Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times

Basel III and China data cheer bulls
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 13 2010 06:14 | Last updated: September 13 2010 15:21
http://www.ft.com/cms/s/0/483c5a1a-bedf-11df-a755-00144feab49a.html


Monday 15:00 BST. Beijing and Basel have provided some pep to risk appetite at the start of the week.

Stock markets are enjoying broad gains as traders welcome satisfactory Chinese economic data and news that regulators meeting in Switzerland have agreed a deal on banks’ reserves.

The FTSE All-World equity index is up 0.8 per cent, the S&P 500 on Wall Street is advancing 0.9 per cent and commodity prices are higher. “Haven” sovereign debt have pared early losses, however, as the highest yields in more than a month attract income hunters.

Leading the charge in stocks are banks. The FTSE Global Banks index is up 2.7 per cent, with traders apparently comforted that the new Basel III rules are not as onerous as some had feared.

The Markit iTraxx Senior Financials index, which tracks the credit default swaps of large European financial institutions, is tighter by 11 basis points to 119bp, suggesting investors are more sanguine about banking risk.

The Market Eye

Traders are clearly feeling pretty perky today. Wall Street will be expecting a return to “normal” volumes after last week’s torpor, and bulls will hope that means the institutions get stuck in after being largely absent over the late summer. The first technical challenge for the S&P 500 is the 200-day moving average at about 1,116. S&P futures suggest the benchmark will open at 1,120, so that barrier may swiftly become a support. However, traders should note the banana skin in the form of eurozone fiscal worries. Greece returns to the market with a €900m auction of 6-month bills on Tuesday. The country’s paper is seeing some buying today. But even with 10-year and 2-year yields down 39 basis points to 11.57 per cent, and 77bp to 10.07 per cent, respectively, the market is still signalling a likely debt restructuring.

There is also an element of a relief rally regarding the economic news out of China. Investors had become worried at the end of last week that Beijing’s decision to publish industrial and prices data on Saturday, rather than on Monday as originally planned, meant the Chinese authorities may have a market-unfriendly policy announcement up their sleeve.

In the event, there was nothing untoward. Indeed, news of faster than expected industrial output has revived those who believe stronger growth in developing Asia will ensure the recent slowdown in the US does not persevere.

The European Commission have further bolstered growth hopes by predicting the eurozone economy will expand this year almost twice as fast as originally forecast because of sprightly activity in Germany.

Finally, the optimistic mood is being stocked by more merger activity, after Hewlett-Packard agreed to buy security software group ArcSight for $1.5bn.

● Europe. The FTSE Eurofirst 300 regional benchmark is up 0.8 per cent, with miners and financial stocks providing a big push. The same factors are affecting the FTSE 100 in London, up 1.2 per cent.

The Dax Vix index, which tracks expected volatility for Germany’s equity benchmark and is a gauge of investor anxiety, is down 4.2 per cent to 19.5, its lowest in nearly 6 months.

● Forex. The increasing optimism about global economic growth is sapping demand for “safer” assets in foreign exchange markets. The yen is down 0.7 per cent against the euro to Y107.75. However, it is noticeable that the Japanese unit is again gaining ground against the dollar – up 0.3 per cent to Y83.91 – perhaps a sign that the embrace of risk is not universal.

The euro appears to be getting some benefit from the Basel deal, presumably in the belief that the new regulations are not too onerous for the region’s banks, particularly those in France and Germany. The single currency is up 1 per cent against the dollar at $1.2835 and up 0.3 per cent to SFr1.2973.

● Rates. US benchmark Treasury yields rose to their highest in more than a month early in the session as traders became bolder about their bets elsewhere. However, even though risk appetite showed little signs of waning in other asset classes, the higher income attracted “bargain hunters” and the yield on the US 10-year is currently down 1 basis point at 2.79 per cent.

German 10-year Bund yields remain higher, however, up 5bp to 2.45 per cent, as dissipating worries about the eurozone banking system curtail haven flows.

Italian 10-year yields are up 4bp to 3.86 per cent despite a well-received sale of €5.5bn worth of bonds on Monday.

● Commodities. Industrial resources are seeing prices move higher as the data out of China raises hopes of continued strong demand for the likes of copper, up 2.2 per cent to $7,659 a tonne. Oil is up 1.9 per cent to $77.85 a barrel, its highest in more than four weeks, as the data out of China and the continued shutdown of a major Canadian pipeline encourages buyers.

Gold is flat at $1,245 an ounce. Walter de Wet, analyst at Standard Bank noted in a report today that “the current net speculative length for COMEX gold stands at 851 tonnes. This is not far off the highs of 902 tonnes reached in October last year”.

“We note that although COMEX gold’s net speculative length has been rising rapidly in recent weeks, we do not believe it’s over extended yet......We maintain that gold will reach $1,300 in Q4, 2010.”

