Robert Campbell at Reuters makes some great points on Wednesday about the diminishing influence of SPR-release talk.
Like us, he compares the SPR, and its releases, to central-bank type operations for the oil market — but notes that what might be deemed the SPR transmission mechanism is now being clogged up: Read more
From the weird and wonderful head of Nicholas Colas, ConvergEx Group chief market strategist and bringer of alternative economic indicators galore.
This one’s focused on mobile home sales, a.k.a “manufactured” housing. Read more
BP shares rose the most in a month after Europe’s second-biggest oil company reached a $7.8bn settlement with businesses and individuals over the 2010 Deepwater Horizon oil rig disaster, Bloomberg reports. The deal with businesses and individuals was lower than the $14bn that had been expecetd and the money for the settlement is to come from a $20bn compensation fund that’s already provisioned for. Though, the FT reports, the bigger issue of damages and penalties sought by the US government may still be unresolved. Penalties under the Clean Water Act could be more than $17.5bn if the company is judged to have acted with gross negligence, a charge that BP has always denied, but the US authorities are likely to assert. There will be damages running into billions of dollars for harm done to the gulf coastline, and potential criminal penalties. The US Department of Justice is investigating possible criminal charges against BP, other companies involved in the spill, and their employees, although none have been brought.
President Obama’s announcement, in January 2010, of his aim to double US exports in five years had the “benefit” of timing, coming so soon after the historic collapse of worldwide trade had just begun to recover.
And as it did, US exports naturally climbed along with it, impressively so. Read more
A group of Western warships led by an American aircraft carrier entered the Strait of Hormuz on Sunday, a day after Iran backed away from threats to take action if an American carrier returned to the strategic waterway, the FT reports. The nuclear-powered USS Abraham Lincoln completed a “regular and routine” passage through the strait, a critical gateway for the region’s oil exports, “as previously scheduled and without incident,” said Lieutenant Rebecca Rebarich, a spokeswoman for the US Fifth Fleet. The Lincoln was part of a six-ship flotilla that included a British frigate and a French warship, and was the first U.S. aircraft carrier to enter the Gulf since late December, when the USS John C. Stennis left the region. The British and French vessels joined the American-led flotilla to “underline the unwavering international commitment to maintaining rights of passage under international law,” a UK ministry of defence spokesman told the UK Press Association.
A record number of new US exchange-traded funds failed to attract substantial investor demand last year, leaving fund operators facing losses in one of the first signs that the industry’s explosive growth may have peaked, the FT reports. ETFs allow investors to trade baskets of securities, such as the S&P 500 or precious metals, on exchanges with low management fees. Their popularity has surged in recent years, drawing investors away from mutual funds. The US ETF industry ended last year with more than $1tn in assets under management, compared with $540bn at the start of 2009. But that rapid growth has attracted scrutiny from regulators, and there are signs the market may be saturated. “There are a huge and growing number of ETFs out there that are truly sub-scale [uneconomic]” said Ogden Hammond, who tracks the industry for McKinsey, the consultancy. “Larger fund managers have more ability to absorb losses, but at some point operators will have to make a decision about pulling the plug.”
The latest ADP numbers for private sector jobs in the US have demolished expectations: 325k jobs were created November-December against estimates that ranged from +145k to +225k.
As Monday’s Lex notes regarding the US stock bounce has a sting in the tail
Don’t look now but amid the negative news on everything from the shambles in Europe, America’s debt wranglings or worries over China, the good old US of A seems to be stringing together a nice run of positive data… Read more
Millions of Americans were set to cut short Thanksgiving to head to shops that opened earlier than ever as retailers fought for holiday sales as economic anxiety hung over one of the biggest shopping days of the year, the FT reports. Up to 152m people plan to shop over the three days after Thanksgiving, according to the National Retail Federation, with many queueing under the stars to secure “doorbuster” discounts unveiled on the day known as Black Friday. Black Friday sets the tone for the end-of-year shopping season, which in turn is a make-or-break period for many US retailers struggling to defend market share as unemployment and a weak housing market keep consumer sentiment fragile. Shopper surveys have suggested holiday spending this year will rise by between 2 and 4 per cent from last year. In 2010, holiday sales increased 5.2 per cent to $452bn, returning back to the level of 2007 after two years of declines. Households are “running very tight budgets” and retail executives are concerned about the impact of bleak global economic news on their willingness to spend, said Bob Drbul, retail analyst at Barclays Capital.
