lunedì 20 maggio 2013

Stock market optimism on this scale is hard to explain

Here is a conundrum. Stock markets are rallying. Companies have never been worth so much. Yet the earnings season of the past month or so has revealed little growth in corporate bottom lines, and no growth at all in top-line sales. Why?
Stock market cycles do not move in tandem with either business or economic cycles. The idea is to buy stocks before earnings shoot upwards, not afterwards. So the upward re-rating of the last year or so, as investors have decided to pay more for the earnings streams they are buying, implies optimism about the future, rather than incomprehension of the present.

But optimism on the current scale is hard to explain. Since September 2011, global earnings per share have been flat, while share prices have gained some 30 per cent. Price/earnings multiples have gone from 12 to 16 in the process. Such sharp rises often happen at the beginning of a stock market cycle, after an extreme cycle – but this cycle started much earlier, in March 2009, when sentiment began to recover after the Lehman implosion. Citigroup’s global equity strategist, Rob Buckland, suggests this is the biggest mid- cycle re-rating in 40 years. Can the data emerging from the world’s companies justify such an increase in optimism?
There are huge differences by geography and by sector. Using Bloomberg data on 12-month trailing earnings per share, the divergence between corporate US and the rest of the developed world, particularly Europe, becomes clear. US earnings are rising, and at a record, 16 per cent above their pre-crisis peak from 2007. They are up 120 per cent from their pre-crisis low.
In emerging markets, earnings by this measure peaked in 2011 – above their peak from before the crisis – but are now on a descending trend, down 16.5 per cent from their post-crisis peak. And earnings for the MSCI “EAFE” index – covering the developed markets outside North America – look terrible, down 46 per cent from their pre-crisis peak, and falling steadily. A decade ago, the corporate world was growing more homogeneous, and geographic differences between stock markets were diminishing. No more.
Wherever the corporate US is generating its profits, it is not from revenues, which according to the scorecard kept by Thomson Reuters are exactly flat, up 0.0 per cent from the first quarter of last year.
Admittedly, this is mostly because of lower commodity prices, and spectacularly cheaper fuel thanks to the advent of shale; energy companies’ revenues are down 14.8 per cent over that period, while materials groups’ are down 4.2 per cent. All others at least expect some positive revenue growth. But this is out of kilter with earnings growth of 5.3 per cent over the same period (which includes a small 0.5 per cent increase for energy companies).
In Europe, revenues are worse; down 3 per cent year on year according to UBS. This is no great surprise, given the state of the European economy – but the extent of the damage to top lines does appear to have taken brokers by surprise. Europe had its most disappointing post-crisis earnings season, with the lowest proportion of companies beating their forecasts since 2008. Revenue forecasts for this year have been downgraded for every European sector, except oil.
Earnings forecasts, as gauged by I/B/E/S, do not suggest that these trends will reverse soon. For the US, forecasts for the next 12 months are rising and at a record, up more than 20 per cent from their pre-crisis peak; European earnings are slated for further stagnation, some 40 per cent below their peak before the credit crisis.
So why push up equity multiples in these circumstances? Much has to do with the perceived reduction in “tail risk”. A eurozone disaster seems far less likely now than it did 18 months ago.
But it also has to do with how companies deploy their cash. Margins, already high, are widening further. Low interest rates and a depressed economy enable companies to make higher profits on low sales. It is sensible to call for them to revert to the mean at some point, and it is difficult to see how margins can widen much more from here. But in an era of financial repression, investors are abandoning forecasts of an immediate fall in margins. That leads to pushing up price/earnings multiples.
Companies in Europe have also increased dividends over the past two years, even as sales and earnings have declined. This keeps investors happy when yields on bonds are being kept so low. Not only are they prioritising profits over sales in the present; when it comes to using their cash, they are also prioritising the current wishes of their shareholders, through dividends, over the possibility of capital expenditures to boost growth.
This has helped equities rally in an unusual environment of low yields. It does nothing to boost hopes for economic growth. And after a rally unbacked by profits or sales, equities do not offer great value.


