Markets Live chat transcript for the chat ending at 11:22 on 21 Sep 2011. Participants in this chat were: Neil Hume, FT Bryce Elder/FT
NH
Hola
NH
Welcome to Markets Live
NH
hopefully this is working
NH
the grid is wobbling this morning
NH
Bryce
NH
are you in?
NH
(@MIlky – no you can’t. YELLLOW)
BE
Hello!
BE
Yes, we’re having internet wobbles today.
BE
Even before 11:30am
BE
When the head of IT unplugs our server to plug in his foot spa.
NH
excellent you are here
BE
So – where to begin.
BE
We’re flat-ish on the big board.
NH
good question
NH
we are
NH
down 9 points at 5,354
NH
that’s a rally
NH
we were a bit lower this morning
NH
then we got the MPC minutes
NH
very dovish
NH
and this
NH
Rumour of next Chinese PMI 52.9 from 49.9 last…numbers due overnight tonight
NH
not really helping the miners, however
NH
most are down
Glencore International PLC (GLEN:LSE): Last: 442.80, down 8.75 (-1.94%), High: 450.00, Low: 440.25, Volume: 1.67m
Antofagasta PLC (ANTO:LSE): Last: 1,171, down 26 (-2.17%), High: 1,195, Low: 1,170, Volume: 907.69k
Xstrata PLC (XTA:LSE): Last: 963.50, down 12.5 (-1.28%), High: 975.10, Low: 957.20, Volume: 3.21m
Rio Tinto PLC (RIO:LSE): Last: 3,509, down 28.5 (-0.81%), High: 3,549, Low: 3,482, Volume: 1.82m
BE
Do you want me to make up a reason, or just point out they were up yesterday?
BE
Global growth fears. That’ll do.
BE
Right – we’re having another outage.
NH
quick
NH
ban him
NH
zap
Warning to rude and abusive commenters – your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We’ve had enough. We are going to clean up these pixels once and for all.
NH
we can’t have Milky talking about QE
11:18AM
BE
Right – I’m now writing from the office Bloomberg machine
BE
Which doesn’t go through the FT’s own internet servers
BE
I’m going to go back over the comments of the past five minutes.
BE
And I’m going to zap and ban
BE
Partly as a release of frustration
BE
I recognise you’re not the IT department, rabble, but you’re a proxy for it.
BE
…………
BE
Actually, seems you were all quite well behaved.
BE
Anyway, let’s have a show of hands please
BE
Should we leave this session running
BE
In the hope that one of the spods actually manages to make something work for a change
BE
Or should we shut down and start again later?
BE
Oh – hang on.
NH
Right
NH
It looks like we are back
BE
And, we’re down again
BE
So back to the Bloomberg
BE
@Phil: no.
BE
We’re below sea-level here in Southwark Bridge
BE
You’re lucky to get one bar on GPRS
BE
We’ve tried and failed with dongles as backup
BE
@pretzlik: I suspect any hacking could only improve matters.
BE
We will, at some point, return to orifinal programming.
BE
Or, rather, original programming.
BE
(Forgot how horrible Bloomberg keyboards are for actual typing.)
BE
We could, in theory, steal the wifi from Ofcom across the road.
BE
Anyway, we’ll try to keep you updated on when things may resume.
BE
(You know those moments on rolling news channels when they’re waiting for something to happen so end up talking about nothing with increasing desperation? That.)
BE
Anyway, I guess we could solicit a few suggestions for when we get moving.
BE
Tesco mentioned on the right.
BE
Reports of a price war to come on Monday.
BE
Unconfirmed right now, of course, such is the nature of the industry.
BE
MPC, of course, and QE2.
BE
Inmarsat, which has had a couple of valuation downgrades and a rather interesting story about Lightsquared overnight.
BE
Ocado, indeed. Post results fallout continues.
An internet food retailer that many believe is the second coming of Webvan. Loss making yet valued at close to £1bn on flotation.
BE
Interesting bit of fantasy M&A doing the rounds about Unilever breaking up.
BE
Oh, and the Fosters bid.
BE
Lorcan: nothing to update on UBS rumour right now.
BE
Hard to judge whether the press report was speculative or informed.
BE
(Lorcan: 20-25.)
BE
(@JBS: no zap for that. We’re wondering the exact same thing. The disconnect between equity and debt this week has been bizarre and inexplicable.)
BE
Do do do do do.
BE
Since I’m at the Bloomberg, let’s use some of their data.
