July 21 agreement by euro area leaders to provide a new 159 billion-euro
($229 billion) aid package for Greece and grant broader powers to the region’s rescue fund. At the summit, AAA rated Finland fought for extra assurances it won’t lose money on its bailout contribution. The July 21 agreement needs to be ratified nationally.
($229 billion) aid package for Greece and grant broader powers to the region’s rescue fund. At the summit, AAA rated Finland fought for extra assurances it won’t lose money on its bailout contribution. The July 21 agreement needs to be ratified nationally.
NH
The Netherlands, Slovakia and Slovenia have also expressed interest in getting collateral should the Finns manage to strike a deal, Waiglein said.
NH
doesn’t sound good
NH
would they take the Parthenon
NH
or Corfu?
BE
I could imagine Netherlands doing a deal for Faliraki.
NH
hmm
NH
popular with the Dutch holiday maker
BE
Plenty of synergies there.
NH
right
NH
some comment on that
NH
This (Finnish) arrangement looks similar to the guarantee mechanism for the private sector: a zero coupon bond that has at maturity the same payoff as the face value of the loan. The problem is that Greece does not have the money to provide the collateral. So it needs to borrow the required amount. For the private sector it was kind of implicit that the funds for the guarantee would be provided by the EU. However, if now also the smaller countries want to have a similar guarantee it would mean that the bigger countries (like France and Germany) would finance the guarantee for everybody else (the private sector AND the smaller states). This could develop into a deal breaker (and could explain the plunge in the DAX 1.5h ago).
NH
as interesting as this is
NH
we should move on
NH
to the real story of the day
11:24AM
NH
Sadly
NH
it looks as if the campaign
NH
by Chris Cook
NH
our education correspondent
NH
to ban only pictures of celebrating blond A-level girls
NH
is failing
NH
the wires are full of them
NH
Sky has it on loop
BE
Of course.
BE
BBC, bravely, pointed the camera at some spotty boys this morning.
BE
If only briefly.
BE
Anyway, Chris has been on this theme for some time.
NH
he has
BE
Do you have the link to his blog? I see it went viral again this morning, for about the third time.
NH
the shocking way private schools
NH
whore graphics
NH
of their pretty students to the papers
NH
here is said blog
NH
We’re just not that kind of newspaper
NH
Last year, I received an unsolicited voicemail from the press liaison at Badminton School in Bristol: “Hi Chris, . . .Just wanting to give you some details of some absolutely beyootiful girls we’ve got here who are getting their A-level results tomorrow. Some lovely stories . . . They’re amazing girls.” Bedales School in Hampshire helpfully supplies photos to journalists, sending out pictures of some of its pupils celebrating GCSE results. Oddly, it seems to forget to send out any photos of its male students (or its dowdier girls).
NH
Also, I’d like a bit more balance in the presentation of how happy A-level students behave. As the excellent “Sexy A-levels” blog documented at some length last year, photographers seem to think that a very large proportion of young women react to success in exams by jumping in the air while brandishing their exam results. These successful students also seem to go in for a lot of hugging, and standing about in groups, studying their results while ignoring lurking cameramen.
NH
talking of which
NH
it’s back
BE
Getting its once-a-year readership spike.
NH
it is
NH
and it’s very different in the state sector
NH
where you can’t enter a school without a full CRB check
BE
(@Anthrax: yellow. If you’re going to joke, try and make it a good joke.)
NH
much less take a picture
NH
As a rule, the state sector tends to be a lot less pushy about promoting its good-looking students. In fact, it tends to be paranoid about allowing journalists to even see children. Far from offering children to be snapped, one state school in Birmingham asked me to prove I had passed a Criminal Records Bureau check before they would allow me through the door. Fair enough, you might think. But I was going to be accompanied at all times by school staff when I was on the premises.
NH
Furthermore, I was, in fact, only there to look at the asbestos panels used throughout this school’s buildings (a particularly fine example of the style known as West Midlands dilapidation). And, crucially, my visit took place during the Easter holidays. There were no children at the school on the day in question.
