Whilst everyone was focused on the ECB on Thursday… … the Fed pulled this little snippet out of its bag: As part of the continuing program of operational testing of its policy tools, the Federal Reserve plans to conduct a series of eight consecutive seven-day term deposit operations through its Term Deposit Facility (TDF) beginning in October. Okay, the Fed has tested term deposits before, so it’s not that mind blowing an announcement in and of itself. The significance, if any, is that it’s subtle confirmation that both reverse repos and TDs will be used in the Fed’s unwind process. The maximum award has also been increased to $20bn.
Japan probes Boeing battery supplier || West faces ‘decades’ of conflict in N Africa || Obama sworn in for second term || Lower Saxony blow for Merkel re-election || Huawei pledges openness to woo critics || Richemont misses estimates || Cameron’s EU speech to come this week || Markets: European stocks flirting with best levels in nearly two years
Dozens to be implicated in UBS Libor deal || Morgan Stanley fined over Facebook IPO || Apple and Samsung hit by latest US ruling || Boeing increases dividend by 10 per cent || Pro-gun US senator calls for new controls || Markets update || The big question that Starbucks raises, ft. Mr Potato Head || The January effect in European equities || Reserve managers turn sultry eyes towards China
Last week we posted a note from Morgan Stanley analysts, who tried to guess at the final ultimate cost of the Libor scandal to banks – a combination of expected regulatory fines, litigation outcomes, and the business uncertainty caused by the mess. A note from Nomura, which we’ve just posted in the usual place, arrives at a more open-ended conclusion while doing the kind of Libor vs Libor-proxy comparison that we’ve come across now and again (in this case the proxy was the Federal funds effective rate plus each bank’s one-year CDS).
Struck by a recent report about how the Italian mafia was now Italy’s largest ‘bank’, Nicholas Colas, chief market strategist at ConvergEx Group, has decided to take a closer look at what one might call “off the grid” indicators for the US economy. As Colas notes on Wednesday, some of these have been gaining traction:
Ok, who moved first?? Was it you, bond yield? Or was it you, CDS spread? It was you, wasn’t it.. Quick, shoot the messenger! Get him!!! Maybe that’s not exactly what’s happening in the discussion of the transition mechanism between CDS spreads and bond yields. But the topic has become so politicised it can sometimes seem that the angry villagers are on a rampage.
Citigroup is moving faster on a sale of EMI than many potential bidders expected, as it seeks to take advantage of a stabilising US music market and strong interest in the recent Warner Music sale, the FT reports. Len Blavatnik, whose Access Industries bought Warner Music, is expected to be among the bidders for EMI, which Citigroup seized from Guy Hands’ Terra Firma group in February. Other participants in the Warner auction that are expected to look at EMI include BMG Music Publishing, backed by Kohlberg Kravis Roberts and Bertelsmann, Sony’s recorded music and publishing ventures, and Vivendi’s Universal Music.
There is a cautious tone to markets as traders absorb the sharp risk asset rally of recent days and contemplate the prospects for the US second-quarter earnings season, the FT’s global markets overview says. Treasury yields are lower and Wall Street equity futures are down 0.6 per cent, after stock markets posted their best gains in a year last week. Alcoa will report earnings after Monday’s close, while Google, Intel and JP Morgan are among firms disclosing this week.
Arresting stuff from Alan Ruskin of RBS, who has just pinged out an “Alpha Alert”: Pure panic. It is rare to see a day where the news flow fits so poorly with the decimation in the risk trade, from currencies to high yield to the once sweet and innocent money market. If this is a sovereign crisis (and this is surely still the core of the nervousness), the sovereign bond markets are doing very well thank you. All the major global fixed income markets are up, and even the epicenter of the crisis, Greece is hanging in, albeit no doubt with a little help from their new found Central Banker friends. The disjuncture between CDS (where the periphery CDS is up sharply) and bond spreads, show how European official intervention (in both markets) have reduced visibility, which no doubt is also part of the problem. Across an array of asset classes, I hear from traders a simple refrain – investors want to get close to base. That gold has gone down today is a telling comment on how much this has been a story of investors liquidating even winning trades. In the currency world, we have become used to thinking about yen carry trades blowing up, but this feels like the first clean blow-up of the EUR carry trade.
Financial scandal? Threats to an Italian academic’s life? Secret eurozone bailout plans? Goldman Sachs? Zero Hedge has discovered Gustavo Piga’s 2001 paper on “Derivatives and public debt management” — something already pointed out by Risk, FT Alphaville, Satyajit Das and others over the last month.
So Goldman bankers are not swapping their Rolex’s for revolvers in preparation for a populist uprising, as reported in a Bloomberg comment piece last week. Unsurprisingly, the idea of gun-weilding banker boys, probably with little past experience of firearms, running amok in New York city struck fear into the hearts of many, and the story went viral across the financial and political blogosphere.
This gratuitous little comment piece is pinging round the financial blogosphere, for obvious reasons. From Alice Schroeder at Bloomberg: “I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.
Cerberus is in advanced preparations for an IPO of Freedom Group, a little-known company that has become a dominant player in the rifle-and-ammunition business, reports the WSJ. Over a three-year span, the US buy-out group – while struggling with its ill-fated acquisitions of auto maker Chrysler and lender GMAC – has acquired at least seven US gun- and-ammunition makers and consolidated them into Freedom Group, making it one of the world’s largest makers of guns and ammunition.
Ohio Democrat Dennis Kucinich ripped into Ken Lewis during the latter’s testimony on Capitol Hill on Thursday. The congressman, among other things, accused the Bank of America chief executive of flirting with perjury in his calculated responses and of “playing the victim”.
Wonder why Hank Paulson’s proposed $700bn US financial sector bailout plan was rejected in Congress? Even as political leaders try to salvage the scheme, with possible plans to present a version of the bill in the US Senate on Wednesday, the scare-mongerers, doom-sayers and populists are at it again. Without giving them too much credit, it’s clear that the wave of dire warnings, mocking commentary and panicked emails sent around in the days leading up Monday night’s disastrous vote had some effect – not least on politicians ever-mindful of their standing with voters. On that issue, figures such as filmmaker/activist Michael Moore (who declared the plan was a “coup against America”) and comedians such as Jon Stewart knew exactly how to hit them where it hurts.
Warner Music Group has hired the veteran Wall Street banker Alan Mnuchin to help assess a £2.3bn bid for EMI ahead of a looming deadline to swoop for the troubled British record label, reports the Daily Telegraph. Mr Mnuchin, who runs the boutique advisory firm AGM Partners and has worked on some of the US media industry’s biggest deals of recent years, is working alongside Warner’s principal advisers at Goldman Sachs and Lehman Brothers, say people close to the company.