BE
Markit iTrax SovX WE is down 2.5bp at 337.5, on a delayed quote.
BE
Crossover’s down 18bp at 777.
BE
ITrax financial’s off 11bp at 279.
BE
So – mild signs of risk on.
BE
(@Old Hand: well put.)
BE
(@Vintage: Nope. We are paid by the comment, of course. Why do you think we keep mentioning GKP?)
BE
Mention on the right of Martin Wolf’s Greece column this morning.
BE
Which he explained with brutal precision on Newsnight last night.
BE
Well worth a read, particularly in comparison with this.
BE
(No update from IT yet, just in case you’re curious.)
NH
hang on
NH
I’m back
NH
not sure how long it will last
NH
but I am back
NH
a pity because I was just composing an email to the head of IT
NH
shall we try and rescue what’s left of the show
NH
or shall we just abandon it
NH
let’s push on
NH
we shall over come
NH
bingo
NH
I’ve just found out who the head of IT is
NH
which
NH
was not as easy as it sounds
11:51AM
NH
Right
NH
FTSE 100 down 22 points at 5,341
NH
Lloyds the biggest riser
Lloyds Banking Group plc (LLOY:LSE): Last: 36.01, up 1.78 (+5.19%), High: 36.18, Low: 33.80, Volume: 69.81m
NH
followed by
Royal Bank of Scotland Group PLC (RBS:LSE): Last: 23.57, up 0.48 (+2.08%), High: 23.70, Low: 22.62, Volume: 22.97m
NH
not sure why
NH
miners down
NH
again not sure why
NH
however
Inmarsat PLC (ISAT:LSE): Last: 487.70, down 15.8 (-3.14%), High: 498.90, Low: 478.00, Volume: 1.79m
NH
we know what’s going on there
NH
don’t we Bryce
NH
I no
NH
I’ve lost Bryce
NH
he’s got a dodgy graphics card on his PC
NH
and it’s gone down
NH
so Isat
NH
Citigroup downgrade this morning
NH
they reckon the stock has gone too far
NH
and doesn’t seem to be buying the recent takeover speculation
NH
I will just grab the note
NH
while we wait for Bryce’s machine to boot up
NH
here we go
NH
World Summit for Satellite Financing feedback: expect a
slowdown in revenue growth. Downgrade ETL and ISAT to Hold
slowdown in revenue growth. Downgrade ETL and ISAT to Hold
NH
jeez
NH
glad we have got a travel ban on
NH
that sounds about the most uninteresting conference ever
NH
Slowdown in growth prospects — Last week we attended the 15th World Summit for
Satellite Financing in Paris. The tone was relatively cautious across the satellite valuechain,
from manufacturers to broadband operators, and expectations for growth over
the next two years are less optimistic than we thought. FSS operators’ revenue was up
by 4.7% in 2010 to $10.8bn. The growth in transponder usage is expected around 4%
over the next two years, a slowdown vs. previous trends
Satellite Financing in Paris. The tone was relatively cautious across the satellite valuechain,
from manufacturers to broadband operators, and expectations for growth over
the next two years are less optimistic than we thought. FSS operators’ revenue was up
by 4.7% in 2010 to $10.8bn. The growth in transponder usage is expected around 4%
over the next two years, a slowdown vs. previous trends
NH
Focus on M&A — 2011 was an active year for M&A in the satellite space, with 12
transactions of an estimated total amount of c. $12.5bn over the last twelve months.
This trend is expected to continue driven by 1) consolidation in the FSS space targeting
emerging markets in particular; 2) private equity firms expected to exit some of their
current investments and 3) attractiveness of the predictability of the satellite business
model. However, an increase in M&A activity will rely on market financing conditions
transactions of an estimated total amount of c. $12.5bn over the last twelve months.
This trend is expected to continue driven by 1) consolidation in the FSS space targeting
emerging markets in particular; 2) private equity firms expected to exit some of their
current investments and 3) attractiveness of the predictability of the satellite business
model. However, an increase in M&A activity will rely on market financing conditions
NH
The risk of over-investment — Recently, ETL increased its capex guidance by €100m
over the next three years; SES management stated during the last investor meeting
new organic investment opportunities might appear over the next twelve months and
there is scope for an additional €1bn investment over 5 years; ISAT is currently
investing $1.2bn in its Ka-Band constellation. Add to this c. 47% increase in capacity
from regional operators by 2014, and we see a clear risk of over-supply in transponder
capacity. Fuelled by cheap ECA financing, we argue the risks of market distortion and
downside pricing pressure are not reflected in the current sector valuation.
over the next three years; SES management stated during the last investor meeting
new organic investment opportunities might appear over the next twelve months and
there is scope for an additional €1bn investment over 5 years; ISAT is currently
investing $1.2bn in its Ka-Band constellation. Add to this c. 47% increase in capacity
from regional operators by 2014, and we see a clear risk of over-supply in transponder
capacity. Fuelled by cheap ECA financing, we argue the risks of market distortion and
downside pricing pressure are not reflected in the current sector valuation.
