Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


US data and Ireland fears hit stocks
By Telis Demos in New York
Copyright The Financial Times Limited 2010
Published: September 13 2010 06:14 | Last updated: September 17 2010 22:21
http://www.ft.com/cms/s/0/483c5a1a-bedf-11df-a755-00144feab49a.html


Friday 21:45 BST. An attempt at a rally in equities has been cut short, as US economic data made another poor showing and eurozone sovereign debt fear spiked once again.

The FTSE All-World index has given up strong gains and was up only fractionally, while highly rated sovereign bonds are in demand. The S&P 500 on Wall Street was also fractionally higher, at 1,125.

Industrial commodity prices are up, though it is noticeable that one popular proxy of risk aversion, gold, has hit another record high, dragging silver along in its wake.

European bourses had challenged five-month highs in early trading, after well-received earnings reports from Oracle and RIM boosted Asian technology stocks and pushed US equity futures to the top of their recent range.

Unfortunately for the bulls, the re-emergence of eurozone sovereign debt woes and a weak survey of US consumer confidence has severely crimped this optimism.

The credit default swaps of Ireland jumped 46 basis points to a record level of 433bp, after the Irish Independent newspaper highlighted a Barclays report which said Dublin may have to eventually call in the IMF, such was the precarious state of the government’s finances.

Irish 10-year bond yields are up 25 basis points to 6.16 per cent, despite talk that the ECB has stepped in to buy and after the IMF said it did not foresee Dublin requiring its financial assistance.

This caused a more reticent opening on Wall Street than had looked to be the case earlier in the day.

Nevertheless, the S&P 500 still made an attempt to breach the 1,131 level that has proved such a barrier over the summer. But it failed, and then fell back further once news hit the wires that the University of Michigan’s consumer sentiment survey had hit its lowest level since August 2009, reviving fears about the fragility of the US economic recovery.

☼ Looking ahead. China’s financial markets will be closed from September 22 to September 24 for a national holiday. The developing volume problem – witness the flat-as-a-pancake market on Friday – will not get any better. ☼

● Europe. Bourses gave up an early broad advance and moved into the red as the eurozone fiscal concerns took hold.

The FTSE Eurofirst 300 is down 0.2 per cent and FTSE 100 fell 0.6 per cent to 5508, having earlier breached 5,600 – its best level since April – as the heavyweight banks turn gains into losses on worries about exposure to sovereign debt.

The Market Eye

The latest snapshot of fund flows from EPFR Global goes some way to explain why stocks have had such a good start to September, with the S&P 500 up 7.2 per cent by close of play on Thursday, writes Jamie Chisholm. Investors have for some time now been taking money out of equity funds and placing it in bonds. Debt is still attracting investors’ interest, but inflows to global bond funds fell to a 13-week low in the week ending September 15. Instead, investors seem to be raiding money market funds – outflows of net $26.5bn – in order to pump last week’s net $9.4bn into equity vehicles, a 13-week high. US equity funds received a net $6bn for the second week in a row.

So, money may be going into stock funds, but activity remains curtailed. On Thursday, the volume of shares traded on the NYSE was 25 per cent below the 12-month average.

● Asia-Pacific. The FTSE Asia-Pacific Index climbed 1.1 per cent, advancing for a third week, although the region has seen differing fortunes for two of its most influential exchanges.

Japan’s Nikkei 225 rose 1.2 per cent, taking its gains this week to 4.2 per cent, the best weekly advance this year, after the government’s intervention to stem yen strength boosted exporters. Japanese markets will be closed on Monday for a holiday.

In contrast, China’s Shanghai Composite fell 0.2 per cent, for a 2.4 per cent decline on the week. Investors have been spooked by murmurs the People’s Bank of China is getting tougher with banks, in order to crimp speculative lending and after the central bank warned that problems in the financial sector were “hard to ignore”.

South Korea’s tech-rich Kospi has added 0.9 per cent in response to the US earnings news. In Thailand, the country’s top three telecoms operators plummeted after a state-owned company filed a petition asking the country’s administrative court to halt the upcoming 3G auction, leaving the Thai SET index to buck the regional trend and close down 0.2 per cent.

● Forex. The yen is stable following Wednesday’s intervention. The Japanese unit was flat versus the dollar at Y85.80, as traders do not seem prepared, so far, to test the Japanese Ministry of Finance’s resolve.

The euro was initially benefiting from the better mood emanating from Asia but the Irish issue has caused a swift reversal and the single currency is now down 0.2 per cent at $1.3047.

This has caused a change in fortune for the US dollar index, which tracks the buck against a basket of its peers. The DXY is up 0.2 per cent to 81.39, pulling away from a near 6-week low.

The Vital Statistics

US corn futures have climbed above $5 a bushel for the first time in nearly two years, as supply concerns continue to impact the market, writes Jamie Chisholm. US stockpiles are expected to decline, as farmers’ yields come in lower than expected and demand remains robust. This is the latest grain to see prices move sharply higher in recent months – wheat has risen after a drought in Russia led to an import ban, for example – and inflation-wary investors may fear the trend’s impact in coming months.

