Dodgy economic data continues to undermined confidence in the economic recovery and raises hopes for fresh Central Bank action. Hump days private employment gauge the ADP Employment number came in significantly worse than expected (at -29k versus the expected +20k) and dampened expectations for Fridays key non farm payrolls And its starting to sound like a broken record, but the Dollar (-.55 percent) came under pressure, Gold (+.6 percent) rallied, and the yield on the 10 year Treasury bond fell to 2.39 percent.
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Today’s Market Moving Stories
- USDJPY make new lows in US session Weds before steadying in Asia, but still spent most of session sub-83. With no sign of the BoJ. The Nikkei newspaper, citing analysts, says Japan may be reluctant to intervene ahead of G7/IMF/World Bank meetings tomorrow and over weekend, for fear of antagonising international counterparts and souring the mood. A fair point. But I’m less sure. If negotiation has to be done, then it’s best to do it from a position of strength, and that suggests Finance Minister Noda could fire off an FX broadside before the meeting. We won’t get a G7 statement (as they want to retire into the shadows and let G20 do the talking). But Noda is probably expecting some private criticism, perhaps even threats of retaliation as this is the first G7 meeting since the Sept 15 intervention (if others fully supported the intervention, then it wouldn’t have been unilateral would it?). If the criticism is especially sharp, he may find it difficult to intervene again (at current levels at least). Today and tomorrow could be his last near-term chance to give USDJPY a good push higher – it won’t have any long term effects on FX of course, but should provide a two-week respite for exporters if they want to bring home the bacon.
- Former U.S. Federal Reserve Chairman Paul Volcker, an adviser to U.S. President Barack Obama, said it will take years to work and correct global imbalances between rich and poor nations and sees a “prolonged” period of unemployment in the U.S. and the rest of the developed world. He said it is difficult “to find a major sector of the U.S. economy that has a spark to it.” “This is no ordinary recession,” he said. “There’s a big difference between a garden-variety recession and one that’s caused from a financial system breakdown. It will take years to work through.” Volcker, 83, was speaking in Toronto at a Canadian Economic Forum event. He reiterated remarks he made last month in Calgary, where he said U.S. and European economies may take years to recover from the recession, while emerging countries, such as China, Korea and Brazil, are showing “remarkable” growth. The U.S. needs to make “very large adjustments” in the economy, including increasing exports and reducing the current-account deficit, he said, adding that the country will need the political “confidence” to see it through. He added that the fix will involve cutting expenditures and increasing taxes, both of which can’t be done right now. Measures that can be taken include dealing with Social Security, for example, raising the age when people are entitled to receive benefits. Foreign-exchange intervention “won’t cure” the global imbalances, he said.
- In the UK there is chat of a potential delay in government’s spending cuts? A Financial Times article today, quoting Whitehall officials, says that the Treasury is considering “re-profiling” the spending cuts outlined in the coalition government’s emergency budget in June, in the comprehensive spending review (CSV) due on 20 October.
- And UK industrial production for August registered a solid 0.3% m/m gain in terms of both the headline and manufacturing. On the plus side manufacturing is still managing to post a robust m/m pace of expansion despite the topping out in survey indicators. However, given that surveys such as the CIPS manufacturing were at a near 15-year high not so long ago, a gain of 0.3% m/m is pretty unimpressive.
- The Bank of England should increase its emergency bond purchase plan by 50 billion pounds by the end of the year to aid the economic recovery, the British Chambers of Commerce said. The Monetary Policy Committee should also signal that the benchmark interest rate will remain “at very low levels for an extended period,” the London-based lobby group’s chief economist, David Kern, said in an e-mailed statement. The bank will today keep the stimulus plan at £200 billion and key rate at 0.5 percent, Bloomberg News surveys of economists show.
“(the Irish) GOVENTMENT’S COMMITMENT TO SENIOR BONDHOLDERS DOES NOT RULE OUT A LIQUIDITY MANAGEMENT EXERCISE AGREED BY CONSENT”
The sentiment of this headline has been picked up in an FT story today: “Ireland hints at bank bond debt deal” (p.8). When it comes to Ireland 7 the FT these days, the glass is always half empty.
However, if you read what the regulator actually said, you will see that while indeed he did say that the Irish government’s line on senior debt does not preclude liquidity management agreed by consent, he goes on to say that the “current difficult funding position for both the Irish government and the banking system means one should be very cautious about contemplating such a step in the present crisis, never mind whatever legal and constitutional obstacles would need to be resolved."
And indeed the Minister has just issued a statement aimed at clearing up ANY remaining doubts about the governments intentions. In a nutshell he states that any pending legislation which relates to subordinated debt will ONLY apply to non listed banks i.e. Anglo & Irish Nationwide BUT NOT AIB or BoI and the re are NO plans to make any SENIOR bondholders take part in burden sharing
Company / Equity News
- Allied Irish Banks (AIB) has priced its 26.7m contingent mandatorily exchangeable notes — related to its M&T (NYSE:MTB) disposal — at $77.5 per note. This compares with M&T’s closing price of $83 on October 5th, ahead of the announcement of the intended disposal, a discount of 6.6 percent. The disposal of AIB’s M&T shares represents the second significant business disposal by the group as it targets €5bn capital generation from self-help measures, leaving a balance of €5.4bn to be raised to meet its revised PCAR of €10.4bn through a government underwritten equity issue (at 50c) planned for November. In aggregate, ALBK has now generated €3.4bn from the disposal of its Polish interests (€2.5bn) and M&T, leaving a residual €1.6bn of the €5bn target to be raised. It hopes to generate this by the sale of its UK operations and other ‘below-the-radar’ transactions. Failing this happening by March 31st, any shortfall will be met by government.