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giovedì 4 aprile 2013

Bundesbank launches Deutsche probe

The Bundesbank has launched an investigation into claims that Deutsche Bank hid billions of dollars of losses on credit derivatives during the financial crisis, according to people familiar with the situation. Investigators from Germany’s central bank are scheduled to fly to New York next week as part of an inquiry into allegations that misvaluing credit derivatives allowed Deutsche to hide up to $12bn in losses, helping it avoid a government bailout. They intend to interview people, including former employees, who have knowledge of Deutsche’s dealings in complex credit derivatives – known as leveraged super senior trades – between 2006 and 2009. The Bundesbank inquiry opens a new front in the investigation. The Securities and Exchange
Commission is among the regulators investigating the claims, reported in the Financial Times in December. Deutsche has denied the allegations. On Wednesday the bank reiterated that the allegations were “more than two and a half years old” and had been the “subject of a careful and thorough” investigation by a law firm, which found them “wholly unfounded”. “Moreover, the investigation revealed that these allegations stem from people without responsibility for, or personal knowledge of, key facts and information,” Deutsche said. “We have and will continue to co-operate fully with our regulators on this matter.” Three employees approached the SEC independently with allegations that the bank misvalued a giant derivatives position, worth $130bn on a notional basis. They alleged that the bank’s traders – with the knowledge of senior executives – avoided recording “mark-to-market” losses during the unprecedented turmoil in credit markets in 2007-2009. The complainants, who include Eric Ben-Artzi, a risk manager, and Matthew Simpson, a senior trader, alleged that the bank misvalued the positions by failing to account for losses it faced when the market worsened. Had the proper valuations been made on the positions during the tumultuous period, they alleged, the losses for the whole portfolio would have exceeded $4bn and could have risen to as much as $12bn. The leveraged super senior trades were designed to resemble the top, or super senior, tranche of a collateralised debt obligation. Deutsche’s counterparties would sell credit protection against a pool of high-quality companies. Deutsche would pay a few basis points for this protection. The trade was “leveraged” because on a deal of $1bn the investors would provide only $100m in collateral and had the right to walk away without posting more. The former employees’ submissions to regulators contained different complaints. The common theme was an allegation that Deutsche booked profits on positive moves in the trade but avoided booking losses owing to the increasing risk that its counterparties would opt to walk away rather than pay out on the insurance. This risk is known as the “gap
option”. The Bundesbank declined  o comment.


martedì 12 marzo 2013

Mexico Cuts Interest Rate, China Talks Currency War

Mexico cut interest rates for the first time in four years Friday, launching a debate about whether the country is entering an easing cycle and about how the economy will perform in the medium term.
The central bank’s half percent rate cut leaves interest rates at 4 percent, which marks a record low for the country.  The Bank of Mexico hadbeen focusing on fighting a surge in inflation since 2009. Over the last two years, inflation has averaged 3.7 percent, a whole percentage point lower than in the two years prior to that. Meanwhile, at 4 percent, growth remained reasonably high last year, although this figure masked a slight slowdown at the end of the year, when the country’s retail sales and industrial production slowed for the first time in the post-crisis period.
This move will only heighten the concern of some economists who are already warning of a currency war.  An interest rate cut normally reduces demand for a country’s currency. In this case it can be expected that the lower relative returns now available in Mexico will weaken the Peso, as investors switched into other currencies giving relatively higher returns. 
However, if this rate cut was intended as a shot in the currency war, then it backfired. The Peso actuallystrengthened following the move, as investors apparently focused on what the cut signaled about the strength of the economy and future prospects for as-of-now deadlocked reforms, as opposed to focusing on direct interest yields in the country. Part of this counter-intuitive reaction could also have been the result of positive data in the U.S., which is the destination for around four-fifths of Mexico’s exports.
Meanwhile, in China, Commerce Minister Chen Deming told the National People’s Congress (NPC) in Beijing that he is worried about the “deliberate depreciation of major currencies” and the consequences of this for developing nations, including China.  Ignoring the negative effect that China, the world’s number 2 economy, has had (mainly on other emerging markets) through its long running currency peg and savings rates, the speech painted China entirely as a victim. 
Of course, nearly every nation sees itself (publically at least) as the “victim” of others’ currency policies, but China’s huge foreign exchange reserves (believed to total U.S. $3.3 trillion at the end of 2012) make Chen’s worries a little disingenuous.  The credibility of Chen’s claims is also undercut by China’s FebruaryExport-Import data, which estimated China’s monthly trade surplus at U.S. $15.25 billion.