NH
It gets worse. Even after I presented my credentials, photographs of the asbestos panels were not allowed. The risk that a child might break into the building, sprint past waiting members of staff and hurl themselves into shot was presumably very real indeed.
BE
Anyway, we’re dividing the ROTR between the Guardian and the Mail types now.
BE
So we really should move on before we all fall out.
11:30AM
NH
Where now?
NH
there a distinct lack of stock specific action this morning
BE
Anything with results is “down despite …..”
NH
did someone mention Google earlier?
NH
seen the break fee
NH
on the Motorola deal?
NH
RTRS-MOTOROLA MOBILITY HOLDINGS INC – SETS TERMINATION FEE OF $375 MILLION IN MERGER WITH GOOGLE
11:07 18Aug11 RTRS-MOTOROLA MOBILITY GOOGLE WILL PAY MOTOROLA $2.5 BLN IF IT IS UNABLE TO GET ANTITRUST CLEARANCES BEFORE CERTAIN DATE – SEC FILING
11:07 18Aug11 RTRS-MOTOROLA MOBILITY GOOGLE WILL PAY MOTOROLA $2.5 BLN IF IT IS UNABLE TO GET ANTITRUST CLEARANCES BEFORE CERTAIN DATE – SEC FILING
BE
Blimey.
BE
That rather underlines how defensive this acquisition is for Google.
BE
Patent land grab.
BE
They need to get it done to stop a competitor doing the same.
NH
quite
NH
staying in the software sector
NH
any reason
NH
other than the obvious
NH
for this
Autonomy Corp PLC (AU.:LSE): Last: 1,485, down 73 (-4.69%), High: 1,538, Low: 1,485, Volume: 312.34k
BE
Er …. not that I’ve seen.
BE
Sentiment against. Dell warning.
NH
let’s move on then
NH
the retailers
NH
how are they doing
NH
after the dismal retail sales number?
BE
Down, obviously. Everything’s down, which is the nub of our problem today.
Marks And Spencer Group PLC (MKS:LSE): Last: 335.10, down 4.6 (-1.35%), High: 337.70, Low: 332.50, Volume: 940.26k
Next PLC (NXT:LSE): Last: 2,207, down 35 (-1.56%), High: 2,226, Low: 2,184, Volume: 389.28k
Kingfisher PLC (KGF:LSE): Last: 230.00, down 5.5 (-2.34%), High: 234.20, Low: 228.20, Volume: 3.24m
Debenhams PLC (DEB:LSE): Last: 58.60, down 1.75 (-2.90%), High: 59.80, Low: 58.10, Volume: 658.88k
Dixons Retail PLC (DXNS:LSE): Last: 12.40, down 0.56 (-4.32%), High: 13.17, Low: 12.37, Volume: 5.62m
Kesa Electricals Plc (KESA:LSE): Last: 107.90, down 4 (-3.57%), High: 110.50, Low: 107.00, Volume: 758.52k
BE
You get the gist.
BE
And how dismal was the dismal retail sales number?
NH
year on year
NH
not good
NH
rate declined to -0.2% from +0.2%
NH
In the latest three months, volumes growth moderated to 0.1% from 0.2% in June/Q2.
NH
up month on month
NH
over all stagnation
NH
the consumer ain’t gonna dig us out of this whole
NH
in fact
NH
I don’t know who will
NH
and yet
NH
UKL gilts at a record low this morning
NH
explain that
NH
riots in our major cities
NH
rising unemployment
NH
sluggish growth
NH
large debts
NH
yet
NH
gilts are now at
NH
well the 10-year is trading at
NH
2.35%
BE
Hm.
BE
Because (relative) defensives now carry a scarcity premium?
NH
Dunno. As Joseph noted earlier today, the last time it was this low Queen Victoria became Britain’s longest-reigning monarch that year and the City was the world’s banker.
NH
a bit different now
BE
Meanwhile, GBP?