- The white Times reported that SABMiller (OTCPK:SBMRY) is in discussions with the French based Groupe Castel to acquire the 80% of its African beer business that it does not already own for USD6 billion.
- This morning Marks and Spencer (OTCQX:MAKSY) released a trading statement for 13 weeks to October 2nd. Group sales in the period were up 6.5 percent with like for like sales rising 5.3 percent. The statement also showed that M&S is gaining market share in clothing with sales rising 7.8 percent in this segment. The introduction of branded items into its food outlets has also increased revenue with food sales rising 5.3 percent. Commenting in the trading statement, M&S’s new CEO Marc Bolland described the quarter as “good” but warned of the continued weakness of the consumer whose disposable income remains under pressure. As a consequence, M&S expects challenging trading conditions over the next 12 months which should be taken as a negative read through for the others operating in the UK market.
- Air France and Aer Lingus both released September traffic figures this morning and both updates signal continued improvements in the global airline sector. Aer Lingus reported a 3.5 percent increase in its load factor to 81percent, a measure of each flight’s fullness, on a capacity decrease of 7.6 percent. However the airline did indicate that market demand is still declining in its core market Ireland and that it continues to remove loss making routes. Air France reported a 2 percent increase in its load factor to 84 percent on a capacity increase of 1.8 percent. Management signalled that unit revenues per available kilometre were up strongly year on year in both economy and premium classes.
- Renault (OTC:RNSDF) said Wednesday it is selling a 14.9 percent holding in the “B” shares of Swedish truck maker Volvo AB (OTCPK:VOLVY) to institutional investors. The French auto maker will use the funds raised to reduce its debt. Renault’s stake of 302.9 million shares represents 3.8 percent of Volvo’s voting rights. The company gave no indication of the amount that it will raise, but on the basis of the SEK97.05 closing price for Volvo “B” shares on Wednesday, the stake would be worth around SEK2.94 billion krona, or about €310 million. Renault has said on several occasions in recent months that it wants to reduce its debt below €3 billion. France’s second-largest car maker said it is keeping its existing “A” shares in Volvo, which represent a shareholding of 6.8 percent of Volvo’s capital and 17.5 percent of its voting rights. Renault remains Volvo’s biggest single shareholder, ahead of Industrivarden with 4 percent of the truck maker’s capital. Renault said it doesn’t anticipate any change in its representation on Volvo’s board as a result of the sale. Renault has two representatives on Volvo’s board, including Renault’s former chief executive Louis Gallois, who chairs Volvo’s board.
- Honda Motor (NYSE:HMC), the world’s largest motorcycle maker, plans to introduce a new motorbike that may be its cheapest to raise sales in emerging markets amid rising competition from Chinese and Indian rivals. Honda will build and sell the two-wheeler for as little as 4,000 yuan ($599) in China starting next year and also introduce it in Nigeria and Latin America, Tatsuhiro Oyama, senior managing director in charge of Honda’s motorcycle operations, said in an interview in Tokyo last week.
- Samsung Electronics (OTC:SSNLF), Asia biggest maker of semiconductors, flat screens and mobile phones, reported profit that missed analysts’ estimates, fuelling concern the global recovery in demand for electronics is stalling. Third-quarter operating income rose 14 percent to 4.8 trillion won ($4.3 billion), the Suwon, South Korea-based company said in a statement today. That lagged behind the 5.03 trillion won average of 11 analyst estimates compiled by Bloomberg. Sales gained 11 percent to 40 trillion won. Samsung headed for its biggest drop in five weeks, leading shares of electronics makers lower in Asian trading, as the results added to evidence consumers are holding back on spending. Sony Corp., the world’s third-largest television maker, said this week it’s concerned growth in demand may slow.
- Cisco Systems (NASDAQ:CSCO) has introduced a videoconferencing system aimed at boosting the company’s appeal to consumers and stepping up competition with Skype Technologies SA. The system, called Cisco umi, will let consumers carry out video chats from high-definition, Internet-connected televisions. Unveiled at a news conference today in San Francisco, the device will cost $599 with a monthly fee of $24.99 for unlimited calling and video messaging and storage.
- The new Dutch government plans to sell licenses allowing companies to offer Internet gambling, De Telegraaf reported, citing unidentified people. Ending the ban on online gambling by selling or auctioning licenses may provide the government with €100 million a year, the Dutch newspaper reported, adding the proceeds could rise to €270 million year.