Gold Futures Climb 1% on Weaker Economic Data, Dollar

Gold prices rose 1% Tuesday as a weaker dollar and weaker economic data lured investors back to the perceived safety of the yellow metal.
The most actively traded contract, for April delivery, was recently up $15.50, or 1%, at $1,593.50 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract touched an intraday high of $1,597.00 a troy ounce, the highest-traded price since Feb. 28.
U.K. industrial production fell 1.2% in January from a month earlier, missing forecasts of a 0.1% increase.
The weaker-than-anticipated data was supportive of higher gold prices as it reinforced the ongoing need for loose monetary policies from the world's central banks, said traders at TD Securities. Low interest rates and a cash-flush financial system tend to draw investors looking to preserve their wealth into gold and other hard assets.
Gold futures have also benefited from investors who recently re-entered the market in search of a bargain. Some market participants believe that gold's retreat to seven-month lows was temporary, and saw this as an opportunity to buy the metal before prices resumed their upward march.
"There's very aggressive buying into dips," said Dave Meger, director of metals trading with Vision Financial Markets. "With the Fed stimulus still in place, the market feels the physical demand will pick up," he added.
A weaker dollar also supported gold prices. The greenback slipped against a trade weighted basket of currencies, with the ICE Dollar Index falling to 82.442, from 82.791 earlier.
Dollar-denominated gold futures appear cheaper to buyers using foreign currencies when the dollar weakens.

U.S. sells $490 million worth of GM stock in February

The U.S. government last month accelerated its plans to fully exit General Motors Co. by March 2014.
In a monthly report to Congress, the U.S. Treasury Department disclosed that it sold $489.9 million worth of GM shares in February.
To date, the Treasury has recovered approximately $29.8 billion of its $49.5 billion investment in GM as part of the automotive bailout through repayments, sales of stock, dividends, interest, and other income.
Treasury did not disclose how many shares it sold in February, but based on stock prices in February, the government sold at least 17.2 million shares of stock
In December, the U.S. Treasury said it intended to begin selling its remaining shares as soon as this month. Officials said the "manner, amount, and timing of the sales under the plan are dependent upon a number of factors."
The announcement included GM purchasing 200 million shares of its stock back from the government for $5.5 billion, which represented a 7.9 percent, or about $2, premium over the stock's Dec. 18 closing price.
After the repurchase, the U.S. Treasury owned approximately 300 million shares of GM stock, or approximately 19 percent of the automaker. Officials said the government would start selling the stock as early as January, when it sold $156.4 million worth of stock.
GM stock [NYSE: GM] closed Monday up 31 cents a share to $28.31.
Since the $85 billion auto bailout, which forced GM and Chrysler into a government-backed bankruptcy, the automotive industry in general has continued to drive toward pre-recession levels.
GM alone has recorded record profits, and announced investments of more than $7.3 billion in the U.S. and created or retained more than 20,000 jobs.
The government ownership of GM was the result of the auto industry bailout that began under  Bush in 2008 and which was expanded by President Barack Obama in 2009.

The U.S. Treasury initially owned nearly 61 percent of GM as part of the auto bailout, which forced the automaker and crosstown rival Chrysler through a government-backed bankruptcy.
The Obama administration completely exited Chrysler last year after recovering $11.2 billion of its $12.5 billion bailout to the Auburn Hills-based automaker.

Wall Street slips after seven-day rally, warning on Europe

Stocks sagged on Tuesday as investors paused after a seven-session string of gains and the Bundesbank's chief warned the euro zone's crisis has not ended.
On Wall Street, investors' confidence has grown in recent months, leading to a gain of more than 10 percent for the year by the Dow and nearly 9 percent by the S&P 500. Signs of improvement in the economy and the Federal Reserve's quantitative easing have helped to drive the advance.
Heading into Tuesday, both the Dow and benchmark S&P 500 index had rallied for seven consecutive sessions, with the Dow closing at another record high on Monday. The S&P is within reach of its all-time closing high of 1,565.15, set on October 9, 2007.
"It's natural to have pauses," said John Fox, co-manager of the FAM Value Fund in Cobleskill, New York.
Adding to the weakness, Jens Weidmann, head of Germany's central bank and a member of the European Central Bank's governing council, said the euro zone crisis was not over.
Pullbacks during the rally so far this year have not been too deep as investors look for a good place to buy. Market moves have also been more muted in recent days, even as stocks have ground higher.
"The individual days are not huge ... but certainly if you string a few of them together, it's a nice increase in stock prices," said Fox.
Tech shares, which have lagged the rally, pulled indexes lower as heavyweights such as Apple (AAPL.O) and Google (GOOG.O) tumbled. Apple dropped 1.7 percent to $430.57 and Google fell 1.2 percent to $824.87, while the S&P tech sector .SPLRCT lost 0.8 percent.
Offsetting the decline, the healthcare sector .SPXHC rose 0.3 percent. Traditionally considered a defensive bet, the sector has been one of the leaders of the rally so far this year, accelerating by nearly 12 percent.
In the short-term, however, healthcare appears to be overbought, suggesting investors may start to put their money elsewhere. Based on the relative strength index, healthcare has been overbought since the beginning of the month.
The Dow Jones industrial average .DJI slipped 14.16 points, or 0.10 percent, to 14,433.13. The Standard & Poor's 500 Index .SPX fell 5.53 points, or 0.36 percent, to 1,550.69. The Nasdaq Composite Index .IXIC lost 18.66 points, or 0.57 percent, to 3,234.22.
Merck (MRK.N) shares gained 2.8 percent to $44.89 to help curb declines on both the Dow and S&P after the pharmaceutical company said an outside board had allowed it to continue a trial assessing its Vytorin cholesterol treatment.
Yum Brands Inc (YUM.N) rose 2.1 percent to $69.25 after the parent company of the KFC restaurant chain reported an unexpected rise in February sales in China.

