Aug 9, 2012
» The New York State Department of Financial Services accused Standard Chartered, a big British multinational bank, of concealing $250 billion in transactions made by the Iranian government in defiance of sanctions. The regulator said the bank had "schemed" with the Iranians and called it a "rogue institution". Standard Chartered, which traces its roots back to the mid-19th century and earns 90% of its income in Asia, Africa and the Middle East, flatly rejected the allegation. It said its own analysis found that it had complied with American sanctions on Iran in over 99.9% of transactions. See article»
» Knight Capital, a market-maker, obtained a $400m emergency bail-out from a consortium of Wall Street firms, after faulty software produced wild swings in some share prices on the New York Stock Exchange. Knight's own share price fell off a cliff after the incident on August 1st, which cost it $440m. The consortium that rescued it, which includes such financial titans as Jefferies and TD Ameritrade, will end up holding around 70% of Knight. See article»
» The founder of Best Buy, one of America's biggest retailers of consumer electronics, offered to buy out the company. Richard Schulze was its chief executive for 36 years until 2002, and recently stepped down as chairman. As with other traditional bricks-and-mortar retailers, Best Buy is grappling with the challenge posed by Amazon and other shopping websites. Mr Schulze has a turnaround plan, which he thinks will be more effective if Best Buy is taken private.
» Japan Airlines said it would re-list on the stockmarket in an initial public offering next month, after three years in bankruptcy protection. During that time it has cut its workforce, slashed pay and pensions and reduced the number of its flights, all of which helped it turn a record profit for the year ending in March. Its target of raising ¥663 billion ($8.5 billion) would make it Asia's biggest IPO this year.
» Rio Tinto reported a 34% drop in underlying profit for the first half of the year, to $5.2 billion. The miner's business depends on selling iron ore to China, which is buying less of the stuff as its economy cools. Xstrata, a rival, posted a 23% fall in attributable profit, to $2.2 billion, also in part because of the downturn in commodity prices.
» Meanwhile, BHP Billiton took a write-down of $2.8 billion against shale-gas assets it acquired in America last year. Since then a glut of natural gas has caused prices to plunge. Marius Kloppers, BHP Billiton's boss, will forgo his bonus because of the charge.
» Pfizer, a big American drugs company, was fined more than $60m under America's Foreign Corrupt Practices Act for bribing foreign officials. Its punishment was light, by American standards, because it co-operated with the investigation. See article»
» Sharp had another dismal quarter. The Japanese electronics company sold about half as many LCD TVs as it did during the same period a year ago, and forecast a whopping annual net loss of ¥250 billion ($3.2 billion), more than its current market value. Hon Hai, a Taiwanese contract manufacturer better known as Foxconn, said it would renegotiate the terms of a deal to buy a 10% stake in Sharp. Sharp's shareholders shivered. See article»
» Hewlett-Packard wrote down its technology-services business by $8 billion, an admission that its $13.9 billion purchase of Electronic Data Systems, an IT-outsourcing company, in 2008 has not worked out well.
» Indonesia's economy, the biggest in South-East Asia, grew by 6.4% in the second quarter. The figure was better than had been expected, given the decline in the country's exports of raw materials, and was boosted by the spending power of Indonesia's burgeoning middle classes and by public and private investment, which is growing at its fastest pace since the late 1990s.
» America's employers added 163,000 jobs to the payrolls in July, but the unemployment rate crept up again, to 8.3%.
» The Bank of England drastically reduced its growth forecast from the one it gave just three months ago. The central bank now thinks that output in the British economy will not return to its pre-crisis levels until 2014, when it projects GDP to rise by a listless 2%.
Where the smart money is
» A world of virtual cash came a step closer, as Starbucks announced that it was teaming up with Square, a pioneer in technology that enables payments through smartphones. Starbucks already has its own mobile-payment app, but Square's GPS-based system will eventually allow customers to pay for a mocha light frappuccino by simply saying their name (once they have registered with the system).
