FirstFT (the new 6am Cut)

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David Cameron will put the finishing touches to his cabinet and address newly elected Conservative MPs today. Campaigning over, he returns to a bulging in-tray: specifically, renegotiating the terms of Britain’s EU membership and of Scotland within the union.

He will this week sit down with Nicola Sturgeon to thrash out the vexed question of how much more autonomy to hand Scotland after the SNP won 56 of Scotland’s 59 parliamentary seats. She has already warned him that it “can’t be business as usual”. Read more


You’ll have July 1 in your diaries already. If not, book now. Places are limited.

The speaker list has now topped 60 first class names. Such as…

Mystery 2016 US presidential election candidate

 Read more

The US government’s not-so-secret plan to break up the banks?

Bernie Sanders, US Senator and presidential candidate, has introduced legislation to force the biggest banks to break up. It probably won’t pass, but there’s a chance Sanders could still achieve his goal if regulators are assiduous in demanding credible “living wills” — plans systemically important lenders must draw up to show they could be wound down without blowing up the financial system.

When we thought about this piece of the Dodd-Frank Act in the past we were sceptical that, in the heat of the moment, any government would risk an untried plan to impose losses on creditors rather than err on the side of bailouts. Surely the exercise was a waste of time and scarce regulatory resources. But a recent meeting with some senior American financial regulators made us think there could be a deeper logic at work. Read more

Markets Live: Friday, 8th May, 2015

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Actually meet the man who would own Aviva France

We have given Max-Hervé George another magic ticket: to Camp Alphaville on July 1 at the HAC.

He’ll be joining us in a tent to talk about his long dispute with Aviva France, hiring a court appointed bailiff to deliver trading instructions each week, and what it’s like to grow a fortune without ever knowing its true size.

Luckily, these magic tickets are available to one and all. Join us to hear from the man himself, as well as our line-up of more than 60 speakers and panelists, investors, strategists, professors and pioneers who will be mingling at the summer’s premier festival of finance and ideas. Read more

Beyond the morning after

Post-election reaction of the non jaw-dropped variety is trickling in. The obvious take is markets prefer certainty, so the return of David Cameron to Downing Street is short-term good for gilt prices and by extension sterling.

Looking past the weekend however, here’s Citi’s interest rate team:

the election result may be quickly superseded by other drivers:

 Read more

Squeezing New World Oil & Gas, after a reminder from the LSE

A market notice from the London Stock Exchange on Thursday reminded member firms of their settlement obligations under its rules, prompted by what it describes as “settlement delays in relation to transactions in New World Oil & Gas.”

The tiny Aim listed oil exploration group, you may remember, is the possible subject of a failure to read the small print short squeeze. Details on the strange situation below, but two things to conclude from the LSE’s statement: regulators are keeping a close eye on this one, but aren’t likely to step in and stop any squeeze. Read more

Further reading

Elsewhere on Friday,

- The price of nails. “I am worth less than a shoe,” she said.

- “Labour today is waking up to something much worse than a failure to win.

- Bill Gross wasn’t short enough German bonds.

- Want to make big money? Engineer a little addiction into your product.

- In which Greece apparently shows “the soul of the Berkeley pedestrian.”  Read more

FirstFT (the new 6am Cut)

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David Cameron looks set to return to Downing Street while the SNP has swept up in Scotland. It’s been a bruising night for Labour and a bloodbath for the Liberal Democrats. Here’s the state of play – you can head over to our live blog for regular updates.

Early election results pointed to a dramatic Conservative victory but support for its coalition partner has collapsed – the Lib Dems are projected to lose 47 out of their 57 seats. Leader Nick Clegg retained Sheffield Hallam with a smaller majority but Vince Cable, Charles Kennedy, Danny Alexander, Jo Swinson and Ed Davey all lost their seats. Read more

When in bond rout doubt, Occam’s razor

So this could be the beginning of the end.

Or, alternatively, the bond price rout is a perfectly predictable response to…:

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Volatility has actually been falling

It may not feel like it on Thursday, as bond yields rise, but a timely piece on cross asset volatility strategy from JP Morgan notes overall volatility was down in April.

The interest rate volatility shock of the past few weeks did not lead to a generalized rise in volatility. In fact implied volatilities exhibited a rather mixed pattern over the past month with euro swap rate volatility rising sharply in the 30y sector but declining on the month in the 10y sector, with Eurostoxx50 volatility rising but S&P500 and Nikkei volatility falling instead, and with credit volatility rising in Europe but falling in the US.

More below, but lets cut to the main point: the unwinding of trades based around European quantitative easing over the past two weeks has been “rather technical and thus likely to be short lived”. Buy on the dips etc, or keep selling vol. Read more

Markets Live: Thursday, 7th May, 2015

Live markets commentary from 

Bonds: an apology

Exclusive to All Newspapers

In the last few weeks, in common with all other financial media, we may have given the impression that inflation had died forever and that it was in some way entirely rational for an investor to purchase Austrian government bonds at €220 per €100 of value.

We may further have led readers to believe that Bund yields would never stop falling that there were, officially, no more sellers of bonds…

We now realise, in light of the past few day’s events, that this is bunkum and the market does, for the moment, in fact resemble a New York rooftop bar at closing time. Read more

Where did all the greater fools go?

Ladies and gentlemen, the 10 year Bund on an increasingly painful Thursday morning (click to enlarge).

With thanks to Bill Gross Murphy for calling the top in the race to zero.

The (potentially more painful) excitement in the Italian 30 year below the fold. Read more

“Crowdfunding madness”

 Read more

A circuit breaker for the Wunderbund?

What will save the Wunderbund* (and related QE trades)?

 Read more

Further reading

Elsewhere on Thursday,

- A reminder that the Fed does not control the money supply.

