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Eurozone recession here to stay, UK gets ready for exit

Yesterday…
David Cameron and his comrades of the Conservative Party published a policy draft for a referendum for a possible EU-exit of the UK. The draft says the referendum has to be completed by December 2017, given the Tories win the 2015 elections. I think the campaigning just began. read BBC

While the global “recovery” continues to force deficits to skyrocket and imports to slump, India has managed to become the outlier in the trend on Monday afternoon. Taking advantage of the low gold price, imports rose 138% since April 2012 to $7.5bn, or 18% of all imports, while the trade deficit hit 17.8bn. read Zerohedge

And of course the drama over Bloomberg‘s use of user data continued… read FT Alphaville

This morning…
there was a flood of data, with the German economy growing 0.1% from 4Q12 to the first quarter of 2013, undercutting the depressing estimate of 0.3% growth. The French economy contracted by 0.2% over the same period of time. read Bloomberg
Franco-German relations haven’t been great since Hollande got into office, but this morning’s result may just worsen the atmosphere of any policy discussion. The eurozone as such, contracted 0.2% in 1Q13. The recession continues…

Simultaneously, Mervyn “it’s-almost-his-last-day” King of the Bank of England raised the outlook for the UK economy [with lower inflation] and raised his eyebrows at eurozone performance, as well as the continental Financial Transaction Tax. read Guardian

Meanwhile, the US is preparing to become the model student again. The Congressional Budget Office is forecasting the deficit to fall as far as $378bn by 2015, much faster than anticipated. The 2013 forecast was cut by $203bn to an overall $642bn. read Reuters
And that is not all: Formerly the largest corporate debt market in the world, providing ample opportunity for the Michael Milken followers of the world to make money, China is going to take that spot within the next two years, according to S&P. Soon America will be debt and deficit free and flow with milk and vodka (we’re all grown-ups here). read Financial Times

In the kerfuffle over whether Jamie Dimon is allowed to stay in in his double-role as chairman and CEO of JPMorgan seems to be blowing over (much like Lloyd Blankfein expected), as fewer shareholders than expected are looking to back the leadership reform. Another bullet dodged for the industry. read Financial Times

And in case you’ve been in a good mood this morning, have a look at this: 10 Scenes from the ongoing global economic collapse (Zerohedge)

So long.

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Obama ready to cut social security for budget deal

Yesterday…
it was all about central banks: the Bank of Japan expanded its asset purchasing program to JPY7tn per month, which will increase the Japanese monetary base to JPY270tn – double – by early 2014. read article

Both the Bank of England and the ECB left their policies alone. Mario Draghi shared mixed views of the European economy, saying it was to benefit from improving financial markets sometime soon, while bank lending was negative and needed encouraging. Interest rate cuts are possible again.

This morning…
we’re waiting for US non-farm payrolls, expected to show 190,000-200,000 jobs added in March (according to Bloomberg and Dow Jones respectively), as opposed to 236,000 in February, with a steady unemployment rate of 7.7. read article

President Obama is willing to cut social security spending to finally get a budget deal together, the White House announced this morning. The new proposal would see cuts worth $1.8tn over the next decade and will piss off a lot of Democrats and unions. read article

Weekend reading…
women and Wall Street (again) read article
– why the French are an un’appy folk, read article
– the deal with interest rates, read article

Have a good weekend.

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Laiki depositors to lose up to 80%, Poland turns against euro

Yesterday…The Spanish central bank forecasts its economy to contract by 1.5% in 2013, while unemployment is seen to rise to close to 30%:

The economy will be marked by weak domestic demand, a fragile labor market and tight financial conditions, the bank said.” read article

Meanwhile in Poland, Prime Minister Donald Tusk is floating the idea of a euro referendum. The country has been pushing to join the foreign currency pretty much as long as it has existed – proximity to Germany would bring an additional trade advantage (despite the disadvantage for cheap manual labor). Anyway, now Poland is not so sure anymore. The political opposition claims the eurozone has changed too much since 2004, when the country joined, for a decisions to possibly still be valid. read article

The US economy must be improving, because it’s not getting worse. That was the idea of the morale following the data announcement of January home prices rising at the fastest rate since summer 2006 and an increasing demand for durable goods. read article

In other news, the Financial Times has found that the group of AAA-rated countries has decreased by 60% since 2007, and Warren Buffet will become one of Goldman Sachs’ ten biggest investors after exercising some warrants issued in 2008. read article

This morning…
Cyprus‘ central bank announced some details on the impending haircuts, saying uninsured deposits at Cyprus Popular Bank (Laiki) could be cut by 4/5th. The estimated 40% haircut seems to remain the benchmark for larger insured deposits. According to WSJ:

Based on estiamtes from government officials, the losses would affect some 19,000 deposit-holders at the Bank of Cyprus who, combined, hold some €8.01 billion in uninsured deposits. Uninsured savers at Cyprus Popular Bank, who hold a combined €3.2 billion, will lose most of that.

