COMMENT AND CURIOS - The rise in US 10-year treasury yields is not just about the Fed. - Malcolm Gladwell on Albert O Hirschman and the power of failure. - Abenomics, Japan’s debt, and privatisation.
Asian shares fell back towards their 2013 lows. The MSCI Asia Pacific index fell 0.7 per cent, towards its level in January. Japan’s Nikkei swung to a loss from a 1.7 per cent increase earlier, and the Topix fell more than 1 per cent, down 15 per cent from the five-year high it set in May. (Bloomberg) The ESM will likely have a €50bn-€70bn limit on direct investments in banks. The condition on the bailout fund’s draft direct recapitalisation tool was outlined in a policy paper following six months of talks on breaking the “vicious circle” between sovereigns and banks. The limit to recapitalisation funds reflects the higher provisions on this kind of investment compared to the ESM’s more normal practice of lending to governments. (Reuters)
FURTHER FURTHER READING - John Jeremiah Sullivan on the publication of Cotton Tenants. - Early bird specials and US growth. - Some good ideas on infrastructure and profit repatriation from Larry Summers. - The mystery of why Portugal is so doomed.
Abe unveils ‘third arrow’ reforms and Nikkei slumps again || China takes tit-for-tat move against EU wine exports || Apple could face a US import ban on certain iPhone and iPad models || Brazil got rid of its tax on foreign investment in domestic bonds || Australian growth disappointed in the first quarter || Japanese hedge funds have ploughed into the country’s small-cap stocks || More signs of ECB wariness ahead of Thursday’s meeting || Tesco recovery stalls as sales fall || JPMorgan and Morgan Stanley are designing new synthetic CDOs || JPMorgan’s Alabama debacle set to cost bank $1.5bn || HSBC has been landed with a civil lawsuit from the state of New York || MF Global is effectively out of bankruptcy || IKEA founder steps aside || Markets wrap || FTAV’s latest
China & Eurozone PMIs disappoint || Europe hits political limits for austerity, says EC president || EU warns on US bank ‘protectionism’ || Twitter signs biggest ever ads deal || Share of US oil imports from top suppliers rises || Tie-up in tertiary education in Brazil || Netflix beats forecasts || News Corp to reap payout on settlement || Walmart’s audit committee pay boost || Italian president warns of political deadlock || Market update
Asian markets rise on Bernanke comments || Russia takes tough line on Cyprus, EU || China flash PMIs beat || Japan trade deficit shrinks || Kuroda to speak today || US Senate averts shutdown next week || Foxtons’ owners in IPO talks || UK Budget measures far from enough
Asian shares higher || Progress made on EU budget deadlock || Argentina responds angrily to NY bond ruling || Anglo American shareholders want asset sales, cost cuts || Rothschild raises $270m for Bumi proposal || Dalman to take on executive duties at ENRC || Banks tout idea of sharing bond data || Olam says it can withstand ‘stress’ || Why milk costs €1.50 a litre in Greece
FT ALPHAVILLE Spanish auction – damned if you do/don’t: Madrid has tipped a toe into the 10yr debt market and found the water isn’t as cold as it once was. It managed to get away a larger-than-planned issue of €3.9bn 3yr and €859m 10yr paper on Thursday with borrowing costs on the longer-term paper falling markedly alongside decent demand. However, as David’s post notes, the 3yr stuff was a new issue with the yield coming in near enough to this year’s average while the offering of the 10yr paper was small and oh-so-cautious.
