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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

Europe is the new Japan – ECB cuts rates

Yesterday…The Fed’s FOMC meeting notes showed that we’re moving away from the “let’s close the money tap” idea and back to “whatever it takes” – meaning easing or no easing. The statement said that policy action will be taken with an eye on how the economy will progress. read Alphaville (interestingly, Matthew Yglesias of Slate has interpreted this as a call for stimulus)

Apple‘s mega bond of $17m helps the company to avoid $9bn in taxes. If Apple would have had to bring in money from abroad to pay dividends to shareholders, that’s what it would have cost them. Of course, the average Apple customer, like me, doesn’t care about tax avoidance (it’s not even illegal), but the American state is upset, as it’s trying to crack down on offshore tax avoidance like never before this year. read FT

Otherwise, an infographic to yesterday’s ADP employment report. view graphic

This morning…
all eyes are on the ECB, which just announced a benchmark interest rate cut by a quarter point to 0.50%. A press conference during which Mario Draghi will wear a suit made of money is set to follow at 1.30 BST. Let the excitement begin. Money for everyone.

UBS is holding an investor meeting today, during which the bank may be urged to split its investment banking and wealth management units [again]. read Reuters

So long.

Death Star Economics
ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

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Spain turns to stimuli, as Merkel points to two-tier Europe

Yesterday…
Spain’s unemployment rate rose to a new high of 27.2%, possibly marking the final point that austerity measures haven’t work in this case or simply don’t work at all (hello, Keynesians). Between January and March, almost 240,000 people lost their jobs. read BBC
Following the announcement, Mariano Rajoy announced the government would lay low on cuts and tax hikes, as even though the deficit has shrunk, the country is doing miserable. Stimulus for everyone! read WSJ

The UK dodged the bullet on a triple-drip recession, reporting first quarter GDP growth of 0.3% from the previous quarter

This morning…
Angela Merkel stirred the European debate with remarks about the potential impending rate cut by the ECB. Merkel pointed out that country’s like Germany actually needed a rate increase, while other country’s required further easing, underlining the divide between functional and dysfunctional Europe.

In Italy, coalition building is underway. Prime Minister-to be Enrico Letta said the conservatives would have to work out a compromise regarding the property tax that Berlusconi promised to get rid off before joining the coalition.

Today, the US is announcing first quarter GDP growth, which is expected to come in at 3% from the final quarter of 2012. Over the next three months, this number will be revised three times, once due to the change in government statistics in late July. read WSJ

In Japan, consumer prices have fallen fastest in two years in March, which doesn’t really come as a surprise considering all the excess liquidity in the system. Prices fell 0.5% on the year, slightly more than expected. read Bloomberg

Weekend reading:
Italy’s new heads of state – an evalution, read The Economist
– meet Janet “anti-inflation” Yellen, possibly the next head of the Fed, read NYTimes
– why the city of Los Angeles is suing Deutsche Bank, read Businessweek
real bad boys smuggle dairy, read Bloomberg

Have a good one.

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Letta new Italian PM; Apple profits drop for first time in decade

Yesterday…
It was a dark day for the European economy, with April PMIs across the globe disappointed, except for France, which beat expectations and soared to four-months highs. China and Germany on the other hand, undercut expectations – Germany even fell below the magic mark of 50, to 48.8, the lowest level in six months. read Bloomberg

After all the united G20 talk of appropriate monetary measures, S&P said that there’s a 30+% chance that Japan will lose its AA rating. The reasoning: it’s great to have quantitative easing, stimuli and private sector involvement, but that strategy doesn’t work if all you do is print money. read Reuters

Meanwhile in Portugal, the government is planning to lower corporate taxes to attract business. Good timing. read WSJ

Right after close, the Twitter account of the Associated Press was hacked, posting a tweet about attacks on the White House. The Syrian Electronic Army claimed responsibility. read Alphaville read BBC

Otherwise, it was all about Apple. The tech giant posted first quarter earnings,showing that profits dropped for the first time in a decade in year-on-year comparison. Alongside quarterly results, the company also announced an expansion to its now $100bn share buyback program to return money to investors. read WSJ

This morning…
Italy is set to announce a new Prime Minister. The current candidates are Guiliano Amato (Prime Minister 1992-1993 and 200-2001), Matteo Renzi (Mayor of Florance) and Enrico Letta (center-left deputy leader), all of which are less crazy than Berlusconi and none of which have worked for Goldman Sachs. read Reuters
BREAKING: Enrico Letta set to become Italy’s new prime minister

In anticipation on next week’s ECB meeting, rumor has it the Mario Draghi is likely to cut another quarter of a point off current interest rates, as inflation rates are below target and the eurozone finds itself back in recession. read Reuters

So long.

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A new benchmark fixing scandal!!