The Bank of England said British banks were facing a £25bn capital shortfall with regards to compliance with new banking standards. read article

So long.

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Central Bank Center Stage: UK prepares for future easing

Today’s central bank action shows the Bank of England and the Bank of Japan leaving things as they were. In the UK, the budget, to be announced on March 20th, will give the BoE more leeway in reaching the 2% inflation target. In other words, it will be a Go! sign for the printers and for new governor Mark Carney to save the day. As for Japan, this was the final monetary policy meeting for current governor Masaaki Shirakawa. Whether his successor will employ this new found conservatism is uncertain. Meanwhile in Brussels, the ECB‘s policy meeting has begun; no changes are expected.

In the US, the Fed’s beige book survey showed moderate economic growth and easing employment conditions. At the same time, the FT (and Bloomberg) is running an article about the 750,000 people who could be out of work by the end of the year if the sequester doesn’t get amended.

A reduction of 750,000 jobs translates into about 0.4 percentage points higher on the unemployment rate. That, in turn, could mean it takes at least six months longer to reach the US Federal Reserve’s threshold of 6.5 per cent for a first rise in interest rates.

Meanwhile, the House of Representatives voted in favor of a last-minute legislation that gives greater flexibility to government agencies that are subject to the spending cuts mentioned above, avoiding a government shutdown on March 27th. Next up: the [delayed] budget. read article

Time Warner is going to spin their Time Inc and IPC (publishing the likes of InStyle, Wallpaper* and NME) magazine arms off by the end of 2013 valuing the new public company at $2.4-3bn, after sales talks with publishing group Meredith had failed. In recent years, Time Warner also got rid of AOL and Time Warner Cable, all in the name of “strategic clarity”. read article

KPMG might lose its $81m auditing contract with HSBC, because the bank is considering a new pair of eyes for their books after 22 years. Hello there, regulatory pressureread article

Finally, France reached an unemployment rate of 10.6% in Q4 of 2012, representing the highest rate since 1999 and an increase for a sixth consecutive quarter. read article

So long.

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Italy at the polls; UK loses triple-A rating

Over the weekend, the UK lost its triple-A rating, with Moody’s downgrading the country to Aa1. The pound is weak and nobody is surprised. But Moody’s also cut the rating of the Bank of England, which is confusing, considering the outrageously unlikely event of a central bank default. In other words:

The question then is: what exactly does a rating mean for a sovereign which borrows in its own currency? Right now, it seems little bar political pain.

Responding to said political pain, George Osborne said he wouldn’t bow under pressure from the opposition and have Britain stick to the course of austerityread article
 
The first exit polls for the Italian election will be coming in at 2pm GMT today, when voting stations close. So far the election has seen topless feminists screaming for the end of Berlusconi’s rule over Italy (…), and a 55.2% voter turnout, 7.3% less than last year. read article
 
In Cyprus, Nicos Anastasiades’ center-right party has won the election with a 57.5% majority, leaving the country’s bailout to be finalized by the new government and the EU. Anastasiades, however, likes to think of himself as not just another sheep-like follower of the regime of international lenders, and wants to reach a deal that doesn’t include privatizations, which are believed to raise up to €2bn. read article 
 
Meanwhile in the US, only four days are left to steer the country away from the sequester. So far neither side of the table seems to a have an idea how, despite Obama’s begging for compromise. read article
 
In other news, the Deepwater Horizon trial begins today and Japan‘s Prime Minister Shinzo Abe is looking to nominate a new governor for the country’s central bank. So far, possible choices, which include the current President of the Asian Development Bank, are all pro-stimulusread article
 
Have a good week.

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Central bankers’ secretaries: All about minutes

The minutes from yesterday’s Fed meeting shed doubt on the future of America’s money printing program, showing that “many” (like what, more than four?) Fed officials are uncomfortable with printing all that dough. From MarketBeat:

Fed officials, including Richard Fisher, Charles Plosser, Jeffrey Lacker and Esther George (aha, four…), have previously raised concerns about the Fed’s easy-money policies. The minutes don’t identify participants by name, or specify how many officials expressed a particular view, making it unclear if other more dovish members changed their tunes in the latest Fed meeting.