Glencore softened terms of its offer for Xstrata, saying it would keep Sir John Bond on as chairman of the mining company as part of the revised offer and retaining the same balanced board structure as proposed in February, with equal numbers of non-executive directors from each company’s board. Xstrata, which on Friday said it needed more information to consider Mr Glasenberg’s latest plans, declined to comment on Sunday and Qatar Holding, a key shareholder in Xstrata, is awaiting the board’s response. (Financial Times) Glencore could publish details of its revised offer as early as today. (Reuters) Confidence is growing that a German court may approve the ESM in its ruling on Wednesday, and there are fresh signs that pro-EU parties in the Netherlands have surged ahead in national elections. Meanwhile Olli Rehn, Brussels’ economics commissioner, said the “strict and effective” conditions described in the Outright Monetary Transactions programme would be much the same as the annual Brussels-led recommendations for national governments’ fiscal targets and economic reforms, but with greater detail and timetables for implementation. (Financial Times)
Asian stocks fell as investors awaited Ben Bernanke’s speech later on Friday, and reports showed an unexpected decline in Japan’s industrial output and manufacturing activity contracted to the lowest level in 16 months. South Korea’s second consecutive month of decline in industrial output also dampened exporters there (Bloomberg, Financial Times). The ECB would have sweeping powers over all eurozone banks under draft plans drawn up by the European Commission, although Germany and the ECB itself have urged more decentralised steps towards a eurozone banking union. The EC plan, which is still being drafted and will be unveiled on September 12, would strip national supervisors of almost any authority to shut down or restructure their countries’ failing banks, handing this power to a new ECB board separate to its governing council (Financial Times).
The economics team at RBS summarise the announcement from the EU summit last week that surprised to the upside, while putting it in context: We expect a successful resolution to this crisis through a series of small steps, with sovereignty pooled and houses put in order before the strong finally embrace the weak, because one big bazooka solution will take the pressure off in the periphery and therefore prove politically unpalatable in core.
The appeals panel of the World Trade Organization ruled on Monday that China must dismantle its system of export taxes and quotas for nine widely used industrial materials, reports the NYT. The legal setback for Beijing could set a precedent for the West to challenge China’s export restrictions on other natural resources, including rare earth metals that are crucial to many modern technologies, trade experts said. The WTO’s Appellate Body, its highest tribunal, ruled that China distorted international trade through dozens of export policies it maintains for bauxite, zinc, yellow phosphorus and six other industrial minerals. The case was filed in 2009 against China by the US, the European Union and Mexico. The FT says the WTO case has acquired even greater importance amid Beijing’s moves to impose similar restrictions on the export of a rare earths, a category of 17 elements that are found in an array of high-tech products, including solar panels, wind turbines and mobile phones.
Europe’s carmakers are crying foul over a proposed trade agreement between the European Union and India, which they say would restrict access to one of their most important but highly protected markets, says the FT. The industry, led by Germany’s powerful VDA carmakers’ association, says the agreement as discussed would grant Indian-built cars immediate duty-free access to the EU but would only reduce the tariff barrier to European vehicle exports to a level of 30 per cent, which would stay intact indefinitely. “The results which are on the table are not deserving of the name ‘free trade’ because it’s not a real free-trade deal,” said Matthias Wissmann, VDA president. “The Indian side wants to keep a 30 per cent tariff on passenger cars and gives only vague promises that it will negotiate with the EU again in 2017.” The intervention by one of Europe’s biggest industries adds to a host of barriers to an agreement, where the two sides are still at odds on a range of topics, including visas, the Indian commercial sector and the opposition of some Indian states.
The European Union approved a ban on oil imports from Iran, overcoming misgivings about the economic hardship of its members to take its strongest measures yet to press Tehran into concessions on its nuclear programme, reports the WSJ. News of a coming embargo by Iran’s largest oil-export market shocked the country’s troubled economy, with the rial rising 10 per cent. The news also sent Brent crude above $110 a barrel, the FT reports, although both Brent and WTI prices remain below the two-year highs set during the Libyan civil war. A visit to Iran by the United Nations’ nuclear watchdog is being seen by western diplomats as a first key test of whether Tehran might negotiate over its atomic programme after the imposition of tough new European Union sanctions, says the FT separately. EU foreign ministers agreed an oil import ban on Iran to be phased in over the next five months and a freeze on some central bank assets. European officials said they would watch this week’s IAEA meeting for any sign that Tehran is willing to negotiate seriously.
