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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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US housing improving, Europe worsening as a whole

Over the long weekend…Starting positive, the US saw the release of some positive housing data, the “highest level of home building in more than four years”, while factory activity declined. read article

In Europe on the other hand, manufacturing went down down down across the board, yes, even Germany. According to Reuters, Cyprus is not the culprit. Maybe March was an outlier and the global recovery is still going strong *cough*. Other European data showed a steady 12% seasonally adjusted unemployment rate for the eurozone in Feburary. For the entire union, this number increased by 0.1% to 10.9%.

It’s only been a week and Cyprus, clearly coached by Greece, has already managed to have its bailout terms eased. The Wall Street Journal got hold of a document showing that the country will have until 2017 ( as opposed to 2016) to reach a 4% budget surplus. As for the capital controls put in place to prevent a bank run after tellers were open for business again on Thursday, may last for more than a week, according to Cyprus central bank governor Panicos Demetriades (see below).

Another country shifting around on the brink of collapse, Argentina, is trying to impress (read distract) its loyal (read angry) bondholders with a new deal: instead of discussing the repayment of old bonds per se, new bonds (different for retail and institutional investors) could be issued and paid off in about 25 years. Where do I sign, that sounds like a great idea. read article

This morning…
The week ahead looks quiet yet depressing, at least if you’re in Europe, but I will spend as much time as possible laughing about Demetriades first name PANICos.

On Thursday will be central banking day, with the Bank of Japan, Bank of England and European Central Bank holding their policy meetings.

Finally, today marks the death of the FSA as we know it and the advent of the Financial Conduct Authority and the Prudential Regulation Authority. The former is an independent shop supervising more or less everybody in financial services (brokers, traders, secretaries, markets…), while the latter is part of the bank of England and will focus on 1,700 banks, insurers and investment firms. read article

Have a good week.

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Italian elections – Berlusconi with a vengeance

Italy is left in limbo without a conclusive election result, probably another round of elections looming, preceded by an embarrassing attempt by [presumably] Pier Luigi Bersani to form a coalition, and a full re-appearance of Silvio Berlusconi on the political stage (in the Senate). But despite the obvious screw-up that this election seems to be, there are clear winners and losers: Mario Monti, in the rational corner, plays the role of the latter. Beppe Grillo, anti-euro comedian in the ridiculous corner, came out heading the largest single party in the country’s lower house. Winner. Inconclusive is only one way of putting it, although I guess we can gather that the Italian people generally have an issue with austerity measures. Let the name-calling begin. read article

Just in: Bersani will hold a press conference at 5pm CET in Rome.

Summarizing some reactions:

Notably, the European markets display alarming symptoms of contagion: Italian elections drove up yields in Spain, Portugal, Greece and Ireland, and pulled down yields in Germany, France, the Netherlands, Austria and Finland.

Meanwhile, everything Italian that can be bought or rather sold is about to be subject to a short-selling ban. Elsewhere, US stocks fell the most since November of last year, with the volatility index at its 2013 record high.

But there are a couple of other things quietly happening in the background. The Japanese government will sell a third of its 50+% stake in Japan Tobacco, the third largest tobacco company and formerly a Japanese monopoly. The sale comes as part of policies to reduce stakes in state-backed companies to raise funds for this economic recovery that’s taking so long. read article

Over in the Netherlands, Rabobank, commonly clean slate poster-child bank, one of the safest institutions and bailout-free, is looking at a $440m+ in fines for involvement in the Libor rate rigging scandal. The fine could come as early as May. read article

Back in New York at Moody’s, it seems like lessons have been learned since 2008. The rating agency announced that any mortgage-backed securities can’t receive top ratings any longer. Aa is the new Aaa. Other agencies are expected to follow suit. read article

So long.

