PrefBlog

The ECB rate cut is having some immediate effects:

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, closed five of its European money-market funds to new investments after the European Central Bank lowered deposit rates to zero.

JPMorgan notified clients yesterday that it won’t accept new investors or money in five euro-denominated money-market and liquidity funds because the rate cut might generate negative returns for investors, the New York-based company said in a notice to shareholders.

The ECB yesterday reduced its benchmark rate to a record low of 0.75 percent and took its deposit rate to zero, with President Mario Draghi saying the cuts may have only a “muted” economic impact.

The deposit rate cut “will almost certainly move cash bids in short-dated instruments into negative territory, and so we have taken the step to restrict subscriptions and switches into the funds in order to protect existing shareholders from yield dilution,” the company said on its website.

The more things change …:

As Europe struggles to contain its debt crisis, the name of an American dead for more than two centuries is being invoked by those who think euro area nations will have to trade some autonomy for fiscal stability.

Alexander Hamilton, the first U.S. Treasury secretary and the face on the ten-dollar bill, offered cash-strapped states in 1790 a deal they eventually couldn’t refuse: The federal government assumed their debts in return for more centralized power. The alternative risked consigning their creditworthiness to “burst and vanish,” and a breakup, Hamilton warned.

Another solution is asset sales:

Greek Prime Minister Antonis Samaras pledged to bring his country’s economic reform plan back on track, promising sweeping state-asset sales that will boost investment and jobs, and help break the country’s recessionary spiral.

“The first battle this government must give is the battle of the obvious, the self-evident,” Samaras told lawmakers in Athens today, at the start of three days of debate on a motion of confidence in his government. “This is a government that must tell the truth from the very first, such as the truth that, once again, the fiscal adjustment program has genuinely gone off track.”
…
Asset sales not already agreed with international creditors, including rail transport and energy, will “bring investments, jobs and growth,” he said.

What about the Elgin Marbles?

Not much joy in US job numbers:

American employers added fewer workers to payrolls than forecast in June and the jobless rate stayed at 8.2 percent as the economic outlook dimmed.

The 80,000 gain in employment followed a 77,000 increase in May, Labor Department figures showed today in Washington. Economists projected a 100,000 rise, according to the median estimate in a Bloomberg News survey. Growth in private payrolls was the weakest in 10 months.

Canada did better – thanks to welfare:

Canadian employment increased by a net 7,300 positions in June and the jobless rate fell unexpectedly to 7.2 per cent, Statistics Canada said Friday in Ottawa.

The gain in jobs exceeded the forecasts of Bay Street analysts, who had also predicted that the unemployment rate would remain at 7.3 per cent. Average hourly wages for full-time workers rose 3.3 per cent from a year earlier, the fastest annual rate since the summer of 2009.

Still, while the June employment increase was fuelled by an impressive 29,000 new full-time positions, much of that hiring was in public-sector jobs in areas like education and health care.

Bankers in Dubai are among those who thank you for donating to UNICEF! There is capital flight in Afghanistan:

Afghan central bank inspector Fahim Satari stands in Kabul airport in front of a local businessman headed for Dubai, counting by hand the stack of $100 bills that police found the passenger carrying to the gate.

Satari declares the cash to be under the $20,000 limit imposed to stem the flood of money leaving through the terminal, which swelled to $4.6 billion in the year to March and equals almost one-fourth of the economy. While Satari’s team has slowed the airborne outflow, Kabul brokers who arrange informal transfers say business has jumped. In a country where only 7 percent of the population has a bank account and 15 percent of the economy depends on opium, cash is fleeing Afghanistan.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums up 10bp, FixedResets gaining 7 bp and DeemedRetractibles losing 16bp. Volatility was minor. Volume was quite low.

The Central Banks are singing Pump up the volume!

Three of the world’s five major central banks moved to lower borrowing costs Thursday, underlining both the fragile state of the global economic recovery and policy makers’ resolve to block a slide back into recession.

In separate decisions that were announced within the span of less than an hour, the People’s Bank of China and the European Central bank cut their benchmark interest rates, and the Bank of England pumped up its bond buying program.

It didn’t do the European market much good:

The euro sank to a one-month low as Spanish and Italian bonds plunged after the European Central Bank disappointed investors anticipating a more aggressive effort to fight the debt crisis. U.S. equities fell as investors awaited tomorrow’s jobs report.

