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Jeffrey Osborne has left the building

This week…

Was mostly about Ben Bernanke and the path of macro conditions he chose for the coming month. So QE could be gone for good sometime next year, given supporting data, that we are now waiting for under sweat and tears. read Alphaville

In fact, Bernanke himself could be gone as well, as Obama indicated that the chairman could retire in the near future. read Financial Times

Economists polled by Bloomberg now suggest that the cutting will begin in September, to be finished by June 2014. A tight schedule considering when the rumors started. read Bloomberg

And if that’s not enough for you, there is always China and the fear of worse days ahead, pointing towards a credit squeeze. In short (by WSJ):

Early Friday, rates in China’s money markets fell sharply on rumors that Beijing had ordered its big banks to loosen up cash. Still, they remain more than double than average for the year, and the turbulence suggest continued uncertainty in the market in coming days.

Probably equally noteworthy was the G8 meeting in Northern Ireland, the possibly biggest take-away from which was that Barack Obama kept referring to George Osborne as “Jeffrey Osborne“. read Financial Times

Jeffrey Osborne himself, an American soul singer, proceeded to offer George a duet, which was turned down because the Chancellor neither laughs nor sings. read BBC

In Turkey, things are getting interesting for bankers, Erdogan‘s new found enemy. According to the prime minister, the recent crisis was due to the “interest-rates lobby” trying to push yields up. To put this in perspective, the words “blood-sucking” were used, although government officials refrained from sea food comparisons. read Bloomberg

Next week…

The US brings us June consumer confidence data (Tuesday), which is expected to have dropped from May, while consumer spending (Thursday) is meant to have increased slightly; the latest first quarter GDP reading will come in on Wednesday and is expected flat at 2.4%. Jobless claims are published on Thursday morning.

There is whole array of business climate and consumer confidence indicators as well as inflation data due in Europe, including Germany, France, Italy and the eurozone as such are, while the UK is also reporting first quarter GDP growth and the current account deficit.

Japan is due to report on unemployment and indeflation. On Wednesday, Japan reported higher May exports than expected, export value increased the most since 2010, indicating that Abenomics are working. And you say currency wars do no good. On that note, read Bloomberg

Have a good one.

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An attempt at revival

This week…

Things in Turkey continued to be messy, as Erdogan’s stern view of protesters continues to spark new anger among the masses and sent the Turkish Lira falling. read Bloomberg
On Thursday, Erdogan re-iterated that he was losing patience with the protestors. Today, the government and its counter movement reached an agreement, while Germany delayed further EU accession talks with Turkey. read WSJ

In Greece, the doors of Hellenic Broadcasting Corp closed, sending 2,500 former employees out onto the streets. It is meant to be relaunched later this year in a slimmed-down version. read WSJ

In the UK, jobless claims dropped, suggesting that the recovery is well on its way (remember how we’ve been here roughly 700 hundred times now..?). read Bloomberg

And then there was Wednesday, when literally everyone with an audience called the bond bubble, for example Jim O’Neill (formerly of Goldman Sachs) and Bill Gross (Pimco)

Around the same time, Iraqi officials said the country was looking to increase its oil production by 29% in 2014 and 159% by 2020, showing that a) they can and b) they have buyers. read Emerging Frontiers

Then there was a new price fixing scandal [yes, there are still some products left]; this time in FX. read Felix Salmon

Meanwhile on Wall Street, notes on correlations with Japan: read WSJ

In Brussels, important issues like the size and curviture of bananas and cucumbers has been pushed aside as Washington’s lobbyists walked in to ensure EU privacy regulations wouldn’t get so strict that they could hurt US investigations overseas. read FT

Rupert Murdoch is divorcing Wendy Deng, could this be the actual reason for splitting News Corp? read New Yorker

The week ahead…

The G8 meet on the outskirts of London on Monday and Tuesday; anti-globalization protesters will ironically stick to central London, where they will follow a scavenger hunt-like course through the West end, mapped out here. Please refrain from buying condiments at Fortnum & Mason until the weekend, as you may otherwise be questioned about the social legitimacy of your job.

Otherwise, it’s going to be a Bernanke-dominated week – again – as the Fed is meeting and press conferencing. Although Bernanke tried to nullify the comments about an end of easing, saying that it would take “considerable” time until that would happen, everybody seems to think the US is going to turn the money tap off. read WSJ

Have a good one.