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The sequester is back, as is Europe’s political madness

In the US, the chaos that is the national budget and the cuts thereof is picking up in newsworthiness again. Yesterday, President Obama tried to guilt Republicans into agreeing with his proposal, which didn’t achieve all that much. New estimates say the sequester could chop 0.5% off this year’s GDP and destroy 700,000 jobs. Others say that besides the overall effect, the demand side won’t feel the $85bn spending cuts. read article

Something that won’t suffer cuts is medical research, generally a positive thing, with the billion dollar research project Brain Activity Map (BAM), the first neurological project of its kind, starting in a couple of weeks. read article

As of today, Bulgaria is without government, after the country protested against austerity measures, utility prices and corruption. In next steps, a caretaker government will be formed, before official elections sometime in Springread article

In other European news, Italy’s center-left Democrats are trying to build a coalition government with Mario Monti to fight the good fight against Berlusconi, while Mariano Rajoy of Spain said the Spanish economy was seeing “no green shots or recovery in any shape or form.

Also from Spain, the government is imposing a yield limit on regional government bonds to combat the country’s overall debt burden. The new limit will be set at 100 basis point above government debt, a benchmark that Catalonia has long passed. read article

In other news, Microsoft has abandoned Hotmail, phasing out the emailing service by this summer. All 350 million users (seriously, who still uses Hotmail??) will be moved to Outlook.com, which already has 60 million users of its own. 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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The unexpected: A deal for Greece, a Canadian for the BoE

The Eurogroup has completed its first successful Greece-related meeting measured by the measurability of its results. In short: we got a deal. It’s not a haircut (go Germany!), but it’s not far from it. The deal finally releases the delayed €34.4bn bailout tranche. Before the money is wired down south however, Greece has to buy some of its debt back [i.e. buying outstanding bonds at a massive discount price]. The deadline is mid-December. Other changes in T&Cs are cuts of interest rates on debt from the first bailout and a €7bn payment of profits from Greek debt held by international creditors. Two that are especially hurt by these measures are Spain and Italy, whose interest on Greek bonds held is getting cut as well, while their own borrowing costs are much higher. Although the Eurogroup agreed to lift Greece’ debt:GDP target from 120% to 124% in 2020, it is meant to be below 110% by 2022. So maybe that’s when the world economy will be fully revived. The IMF refuses to free up new funds until the debt buyback is finalizedread article

Yesterday afternoon, the Bank of England appointed Mervyn King’s replacement. The bank’s new governor is Mark Carney, Harvard PhD and governor of the Bank of Canada and ex-Goldman Sachs (consult map below). I’m pretty sure William Cohan is about to write another book as you read this. A summary from Twitter.

– ZeroHedge: GOLDMAN’S TAKE OVER OF EVERY CENTRAL BANK IS NOW COMPLETE

– Peter Spiegel: Do I have this right? The British government just appointed a Canadian to head its central bank? #StillAColony?

– Matina Stevis: #eurogroup reporters gasp at #carney #boe announcement partly because there’s nothing to report on from here yet. #Greece

– [again] ZeroHedge: Oh, and dear Germans… Completing The Circle: Meet The US Ambassador To Germany http://www.zerohedge.com/news/completing-circle-meet-us-ambasador-germany

Carney, who previously also headed the Financial Stability Board, was approached about the job in April, as the FT reported then.

More detail on ZeroHedge’s comment including a map of how Goldman Sachs runs Europeread article

Next thing you know Jamie Dimon is in the run up as Treasury Secretaryread article

In the US, Mary Schapiro, head of the Securities and Exchange Commission, has been replaced by Elise Walter, who previously heading Finra, the Financial Industry Regulatory Authority. read article

In other news, ING repaid another €1.125bn to the Dutch government, including €375m interest, which saved the bank with a €10bn bailout. Following the latest repayment, ING stills owes €1.2bn plus interest.

Otherwise, the OECD slashed its 2013 growth forecast for developed economies. Back in May, the estimate was still at 2.2%. The revised forecast sees only 1.4% growthSouth Africa’s GDP grew at the slowest pace since the hight of the financial crisis in 2009, reducing to 1.2% on the back of decreasing mining output following massive strikes and lack of reformread article

So long.

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Greek/Portuguese debt cheaper, explosion NOT averted

Could it be that Europe is fixed? Probably not. But Greek bond yields fell to a new low since August 2011, far before the debt restructuring that caused such a headache in the beginning of the year, and Portuguese yields fell to their lowest since Spring 2011, when the country received a bailout.