The euro tumbled 1.1 percent to $1.2388 at 3:01 p.m. in New York and the Dollar Index surged the most this year.

This might be relevant to good news from Ireland:

Ireland returned to short-term debt markets on Thursday for the first time since before its bailout in November, 2010, paying less for three-month paper than Spain, which has avoided going to international lenders for a full sovereign rescue .

In a tentative first step following a near two-year hiatus, Ireland sold €500-million ($628-million) of Treasury bills at an average yield of 1.8 per cent and said it hoped to return to long-term debt markets with a syndicated issue later this year or early next at a maturity of two years or more.
…
Yields on benchmark Irish 2020 bonds have fallen by almost 100 basis points since the summit and were over 50 basis points lower than their Spanish counterparts at 6.25 per cent after the auction, little changed on the day. (A basis point is 1/100th of a percentage point.)

Spain, whose 10-year yields rose sharply on Thursday, sold three-month debt at an average yield of 2.36 per cent last week while Italy had to pay 2.96 per cent to auction six-month paper a day later.

Well, it’s 11:30pm and TMXDataLinx still hasn’t made Last Quotes for July 5 available, so I’m giving up. I’ll add the tables … sometime.

Update, 2012-7-6: Here are the tables, finally:

It’s a black day for Canadian capital markets – the regulators have approved the bank-controlled monopoly on infrastructure:

Canada’s Competition Bureau said it won’t challenge the proposed C$3.73 billion ($3.68 billion) bid for the owner of the Toronto Stock Exchange by a group of Canadian financial institutions.

The bureau “does not, at this time, intend” to challenge the acquisition of TMX Group Inc (X), the agency said in a statement posted on its website.

The statement says:

Today, the OSC issued final recognition orders regarding the proposed transactions, following its own review. While the Bureau has an independent mandate to review mergers, the Bureau provided input and advice to the OSC for its consideration relating to the potential impact on competition that could result from the proposed transactions.

While the Bureau conducted its own review of the proposed transactions, the measures contained in the OSC’s final recognition orders materially change the regulatory environment sufficient to substantially mitigate the Bureau’s competition concerns. Accordingly, the Bureau is today issuing a No Action Letter (NAL) to Maple Group in respect to the proposed transactions.”

The Regulatory approval is conditional on there being more jobs for regulators:

Regarding complexity, the Commission has imposed terms and conditions that it feels are necessary in order for it to determine that it is in the public interest to make the orders. We acknowledge that the Commission will require an increase in capacity and capability to effectively manage the increased demands of oversight and the Commission undertakes to do so. To the extent that this increase in capacity and capability results in increased costs of oversight, our expectation is that these costs will be borne by Maple and its regulated affiliates, through the imposition of participation fees and activity fees, rather than by market participants more generally. Our intended enhanced oversight program is described in more detail below.
…
Due to Maple’s proposal to own the key market infrastructure entities in Canada, which could concentrate risk in Maple, and the significant amount of conflicts that could result, we will be instituting an enhanced oversight program for the Maple Group. This program will include:

• Regular communication and interaction with board and management
• Regular communication and interaction with relevant users committees
• Periodic reporting of activities and development in businesses
• Periodic oversight reviews
• Prior approval of certain aspects of operations
• Access to all information (both regulated and affiliated businesses )
• External verification of certain information/processes/performance standards
• Review of access to CDS by unaffiliated marketplaces and dealers
• Periodic internal review of certain aspects of businesses as specified by the Commission
• Recovery and resolution plans
• Change in control approvals

In addition, both the Exchange Recognition Order and CDS Recognition Order specify additional reporting that must
be provided to the Commission. In relation to the additional reporting that must be provided under the Exchange
Recognition Order, we also note that this is in addition to the information filing requirements currently imposed on
recognized exchanges under National Instrument 21-101 Marketplace Operation.

But wait! Could it be possible that lalaLand comes to the rescue? Not for any good reason of course – simply because they don’t want Ontario to get more of the lolly than they do:

The British Columbia Securities Commission, late in the game, unveiled a list of demands that the so-called Maple Group of banks and investors is not happy with, sources said. The parties have been talking for weeks, but have yet to reach a deal.