NH
$1.6499
NH
and euro thingy buys 0.871p
NH
can’t explain that either
NH
in fact
NH
there are more questions than answers today
NH
lots more
BE
Quite so.
BE
Want some comment on the retail sales?
NH
go on
BE
Here’s HSBC
NH
(@Itzman – after lunch, I’m heading down)
BE
UK retail sales increased only modestly in July, although there was evidence that growth in volume terms was limited
by much weaker summer discounting than has become common in recent years. Cost pressures, rather than weak
demand, appear to be winning the day in relation to retailers’ pricing decisions, and as a result consumers are now
facing the sharpest rate of shop price inflation since 1995. This, combined with the upcoming squeeze on incomes from
higher gas and electricity prices, could continue to limit retail sales to, at best, very modest growth.
by much weaker summer discounting than has become common in recent years. Cost pressures, rather than weak
demand, appear to be winning the day in relation to retailers’ pricing decisions, and as a result consumers are now
facing the sharpest rate of shop price inflation since 1995. This, combined with the upcoming squeeze on incomes from
higher gas and electricity prices, could continue to limit retail sales to, at best, very modest growth.
BE
Sales volumes (ex auto fuel) increased by a modest 0.2% m-o-m in July, fractionally weaker than the consensus expectation of
0.4%. Slight downward revisions to April and May served to flatter the June increase, which is now estimated at 1.0% m-o-m,
up from 0.8%. The overall trend remains one of broadly flat sales growth, with sales volumes up 0.1% on a 3m-o-3m basis.
The breakdown showed that food sales rose 0.7% m-o-m in July, however due to a weak May figure were still down 1.4% on a
3m-o-3m basis. Clothing & footwear and household goods sales fell back slightly following strong June increases, while nonstore
retailing also declined marginally after some strong readings between April and June.
0.4%. Slight downward revisions to April and May served to flatter the June increase, which is now estimated at 1.0% m-o-m,
up from 0.8%. The overall trend remains one of broadly flat sales growth, with sales volumes up 0.1% on a 3m-o-3m basis.
The breakdown showed that food sales rose 0.7% m-o-m in July, however due to a weak May figure were still down 1.4% on a
3m-o-3m basis. Clothing & footwear and household goods sales fell back slightly following strong June increases, while nonstore
retailing also declined marginally after some strong readings between April and June.
BE
More than usual, retail sales appear to be driven by price trends. Early discounting provided some boost to sales in June,
while weaker than usual price reductions in the typical summer sales period may have limited growth in July. Indeed, there
is evidence to suggest that price reductions over the summer as a whole have been less widespread than in the past. The price
deflator (ex auto fuel) rose from 2.3% in June to 3.1% in July – the highest since December 1995. The deflator on clothing
prices, which rose from 2.1% to 3.5%, was the highest since October 1991.
These price trends meant that July sales growth appeared healthier in value terms. Sales values (ex auto fuel) rose 0.9% m-o-m,
with food stores seeing a 1.6% increase. However, the underlying trend remains one of only modest growth, with sales values
up 0.2% on a 3m-o-3m basis.
while weaker than usual price reductions in the typical summer sales period may have limited growth in July. Indeed, there
is evidence to suggest that price reductions over the summer as a whole have been less widespread than in the past. The price
deflator (ex auto fuel) rose from 2.3% in June to 3.1% in July – the highest since December 1995. The deflator on clothing
prices, which rose from 2.1% to 3.5%, was the highest since October 1991.
These price trends meant that July sales growth appeared healthier in value terms. Sales values (ex auto fuel) rose 0.9% m-o-m,
with food stores seeing a 1.6% increase. However, the underlying trend remains one of only modest growth, with sales values
up 0.2% on a 3m-o-3m basis.