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Libor 2.0 and a £10bn UK-US trade agreement

Over the weekend…
we saw the first proposal for a Libor reform from Martin Wheatley of the FCA (Financial Conduct Authority and successor of the FSA), who told the FT about the Libor 2.0, which could look something like this:

[…] a dual-track system with survey-based lending rates running alongside transaction-linked indices as soon as next year.

In the US however, Gary Gensler of the CFTC calls for an immediate switch to transaction-linked rates. read Financial Times

Meanwhile, the G7 met just outside London to talk about monetary policy and how much liquidity is too much with the conclusion that money is something you can never have enough of: Go ahead Japan, ease some more. read Businessweek

In the US, WSJ correspondent Jon Hilsenrath published two articles on the future of the Fed, both in terms of staffing and monetary policy. Until yesterday, Friday’s article (read ZeroHedge annotations) was pretty much the most talked about news of the weekend, discussing how the central bank will unwind its QE program that is worth $85bn a month. It was followed it up with a piece on Janet Yellen, [probably] the next Ben Bernanke. read Friday’s Wall Street Journal read Sunday’s Wall Street Journal

This morning…

David Cameron is meeting with Barack Obama on future trade agreements, something that is being interpreted as a potential first step for the UK to leave the EU. A free trade agreement between the new and old world could be worth up to £10bn for the British economy. read Bloomberg

The Eurogroup is kicking of with both Cyprus and Greece on the agenda. Cyprus is seeking approval of the first chunk of its bailout program, worth €3bn, while Greece is set to receive €7.5bn in the latest bailout payment. read BBC read comment on Reuters MacroScope

As for the rest of the week, we’ll get all kinds of data from the US, including industrial production and inflation and housing. Same goes for the eurozone and Germany; the UK reports unemployment figures and Japan will give us preliminary Q1 GDP figures.

So long.

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Brussels vs Moscow, and Bernanke leaving the Fed

Yesterday…

the Federal Reserve confirmed its asset purchasing program worth $85bn per month to continue until the US economy would improve past the first scarce signs of recovery. read article

Ben Bernanke also alluded to leaving the Fed to pursue other projects, retirement for example. read article

The UK budget saw five more years of spending cuts, right past the 2015 elections to alleviate the country from its £121bn budget deficit and ensure its credit rating. The Office of Budget Responsibility expects 2013 growth to be at 0.6%, followed by 1.8% in 2014read article

Elsewhere, this happened over the course of yesterday: Cyprus’ Finance Minister conferred with Russia, while Angela Merkel said Cypriot banks had to chip in for the bailout, followed by Brussels saying that Cyprus had to present its own refinancing plan after voting against the EU proposal. It all looked like we had a new credible exit candidate until Cyprus asked for more time to come up with a better idea. Now it just looks like Greece. Here are four scenarios that could unfold over the coming days and weeks.

This morning…

The European Central Bank announced that Cyprus had until 25 March, coming Monday, to get its bailout plan ready without losing access to the ECB’s Emergency Liquidity Assistance (ELA) that keeps the island’s banks alive. read article

Finally, China released some promising manufacturing data, showing the sector expand faster than expected and giving the recovery hypothesis more support. read article

So long.

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Budget cuts and peripheral misery

Today at midnight (Saturday morning in the old world), the US is facing the much discussed spending cuts, decreasing government spending by €85bn until the end of the federal budget year in September. Maybe it’s time to depart from discussing the sheer possibility of this scenario. If you believe Bernankethe pain will be close to intolerable, slowing the economy down by 1.5%. The Congressional Budget Office estimates a 0.6% decrease in GDP. If you believe Fortunecompany earnings are strong enough to allow ignoring the issue. Without a budget fix, the automatic cuts will continue in the following financial year. read article

And things aren’t pretty in Europe’s periphery either. First, numbers out of Spain showed that Spanish corporations faced the largest decrease in earnings ever recorded in Q4, including Bankia’s €19.2bn net loss. Meanwhile in ItalyBersani rejected all rumors regarding coalition talks with Berlusconi. Over in Greece, 2012 revenue targets were missed and the burden of unpaid taxes increased, causing skepticism in Brussels, where the next loan instalment, worth €2.8bn, can be withheld if Greece’ financial report is not satisfactory. At the same time, the IMF, usually in bed with the EU, was more positive, saying Greece had collected more taxes recently and could avoid a further reduction in government salaries.

