News That Matters
Ft.com
The amount of unpaid debt on loans linked to packages of European commercial mortgages that thrived until the 2007-08 financial crisis could hit a record of €10bn by the end of the year, Standard & http://ftalphaville.ft.com/thecut/2012/03/02/906961/sp-warns-on-european-mortgage-backed-loans/
The Netherlands has been forced into a new round of budget cuts that could fracture its coalition government, after forecasts suggested the country’s budget deficit would hit 4.5 per cent in 2013, well above the 3 per cent limit set by the eurozone fiscal pact. http://ftalphaville.ft.com/thecut/2012/03/02/906711/dutch-forced-to-make-further-budget-cuts/
Fresh data suggest China is moderating its appetite for investing in US securities, a trend that could mean lower flows of cheap capital from Beijing and a possible rise in borrowing costs across the American economy, http://ftalphaville.ft.com/thecut/2012/03/02/906851/beijing-could-be-rapidly-diversifying-from-usts/
India’s government auctioned a 5 per cent stake in state-run Oil and Natural Gas Corporation on Thursday raising about $2.45bn, but only after a period of confusion in which the sale appeared to be under-subscribed, http://ftalphaville.ft.com/thecut/2012/03/02/906831/delhi-sells-ongc-stake-despite-glitches/
News That Matters
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North Korea agreed on Wednesday to suspend nuclear tests, long-range missile launches and its activities at a key nuclear facility in an announcement that represents a surprise breakthrough for nuclear diplomacy, http://ftalphaville.ft.com/thecut/2012/03/01/905291/n-korea-agrees-to-suspend-nuclear-tests/
Fannie Mae, the US government-controlled mortgage financier, will ask taxpayers for another $4.6bn after recording a $2.4bn loss last quarter, the company has said. The FT reports the latest appeal brings its total request from the US Treasury to $116bn, http://ftalphaville.ft.com/thecut/2012/03/01/905161/fannie-mae-to-ask-treasury-for-4-6bn-more/
Apple will probably start paying a dividend this year, Bloomberg says, based on the news agency’s own data and projections which forecast a quarterly dividend of about $2 a share before 2013. The projections are based in part on the dividends paid by other large technology providers, http://ftalphaville.ft.com/thecut/2012/03/01/905131/apple-dividend-predicted/
Malaysian Air, the nation’s largest long-haul carrier, reported a fourth straight quarterly loss on rising fuel costs and provisions for returning leased aircraft early, reports Bloomberg. The net loss of 1.28bn ringgit ($426m) in the three months ended in December compared with a profit of 225.9m ringgit a year earlier,http://ftalphaville.ft.com/thecut/2012/03/01/905031/malaysian-air-in-crisis-after-big-loss/
Federal Reserve chairman Ben Bernanke offered a tempered view of the US economy on Wednesday, says Reuters, pouring cold water on the notion that recent upbeat signs herald a stronger recovery. Mr Bernanke told Congress that unless growth accelerated, http://ftalphaville.ft.com/thecut/2012/03/01/904991/bernanke-downbeat-on-economy/
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Vedanta, the FTSE 100 metals, mining and oil group, has announced the merger of various subsidiaries as the next step of its founder’s ambitious plan to build India’s first global natural resources business, http://ftalphaville.ft.com/thecut/2012/02/27/897431/vedanta-to-merge-resources-divisions/
Axa is gearing up to lend €2bn to European property companies during 2012 as one of Europe’s largest insurers bids to cash in on the regulatory pressure curtailing bank financing across the continent, http://ftalphaville.ft.com/thecut/2012/02/27/897551/axa-plans-e2bn-property-lending-drive/
Finance ministers from the world’s largest economies ratcheted up the pressure on Germany to increase the size of the eurozone’s €500bn rescue fund, saying the move would be key to a decision by non-European countries to raise more resources for the IMF, http://ftalphaville.ft.com/thecut/2012/02/27/897281/g20-turns-up-pressure-on-germany/
The Obama administration is coming under growing pressure to cool petrol prices by releasing emergency stocks of oil, says the FT. However, critics say this would be the wrong response to the wrong problem at the wrong time. Oil prices climbed to a nine-month high of $125 a barrel on Friday,http://ftalphaville.ft.com/thecut/2012/02/27/897471/obama-pressed-to-open-emergency-oil-stocks/
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European officials are insisting any new Greek bail-out programme specifically earmark funds to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets, http://ftalphaville.ft.com/thecut/2012/02/07/870661/greece-bail-out-funds-could-be-split/
Investigators in a world-wide probe of how interbank lending rates are set are focusing on a small number of traders suspected of trying to influence other bank employees to manipulate the rates, says the WSJ, http://ftalphaville.ft.com/thecut/2012/02/07/870971/interbank-rate-investigation-narrows/