BE
It appears that discounting at retailers not only occurred earlier this year but was also weaker than we have come to expect
in recent years, confirming the trend in the consumer prices data earlier in the week. With indications from the CBI retail
survey that companies have been able to severely reduce stock levels compared with earlier in the year, prospects for further
discounting in the near term may be limited. Therefore, cost pressures are currently winning the battle against weak demand in
retailers’ pricing decisions. As a result, consumers are now facing the sharpest rate of shop price inflation since 1995.
in recent years, confirming the trend in the consumer prices data earlier in the week. With indications from the CBI retail
survey that companies have been able to severely reduce stock levels compared with earlier in the year, prospects for further
discounting in the near term may be limited. Therefore, cost pressures are currently winning the battle against weak demand in
retailers’ pricing decisions. As a result, consumers are now facing the sharpest rate of shop price inflation since 1995.
BE
Against this backdrop, therefore, the modest growth in retail sales seen during July could be viewed as slightly encouraging. If
price pressures subside, then spending could well pick up slightly. However, before that can happen, households are faced with
a further squeeze on incomes from higher gas and electricity prices. This could further limit high street spending and mean that
the underlying trend remains, at best, one of very modest growth.
price pressures subside, then spending could well pick up slightly. However, before that can happen, households are faced with
a further squeeze on incomes from higher gas and electricity prices. This could further limit high street spending and mean that
the underlying trend remains, at best, one of very modest growth.
NH
thanks for that
11:44AM
NH
Right to change tack for a moment
NH
Izy’s theory about QE being the poison and not the cure
NH
is very interesting
NH
all the more so
NH
in light of the speech from FOMC member Richard Fisher
NH
overnight
NH
this took all the headlines
NH
In the interest of full disclosure, I should add that I was also concerned that just by tweaking the language the way the committee did, our action might be interpreted as encouraging the view that there is an FOMC so-called “Bernanke put” that would be too easily activated in response to a reversal in the financial markets. For those of you unfamiliar with the expression “Bernanke put,” or more generally, a “central bank put,” this term refers to the concept that a central bank will allow the stock market to rise significantly without tightening monetary policy, but will ease monetary policy whenever there is a stock market “correction.” Given the extent of the drop in the stock market leading up to and following Standard & Poor’s downgrade of U.S. debt, combined with the FOMC’s commitment to hold short-term rates near zero until mid-year 2013, some cynical observers might interpret such a policy action as a “Bernanke put.” My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors. I believe my FOMC colleagues share this view.
NH
The Fed shouldn’t target stocks prices
NH
so
NH
the wires focused on that
NH
and so did we
NH
but on second reading
NH
this is more interesting
NH
I have posited both within the FOMC and publicly for some time that there is abundant liquidity available to finance economic expansion and job creation in America. The banking system is awash with liquidity. It is a rare day when the discount windows―the lending facilities of the 12 Federal Reserve banks―experience significant activity. Domestic banks are flush; they have on deposit at the 12 Federal Reserve banks some $1.6 trillion in excess reserves, earning a mere 25 basis points―a quarter of 1 percent per annum―rather than earning significantly higher interest rates from making loans to operating businesses
NH
These excess bank reserves are waiting on the sidelines to be lent to businesses. Nondepository financial firms—private equity funds and the like―have substantial amounts of investable cash at their disposal. U.S. corporations are sitting on an abundance of cash―some estimate excess working capital on publicly traded corporations’ books exceeds $1 trillion―well above their working capital needs. Nonpublicly held businesses that are creditworthy have increasing access to bank credit at historically low nominal rates.
NH
water, water all around
NH
but not a drop to drink
NH
no one will lend the money
NH
I have said many times that through the initiatives we took to counter the crisis of 2008–09, and the dramatic extension of the balance sheet that ensued, the Fed has refilled the tanks needed to fuel economic expansion and domestic job creation. Though I questioned the efficacy of the expansion of our balance sheet through the purchase of Treasury securities known as “QE2,” I have come to expect that the Federal Open Market Committee would continue to anchor the base lending rate at current levels
NH
My concern is with the transmission mechanism for activating the use of the liquidity we have created, which remains on the sidelines of the economy. I posit that nonmonetary factors, not monetary policy, are retarding the willingness and ability of job creators to put to work the liquidity that we have provided.
