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The BoE Orders Five U.K. Banks to Raise $21 Billion

“Five U.K. banks must find 13.4 billion pounds ($21 billion) to plug a 27.1 billion-pound capital shortfall by the end of the year, the Bank of England said.

The five lenders, including Barclays Plc (BARC)Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS), have already submitted plans to raise half the total, the London-based BOE said in a statement today. Lloyds must plan to raise an extra 7 billion pounds, while RBS and Barclays need 3.2 billion pounds and 1.7 billion pounds of additional capital.

“The challenge for the banks is that they have got many projects going on in the capital space,” Kevin Burrowes, a partner at PricewaterhouseCoopers, said in an e-mailed statement. “Many of those projects compete and some are duplicative. Banks need to align their projects and look at their business as a whole rather than in parts to get to the right capital position.”

The strength of Britain’s banking system is under scrutiny as the government considers selling its stake in Lloyds, which is 39 percent-owned by the state, and splitting up RBS. Chancellor of the Exchequer George Osborne said in a speech in London yesterday that the U.K. government would proceed only “if we get value for the taxpayer.”

Risk Weighted…”


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Where Money Managers are Investing for the Summer

“SAN FRANCISCO (MarketWatch) — With U.S. stocks struggling to break new ground and a rise in Treasury yields upsetting the bond market, money managers are recommending a mix of proven blue-chips and exchange-traded products to weather the dicey summer months.

Investors have a dilemma about where to put money. For awhile defensive stocks were a safe place to park; that momentum has rotated into cyclicals, which gained nominal all-time highs in May.

Now, well into the stock market’s weakest half of the year and the looming specter of the Federal Reserve tapering its quantitative easing program, the strength of both the Dow Jones Industrial AverageDJIA +0.65%  and the Standard & Poor’s 500 Index SPX +0.51%  is being questioned.

Meanwhile, market volatility, which has been fairly docile, is climbing. The CBOE Volatility Index VIX -0.83% , or so-called fear index, is still below multi-year averages, but the increased activity typically signals a change in market leadership.

With this in mind, MarketWatch polled some seasoned investors for ideas on how to navigate the summer months if the market bears come out of hibernation.

As international economies weaken, think local….”

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Money Market Rates Remain High in China as the Cash Crunch Continues

“SHANGHAI—China’s money-market rates remained stubbornly high Tuesday, suggesting a standoff between the country’s central bank and lenders that is causing stress to the financial system is set to continue.

An interbank benchmark for funding costs called the seven-day repo rate was at 6.82% Tuesday, close to the 6.89% rate at Monday’s close and a record 6.90% on Friday. It had averaged around 3.30% this year before the liquidity crunch began at the end of last month.

In a sign that China’s central bank isn’t going to relax the pressure soon, the People’s Bank of China refrained from adding cash to the financial system Tuesday. It normally conducts so-called open market operations on Tuesdays and Thursdays by adjusting short-term loans to commercial lenders, which controls the supply of credit.

Since they first soared on May 31, interbank lending rates have taken a toll on other financial markets and vexed investors. The benchmark Shanghai Composite Index has fallen 7.1%, while short-dated bond yields have risen more than 40 basis points. The yuan has been flat during the same period as global investors have pulled out money and lowered expectations for further gains.

The tight conditions suggest China’s financial markets will remain under pressure even though some big banks are calling for the central bank to inject more cash into the market by lowering the share of deposits that banks are required to set aside against financial trouble.

Analysts say Beijing may even be taking advantage of the market turmoil to test banks’ capacity for risks. The higher funding costs stress the ability of banks to raise cash and may reveal which lenders have taken on too much risk should they get into trouble…..”

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Budget Deficit Widens to $139 Billion

“The U.S. government posted a budget deficit of $139 billion in May, 11 percent higher than a year ago and above economists’ expectations, partly because of temporary calendar adjustments, the Treasury Department said.

May has had a deficit for 54 out of the last 59 years, a Treasury official said, as it is typically the month when the government refunds tax payments to U.S. citizens.

But so far this fiscal year, which began in October, the government budget deficit has shrunk faster than expected, standing at $626 billion at the end of May, 26 percent lower than the deficit in May 2012.

That is largely due to a 15 percent increase in tax receipts compared to last year, at $1.8 trillion, while spending has increased by only 1 percent. Revenues have been boosted because payroll tax cuts expired, taxes went up on richer Americans and the economy has started to recover.

The Congressional Budget Office last month estimated the United States is on track for its first deficit below $1 trillion since President Barack Obama came into office. The deficit should fall to 4 percent of GDP this year, less than half the shortfall in 2009, the CBO said….”