We shouldn’t forget, however, that despite the mess that is Southern Europe (oh yes, I made that generalization), there are still countries out there that want to join the union and currency. Poland, for example, which originally wanted to have the euro by 2012, is now discussing meeting all criteria (the same criteria that Greece met once…) by 2015read article

In India, Q4 GDP growth dropped to 4.5%, as the government announced a more pro-business deficit-reducing budget for the coming year. read article

Otherwise, Andrew Mason removed from his position as CEO of discount firm Groupon, which recorded losses in the last two quarters of 2012. In his own words:

After four and a half intense and wonderful years as C.E.O. of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.

Weekend reading

– The “Because I Can” attitude of senior managementread article

– Dear Banker, this is how we’ll pay you in the futureread article 1 read article 2

– the European Union and Ricardian equivalenceread article

Have a good one.

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Why an EU policy success may do no good

Brussels is celebrating one of the rare agreements on European blanket policy, while the City of London is collectively banging its head against the wall. In a nutshell, the latest Basel III negotiations have led to this: more capital, more capital, more capital, and capping banker bonuses at 100% of salary (or at 200% with shareholder approval). Currently in draft form, the legislation is set to be implemented in January 2014. Enough time to find a place in Hong Kong. read article

Across the globe, Argentina is kind of blackmailing the American legal system. In November, three New York judges ruled that Argentina had to repay selected creditors a total of $1.3bn. Since then, the country has behaved like a child, fighting its creditors (and winning), bringing the case to the appeals court culminating in its attorney announcing that it was willing to default – again – on its government debt, if the ruling wasn’t reversed. It is unsure whether the final ruling can be issued before new repayments fall due. read article

Following Bernanke’s QE comments yesterday, Mario Draghi confirmed his commitment to the ECB pumping money into Europe. Meanwhile in Italy, Bersani and Berlusconi are looking into forming the mother of all coalition governments, says Finance Undersecretary Gianfranco Polillo. Apparently, the idea has been buzzing around the Italian press for days. Might be a rumor. All we know for certain is that Grillo is not going to make an effort to move towards Bersani whatsoever. read article

The aviation industry is swinging up an down in the meantime, with Iberia‘s restructuring causing its parent International Airlines Group a €997m pre-tax loss, while EADS is being celebrated as a “European success story” (that’s a thing?) by the Handelsblatt.

Otherwise, Europe got its own “fear” index called Ivi (implied volatility index), modelled on that of the US, measuring volatility in the Londoner FTSE 100 and Italy’s FTSE MIB indices, and the US is getting ready for the dramatic advent of the sequester spending cuts tomorrow.

So long.

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Italian elections: the morning after the morning after

As expected, center-left Pier Luigi Bersani is looking to form a minority government to lead Italy out of its post-election stalemate misery. A minority government with whom, you wonder? Well, Bersani asked for everyone’s support to curb austerity and promote job creation. Meanwhile, Mario Monti, who definitely lost the election, is considering leaving a €3.9bn bailout of Banca Monte dei Paschi di Siena be until the new administration is in place. Someone’s had enough. read article

Unfortunately for Italy, the country will try to sell €6.5bn worth of debt today.

Over in Brusselsnervous voices get louder with regard to the ECB, formerly known to do whatever it takes to save the euro for the Europeans through its OMT program. With Italy so obviously against austerity measures, future budget cuts that could be conditional for help from the ECB seem out of the questionread article

When addressing the Senate Banking Committee yesterday, Ben Bernanke advocated the Fed’s current course on monetary policy, saying the risks were clearly outweighed and investors should be encouraged by fair values and high corporate earnings. read article

J.P. Morgan is planning to fire up to 17,000 people, 6.5% of its staff, over the next two years in an effort to reduce costs by $1bn.annually. Most cuts will take place in 2014 in the bank’s mortgage groupread article

In other news, Visa and Samsung have struck a deal to advance mobile payments through Visa’s payWave software, and Chuck Hagel‘s nomination to US Secretary of Defense has been passed by the Senate. read article

So long.

