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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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The things about guaranteed debt – China edition

There won’t be an update until Monday, 22 April 2013.

Yesterday…
the aftershock of the events in Boston continued to dominate the front pages, with President Obama speaking to the nation in the early afternoon, saying the FBI was investigating the explosions as an “act of terror”. read article

The IMF cut its global growth forecast for 2013 again from 3.5% to 3.3% in its World Economic Outlook, which left the 2014 forecast at 4%. Last week, Managing Director Christine Lagarde‘s argued that a three-speed [economic] world was developing, in which some countries are still very far away from recovering. Lagarde also embraced the quantitative easing approach and argued that Japan was moving into the right direction. read article

It’s things like this that could make for an uncomfortable atmosphere at this week’s G20 meeting in Washington, especially with regards to Japan. read article

This morning…
London is dressed in metal barricades as Margaret Thatcher’s funeral is putting more or less everything on hold until the afternoon.

In China, the poultry sector has recorded losses of CNY 10bn ($1.6bn) since the outbreak of bird flu virus H7N9. So far 77 people have been diagnosed as infected; 16 people died. read article

Also in China, a local auditor has said that regional government debt was OOT and it was only a matter of time until a bigger-than-American-housing crash if things were to continue. Here just a taste of how we got here:

Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.

and

Bonds issued by government-owned investment companies almost always receive top-tier credit ratings from domestic agencies because they are seen as being guaranteed by the provinces and cities that back them.

Right, because that has never been a problem before… Last week, Fitch cut China’s credit rating on the back of “underlying structural weaknesses.” further reading

So long.

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China curbs growth targets in light of social issues

There won’t be an update tomorrow, Wednesday March 6th.

News from China, where outgoing Prime Minister Wen Jiabao presented the country’s economic targets for 2013, including an unchanged GDP target of 7.5%, a lowered inflation target of 3.5% (down from 4%) and a budget deficit of RMB1.2tn, or 2% of GDPDefense spending will be boosted by 10.7%, a smaller increase than in any year since 1990. But the departing Premier also said that China’s growth model was unsustainable and on top of that paired with a whole array of social issues, like the income gap, increasing pollution and a real estate bubbleread article

Also in China, the SEC has been allowed to subpoena Deloitte’s China unit over accounting fraud at Chinese companies operating in the US. After initial co-operation between the American and Chinese securities regulators failed, this is a big step in terms of cross-border fraud investigations. read article

In other regulatory news, an undisclosed group of banks in the City of London have received a hat tip from law firm Shearman & Sterling that it was possible to fight the EU’s banker bonus cap [proposal] in courtread article 

Until then, enter George Osborne.

Otherwise, Apple’s stock fell to a new 52-week low yesterday, dragging the company’s market cap down below $400bn for the first time in over a year. 

So long.

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Banker bonus debate: Why it’s always better to be Switzerland

After the EU’s policy proposal to cap banker bonuses last week, Switzerland voted in a referendum on a similar topic, regarding both [executive] salaries and bonuses. Surprisingly, the result leaned towards Brussels, with 68% voting in favor of new rules. On the one hand, that’s surprising because Switzerland is already losing business to places like Singapore that offer favorable tax rates to big multinationals like Trafigura, which could lead to a relocation of their headquarters. But on the other hand, the Swiss proposal gives more rights to shareholders and seems to encourage internal management of compensation as opposed to a blanket EU-one-will-fit-all-because-it-has-to policy (on the far side of the spectrum, Breakingviews suggests the introduction of tipping for services). read article 

On the same topic, George Osborne will launch a last lobbying effort on behalf of the City tomorrow, trying to mitigate the reach of the proposed rule to protect London’s financial district. Before that, the Eurogroup will begin meetings in Brussels today to discuss Cyprus’ bailout program.

