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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These are not the dollars you’re looking for

The big story on Monday is the warning from the BIS that a resurgent dollar could disrupt EM markets due to the fact that collectively the region has three quarters of its $2.6tn debt denominated in the US currency.

Meanwhile, international banks’ cross-border loans to emerging market economies amounted to $3.1tn in mid-2014, mainly in US dollars, the BIS added.

And herein lies the key problem associated with the hypothetical eventuality of no more petrodollars. A major dollar squeeze in foreign eurodollar markets.

Not that the petrodollar is near its death just yet — the US after all is nowhere near energy independent. Read more

Quindell to take stock

Metaphorical stock, mind you. That rare thing on Monday, an announcement from Quindell that doesn’t involve the share count rising:

The Directors believe that the recent changes to the Board mark a natural point at which to take stock of the Group’s position. As set out below, PwC is being engaged to conduct an independent review.

Translation and context below but, for those who haven’t been following the Aim market stock promotion disaster story this year, first a quick reminder of the nature of Quindell and what’s been going on. Read more

FirstFT (the new Lunch Wrap)

Japan’s recession turned out to be deeper than initially estimated. Shrinking company investment meant that the economy contracted 1.9 per cent in the third quarter, rather than the 1.6 per cent shown in preliminary data. Despite the weaker GDP figure, the Nikkei 225 crossed the 18,000-mark for the first time since July 2007 and many economists still expect the economy to return to growth in the final quarter.

Another surge in the Shanghai Composite index, meanwhile, could put paid to any further easing in China for fear of adding fuel to the stock market rally and jeopardising financial stability. (FastFT, Reuters, FTAlphaville)

In the news

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Markets Live: Monday, 8th December, 2014

Live markets commentary from FT.com 

China’s equity frenzy: putting easing on hold?

Nice from Simon Rabinovitch at the Economist:

One middle-aged man, Mr Xu, had come to meet a manager to inquire about how to subscribe to initial public offerings; their average first-day gain has been about 40% this year. He said he had taken the afternoon off work for the meeting and could hardly conceal his glee. “I’ve been trading since 1992 (just two years after the Shanghai Stock Exchange was established) and I guarantee you this bull market will last,” he said. He confessed to getting badly bruised by the last big one – his portfolio of 500,000 yuan had swollen to 3 million yuan by 2007 at the peak of the market, before falling back to its original level.

At the other end of the spectrum in terms of experience was Ms Zhou, 25, an interior designer with dyed-blonde hair. Like many other young professionals, she had previously put a big chunk of her savings in an online investment fund marketed by Alibaba, an e-commerce company. The fall in interest rates has reduced the return on that fund, pushing her to look for alternatives. “I had been thinking for a while about buying stocks but I had to travel for work and missed the best opportunity,” she sighed. “I will be conservative at first. Just one or two thousand yuan. Or maybe ten thousand.”

Which says a lot about the mechanical nature of this “super-bull” run. There’s simply quite a bit of money in China and a limited number of places for it to go. Once one is found… Read more

Further reading

Elsewhere on Monday,

- The imaginary world of small state people.

- Shinzo and the Invisibles.

- Shinzo and the Economist.

- “So most likely, China is sinking into a deflationary recession that’s increasing in speed and may take some time to run its course.” Read more

FirstFT (the new 6am Cut)

Japan’s recession turned out to be deeper than initially estimated. Shrinking company investment meant that the economy contracted 1.9 per cent in the third quarter, rather than the 1.6 per cent shown in preliminary data. (FT)

This comes just as Prime Minister Shinzo Abe is campaigning for re-election on his economic policies. In spite of the weaker GDP figure, the Nikkei 225 crossed the 18,000-mark for the first time since July 2007 and many economists still expect the economy to return to growth in the final quarter. (WSJ $, FastFT, Reuters)

In the news

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Canadian part-time worker update

While it’s easy to lose track amid the din associated with the release of the US jobs report, the Great White North also published its latest jobs numbers on Friday. These data are highly volatile on a month-to-month basis, but we still think some interesting information can occasionally be gleaned from looking at the annual changes. In particular, we noticed something eye-catching about the flows into part-time and full-time work.

Last time we discussed this issue, we noted that about half of the total job growth in the prior 12 months had taken the form of part-time work, and that for women 25 and older, full-time employment had actually fallen. Since then, things have subtly changed. Read more

Retail hiring suggests holiday shopping won’t accelerate this year

Last month, we cast our normally jaundiced eyes on an exciting bit of data in the US jobs report: the rapid pace of job growth in the retail sector. Since there is a strong relationship between the (non-seasonally adjusted) number of workers hired by retailers and real consumer spending at retailers, we were encouraged by the fact that October was the best month since the late 1990s for the sector. Here was the chart we made then:

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Guest post: Silicon Valley might kill banks but not banking

This is a guest post by Jonathan McMillan, a pseudonym behind which two authors stand: One is an investment banker based in New York. The other author is an economics editor, who has previously worked in academia. Together they have written “The End of Banking: Money, Credit, and the Digital Revolution.”