Germany’s economy is believed to have contracted by around 0.25 per cent in the fourth quarter of last year, the government’s statistics office said on Wednesday. The Wall Street Journal reported that the contraction partially offset full-year growth, highlighting that even the euro zone’s largest economy wasn’t immune to waning global demand and the burden of the currency’s area’s persistent debt crisis. Overall, GDP grew 3.0 per cent in 2011, below the previous year’s growth rate of 3.7 per cent — the fastest since reunification, according to Reuters. Germany’s export-driven economy had recovered quickly from the financial crisis, but began to feel the pinch late last year as the debt crisis spread from Greece to its key trading partners in the euro zone. Reuters says that Germany earns 28 per cent of its GDP by exporting goods to EU countries and Switzerland, but only 2.5 per cent in exports to China, Berenberg Bank pointed out.
Asian economies have started to cut back purchases of Iranian oil as new sanctions on the Middle Eastern producer creep closer, Reuters reports. Chinese buying of Iran’s crude has been cut back by half in the last month, while Japan may also reduce purchases if it reaches an agreement with the United States on a sanctions waiver. However, the Italian government has urged EU states to impose an Iran oil import embargo at a gradual pace, reports the FT. Some 13 per cent of Italy’s oil imports come from Iran. EU, Chinese and Japanese demand accounts for half of Iran’s exports.
Gas-states, too! The eurozone needs you — and you need the eurozone! So, start backing up the trucks for eurozone sovereign debt. Philip Verleger, an energy economist and visiting fellow at the Peterson Institute, has written a brief paper outlining this argument that the big energy exporting states should, along with China, help fund an emergency IMF fund that would aim to bring peripheral bond yields down to 3 per cent.
Just in case anyone was thinking of dusting off the idea that China might bailout Europe, here’s a repeat of its demands: conferral of “market economy” status (for WTO purposes) and an “ironclad” guarantee that they’ll be paid back. This is Yao Yang, director of the China Center for Economic Research at Peking University, who we can assume is toeing the party line when writing first at Project Syndicate and then, on Tuesday, for China Daily.
European geopolitical FAIL: LONDON, Nov 11 (Reuters) – Greece is relying on Iran for most of its oil as traders pull the plug on supplies and banks refuse to provide financing for fear that Athens will default on its debt…
Chinese exports slowed in October, reports the FT, pressured by the mounting woes in Europe, but strong imports served up a reminder of the domestic economy’s strength. Exports rose 15.9 per cent year-on-year, down from 17.1 per cent a month earlier. Imports increased 28.7 per cent, accelerating from a 20.7 per cent pace. Chinese exports to the European Union were up 7.5 per cent year-on-year in October, down from 9.8 per cent in September. Exports to the US fared better, rising 13.9 per cent in October, up from 11.6 per cent in September. China’s trade surplus still widened to $17bn from $14.5bn a month earlier, though that was well below market expectations for a figure closer to $25bn. The trade surplus is on track to fall about 10 per cent this year, welcome news from a diplomatic perspective for Beijing, which has been trying to persuade foreign critics that its growth model is better balanced and less reliant on exports than in the past.
China’s GDP growth for September came in at 9.1 per cent, compared to expectations of 9.3 per cent. But although skittish markets did not like it one bit, there’s not a lot of grist for the China bear mill in there. Industrial production and fixed asset investment both grew slightly faster than expected. Is the soft landing materialising?
There’s been a lot of talk about the possible break-up of the euro, but until now little has been written about the actual mechanics of a euro breakdown (other than it just can’t happen, so let’s not write about it.) But a few banks have recently dared to speak the unthinkable.
Chinese premier Wen Jaibao threw some shade on the eurozone on Wednesday, and the US too — insisting they get their own fiscal and monetary houses in order and recognise China as a market economy if they really want to see some investment. His own house didn’t look so great, either, when the Asian Development Bank challenged the likelihood of a much hoped-for Chinese soft landing with its updated outlook. It raised the inflation forecast for China, while cutting growth forecasts (hmm… stagflation, anyone?).