Maybe someone else should do the minutes next time… At the other end of the spectrum, Bernanke seemed adamant that policies won’t change until the economy shows more convincing signs of recoveryread article

Across the Atlantic, markets are moved by even fewer people. Sir Mervyn King, who is about to leave the Bank of England to spend more time gardening, is pressing for more QE. Or maybe he just wants to take some pressure off of Mark Carney‘s shoulders, who knows. Another £25bn package, would up the Bank’s total easing program to £400bn. read article

Otherwise, the UK saw its budget surplus increasing upon the coupon payment from said QE program, reducing overall net borrowing by £2.6bn. By next the end of the next fiscal year, this number is meant to rise up to £12bn. read article

Elsewhere in Europe, uninspiring data caught on to all those high expectations, with Germany missing estimates and France dropping off the map. This recovery is going super well. read article

In Russia, central bank Governor Sergei Ignatiev, who is stepping down in summer as well, gave an interview saying Russia was losing $49bn a year through untaxed transfers to non-residents to finance illegal activities. read article

So long.

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Budget time in Europe; US DoJ investigates Moody’s and Fitch

It’s budget time again in the land they call Europe and the usual suspects pulled an all-nighter in Brussels yesterday, trying to come up with a convincing plan, covering 2014-2020. For the first time in its existence, the budget has actually been reduced. In some last minute action, yet another €12bn were slashed last night. With €960bn on paper now, €33bn less than the current budget measures and down from €1.047tn initially suggested, the plan has to be approved by all 27 EU member states. read article

Over in the US, the Department of Justice has looked [an inch] beyond the obvious and is now considering legal action against Moody’s. The matter at hand concerns defrauding investors. At this point, however, the investigation is in its infancy, as too many resources are devoted to the S&P case. According to WSJ, New York’s Attorney General Eric Schneiderman, sworn enemy of what’s left in the post-Lehman world, has also requested insights into Fitch‘s business.

In other news, China reported some positive trade data, with exports rising 25% and and imports rising 28.8% compared to next year, suggesting that the rest of the world has, in fact, not totally collapsed yet. Although…

Futures were delighted by the data, until someone pointed out that January 2013 had some five more working days than 2012 due to the calendar shift of the Chinese new year, and that adjusted for this effect exports were a far more modest 12.5% while imports rose only 3.4%. 

Following yesterday’s news from the European Central Bank, the FT has more details on the Irish debt deal, including the refinancing of €28bn of promissory notes. Meanwhile, Gavyn Davis gives a critical analysis of the ECB’s policy choices. The aftermath for Carney‘s parliamentary presentation can be found here.

And finally, Boeing is struggling with the “exploding battery fiasco”, seeing its orders collapse to only 2 from 150 a year ago this January. read article

Weekend reading:

– Michael Lewis‘ review of Greg Smith’s “Why I left Goldman Sachs“, read article

– Iceland‘s recovery, read article

– Too fast to fail, high-frequency trading and financial collapse read article

– Michael Bloombergmayor of London?, read article

Have a good one.

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Central bank center stage: light winds from Canada

Today’s agenda is full, with the ECB press conference this afternoon, future Bank of England governor Mark Carney being quizzed in the UK parliament and the aftermath of the sudden overnight re-ignition of the rate-fixing scandal(s).

Starting with the latter, the Libor investigation has led to fines all around already, but now it uncovered the unfortunate wordings of some RBS traders (to be read here). FYI, I like both steak and sushi. Meanwhile, Japanese banks, as well as RBS’ Tokyo division, have been accused of manipulating Tibor, the Tokyo Interbank Offered Rate, which they have done, of course, because why would something like this be contained in London. On the continent, the investigation of Deutsche Bank’s Euribor fixing is progressing and has led to the suspension of five traders in Frankfurt. More fun to come.

While all that is happening, Mark Carney, former governor of Canada’s central bank and incoming governor of the Bank of England, is facing the Treasury Select Committee. Prior to the session, George Osborne declared how upset he is about the UK’s monetary policy, asking for more easing to stimulate growth. All questions are really just trying to get to the point of one thing: what’s going to change now? We already know about his nominal GDP-targeting idea, but what else? He stressed the importance of flexibility in meeting inflation targets again and gave the current BoE regime his support, praising its “entirely possible, in fact probable” positive impact on the economy. read article.

