On Wednesday we wrote about the growing consensus among scholars and policymakers that unencumbered financial flows are bad, focusing on some recent research from the Bank for International Settlements. Now we want to draw your attention to a detailed historical account of the interwar and pre-crisis financial systems by Claudio Borio, Harold James, and Hyun Song Shin. Their aim is to explain which “global imbalances” mattered and which did not.
Markets: “Asian stocks rose, joining a global rebound as better U.S. earnings offset the downing of a passenger jet in Ukraine and Israel’s invasion of Gaza. Emerging-market currencies climbed while corn fell to the lowest since 2010. The MSCI Asia Pacific excluding Japan Index advanced 0.3 percent as of 11:44 a.m. in Hong Kong, with three stocks rising for every two that fell. Futures on the Standard & Poor’s 500 Index (SPX) were little changed after the U.S. gauge climbed from its biggest loss in three months. Indonesia’s currency added 0.4 percent versus the dollar before the result of presidential elections is announced. Corn slumped 1.3 percent on U.S. production. Natural gas slid 1.9 percent.” (Bloomberg)
Camp Alphaville reminder: Yes, the colour-code used to illustrate the full line-up of Camp AV speakers has relevance. No, I don’t know what it is. (Details here) Markets: Asia-Pacific markets were given a boost as manufacturing readings for the region’s two powerhouses, China and Japan, showed a return to growth this month. SBC’s “flash” purchasing managers’ index for China jumped from 49.4 in May to 50.8 in June, beating forecasts and ending a five-month streak of contraction. Markit’s PMI for Japan rose from 49.9 in May to 51.1 in June, its highest since March. (FT’s Global Markets Overview)
Markets: Caution continued to reign across Asian equity markets after US stocks fell for a third straight session and as investors looked ahead to key events later in the week. In Japan, the Nikkei 225 average was 0.5 per cent lower following a 2.4 per cent fall in its first trading day of the year on Monday. In China, the Shanghai Composite was down 0.4 per cent, a fourth straight decline that placed the index at a six-month low. (Financial Times Global Markets Overview)
As we’ve noted before it’s all feeling a little 1999 out there. Lombard Street ‘s Dario Perkins agrees. He’s just released research entitled “Party like it’s 1999″, in he notes:
Markets: Equity markets are weaker across the Asia-Pacific region. Investors are cautious ahead of interest rate decisions in the eurozone and the UK on Thursday plus a highly-anticipated monthly US jobs report on Friday. The broad losses follow a 0.1 per cent pullback in the S&P 500, after a strong private payrolls survey increased speculation that the Federal Reserve could soon trim back, or “taper”, its stimulus measures known as quantitative easing. (Financial Times)
Markets: Asian bourses continued their ascent on the prospect of extended monetary stimulus in the US. Investors have been closely watching testimony from Janet Yellen, the nominee for chairman of the Federal Reserve, who has so far stuck to the view the central bank would tie policy changes to underlying improvement in the US economy. (Financial Times) Seven highlights from the Yellen hearing (Financial Times)
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way. Caxton, a hedge fund named after the printer (its now-retired founder Bruce Kovner is a billionaire bibliophile), believes the Fed will keep running its presses: We have been expecting the US economy to reach escape velocity led by housing and corporate capital expenditure… but for whatever reason that just hasn’t happened…tapering is off the table for the foreseeable future. Caxton is long across the US yield curve (the debt debacle has been a good buying opportunity, if nothing else). Mr Law has spoken extensively with us about his view on the global economy and the state of the hedge fund industry. Tree-based publishing issues mean those thoughts came in truncated form. Below are some extended excerpts from him.