Vacancy rates on the worst British high streets could hit 50 per cent within three years, as half of all high street leases are due to expire by 2015, says the FT. Research by Jones Lang LaSalle, the property consultancy, http://ftalphaville.ft.com/thecut/2012/02/07/870981/high-street-vacancy-rates-could-hit-50/
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Hong Kong billionaire Li Ka-shing’s Hutchison Whampoa agreed to buy Orange Austria in a deal valued at €1.3bn ($1.7bn), adding to more than $31bn of investments in overseas mobile-phone operations, http://ftalphaville.ft.com/thecut/2012/02/03/867211/hutchison-to-buy-orange-austria/
Bank of England policymaker Adam Posen looks set to vote for another cash injection for the faltering British economy next week, and expressed some confidence that other central bankers may join him, says Reuters. http://ftalphaville.ft.com/thecut/2012/02/03/867161/posen-leans-towards-75bn-extra-qe/
The economy will suffer a modest contraction this year, according to influential academic institute the National Institute for Economic and Social Research, the first to forecast a return to outright recession for the UK. http://ftalphaville.ft.com/thecut/2012/02/03/867011/uk-recession-predicted/
Trading in the most popular US exchange-traded funds fell to multiyear lows in January, threatening to increase transactions costs for retail investors. ETFs, which track the performance of a basket of securities such as an equity or bond index, http://ftalphaville.ft.com/thecut/2012/02/03/866991/etf-volumes-hit-historic-lows/
News That Matters
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The US Federal Reserve has set the stage for three more years of ultra-loose monetary policy in the world’s largest economy, prompting an immediate fall in bond yields, the FT reports. The rate-setting Federal Open Market Committee predicted low interest rates until late 2014 and set a formal inflation objective of 2 per cent,http://ftalphaville.ft.com/thecut/2012/01/26/852121/fed-sets-path-for-three-years-of-low-rates/
In a forthright opening speech to the World Economic Forum in Davos, Angela Merkel said that Europe could only recover the confidence of global markets if the weaker European economies boosted their growth and competitiveness with structural reforms, http://ftalphaville.ft.com/thecut/2012/01/26/851971/merkel-questions-calls-for-bigger-bail-out/
Iran has threatened to pre-empt a European embargo on its oil by halting its exports to the region immediately, a move that could hit economically weak southern European countries, the FT reports. The European Union this week approved a ban on crude oil imports from Iran from July 1, http://ftalphaville.ft.com/thecut/2012/01/25/851931/iran-threatens-to-act-first-on-eu-embargo/
Friday the 13th may be an unlucky omen for Portugal. On that day, almost two weeks ago, Standard & Poor’s became the last rating agency to downgrade Lisbon to junk, marking the moment for many investors when default looked inevitable for Portugal as well as Greece, http://ftalphaville.ft.com/thecut/2012/01/25/851911/portuguese-bonds-hit-as-traders-fear-default/
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UniCredit is planning to raise up to €25bn through the issue of covered bonds as Italy’s largest bank by assets seeks to open up a new stream of funding amid ongoing pressures on bank liquidity in the eurozone, http://ftalphaville.ft.com/thecut/2012/01/25/849701/unicredit-plans-e25bn-covered-bond-issue/
HSBC, Europe’s largest bank, is seeking buyers for its Japanese consumer banking unit four years after starting the business, says Bloomberg, citing three people familiar with the matter. HSBC may sell HSBC Premier, http://ftalphaville.ft.com/thecut/2012/01/25/849611/hsbc-wants-to-sell-japan-retail-unit/
Delta Air Lines rerouted as many as eight transpolar flights between the US and Asia as the most-powerful solar radiation storm since 2003 hit Earth, says Bloomberg. Jets were sent farther south, lengthening trips by about 15 minutes, http://ftalphaville.ft.com/thecut/2012/01/25/849601/airlines-divert-flights-from-solar-storms/
The Financial Industry Regulatory Authority, at the urging of the US Securities and Exchange Commission, are set to file new rules with the SEC in the coming weeks that would also bind analysts who cover bonds by some of the same rules applying to equities analysis, http://ftalphaville.ft.com/thecut/2012/01/25/849301/new-rules-planned-for-us-fixed-income-research/
The IMF has turned up pressure on European officials to take on more of the burden of filling a widening gap in Greece’s budget by pressing the European Central Bank to take a hit on its €40bn in Greek bond holdings, http://ftalphaville.ft.com/thecut/2012/01/25/849191/imf-raises-pressure-on-ecb-over-greek-bond-haircuts/
Are we mispricing sovereign risk (again)?