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Bond Markets Continue to be Worrisome

“Following yesterday’s ugly 3 Year auction, some were worried the bond market weakness could spill over to today’s benchmark 10 Year reopening of $21 billion in paper. It prices just through the When Issued of 2.210%, or at 2.209%, a little better than expected, although the highest yield since October of 2011. So while the demand on the surface was sufficient, the Bid to Cover, which dropped to only 2.53, below last month’s 2.70, well below the TTM average of 2.92, and the lowest since August of 2012…”

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Want an Edge ? Pay a Bribe and Trade Ahead on Insider Information

“A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.

A contract signed by Thomson Reuters, the news agency and data provider, and the University of Michigan, which produces the widely cited economic statistic, stipulates that the data will be posted on the web for the general public at 10 a.m. on the days it is released.

Five minutes before that, at 9:55 a.m., the data is distributed on a conference call for Thomson Reuters’ paying clients, who are given certain headline numbers.

But the contract carves out an even more elite group of clients, who subscribe to the “ultra-low latency distribution platform,” or high-speed data feed, offered by Thomson Reuters. Those most elite clients receive the information in a specialized format tailor-made for computer-driven algorithmic trading at 9:54:58.000, according to the terms of the contract. On occasion, they could get the data even earlier—the contract allows for a plus or minus 500 milliseconds margin of error.

In the ultra-fast world of high-speed computerized markets, 500 milliseconds is more than enough time to execute trades in stocks and futures that would be affected by the soon-to-be-public news. Two seconds, the amount promised to “low latency” customers, is an eternity.

For exclusive access to the data, Thomson Reuters pays the University of Michigan $1 million per year, according to the contract, in addition to a “contingent fee” based on the revenue generated by Thomson Reuters. The contract reviewed by CNBC was signed in September of 2009. It expired a year later. Thomson Reuters and the University Michigan confirmed that the relationship still exists.

In a statement, Thomson Reuters said, “Through an agreement with University of Michigan, Thomson Reuters is the exclusive distributor of the Thomson Reuters/University of Michigan Surveys of Consumers to its clients through various subscription services as well as to the general public via a press release. Details of the tiered release of this data are provided openly to Thomson Reuters customers and the wider public and anyone wishing to trade on this data can pay for the service that best meets their data needs.” …”

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India Takes in the Lion’s Share of Inflows Out of All BRIC Markets

“Indian stocks are outperforming their BRIC peers by the most ever as investment from abroad defies outflows from other major emerging markets.

The CHART OF THE DAY shows the ratio of the S&P BSE Sensex Index versus the MSCI BRIC Index reached the highest since Bloomberg started tracking the data in December 1994. The Sensex rose 0.1 percent this year through June 10, compared with losses of between 11 percent and 16 percent for the Hang Seng China Enterprises Index, Russia’s Micex Index andBrazil’s Ibovespa. The bottom panel shows India’s net foreign equity inflows of $15.3 billion are the highest ever for the year-to-June 7 period.

Overseas investors pumped $221 million into Indian shares last week, according to data compiled by Bloomberg. That compares with outflows of $5 billion from emerging equities in the five days to June 5, the most since August 2011, Morgan Stanley said, citing EPFR Global. Investors pulled some $1.5 billion from Chinese equities, $530 million from Brazil and $360 million from Russia during the period, Morgan Stanley said.

“I’d attribute this more to the poor performance of Brazil, China and Russia rather than good performance of India,” said Peter Elston, head of Asia Pacific strategy at Aberdeen Asset Management in Singapore. “China has been struggling with containing a credit-fuelled investment binge, Russia with a weak oil price, and Brazil with inflation. It should be noted that in the case of India, inflation has been falling.”

Overseas investors continued to plow funds into Indian stocks last week even as a plunge in the rupee to a record low triggered concern that energy prices may rise in a nation that imports about 80 percent of its oil. Foreign funds sold more than $1 billion of the nation’s corporate and sovereign bonds in the same period, the most ever….”

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Indonesia Raises Rates on Overnight Deposits

Bank Indonesia raised the rate it pays lenders on overnight deposits and said it’s ready to buy government debt in the secondary market as Governor Agus Martowardojo moves to boost confidence in the rupiah weeks after taking charge.

The central bank raised the deposit facility rate, also known as the Fasbi, by a quarter of a percentage point to 4.25 percent effective today, it said in a statement after a board meeting yesterday. The increase is a preemptive step to maintain stability after the rupiah weakened and Bank Indonesia will ensure sufficient liquidity in the market, it said….”

