Syriza in the bond market

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Ireland’s tight-fisted banks

A fascinating chart from Morgan Stanley’s European banking research team caught our eye. See if you can spot the odd one out (click to enlarge):

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Further reading

Elsewhere on Thursday,

- Jean-Claude Yellen.

- Regulators are finally coming to recognise the unintended consequences of their actions.

- Russian privatisation, the Coase theorem and methodological nationalism.

- Judo pays in Putin’s new, poorer, Russia. Read more

FirstFT (the new Lunch Wrap)

The price of oil fell below $65 a barrel for the first time in five years after Opec lowered forecasts of demand for its crude to a ten-year low. (FT)

The drop put investors on edge and sent them scurrying to haven assets overnight: the S&P 500 closed 1.6 per cent lower, while the yen rose 1.6 per cent. This morning, Tokyo’s Nikkei 225 fell 1 per cent and Hong Kong’s Hang Seng index lost 1.1 per cent. (FT)

In the news

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The Bank of Canada on the risks of high household debt and overpriced housing

Canada’s housing market could be as much 30 per cent overvalued; the share of new mortgages that are subprime is rising rapidly; and Canadian household are already among the most indebted in the rich world. Other than that, what else is there to worry about?

Quite a bit, according to the Bank of Canada’s latest “Financial System Review,” which was published on Wednesday: market illiquidity, foreign capital flight, hazards involving synthetic ETFs, and cybersecurity breaches are all discussed. For now, however, we want to focus on the vulnerabilities of Canadian households to the frothiness of the housing market in the Great White North. Read more

Insideout at Quindell

Robert Terry, founder of the UK’s first listed golf course cum law firm cum scaffolding and insurance processing technology specialist, has sold more of his stock since stepping down as chairman last month.

The sale was disclosed by the company, which reports: Read more

The Fed and oil: 2014 is not 2011 in reverse

Back in 2011, inflation climbed above the Fed’s 2 per cent target, but the FOMC resisted the impulse to tighten monetary conditions. Long-run inflation expectations hadn’t risen to worrying levels, and Ben Bernanke perceived that a price spike led by oil was likely to be “transitory”.

No surprise there: he wrote the paper on this very topic. And he was proved right. Read more

Dear Unilever, nice profits you have there… Love, Tesco

While attention is focused on the problems at Tesco and how the UK’s biggest grocer might turn round its business after revealing accounting problems, let’s try to think more broadly about the impact of those efforts.

To do that requires assessing the nature of the problem, which points to an answer.

Tesco faces competition from discount chains whose products are cheaper, but this is not the whole story. The point is that the likes of Aldi and Lidl are cheaper because they mostly sell own-brand products. So if we are to look for profits available in the business of grocery shopping, perhaps we should consider the comparatively fat margins for the makers of branded groceries. Read more

Keep beholding the (German) Euroglut

If you don’t you might miss all the capital outflow which, according to Deutsche’s George Saravelos, “not only has depreciatory implications for the euro, but also suggests that the consequences of Euroglut – low global bond yields and a stronger dollar – are here to stay.”

Oh, and blame Germany. Read more

A clusterFCA

It’s a day of flagellation at the British financial regulator…

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FirstFT (the new Lunch Wrap)

The UN and human rights groups called for US officials involved in brutal CIA interrogations of al-Qaeda suspects to be prosecuted. This followed the release of a US Senate Intelligence committee report, which revealed the barbarism of some of the agency’s interrogation techniques. It said the methods had been ineffective when it came to improving intelligence on al-Qaeda. It also revealed that President George W Bush did not know what was going on and that two psychologists with no experience with al-Qaeda or as interrogators earned $81m from developing the programme. (BBC, NYT $, FT)

Former CIA director Michael Hayden’s testimony was used as evidence that the CIA had not been forthright, but he hit back saying the report’s conclusions were “analytically offensive” and adding: ”I’m the dumb son of a bitch who went down and tried to lay out this programme in great detail to them.” (Politico)

The information has been released at a time when American support for harsh interrogation techniques is at a high and as such may not do much to shift public opinion. (FiveThirtyEight)

In the news

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Markets Live: Wednesday, 10th December, 2014

Live markets commentary from FT.com 

China’s changing monetary policy, charted

Some cut out and keep from Morgan Stanley:


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Further reading

Elsewhere on Wednesday,

- Small states, economics and food banks.

- Bhopal: “Time seems half-suspended, the night of the accident preserved in the fashion of some permanently stopped Hiroshima clock.”

- Five economists who deserve Nobels.

- The Goldman touch and Junker’s CDO. Read more

FirstFT (the new 6am Cut)

The US Senate Intelligence committee released its report on the CIA’s use of torture , which revealed the barbarism of the agency’s interrogation techniques. It said the CIA had been more brutal than it had disclosed and its methods had been ineffective when it came to improving intelligence on al-Qaeda.