- Create your very own stock market narrative.

- A late illustrated guide to the British election. Read more

FirstFT (the new 6am Cut)

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Share prices are “quite high”, said Janet Yellen, and “there arepotential dangers there“. Investors appeared to be listening: Asian equities promptly sold down on opening this morning.

On top of concerns expressed by the Fed chairwoman, investors were digesting a rebound in oil prices, nearing $70 a barrel, and a rout in bond markets.

Ms Yellen described overall risks in the financial sector as “not elevated”. Her desire to communicate clearly did not extend to signalling when the long-anticipated rise in interest rates might come and a mixed bag of macroeconomic data including a drop in Read more

Dow Chemical: some backstory

Reuters has a piece on Dow Chemical chief executive Andrew Liveris which is well worth a read:

In her lawsuits and OSHA complaint, [Kimberly Wood, a former fraud investigator for Dow] listed an array of perks that, she claimed, the company had improperly financed for Liveris, his family and friends. Among them: a safari; hundreds of thousands of dollars for Super Bowl parties; and $13,000 in uniforms for his son’s basketball team. Wood claimed that internal auditors identified $13 million in cost overruns on the renovation of a company-owned hotel involving the CEO’s wife, Paula Liveris.

For some of the backstory on Mr Liveris, take a look at this post from November 2013 which considered his record and suggested the company was ripe for the attentions of an activist. Read more

Why negative rates may inspire market consolidation

We had a hunch back in July 2012 that negative rates, as and when they would surely manifest, would create all sorts of perverse incentives for banks and capital owners.

Notably, our point was, that banks would prefer to lend money to monopoly-minded corporates focused on artificially constraining supply — rather than those focused on improving competition rather or pursuing capex policies. Failing that, a negative rate environment would otherwise create a plethora of zombie corporates propped up with cheap financing, producing output that isn’t necessarily valued much by anyone in the wider world. Read more

Markets Live: Wednesday, 6th May, 2015

Live markets commentary from 

An RRR in China explainer

Take your clicks elsewhere if you know everything about China’s reserve requirement ratio already.

For those who don’t (and have asked for something like this) here’s some good Capital Economics on why the RRR is still an effective tool in China — even if you ignore context at your peril. Read more

Are we there yet?

The long awaited, much predicted start of the great turning point in bond markets after which yields will rise, prices fall and teeth gnash has arrived. Maybe.

We have had a moderate bit of violence and surprise in fixed income, after all. A sample of sentiment below, but a word of caution up front: higher volatility might have caused the market moves, meaning the big reaction is still to come and/or potentially distant.

Here’s Jens Nordvig of Nomura late on Tuesday: Read more

No, stocks aren’t a good inflation hedge. Try bonds (really).

Stocks are basically bonds where the coupons tend to grow faster than the level of consumer prices. That makes equities sound like a great thing to own if you’re worried about inflation, and, in fact, Mr Stocks-for-the-Long-Run made this case a few years ago. While the actual article is more nuanced than the headline and opening paragraph would suggest — he admits that stocks only become immune to inflation over multi-decade periods — it’s still a bit misleading. The last time the rich world had to deal with meaningful inflation, it was bonds that beat stocks.

We’re reminded of all this because of two striking charts from a new report from Goldman Sachs on the implications of negative, long-term real interest rates. Consider the following chart, which compares the returns you would have gotten from buying and holding US stocks versus US 10-year bonds over decade-long periods: Read more

Further reading

Elsewhere on Wednesday,

- Modi rules by fear,” he said, “and Jaitley by favour.”

- Rich hedge fund managers are still rich.

- The Flash Crash, five years on.

- The temping economy.

- Veg-O-Matic Egonomics, Taylor vs Bernanke edition. Read more

FirstFT (the new 6am Cut)

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Oil topped $68 a barrel after falling to a five-year low near $45 in January. Saudi Arabia raised its selling prices in response to stronger demand and traders are looking beyond the currently well-supplied market to growing consumption and a slowdown in US oil output. (FT)

Saudi Arabia has shown little inclination to curb its production, which has risen above 10m barrels a day, as it moves to expand its market share. It also said that it remained committed to infrastructure and development projects but admitted it would need to “rationalise” spending in light of low oil prices. (FT)

The rebound in prices boosted inflation expectations and set prices tumbling across major government bond markets, pushing yields to levels not seen since the ECB began QE earlier this year. (FT) Read more

Camp Alphaville — a line-up teaser…

You should have the date in your diary already: Alphaville’s annual festival of finance, Camp Alphaville, July 1, Honourable Artillery Company, London EC1. But you’ll also want to know something about what’s promised on the day.

We’ll have about 60 speakers and panelists, spread across the main stage and a series of specialist ‘tents,’ so you can get up close and personal with those debating the ideas and issues.

Here’s just a taste of our eclectic line-up: Read more

Markets Live: Tuesday, 5th May, 2015

Live markets commentary from 

The strange case of Ashazi: Wirecard in Bahrain, via Singapore

Ashazi Services, a Bahrain-based electronic payments company, moved from place to place in the Gulf Kingdom. For a time it was based in managed office space in one of the gleaming towers of Manama’s prestigious diplomatic area, but also small apartments far from the centre.

In early 2011, however, Ashazi’s address was the office of its lawyer, Kumail Al Alawi, found above a side alley tucked between an outpost of Kentucky Fried Chicken and a car rental office.

So what sort of company was it? The question matters because in 2011 the Bahrain start-up was responsible for €4m per year of licence fee revenues reported by Wirecard, the German listed payments company. Ashazi Services Co WLL is one of the dormant companies leading back to E-Credit Plus Singapore, the first business purchased in Wirecard’s long Asian acquisition spree.

 Read more