German Central Bank Doubles Reserves

Germany’s central bank said Tuesday that it nearly doubled the reserves it holds to cover possible losses, in a not-so-subtle expression of its uneasiness with emergency measures the European Central Bank has taken to combat the euro crisis.

The Bundesbank said it raised its risk provisions, money it sets aside to cover losses such as a default on euro zone bond holdings, to 14.4 billion euros, or $18.7 billion, from 7.7 billion euros a year earlier. The bank’s profit for the year, which it transfers to the German government, was little changed, rising to 664 million euros from 643 million euros.

Jens Weidmann, the Bundesbank president, said the increase in loss reserves “takes appropriate account of the risks on the Bundesbank’s balance sheet.”
But the decision to set aside further billions may also be interpreted as a verdict by Mr. Weidmann on the European Central Bank’s measures he has long criticized, such as purchases of Italian and Greek government bonds to try to keep those countries’ borrowing costs under control.
Mr. Weidmann, a member of the European bank’s governing council, has played the role of Cassandra as Mario Draghi, the  bank’s president, has led a vast expansion of the central bank’s powers.
Fears the euro zone will crumble have receded since Mr. Draghi promised last year to buy bonds of troubled euro zone countries to contain their borrowing costs. But Mr. Weidmann has often complained that the E.C.B. has gone too far, endangering its independence from political leaders and its mandate to guard price stability above all else.
On Tuesday Mr. Weidmann repeated his contention that the best solution to the euro zone crisis is for countries to get government spending under control and improve the performance of their economies. He said that relative calm on financial markets was due not only to bank policy, but also to progress by political leaders.
“The reduction of tension on financial markets should by no means lead to neglect of the necessary structural reforms,” Mr. Weidmann said in a statement.
The Bundesbank decision to bolster its reserves may also reinforce fears among Germans that their money is at risk because of European bank policies designed to keep the euro zone from falling apart. The Bundesbank is one of Germany’s most respected institutions, widely regarded as a bulwark against less prudent members of the euro zone.
Since 2010 the E.C.B. has acquired bonds from troubled euro zone countries valued at 209 billion euros, with Italian government bonds accounting for nearly half of that amount. In an attempt to encourage lending to businesses and consumers, the E.C.B. has also vastly expanded the collateral that commercial banks can post in return for cheap central bank loans.
The 17 national central banks in the euro zone, which carry out much of the work involved in running a currency union, would share the losses if a country were to default on its bonds or if collateral posted by a bank were to lose value.
Among Germans, there is widespread fear that Germany would bear much more than its share of the cost if the euro zone fell apart. The Bundesbank acts as the clearinghouse for large transactions in the currency zone, and other central banks have what amount to large overdrafts.
At a press conference to present the Bundesbank’s annual results, Mr. Weidmann repeated warnings that France was slipping behind because of its failure to make economic reforms. But he acknowledged that E.C.B. policies had not yet led to an increase in inflation.
“In the short term, we in the euro area have, if anything, declining inflation risks,” he said. Mr. Weidmann also said the German economy was in good shape.
The Bundesbank, like other central banks in the euro zone, continues to do much of the day-to-day work of the euro zone, including making sure there is enough money in circulation, storing gold reserves and acting as go-between for large payments between commercial banks.
Its activities generate interest income, which totaled 11 billon euros last year, up from 8.6 billion euros in 2011. The Bundesbank’s profit, however, has plunged 90 percent since the financial crisis began in 2008, as the bank set aside ever larger sums to cover risk.