In complete contradiction [maybe]: over the weekend, Sweden’s Finance Minister Anders Borg told the Telegraph that Greece was set to leave the monetary union. Last year, Q4 was all about the Grexit that wasn’t, I wonder if 2012 will bring the same tedious Christmas story.

Later today, we will see Italy’s debt levels for August, which may have risen even higher, says Bloomberg’s Linda Yueh. In July, Italy’s debt to GDP ratio had been 123.8%, amounting to 1.97tn of government debt.

Meanwhile, both Angela Merkel and Wolfgang Schaeuble try to hold it all together, rejecting the idea of uncontrollable events in Europe” and a Greek default respectively.

In Lithuania, which held general elections yesterday, voters rejected the incumbent administration that adhered to all EU austerity measures of the rainbow. The new government, will be a center-right coalition, looking to “ease the pain by raising minimum wage, shifting the tax burden towards the better off and postponing adoption of the euro.” read article

In the background, there are as many Spanish bailout rumors as on every Friday (leaving the potential decision to be made on the weekend) in the past month. In short, there’s enough going on in Europe to have your news source of choice pick up their live coverage. Reuters Guardian Telegraph

In the UKRichard Branson is taking another stab at buying a chunk of assets that RBS has to get rid of as part of its bailout deal. 316 branches, amounting to 250,000 business customers and 1.8 million retail clients, are up for sale – for a bargain. The package was meant to be sold to Santander for £1.65bn, but the buyer dodged the deal on Friday, blaming it on incompatible IT systems that took too long to integrate (there might be more to that story). Now the branches are up for sale again, for the bargain price of £1bn. Branson had bid for them before, but lost against Santander. Other bidders include private equity firm JC Flowers, which is trying to get its fingers on every minorly distressed financial asset in Europe. In January, Branson’s Virgin Money acquired Northern Rockread article

Alvin Roth (Harvard) and Lloyd Shapely (UCLA) have been awarded the 2012 Nobel Prize in Economics for their work in “the theory of stable allocations and the practice of market design.

Over the course of this week, we’ll see US retail sales (later today), eurozone inflation (Tuesday), UK unemployment (Wednesday) and Chinese GDP (Thursday).

So long.

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Central bank center stage: pre-ECB meeting freakout

 

The US is back from Labor Day weekend, right in time to see the FT claiming that the European Central Bank is losing its grip on interest rates as borrowing costs continue to diverge further and further. This is by no means news, but it gives us a reason to talk about/anticipate/dread the meeting of the ECB’s governing council this Thursday. Fitch says, further fragmentation of the eurozone, i.e. divergence between the northern and southern nations in terms of interest rates, could make the breakup of the euro easier in the end, creating a breaking point. Meanwhile, Moody’s changed the EU’s rating outlook to negativeread article

But the story got interesting last night, when a European official said that Draghi said he would be comfortable [and in fact not breaking the law] with buying European government bonds with maturities of up to three years. His reasoning was along the lines of this: as “monetizing debt with a maturity up to three years is not really monetization but is instead within the arena of ‘money market management’.” Everything above this three-year cut-off point would violate the EU treaty. Uhm. Okay. Personally, I’d like some more qualification for this statement, but that’s just me. read article

The main issue with this process is that the ECB is not legally entitled to provide government financing in the bond-purchasing-i-e-quantitative-easing kind of way the Bank of England or the Fed can.

Speaking of which, Spain confirmed that its latest cash injection into Bankia, sourced from government-backed bailout fund FROB, was worth €4.6bn. But just now via ZeroHedge:

Instead of cash, Spain will inject Treasury debt into overlevered Bankia. Europe is back to abnormal.

On this note, some investment advice to buy real estate in Germany and stay clear of Spain. view chart

In midst of all this, Switzerland committed to keeping its currency down against the euro (CHF1.20, as implemented in September 2011), mostly due to its export-dependency (and making we wonder which European country is not export dependent…). According to the FT, Thomas Jordan, head of the Swiss National Bank, said

In the current situation, a further appreciation of the Swiss franc would constitute a very substantial threat to the Swiss economy and would carry with it the risk of deflationary developments. With this in mind, we will continue to enforce the minimum exchange rate with the utmost determination.”