NH
so the transmission mechanism is broken
NH
it’s bust
NH
scary stuff, eh?
BE
2008 scary, yes.
BE
We’ve done all this before.
BE
And we still don’t know how to fight it.
NH
I have spoken to this many times in public. Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks.
NH
what a mess
NH
perhaps
NH
people are realising we won’t get another round of QE
NH
now
NH
after Jackson Hole
NH
because it doesnt work
NH
that might be a more logical reason
NH
for us being down today
NH
not only is the euro screwed without eurobonds
NH
but the Fed is out of ammo
NH
FTSE 100 now down 120 points at 5,211
11:51AM
NH
Where now?
NH
Ocado were weak this morning
An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
Ocado Group PLC (OCDO:LSE): Last: 118.00, down 5.8 (-4.68%), High: 122.80, Low: 115.00, Volume: 608.96k
NH
heading to 100p this thing
BE
Possibly. What’s today’s reason?
NH
none I’ve heard of
NH
There was a line in the Telegraph
NH
Meanwhile, Which?, the consumer protection magazine, claims today that numerous products listed by Ocado as part of its price-match promotion on selected items at Tesco, cost more at Waitrose and Ocado than at Tesco.
“We found that selected Pizza Express pizzas and Colgate toothpastes cost twice as much at Waitrose and Ocado than at Tesco,” said Which?.
An Ocado spokesman said: “We’ve been price matching since 2008, and have always made it extremely clear that the promotion is based on Tesco’s standard retail prices and not temporary offers. We are currently matching Tesco on 8,000 products.”
“We found that selected Pizza Express pizzas and Colgate toothpastes cost twice as much at Waitrose and Ocado than at Tesco,” said Which?.
An Ocado spokesman said: “We’ve been price matching since 2008, and have always made it extremely clear that the promotion is based on Tesco’s standard retail prices and not temporary offers. We are currently matching Tesco on 8,000 products.”
BE
Not sure that’s news.
NH
no
NH
the real reason
NH
is that the market know suspects
NH
they will need another cash call
BE
Waitrose costs more than Tesco. But it carries the advantage of not being full of Tesco shoppers.
BE
Waitrose: Veblen retailer.
NH
here’s how one analyst summed it up yesterday
NH
Ocado is in an increasing awkward situation. The story that capacity is being managed down to protect service levels is being tested by the continuation of incentives to purchase… Ocado does not need cash now because it has the flotation or was that the rescue rights issue funds. However, cash burn is on the horizon with the second ‘fulfilment centre’. As the market hots up too the prospect of another fund raising is real and a potentially deeply discounted one at that. We believe Ocado needs a Plan B., before its too late – stop CFC2, show CF1 can work (if it can…[?]) and then move on… Any exit multiple for Ocado is also shrinking by the day
NH
(@Itzman – yellow, very nearly red)
BE
Oh, and there was Tempus Capital selling down yesterday.
BE
Which is the co-founder and his missus.
NH
(FTSE 100 down 117 points at 5,215)
BE
Now below 3%.
NH
(@SilverFox – not likely. I’m at the Oval)
BE
Sorry – not selling down yesterday, but disclosing the sale yesterday.
BE
Anyway, should we move on to smallcap corner?
NH
yes
NH
we should
11:57AM
NH
So the rumours were right
The next supermajor, potentially sitting on 60bn barrels of oil in Kurdistan. Loved by muppets across the globe.
Gulf Keystone Petroleum Ltd (GKP:LSE): Last: 137.50, down 6.5 (-4.51%), High: 150.00, Low: 135.25, Volume: 6.92m
NH
another day, another find
NH
prepare for oil speak
NH
Gulf Keystone announces today that it has made a new Triassic discovery with the Shaikan-2 Appraisal Well, drilled approximately nine km to the south-east of the Shaikan-1 discovery well in the Kurdistan Region of Iraq.