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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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Spanish recession gets worse; Toyota recalls 1.1 million cars

Spain’s recession deepened in Q4, when the country’s economy shrank by 0.7% compared to the same period in the year prior. Over the course of 2012, Spain contracted by 1.7%.

The Bank of Spain says the return of international investors to Spain’s battered debt market, has not translated into the real economy, although it has allowed the government to conduct a large chunk of its 2013 borrowing at the start of the year, potentially easing the pressure on it for months to come.

In the background, Catalonia requested €9.1bn in aid from Spain’s regional liquidity fund. In 2013, the region will have to repay €13.6bn of debt. read article

Yet, overall the eurozone’s economic sentiment and business climate improved, along with expectations for inflation. read article 

In the US, the Fed is concluding its January meeting this afternoon and for once there won’t be economic projections or a press conference. Maybe, after months of easing, Bernanke wants to keep everyone guessing again. After all, being predictable is boring. According to a Bloomberg estimate released yesterdayQE3 will amount to $1.14tn before it ends in Q4 2014.

In Brussels, the FT got its hands on the blueprint for the financial transaction tax regulation. The draft imposes a levy of 0.1% on stock and bond transactions and 0.01% on derivative trades and would yield €30-35bn per year.

If this design of the tax is adopted, it would mean offshoots of banks headquartered in the tax area – such as Deutsche Bank or BNP Paribas – as well as any trades undertaken on behalf of clients based in the 11 countries will be hit by the levy, even if they are trading in the City of London. Any US or Asian institutions trading securities issued in France, Germany, Italy or Spain would also be taxed.

But on the plus side, the EU has departed from its ringfencing plan, separating investment banking and commercial banking activities, because it could jeopardize Europe’s growth prospects. read article 

Things were going too well for Toyota. Despite Japan’s continuous decline and China’s war on Japanese manufacturing of any kind, the company had nudged General Motors from the pole position of global  car producers. Now, Toyota is recalling 1.1 million cars worldwide, with the majority (752,000) sold in the US, due to defect airbags. This is the third bigger recall since October 2012 and will cost the firm around JPY 5bn ($55m). read article

In other news, Obama has introduced his immigration reform plan, making it easier for skilled workers to obtain US visas, and Zimbabwe‘s Finance Minister said the country has $217 left in the bank after paying public sector salaries last week. read article

So long. 

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No trillion-dollar coin, and no budget either – the US on hold

The White House has announced to delay the submission of the 2014 budget talks until the fiscal cliff is dealt with entirely. In other words, the US might enter 2014 (fiscal year begins three months before) without any clue where to spend how much money on what. read article

After much hoping that Ben Bernanke would help re-enacting The Simpson’s episode “The Trouble with Trillions” and mint a trillion-dollar coin (coin, note, same difference), he responded to questions regarding said piece of metal saying “I’m not going to give that any oxygen.” Fine then. He continued defending his policies and claiming that their ineffectiveness was merely due to a too small scaleread article

Even Norway is now jumping on the QE band wagon. The deputy governor of the Norwegian central bank indicated that something would have to be done about high interest rates if the NOK continues to be so strong.

The preliminary reading of Germany’s fourth quarter GDP says the country’s economy contracted by 0.5% from Q3, bringing annual growth down to 0.7% from 3% in 2011. Ouch. But not actually that far off what economists had predicted. At least Germany is running a teeny tiny surplus of 0.1% again – the first one since before the financial crisis. Yay. read article

After solar panels and telecommunicationsChina and the EU are fighting about another traded good: steel. The European Commission says China has paid illegal subsidies to steel companies to dodge the market price of organic coated steel, making Europe’s manufacturers pay higher import tariffs on Chinese products. read article

The British business press is full of American Pie (The Day the Music Died) puns, as high street music retailer HMV is going into administration. Considering Virgin closing one superstore after the other, this is just another battle won by AmazonApple and co against the old world of retail.

And while Apple shares dropped 3.6% to a still ridiculous $501.75 yesterday, Dell is struggling to find a new direction in life. For months, reports the WSJ, the computer company has been in talks with Silver Lake and TPG Capital, two huge American private equity buyers, who could emerge as dis-/joint bidders for the business. Delisting a $19bn company would be quite expensive and mark the largest buyout since KKR’s acquisition of First Data Corporation in 2007. Founder Michael Dell owns 14% of the company’s shares, which rose almost 13% in response to the news. read article

So long.

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