Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Stocks rise on better US jobs data
Copyright The Financial Times Limited 2010
Published: September 7 2010 07:40 | Last updated: September 9 2010 16:38
http://www.ft.com/cms/s/0/9ebb052e-ba4a-11df-8e5c-00144feab49a,s01=1.html


Thursday 16:35 BST. Traders are moving into stocks and out of bonds after better than expected US jobs data buttress hopes for the economic recovery and ameliorate lingering fears surrounding eurozone debt.

The S&P 500 on Wall Street is up 0.9 per cent, contributing to a 0.8 per cent advance for the FTSE All-World index, as traders put the euro-wobble of recent days behind them.

Many industrial metals are lower, however, following regulatory jitters in China, while a more cautious mood in forex markets continues to aid “safety” plays such as the yen.

News of a 27,000 fall in weekly US initial jobless claims to a two-month low was welcomed by a market already showing signs of finding its feet again, after talk of fudged “stress tests” on Tuesday had revived fears about the health of the eurozone banking system and caused a dip is risk appetite.

Bullish investors in recent days were having to scratch around with the optimism of mudlarks in attempts to uncover further positive news on the global economy and ensure the revived eurozone worries did not hobble September’s risk rally.

The US Federal Reserve’s Beige Book report, released on Wednesday, said that the economy was growing at a modest pace, but warned of “widespread signs of deceleration”.

The Market Eye

Is the gold market getting too complacent, asks Jamie Chisholm. The yellow metal sits just a few bucks shy of its nominal peak of $1,265 an ounce, with few analysts brave enough to dismiss its chances of breaking higher in the traditionally strong autumn period. Indeed, so sanguine do investors seem about gold’s prospects they have pushed the CBOE Gold Volatility index to 17.40, just above its all-time closing low of 17.18 hit in July.

Now, the Gold Vix has only been running since June 2008, but in that short time it has shown clearly a greater sensitivity to falls in the bullion price rather than rises. This makes sense, given that gold famously tends to take the escalator up and the elevator down. The $200 tumble in the space of a couple of weeks in October 2008 saw a spike in the Gold Vix to 65, for example. The metal rarely sees such swift 20 per cent moves to the upside these days. With gold grinding higher it is therefore perhaps understandable the Gold Vix has trundled lower.

Still, it is tempting to view the Gold Vix in a similar way to its equity-based cousin. When the equity Vix Index starts displaying signs that investors are getting extremely relaxed, contrarians get nervous.

Meanwhile, South Korea’s central bank decided on Thursday not to raise interest rates as had been expected, citing signs of a US slowdown and “heightened volatility of economic activity in major countries”.

However, with today’s initial claims numbers, bulls clearly think they have uncovered a gem.

● Europe. Investors initially seemed reluctant to place fresh bets, leaving major benchmarks struggling for direction. However, traders became bolder as the morning progressed, and indices burst higher after the US data, pushing the FTSE 100 in London up 1.2 per cent as the heavyweight banking and mining sectors rallied.

The FTSE Eurofirst 300 has turned a 0.3 per cent loss into a 0.8 per cent gain, with defensive sectors such as telecoms on the back foot.

● Forex. Traders have maintained a nuanced “risk off” strategy – despite an improvement in sentiment in the overall market – favouring perceived havens such as the yen.

The yen is up 0.2 per cent versus the euro to Y106.50 and higher by 0.1 per cent against the dollar at Y83.75, still close to 15-year highs. The dollar is down fractionally on a trade-weighted basis.

The Aussie dollar is up 0.8 per cent versus the greenback to a four-month high of $0.9259 following strong jobs data down under.

Sterling is down 0.2 per cent versus the euro to 82.35p after the UK’s trade gap hit a record for July.

● Rates. Highly-rated sovereign bonds are under pressure as improved hopes for growth reduce the attraction of debt. The US 10-year note yield is up 8 basis points at 2.73 per cent, while German Bunds are up 3 basis points to 2.34 per cent. The US government will later today auction $13bn of 30-year paper, concluding this week’s $67bn worth of bond sales.

The yield on benchmark Portuguese notes is down 3 basis points to 5.80 per cent as Wednesday’s relatively well-received €1.04bn auction provides support.

Credit default swaps of most eurozone “peripheral” nations are slightly tighter as fears about sovereign debt subside somewhat.

● Commodities. Metals are falling after talk that Beijing was probing the rubber market prompted a wholesale dash from commodities. Regulators have since denied any investigation is going on. Nevertheless, the slide has hit London Metal Exchange contracts, pushing copper down 1.3 per cent to $7,560 a tonne.

Oil is benefiting from the growth trade, up 1.2 per cent at $75.54 a barrel.

Gold is down 0.6 per cent at $1,247 an ounce, while silver is still struggling to make a decisive breach through $20 an ounce, currently at $19.83 for the bid price.

● Asia Shares rose for the first time in three days as concerns about Europe’s debt problems receded.

