The (early) Lunch Wrap

Toyota suffers fresh reputational blow with 6.4m vehicle recall || Biggest US banks forced to hold $68bn in extra capital || Walmart plans big wholesale store push into India || Facebook passes 100m users in India || Copper output surge adds to price pressure || WH Group eyes IPO valuation of up to $21bn || Markets Read more

This is nuts. When’s the crash?

Okay, maybe it’s because this particular FT Alphaville blogger has been safely quarantined in Geneva, Switzerland for the last two years where everything is frozen in time, and it’s all down to “London shock”, but it really does feel like you can’t walk three foot in the capital these days without bumping into a crane panorama that would make the Doozers of Fraggle Rock proud.

Case in point, the current view from outside FT Towers at One Southwark Bridge:

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Shorting rates for fun and profit

So, dear sceptic, you think that interest rates will go higher. Prices for debt will fall, meaning a wonderful opportunity to bet on what must occur. Easy.

Except it turns out that trading a bear market in bonds is hard. By way of example, BofA Merrill Lynch offer up the last rate tightening cycle that began on June 30, 2004. Imagine you decided to go short exactly a year beforehand.

During that period, 10y Treasury yields rose 117 basis points. However, once adjusted for negative carry and roll-down, an investor would have made only about 70bp, assuming a short position in 10y Treasuries was established on June 30, 2003 and held it for the next year.

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Further reading

Elsewhere on Wednesday,

- The real problem with HFT.

- Summers’ inverse Say’s Law.

- The impolitic wisdom of Simon Kuznets.

- Buying the futureRead more

The 6am London Cut

Markets: Japanese stocks suffered as hopes for monetary stimulus faded, but the rest of Asia-Pacific was upbeat after Wall Street staged a rally. Japan’s losses were driven by comments from central bank governor Haruhiko Kuroda. On Tuesday he acknowledged that last week’s increase in the national sales tax was likely to push the economy into a decline this quarter, but said he foresees the economy rebounding by summer. In other words, no need for further stimulus. (FT’s Global Markets OverviewRead more

Who really benefits from EM export feedback loops?

We all know the role played by the vendor financing feedback loop of hell in dotcom bubble mark 1.

Quickly summarised, tech equipment suppliers became overly dependent on sales to internet startups funded through vendor financing, a situation which saw them lending money to companies with dubious track-records for the purpose of buying equipment directly back from them. It didn’t end well.

Nevertheless, it’s still a model replicated on a consumer level in the west, whether it’s through car company lending money to customers so that they can buy their cars or sofa company loans for purchases of sofas. Read more

“7. Friday 28 March… f) Whether a false or disorderly market was present during this period”

Do click for other Terms of Reference of the FCA independent directors’ inquiry into the FCA’s role in the implosion of life-insurance shares last month…

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The good, the bad and the ugly of India’s election: cut out and keep edition

If you’re short the rupee* the past few months have been uncomfortable.

Not only have (somewhat dodgy) Indian polling data pointed consistently to a stable BJP government being formed after elections which started this week, but India has also managed to get its macro house into some sort of order.

From Goldman, for example: Read more

That was nuts. Is this the crash?

Tech stocks have become a little bit more modestly priced.

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Markets Live: Tuesday, 8th April, 2014

Live markets commentary from FT.com 

Borrowing time

Returning to that theme of sticky risk, the search for yield and returns and what happens when the Federal Reserve et al point towards the exit, here are some charts of the divergence between fundamentals and markets courtesy of Matt King at Citi.

The point, as ever, is that while the Fed is handing out donuts then you want to grab your share. But everyone has been eating free food for a long time now, and there are a lot of fat and happy credit investors to fit through the door when the donuts run out… Read more

The €1,000,000,000,000 question, revisited

Unanimous in its commitment to using also unconventional instruments within its mandate in order to cope effectively with risks of a too prolonged period of low inflation…

– Mario Draghi, April ECB press conference

Don’t try saying that with a mouthful of peas.

More seriously, spot the caveats. A few members of the ECB governing council have since added to the noise around ECB QE — Nowotny, Mersch, Constancio, Coeure and Weidmann — but we feel better no informed than when the presser ended on Thursday. Read more

The (early) Lunch Wrap

Turkey plans euro bond sale || UK industry expands || Sri Lankan borrowing cost at record low || Takeda $6bn fine || Spain considers strategic oil investment || Discounters take UK share || European court strikes down snooping law || Markets: stocks little changed Read more

Pre-zombie update

First quarter performance results for surviving hedge funds are out. A volatile performance, says index compiler HFR.

