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Eurozone recession here to stay, UK gets ready for exit

Yesterday…
David Cameron and his comrades of the Conservative Party published a policy draft for a referendum for a possible EU-exit of the UK. The draft says the referendum has to be completed by December 2017, given the Tories win the 2015 elections. I think the campaigning just began. read BBC

While the global “recovery” continues to force deficits to skyrocket and imports to slump, India has managed to become the outlier in the trend on Monday afternoon. Taking advantage of the low gold price, imports rose 138% since April 2012 to $7.5bn, or 18% of all imports, while the trade deficit hit 17.8bn. read Zerohedge

And of course the drama over Bloomberg‘s use of user data continued… read FT Alphaville

This morning…
there was a flood of data, with the German economy growing 0.1% from 4Q12 to the first quarter of 2013, undercutting the depressing estimate of 0.3% growth. The French economy contracted by 0.2% over the same period of time. read Bloomberg
Franco-German relations haven’t been great since Hollande got into office, but this morning’s result may just worsen the atmosphere of any policy discussion. The eurozone as such, contracted 0.2% in 1Q13. The recession continues…

Simultaneously, Mervyn “it’s-almost-his-last-day” King of the Bank of England raised the outlook for the UK economy [with lower inflation] and raised his eyebrows at eurozone performance, as well as the continental Financial Transaction Tax. read Guardian

Meanwhile, the US is preparing to become the model student again. The Congressional Budget Office is forecasting the deficit to fall as far as $378bn by 2015, much faster than anticipated. The 2013 forecast was cut by $203bn to an overall $642bn. read Reuters
And that is not all: Formerly the largest corporate debt market in the world, providing ample opportunity for the Michael Milken followers of the world to make money, China is going to take that spot within the next two years, according to S&P. Soon America will be debt and deficit free and flow with milk and vodka (we’re all grown-ups here). read Financial Times

In the kerfuffle over whether Jamie Dimon is allowed to stay in in his double-role as chairman and CEO of JPMorgan seems to be blowing over (much like Lloyd Blankfein expected), as fewer shareholders than expected are looking to back the leadership reform. Another bullet dodged for the industry. read Financial Times

And in case you’ve been in a good mood this morning, have a look at this: 10 Scenes from the ongoing global economic collapse (Zerohedge)

So long.

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Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.

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Obama to unveil $3.77tn budget

Yesterday…Slovenia‘s new Prime Minister Alenka Bratusek said the country didn’t require any help to deal with its banking crisis that the OECD seems to consider as serious but not urgent. Many Slovenian banks are already owned by the state; the OECD has recommended stress tests and the potential recapitalization or closure of failing institutions, but Bratusek is having none of it, saying the bad bank that will be set up until early summer will be able to take the toxic assets. read article

This morning…
EU is considering extending the bailout programs for Ireland and Portugal. According to Reuters, where this story came from, this will be discussed at the Eurogroup meeting on Friday.

To make everything worse, the ECB’s [first ever] Household Finance and Consumption Survey found that the average Cypriot is richer than the average German (by median net wealth). Even though the classic North-South divide re-appears in the median gross income figures, that won’t go down too well. read article

China reported its first trade deficit in over a year for March 2013, again it could be another hangover from the Lunar New Year holiday, leading to increased imports, while exports grew less. read article

Meanwhile in the US, President Obama will unveil a $3.77tn budget plan at 11am EST today, when he will speak from the White House. read article

So long.

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Judgment day for J.P. Morgan

There won’t be an email on Monday and Tuesday of next week, 18/19 March 2012.