● Rates. US benchmark yields were initially up another two basis points at 2.78 per cent, but haven seekers then moved in and yields are now down 2bp at 2.74 per cent. News that core US prices were unchanged in August is adding to the buying.

Ten-year Bund yields also reversed direction and were down 6bp to 2.42 per cent as funds switched out of riskier plays such as Portugal, up 13bp to 6.16 per cent.

● Commodities. Gold and silver are the focus, as the two metals continue to hit and challenge record nominal highs respectively. The yellow metal ended flat at $1,275 an ounce, having early in the session hit $1,282.8 for the first time. Silver was sporting a bid of $20.72, close to the March 2008 record high of $21.24.

Industrial commodities are holding on to gains as risk appetite fades elsewhere. Copper was up 0.8 per cent to $3.52 a pound in Nymex trading, having earlier in London hit its best level since the end of April. Oil was down 1.5 per cent at $73.57 a barrel.

Follow the market comments of Jamie Chisholm and Telis Demos on Twitter: @JamieAChisholm and @telisdemos





Monetary easing fears lift gold to record high
By Javier Blas
Copyright The Financial Times Limited 2010
Published: September 17 2010 20:13 | Last updated: September 17 2010 20:13
http://www.ft.com/cms/s/0/1fcc41a8-c28b-11df-956e-00144feab49a.html


Gold prices ended the week at a record high of more than $1,280 a troy ounce as investors piled into the precious metal amid growing fears that central banks would begin a further round of monetary easing.

The rally was helped by signs that central banks, led by Russia and several Asia-based monetary authorities, would this year be net buyers of gold after two decades of net selling, and by bullish comments from leading gold miners. AngloGold Ashanti said it planned to wind up its forwards sales, a bet that high prices are here to stay.

Spot bullion hit on Friday a nominal record of $1,282.75 a troy ounce in London, up 3 per cent on the week. It has gained 17 per cent this year, extending a decade-long rally. But adjusted for inflation gold prices are a long way from a high set in 1980.

Traders said Tokyo’s intervention in the yen market, which injected fresh liquidity into the Japanese economy, was a sign that central banks were prepared to begin a new round of quantitative easing. Traders said the Federal Reserve could follow suit next week at its monthly interest rate setting meeting, and that gold would probably benefit from it.

Michael Lewis, head of commodities research at Deutsche Bank, said the rally had “further to run”, forecasting that bullion could hit $1,600 an ounce in two years, “given favourable interest rate and exchange rate trends and the appearance of new sources of demand for gold from both the private and public sectors”.








Irish bonds fall on bail-out fears
By David Oakley, Capital Markets Correspondent
Copyright The Financial Times Limited 2010
Published: September 17 2010 15:22 | Last updated: September 17 2010 15:22
http://www.ft.com/cms/s/0/ddc388ec-c25e-11df-a91c-00144feab49a.html


Irish bond prices fell sharply on Friday after fears increased that the country will need to turn to the international community to bail out its economy.

A report from Barclays Capital which said the Irish government may need to seek outside help if further unexpected financial sector losses materialised and economic conditions deteriorated, sparked the selling.

Yields on Irish two-year bonds, which have an inverse relationship with prices, rose by half a percentage point to 3.63 per cent, forcing the European Central Bank to intervene to prop up the Dublin markets, traders said.

Although the ECB was only seen to be buying small amounts of Irish bonds, it further emphasises the difficulties faced by Ireland and other weaker eurozone economies.

Domenico Crapanzano, head of euro rates trading at Jefferies, said: “There are just no buyers out there for Ireland because of worries over its economy.”

Worries over Ireland also put Portuguese bond markets under pressure because there are also concerns that Lisbon will have to turn to the international community for financial assistance too.

Portugal, which is also considered a problem by many investors because they fear the government is not introducing economic reform quickly enough, saw its 2-year bond yields rise nearly a quarter of a point to 3.50 per cent.

Other eurozone bond markets were stable as they are not perceived to be in danger of having to seek bail-out money.

Separately, analysts stressed the selling in Irish bonds was nothing to do with controversy surrounding Irish prime minister Brian Cowen.

He promised to socialise “more cautiously” after being forced to apologise this week for a stumbling media performance given just hours after he finished partying with colleagues at an annual conference.

“I will be a bit more cautious in terms of that aspect of how I conduct my social life,” Brian Cowen, who has repeatedly denied he was drunk or hungover during a radio interview, told the national broadcaster RTE on Friday.








Chinese banks warned on incentives
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2010
Published: September 17 2010 20:02 | Last updated: September 17 2010 20:02
http://www.ft.com/cms/s/0/c7662a06-c28a-11df-956e-00144feab49a.html


Chinese regulators have publicly warned the country’s banks to stop chasing deposits by offering customers extravagant incentives such as prizes, free travel, paying children’s school fees and even providing jobs for relatives.