Will we soon be witnessing the death of banks? As a matter of fact, Silicon Valley has launched a multi-pronged invasion to take over Wall Street. Cryptocurrency startups are developing new payment services, and marketplace lenders compete for a share in credit markets. Moreover, credit-rating startups reinvent algorithm-based and data-intensive methods to monitor borrowers. All these companies compete directly against the banks from Wall Street.

Some entrepreneurs like Marc Andreessen are convinced that Silicon Valley can reinvent the whole thing. He and others consider themselves the force that will kill banks in a Schumpeterian fashion, through creative destruction. Read more

November payrolls: + 321k, unemployment rate stays at 5.8%

Lots of good news in this report:

– A huge payrolls number, the best since January 2012 Read more

Some striking facts about Japan’s demography

It’s misleading to compare macroeconomic aggregates across countries with very different population growth rates, which is why so many analysts get it wrong on Japan. While we were doing some of the data work for that previous post, however, we thought you might appreciate a visualization of how Japan’s population has aged and why it is poised to shrink a lot over the next few decades:

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European economist at Japanese bank says Europe would be lucky to end up like Japan

One of the supposed “lessons” of Japan’s post-bubble experience is that steady grinding deflation is the worst fate that can befall a rich country. See, for example, Ben Bernanke’s classic speech from November, 2002, or this scary-looking visual from Nomura:

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FirstFT (the new Lunch Wrap)

While investors await monthly job numbers expected to signal further improvement in the US economy, the German central bank has slashed its forecasts for growth in Europe’s largest economy next year.

The Bundesbank has halved its expectations from 2 per cent to 1 per cent growth in 2015, while the economy should expand a measly 1.4 per cent this year – down from its June prediction of 1.9 per cent.

The news is a dampener for the stagnating eurozone economy as a whole, where final figures this morning confirmed third quarter GDP grew just 0.2 per cent quarter-on-quarter and 0.8 per cent year-on-year. (FT)

In the news

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Markets Live: Friday, 5th December, 2014

Live markets commentary from FT.com 

NFP guesses, groomed (updated)

This is our second experiment with Myriada’s new prediction aggregator. Participants in Friday’s Markets Live session at 11am will be invited to contribute their considered estimates for the final US jobs report of 2014.

Non-farm payrolls are due to be announced at 1.30pm London Time / 8.30am New York, and the clunky old Bloomberg economists’ consensus says 230,000 new jobs were created in November, against 214,000 a month earlier. Read more

African Minerals, Kontillo Resources and the strange story of GIO

This is a collaboration between the OCCRP and FT Alphaville. By Dan McCrum and Paul Radu.

Cypriot public filings for Global Iron Ore, a commodity trading firm at the heart of a controversy surrounding large payments made by the London-listed African Minerals, raise fresh questions about the ownership and control of a group paid $50m in 2012 to walk away from its contracts with the company. Read more

African Minerals, GIO, and a misinformation campaign

Two people who have alleged that Frank Timis, chairman of London-Listed African Minerals, owned a stake in a company to which he personally authorised a controversial $50m payoff in 2012, have this year been the subject of an online campaign attacking their reputation.

A man has been arrested in connection with the campaign and police inquires are ongoing. The case adds a new dimension to the controversy surrounding Global Iron Ore, a Cyprus registered commodity trading firm paid to walk away from its contracts with the public company. Read more

Buy STAN*

* Suggest Citi, kinda.

Still, it’s AN argument (with our emphasis):

After the debating – A favourite year-end discussion point for investors and brokers is do you back current winners or play reversion to the mean. Instead of looking at share price performance alone we ran a screen based on 1 year forward Price/Book today versus their past 5 year median. Our sample was Citi’s global coverage universe of bank stocks with a market capitalisation of over $10 billion (121 stocks). The “winner” in terms of largest de-rating is Standard Chartered with a 45% discount vs its 5yr median:

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Your Shanghai equity “frenzy”

And in the Shanghai Composite, from Fast, “as of 2:34pm in Hong Kong, turnover today is already $91.4bn, a record high according to Bloomberg data going back to 2005.”

Blame retail, blame leverage but don’t, as already mentioned, put too much weight on the Shanghai-Hong Kong Stock Connect scheme — uptake has been light and the timing is off. It’s up to you how much weight you put on that rate cut in late November. YEAH the equity rally got off the ground well before the rate cut with the Shanghai Composite up by 23 per cent between the start of June and 21st November, more than any other major equity market. BUT shares have also gone up 17.5 per cent since the rate cut so it’s obviously part of the story.

But to get back to the more important retail, leverage stuff…. Read more