U.S. Stocks Ease Back

Stocks slipped into negative territory as investors found little reason to keep buying after mixed news on the small-business sector and a weak reading from the U.K. factory sector.
The Dow Jones Industrial Average declined eight points, or 0.1%, to 14439 in midday trading, putting in jeopardy a seven-session streak of gains. A lower finish for the blue chips would be the index's first decline since breaking its 2007 all-time high a week ago.
The Standard & Poor's 500-stock index fell five points, or 0.3%, to 1551. The technology-oriented Nasdaq Composite Index lost 17 points, or 0.5%, to 3226.
A measure of market anxiety remained near multiyear lows. The Chicago Board Options Exchange's Volatility Index, which uses stock-index option prices to measure expectations for near-term price swings, rose 7.8% from Monday's six-year low.
On the economic front, the National Federation of Independent Business said its small-business optimism index for February rose and topped expectations. But the federation's reading on expected business conditions remained deep in recession territory, and business owners reporting declining sales far outnumbered those saying sales increased.
The Stoxx Europe 600 rose 0.1%, as the British statistics were offset by an upbeat outlook for the German economy. Manufacturing output in the U.K. fell 1.5% in January, much worse than expectations for slight growth. Meanwhile, Germany's Economy Ministry said the economy was on the verge of recovery.
Asian markets were broadly lower, led by a 1% decline in the Shanghai Composite, the index's fourth-straight loss, after China's central bank signaled it would drain more liquidity from the financial system. Japan's Nikkei Stock Average erased early gains to close down 0.3% and snap an eight-session winning streak.
April crude-oil futures added 0.9% to $92.90 a barrel, while March gold futures tacked on 0.8% to $1,592 a troy ounce. The dollar gained against the euro and fell versus the yen. Yields on benchmark 10-year Treasury bonds fell to 2.018% as demand rose.
Diamond Foods fell. The seller of Emerald snack nuts, Kettle chips and Pop Secret popcorn reported fiscal second-quarter earnings and revenue fell short of analysts' estimates, amid a sharp drop in sales of nuts.

giovedì 31 gennaio 2013

Bot e Btp non saranno più garantiti dallo Stato?

La notizia risale al dicembre 2012, ma l'attuazione della norma è partita dal 1°gennaio 2013 e riguarda l'introduzione delle clausole collettive (CACs) nei titoli di Stato. 

Il comunicato stampa del Ministero dell'Economia - datato 17 dicembre 2012 - riporta che a partire dal nuovo anno le "le nuove emissioni di titoli di Stato aventi scadenza superiore ad un anno saranno soggette alle clausole di azione collettiva". 

Cosa sono le CACs? Previste nel Trattato sul Meccanismo Europeo di Stabilità (ESM), ratificato anche dall'italia, sono delle clausole vessatorie e regolano la possibilità, per uno Stato che versa in una condizione di crisi del debito sovrano (come ad esempio è avvenuto in Grecia), di ricontrattare interessi, scadenze e di proporre agli investitori lo scambio con obbligazioni di diversa tipologia. Le CACs quindi rendono obbligatorio lo scambio anche dalla contrparte che non ha acconsentito, a condizione che vengano rispettate determinate soglie: gli accordi europei stabiliscono che l'emissione di titoli di debito pubblico con le CAC non superino il 45% emesso in un anno. 
Secondo questo accordo previsto dall'ESM, il mercato dei titoli di Stato dei BOT e BTP non saranno più garantiti dallo Stato stesso, in quanto con le CACs si potranno rinegoziare accordi precedentemente presi e rinegoziare la propria esposizione debitoria con gli investitori. 

Alla notizia, gli esperti del settore lanciano i primi timori. Innanzitutto sulla soglia prestabilita: "il limite di emissione del 45% è sicuramente una tutela affinché la maggior parte dei titoli di debito pubblico di nuova emissione resti garantito così come lo sono sempre stati - scrive Pasquale Marinelli, collaboratore del sito di finanza Wall Street Italia - ma [...] quanto tempo passerà affinché tale limite venga modificato e aumentato, fino ad avvicinarsi al 100%? Che grado di affidabilità avrebbero questi titoli nei confronti degli investitori, di cui lo Stato emittente può cambiare le condizioni iniziali di sottoscrizione, quando più conviene ad esso?".