Over in the USinvestors worry about the effect of new cuts and taxes on consumer spending, particularly in the light of a 3.6% slump in personal incomes in the beginning of the year weighing on household budgets. The government’s worries still lie with last week’s sequestationObama wants to get the issue resolved to move on to other policies, but Congress is currently just laughing in his faceread article

Elsewhere, China has pushed past the US and has become the world’s largest net oil importer, driven by America’s move into fracking and shale gas, as well as China’s rising demand for fuel. The analysis was derived from December data, when US net imports dropped to their lowest levels since 1992. read article

As for the week aheadJapan is poised to announce a current account deficit of JPY 768.5bn on Friday, according to ZeroHedge, which is the worst number ever recorded. Otherwise, all central banks of the rainbow are meeting this week, leaving plenty of room for statements on the currency wars.

Have a good week.

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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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G20 and currencies: off the record, we’re not friends

The G20 are meeting today and the biggest topic on the agenda is currencies. Since the G7 issued a statement saying they would refrain from using currency targets to revive economic growth on Tuesday, the message has become less consistent by the day. Most politicians still stick to the chant that a race to debase is bad for everyone involved, and on the record nobody wants to point their finger at Japan. Well, until today. read article

In Europe, banker bonuses will be capped at 100% of fixed salary, unless approved by two-thirds of the institution’s shareholders. This decision came in yesterday, initially proposed by Ireland, which currently holds the Presidency of the Council of the European Union. Needless to say, the UK is opposing such plans, suggesting that there could be a different (but probably similar) set of rules for the City of London. read article

And in general, there was a lot of uninspiring news out of Europe yesterday, including eurozone GDP falling 0.6% in Q4, contracting economies in Italy (-0.9%), Portugal (-1.8%) and Germany (-0.6%), and Greek youth unemployment reaching 62%. Today, the UK reported poor January retail sales, down 0.6% from December, and blamed it on the Britain’s very own snow “disaster” earlier this year. read article

In other news, BlackBerry co-founder Jim Balsillie, who used to be co-CEO, sold his entire 5.1% stake in the firm yesterday. Seems like someone isn’t so keen on the Blackberry 10. Meanwhile, Airbus decided to stop using lithium-ion batteries in its jets to avoid the crisis that arose (I want to say ‘ignited’) at Boeing last month, and Warren Buffet partnered up with private equity firm 3G Capital Management [although he likes to publicly hate on said investors] to buy ketchup brand Heinz for $23bn.

In the background, negotiations on a US-EU transatlantic trade and investment partnership started. Such an agreement could add 0.6% to European GDP and 0.4% to American GDP by 2027. read article

Weekend reading
– the designated tumblr page for the FT’s 125 year anniversary

– The Sun‘s and the Oscar Pistorius story, read article

– the deal with off-shore tax havensread article

– the physics of mosh pitsread article 

Have a good one.

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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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Jobs Friday and Barclays latest disaster

Before 1.30pm (8.30am EST):

After Wednesday’s announcement of the shrinking US economy, today’s jobs report gained in importance. Forecasted is a flat unemployment rate at 7.8% with a 11,000 more jobs added than in December (166,000). As according to MarketBeat:

To get the rally back on track, the jobs figures might not only have to beat expectations, but beat them handily. […] On top of that the January jobs report, in particular, is typically difficult to read. The government updates its population estimates at the beginning of every year, which in the past has caused big movements in the survey figures compared to the December data.

After 1.30pm (830am EST):

Ouch. This didn’t work out at all, did it now… With jobs only up slightly from 155,000 to 157,000, the unemployment rate rose to 7.9%. But not all is bad, in hindsight both November and December were better months for the job market. read article

If there was a part of you hoping that an end would be in sight for this ubiquitous bailout hangover from the financial crisis, I’ve got bad news for you. Allegedly, Barclays lend money to the Qatari government, the go-to investor for all of London, to invest in the bank and avoid a bailout by the British government. Improper disclosure and dubious fees could deem this deal illegal. read article
 
In the background, Barclays CEO Antony Jenkins refused his 2012 bonus.

Otherwise, there’s not a whole lot going on. UK manufacturing picked up, as did consolidated eurozone manufacturing, and the Dutch government will fund a €14bn bailout of SNS Reaal, the countries fourth largest bank. 

