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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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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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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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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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“The ECB is by and large done [trying to help you]”

The moment when it’s not the Greeks who don’t live up to their promises: the troika wants to delay the next debt tranche despite the deal on austerity measures, to wait for a full report on compliance with the bailout terms. At the core of the issue is the €5bn repayment due next week, but the next bailout tranche is also connected to a two-year extension to 2016 for Greek aid. So far, so bad. While the EU seems to be mainly concerned with the restructuring of debt that will never be repaid, the IMF worries whether Greece will ever return to growthread article

Mario Draghi, fed up, announced the ECB was done supporting Greece. And you can’t blame the man who has been waiting for Spain to make one, just one, phone call for the past two months, and who is being chased by German lawmakers scared of inflation. As a last act of kindness, he said the  €12-15bn profits the ECB made on the €55bn of Greek debt it owns should go back to the country itself.

Meanwhile, France is expected to slip into recession by the time the year comes to an end. In SpainIberia, which is owned by IAG, just as British Airways, will cut the airline’s 21,000-people workforce by a quarter in an effort to turn the loss-making business around. That’s just what Spain ordered. read article

The Telegraph broke a story saying that UK tax authorities got a hold of the details of every British HSBC client in Jersey. Mind you, Jersey is a tax-haven, population 98,000 (and most of them are accountants). The list of names was obtained from a whistle-blower, who didn’t get the memo that the EU whistle-blower-incentive is not actually in place yet. It features drug lords, weapon smugglers and fraudstersHSBC, of course, will have to pay between $1.5-2bn for breaching anti-money laundering rules in the US and Mexico. For those that remain sceptical of a whistle-blower from Jersey or the journalistic standards of the Telegraph:

Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday: Does HSBC have just 4,388 Brits holding offshore accounts on this Channel island?

Weekend reading

– Interactive infographic for real GDP, unemployment and inflation developments in Europe, read article

– El-Erian’s 4-point plan to save the US economyread article

– The Asian way: economic stability in the 21st century, read article

– Democrats and Wall Street, version 2.0 read article

– From law to oil to Paris to … the new archbishop of Canterburyread article

Have a good one.

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Morals = money: financial incentives for whistle-blowing

Apple’s earnings missed forecasts, posting slightly higher sales but lower EPS. Apple reportedly sold 26.9 million iPhones and 14 million iPads last quarter. Key rival Samsung sold 53.6 million phones, which makes for a market share of almost a third worldwideSamsung’s earnings were better than expected, but South Korea posted GDP growth of 1.6% in Q3, the slowest rate since 2009. That dragged Asian shares, including Samsung, which is the heaviest weighted stock in the MSCI Asia-Pacific index, down to a seven-week lowread article

The European Parliament is working on a new directive to financially incentivize whistle-blowing, says the Handelsblatt Morning Briefing. Of course, much of this aimed at the financial services sector, especially considering recent scandals regarding insider trading and interest rate fixing. What may have been claimed to be the moral high-ground will therefore soon become a way of cashing in. It seems like something Greg Smith would enjoy.

On that note, Societe Generale, Royal Bank of Canada, Bank of America, Credit Suisse, Bank of Tokyo Mitsubishi UFJ, Norinchukin Bank, Rabobank, Lloyd’s and West LB have also been subpoenaed in regard to the Libor scandal. Maybe it’s time to accept that everybody was involved and move on. read article

One of the last firms with a clean slate in this case is BNP Paribas, France’ largest bank, which was downgraded from AA- to A+. The ratings for Credit Agricole and Societe Generale were confirmed with negative outlook. France’s president Francois Hollande has meanwhile hit the lowest voter satisfaction ratings since his inauguration, reaching only 36% in a recent poll by Le Figaro, versus the highest rating of 55%. The poor rating is most likely due to the country’s terrible economic performance that has forgotten what growth even looks like by now. In September, the unemployment rate hit a 13-year high; Hollande expects to take another 12-14 months to see any effects in the jobless numbers. But let’s not forget that Monsieur le president is convinced that the worst is lying behind us, and Europe will flourish again in no time. read article

And in the background, Greece has run out of money again. Officials said that the country requires an additional €30bn to make it through 2016. Greece will also fail to meet the 120% debt (of GDP) target in 2020; officials say it will be more like 136%. Have fun negotiating that with the Germans. If this was last year and anybody would have heard about additional billions that far down the line, Greece would have been kicked out of the EMU faster than they can put on a general strike. read article

Weekend reading

– Why the color of your parachute doesn’t matter if you don’t know where it’s taking you, read article

– the five lies Mario Drahgi told ze Germans about the OMT programread article

– the Harvard comparison: Obama vs Romneyread article

– an economist at the US treasury found the transcript of the 1944 Button Woods negotiationsread article

Have a good one.

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Europe blazing, Apple releases Christmas-iPad

German business confidence fell for the sixth month in a row, on the back of PMI data that missed expectations, and maybe also general scepticism towards Germany’s role in Europe. On the other side of the world, the same indicator for China showed a much better result and eased the fears over slowing growth.

The ECB’s Mario Draghi is in Germany today, discussing the legality of the ECB’s bond purchasing program that could save Spain and the world with the Bundestag’s committee for finance, budget and European affairs. Adding a legal struggle to the idea, could have obvious devastating effects to the development of Europe’s peripheral disaster. The OMT, Outright Monetary Transactions program, introduced by the ECB in September, is exceeding the bank’s mandate and leaves many questions about the administration of the program unanswered, says the German government. At this point, Spain has still not requested a bailout, maybe because the ECB has not figured out their role in it yet.

Meanwhile in the UK and US, authorities seems to be ready to pump some more money into the economy: the US despite it’s modest improvement, and the UK despite its best efforts so far. The Bank of England’s Mervyn King warned of the limits of quantitative easing and asked for patience to see results. Alphaville on UK vs US development throughout the crisis.