From undershooting to overshooting. Somewhere in the middle, probably lies the “truth”. From VoxEU.org on the mis pricing of sovereign risk.
It is widely acknowledged that Eurozone financial markets were systematically wrong from 2001 to 2008 when they charged the same risk premium on Greek and German government bonds despite huge differences in their debt-to-GDP ratios.
Today, the same markets are applying huge spreads on Greek and other Eurozone government bonds. Many economists view today’s spreads as correct. But why – if markets were systematically mispricing risks from 2001 to 2008 – should we believe these same markets have suddenly found the truth? (See Attinasi et al 2010 on this site for how quickly the spreads widened.)
News That Matters
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Italian Prime Minister Mario Monti on Sunday sought to reassure his government was taking austerity plans forward, the WSJ reports, saying on state television that plans to spin off Eni’s regulated natural gas business were going ahead. http://ftalphaville.ft.com/thecut/2012/01/23/844471/monti-emphasises-progress-on-fiscal-measures/
Nearly half of Asia’s larger companies are planning to make a significant acquisition in Europe over the next year, drawn by the availability of cheap assets amid the eurozone crisis, according to a survey by FTI Consulting, http://ftalphaville.ft.com/thecut/2012/01/23/844331/larger-asian-companies-eye-european-acquisitions/
The European Central Bank has removed almost a third of the bank debt it added three weeks ago to the list of assets against which it would lend, the FT says, after discovering that many of the instruments may not meet its requirements. http://ftalphaville.ft.com/thecut/2012/01/23/844441/ecb-slashes-list-of-acceptable-assets/
Eurozone finance ministers will on Monday decide what terms they will accept on a Greek debt restructuring after talks going into the weekend failed to reach agreement, reports Reuters. The mood in Athens was tense on Sunday night, http://ftalphaville.ft.com/thecut/2012/01/23/844181/greek-bondholders-draw-line-in-the-sand-on-haircuts/
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Federal Reserve officials are waiting to see how the economy performs before deciding whether to launch another bond-buying program, the WSJ says. The Fed meets again next Tuesday and Wednesday, and officials are preparing to roll out a new communications strategy that is on track to include two key elements: http://ftalphaville.ft.com/thecut/2012/01/20/842161/fed-holds-off-on-new-bond-buying/
The International Monetary Fund has slashed its global growth forecast for this year and exhorted the European Central Bank to boost liquidity to stave off a deeper eurozone crisis, The Telegraph says, http://ftalphaville.ft.com/thecut/2012/01/20/842011/imf-cuts-world-growth-forecast/
Italy’s banks, led by UniCredit, were the biggest users of the special three-year funding mechanism launched by the European Central Bank in December, according to a new research report, writes the FT. http://ftalphaville.ft.com/thecut/2012/01/20/842021/italy%e2%80%99s-banks-tap-ltro-for-e50bn/
Bank of America pledged to accelerate the pace of building capital buffers to absorb future shocks as its fourth-quarter results helped drive its battered share price to the best level since October, the FT reports. The bank reported improved fourth-quarter net income of $2bn, http://ftalphaville.ft.com/thecut/2012/01/20/841981/bofa-swings-to-2bn-profit-in-fourth-quarter/
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