Utmost!

Otherwise, today is the day of the Democratic convention in Charlotte, North Carolina, where Obama will make his case for re-election in November.

This afternoon will bring nauseating Spanish unemployment numbers and US manufacturing data, expected to have risen from July,

So long.

 

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Sovereign crises stream of consciousness

 

There won’t be a News Brief tomorrow, Tuesday, 21 August, 2012.

The ECB, obviously tired of the 7% yield-of-death benchmark, is said to implement a high-yield interest rate threshold, which would forbid any buyers to purchase government debt of struggling economies when their borrowing costs exceed a certain percentage. And then? Then, the ECB will step in an take on that debt. This is following the bank’s August statement that it would only start buying Spanish and Italian bonds if the countries explicitly request aid. Contradictory. Needless to say, ze Germans are against this. read article

Aha! Look at that, the ECB is annoying denying everything.

But speaking of Germany… Angela Merkel is meeting Antonis Samaras in Berlin on Friday, where he will fail to say “thank you” and she will push Greece’ compliance with the initial targets and conditions that were set as part of the €130bn bailout package. Otherwise, this Monday marks another day on which Greece did not default. To commemorate the day, the ECB’s Joerg Asmussen told the Frankfurter Rundschau the following:

Firstly, my clear preference is that Greece should remain in the currency union. Secondly, it is in Greece’s hand to ensure that. Thirdly, a Greek exit would be manageable. It would be associated with a loss of growth and higher unemployment and would be very expensive – in Greece, Europe as a whole and even in Germany.

In other words: I don’t want the Grexit, but “there are Greek people living there,” so what are we going to do…

But speaking of defaulting countries. Belize is facing to default on its pile of debt worth $543.8bn on 19 September unless it strikes a deal with its creditors. Belize is asking its lenders to take a 45% haircut or to accept a delay in debt payments by 15 years. Sounds like a pretty bizarre case of blackmailing if you ask me. Recent history has taught us that potential defaults don’t really happen, but as the ECB isn’t involved in South American debt scenarios this may turn out differently (hello, Argentina!). read article

The commodity du jour is hay, after the hardly standardized product saw price gains above those of soy and corn. read article

The House of Commons and the Treasury have released a report to preliminary findings in the Libor probe, mostly blaming the Bank of England, then the FSA and then the bank again. The real report promises to be exciting holiday reading.

So long.

 

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The advantage of debt in the family

As mentioned yesterday, Greece is going to avoid bankruptcy AGAIN on Monday, when a little over €3bn fall due in debt repayments. Much to Greece’ advantage, the money belongs to the ECB, so the whole thing is a lot more like borrowing money from your parents. Greece sold €4bn worth of 13-week notes yesterday, raising enough money to meet the deadline. On to the next! read article

UK unemployment, including the number of jobless claims, have fallen. At 8%, unemployment rose almost 1.5% since the onset of the 2007 financial crisis. The current ease is considered to be related to job creation through the Olympics. But even though the date is better than expected, it’s not going to lift European markets. see graph

In the US, the picture looks similar. Retail sales and jobless claims, released yesterday and last week respectively, have been better than forecasted. But in the typical fashion of overweighting positive factors, many say there won’t be any government action any time soon, which may be a mistake.

At least, both American and German 10-year bond yields are rising to 1.73% and 1.47% respectively. That is, if you believe Ken Rogoff’s analysis in last Friday’s News Brief, a good thing.

Banking scandal round-up:

After the US Department of Justice dropped its criminal investigation of Goldman Sachs, which could have been turned into a civil fraud case on the coattails of Goldman’s sales of mortgage-backed securitiesNYTimes Dealbook declared the end of financial crisis law suits, almost five years after it erupted.

The new trend, as we’ve learned in the past weeks, is money laundering and rate fixingStandard Chartered has now been fined $340m for the former by the New York State Department of Financial Services. Oh yeah, and then there were transactions worth around $250m with sanctioned Iran. Oops. read article

Otherwise, Australian courts have granted the display of ‘discouraging packaging’ for cigarettes in the scope of its new anti-tobacco marketing laws and India is celebrating 65 years of independence today.

So long.

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