Gulf Keystone has completed drilling of the Shaikan-2 Appraisal Well to a TD (total depth) of 3,300 meters in the middle Triassic, following which a flow test has been performed in the newly discovered Kurre Chine C zone over a 80 meter interval (3,195m to 3,275m). This new zone is highly pressured and correlates with the high pressure zone penetrated at the bottom of Shaikan-1.
NH
The Kurre Chine C flow test in Shaikan-2 has achieved variable flow rates up to a maximum recorded rate of 4,450 barrels of 36 degree API oil per day with associated gas of 813,000 scf per day through a 36/64″ choke.
After success with this first test, the Company plans to continue with its programme of Shaikan-2 testing in the Triassic and Jurassic.
BE
I’m told by those who care that the target depth is lower than previous guidance.
BE
Not sure if that matters.
NH
I was just about to ask
NH
right
NH
and that’s bad news?
BE
(By “lower” I mean not so far down. Sorry, not clearly expressed.)
BE
I have no idea whether it’s good or bad.
BE
Guess you call these things based on the pressure you hit.
BE
I’m no expert here, as I prove on a daily basis.
NH
well it moved yesterday
NH
ahead of the announcement
BE
Buy rumour, sell etc.
BE
On your private account.
BE
While you manipulate the price.
BE
Ignore the law regarding best execution.
BE
Solely to annoy the retail investors.
BE
Obviously.
BE
[SARCASM ALERT.]
NH
let’s move on shall we
Bahamas Petroleum Company PLC (BPC:LSE): Last: 9.99, down 1.26 (-11.20%), High: 11.83, Low: 9.71, Volume: 7.42m
NH
lost it’s CEO the other day
NH
removed very suddenly
NH
and we have a suggestion
NH
from a trader as to why
NH
it can be found on Page 51
NH
on the annual report
BE
Go on.
NH
consultancy agreements
NH
with related parties
NH
During the year, Alan Burns was reimbursed for the purchase by the Company of two vehicles with a total value of $70,140.
These vehicles have been provided to staff and their cost has been expensed in full in the current year.
NH
During the year, administration services totalling $40,870 were procured from Albert Technologies Limited, a company owned by Alan Burns.
NH
Mr M Proffitt and Mr A Burns are both Directors and shareholders of Renewable Energy Holdings Plc (REH). During the year, management and administration fees totalling $116,531 were paid to REH.
NH
During the year, accountancy and other financial consultancy services were procured from BDP Orbita Limited, a company in which Benjamin and Daniel Proffitt, relatives of Michael Proffitt, are Directors. Fees totalling $331,629 were paid to BDP Orbita Limited for these services.
During the year, accountancy services were procured from Daniel Proffitt, a relative of Michael Proffitt, totalling $4,198.
NH
Now it seems
NH
the CEO
NH
wasn’t very happy with that
NH
and asked if it could be stopped
NH
and the chairman
NH
Mr Burns
NH
well, he didn’t agree
NH
Bahamas Petroleum, the oil and gas exploration company with offshore license permits in The Commonwealth of The Bahamas, announces that Dr Paul Crevello, Chief Executive Officer, has resigned with immediate effect for personal reasons.
Following this resignation, Alan Burns, Non-Executive Chairman and Founder, will oversee the appointment of a suitable replacement candidate for the role of CEO.
NH
anyway
NH
just a theory
NH
and very RAW
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.
BE
Wait ….. Bahamas Petroleum ….. Renewable Energy?
BE
What does an oil explorer want with wind turbines?
NH
(@Gravy – no. this story is going round and people are slightly worried)
NH
not sure
NH
it also has some wave technology stuff
NH
perhaps that’s the link
NH
anyway
NH
fascinating peak into the world of small cap oil
12:07PM
NH
(@Senior Muppet – yellow. Pedant)
A term of endearment used to describe BB share promoters on FT Alphaville.
BE
Um …. anything else worth mentioning?