NH
and here’s the bit on ISAT
NH
Inmarsat up with events: Hold/Medium Risk (2M) — Over the last month, ISAT is up
more than 30% in a down market. Given the strong recovery over a short time-frame
and the potential lack of further positive earnings catalysts near term, we downgrade
the stock to Hold on an ETR of 10.2%. Our earnings estimates and TP remain
unchanged.
more than 30% in a down market. Given the strong recovery over a short time-frame
and the potential lack of further positive earnings catalysts near term, we downgrade
the stock to Hold on an ETR of 10.2%. Our earnings estimates and TP remain
unchanged.
NH
and a bit on the takeover chatter
NH
Stock likely to be driven by deal speculation — Bloomberg (13 Sep) quoted
ISAT’s CEO as saying that it is natural for private equity firms to consider
investment in satellite businesses but that it has received no “formal” approach.
We think there are two main risks attached to investing in ISAT: 1) the regulatory
uncertainty regarding the potential usage of L-Band spectrum in the US for
terrestrial wireless services which make the valuation of ISAT’s spectrum assets
less easy to work-out and 2) the reduced visibility on the core MSS business
growth prospects over the near term and ahead of the ISAT-5 launch in 2014.
ISAT’s CEO as saying that it is natural for private equity firms to consider
investment in satellite businesses but that it has received no “formal” approach.
We think there are two main risks attached to investing in ISAT: 1) the regulatory
uncertainty regarding the potential usage of L-Band spectrum in the US for
terrestrial wireless services which make the valuation of ISAT’s spectrum assets
less easy to work-out and 2) the reduced visibility on the core MSS business
growth prospects over the near term and ahead of the ISAT-5 launch in 2014.
11:57AM
NH
Oh
NH
System message from IT
NH
Who should read this?
All staff
All staff
What is happening?
We are currently experiencing intermittent problems accessing the Internet from the FT network.
How will this affect me
Some users based in OSB may be currently unable to access in the Internet or may experience slow performance.
What action are we taking?
FT support staff are investigating.
Next Update: within 60 minutes
NH
Support staff are investigating
BE
“intermittent”
BE
(Hello again, by the way.)
BE
(I’ve rebooted my ZX Spectrum and rewound the TDK C60 tape we store the Markets Live bootloader on.)
BE
What are we up to now? Done Inmarsat?
NH
we are
NH
fancy a bit on the MPC minutes
NH
QE is coming
NH
the only question is
NH
October
NH
or
NH
November
NH
place your bets please
11:59AM
NH
so here at the flashes
NH
RTRS-BOE MPC VOTED 9-0 TO HOLD RATES UNCHANGED IN SEPTEMBER – MINUTES
09:30 21Sep11 RTRS-BOE MPC VOTED 8-1 TO KEEP QE AT 200 BLN STG, POSEN VOTED FOR 250 BLN STG
09:30 21Sep11 RTRS-BOE- MOST MPC MEMBERS THOUGHT IT INCREASINGLY LIKELY THAT MORE QE WOULD BE WARRANTED AT SOME POINT
09:30 21Sep11 RTRS-BOE – DECISION ON QE IN SEPTEMBER WAS FINELY BALANCED FOR MOST MPC MEMBERS
09:30 21Sep11 RTRS-BOE – FOR SOME MEMBERS, CONTINUATION OF TRENDS SEEN IN AUGUST WOULD BE ENOUGH TO JUSTIFY MORE QE
09:30 21Sep11 RTRS-BOE – DOWNSIDE RISK TO INFLATION CLEARLY INCREASED, GROWTH TO BE MATERIALLY WEAKER IN H2 THAN FORECAST IN AUGUST
09:30 21Sep11 RTRS-BOE- MPC DISCUSSED OTHER OPTIONS TO EASE IF NEEDED, NONE PREFERABLE TO ASSET PURCHASES AT THIS POINT
09:30 21Sep11 RTRS-BOE MPC VOTED 8-1 TO KEEP QE AT 200 BLN STG, POSEN VOTED FOR 250 BLN STG
09:30 21Sep11 RTRS-BOE- MOST MPC MEMBERS THOUGHT IT INCREASINGLY LIKELY THAT MORE QE WOULD BE WARRANTED AT SOME POINT
09:30 21Sep11 RTRS-BOE – DECISION ON QE IN SEPTEMBER WAS FINELY BALANCED FOR MOST MPC MEMBERS
09:30 21Sep11 RTRS-BOE – FOR SOME MEMBERS, CONTINUATION OF TRENDS SEEN IN AUGUST WOULD BE ENOUGH TO JUSTIFY MORE QE
09:30 21Sep11 RTRS-BOE – DOWNSIDE RISK TO INFLATION CLEARLY INCREASED, GROWTH TO BE MATERIALLY WEAKER IN H2 THAN FORECAST IN AUGUST
09:30 21Sep11 RTRS-BOE- MPC DISCUSSED OTHER OPTIONS TO EASE IF NEEDED, NONE PREFERABLE TO ASSET PURCHASES AT THIS POINT
BE
Ok. So the scene’s set.