B.C.’s commission regulates the TSX Venture exchange, home to thousands of small capitalization companies. The B.C. regulator wants at least a quarter of the members of the Maple board to have experience running small companies, and is also demanding that Maple commit to keeping senior jobs in Vancouver.
…
Also outstanding is approval from Alberta’s securities commission, which also regulates the Venture exchange.

Alberta’s decision is likely to hinge on the outcome of the B.C. talks.

Save us, westerners, save us!

UK politicians are making desperate efforts to whitewash their regulators:

Robert Diamond, who quit yesterday as chief executive officer of Barclays Plc (BARC), sought to blame other banks for misleading markets about their ability to borrow, and regulators for turning a blind eye.

Ordered to testify to British lawmakers after Barclays agreed to pay a record 290-million pound ($455 million) fine for rigging the London interbank offered rate, Diamond said he was “disappointed” regulators failed to act on repeated warnings from Barclays that competitors had lowballed their submissions. Legislators asked him why he took so long to uncover his own firm’s attempts to manipulate interest rates.

“This isn’t just Barclays,” Diamond, 60, told lawmakers at a three-hour hearing of Parliament’s Treasury Select Committee. “Throughout 2007 and 2008, no institution of the 16 banks reporting three-month dollar Libor was at the higher end more consistently than Barclays. Barclays was getting questions about why it was always high and we were saying, ‘We are high because we were reporting at where we were borrowing money.’”

Tucker has asked to defend himself against charges of sins of commission:

Bank of England Deputy Governor Paul Tucker signaled he wants to defend himself and give his version of what happened on a 2008 phone call with former Barclays Plc (BARC) chief Robert Diamond as the Libor scandal escalates.

Less than 90 minutes before Diamond’s appearance today at a hearing of U.K. Parliament’s Treasury Committee over attempted manipulation of the Libor rate, the central bank said Tucker wants to testify “as soon as possible.” He is “keen” to “clarify the position with regard to the events involving the Bank of England, including the telephone conversation with Bob Diamond on Oct. 29, 2008,” according to an e-mailed statement.

Tucker was drawn into the scandal after Barclays released a note of the 2008 call purporting to show that he hinted the bank could cut its Libor rates.

RIM is losing pricing power:

Research In Motion Ltd. (RIM), the BlackBerry maker whose stock has dropped 95 percent since 2008, is under pressure from mobile phone companies to reduce carrier fees that generate $4.09 billion in annual revenue.

RIM said it faces demands to cut the fees paid by customers such as AT&T Inc. after posting its first loss in a decade last week. The fees account for more than a third of revenue at RIM, which is racing to introduce BlackBerry 10 phones and engineer a turnaround.

How’s your pension?

An analysis by pension consulting firm Mercer shows the funded status, or solvency position, of pension plans declined sharply in the second quarter of 2012. Mercer’s revamped pension health index stood at 77 per cent on June 30, down five percentage points from 82 per cent on March 31.

The index, which tracks the performance of a hypothetical model pension plan with typical investments, was at 76 per cent on Dec. 31.
…
Also Wednesday, an analysis by pension consulting firm Towers Watson showed its pension index fell to 56.3 per cent at June 30 from 57.1 per cent as of Dec. 31, a drop of 0.8 percentage points in the six-month period.

The index also tracks the performance of a hypothetical pension plan that invests using typical asset allocations with 60 per cent invested in stock and 40 per cent in bonds.

The US is getting a lesson on the relationship between paying the piper and calling the tune:

The Church of the Nativity in the Palestinian town of Bethlehem could use a few repairs, but is it in peril? The United Nations Educational, Scientific and Cultural Organization says so, having declared the church an endangered World Heritage site last week.

Palestinians made hay arguing that Israel’s occupation of the West Bank threatened the humble church, said to mark the birthplace of Christ. A UN expert committee disagreed, concluding it faced no danger. The U.S. objected to the “endangered” designation, claiming it was a means to attack Israel, but lost the 13-6 vote.

The episode offers a glimpse of the new Unesco, where the U.S. has diminished clout after having announced its intention to stop funding the organization following Palestine’s admission as a member last October. The U.S. purpose presumably was to punish Unesco. Instead, other countries — notably China and Qatar — have stepped in to fill the 22 percent hole in Unesco’s $325 million annual budget.

It was a mixed day for the Canadian preferred share market, with PerpetualPremiums and FixedResets both gaining 5bp, while DeemedRetractibles lost 11bp. Volatility was muted. Volume was very low.