● Asia-Pacific. The FTSE Asia-Pacific index advanced 1.5 per cent as recent economic data increase risk appetite. Japan’s Nikkei 225 rose 0.9 per cent, with exporters helped by signs the yen was softening – relative to the euro, at least.

Australia’s S&P/ASX 200 climbed 1.2 per cent as the Chinese production data encouraged resource stocks. South Korea’s Kospi Composite added 0.9 per cent and China’s Shanghai Composite rose 0.9 per cent. Hong Kong’s Hang Seng was higher by 1.9 per cent.

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





Brussels lifts eurozone's growth forecast
By Stanley Pignal in Brussels
Copyright The Financial Times Limited 2010
Published: September 13 2010 12:31 | Last updated: September 13 2010 12:31
http://www.ft.com/cms/s/0/6c10eecc-bf1d-11df-a789-00144feab49a.html


The eurozone’s economy will grow this year at nearly twice the pace forecast in the spring, the European Commission said on Monday, mostly because of the growth spurt the region experienced in the second quarter.

Gross domestic product in the currency bloc would grow at 1.7 per cent in 2010, up from the 0.9 per cent forecast in May, the Economic and Financial Affairs directorate said on Monday.

But the European Union's economists warned of “a moderation of growth” in the second half of the year, of 2 per cent annualised in the third quarter and 1.2 per cent in the fourth quarter, down from 4.1 per cent experienced in the three months to the end of June.

In spite of the slowdown, the outlook is still brighter than it was in May, particularly in the third quarter, which was revised upwards from 0.8 per cent to 2 per cent growth. The Commission said that the recovery in the broader EU, “while still fragile, is progressing at a faster pace than previously envisaged”.

The biannual forecast is based on an update to the economic models of the larger EU economies, notably Germany, which stunned economists in the second quarter by growing at a 9.1 per cent annualised rate.

Europe’s largest economy is seen as once again outshining its neighbours, growing at 2.4 per cent and 1.6 per cent annualised in the second two quarters of this year, to finish the year up 3.4 per cent – double the eurozone average.

By contrast, Spain’s economy is expected to contract in the current quarter, by 0.4 per cent annualised, before returning to modest growth in the final months of 2010. Its economy will be 0.3 per cent smaller at the end of 2010 compared with a year earlier, only slightly better than had been forecast in May.

The other large eurozone economies were all revised up slightly, but mostly because of the second-quarter boost.

The report also gave encouraging signs that the European economy is poised to end its dependence on exports to generate demand – the main factor behind Germany’s recent success, but one that many economists fear is not sustainable.

“While exports continued to support the recovery, the second quarter also saw a rebalancing of growth towards domestic demand. Indeed, the contribution of private investment and consumption to GDP growth exceeded the combined contributions of inventories and net exports.”

The news helped boost the Eurofirst 300 index, which was up 1.16 per cent to 1,094 in morning trading on Monday. The euro was up 0.87 per cent against the dollar at $1.28.

Meanwhile the European Central Bank said on Monday that it bought and settled €237m worth of bonds last week, the highest amount since mid-July, bolstering recent market talk that it had ramped up purchases of Irish bonds.

The amount compares to the €173m worth of purchases completed the previous week and takes the total the ECB has spent since the programme began in May to €61bn when rounded to the nearest half billion euros.






Relief over delay to Basel liquidity rules
By Brooke Masters, Chief Regulation Correspondent
Copyright The Financial Times Limited 2010
Published: September 13 2010 12:07 | Last updated: September 13 2010 12:07
http://www.ft.com/cms/s/0/269cfa5c-bf13-11df-a789-00144feab49a.html


Corporate borrowers and bankers expressed relief on Monday that global banking supervisors have delayed tough new liquidity rules until 2015, heeding widespread concerns that the measures would make short-term borrowing prohibitively expensive.

The Basel Committee on Banking Supervision’s meeting on Sunday focused mostly on capital reserve requirements, but it also announced that the new “liquidity coverage ratio” would be “observational” until 2015.

The 27-country group is seeking to prevent a repeat of the 2008 collapse of Lehman Brothers by requiring banks to hold enough cash and government bonds to survive a 30-day market crisis. The so-called “liquidity coverage ratio” marks the first time that the Basel group has tried to set a global numerical target for liquidity needs.

However, companies and bankers warned last week that a specific provision within the ratio that requires banks to hold reserves equal to 100 per cent of undrawn corporate borrowing lines could jack up the cost of commercial paper and working capital.

The Basel group reaffirmed its support for the liquidity rules but opted for the observational period because of concerns that it could not predict how the standard would work in practice, according to people familiar with the discussions on Sunday.