BE
They’ve talked about UK twist.
NH
they have
BE
They’ve talked about a rate cut.
NH
and cutting the bank rate even lower
NH
what good would that do?
NH
what good will any of it do?
NH
banks still won’t lend
BE
Well, you can consider it a “for show” conversation I assume.
BE
It’s not actually going to happen, but it flags up that stimulus is required and on the way.
BE
Simple bit of expectation management, I guess.
NH
yes
NH
right
NH
a bit of comment
NH
RBS first
NH
We now think that QE2 is more likely than not in 2012. As the Minutes reveal ‘most members thought that it was increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point’. Clearly the risks of QE2 in 2011 have increased too, although October still looks very unlikely. When it comes to the November decision we would expect one or two members of the Committee to be voting with Posen for QE2 but for the doves still to be in the minority unless there is a material deterioration in the outlook between then and now. The October Minutes, speeches and the data flow should give us an opportunity to refine that call as we approach the November policy decision.
NH
November for them
NH
As we noted earlier this summer (BoE QE2: not now, maybe later) we continue to believe that many Committee members would need a lot of convincing to vote to increase asset purchases this year. The Minutes speak to those concerns: there is merit in a wait and see policy (not least to allow policymakers on the Continent time to resolve the debt crisis); the Maradona Theory of QE (the market pricing in the prospects of QE2) has already done some of the work for them; and last but not least, the problems involved in easing policy when inflation is (so far) above target. It is not clear why these concerns would evaporate over the next couple of months, but they should start to dissipate as we enter 2012, in time for the February Inflation Report.
NH
In contrast, for a smaller number of Committee members, the Minutes reveal that a continuation of current conditions would probably be sufficient to justify QE2 at a subsequent meeting. At the risk of reading too much into the drafting, this is not a promise (‘probably be sufficient’) and more importantly this statement does not necessarily indicate that any change of vote will occur in the next meeting (October). The most likely occasion for a shift in the vote would be the November policy meeting so unless the outlook improves, we would expect Adam Posen to be joined by one or two other members of the Committee. Based on the little information we have, that would most likely be the Governor (who ‘qualitatively agrees’ with Posen) and Paul Fisher (although he has said that it would take the risk of deflation to trigger QE2).
BE
UBS reckons November too.
BE
We now expect the MPC to announce a £50bn expansion in the QE programme in November. Why November? Simply
because the Inflation Report will give the committee the opportunity to fully communicate the rationale for more QE in spite of
the persistent inflation overshoot. Regardless, there remains a risk that market participants start the question the MPC’s
determination to hit the 2% especially when CPI inflation is expected to rise to 5% or higher.
because the Inflation Report will give the committee the opportunity to fully communicate the rationale for more QE in spite of
the persistent inflation overshoot. Regardless, there remains a risk that market participants start the question the MPC’s
determination to hit the 2% especially when CPI inflation is expected to rise to 5% or higher.
BE
The MPC has discussed and rejected other forms of monetary policy easing, such as 1) a conditional commitment to hold the
policy rate low for longer 2) changing the maturity profile of the gilts portfolio or 3) cutting the Bank Rate below 0.5%. That
then leaves the gilt-focussed QE programme of QE1 as the only feasible alternative under consideration.
policy rate low for longer 2) changing the maturity profile of the gilts portfolio or 3) cutting the Bank Rate below 0.5%. That
then leaves the gilt-focussed QE programme of QE1 as the only feasible alternative under consideration.