Yesterday…

former British Prime Minister Margaret Thatcher died of a stroke at the age of 87. Despite her polarizing character, there seems to be a consensus of her importance to the role of the UK on the global stage, both economically and politically. Finally, she also remains Britain’s only female PM. Most used terms: ‘liberalization’, ‘relentless’, ‘unforgiving’, ‘open markets’. read article

In the US, we see the beginning of a new benchmark fixing scandal: interdealer broker ICAP and some unnamed banks have been subpoenaed by the CFTC yesterday for potentially fixing the interest rate swap benchmark ISDAFIX. read article

Asset manager BlackRock has hit back at the Fed’s QE program, saying it distorted the markets. This is quite a change in BlackRock’s stance, as the company was all over government debt before until it started to nudge investors into less interest rate-sensitive products. read article

Following the court ruling that restricted Portugal‘s austerity measures last week, the country could see delays for future funds and no revision of the repayment schedule. According to the FT:

The court ruling means Lisbon will not receive the next €2bn installment of its €78bn bailout until it has convinced international lenders that fresh cuts in spending on health, education and social security will be sufficient to compensate for the rejected measures.

This morning…

we got CPI data from China, showing lower inflation at 2.1%, with food price inflation down from 6% in February (i.e. the Lunar New Year is a ripoff) to 2.7%.

In the UK factory output rose by 0.8% in February, more than the median estimate of 0.4% as according to Bloomberg, while German exports slumped in February, just to see imports decline by more than double the rate at -3.8%. read article

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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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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Deutsche Bank profits from Libor fixing (maybe and also, duh!)

Whether any of today’s apparent top stories are actual top stories remains to be seen. There is Deutsche Bank’s profits from Libor trades (or not), ECB action (or not), and the suspiciously low Vix volatility index showing that all problems are solved (or not). Hm.

So the Vix hasn’t been this low in 5.5 years. Now that the US didn’t fall off the cliff, there’s hardly anything left to worry about… Is it going to stay like this? Of course not, there’s a debt ceiling on fire, spending cuts lying around and an earnings season to come. This merely seems to be a reflection of ‘stopping to care’ and ‘calming the f*uck down’. read article

Months after the Libor scandal unravelled and shook the City of London, the Wall Street Journal reported that Deutsche Bank recorded €500m in profits from trades linked to the notorious benchmark rate in 2008. In the worldwide rate-rigging investigation, the bank had not been charged with any fines yet. In response, Deutsche Bank emailed Bloomberg, outraged, saying trades relied on analysis and “not on any belief that the bank could inappropriately influence interbank lending rates.” Of all global players, Deutsche Bank has been bashed significantly less than other investment banks. Only in home-sweet-home Germany, where traditionally all social democrats hate the firm, things are a bit more difficult.

AIG decided against participating in a shareholder lawsuit against the US government for not being nice enough during the insurer’s $40bn bailout yesterday. The case is being pursued by former AIG CEO Maurice R Greenberg, whose Starr International Corporation used to be a shareholder of the insurance company. In short:

The suit contends the US government extracted too-onerous terms in its rescue package for AIG, and seeks about $25bn from the government. A federal claims court in Washington ruled in July that the case could proceed, after the US government sought to dismiss it.

In the background, Barack Obama has chosen his chief of staff Jack Lew as Treasury Secretary and the ECB is meeting to discuss this month’s policy decision, which are unlikely to result in anything new if you believe a Reuters poll. (Aha, there we go, nothing happened.)

So long.

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Fixing Japan – a bucket list

Japan is all over the news today, trying to weaken its currency (or not), stimulate growth and create jobs. It’s ambitious, to say the least. But it’s also good news for Europe. After all, new PM Shinzo Abe is planning to weaken the Japanese yen by buying euro-denominated bonds from the ESM: to save Europe, the world and its currency. Unfortunately  the world moves faster than politics and while business executives had begged for a weaker currency, they now fret that the yen could fall too far. Abe also set a 2% inflation target alongside stability and prosperity for everyone, causing Japan’s pension funds, which hold the second largest pool of retirement assets in the world after the United States, to increase their gold holdings from JPY45bn to JPY100bn. And then there is this hint of an idea to eliminate the interest-rate floor for deposits at the Bank of Japan, something the ECB has done as well to try and incentivize lending. The final policy decisions will be announced at the Bank of Japan’s meeting on 21-22 January.

In the background, Eurozone unemployment has once again broken all records, while German and Finnish exports declined. Meanwhile, Spain announced that it would have to issue €215-230bn gross debt throughout the year, which is 7.5% more than accounted for in the November budget.