Una nuova norma che, quindi, starebbe ufficialmente decretando il fallimento dello Stato italiano: sebbene il rendimento di questi nuovi titoli pubblici risulterebbe più alto rispetto ai precedenti, perché è insito in esso il rischio di ricontrattazione in negativo dei titoli da parte dello Stato, in caso di rischio del suo default, con queste clausole verrebbe meno il concetto di sicurezza che da sempre è prerogativa dei titoli di Stato. Clausole che, rispetto all'investitore, pongono il soggetto meno avvantaggiato - in questo caso lo Stato - in una situazione contrattuale privilegiata. Non solo: le CACs garantirebbero per legge la ristrutturazione del debito sovrano, che in Italia ha superato la soglia dei 2 mila miliardi, 100 miliardi solo nel 2012.


mercoledì 30 gennaio 2013

Chrysler's profit up 68% in 4Q; up 20% in 2012

Chrysler Group said Wednesday that it earned $378 million in the fourth quarter on revenue of $17.2 billion.
For the full-year, Chrysler's net income was $1.7 billion on revenue of $65.8 billion, a 20% gain year over year..
With profits that were nine times those of 2011, the results were all the more impressive given that Chrysler emerged from bankruptcy just three years ago.
On Tuesday, rival Ford reported profits for the fourth-quarter and 2012 that beat estimates although Ford's revenue and income are being hurt by losses in Europe.
CEO Sergio Marchionne said that while the company was happy with its strong financial results for 2012, " the enterprise we are crafting is not complete."
Car sales in the U.S. market were up 21%, thanks to hot products like the Jeep Grand Cherokee and the all-new Dodge Ram 1500 pickup, which won the North American Truck/Utility of the Year award at the Detroit Auto Show earlier this month.
"The goals we've set for the year ahead reflect a common desire by everyone from leadership to the shop floor to succeed and sustain the power of the house we are building," Marchione said. "Our aim is meaningful, but it is not complicated, and only a preoccupation with quality can achieve it."
The company has already made great strides in quality and has been testing vehicles more and longer, says Rebecca Lindland, director of research for IHS Automotive.
"That's really helped their warranty costs and helped quality overall," she says. "They're doing a really good job of making their vehicles comparable from a quality standpoint."
Others agree Chrysler is on a roll.
"The company was the only domestic automaker to gain market share last year," says Jesse Toprak, senior analyst at
And the company was also able to increase its' average transaction price by nearly $1,000 per car compared to 2011 despite "marginal incentives spending" which helped to improve profitability, Toprak says.
Another thing working in Chrysler's favor: It has almost no exposure in the troubled European market. It doesn't build cars there or sell them through its own dealership system. That's a blessing at a time when the European market is a drain on its competitors' bottom lines.
Chrysler "is exceeding everyone's expectations," says Lindland.
The new Dodge Dart, on the other hand, got off to a strong start, but "the engine needed a little bit of work and is going to get that."
Marchione defended the Dart Wednesday, calling it an "incredibly rich vehicle for its class" that has a "non comprehensive powertrain solution" that will be remedied for the 2014 model year.

lunedì 21 gennaio 2013

JPMorgan Embraces Offshore Yuan as Trading Doubles

Standard Chartered Plc estimates offshore trading of yuan has doubled to at least $6 billion a day, giving investors more confidence to invest in the currency using options, forwards and Dim Sum bonds.
Average daily transactions in Hong Kong surged from $3 billion in the past year, said Charles Feng, Standard Chartered’s regional head for fixed-income trading in the city. Trading in offshore options in the currency swelled to between $300 million and $500 million per day, according to J.P. Morgan Private Bank, which is buying the contracts for its clients. HSBC Holdings Plc says combined yuan deposits and certificates of deposits in the city will rise 43 percent this year to 1 trillion yuan ($161 billion).
Dim Sum bonds have been rallying for a record six consecutive weeks as the central bank announced plans to accelerate the opening up of capital markets to foreigners and allow cross-border yuan loans. The average yield on the securities fell five basis points last week to 3.5 percent, the lowest since October 2011, a Deutsche Bank AG index showed. That compares with an average 2.62 percent for global corporate debt, according to Bank of America Merrill Lynch data.
“Offshore yuan liquidity is unambiguously improving,” said Cliff Tan, East Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong. “In particular, there is more official sector activity in the first days of the year. This flow is very promising for central banks to get more involved.”

Offshore Premium

The yuan in Hong Kong climbed 0.5 percent this month and touched 6.1735 per dollar on Jan. 11, the highest since trading started in 2010, Bloomberg data show. The offshore rate was 6.1908 as of 11:24 a.m. local time today, a 0.45 percent premium to the spot rate of 6.2187 inShanghai. Twelve-month non- deliverable forwards gained 0.8 percent in Hong Kong this month.
One-year implied volatility on the offshore yuan, a measure of expected moves in exchange rates used to price options, was 2.4 percent today, down from 4.4 percent a year ago, data compiled by Bloomberg showed. Comparable gauges are 10 percent for the Brazilian real, Russian ruble and India’s rupee.