BE
And HSBC puts the balance of probabilities on October
BE
Despite the acknowledgement that more stimulus will likely be needed, the MPC faces two complicating factors at the October
meeting: inflation is set to hit about 5% in September; and the benchmark revisions to GDP on October 5 should help to clarify
the degree of spare capacity in the economy. But at this juncture, with the risks to the global and UK economy skewed very
much to the downside, the committee is likely to take the view that the policy setting should be about taking out maximum
insurance against allowing the UK economy to slip back into recession. Hence, October seems the likely start date although
these two factors could delay it to November, by which time the reasoning could be spelt out more clearly in the Inflation
Report
meeting: inflation is set to hit about 5% in September; and the benchmark revisions to GDP on October 5 should help to clarify
the degree of spare capacity in the economy. But at this juncture, with the risks to the global and UK economy skewed very
much to the downside, the committee is likely to take the view that the policy setting should be about taking out maximum
insurance against allowing the UK economy to slip back into recession. Hence, October seems the likely start date although
these two factors could delay it to November, by which time the reasoning could be spelt out more clearly in the Inflation
Report
BE
An initial announcement of GBP50bn of Gilt purchases seems most likely. When the first announcement of QE was made in
March 2009 the initial authorisation (the BoE must seek authorisation from the Chancellor) was for GBP150bn of purchases. It
spent GBP125bn in two tranches of GBP75bn and GBP50bn (see chart 1). In August 2009 the Bank requested permission for
an additional GBP50bn of purchases to take the ceiling up to GBP175bn. For that decision the exchange of letters between the
Governor and the Chancellor was published at the same time as the policy decision after the MPC meeting. The announcement
March 2009 the initial authorisation (the BoE must seek authorisation from the Chancellor) was for GBP150bn of purchases. It
spent GBP125bn in two tranches of GBP75bn and GBP50bn (see chart 1). In August 2009 the Bank requested permission for
an additional GBP50bn of purchases to take the ceiling up to GBP175bn. For that decision the exchange of letters between the
Governor and the Chancellor was published at the same time as the policy decision after the MPC meeting. The announcement
BE
that a further GBP25bn of purchases would be made was announced at the November 2009 meeting and again the letters of
permission of the extension were published at the time of the policy announcement.
permission of the extension were published at the time of the policy announcement.
NH
right, let’s have a little look at sterling
NH
the great british krona
NH
is $1.5661
NH
while a eurothingy
NH
buys 87.22p at the moment
BE
Ok. Move on?
BE
Not sure there’s much more to say about this.
12:07PM
BE
(Neil’s been kicked out again, so we’re rewinding the tape and resetting the ZX Spectrum again.)
NH
hang on
NH
there’s one more point to make
BE
Go on.
NH
it comes from Nomura
NH
Justifying an explicit change in policy in favour of easing when inflation and expectations for it are so high is an extremely difficult communication challenge that stretches credibility. So the MPC has collectively started to prime the public and its policy cannons for the launch of QE2. Some members would see the mere continuation of recent conditions as sufficient to justify it, while most members thought that it was increasingly probable that further asset purchases would be warranted at some point.
NH
difficult it certainly will be
NH
but is the MPC up to task?
BE
How much more can credibility be stretched?
BE
How long have we been waiting for inflation to normalise?
NH
it seems like forever
BE
If does, yes, yet the temporary factors putting us over at target seem rather permanent.
BE
Anyway, I ask again ………………
BE
Do you want to persist and push on to a few stocks?
BE
Or should we close this while our tempers have not been entirely frazzled?
NH
OK. Webvan it is
Ocado Group PLC (OCDO:LSE): Last: 109.20, down 6.5 (-5.62%), High: 116.60, Low: 107.33, Volume: 649.69k
NH
OK this is impossible. I am closing the session and having a row with IT who have just sent this round
NH
RESOLVED: SERVICE INTERRUPTION : Internet Access from OSB
NH
I can assure you it has not been solved
BE
We basically have to refresh the system to enter one comment.
BE
It’s over.
BE
Goodnight everyone.
BE
Thanks for all your comment, and apologies.
BE
It really isn’t our fault. We can only work with the tools we’re given.
BE
Do join us this evening for the Twist special.
BE
And fingers crossed for that one.
BE
Until then, farewell.