As for the ECB, Mario Draghi will hold a press conference at 1.30pm London time. Presumably on the agenda are the LTRO repayments, the euro and the latest ECB Bank Lending Survey, which indicated tighter lending conditions due to bank’s capital requirements. Maybe, Draghi will comment on Ireland’s debt burden, which the ECB reportedly eased.

Meanwhile, the People’s Bank of China noted the increased inflation risks due to QE exercised by the US and Japan, which “may push up commodity prices and make global capital flows more volatile.” China reports its January inflation rate tomorrow; it is expected to come in at 2%, as opposed to 2.5% in December.

In other news, India lowered its growth forecast from 5.5% (prior to last week at 5.8%) to 5% and Cathay Pacific decided to up the value of its cargo, switching from e.g. apparel to transporting diamonds and pharmaceuticals to boost revenues. Also, the EU-leaders summit kicked off in Brussels today.

So long.

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Dell brings buyouts back; Obama fails to strike deal

It’s a very AmUrica-centric news day, so let’s start with…

TWENTY-FOUR point four billion dollars. That’s what it will cost founder Michael Dell (who currently holds 14% of the firm) and Silver Lake Partners to buy the computer business. That makes Dell the largest leveraged buyout since 2007. read article 

Microsoft, which counts Dell as one of its largest clients, provided a $2bn loanBut according to WSJ:

Despite its participation, Microsoft isn’t getting board seats or operational control. What it is getting, apparently, is a wink and a nod that Dell won’t start shipping equipment running Android, for instance… The danger there is that, by limiting its technology options, Microsoft’s involvement ultimately damages Dell’s long-term prospects.

In other deal news, US media company Liberty Global is going to buy Virgin Media for £10bnread article

Also in the US, we’re more or less back to the old spiel: after Obama proposed a teeny-tiny cuts/tax package to delay the sequester (automatic spending cuts on 1 March), Republicans rejected the idea out of tradition. The whole thing just looked too much like additional tax increases to them. If all else fails, the sequester will slash $85bn from federal spending until February 2014 – not exactly a health fix for the US economy. read article

The US Department of Justice has added a price tag to the S&P mis-rating case: the mortgage securities in question, which received inappropriate ratings between 2004 and 2007, caused losses of more than $5bn. The awkward side to it: the lawsuit has brought to light that S&P analysts danced around to “Burning Down the House” and said they would “rate every deal. It could be structured by cows and we would rate it.” So far, it is unknown whether S&P employees are just really big fans of the Talking Heads. read article

Otherwise, Europe is waiting for Godot the ECB‘s and Bank of England’s meetings tomorrow and RBS was fined $325m by the CFTC in relation to the Libor scandal, while Silvio Berlusconi is winning ground against Italy’s Democratic Party in the polls. read article

So long.

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US corporate tax up for discussion, BoE changes course (towards Canada)

There won’t be a News Brief tomorrow, Thursday, December 13, 2012.

There are actual news regarding the fiscal cliff, with President Obama and House Speaker John Boehner putting corporate tax up for discussion. Reforming the corporate tax rate, currently between 15% and 35% depending on the state, would be part of a policy package that could yield $1.4bn in new revenues, as opposed to $1.6bn as proposed earlier. Some sources say that an overhaul of the current corporate tax regime could reduce the maximum rate from 35% to 28%. Obama’s current proposal also includes lifting the debt-ceiling and increasing infrastructure spendingread article

Germany has gently (read harshly) reminded Silvio Berlusconi to leave blaming Germany for Italy’s economic policies out of his election campaign. Berlusconi said that Monti’s government had employed German-centric policies and Berlin had used the spread between German and Italian bond yields to cause his last cabinet to collapse. read article

Meanwhile in the UK, i.e. New Canada, Mark Carney has had the entire BoE‘s senior management stumble as he announced the central bank needed more radical measures, steady rates, numerical unemployment targets and maybe consider leaving inflation alone for now and replacing it with nominal GDP targeting. Mervyn King is real happy about his successor right now. read article

Today also marks the day when the libor scandal creeps back onto the front pages. A former trader for Citigroup and UBS and two employees of interdealer broker RP Martin were arrested and questioned regarding the rate-rigging that was uncovered in Spring 2012. Barclays paid $450m in settlement charges in June in connection to the scandal. read article

So long.

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