NH
i’m struggling to be honest
NH
Glencore
NH
Citigroup pushing them
NH
ahead of the results
NH
and yesterday’s downgrade
NH
How the trader is trading — Glencore has underperformed the UK mining index by
around 7% since its IPO; we believe this is a function of communication, market
volatility and delayed production ramp-up at key operations. Our investment thesis us
intact: we maintain our Buy rating and £5.70 price target.
SOTP — In this note we look at how Glencore has traded vs. our sum-of-the-parts
valuation. Interestingly, the stock has de-rated from trading at a 5% premium at the
time of the IPO to trading at a 10% discount now (at the trough it traded at an 18%
discount). In our opinion, the stock is likely to stabilize at this level and perform in line
with the other UK miners over the next six to 12 months.
around 7% since its IPO; we believe this is a function of communication, market
volatility and delayed production ramp-up at key operations. Our investment thesis us
intact: we maintain our Buy rating and £5.70 price target.
SOTP — In this note we look at how Glencore has traded vs. our sum-of-the-parts
valuation. Interestingly, the stock has de-rated from trading at a 5% premium at the
time of the IPO to trading at a 10% discount now (at the trough it traded at an 18%
discount). In our opinion, the stock is likely to stabilize at this level and perform in line
with the other UK miners over the next six to 12 months.
NH
(@Real_C_Spencer – no no. you’ll get in trouble for that)
BE
Not doing any favours to the price.
Glencore International PLC (GLEN:LSE): Last: 376.10, down 18.9 (-4.78%), High: 392.60, Low: 373.80, Volume: 2.17m
NH
no
NH
but then
NH
all the miners down
NH
oh yes
NH
is there a story around
NH
about Glencore
NH
buying
Eurasian Natural Resources Corp PLC (ENRC:LSE): Last: 648.50, down 6.5 (-0.99%), High: 660.00, Low: 645.50, Volume: 1.09m
NH
sounds like bunkum to me
BE
Well ……
NH
aren’t they locked out for six months
BE
This seems to have sprung up again from the Kazakh tabloids.
BE
And yes, there are several apparently.
BE
Claiming Alexander Mashkevich
BE
Who’s an ENRC founder
BE
Was preparing to sell his 14.6% stake
NH
to Ivan?
BE
Glencore “conducting due diligence”
BE
With a deal slated for closure by the start of 2012
NH
hmm
NH
somebody needs to check with the Kazakh government
NH
and
Kazakhmys PLC (KAZ:LSE): Last: 1,001, down 43 (-4.12%), High: 1,027, Low: 983.50, Volume: 912.93k
NH
they still have a large holding
BE
Kazakh regulators have already rubber stamped it. Apparently. According to the local press.
BE
And, I reiterate, my knowledge of Kazakh tabloids is not quite up to scratch.
BE
This could well be the Sunday Sport.
BE
Anyway, Troika Dialog don’t fancy the story too much.
BE
The market has not been short of rumors regarding the fate of ENRC for the past couple of
months following the BoD turmoil, including speculation that Glencore is considering a bid for
ENRC at GBP9.3 per share ($19.5 bln for the company) or that the core shareholders of ENRC
(the socalled “Eurasian Trio” of Alexander Mashkevich, Alijan Ibragimov and Patokh Chodiev) are
taking the company private, taking advantage of the battered share price.
months following the BoD turmoil, including speculation that Glencore is considering a bid for
ENRC at GBP9.3 per share ($19.5 bln for the company) or that the core shareholders of ENRC
(the socalled “Eurasian Trio” of Alexander Mashkevich, Alijan Ibragimov and Patokh Chodiev) are
taking the company private, taking advantage of the battered share price.
BE
The Eurasian Trio could be diversifying away from Kazakhstan by using cash flows generated by
ENRC for international M&A, and their buyout by a loyal Kazakh party is one of the options on the
table, in our view.
ENRC for international M&A, and their buyout by a loyal Kazakh party is one of the options on the
table, in our view.