For the first quarter, the HFRI [Fund Weighted Composite] gained +1.1 percent, with a strong February gain offsetting declines in both January and March.

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Further reading

Elsewhere on Tuesday,

- The problem with Flash Boys is that the demands Lewis makes of his narrative don’t align well with the structural problems of HFT.

- Revisiting original sin.

- The foxy Fed.

- Why U.S. infrastructure projects cost way more than they shouldRead more

The 6am London Cut

Markets: Wall Street’s third consecutive day of tech-led sell-offs weighed on Asia-Pacific markets, with Japanese bourses bearing the brunt of the fall. Just ahead of earnings season in the US, the S&P 500 shed 1.1 per cent to 1,845 on Monday, leaving it 2.7 per cent down from an intraday record high of 1,897 struck in early trade on Friday. The average has now lost all of its 2014 gains. Tech stocks led the sell-off as valuation concerns grew. The tech-heavy Nasdaq suffered more than other US indices, falling 1.2 per cent to 4,079.8 on Monday. (FT’s Global Markets OverviewRead more

The Closer

FURTHER FURTHER READING

- Eight (no, nine!) problems with Big DataRead more

Guest post: What if Putin had bought Crimea?

The prospect of selling any sovereign territory to resolve disputes may seem like a taboo — especially so when it comes to the conflicted territory of Crimea. However, Joseph Blocher and Mitu Gulati, both law professors at Duke University, argue that such a “market” should in future be considered in public international law.

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The (early) Lunch Wrap

Holcim and Lafarge outline cement merger deal || BlackRock positions potential successors to Fink || Dropbox and Square raise new credit facilities || Nigeria almost doubles GDP in recalculation || Former adviser attacks European Commission over austerity || Markets Read more

Both a lender and a borrower be, China property edition

This week in circularity, from China:

Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders.

Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.

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M&A is back (ish)

Can it be a merger Monday if the big deal leaked on Friday?

Either way, the second quarter deal making was already off to a fast start before the cement makers got involved, according to Goldman Sachs, and Europe is finally starting to join in the fun.

A week into 2Q, M&A announcements continued at a brisk pace (+21%y/y) while completions also saw gradual improvement (+7% y/y). While the year to date strength in M&A has been primarily driven by the US (+21% y/y), we have seen notable improvement in selected pockets of EU deal flow. Specifically, EU buyers’ appetite have seen sizable growth (+38% y/y), though more in favor of cross-border purchases (2x vs. 2013TD) relative to domestic consolidation (+27% y/y).

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Further reading

Elsewhere on Monday,

- The future for real interest rates.

- Piketty unsuccessful attempted smackdown watch.

- Matt Levine on whether to set up as a full-time for-profit insider trading consultant.

- How politics makes us stupidRead more

The 6am London Cut

Markets: Asian markets retreated, reflecting a view among investors that the Bank of Japan would not immediately increase its monetary stimulus while the US Federal Reserve was unlikely to be steered off its course of reducing asset purchases. Markets in China were closed for a public holiday. (FT’s Global Markets OverviewRead more

Come with me if you want to trade

The fallout (or wholesome debate, depending on which side you’re on) from Michael Lewis’ new book “Flash Boyscontinues.

We’ve not read the book, so we shan’t be commenting about its relative merits or weaknesses specifically, but we shall propose that the relentless march of technology into finance is unlikely to be slowed or reversed any time soon. Read more

The age of asset management

Andrew Haldane has declared the age of asset management upon us, but we suspect champagne corks will not be popping at BlackRock et al.

The title for the speech by the executive director for Financial Stability at the Bank of England appended a crucial question mark, and it turns out that the central bankers are only just starting to get heads around an entirely different set of too-big-to-fail problems to those of the banks. (Click for the full speech).

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If only we had known

Correlation, causation, or Rorschach test we’re not sure, but the latest from BoA ML strategist Michael Harnett leads with a quite remarkable chart.

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March payrolls: +192k, jobless rate 6.7%

If nothing else, the report was a little more confirmation that the slowdown earlier this year was temporary pause rather than a reversal of the modest acceleration from the second half of 2013.

A few main points: Read more

Markets Live: Friday, 4th April, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

UK car sales hit decade high as demand zooms higher || Erdogan pushes for Turkey central bank to cut interest rates || Tesco’s finance director to leave || Anadarko to pay $5.15bn in pollution case || M Stanley hits back over Flash Boys row || BofA in talks to pay $800m in credit card case || Markets Read more

Earnings needed [Update]

About that European bull market. Enthusiasm is there, but the earnings not so much yet.

With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.

Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more