Today, the London Whale Senate hearing starts in DC, led by John McCain and including testimony from former CIO Ina Drew who left the firm in May 2012. The allegations include a failure to appropriately report on the $6bn trading losses, misleading regulators and investors. read article

Following the Fed stress testBank of America is set to buy back $5bn of shares and $5.5bn of preferred stock, while J.P. Morgan will buy back $6bn in common stock. Goldman Sachs will also be allowed to repurchase shares, but overall the Fed seems worried about J.P. Morgan‘s and Goldman‘s capital structures: the banks will have to submit revised capital plans by September. read article

The British Parliamentary Commission on Banking Standards (PCBS) stated that the UK didn’t need a ban on proprietary trading, mirrored from the American Volcker rule. The Commission suggested capital requirements as alternative tools and cited the difficulty of defining proprietary trading appropriately. Future BoE Governor Mark Carney agrees as well. read article

After months of investigations and grounded fleets, Boeing’s Dreamliners could be back in the air “within weeks”. The spontaneously igniting batteries have been replaced and “only” need approval from the Federal Aviation Administration to be ready for take-off. Japanese authorities remain skeptical and declined to put a date on when the Dreamliners could fly again. Either way, Boeing doesn’t have the capacity to replace batteries in all 50 active planes simultaneouslyread article

While the EU-US trade agreement is in the works, Japan has entered negotiations for a similar deal for Pacific nations. read article

Meanwhile, Greece, or rather the Hellenic Republic Asset Development Fund, is selling gas and gambling companies as part of its privatization campaign. Get in there while it’s cheap. read article

Last night, Samsung launched its latest smart phone in the Radio City Music Hall in New York. A review from All Things D, here.

Weekend reading:

– the America we used to know, read article

– the US is more energy self-sufficient, except China wants to own all their natural gas fueling stationsread article

– when hedge funds get personal: the Herbalife background storyread article

 Have a good weekend.

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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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All talk, no results, but at least Glencore is happy.

If things continue like this, I’m going to start making news up. I hear it works for The Sun.

Japan’s exports to China fell by 12% in October, amounting to JPY948bn ($12bn) or the largest monthly trade deficit ever, in the hangover since the dispute about the East China Sea has re-arisen. read article

Meanwhile in the US, Ben Bernanke held a press conference reiterating every apocalyptic comment about the fiscal cliff and threatening recession in case of insufficient government action. Talks between the White House and Congress have kicked off this week, but it’s not going well so far.  read article

In Greek news, the Eurogroup of finance ministers failed to strike a deal on how to reduce Greece’ debt. After 11 hours of back and forth, the meeting was broken up, to be continued on Monday of next week. Allegedlya document was circulated at the meeting, now in the hands of Reuters, which proposed a haircut for official bondholders or a two-year extension for the 120% debt-to-GDP ratio. The former goes against Germany’s wishes, the latter against those of the IMF. Nothing is solved and tomorrow’s summit will be a disaster. read article

Twinkies and Wonder Bread parent company Hostess, which had struggled over the past couple of months,

will continue with the company’s liquidation, after it failed to find an agreement with the bakery workers union. Hostess had filed for bankruptcy in January, when the company had around $860m debt, and announced to close down operations on Tuesday. The private equity vultures are circling… (Hello, Sun Capital Partners.) read article

In other company’s news, the merger of Glencore and Xstrata has now been passed on to European antitrust authorities who are expected to approve the deal tomorrow, almost nine months after merger negotiations started. Besides the EU, China and South Africa also have to approve the proposed transaction, which would create the largest natural resource conglomerate in the world. read article

So long.

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EU getting ready to pay, China-Japan conflict boosts German car production

There won’t be a news brief tomorrow and Wednesday, 09/10 October 2012.

Hugo Chavez won another six-year term in Venezuela’s national elections held on Sunday. By the end of the new term, he will have been in office for 20 years. Chavez is planning to step up effort to nationalize companies in areas like finance, nutrition and healthcare. Prior to Sunday’s elections, Chavez underwent cancer treatments in Cuba; his illness may pose a threat to his upcoming term as president, commencing on January 10. read article

The Eurogroup of Finance Ministers is meeting today to officially launch the ESM, concluding the day with a press conference in the evening. The second bailout fund will hold €80bn paid-in capital (mostly by Germany, as we know), with €620bn of callable capital, which will be used as a base to borrow money in the public markets, reaching full capacity in 2014. The focus of the meeting will be next steps for Spain and possible the progress of Greece, where Angela Merkel and an army of 7,000 policemen will observe the situation tomorrow. read article