Norway’s Foreign Minister Mats Persson has called on the UK to reconsider its currently rather hostile relationship with the EU to save the City of London and influence European legislation. During a trip to Ireland, Persson pointed out that Norway, while swimming in oil money, only had very marginal influence in its status as a member of the EEA (European Economic Area). read article

Follwing yesterday’s mortgage crisis-related settlement charges, Bank of America has agreed to pay $11.6bn to state-backed Fannie Mae, the Federal National Mortgage Association, which was bailed out during the crisis. The settlement regards mortgage putbacks, those loans Fannie Mae wants BoA to buy back due to their questionable nature. read article

After the American SEC took the first step in fighting services providers in December, when it opened the investigation into potentially fraudulent behavior of the big auditing companies in China, Ernst&Young is now subject of an Washington-based inquiryAllegation say E&Y lobbied on behalf of its clientscompromising its independence in auditing said corporates. In 2004, E&Y was suspended from entertaining new client businesses with publicly traded companies for six months in response to violating independence rules. read article

So long.

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The world according to the IMF

Christine Lagarde is worried. After some sort of a post-summer break from public appearances and comment, this week has been all about her and the IMF’s view on the world. On Tuesday, the IMF cut its global growth forecast to 3.3% in 2012 and 3.6% in 2013. The main threats to growth is the eurozone crisisaccording to the report, and Lagarde stressed the need for increased fiscal integration in the EU to keep European banks from offloading assets. That, in turn, was the primary concern on Wednesday. The IMF is currently expecting European banks to offload a total of $2.8bn by the end of 2013. The number has increased by $200m since the April estimate. Worried Largarde even sees the number increase to $4.5bn, in case European authorities fail to deliver said fiscal integration.

Today, Lagarde is taking it a step further. During meetings with the World Bank in Tokyo (during which World Bank president Jim Yong Kim was asked to perform ‘Gangnam Style’), Lagarde said Greece should get another two years to meet its budget targets as set at the time of the first bailout. A ballsy move, as she’s walking straight into Angela Merkel’s fight club of European debt management. Let’s see how that pans out. read article

S&P downgraded Spain by two notches to BBB- (previously BBB), causing 10-year yields to rise and panic to strike. The downgrade is S&P’s way off telling Spain to get it together. Following the ESM approval on Monday, capital is in place to facilitate at least some sort of a bailout, but Spain still hasn’t filed an official request. Besides its borrowing costs and questionable budget proposal, the country is knee-deep in a political crisis (-> Catalonia) that could turn pretty ugly once the high unemployment rates meet the expected rise of food prices next year. read article

In other news, Cambridge University issued a 40-year £350m bond (it’s first) to fund a stem-cell research lab and new student accommodation and Brazil’s central bank has cut interest rates to an all-time low of 7.25%. Following the IMF’s growth cut, the country needs to stimulate the economy, but its 5.28% inflation rate is almost 1% above target. read article

In the case of regulatory authorities vs banks of the world, the US department of justice is suing Wells Fargo for $600m for irresponsible lending, while J.P. Morgan was fined $18m for “grossly negligent and reckless” handling of a client’s trust fund on the grounds that the 75-year old oil heiress who died in 1996, had not understood the derivatives she was sold.

And finally, stolen from Alphaville due to entertainment factor.

Our favourite paragraph today: “Goldman responded by launching an investigation into what was nicknamed internally “the muppet hunt”. The investigators interviewed dozens of staff and sifted through millions of emails, finding about 4,000 “muppet” references. But they said 99 per cent of those referred to last year’s movie of the same name.

Well, that was time and money well spent.

So long.

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Monetary easing didn’t ease anything at all

And somehow we’re back to the doom and gloom of the European explosion. Christine Lagarde, portrayed as a leather-skinned barbie on Reuters’ front page since this morning (seriously, who chose this picture?!), has declared how worried she is, once again, about the state of the world economy. Her remarks come in response to the collective central banking action from yesterday, including rate cuts by the European, British and Chinese central banks. Probably just about as important were the rate cuts of the Kenyan and Danish central banks. Unimpressed by all of this, Spain’s borrowing costs keep rising. Fun fact on the side: both the FT and CNBC have interviewed Barclays people concerning the RATE CUTS. Pun intended?

Moreover: Finxit… just doesn’t sound right, does it? Finexit. Fiexit. Fixit. Fix it. No wait. So the Finish Minister of Finance Jutta Urpilainen said the country would rather leave the eurozone than pay everybody’s eternal debt. It’s not really a surprising thought, but it sure it politically incorrect, at least if you consider European dynamics. read article

And then there is the new found love between Russia and Cyprus: the latter said it may prefer the bailout terms from Moscow to those from Brussels/Washington. read article

Otherwise, after the recount of votes demanded by the candidate of the opposition, it is now reconfirmed that Enrique Pena Nieto won the Mexican presidential election last weekend.

Also, expectations are high and the outlook is mildly positive for the today’s US jobs data that will be released later. But there’s nothing like good news anymore these days, enter MarketBeat:

Just don’t confuse a slightly upbeat number with an actual good jobs report. The economy needs to add about 200,000 jobs just to keep up with population growth. Anything less indicates the recovery still has a long way to go before it can get back onto solid footing.

Weekend reading

– The end of the trading floor cultureread article

– Same topic different angle: banksters and the white collar hood, read article

– Superpowers, the end of an era and the US presidential election, read article

Have a good one.

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