“The Committee will put in place rigorous reporting processes to monitor the ratios during the transition period and will continue to review the implications of these standards for financial markets, credit extension and economic growth, addressing unintended consequences as necessary,” the statement said.

The Basel regulators said they continue to work on a second liquidity rule, known as the net stable funding ratio, which seeks to reduce banks’ dependence on short-term funding. But they noted that rule will not apply until 2018.

Bankers and industry groups greeted the news with relief – although they noted that the committee did not address their specific concern about undrawn credit lines.

“We welcome the fact that there is a reasonably long lead-in period and that there is an observational period to see whether adjustments need to be made,” said Clare Dawson, managing director of the Loan Market Association.

But one banker with concerns about the effect on the commercial paper market said: “We must not lower our guard.”





Borrowing by Europe’s banks soars
By Jennifer Hughes in London
Copyright The Financial Times Limited 2010
Published: September 12 2010 18:41 | Last updated: September 12 2010 18:41
http://www.ft.com/cms/s/0/f03db3b2-be8f-11df-a755-00144feab49a.html


European banks are borrowing at their fastest rate in almost six months and are set to continue exploiting a positive market mood in spite of longer-term funding concerns and worries about the economic health of weaker eurozone governments.

Financial institutions in the region last week raised $20.5bn, their busiest week since March, according to Dealogic. Bankers expect similar data this week.

Institutions tapping the market included Santander unit Abbey National, BNP Paribas, UniCredit, Banesto, Banco Popolare and Lloyds Banking Group.

The renewed investor appetite will come as a relief to many banks. The bank debt markets virtually froze in May and June as the eurozone sovereign debt crisis erupted, putting some banks behind with their funding plans. September is typically a busy month as investors and bankers return from summer breaks with only three full months left before activity subsides again in December.

The borrowing comes as the Basel Committee on Banking Supervision met at the weekend to hammer out final capital rules that will force banks to raise their capital cushions further in the coming years.

Last week was also notable because it included a handful of deals from second-tier banks in weaker eurozone countries.

“Now it’s not just the national champions,” said Vinod Vasan, European head of financial institutions for debt capital markets at Deutsche Bank, who noted that some smaller Spanish banks had issued covered bonds, a form of ultra-safe securitisation that gives investors recourse to the bank if the underlying assets decline.

Bankers had feared that this month’s bond market would be disrupted by concerns about banks’ ability to refinance debt.

Ireland’s banks have been hit by these worries because they are due to repay about €25bn of debt this month as a 2008 government guarantee wears off. A new guarantee was put in place last week and analysts expect Bank of Ireland to test market interest in the next few weeks.

But some bankers caution against believing that the bond markets are fully open for all financial institutions. “National cham­pions still have funding needs,” said Chris Tuffey, co-head of Credit Suisse’s European credit capital markets group. “So if there is investor appetite, they’ll be the ones to nail it.”





Deloitte Touche plans hiring spree
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 13 2010 08:23 | Last updated: September 13 2010 08:23
http://www.ft.com/cms/s/0/0907aa9c-bf03-11df-a789-00144feab49a.html


Deloitte Touche Tohmatsu, the global accounting firm, said on Monday that it would hire an average of 50,000 workers a year during the next five years as it revealed strong revenues.

Revenues at Deloitte rose by 1.8 per cent to $26.6bn in the fiscal year ending May 31 on the strength of its consulting business and growing demand for its services in Asia.

Deloitte, which is one of the “big four” accounting firms, has been helped by the greater regulatory scrutiny that companies are facing along with the need to streamline their businesses in the wake of the downturn.

Consulting revenues at Deloitte rose by 14.9 per cent to $7.5bn last year. That helped the company absorb weaker revenue in its financial services advisory unit and its audit business, which Deloitte attributed to reductions in its hourly rates.

Deloitte’s consulting business was lifted by the acquisition of BearingPoint’s US public sector consulting practice and greater demand from businesses that needed help integrating new technology.

“I am proud of our people and their continued commitment to client service excellence during the most difficult economic climate in decades,” Jim Quigley, Deloitte’s chief executive, said in a statement.

Audit revenues declined by 1 per cent and financial advisory revenues were off by 2 per cent.

Deloitte employs 170,000 people worldwide and said on Monday that it expects to add 250,000 new workers during the next five years as it looks to expand its services and geographic reach.

Regionally, Deloitte had the strongest growth in Asia, where revenues were up by 8.5 per cent to $3.6bn. Revenues were up by nearly 4 per cent to $13bn in the Americas, thanks to increased demand in Brazil, but dipped in Europe, the Middle East and Africa.

In the US, accounting and audit firms have been under scrutiny in the aftermath of Bernard Madoff’s “Ponzi” scheme for failing to catch irregularities related to his investments. In the UK, the Financial Reporting Council is investigating conflicts of interest between firms that provide both accounting and audit services to clients.