» China's biggest political scandal in decades reached court, as Gu Kailai, the wife of Bo Xilai, a former high-flyer in the Communist Party, stood trial for murder. Ms Gu is accused of poisoning Neil Heywood, a British businessman, last November. As more details of alleged thuggery and deception emerge in the case, China's political leaders are keen to present it as a one-off, and not representative of the elite. See article»
» Police in Macau raided casinos and hotels and arrested 150 people in connection with an outbreak of violence among criminal gangs. Macau has overtaken Las Vegas in recent years to become the world's biggest gambling centre.
» Pakistan's Supreme Court rekindled its quarrel with the government, condemning its reluctance to help revive a corruption case against Asif Ali Zardari, the president. The court summoned Raja Pervez Ashraf, the new prime minister, to appear at a hearing in late August to explain. In June it dismissed Mr Ashraf's predecessor from office for not complying with its order to push ahead with the matter, which the ruling party insists is politically motivated and outside the court's remit.
» Palaniappan Chidambaram, India's new finance minister, made some reformist noises about removing "any apprehension or distrust" among foreign investors. India's government has been criticised for being less than enthusiastic about opening its markets to foreign competition. Mr Chidambaram, who served a previous stint as finance minister between 2004 and 2008, also called for more transparency in India's tax regime. See article»
Affirming affirmative action
» In Brazil the Senate passed a bill that sets aside half the places in federal universities for pupils from state-run schools, and allocates those places by race. Dilma Rousseff, the president, is expected to sign it. Earlier this year Brazil's highest court decided that racial quotas could be used in university enrolment policies.
» Police in Colombia arrested John Ericson Vargas Cardona, known as "Sebastian", the leader of a criminal outfit that was once associated with Pablo Escobar, the late infamous boss of the Medellín cartel. Mr Vargas Cardona's gang is conducting a turf war in the city. His arrest was described as a "big blow against criminality" by Juan Manuel Santos, the president.
» The Honduran Congress passed a law banning the public possession of guns in the province of Colón. The region has been wracked by violence, stemming both from drug gangs and from fighting between farmworkers and their employers.
Up in flames
» Fierce fighting between rebels and government forces continued in Syria's commercial capital, Aleppo. Syria's prime minister, Riyad Hijab, defected to Jordan. Iran reiterated its support for President Bashar Assad after a group of 48 Iranian citizens, who said they were pilgrims, were kidnapped by Syrian rebels in Damascus, the capital. See article»
» A group of jihadists, thought to have originated partly in Gaza and partly in Egypt's Sinai desert, killed 16 Egyptian servicemen in an attack near the border with Gaza and Israel. Some of the group then commandeered two army vehicles, one of which penetrated a mile into Israel before it was destroyed by the Israelis. Egypt later launched air strikes against suspected jihadists nearby and claimed to have killed at least 20 of them. See article»
» Yemen's government blamed al-Qaeda for a suicide-bombing that killed at least 40 people at a funeral in the southern province of Abyan. The attack may have been in retaliation for the killing of five al-Qaeda members by an American drone.
» Two soldiers were killed in an attack near a mosque in Okene, in central Nigeria, a day after gunmen shot dead 19 people in a nearby church.
» A man shot and killed six worshippers at a Sikh temple near Milwaukee, Wisconsin, before shooting himself in the head. It was the second gun rampage in America in as many weeks. The killer was said to be have been a white supremacist who had served in the army in the 1990s.
» Curiosity, the fourth NASA rover to be sent to Mars, landed successfully. Over the next two years the rover will investigate Martian geology and analyse the atmosphere, as scientists try to find out if Mars has ever possessed the ingredients necessary for life. See article»
» Cass Sunstein stepped down as the White House's regulation guru. Probably best known for his book on how governments can "nudge" people into making the right decisions, Mr Sunstein is returning to Harvard.