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$AAPL Takes a Bite Out of Money Manager’s Performance

“Active managers in both the mutual and hedge fund industries are badly underperforming their peers, and they have a mutual malady: heavy ownership of flailing tech giant Apple.

The Cupertino, Calif.-based maker of electronic gizmo wizardry is the fourth-most owned company by the top 50 mutual funds and the fifth-most owned by hedge funds.

With Apple shares down 16 percent this year, it’s played a heavy role in the inability of active managers to beat the basic Standard & Poor’s 500 benchmark….”

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Emerging Markets Suffer Continued Bond Meltdown

“The massive sell-off across emerging markets continues in force today.

One of the big themes in global markets over the past month has been the rise in U.S. Treasury yields and the attendant strength in the U.S. dollar. This has caused a big unwind in emerging markets, as EM currencies depreciate against the dollar and higher-yielding EM government bonds look less attractive relative to Treasuries.

The 10-year Turkish government bond yield rose 22 basis points today to 4.22%. In South Africa, 10-year yields rose 28 basis points to 7.84%. And in Mexico, 10-year government bond yields widened 5 basis points to 3.33%.


em yields

Business Insider/Matthew Boesler, data from Bloomberg


And if you’re looking for a really ugly chart, inflation linkers in Brazil are getting absolutely massacred….”

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Big Banks Begin To Unload Jumbo Loans to Private Investors

“As home prices rise, demand for jumbo mortgages is rising too. And as investors look for new ways to cash in on the housing recovery, these mortgages are starting to look more attractive.

Since the housing crash began, the market for jumbo mortgage-backed securities, pools of these loans sold to investors, has been close to nothing. Banks still make the loans, but hold them on their books. Now that is beginning to change.

While the number of jumbo loans originated in the first quarter of this year was up 15 percent from a year ago, the number of those loans securitized and sold by lenders was up 400 percent, according to Inside Mortgage Finance. Four billion worth of jumbo loans were sold to investors, more than the $3.5 billion in jumbos originated in all of 2012….”

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Russia Leaves Rates Unchanged

“Russia’s central bank left its main interest rates unchanged at Sergey Ignatiev’s final meeting as chairman, signaling that his successor Elvira Nabiullina may have grounds to cut once inflation begins to slow.

The refinancing rate will remain at 8.25 percent for a ninth month, the central bank in Moscow said in a statement on its website today. That matched the prediction of 22 of 26 economists in a Bloomberg survey, with four forecasting a quarter-point cut. Some longer-term borrowing costs were cut for a third month, with the key lending and deposit rates kept unchanged….”

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Soros Begins Shorting the Yen While Buying Japanese Equities

“HONG KONG (MarketWatch) — A hedge fund run by billionaire investor George Soros was back placing bets in Japan, shorting the yen and snapping up local stocks, according to a Dow Jones Newswires report Friday, citing a source close to the matter. Soros returned to the market following some signs of stability in the Japanese bond market, the source was cited as saying in the report. The person said that while the sharp recent fall in Japanese equities was a “surprise,” the current level of stocks was “very attractive”….”

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Cash Squeeze Causes China’s Overnight Lending Rate to Jump the Most in Two Years

“The rate China’s lenders charge one another on overnight loans jumped the most in almost two years as shrinking capital inflows led to a cash squeeze before a three-day holiday.

Yuan positions at local financial institutions, an indication of money pouring into Asia’s largest economy, rose 294 billion yuan ($48 billion) in April and China International Capital Corp. estimates the gain slowed to around 100 billion yuan last month. While the People’s Bank of China added a net 160 billion yuan to the financial system this week, it has refrained from conducting reverse-repurchase operations that inject funds since Feb. 7. Local markets will be shut from June 10 to June 12 for the Dragon Boat Festival.

“Foreign capital inflows are probably declining,” said Wang Huane, a senior bond trader at Qilu Bank Co. in Jinan, capital of the eastern Shandong province. “The PBOC has refrained from adding more capital into the financial system, which worsens the situation.”

The one-day repurchase rate, which measures interbank funding availability, climbed 253 basis points, or 2.53 percentage points, to 8.68 percent as of 4:30 p.m. in Shanghai, the biggest jump since July 2011, according to a weighted average rate compiled by the National Interbank Funding Center. It surged 4.15 percentage points this week.

Default Report…”

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Pension Funds in Japan Sell Bonds to Buy Equities

Japan’s public pension fund, the world’s biggest manager of retirement savings, said it will reduce its holdings of local bonds and buy more shares.