‘Burgeoning’ Market

The yield on Chinese government Dim Sum bonds due June 2022 was 3.06 percent today, compared with 1.84 percent for 10-year U.S. Treasuries, Bloomberg data show.
“We have been utilizing high carry and low volatility for our clients in the offshore renminbi via its burgeoning options market,” said Erik Wytenus, Hong Kong-based head of foreign exchange and commodities at J.P. Morgan Private Bank in Asia. “This allows for a beneficially asymmetric risk profile for these strategic positions.”
Hong Kong’s Dim Sum bond market is increasingly offering attractive yields as long as buyers are selective, said Adam K. Tejpaul, managing director for the investment business of JPMorgan Chase & Co.’s private bank unit in Asia. The yield on Caterpillar Inc.’s Dim Sum bonds due 2014 was 2.53 percent at the end of last week, compared with 0.58 percent on its similar- maturity dollar debt. The machinery maker is rated A at Standard & Poor’s.
China backed Hong Kong’s status as the major offshore yuan hub in its latest five-year economic plan and is seeking to curb reliance on the use of dollars in international trade and investment. The city “will consolidate and expand the offshore yuan business,” in particular cross-border trade settlement and sales of yuan-denominated securities, Leung Chun-ying, Hong Kong Chief Executive said in a Jan. 16 policy address.

Loan Experiment

Central bank governor Zhou Xiaochuan said on Dec. 31 the country will “deepen” financial reform in 2013. The government may soon announce details for a cross-border yuan loan program in Qianhai, a trial zone near Hong Kong, China Securities Journal reported Jan. 9, citing Wang Jinxia, a spokesperson for the Qianhai management bureau. Hang Seng Bank Ltd., a Hong Kong- based subsidiary of HSBC, will arrange the first yuan loan to Qianhai Co., the lender said Dec. 31.
“The Qianhai trial will accelerate the recycling of the yuan and boost the currency’s liquidity,” said Ken Hu, a Hong Kong-based fund manager at BOCHK Asset Management Ltd, who runs the best-performing Dim Sum bond fund that returned 29 percent in 2012.

RQFII Program

China announced the Renminbi Qualified Foreign Institutional Investors, or RQFII, program in December 2011, which allows offshore yuan to be invested in China’s domestic securities. The available quotas were boosted by 200 billion yuan to a level of 270 billion yuan in November and Guo Shuqing, chairman of the China Securities Regulatory Commission, said in Hong Kong on Jan. 14 that the ceiling can be increased by 10 times more.
Hong Kong residents are subject to a daily conversion limit of 20,000 yuan at the Shanghai rate, while non-residents can buy unlimited amounts of China’s currency at the offshore rate. DBS Group Holdings Ltd. said the limit for people living in the city could hamper the growth of the yuan pool in Hong Kong as more investors channel funds back to China for investment.
“As more offshore yuan centers emerge, it no longer makes sense for Hong Kong to cap locals’ conversion at such a level,” said Nathan Chow, a Hong Kong-based economist at DBS. “Hong Kong needs to ensure a self-sustainable cycle of yuan with increasing repatriation channels for offshore yuan. We expect more Dim Sum bond issuance in 2013 with better liquidity.”

‘Hedging Demand’

Yuan deposits in the city grew 2.9 percent in November to 571 billion yuan, according to Hong Kong Monetary Authority data. That’s the biggest increase since August 2011. Dim Sum bond issuance climbed 16 percent last year to a record 175.8 billion yuan. There has been 18.2 billion yuan in sales this month.
Offshore yuan trading is “primarily driven by hedging demand” from companies, which have replaced currency speculators as the dominant force in the market, according to Standard Chartered’s Feng. “We see this as a positive sign as it paves the way for a more sustainable offshore yuan trading environment,” he said.
China’s economic growth accelerated for the first time in two years as government efforts to revive demand drove a rebound in industrial output, retail sales and the housing market. Gross domestic product rose 7.9 percent in the three months ended Dec. 31, the nation’s statistics bureau said last week. That compared with the 7.8 percent median estimate in a Bloomberg News survey and 7.4 percent in the previous quarter.