It can wait till after August
» The troika consisting of officials from the European Union, the European Central Bank and the IMF left Greece reporting "good progress" and promising to come back in September to finish their work. A bond payment falling due before then will be covered by short-term debt. See article»
» Mario Monti, the Italian prime minister, embarrassed his predecessor, Silvio Berlusconi, by saying that if Mr Berlusconi were still in office the spread between Italian and German sovereign bond yields would be more than twice as high as they are now. Despite a conciliatory telephone call from Mr Monti, Mr Berlusconi's party took revenge by defeating the government on a procedural motion in parliament. See article»
» Romania's political crisis took a new turn when Victor Ponta, the prime minister, replaced five members of his cabinet including the foreign, justice and interior ministers. Romanian Jews were outraged at the appointment of Dan Sova as Mr Ponta's new liaison to parliament. Mr Sova has made comments denying the Holocaust. The prime minister is fighting a long battle to try to oust Traian Basescu from the presidency.
» As Britons basked in the golden glow of the London Olympics (at which Britain notched up its best medals tally in more than a century) a dark cloud formed over the coalition government in an escalating row over constitutional reform. Liberal Democrats threatened to block changes to constituency boundaries in the House of Commons in retaliation for the Conservatives failing to support reform of the House of Lords, in their most serious falling-out since the coalition was formed after the 2010 election. See article»
Dani Rodrik has a provocative piece for Project Syndicate arguing that the quest for growth has gotten more elusive over the past few years. During the second half of the 20th Century, he says, if poor countries wanted to grow up to be rich (and didn't have the patrimony of natural resource wealth), they would have to first "move their labor from the countryside (or informal activities) to organized manufacturing". Manufacturing industries are relatively easy to replicate; they create rapid growth in productivity and incomes "regardless of the quality of domestic policies, institutions, or geography".
That world is gone now. Achieving an Asian Tiger-style growth miracle is trickier for a couple of reasons:
Technological advances have rendered manufacturing much more skill- and capital-intensive than it was in the past, even at the low-quality end of the spectrum ... It will be impossible for the next generation of industrializing countries to move 25% or more of their workforce into manufacturing, as East Asian economies did.Ryan Avent points us to a recent column in the Economist that reaches the opposite conclusion: "[m]odern supply chains are making it easier for economies to industrialise". In a blog post, he finds Rodrik's concerns wanting:
Second, globalization in general, and the rise of China in particular, has greatly increased competition on world markets, making it difficult for newcomers to make space for themselves. Although Chinese labor is becoming more expensive, China remains a formidable competitor for any country contemplating entry into manufactures.
For the moment, Mr Rodrik's concerns appear somewhat unfounded. Chinese manufacturing is very capital intensive, and yet employment in industry there has been remarkably consistent over the past two decades. Admittedly, this is partly due to declining employment in old state enterprises offsetting rising employment in new, export-oriented firms. But across the rich and emerging world, falling labour intensity in manufacturing does not appear to limit the contribution of industry to prosperity.Rodrik and Avent disagree over the extent to which manufacturing can spark catchup growth, but both seem to take it as a given that it's still the best path to follow for countries that want to get rich. It's at least a much more empirical view than Deirdre McCloskey's thesis that countries get rich once their citizens "stopped sneering at market innovativeness and other bourgeois virtues". – Peter Rudegeair
On to today's links:
SEC drops mortgage charges against Goldman – DealBook
Lessons in lobster pricing – NYT
"Turning bad jobs into good jobs is arguably as important as creating more jobs" – Demos
Calm down, the drought will not have much effect on America's already low food prices – WSJ
Jon Corzine is just waiting for anyone with a Bloomberg terminal to get in touch – Zero Hedge
Quote of the Day
"[Federal] agencies will be asked to test complex or lengthy forms ... by seeing if people can actually understand them." – White House
Record low mortgage rates could be even lower "if banks were satisfied with the profit margins of just a few years ago" – DealBook
Charts: how low mortgage rates and even lower bond yields mean increased profit margins for mortgage originators – DealBook
Arizona and California, epicenters of the housing crisis, now have foreclosure rates below the national average – WSJ
Own to rent: a pilot program allows homeowners to avoid foreclosure by renting their homes – WSJ
Fear-driven productivity gains: Scared workers are putting in extra, unreported hours – Businessweek
"We can do it alone": cutting Italy's debt by convincing Italians to pre-pay their taxes – FT
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Stocks and Markets in the News (SAMITN) | Wall Street at Close: Stocks little changed; S&P streak intact
By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) — U.S. stocks ended little changed Thursday, with the S&P 500 clinging to a slight gain to maintain its longest winning run since March, after U.S. data proved better than expected.