Senate takes over US budget negotiations || Lloyds warns of Help to Buy bubble || Twitter squeezes banks on IPO || Higher vegetable prices helped fuel Chinese inflation || Gulf oil production hits record || Europe’s financial institutions are more exposed to their domestic government bonds || Netflix pursues cable-TV deals || Urals Energy receives cash bid || Markets ||
Italy’s PM seeks to shore up government || Parts of the US government may shut down at midnight on Monday for the first time since 1996 || Twitter prepares to unveil IPO filing ||Wall Street’s top five banks face $1bn earnings cut || Faltering Chinese factory growth adds to rebound fears || Tories accelerate help for home buyers || Mizuho Financial Group hit by organised crime link fine || CLO issuance hits highest level since before financial crisis || Global banks cautious on Shanghai free-trade zone || Markets
Asian shares were muted. The Nikkei rose 1 per cent following Monday’s weak ISM manufacturing number in the US. (Reuters) Topix fact du jour: analysts expect its earnings to rise 57 per cent this year, compared to a global average of 19 per cent. (Bloomberg) Japan’s public pension funds are to be recruited to buy stocks and real assets in the Abe government’s latest move to mobilise the country’s savings for growth. A panel will be set up to review investment guidelines for the public funds, which have previously piled into Japanese sovereign bonds, including the mighty Government Pension Investment Fund. The guidelines would come into force by April 2015 under the draft plan. (Reuters)
FT markets round-up: “A calmer mood prevailed in the markets after the volatility of the previous session, as participants took a positive view of some mixed US economic data and attempted to put lingering concerns about the eurozone to one side. Indeed, the S&P 500 US equity index rose 0.8 per cent to finish within two points of the record closing high of 1,565.15 it set in October 2007. The FTSE Eurofirst 300 closed 0.2 per cent higher, although there were further losses for peripheral eurozone equity markets, with the Ibex 35 in Madrid shedding 1.8 per cent and Milan’s FTSE MIB down 1 per cent.” (Financial Times) Warren Buffett will become one of Goldman’s largest shareholders, after a deal to convert billions of dollars of warrants into common stock. Berkshire Hathaway was originally issued the warrants as part of investing $5bn in the bank during the crisis, giving it the right to purchase about 9 per cent of the bank for $115 per share before October 1 this year. Tuesday’s revised deal will see Goldman issue Berkshire stock equivalent to the company’s paper profit on the position (Financial Times, Goldman statement). Buffett’s gain of a 2 per cent stake from the deal will making him a top 10 Goldman shareholder (Wall Street Journal, Bloomberg).
Asian shares rise || Hedge fund reaps $500m on Greek bet || Geithner told of Libor fears in 2008 || Japan’s exports fell in November || Knight agrees to Getco offer || Cerberus to sell gun company stake || Basel may tighten ABS risk weight models || Watching for unintended consequences in 2013
ROUND-UP FT markets round-up: “Optimism on a US budget deal to avert the fiscal cliff and good news from the eurozone is encouraging investors back into risky assets and sending stocks to near 17-month highs. Wall Street’s S&P 500 kept its momentum through the day ending up 1.15 per cent and trading barely 20 points of a fresh five-year peak. When combined with a 0.4 per cent gain for the FTSE Eurofirst 300 and a 0.5 per cent rise for its Asia-Pacific peer, it has taken the FTSE All-World equity index up 0.9 per cent to 224.96, its highest close since the end of July 2011. The bright mood extended to the euro currency, which is up 0.4 per cent against the dollar to $1.3221, after Standard & Poor’s upgraded Greek government debt.” (Financial Times)
Asian shares fell on Tuesday after a US manufacturing showed a fall in activity. The MSCI Asia Pacific was 0.1% and the euro hovered near a six-week high on optimism over Greece’s plan to buy back debt. (Reuters)(Bloomberg) “Republicans proposed steep spending cuts on Monday but gave no ground on President Barack Obama’s call to raise taxes on the wealthiest in their first formal proposal to avert a “fiscal cliff” that could push the US economy into recession.” John Boehner presented a $2.2tn deficit reduction package over 10 years, including $800bn in new taxes – much lower than the $1.6tn target for new revenue proposed by the president last week. (Reuters)(Financial Times)