The FTSE Asia-Pacific Index added 0.9 per cent after sliding 1 per cent on Wednesday, with Japan’s Nikkei 225 up 0.8 per cent and South Korea’s Kospi up 0.3 per cent after the central bank left interest rates on hold.

Shanghai lost 1.4 per cent, with traders pointing to a sudden slide in resource-linked stocks after talk of a regulatory probe into commodity trading saw investors dump metals. Hong Kong followed the regional trend, however, and rose 0.4 per cent.

Australia’s S&P/ASX 200 added 1 per cent, boosted by news that unemployment had fallen to 5.1 per cent. Miners made good ground, but much of the advance came before commodities turned tail later in the Asia session.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm





Export surge narrows US trade gap
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 9 2010 14:24 | Last updated: September 9 2010 17:57
http://www.ft.com/cms/s/0/abf41ad4-bc0a-11df-a972-00144feab49a.html


A surge in exports narrowed the US trade gap in July, raising hopes that economic output could accelerate in the second half of the year as global demand picked up.

Separately, government figures showed that new claims for jobless benefits fell more than expected last week, offering a rare bright spot for the labour market.

The trade deficit fell 14 per cent to $42.77bn, commerce department figures showed on Thursday. It was the sharpest decline in 17 months and exceeded economists expectations, thanks to a jump in US exports.

The rise in exports is a good sign for US manufacturers. However, falling imports could be a sign that domestic demand in the US is weakening amid persistent joblessness and slowing growth.

“The considerable decrease from June to July in the foreign trade deficit tracks with the lack of consumer confidence and slowdown in general spending,” said Lou Longo, partner at Plante & Moran Global Services.

The narrowing trade gap in July reversed the increase from the prior month when the deficit grew by nearly 20 per cent on soaring imports.

In July, exports increased 1.83 per cent to $153.33bn, their highest level in almost two years, while imports declined 2.1 per cent to $196.1bn.

Imports were held back by weaker appetite in the US for consumer goods, car parts and food.

During the second quarter, rising imports widened the US trade shortfall and slowed US economic growth to an annual rate of 1.6 per cent. Ted Wiesman, economist at Morgan Stanley, said Thursday’s figures meant trade would be less of a drag on US output and revised his estimate to show stronger economic growth in the third quarter.

Policymakers were paying particular attention to the US trade gap with China, the US’s most politically sensitive trade partner.

That deficit, which represents more than half of the total US trade shortfall – declined in July to $25.9bn from $26.2bn in June.

The decline could ease tension between China and the US before congressional hearings next week when lawmakers will consider pushing for legislation that would attempt to prod Beijing to allow its currency to appreciate more rapidly.

US trade shortfalls with Japan and Canada also eased in July, while the trade gap with the European Union widened.

Meanwhile, initial jobless claims fell by 27,000 to 451,000 last week, labour department figures showed. That was a much bigger drop than Wall Street analysts had predicted and comes after new claims had been inching closer to the half-million mark in recent weeks.

The number of Americans continuing to claim unemployment insurance also declined, falling by 2,000 to 4.478m. Some of that decline reflects idle workers seeing their benefits expire.

States with fewer job cuts included California and Illinois, where job losses in the services and construction sectors eased.

Last week the labour department said the US private sector added 67,000 jobs in August, but the dismissal of temporary census workers caused overall non-farm payrolls to decline by 54,000.








Trichet calls for tougher euro rules
By Ralph Atkins and Lionel Barber in London
Copyright The Financial Times Limited 2010
Published: September 9 2010 18:00 | Last updated: September 9 2010 18:00
http://www.ft.com/cms/s/0/13730da2-bc31-11df-8c02-00144feab49a.html


Eurozone members that break the region's rules on public finances should be excluded temporarily from Europe’s political decision-making, the president of the European Central Bank has proposed.

The controversial suggestion by Jean-Claude Trichet, in an interview with the Financial Times, would be part of a “quantum leap” in the governance of Europe’s 11-year old monetary union, needed to prevent a future Greece-style economic crisis.

Mr Trichet’s comments highlight how he is trying to shape the debate on eurozone reform, which is expected to culminate in coming weeks when Herman Van Rompuy, the European Union’s president, reports on how to revamp the rules.

Greece’s spiralling public debts, which erupted into a full-blown crisis in May, called into question the long term future of the eurozone. The ECB has been in the forefront in lobbying for tougher rules – backed by sanctions – and the independent monitoring of public finances.

The Frankfurt-based institution has rejected the idea of a eurozone member ever being thrown out. But Mr Trichet said that the “temporary suspension of voting rights is something that should be explored”. His proposals could run into trouble, however with member states – especially as it is not clear that the withdrawal of voting rights would be possible without changing EU treaties.

Mr Trichet said the eurozone’s resilience had been underestimated. “I don’t think that the euro area was close to disaster at all – seen from the inside.”

He went on: “I know how Europe functions. I know how the constellation of authorities functions … Seen from the outside, I would say that it’s always difficult for external observers to judge and analyse correctly the capacity of Europe to face up to exceptional difficulties.”

The ECB president also suggested gloom about the US economic outlook might be overdone. “There is a mood which seems to me too negative. That’s my own personal feeling.”