“Earnings season for the most part is behind us, and like the rest of America, you’ve got Congress on vacation, the European Central Bank on vacation and the Fed doesn’t meet until September,” said Art Hogan, equity strategist at Lazard Capital Markets, of Wall Street’s lack of momentum
“The underlying bid in this market is consensus agreement that we’re going to get more, not less, global monetary stimulus,” Hogan added of equities rise, which has the S&P 500 Index in position to extend its rise into a fifth session.
“The markets are looking for some kind of quantitative easing from the central bank in Europe,” echoed Randy Warren, chief investment officer of Warren Financial Service.
After a four-day climb, the Dow Jones Industrial Average DJIA -0.08% fell 10.45 points, or less than 0.1%, to 13,165.19.
Cisco Systems Inc. CSCO +3.15% paced blue-chip gains, up 3.2% after Goldman Sachs added the maker of computer-networking equipment to its conviction-buy list.
Rising for a fifth session, the S&P 500 SPX +0.04% rose 0.58 point to 1,402.80, with natural-resource and energy pacing sector gains and consumer staples and consumer discretionary the laggards.
“We’re in a tug of war with technicians; by the time the S&P 500 gets to 1,400, that’s the iron curtain and we can’t break through,” commented Lazard’s Hogan.
E-Trade Financial Corp. ETFC +6.86% gained after the online brokerage replaced its chief executive, Steven Freiberg, with an interim chief and said it was looking for a replacement.
The Nasdaq Composite Index COMP +0.25% rose 7.39 points, or 0.3%, at 3,018.64.
Advancers edged just ahead of decliners on the New York Stock Exchange, where composite volume neared 3.1 billion. The Nasdaq’s composite volume approached 1.7 billion.
The dollar DXY +0.31% gained against other global currencies, while crude futures CLU2 +0.04% added 1 cent to end at $93.36 a barrel.
Treasury prices were mostly lower, with the yield on the 10-year note 10_YEAR -0.35% used to determine rates on mortgages and other consumer loans at 1.699%.
Equities briefly took a hit, with the Dow falling 50 points, in a modest rollover that Peter Boockvar, equity strategist at Miller Tabak, said coincided with the euro EURUSD +0.01% dropping below 1.23.
The euro’s move came after The Wall Street Journal quoted former European Central Bank executive board member Otmar Issing as saying “Germany’s guilt over the Second World War doesn’t oblige it to write blank checks to euro-zone countries that fail to reform their economies.”
“Who knows what influence Issing still has, but the timing of his comments were similar to the further weakness in the euro,” added Boockvar.
The U.S. Federal Reserve should do a third round of quantitative easing, Warren believes, because an overly strong currency hurts U.S. exports. Plus, money printing by the Fed cheapens the dollar and “stops the euro from falling so much,” he said.
The Commerce Department on Thursday reported the U.S. trade deficit narrowed by 10.7% in June, with the number expected to boost second-quarter gross domestic product. Read full piece on narrowing gap.
“Positively and in the face of European concerns, exports rose to a record high,” said Boockvar at Miller Tabak, who specifically noted increased exports to the European Union, a trend that he viewed as unlikely to be sustainable.
Warren at Warren Financial Service finds interesting that the U.S. trade deficit could be improving, considering the currency movement between the euro and the dollar.
“Probably the answer behind it is oil is cheaper. We are net exporters of finished petroleum products; that flipped in November for the first time since World War II. We still do import a lot of oil, but we’re producing a lot more than in the past.”
The Labor Department reported that initial claims for unemployment benefits fell by 6,000 at 361,00 last week. See full story on unexpected decline in initial claims.
Kate Gibson is a reporter for MarketWatch, based in New York.
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Thursday, 09 August 2012