BE
We do not think Glencore would necessarily be allowed to acquire more than a blocking stake in
the company – ENRC is among the largest companies in the region, accounting for 5% of GDP,
and its sale to a foreign buyer would be politically difficult. Glencore has consolidated 100%
control in Kazzinc, so its local footprint is already significant, and letting it buy ENRC would
further expand its clout and jeopardize the delicate system of checks and balances in Kazakhstan.
In a hypothetical scenario, Glencore could acquire Mashkevich’s 14.6% stake, and then increase
it to 25% via stock purchases from Shodiev and Ibragimov. Then ENRC would be jointly controlled
by Glencore and Kazakhmys, both holding 25%. In June, Glencore was legally prevented from
making a bid for ENRC for six months under the City Code on Takeovers and Mergers after the
company officially denied its interest in the Kazakh entity.
the company – ENRC is among the largest companies in the region, accounting for 5% of GDP,
and its sale to a foreign buyer would be politically difficult. Glencore has consolidated 100%
control in Kazzinc, so its local footprint is already significant, and letting it buy ENRC would
further expand its clout and jeopardize the delicate system of checks and balances in Kazakhstan.
In a hypothetical scenario, Glencore could acquire Mashkevich’s 14.6% stake, and then increase
it to 25% via stock purchases from Shodiev and Ibragimov. Then ENRC would be jointly controlled
by Glencore and Kazakhmys, both holding 25%. In June, Glencore was legally prevented from
making a bid for ENRC for six months under the City Code on Takeovers and Mergers after the
company officially denied its interest in the Kazakh entity.
BE
Should Glencore end up the owner and manager of ENRC, it would be highly positive for minority
shareholders. We continue to like ENRC, given its superb asset quality and low valuations, and
argue that most corporate risks are already in the share price.
shareholders. We continue to like ENRC, given its superb asset quality and low valuations, and
argue that most corporate risks are already in the share price.
NH
thanks for that
NH
here’s a snippet of the original
NH
ENRC: Vedomosti reports that Glencore is planning to acquire 14.95% of ENRC from Alexander Mashkevich (one of the co-founders of ENRC). A decision to sell the stake was made around a month ago according to the report. Separately, the FT reports that a criminal case in Belgium brought against Mr Mashkevich and two other co-founders of the company had been dropped at the end of June, freeing the way for him to be nominated to ENRC’s board
ENRC: Vedomosti reports that Glencore is planning to acquire 14.95% of ENRC from Alexander Mashkevich (one of the co-founders of ENRC). A decision to sell the stake was made around a month ago according to the report. Separately, the FT reports that a criminal case in Belgium brought against Mr Mashkevich and two other co-founders of the company had been dropped at the end of June, freeing the way for him to be nominated to ENRC’s board
NH
actually
NH
underneath it all
NH
ENRC
NH
actually has a world class ferrochrome business
BE
Oh, hang on …..
BE
Isn’t Vedomosti an FT joint venture?
NH
yes it is
BE
I retract my earlier comment regarding the Sunday Sport and apologise unreservedly.
NH
I should think so
BE
12:16PM
NH
Are we done?
NH
FTSE 100 down 110 points at 5,221
NH
oh yes
NH
one more thing
NH
rumours the spread betters
NH
or some of them
NH
getting ready to jack up margin again
NH
so prepare for more Kentucky Fried Muppet
NH
and on that note
NH
I believe we are done
NH
that said
NH
Turkish warplanes bomb Kurdish targets in #Iraq — @AJEnglish
BE
Evil market makers bombing Kurdish targets.
BE
To shake out retail investors.
NH
Breaking: Manchester United lodge listing application with Singapore Stock Exchange. Share sell off could be complete by end of year.
BE
“Share sell off”?
BE
Is that a prediction?
BE
Anyway, we are done.
BE
Thanks for all your comments today.
BE
Even the tinfoil-hat ones.
NH
yes
NH
thanks
BE
And good afternoon.