AT&T will be forced to take a charge of $4bn in the current quarter for break fees payable to Deutsche Telekom if, as is increasingly feared, the US group’s $39bn takeover of T-Mobile USA collapses, the FT reports. The pre-tax charge represents $3bn cash and the $1bn book value of spectrum that would have to be handed over to Deutsche Telekom if the deal falls apart. AT&T’s warning over the size of the charge in the event of its withdrawal of its application to US regulators to approve the transfer of spectrum licences from T-Mobile USA appears to be a tacit acknowledgement that the deal is in real trouble. Most US industry analysts believe the deal is likely to be abandoned or blocked by a separate antitrust court action instigated by the Department of Justice. Robin Bienenstock, analyst at Bernstein, said: “The fat lady hasn’t sung yet … but she has taken the stage and the band has begun to play.” She pointed that such a contingent liability is a first indication from the companies that the deal is unlikely to be approved, although added that the companies were not yet ready to concede defeat.
Stocks were stretching their losing streak into an eighth session on fresh concerns about stumbling global growth as Chinese data sparked fears of a contraction in manufacturing, and after a US report showed the world’s biggest economy was weaker than expected during the third quarter, the FT reports. The FTSE All-World equity index was down 0.4 per cent and has now shed nearly 7 per cent since November 11. S&P 500 futures suggested Wall Street would lose 0.8 per cent to open at a six-week low, though the FTSE Eurofirst 300 pared early heavy losses to sit down just 0.1 per cent. Although trading was thinning ahead of the US Thanksgiving break on Thursday (and with Japan on holiday today), the mood was most decidedly “risk off”, with growth-focused assets under the cosh. Copper was down 1.4 per cent to $3.29 a pound and Brent crude was lower by 0.9 per cent to $108.05 a barrel. Currencies that tend to display a high beta to risk appetite were attracting sellers. The Australian dollar, which was particularly sensitive to perceptions of future Chinese raw material demand, was down 0.8 per cent to $0.9748, and has now lost more than 7 per cent in November.
AIG’s former chief executive sued the US government for $25bn on Monday, alleging that the Treasury illegally appropriated the insurer from shareholders in 2008 and used it “to covertly funnel billions of dollars to foreign entities”, the FT reported. Maurice “Hank” Greenberg, who left as chief executive in 2005 but remained a large shareholder, said the government acted unconstitutionally when it took 80 per cent of AIG’s equity in return for a rescue. The suit against the US and the Federal Reserve Bank of New York has been filed on behalf of Starr International and other AIG shareholders. According to the Wall Street Journal, Starr is seeking damages for itself and other shareholders of at least $25bn. AIG is listed as a nominal defendant in the suits, which also seek damages for the company. A spokesman for the company declined to comment. In a complaint filed at the US Court of Federal Claims, Starr International, a company controlled by Mr Greenberg, said: “The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency.
European bourses and US stock futures were in the black as buyers nibbled following several days of losses on global fiscal worries, the FT reported. Firmer commodities and weaker “core” bonds completed the mild “risk on” picture. But the mood felt cautious, with traders perhaps reluctant to make bold bets given recent volatility and as markets were set to thin ahead of national holidays in Japan and the US, on Wednesday and Thursday respectively. The FTSE Eurofirst 300 wase up 0.7 per cent, and S&P 500 futures suggested Wall Street would open with a gain of 0.4 per cent, snapping a four-session losing streak. New York’s benchmark lost 5.2 per cent over that period on increased fears about the impact an accelerating eurozone sovereign debt crisis could have on the worldwide economy. Those concerns were given extra weight at the start of the week after the US deficit cutting “supercommittee” failed to reach agreement, highlighting a political gridlock in Washington that may reduce the chances of agreeing further stimulus measures to bolster growth.
The US congressional committee responsible for striking a deficit reduction deal ended its work without an agreement on Monday, delaying any solution to America’s debt problems and setting the stage for a sharp clash over budgetary policy ahead of the 2012 elections, the FT reports. The announcement by Representative Jeb Hensarling and Senator Patty Murray, the Republican and Democratic co-chairs of the panel, came just after the close of trading on US financial markets on Monday, prompting a wave of disappointed reactions from across the political spectrum and business. The failure of the committee also stoked fresh concerns that political gridlock could diminish the prospects for passage of economic stimulus measures to prop up the world’s largest economy in 2012, and threaten a partial government shutdown as early as next month. Mr Hensarling and Ms Murray sought to strike a conciliatory note in their joint statement. “Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” they said.
US Defence Secretary Leon Panetta vowed that Asia was the US’s next security priority following announcements of troop withdrawals from Iraq and Argentina, reports the WSJ. Despite looming budget cuts Panetta said the US was at a “turning point” and that he was “not anticipating any cutbacks in this region”. This won’t do much to reduce tensions in the South Seas, adds the paper.
