Faith in Chinese stats, charted

Only 20 per cent or so of investors polled by BofAML thought that Chinese growth was even approaching the official 7 per cent, ignoring the National Stats bureau’s claims that the figures for Q2 growth “objectively reflect the real situation.” Read more

A sovereign legal scorecard

First let’s start with a scatter chart, courtesy of Charles Robertson at Renaissance Capital. Click to enlarge…

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FT Opening Quote – Banks challenged on Super Thursday of results

It’s a Super Thursday of company results both in the UK and on the continent, so probably a good day to release bad corporate news in this deluge. FT Opening Quote, with commentary this week by deputy head of Lex Oliver Ralph, is your early City briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Thursday,

- Balding: “the Chinese stock market absolutely does not exist in a vacuum.”

- Yanis on those treason charges.

- The web we have to save.

- “One high roller requests a refrigerator full of bananas that he squeezes and throws as he gambles.”

- Piketty on Atkinsons’s plan for a more equal society. Read more

FirstFT – Aircraft debris found, drug abusers wanted and covering up in public

Investigators examine what may be MH370 debris Read more

Twitter’s active user problem

This is Twitter’s stock performance on Wednesday:

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Killer robots, AI and the path to stranded IT assets

Climate campaigners have popularised the notion that fossil fuel assets might one day become “stranded” because, if global warming is to stay within the internationally agreed two degree Celsius limit, they can’t realistically be burned.

It’s a view that has gained a lot of traction with investment managers leading to growing debates about strategies to de-risk portfolios by way of active engagement at the shareholder level or outright divestment. Read more

Markets Live: Wednesday, 29th July, 2015

Live markets commentary from 

An encouraging historical parallel to China’s stock bubble?

Consider the following two charts:

The chart on the right shows the price changes of the Shanghai composite stock index since the beginning of 2014 and the one on the left shows the price changes of a different stock index, decades earlier, that appears to have behaved very similarly, albeit with a bigger boom over a slightly longer time frame. We removed the labels and time scales to heighten their similarities, and normalised both to start at 100.

In both cases there was a period when basically nothing happened to stocks, followed by an extreme appreciation, followed by a sharp drawdown of about one-third.

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FT Opening Quote – Barclays still in need of a boost

Barclays has beaten expectations, but it still needs to show more of the acceleration it promised after removing CEO Antony Jenkins. FT Opening Quote, with commentary this week by deputy head of Lex Oliver Ralph, is your early City briefing. You can sign up for the full newsletter here.  Read more

Further reading

Elsewhere on Wednesday,

- The sad case of Bondcube, and why markets like having middlemen to tell them what the price is.

- Goldman in Ventureland.

- Worryingly for them, the only Uber of anything is probably… Uber.

- Hussman: “this is one of the most important moments in a generation to examine all of your risk exposures”.

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FirstFT – Emerging market currencies slump, slaves freed and a $61bn warning

Emerging market currencies fell to 15-year lows Read more

Beyond corporate finance 101

Fascinating discussion here from the Bank of England’s Andy Haldane on the stresses and strains facing shareholder-controlled corporate entities pretty much everywhere.

A quick taste:

These criticisms have deep micro-economic roots and thick macro-economic branches. Some incremental change is occurring to trim these branches. But it may be time for a more fundamental re-rooting of company law if we are to tackle these problems at source. The stakes – for companies, the economy and wider society – could scarcely be higher.

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China vs its stock market, charted

Courtesy of RBS:

Click to enlarge. Read more

Markets go up, markets go down… apparently even in China

Chinese equity markets are nuts. And the search for a narrative to explain this week’s moves is becoming ever nuttier. As Deutsche said: “It ceased to be a free market a long time ago so analysing it is tough”. Read more

Markets Live: Tuesday, 28th July, 2015

Live markets commentary from 

FT Opening Quote – BP profits slump as oil price falls

Fresh from its Deepwater Horizon settlement, BP is back in deep water with results that show profits diving on the sliding oil price. FT Opening Quote, with commentary this week by deputy head of Lex Oliver Ralph, is your early City briefing. You can sign up for the full newsletter here. Read more

Yanis and his Plan B, in the FT

As I was handing over the reins of the finance ministry to my friend Euclid Tsakalotos on July 6, I presented a full account of the ministry’s projects, priorities and achievements during my five months in office. The new payments system outlined here was part of that presentation. No member of the press took any notice.

But when a subsequent telephone discussion with a large number of international investors, organised by my friend Norman Lamont and David Marsh of the official monetary and financial institutions forum, was leaked despite the Chatham House rule that we agreed with listeners, the press had a field day. Committed to unlimited openness and full transparency, I granted OMFIF permission to release the tapes.

While I understand the press’s excitement emanating from elements of that exchange, such as having to consider unorthodox means of gaining access to my own ministry’s systems, there is only one matter of significance from a public interest perspective.

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Further reading

Elsewhere on Tuesday,

- Yanis: his “demeanor had sometimes given his tenure the air of a five-month-long TED talk.”