The China Banking Regulatory Commission issued a notice on Friday saying “a minority” of banks had resorted to such tactics since the start of this year to attract deposits from clients. It said banks and individuals involved would be strictly punished.

China’s central bank sets a ceiling on the interest rate that Chinese lenders can offer depositors, as well as a floor on rates that they can charge borrowers, a practice that avoids cut-throat competition among banks and guarantees them a healthy lending margin.

But even some senior Chinese bankers have attacked the perverse incentives this strict control creates.

The chairman of Bank of China published an article in which he fretted about the unsustainable nature of a system that encourages banks to lend as much as they can in order to maximise profits.

The CBRC said on Friday that some banks have been illegally offering higher deposit rates to customers than allowed under regulations, while others have found more creative ways to entice deposits.

Other incentives for depositors included prizes and shopping cards and some banks were illegally paying fees to agents and middlemen to attract deposits.

The regulator did not elaborate on the extent of the illegal practices, but singled out some offending banks and branches, including the Shenzhen branches of Agricultural Bank of China and China Everbright Bank, both of which are publicly listed on stock exchanges in Hong Kong and Shanghai.

Other banks reprimanded include Huaxia Bank, Bohai Bank, Ping An Bank and Guangdong Development Bank, which has had non-financial business at its Shanghai branch suspended for three months.

Following a state-engineered lending spree last year, Chinese banks are scrambling for deposits to meet the regulator’s requirement of a minimum loan-to-deposit ratio of 75 per cent.

Chinese banks last year extended roughly double the number of new loans handed out in 2008. Analysts have repeatedly warned that they will face a wave of bad loans and other difficulties as a result.

“Future asset quality deterioration is a near-certainty – the question is only when, to what degree, and whether it will lead to a crisis,” said Charlene Chu, an analyst with Fitch Ratings.

Analysts believe the announcement could be aimed at warning others involved and preventing the illegal incentives from becoming even more widespread. They said banks’ use of illegal incentives to entice depositors was a reminder of the limits of Beijing’s control over the vast branch networks banks have across the country.

“There is a large discrepancy between the story from head office and the ongoing reality in many outlets, where political influence over lending remains high,” Ms Chu said.







Obama picks Warren for consumer body
By Tom Braithwaite in New York
Copyright The Financial Times Limited 2010
Published: September 17 2010 22:59 | Last updated: September 17 2010 22:59
http://www.ft.com/cms/s/0/13d96ca2-c2a6-11df-956e-00144feab49a.html


Elizabeth Warren, the Harvard law professor who is admired by Democrats for her forthright advocacy of consumers and criticism of banks, has been appointed to establish a powerful Consumer Financial Protection Bureau.

Barack Obama, US president, announced the long-expected decision on Friday, appointing Ms Warren as a special adviser to set up – but not run – the new bureau, which will combat “abusive” banking practices.

The appointment avoids a Senate confirmation hearing, which many in Congress believe she would lose. Ms Warren is the leading advocate for an agency to protect consumers, which banks fought during the year-long battle over financial reform.

Chris Dodd, the Senate banking committee chairman who had questioned whether Ms Warren could get enough votes in the Senate to overcome Republican objections to her appointment, welcomed the move.

But he added: “Until a director is at the helm, this new bureau will not have the teeth that it needs to put strong protections in place, and could leave the entire bureau in jeopardy.”

Since the end of 2008 Ms Warren has led the Congressional Oversight Panel, scrutinising the Treasury’s deployment of money from the $700bn troubled asset relief programme.

She sparred frequently with Tim Geithner, Treasury secretary, during her oversight role, from which she resigned on Friday. Mr Geithner, with whom Ms Warren will now work, said on Friday that “she will be a tremendous asset to us all”.

Republicans attacked the appointment, accusing the White House of avoiding proper congressional scrutiny and questioning the structure of the new advisory role, which will see Ms Warren report to both the Treasury and the White House.

“For the next 10 months it appears the CFPB will exist in a murky status that seems designed to obstruct congressional and public scrutiny of its operations,” wrote Darrell Issa, the senior Republican on the House oversight committee, and Spencer Bachus, the senior Republican on the financial services committee, in a letter to the president.

But the White House is likely to be more focused on the views of Democrats. Her appointment to run the agency was urged loudly by the party’s base amid wide appreciation of her ability to communicate – and appear to empathise with – middle-class Americans.

Moveon.org, the liberal activist group, called it “the boldest step Obama’s taken so far to rein in the big Wall Street banks”.

Carl Tobias, a law professor at University of Richmond, said her work at Harvard stood her in good stead. “[She] has done the very difficult work of collecting, analysing and synthesising relevant empirical data on bankruptcy, consumers, debt and the financial industry,” he said.

Mr Tobias, who follows the Senate confirmation process closely, said it was in an “abysmal” state with Republicans causing protracted delays. “Of course, the looming midterms exacerbate this because the GOP sees no percentage in cooperating, as it will gain Senate seats.”