Rising Chinese labour costs are changing the economics of global manufacturing and could contribute to the creation of 3m jobs in the US by 2020, according to a study being released on Friday, the FT reports. The Boston Consulting Group analysis says the new jobs will be generated by a “re-shoring” of manufacturing activity lost to China over the past decade. “Re-shoring is part of a broad trend that will emerge as … production gradually swings back to the US,” Hal Sirkin, a senior partner at the consultancy, told the Financial Times. The Boston Consulting Group estimates that the trend could cut the US’s merchandise trade deficit with the rest of the world, excluding oil, from $360bn in 2010 to about $260bn by the end of the decade. The shift would also reduce its soaring deficit with China, which reached $273bn in 2010 and has triggered an intense political controversy over China’s exchange rate policies.
Back-to-school shopping and heavy discounting fuelled sales at US retailers in September, beating Wall Street’s expectations as consumers searched for deals in a turbulent economic environment, the FT reports. Sales rose 5.8 per cent at stores open at least a year, ahead of an estimated 4.9 per cent gain, according to Retail Metrics, the research firm. “The general disconnect between US retailers…and broader weakness in the global economy continued in September,” said Ken Perkins, Retail Metrics president. He noted that the labour market “continues to struggle to gain job-building momentum”, citing Thursday’s report that weekly jobless claims rose back above 400,000. The government is due to report on September job creation and unemployment on Friday. As the stock market has taken a wild ride, driven by concerns over the eurozone debt crisis and fears that US growth may remain in low gear, consumers have been more pessimistic about economic conditions.
Switzerland should solve its dispute with the United States over wealthy citizens using secret Swiss accounts to dodge taxes under existing laws in a way that continues to protect bank secrecy, the Swiss Bankers Association head said on Monday, Reuters reports. Patrick Odier, the association’s president, told newspapers on Sunday that the United States has given an ultimatum to Switzerland, saying that unless detailed information on tax evaders using Swiss accounts is handed over this week Credit Suisse and nine other banks will face charges. “The cross-border problems with the United States can and will be solved. But the United States must understand that Swiss laws must be respected,” Odier told a news conference, according to Reuters. “Bank client secrecy protects wealth and does not hide it. This protection remains important.” In Odier’s opinion Switzerland must avoid repeating the deal it made to settle a US investigation against UBS. This bent many of the country’s banking secrecy laws and revealws the details of around 4,450 clients to avoid criminal charges.
The global manufacturing recovery appeared to have come to a grinding halt in August, activity surveys suggested on Thursday, undermining hopes of a vigorous economic recovery in the second half of the year, the FT reports. Across Asia, Europe and the US, surveys of purchasing managers produced the lowest readings of manufacturing activity and orders since mid-2009, when the world economy was only crawling out of recession. Global equity markets expressed relief that some of the figures – particularly those in the US – were not worse, but US equities were trading down by the afternoon in New York, and Asian markets opened down, too. In China, the FT reports that strong domestic demand helped manufacturing growth record a marginal increase in August, despite a sharp fall in export demand. However, the WSJ worries that dark clouds are gathering over the UK, with house prices falling last month and manufacturing that the UK has For some analyst reaction from Credit Suisse, see FT Alphaville.
Barack Obama, US president, called for new infrastructure investments in the US to revitalise the stagnant economy and boost the beleaguered labour market, the FT reports. Speaking after new data showed US private sector jobs growth slowed in August, the president urged Congress to pass an extension of a federal transportation spending bill that expires at the end of September. Mr Obama said that failure to do so would put thousands of jobs at risk and delay vital infrastructure projects and funding for the nation’s highways and airports. “It’s inexcusable to put more jobs at risk in an industry that’s already been one of the hardest hit in the last decade,” the president said on Wednesday in comments at the White House. “We shouldn’t just be playing patch-up or catch-up, we should be leading the world,” he said. A report from ADP, the payroll processor, said US companies added 91,000 jobs in August, missing expectations of 100,000 new jobs and coming in below the downwardly revised 109,000 positions created in July.
US and European stock markets managed to overcome the bleak results of two keenly watched surveys, which showed confidence slumping on both sides of the Atlantic, to eke out modest gains, the FT reports. The S&P 500 is up 0.2 per cent, although it struggled throughout the day to remain higher. In Europe, France’s Cac 40 gauge rose 0.2 per cent, Spain’s Ibex 35 climbed 0.6 per cent and the FTSE 100 in London rallied 2.7 per cent, helping the FTSE Eurofirst 300 index to a 0.9 per cent gain. Meanwhile, Germany’s Dax slipped 0.5 per cent and Greece’s ASE index shed 4.8 per cent, after enjoying its best day in two decades on Monday. Despite the meagre advance, US equities are now at their highest level since August 4, the day of a deep sell-off as traders priced in growing uncertainty over the US debt ceiling and European sovereign debt woes. The Conference Board’s index of US consumer confidence slumped to 44.5, the weakest since April 2009, and a significantly worse reading than expected by economists. Earlier, an index of eurozone executive and consumer sentiment fell to 98.3 from a revised 103 in July, the European Commission in Brussels said – the lowest level since May 2010 and the sharpest one-month drop since the end of 2008.