- “Let women fall in love with managing wealth, let men borrow to invest in stocks,” says the recorded message at an online lending company in Shanghai. “For stock loans, press two.” Or, at least that was the idea.

- Balding on China’s equity dive: “This absolutely did not happen without at least implicit official sanctioning.” Read more

FirstFT – Volatility in Chinese markets, killer robots and Google gives up

China’s benchmark stock index pared losses to 1 per cent by midday on Tuesday Read more

RRPs for life?

The timing of the Fed’s initial rate hike and the subsequent path of future hikes are prominent unknowns on the minds of market participants and commentators. But the question of mechanics — how the Fed will raise rates — also matters.

Our colleague Sam Fleming recently interviewed New York Fed president Bill Dudley and asked him about the possibility of the Fed’s maintaining a larger balance sheet indefinitely in conjunction with the use of its reverse repo facility. His answer suggested that the central bank remained undecided: Read more

The bond liquidity ‘cognitive bandwidth deficit’ problem

The laissez faire school of finance has always orientated towards the notion that capital market funding is preferable to bank financing. Why? Because it’s only by taking your business to the open market that a borrower’s situation can be properly scrutinised and evaluated, and a fair price arrived at.

But, of course, some capital markets are more developed, sophisticated and disintermediated than others. In the US, for example, funding by way of the capital market is common practice even for small and medium-sized corporations (increasingly for unsecured household borrowers too if P2P market-based lending trends are to be accounted for). In Europe, however, the private sector — especially the SME sector — has always tended to fund through bank loans. Read more

I’m Yanis Varoufakis and I approve the release of this secret plan [updated]

UPDATE: Yanis also approves this statement “on the FinMin’s Plan B Working Group & the parallel payment system” which includes such lines as “Ever since Mr Varoufakis announced the existence of the Working Group, the media have indulged in far-fetched articles that damage the quality of public debate.”


Katie Martin over at Fast did the needful and typed out Yanis’s words so we wouldn’t have to. Read more

On Nigeria’s ongoing inflation, fuel scarcity challenge

The Central Bank of Nigeria MPC voted eight to four to leave the monetary policy rate unchanged at 13.00 per cent following the conclusion of its two-day meeting on July 24, note Barclays’ emerging market team.

But, in a further signal that the oil producing country, which transitioned to a new government in March after 16 years of rule by the People’s Democratic Party, may be prepping for a sustained period of low petroleum prices the Central Bank stressed the importance of diversifying the economy away from oil and expanding its base of FX receipts. Read more

Markets Live: Monday, 27th July, 2015

Live markets commentary from 

TANSTAAFL, China equities and the wider economy edition

Chinese equity markets have continued puking. Yes, they’re still up on a longer timeframe, but were off a sudden 8.5 per cent on Monday, the worst fall since 2007. The Shanghai Comp now looks like this:

As the FT said, the Shenzhen Composite sank 7 per cent, and the ChiNext start-up board dropped 7.4 per cent. Significantly, more than 1,700 stocks fell by the maximum daily amount of 10 per cent, while only 78 rose. Large caps like PetroChina, the country’s largest company by index weighting, lost 9.6 per cent. Xinhua has thus declared the “The return of debacle!”.

So a reminder of the constraints that China’s powers-that-be are labouring under seems more than appropriate. The point is that, as quoted below, “what just happened in the A-share market will likely have profound impact on China’s economy and financial system one way or another”. Read more

Fed staff error reveals “potential” output is mostly nonsense

On June 29, someone at the Fed inadvertently included the staff’s June economic projections, which are supposed to be secret, into publicly available computer files. On July 24, the Fed decided to let the world know that it goofed, while also letting you download the charts and tables for yourself. Then it turns out that some of the information released was incorrect and had to be updated yet again.

For convenience, here’s a link to the table, which is somewhat useful to compare to the published projections of FOMC members. You’ll notice that the staff is much more pessimistic about real growth for 2015 than the entire range policymakers, and more pessimistic for 2016 growth than most policymakers polled for their projections. Otherwise there isn’t much new there. Read more

Wirecard – calculating the adjustments

We recently published two posts looking at Wirecard, a German payments company. For six years the company has directed investors to ignore the transient part of its business, payments which pass through its systems and from which it takes a small commission.

If you haven’t read those yet, you really should. They’re here and here.

We looked at the adjustments, and considered ways to calculate the net cash/net debt position of the group. There have been some requests for the spreadsheet with those calculations in it, so here it is. Click to download:

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Putting that Shanghai Comp dive into context

It was the worst fall since 2007 and the second worst fall since 2000, chart courtesy of the FT’s Peter Wells:

Or as China’s Xinhua is putting it — “The return of debacle!”: Read more

FT Opening Quote – Ryanair profits climb 25 per cent

Merlin has warned its profits will be hit by the Alton Towers accident, GVC is back in for bwin and Ryanair says a big jump in traffic has boosted profits. FT Opening Quote, with commentary this week by deputy head of Lex Oliver Ralph, is your early City briefing. You can sign up for the full newsletter here. Read more