Weekend reading:

– things economists worry about, by likelihood and impact, see graphic

– in defense of Europe’s financial transaction taxread article

– the life and death of moneyread article

– Berlusconi and Mussolini, read article

– advertising and the Super Bowl, 2013 edition, read article

– the banking blog on complianceread article

Have a good one.

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Eurozone crisis: Just grow out of it, stupid!

After yesterday’s news of the shrinking German economy, Spanish PM Mariano Rajoy called on all those country’s who aren’t Spain, Portugal, Ireland, Greece, Cyrpus, really also Italy and maybe not even France, to implement growth stimulating policies as long as they can, because Spain sure can’t. This is the same Spain that still hasn’t called the ECB for help. Should someone break the news that Europe might not just grow out of this crisis? Maybe. But it’s siesta now. Let’s wait. read article

In the meantime, the German central bank is working on the logistics of getting 700 pounds of gold back into German vaults. At this point most of it is stored at the New York Fed, with the rest of it locked up in Paris, a precaution that is still in place from the cold warread article

The Netherlands‘ fourth largest bank SNS Reaal announced that it would need a restructuring due to its toxic property loans in autumn 2012. Now, the bailout will have to be carried out by the government. According to a decision by the European Commission, Dutch banks ING and ABN Amro will not be allowed to be part of the restructuring, because they received bailouts during the financial crisis. One scenario would be the creation of a bad bank for said loans, with all other big Dutch banks as shareholders. Hello over there at the Basel committee! Does this sound systemically risk-free to you? Altogether, it is estimated that SNS Reaal will need about €1.2-1.8bn to keep its doors open. In 2008, the bank received €750m from the government. read article

Otherwise, there are a number for “Facebook searching for revenue” headlines out there, because the website just launched its own search function, which despite it’s lose limits on Facebook itself, is stepping onto Google’s turf. Has that ever been a good idea? read article

And speaking of corporate catfights. It seems obvious that EADS has won the “massive plane”-round against Boeing. The Dreamliner (787), competitor aircraft to the A380, doesn’t seem to fly so well. This morning All Nippon Airlines and Japan Air grounded their 787 fleets for review, after yet another Dreamliner had to perform an emergency landing due to technical difficulties. read article

A whole truckload of banks announce fourth quarter earnings today, including JP Morgan, which has just announced to cut CEO Jamie Dimon’s salary in response to his responsibility in the London Whale case.

So long.

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EU cuts its losses on bank bailouts

The week starts relatively quiet with some news from Europe and last week’s news from Japan.

The EU is doing something that could be interpreted as cutting its losses: in a redraft of terms and conditions for countries whose banks sought a bailout from the European Stability Mechanism (ESM). Under the new proposal, the countries in question (Spain, Ireland, Cyprus) will have to co-invest [into the failing banks] alongside the ESM or guarantee indemnities for the EU fund. Fair enough, but why only now? Is it possible that the real smart guys in Brussels noticed that money is finite? read article

In the background S&P is riding the New Year’s resolution wave and announced that 2013 will be a turning point for Europe: it will quit smoking, lose weight and stop defaulting on debt. read article

And it generally seems to have been a busy weekend in Brussels. After UPS proposed a €5.2bn takeover bid for Dutch delivery firm TNT Express, the Commission now swore to block the deal under antitrust rules. In response, TNT’s shares fell by 49%. read article

In other news, Swiss watch maker Swatch bought luxury jeweller Harry Winston for $750m, AIG is suing the New York Fed over bond issuer rights and investment banks Credit Suisse and Deutsche Bank are considering bonus cuts of up to 20%.

After the London Whale shook all of JP Morgan‘s senior management, prompting six of the 15 members of the firm’s operating committee to leave, the bank is now issuing a report for its board of directorsblaming CEO Jamie Dimon, ex-CFO Doug Braunstein and ex-CIO Ina Drew for the losses incurred. The board will vote on whether the report should be made public tomorrow, a day ahead of the firm’s earnings report. read article

So long.

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