As rumours (scurrilous, nonsense – Ed.) swirl in the market of a French rating downgrade, Citigroup’s chief economist Willem Buiter is considering a much bigger issue – a world without any AAA G7 sovereigns.
The criteria applied by the rating agencies to the G7 sovereigns in the past have been, in our view, far too lenient. As argued in Buiter (2010) and Buiter et. al. (2011), the post World War II period has seen a combination of gradually eroding tax administration capacity, diminishing tax compliance in the private sector, and the evolution of political decision-making institutions, processes and practices that make it possible to mandate public spending without ensuring sustainable funding for these expenditures. This is bringing to end the period during which for a number of advanced industrial and post-industrial countries, the sovereign automatically represented the best credit risk in its jurisdiction and an AAA rating for these sovereigns was considered natural – almost a right. Only a few small countries with a surviving culture of tax compliance and political institutions that effectively impose the government’s intertemporal budget constraint may have AAA ratings in the not too distant future.
Here’s an interesting graphic from Nomura’s fixed income team for bubble addicts.
It shows the pain thresholds for QE3. Read more
The son-in-law of Hugh Hefner, founder of Playboy Enterprises, has been sued by the US Securities and Exchange Commission for allegedly trading shares based on secret information he learnt from his wife, the magazine publisher’s long-time chief executive, the FT reports. William Marovitz, who is married to Mr Hefner’s daughter Christie, agreed to pay $168,352 in disgorgement, interest and penalties to settle the civil fraud case. He neither admitted nor denied wrongdoing. According to the SEC, Mr Marovitz made more than $100,000 in profits and avoided losses by trading Playboy stock ahead of earnings announcements, takeover news and a stock offering from 2004 to the end of 2009. Ms Hefner was chief executive of Playboy from 1998 until she retired in 2009. Mr Marovitz is a lawyer and former Illinois state senator.
The yield on high-quality US corporate bonds has fallen to record lows as investors seek out debt from top-notch companies as a relatively safe destination for their cash, the FT reports. The average yield on the benchmark Barclays Capital index of US corporate bonds with investment-grade ratings on Wednesday reached an all-time low of 3.42 per cent, five basis points below the previous record of reached in November of 2010. “Growth is continuing to slow and that is a challenge for all risk assets,” says Ashish Shah, head of global credit at Alliance Bernstein. “Investment-grade corporate credit is acting as a safe haven, because these companies have record amounts of cash on their balance sheets and low levels of short-term debt.” The rally in top-quality corporate debt comes as stocks and riskier bonds have continued to lose value. The uncertainty regarding the outlook for sovereign credits has made corporate bonds prized by investors.
Spanish sovereign bond yields have spiked in recent days almost in lockstep with those of Italy – Rome’s heavy public debt burden is the latest target of sceptical investors in the eurozone – and on Tuesday the 10-year yield for both countries exceeded 6 per cent in the nervous secondary market, the FT says. That will mean a sharp rise in the cost of refinancing old debt and raising new money and puts Spain back in line as the country most likely to follow Greece, Ireland and Portugal into a rescue by the EU and the IMF. Eurozone governments are accelerating efforts to bolster their €440bn rescue fund amid further signs that the debt crisis that has threatened the single currency is migrating, the FT reports. Meanwhile, short-term US funding conditions normalised on Tuesday after a Senate vote ratified a debt ceiling deal to cut spending by $2,400bn over the next decade, the FT says. Bloomberg has a summary of repo rates.
Three former Credit Suisse bankers and a Swiss financier have been charged with conspiring to defraud the US, part of a multi-pronged crackdown by US authorities on offshore tax evasion, the FT reports. The US justice department and the Internal Revenue Service said on Thursday that Markus Walder, former head of North America offshore banking and two other ex-Credit Suisse bankers, Susanne Ruegg Meier and Andreas Bachmann, were charged along with Josef Dorig, the founder of a Swiss trust company. All four, none of whom is in custody, were accused of “illegal cross-border banking that was designed to assist US customers evade income their taxes by opening and maintaining secret bank accounts at the bank and other Swiss banks”. The justice department said the charges were for the same alleged offences over which four other individuals were charged in February, some dating back as far as 1953 and involving two generations of account holders. Officials identified the bank only as “an international bank headquartered in Zurich” but one person familiar with the matter identified the bank as Credit Suisse.