Following last month’s conflict between China and JapanToyota, Honda and Nissan are cutting their production targets for Chinese plants by about half until further notice, due to a slump in Chinese demand. In direct response, sales for South Korea’s Hyundai rose 15%, while German brands Audi, BMW and Mercedes-Benz rose 20%, 55% and 10% respectively last month. read article

Also in ChinaHan Hoi Precision Industry, a subsidiary of Foxconn that assembles iPhones, iPads and other Apple products, is the bullseye in a labor rights dispute that is igniting in China. Foxconn employs 1.2 million people in China, some of which were involved in a strike last week Friday. The strike regarded increasing working hours and quality assurance, was supported by China Labor Watch and involved employees working on the new iPhone 5. According to WSJ:

Labor groups have criticized Hon Hai for its work practices after several workers at the company’s massive manufacturing base in China jumped to their deaths in separate incidents in 2010. Hon Hai has since increased salaries and outfitted worker dormitories with safety nets in an effort to prevent such incidents.

In the US, earnings season is starting tomorrow evening with Aluminum producer Alcoa. Expectations are depressing and will underline the poor performance of the Western economies despite government efforts to boost growth. But a quarter doesn’t make a year, according to the FT, “S&P 500 companies are on course for record cash profits in 2012.”

Also in the news, Google is tapping into its massive cash reserves and will launch its own credit card. The card will be exclusively linked to its AdWords business and make it easier for clients to purchase advertising space. This is following Amazon’s announcement to make loans to their vendorsread article

Otherwise, applications for the position as Governor of the Bank of England have closed. Alphaville considers the contestants Paul Tucker and Lord Turner.

So long.

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China makes the world go round

There’s not much going on today. In the words of ZeroHedge:

Tonight’s session has been even more boring than yesterday’s, when nothing happened.

China‘s non-manufacturing PMI fell [unsurprisingly] by 2.6 points between July and August, marking the lowest score since March 2011. Most of it is attributed to the low global demand due to the financial and sovereign debt crisis.

On the back of this, oil prices declined in a panic over global fuel demand. This is a day after Iran’s president Mahmoud Ahmadi-Nejad admitted that Iranian oil sales had declined since the implementation of international sanctionsread article

But any slowing of China is risky business for export-driven Germany, the biggest trade partner in Europe and fifth largest in the world. But Germany, which is celebrating  its federal unity today, seems to be doing confusing well regardless of said risks.

Reflecting intertwined fates of the German and Chinese economies, the Dax and Chinese share prices have largely risen and fallen in tandem since the early 2000s. Lately, however, that relationship has appeared to break down. While internationally-traded Chinese shares have fallen about 1 per cent since early August, the Dax is up 8 per cent.

And some say there could be a new all-time high in the coming year, brought about by the countries relative economic strength (or if you believe the FT article quoted above, due to “different Teutonic factors”).

Also in Europe, a draft proposal that leaked out of Brussels last night, shows the attempt of a new fiscal reform act to be signed by all 17 eurozone members in this month’s summit. It appears to be based on Germany’s request for stricter supervision of countries with inconsistent reform track recordsread article

Almost five years after Bernie Madoff‘s arrest for running a Ponzi scheme that cost investors more than $17bn, the date for the Madoff employee trials has been set for October 2013 with all of 3.5 months allocated for the hearings.

I’m going to leave it at this.

So long.

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Suddenly Q4

 

And then it’s suddenly Q4: another grim earnings season ahead, as well as poor economic performance all over, the god-damn fiscal cliff and US elections, and presumably another rekindling of the European crisis, leading to a massive suspense just before Christmas to start 2013 in the same way as last year. Great. According to MarketBeat

The S&P 500 companies are expected to report contracting profits by about 2%, for the first time since 2009, according to S&P Capital IQ. That’s certainly not a good thing for stocks.

But let’s face it, what is these days… For today, we can stay tuned for bad economic news out of Germany, the eurozone as such and the US.