The report also revealed that President George W Bush did not know what was going on and $81m was made by two psychologists who had no experience with al-Qaeda or as interrogators but were contracted to develop the interrogation programme. (NYT $, FT)

Former CIA director Michael Hayden’s testimony has been used as evidence that the agency has not been forthright but he hit back saying, “I think the conclusions they drew were analytically offensive . . . I’m thedumb son of a bitch who went down and tried to lay out this programme in great detail to them.” (Politico)

The information has been released at a time when American support for harsh interrogation techniques is at a high and as such may not do much to shift public opinion. (FiveThirtyEight)

In the news

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Disaggregating high-yield returns by sector

Junk bonds, or to be more polite, “high-yield” bonds, have had a glorious bull run since the start of 2009. The Barclays index of total returns more than tripled in five years:

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What would BoE rate hikes do to UK households?

The Bank of England’s latest quarterly bulletin, released on Monday, contains an interesting article on “the potential impact of higher interest rates on the household sector.”

A few interesting tidbits:

–Raising rates by 2 percentage points would redistribute income “from higher-income to lower-income households”

–But would probably lead to a reduction in spending, since 60 per cent of borrowers would spend less and only 10 per cent of savers would spend more. The BoE estimates that the net effect of a 1 percentage point increase in the Bank Rate would be a reduction “aggregate spending by around 0.5 per cent via a redistribution of income from borrowers to savers.” A 2 percentage point increase would lower spending by 1 per cent. (The total impact on spending could be a bit different, however, since monetary policy works in other ways besides redistributing income from net savers to net borrowers.)

–On the whole, though, UK households are (slightly) less sensitive to increases in interest rates than they were a few years ago Read more

What’s “catch a falling knife” in Greek?

A snap presidential election — and the chances of Syriza coming into power if the government fails to win enough support to push its candidate through — are all it took to push the ASE down over 10 per cent on Tuesday.

Which makes it a 27 per cent drop for the Athens bourse this year. Only the Portuguese, Nigerian, Russian (in US dollars), and Ukrainian stock markets have done worse in 2014. Read more

FirstFT (the new Lunch Wrap)

A wave of risk aversion is sweeping markets as a tumble in the oil price to a fresh five-year low is viewed as a warning signal for the global economy.

The long rally in Chinese stocks has snapped spectacularly, with the Shanghai Composite slumping 5.4 per cent; the yen has rediscovered its haven status; and benchmark Bund yields are flirting with record lows as investors seek the safety of highly rated sovereign debt. (FT) Read more

Markets Live: Tuesday, 9th December, 2014

Live markets commentary from FT.com 

China’s “new 4 trillion stimulus” and its collateralised weight

Biggest fall in five years that, even if it’s still up 35 per cent this year. Might be time to talk about the potential consequences of all this, no? Read more

Extending the Tesco Value range

An unscheduled update from the UK’s largest grocer on Tuesday, and group trading profit will not exceed £1.4bn this year.

The market says…

So, time to buy? Read more

Australia’s collapsing yield curve

We haven’t seen any commentary on this yet but the Australian yield curve has been flattening like a pancake this year:

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Further reading

Elsewhere on Tuesday,

- DeLong on Krugman on Shinzo and the invisibles.

- Policy penance.

- Is Russia 2015 Venezuela 1983? Read more

FirstFT (the new 6am Cut)

China equities rallied this morning with the seemingly unstoppable Shanghai Composite up 1.1 per cent after a four-week rally that pushed it up 25 per cent. Investors appear to believe a fresh easing cycle is under way following the central bank’s first cut in benchmark interest rates in more than two years. Other Asia Pacific indices, however, followed US and European stocks down as oil prices tumbled to a fresh five-year low and iron ore prices saw their biggest drops in three weeks. (all FT)

In the news

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Sweden’s Riksbank responds to the critics

Back in April, Paul Krugman wrote that Swedish post-crisis central banking has been “sadomonetarism in action.” (They had the audacity to modestly raise short-term interest rates in 2010-2011.) The criticism may lead to additional parliamentary oversight of the Riksbank.

So we recommend you read an important new speech from deputy governor Per Jansson that dispels many of the myths surrounding Swedish monetary policy. He makes two basic arguments: Read more

Shale oil gluts, 1980s Dynasty and Dallas edition

If history really does repeat itself, then the upside of the oil glut of 2014 could be some top quality kitsch TV drama moments in the not too distant future.

We’re going by Season 3, episode 7 of Dynasty, which first aired December 8, 1982.

The episode features Blake Carrington, CEO of Denver-Carrington, despairing about the prospect of becoming an oil tycoon in distress due to the 1980s oil glut and having to rely on ex-wife Alexis Colby (Joan Collins) for a bailout if his loans go bad.

Check out the opening two minutes and later at 24.30 for the scene between Carrington and the chairman of the subcommittee on energy policy and technology. Read more

Which euro area countries have been driving household spending growth?

Handy chart from CreditSights illustrating the changing fortunes of euro area households over the past couple of years:

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Brent at $66.60

You know, just because there was that one time the S&P hit $666:

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Oil and Fed officials, in their own words

A handy chart from BCA Research (click to embiggen):

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