The proportion of assets held in Japanese bonds will be cut to 60 percent from 67 percent, the health ministry said today in Tokyo at a briefing to announce changes to the mid-term plan of the Government Pension Investment Fund. The weighting of local shares will be increased to 12 percent from 11 percent currently. The Health and Welfare Ministry, which oversees pensions, didn’t give a time frame for the changes.

“It was a negative factor as far as bond supply and demand is concerned,” said Makoto Suzuki, a bond strategist at Okasan Securities Co. in Tokyo, one of the 24 primary dealers obliged to bid at government debt sales.

GPIF’s shift toward higher-yielding assets comes as it prepares to fund retirements in the world’s most elderly population and Prime Minister Shinzo Abe tries to revive the economy through fiscal and monetary stimulus. Domestic shares have slid since Abe said yesterday that a legislative campaign to loosen rules on businesses, the “third arrow” of his economic plan, won’t begin for months.

Nikkei 225 Stock Average futures in Singapore and Osaka erased gains after the GPIF announcement. June futures on the Nikkei 225 fell 1.5 percent to 12,645 at the 2:30 p.m. close in Singapore while those in Osaka fell 1.1 percent.

Alternative Assets….”

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BoE Keeps Stimulus Spigot Open, Leaves Rates Unchanged

Bank of England policy makers maintained stimulus for the economy after Governor Mervyn King concluded his last policy meeting surveying a recovery that’s not yet strong enough to warrant the “escape velocity” sought by his successor, Mark Carney.

The nine-member Monetary Policy Committee held its target for bond purchases at 375 billion pounds ($580 billion), in line with the median estimate in a Bloomberg News survey of 43 economists. The meeting was King’s 194th, and he will hand Carney on July 1 an economy thatresumed growth in the first quarter and may have picked up in the current period….”

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The ECB Keeps Rates on Hold as The Euro Gathers Strength

“The European Central Bank kept interest rates unchanged at a record low as improving confidence underscored President Mario Draghi’s timetable for an economic recovery later this year.

Policy makers meeting in Frankfurt today left the main refinancing rate at 0.5 percent after reducing it by a quarter point last month, as predicted by 57 of 59 forecasts in a Bloomberg News survey of economists. Morgan Stanley & Co. and IHS Global Insight were the only institutions to predict a cut. Draghi will hold a press conference at 2:30 p.m.

A month after Draghi left investors to ponder a menu of further measures that the ECB might consider to aid economic growth, he may point to improving sentiment as justification for keeping borrowing costs unchanged. Still, economist say officials probably need to cut their outlook for growth after data showed the euro region’s recession extended through the first quarter and Germany’s economy barely grew.

“Draghi’s rhetoric is poised to remain dovish, confirming that the ECB stands ready to act further if needed,” said Marco Valli, chief euro-area economist at UniCredit Global Research in Milan. Still, “we do not expect any bold announcement on unconventional policy,” he said.

The ECB held its deposit rate at zero and its marginal lending rate at 1 percent. The Bank of England kept its bond-purchase target at 375 billion pounds ($580 billion) and maintained its key rate at 0.5 percent.

Adding Stimulus…”

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Check Out the 31 Stocks That Short Sellers Just Won’t Let Go Of

“This bull market has been an absolute nightmare for traders shorting, or betting against, the market.

Still, the shorts are holding on to their positions in hopes of a pullback.

We screened the S&P 500 for the most heavily shorted stocks.

The list includes…”

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RBA Says There is Still Room to Cut Rates a the Aussie Remains High Against Peers

Australia’s central bank said it still has room to cut the benchmark interest rate from its record-low level and judged that the nation’s exchange rate remains high even after the biggest monthly drop since 2011.

Governor Glenn Stevens and his board kept the overnight cash-rate target at 2.75 percent, theReserve Bank of Australia said in a statement today in Sydney. “The inflation outlook, as currently assessed, may provide some scope for further easing, should that be required,” Stevens said. The pause was predicted by 24 of 26 economists surveyed by Bloomberg News….”

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Abenomics Helps Wages to Increase the Most in a Year

Japan’s wages rose by the most in a year in April, a gain that supports Prime Minister Shinzo Abe’s campaign to reflate the world’s third-biggest economy after 15 years of falling prices.

Monthly wages including overtime and bonuses rose 0.3 percent from a year earlier to 273,427 yen ($2,746), the Labor Ministry said today in Tokyo. Abe aims to sustain investor and public confidence amid market volatility, with the Topix index of stocks swinging betweens gains and losses today….”

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