The first on up is eurozone unemployment, which has hit 11.4%, a[nother] new record. Otherwise, manufacturing is down in the UK and Greece is likely to see a sixth year of recession in 2013, suggesting that there will be another Greek bailout.

The big news today is that after seven month of negotiations, sweat and tears, Xstrata has finally agreed to recommend Glencore’s bid to its shareholders. The final vote will be at the end of the month. The offer remains at $33bn, but Xstarta’s board required the company’s senior management to be retained for at least two years following the merger, to ensure the project pipeline. Xstrata’s CEO Mick Davis, who is bound to leave his position, was going to be replaced by Glencore’s Ivan Glasenberg; under the new conditions, the position will be filled by an Xstrata board member. read article

Also in the wonderful world of M&A: Germany and France have agreed to give up some of their veto rights conditional upon getting a big equity slice of the EADS-BAE pie. The CEOs of the two companies involved in the £34bn merger said that neither France nor Germany would be allowed to hold more shares/rights than the average shareholder. This is mainly to to BAE’s worries about defence contract with other countries. read article

In Germany, it has been confirmed that Peer SteinbrueckFinance Minister from 2005-2009, will challenge Angela Merkel in next year’s national elections. Steinbrueck worked alongside the chancellor during the coalition government of the Christian and social democrats. In line with the technocracy governing Europe at the moment, Steinbrueck is an economist and has publicly spoken out against Keynes, stimuli, Swiss bank secrecy, private equity and hedge funds. He also wants Deutsche Bank to split its commercial and investment banking business for better risk management. Thank god all of this comes in a time of prosperity, otherwise it may comprise Germany’s competitive position. Oh no wait… read article

So long.

 

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All things considered, Mexico seems to be the place to go

The revised UK GDP for Q2 came in the morning, and it’s really just a parade of negative numbers. The good news first: it fell less than expected. Overall GDP was at -0.4% (instead of -0.5%), with the main drag coming from the construction sector, which was down 3%. Industrials and services came in at -0.7% and -0.1% respectively, household spending declined 0.2% and exports shrunk by 1.1%.

The final read on US Q2 GDP is published tomorrowExpectations are … managed.

The Street projects GDP this year will run at 1.9%. The first quarter came in at 2%, and the final read on the second quarter tomorrow is expected to come in at 1.7%. You can extrapolate from there what the next two quarters will look like, and it’s not pretty. For every decent data point, like, say, a rise in home prices, there’s at least one that counters the optimism.

In addition to that, earnings don’t look so good and a survey of American executives shows that Congress’ inability to deal with the fiscal cliff and the uncertainty around future tax policies is making it impossible for corporates to plan strategies and investments. Of course, that feeds right into the stalling activity everywhere you look. read article

Over the past three days, the People’s Bank of China has injected RMB365bn ($58bn) into the economy, one for each day of sluggish growth. read article

In other Asia news, the US has loosened its trade restrictions with Myanmar, following the release of political prisoners and reforms of the country’s political and economic system over the past 18 months. The European Union has also abolished many of its sanctions. The president of the Myanmar Federated Chamber of Commerce called on developed nations to “help us prevent the ‘miscarriage’ of our democracy in its embryonic stage.” read article

Santander floated 25% of its Mexican division yesterday, raisng $4.13bn. That makes it the largest IPO Mexico has ever seen and also the third biggest of the year, behind Facebook and Japan Airlines. In the first six months of 2012, Santander Mexico accounted for 12.4% of the company’s overall profits, while only representing 4% of the bank’s assets. read article

Meanwhile, both Spain and Greece are drowning in protests and riots. The Spanish budget will be announced at 1pm BST. It is likely to include the launch of a new tax supervisory authority, as suggested by the EU, limiting early retirement, new emission taxes and transaction taxes for stocks, while getting rid of some exemptions. It is a package that won’t please voters, but will please Brussels and pave the way to Spain’s bailout. Rajoy, a man of the people, is not in Spain today. He is attending the UN General Assembly in New York. read article

So long.

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