Liquidity Operations

The People’s Bank of China said on Jan. 18 it will start short-term liquidity operations as additional tools to manage cash supply, amid efforts by policy makers to liberalize of interest rates. Repurchase agreements and reverse repurchase contracts with a maturity of less than seven days will be the main tools of the so-called SLOs, the central bank said in a statement. It named 12 banks, including Industrial & Commercial Bank of China Ltd. and Bank of China Ltd., as participants in the SLOs, which will supplement regular open-market operations held every Tuesday and Thursday.
The cost of insuring China’s bonds was steady last week. Five-year credit-default swaps protecting the nation’s sovereign notes rose two basis points to 65 in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
“We welcome the growth and deepening of local markets,” said Jamie Stuttard, the London-based head of international bond-portfolio management at Pyramis Global Advisors, a unit of Fidelity Investments, which oversees $1.7 trillion. “The development of the Dim Sum market is important in building a global bond opportunity set which reflects patterns of global economic growth.”

Oil falls, trading muted on US public holiday

Crude prices fell as energy investors kept to the sidelines Monday ahead of a public holiday in the U.S.
Benchmark oil for February delivery was down 41 cents to $95.08 per barrel at late afternoon Bangkok time in electronic trading on the New York Mercantile Exchange. The contract rose 7 cents to finish at $95.56 per barrel on the Nymex on Friday.
Ken Hasegawa, energy analyst at Newedge brokerage in Tokyo, said trading was muted ahead of the U.S. holiday and in the absence of major news that might have the potential to move markets.
Lingering concerns about the U.S. economy also weighed on crude prices, with lawmakers wrangling over spending cuts and the nation's debt ceiling, which limits the amount of debt that U.S. government can take on.
Even if Congress raises the debt ceiling, Republican lawmakers will likely demand deep spending cuts, which in the short term could slow the global economy.
Brent crude, used to price international varieties of oil, fell 30 cents to $111.63 per barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex:
- Natural gas was up 9 cents to $3.584 per 1,000 cubic feet.
- Wholesale gasoline rose 2.1 cents to $2.803 a gallon.
- Heating oil rose 2 cents to $3.035 a gallon.

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venerdì 4 gennaio 2013

The Swiss bank Wegelin is to close, after admitting that it helped about 100 US clients evade paying taxes

The news that Switzerland's oldest private bank will cease to operate has potentially huge implications for Switzerland's entire banking sector, and for the long tradition of Swiss banking secrecy.
Thirteen other Swiss banks are under investigation by US authorities, among them Credit Suisse, a bank now termed "too big to fail" by the Swiss government.
When Wegelin's managers pleaded guilty in a New York court, the case was watched with mounting horror by the financial communities in Zurich and Geneva.
Many had expected Wegelin to continue to try to fight the case. For months, the bank had failed to turn up in court, saying the summons had not been delivered correctly.
Instead, Wegelin's guilty plea included the admission that it intentionally opened accounts for US citizens to help them avoid tax.
In court, Wegelin's managers said they knew it was wrong, but thought they would not be prosecuted because it was legal in Switzerland and common practice in Swiss banking.
Those last words in particular are causing huge concern. Some Swiss financial analysts are already speculating that Wegelin's $58m fine, which many had expected to be higher, was kept low by the US authorities in return for Wegelin clearly implicating the rest of the Swiss banking community in tax evasion.
Fruitless negotiations
For at least two years, the Swiss government has been actively pursuing a deal with the US, similar to those it has already agreed with the UK and with Germany, in which Swiss banks charge foreign clients a withholding tax.
But so far, negotiations with the US have proved fruitless. Washington clearly prefers the legal route. Meanwhile, the German parliament has also questioned the deal.
Many believe the Swiss government is trying to square an impossible circle: satisfy foreign governments, who are determined to reclaim their tax revenue, and still protect Switzerland's traditional banking secrecy.
In the wake of the Wegelin case, other Swiss banks will have to decide what to do. Some are already avoiding doing business with US clients, so much so that US citizens living in Switzerland find it extremely difficult to open a bank account or get a mortgage.
Others may consider the route taken by banking giant UBS in 2009, in which the bank admitted encouraging tax evasion and gave the details of more than 4,000 US account holders to the US authorities, together with a hefty $780m compensation payment.
There is also a certain amount of resentment among the Swiss banking community, many of whom feel that they are being unfairly targeted for practices which they claim are far more common in the US state of Delaware or in the City of London.
But with 13 other Swiss banks currently being investigated by US lawyers who have no intention of giving up, many in Switzerland also argue that the country's financial sector has more to offer than support for tax evasion. Stability and centuries of banking experience, for example.
The case of Wegelin is a stark one: a bank that first opened its doors in 1741 has had to close because it used the long tradition of Swiss banking secrecy to help clients avoid tax.
The message for other Swiss banks seems pretty clear. Either the secrecy goes, or the bank goes.