- The mysterious deaths of billions of honeybees since 2006 that have harmed the U.S. agricultural industry may be caused by a common fungus and a previously unknown virus, University of Montana researchers say. The virus, Invertebrate Iridescent Virus, or IIV6, seems to work together with the Nosema fungus to kill the bees, said the researchers, Colin Henderson and Jerry Bromenshenk, in findings published in the online science journal PLoS ONE. The bee disease known as Colony Collapse Disorder first appeared in 2006 and causes entire hives to die off without explanation. Honeybees pollinate $15 billion of U.S. crops each year, according to the U.S. Department of Agriculture, and companies such as General Mills Inc. and Clorox Co. use pollinated crops in their products. Scientists had looked toward viruses and fungal infections as a cause of the disorder. The disease has been reported in at least 35 states and been found in Europe, Asia and South America.
- Stocks wise, Equinix (NASDAQ:EQIX) plunged 33 percent after sales at the operator of Internet data centres trailed estimates and M&T Bank (MTB) dropped a further 5 percent as Allied Irish Banks (AIB) said it will start selling its stake in the Buffalo, New York-based lender. But General Electric (NYSE:GE) rose 2.4 percent after buying oilfield-equipment maker Dresser for $3 billion and Alcoa (NYSE:AA) gained 1.9 percent ahead of reporting quarterly earnings today to kick off the Q3 earnings season. Corporate performance and rhetoric as always will be scrutinised closely for any signs of a slowdown in the economy. It was also be interesting to see how corpoartes view the next quarter and whether any companies intend to increase their workforce.
- FX wise it was business as usual, i.e. another day, another dollar sell-off. And the story though remains the same – USD depreciation as a consequence of US monetary policy and aggravated by tensions over exchange rate policy in the emerging world. The WSJ added to the former – reporting that Fed economists are considering alternative means of easing, including setting a target for bond yields as opposed to a target for the size of asset purchases – while the IMF’s chief economist added to the latter, indicating that he was worried by the prospect for currency wars. I see both issues only intensifying, especially if payrolls confirms the disappointing message form the ADP yesterday and the weekend gathering of senior policymakers in Washington furthers the sense of disharmony over exchange rates. There is certainly no suggestion that China is responding well to the increased international pressure on it to allow faster CNY revaluation; meantime, other Asian policymakers are viewing their exchange rate appreciation with more concern.
- Stocks catching the eye today in Europe include UK house builders which are weak en mass today with Persimmon losing 3 percent, Barratt Developments , the U.K.’s biggest homebuilder by volume, off 2.6 percent and Taylor Wimpey , the country’s second-largest homebuilder by volume, down 3.4 percent. after data that showed UK house prices according to the Halifax index slumped by 3.6 percent m/m in September – needless to say much weaker than expected. The headline y/y reading that is published is a 3-month average and showed a deceleration to 2.6 percent y/y from 4.6 percent y/y previously. However, if you look at the plain vanilla percentage y/y change it has now slipped into negative territory.
- And Kazakhmys has shed 4.1 percent Thursday. Credit Suisse is managing the sale of 9.35 million shares in the mining company for OTIC, according to terms of the transaction obtained by Bloomberg News. In April 2007, Vladimir Ni, a non- executive director of Kazakhmys who died last month, transferred 9.35 million shares to OTIC, according to the terms.
- Mulberry has soared 17 percent after the maker of Bayswater luxury handbags said sales and profit for the year ending March 31 “are expected to significantly exceed market expectations.”
- And trendy threads maker Ted Baker gained 2.2 percent after the clothing company that dressed James Bond actor Daniel Craig in “Casino Royale” said first-half profit increased 24 percent on higher retail sales in the U.K. and Europe.
- In Paris Edenred has sunk 2.2 percent as France’s strategic investment fund, Le Fonds Strategique d’Investissement, said it sold 6.8 percent of the company at €14.70 a share.
- And Michael Page International has dropped 3.5 percent today even after the U.K.’s second-largest recruitment company said third-quarter gross profit rose 37 percent. “It is the nature of our business that visibility is short and there remains uncertainty over future levels of business confidence and economic activity,” CEO Steve Ingham said in a statement today.
- Halfords has tumbled 6.4 percent for the biggest decliner in the Stoxx 600. The U.K.’s largest retailer of car parts and bicycles said same-store sales fell 4.1 percent in the first half.
- And Victrex Plc, a U.K. maker of heat-resistant plastics for the automotive and energy industries, sank 5.3 percent this morning after annual figures for output pointed to disappointing volumes in August and September.
- Man Group, the hedge-fund manager that’s buying GLG Partners Inc., has rallied 4.8 percent amid speculation that an unidentified U.S. bank may make an offer for the firm.
- Demag Cranes jumped 9.1 percent as the Financial Times Deutschland reported that Konecranes Oyj of Finland is mulling a takeover bid for the German company, without saying where it got the information. Konecranes has hired advisers to assist with the proposal, and has organized financing, the newspaper said. Spokesmen for both companies declined to comment, the newspaper added.
- Datewise, US weekly jobless claims have come in 10k better than expected helping the Dow futures into the black.
Trivia: My daughter informed me that the month of October 2010 has 5 Fridays, 5 Saturdays and 5 Sundays... and that it will take another 800+ years for that to happen again.