The ECB president travels this weekend to Basel, Switzerland, were he will chair talks on new “Basel III” capital rules for banks. He refused to comment in detail ahead of the meeting, but warned banks that they could not in future expect the world’s taxpayers to put at stake such huge sums in rescue packages as in the past three years. “We cannot do that twice. The people in our democracies would not accept that.”

He also said that “we need the same rules at the global level” and described the rise in importance of the Group of 20 summits, which also include China and India, as “one of the major structural transformations of global governance over the last three years”.






Goldman fined £17.5m by UK regulator
By Megan Murphy and Brooke Masters
Copyright The Financial Times Limited 2010
Published: September 9 2010 10:05 | Last updated: September 9 2010 10:05
http://www.ft.com/cms/s/0/113b6bdc-bbec-11df-a972-00144feab49a.html


Goldman Sachs has been fined £17.5m for regulatory control failings that led the investment bank to neglect to tell the UK financial regulator that it was under investigation by US authorities.

The Financial Services Authority said on Thursday that Goldman’s US arm failed to share critical information with the bank’s compliance department in London about a US investigation of subprime mortgage products for more than 18 months.

That omission meant Goldman failed to notify the FSA that it and trader Fabrice Tourre had been warned in September 2009 by the US Securities and Exchange Commission that they were likely to face civil fraud charges. At the time, Mr Tourre was working in London in a function that required FSA approval.

The SEC filed charges in April 2010 and settled with Goldman for $550m in July. Mr Tourre is still fighting allegations that he misled investors in a complex mortgage-backed security known as Abacus.

The FSA said that Goldman officials could have considered notifying them about the probe as early as February 2009 and “at the latest” when the bank received the so-called Wells notice from the SEC warning of potential charges.

Margaret Cole, the FSA’s managing director of enforcement and financial crime, said: “We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI [Goldman’s London arm] did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm.

“This penalty should send a message – particularly to the senior management of large institutions – of the need to have their firm’s UK reporting obligations at the forefront of their minds,” she said.

Fiona Laffan, Goldman spokeswoman, said: “We are pleased the matter is resolved.” Goldman received a discount for settling the case at an early stage. Without it, the fine would have been £25m.

Mr Tourre’s attorney did not respond to a request for comment.

The fine is the second-largest in FSA history. JPMorgan set the record in June when it paid £33.3m for failing to keep client money in separate accounts.

The FSA opened its investigation into Goldman in April after the SEC filed its charges. The SEC claimed Goldman had failed to disclose that a hedge fund that was betting against the security had selected some of the mortgage loans included in the portfolio, costing investors as much as $1bn.

Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favoured the interests of some clients at the expense of others during the financial crisis.

The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.

On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman Sachs’ proprietary trading group that could lead to the hiring of a number of Goldman’s key people.





Prosecutor launches new front in the war on Wall St fraud
By Jean Eaglesham in New York
Copyright The Financial Times Limited 2010
Published: September 8 2010 22:30 | Last updated: September 8 2010 22:30
http://www.ft.com/cms/s/0/237b2c3c-bb89-11df-a136-00144feab49a.html


A top federal prosecutor in New York will on Thursday declare another front in the war on Wall Street fraud, focusing new resources on civil litigation to complement existing criminal actions.

The move by Preet Bharara, US attorney for the southern district of New York, comes amid criticism of the relatively small number of criminal prosecutions brought after the financial crisis. The district has mounted high-profile prosecutions after previous crises.

“Not every case is a criminal case,” Mr Bharara told the Financial Times. “It’s important for us that we deploy all the tools we have, even in cases where a criminal prosecution is not appropriate.”

Mr Bharara will announce the appointment of Heidi Wendel, a former New York state deputy attorney-general, to head a six-strong unit focused on taking civil enforcement action against fraud. Her remit covers “every single type of fraud”, including complex financial misconduct, mortgage deals, abuse of the government’s troubled asset relief programme and healthcare scams, Mr Bharara said.

Civil actions, which require a lower burden of proof than criminal charges, can be used to levy substantial fines and penalties from companies. Mr Bharara said civil actions could have a significant “deterrent effect on other people, as well as bringing back money for investors and into the public purse”.

He added: “The goal [of the civil frauds unit] over time is not just to do a case here or there but to find areas where there’s an industry-wide abuse or bad practice and use our resources to try to remedy something on a broad scale.”

Laura Flippin, a former US deputy assistant attorney-general, said civil action could allow prosecutors to “avoid some of the difficulties they’ve encountered following the financial crisis in making criminal charges stick”.

Mr Bharara declined to comment on “whether or why there are criminal cases responding to the financial crisis”.

Mr Bharara’s move follows the passage of legislation last year giving US attorneys enhanced power in civil cases to demand that executives attend interviews or disclose confidential internal documents. Previously, federal prosecutors needed the approval of the US attorney-general to make such “civil investigative demands”.

He added that Ms Wendel, an experienced prosecutor, would take an “aggressive and thorough” approach.