Apple released another new product: the ultimate bridge between the not-really-that-necessary iPad and the much-more-necessary-but-did-it-really-have-to-be-taller iPhone, is an iPad in Kindle-size for the bargain price of £269. Take a wild guess which competitor that’s aiming at. The pricing of Christmas-iPad is a source of investor worries, as it is still much more (more than £100) expensive than Amazon’s Kindle or Google’s Nexus. read article

After the EU regulation imposing a women-quota of 40% in company boards was rejected in the European Parliament yesterday, presumably to the disappointment of center-left parties, the World Economic Forum Global Gender Gap Report 2012, released today, shows that equality is slowly improving. Of the 132 countries in the survey, 82 improved their equality ratings from 2011 to 2012, closing 60% of the global economic gender gap. Only 60%. The UK (#18) and Germany (#13) have each lost two ranks, while China’s gender gap has actually widened a bit. Unsurprisingly/Traditionally, the top 5 countries were Iceland, Finland, Norway, Sweden and Ireland.

So long.

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An era of errors and structural reforms

India experienced a bit of a flash crash this morning, when the S&P Nifty Index slumped by 15.6%. For once, this had nothing to do with algorithms, but resulted from 59 erroneous orders [read erroneous quantities] and led to the brief disappearance of $58bn. Oops. read article

Of course this is only two days after the latest NASDAQ glitch during which Kraft Foods rose 30% or $12 in practically no time due to an algorithmic error.

In yesterday’s press conference, the ECB’s Mario Draghi made clear that the central bank was ready to buy some bonds, if an unnamed country [Spain] was to submit a bailout request. According to Daghi, purchases would take place for a month or two at a time and be suspended during the following assessment stage. read article

Otherwise, the trend of the day seems to be structural changes in investments banks, led by Barclays intend to remodel their investment arm entirely, merging the equities and fixed income business into one division. At J.P. Morgan, Barry Zubrow, Head of Corporate and Regulatory Affairswill leave the company.

In the past three years, six executives have left Mr Dimon’s operating committee – an elite group that currently has 15 members and represents all the firm’s key decision makers.

(One of these resignations was Ina Drew, see Weekend reading.)

Finally, there is Morgan Stanley, which announced possible job and bonus cuts in 2013 to save money that can be paid out as dividends to shareholders.

On SundayVenezuela is holding general elections, with the incumbent president Hugo Chavez of the United Socialist Party of Venezuela being challenged by Henrique Capriles Radonski of the center-right Justice First party. The Guardian’s data blog has an overview of reforms since Chavez took office 14 years ago. read article

Weekend reading:

– Dilma Rousseff on growth, an interview with Brazil’s president, read article
 the Amish and Mitt Romney, fight of the religious minorities, read article
– Erik Hobsbawm’s obituary: “The Last Intelligent Marxist“, read article
– Ina Drew and Wall Street: after it took her 23 interviews to get her first job in which she said she cried every day, she became J.P. Morgan’s CIO, and took the fall for the ‘London Whale’ trading lossread article
– the case for the Liikanen reviewread article

Have a good one.

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The changing face of finance

All eyes are on Mario Draghi once again, who is holding an ECB meeting in Brussels today. That once thing both Draghi and the rest of the world are waiting for is Spain‘s formal request for a bailout that would trigger the newly agreed bond-purchasing program of the Union’s central bank. Until that happens, however, nothing else will. Most likely statement to come out of today’s press conference is therefore probably a request for a request for a bailoutread article

Meanwhile, the European Banking Authority (EBA) has come back from it’s survey of 71 European banks, finding that only four of them fulfilled the new extra-super-crisis-resistant capital requirements of 9%. The survey did not include Spain’s Bankia or any Greek bank. The EBA said further that banks that don’t reach the prescribed ratios won’t be paying dividends or bonusesread article (read WSJ Deutschland)

Morgan Stanley, which had been rumored to be looking into selling its commodities division, has reportedly entered talks with the Qatari Investment Authority, the 12th largest sovereign wealth fund in the world that owns every other bit of London. The sale is motivated by new regulation through the Dodd-Frank Act and more specifically the Volcker rule, which prevents proprietary trading. read article

Similar news from J.P. MorganLDH Energy, currently owned by Louis Dreyfus and  J.P. Morgan’s hedge fund Highbridge Capital, will be sold to the CEO of Highbridge, Glenn Dubin, and founder of Tudor Investment Corp, Paul Tudor Jones. read article

Both these sales, though the former more so than the latter, are indicators of how post-crisis regulation is shaping the financial services sector into something new. The first result of this seems to be a cutting back of those bank divisions that that were added in the scope of expansions, during more pleasant economic times. Of course, this is not exclusive to commodities. Credit Suisse is looking to get rid of its $385bn asset management division as a “direct consequence” of not being a major asset manager, while Lloyds TSB has continuously offloaded its private equity assets, worth more than £1bn. Time to cut your losses and move on.

In the US presidential race, Romney won the first TV debateThe Atlantic said Obama lacked energy and enthusiasm, the Handelsblatt called him “pale” [which, of course, is a hilarious figure of speech here].

Greece, in its ineptitude of being a serious country, is on track to pool €100m to build a new formula one Grand Prix track. Bernie Ecclestone, CEO of Formula One Group, who is vainly trying to float the company on the Singapore stock exchange, has allegedly backed the project. Not necessarily related, GermanyFinland and the Netherlands have demanded to delay the next bailout tranche for Greece, worth €31bn, until November. read article

In other news, Facebook has hit the 1bn users benchmark. Fair enough, that IS cool. read article

So long.

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