Asian stocks higher on fiscal cliff hopes || Fed seen likely to keep buying bonds in 2013 || Japan’s retail sales fall || Rio Tinto plans $7bn in savings || Stay granted against Argentina debt ruling || Knight Capital has two rival offers || Vivendi has four offers for GVT || Japan must revitalise the BoJ
“Asian shares dropped for the first time in six sessions as renewed concerns over the US fiscal cliff overshadowed positive US economic data. The MSCI Asia Pacific index lost 0.2% with Japan’s Nikkei 225 Stock Average down 0.8%, South Korea’s Kospi Composite index off 0.9% and Australia’s S&P/ASX 200 index 0.5 per cent lower. Hong Kong’s Hang Seng index was 0.7% lower while China’s Shanghai Composite index slipped 0.4%.” (Financial Times) Eurozone states face losses on Greek loans: Documents seen by the FT say that under the Monday deal Greece’s debt load would only come down to 115% by 2022, meaning at least another 5.1 percentage points in cuts will have to be found. (Financial Times)
FT markets round-up:”Oil prices swung in a 2 per cent range, as traders reacted to developments in the Middle East and to signs of tighter supply in the US. The announcement of a ceasefire to end a week of violence between Hamas and the Israelis briefly interrupted the commodity’s upward trajectory, but by late in the day Brent crude was back up 1.1 per cent at $110.99 a barrel. WTI, the US benchmark, was also 1.1 per cent higher at $87.66 a barrel. Traders were also surprised by data showing a decline in inventories in the US, where signs of an improving economy suggest higher fuel demand in the near-term. The Energy Department said oil inventories decreased by 1.5m barrels last week to 374.5m barrels, the first decline in three weeks. The wider markets shrugged off a failure to agree the latest bailout for Greece, though trading was light ahead of the US Thanksgiving holiday. The FTSE All-World equity index was just 0.2 per cent higher at 213.69, recovering losses from earlier in the session, following the release of some encouraging US data.”
ROUND-UP FT markets round-up:“Stocks on Wall Street fell heavily for a second day as news about an impasse in Europe over an aid programme to Greece and worries over the outlook for the US economy weighed on sentiment. Thursday’s declines come after the sharpest drop in almost a year for the S&P 500 index. The broad measure of US stocks closed 1.2 per cent lower well below the 1,400 points mark, following a 2.4 per cent slide on Wednesday. The FTSE Eurofirst 300, which dropped 1.4 per cent in the previous session, closed 0.15 per cent lower as the FTSE All World lost 1 per cent.” (Financial Times)
FT markets round-up: “Investor appetite for risk was generally firmer across asset classes before US equities lost their initial steam late in New York. Confirmation of a possible $12.8bn deal in the US telecom sector and a big pop for the IPO of Realogy are also helping sentiment. The dollar index, a gauge of broader market sentiment which often falls when sentiment improves, retreated 0.2 per cent. US Treasury yields have turned lower, with 10-year yields down 3 basis points to 1.67 per cent. The US Treasury concluded this week’s $66bn government debt offerings with the sale of $13bn in 30-year bonds. A measure of demand, the bid-to-cover ratio, came at 2.49 versus 2.68 in the previous auction of the securities. The weaker buck helped gold add $5 to $1,767 a troy ounce. The FTSE All-World index recovered early losses and traded up 0.3 per cent as the FTSE Eurofirst 300 closed 0.8 per cent higher. In Asia, stocks slipped 0.2 per cent. The S&P 500 ended the session nearly flat at 1,432, but still snapped a four-day losing streak that began after the benchmark hit a near five-year intraday high above 1,470 last Friday.”
US steps up probes on insider trading: US authorities have increased the number of new investigations into insider trading by almost half in the past year, building on their recent crackdown on corruption among professional traders, the FT reports. James Barnacle, a supervisor of the Federal Bureau of Investigation’s economic crimes unit in Washington, said the number of new FBI investigations into insider trading was up 43 per cent nationwide for the fiscal year that ended September 30.
Good morning, New York. Clocks moved forward yesterday for those in the US. As Europe won’t do the same for another two weeks, this is that blissful period of time when finding mutually convenient times for transatlantic conference calls is a lot less angsty. ______FT Alphaville