Watchdog Says EU Short Selling Rules Need Upgrading

“LONDON (Reuters) – European Union rules to curb abusive short-selling of shares and government bonds have made financial markets more transparent, but changes are needed to the seven-month old law, the bloc’s market watchdog said on Monday.

Short-selling is a bet on stock or bond prices falling. The seller borrows the securities first, sells them on loan and seeks to buy them back at a lower price to pocket a profit.

Critics say short-selling accelerates sharp swings in markets, worsening losses for ordinary investors in a bear market. Supporters argue it provides the market with additional trading volume.

Under the new rules, which apply to bank shares and some government bonds, short positions above a certain threshold must be reported to supervisors and markets.

The measures, the EU’s first set of bloc-wide rules to curb short-selling, were rushed through at the height of the euro zone debt crisis in an attempt to calm markets and took effect last November.

Politicians accused hedge funds at the time of exacerbating the debt crisis by betting on falls in Greek and other government debt prices.

The European Securities and Markets Authority (ESMA) said the rules have had some positive effects.

“However, ESMA is advising the European Commission to consider adjusting a number of aspects in the regulation that do not alter its main elements,” the watchdog’s chairman, Steven Maijoor, said in a statement….”

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“(Reuters) – American Realty Capital Trust IV (ARCT) said it would buy a portfolio of retail properties from General Electric Co’s financial arm for $1.45 billion as it looks to cut its dependence on its top 10 tenants.

ARCT, a U.S. real estate investment trust owned by the American Realty Capital group, said the purchase would reduce net operating income from its top 10 tenants to 39.5 percent of the total from 82.5 percent….”

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“Hedge funds raised bets on a gold rally by the most in two months as the U.S. economy expanded less than previously estimated, boosting speculation the Federal Reserve will maintain the pace of stimulus.

Speculators raised their net-long position by 35 percent to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier. Net-bullish wagers across 18 U.S.-traded commodities climbed 13 percent to a nine-week high of 652,708 contracts, led by gains in corn and natural gas….”

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“The euro held a gain from last week versus the dollar after a report showed manufacturing in the 17-nation currency bloc contracted at a slower pace than initially estimated in May.

Europe’s shared currency pared an intraday advance after Federal Reserve Bank of San Francisco President John Williams said the central bank’s asset-purchase program has the potential to end this year. Norway’s krone, Sweden’s krona and South Africa’s rand rallied on data showing manufacturing in the three nations expanded last month. Turkey’s lira slid following a weekend of violent protests.

“The surprise in the euro-region data is lending support to the euro,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “At the moment it only takes little news to send the euro higher against the dollar because the market is very long dollars.” A long position is a bet that an asset will rise in price.

The euro was little changed at $1.30 at 7:34 a.m. New York time. It reached $1.3061 on May 30, the strongest level since May 9. Europe’s shared currency gained 0.4 percent to 1.2464 Swiss francs and was little changed at 130.53 yen. Japan’s currency traded at 100.50 per dollar.

The euro will trade at about $1.30 for the next three months, before dropping to $1.27 by the end of the year, Kirkegaard predicted.

Manufacturing Gauge…”

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“China’s new home prices jumped in May by the most since they reversed declines in December, as the government’s efforts to tighten property curbs this year fail to deter buyers.

Prices surged 6.9 percent from a year earlier to 10,180 yuan ($1,659) per square meter (10.76 square feet), SouFun Holdings Ltd. (SFUN), the country’s biggest real estate website owner, said in a statement today after a survey of 100 cities. The costs rose 0.81 percent from April, the 12th month of gains on a month-on-month basis.

China will widen property tax trials, which have only been imposed in Shanghai and Chongqing, the State Council said in a statement posted on the central government’s website on May 24. The government stepped up a three-year campaign to cool home prices in March, with only the capital city of Beijing issuing the toughest measures among 35 provincial-level cities, according to Centaline Property Agency Ltd., the country’s biggest real estate agency.

“Against the backdrop of rising land prices, supply shortages in key cities and expectations of looser monetary policy, the expectations for further home-price gains going forward remain relatively strong,” SouFun said in the statement.

The average price in the 10 biggest cities, including Beijing and Shanghai, jumped 9.7 percent from a year earlier to 17,202 yuan per square meter, up 1.1 percent from April, SouFun said….”

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“Chinese manufacturing indexes showed small businesses struggling, sapping momentum in the economy and underscoring the need for the government to shift support away from larger, state-backed companies.

The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said June 1. A private manufacturing index today that includes small enterprises fell more than forecast to 49.2, an eight-month low, from 50.4. Levels below 50 signal contraction.

The reports illustrate Premier Li Keqiang’s challenges in achieving sustainable growth across the world’s second-biggest economy while increasing consumption and reducing reliance on exports and investment. Declines in manufacturing gauges today in India, South Korea, Vietnam and Taiwan add to risks that Asian and global expansion will slow.

“It is too early to conclude that an economic rebound has begun” in China, Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, said in a report today. “There is still a strong bias towards larger enterprises and coastal areas in terms of fiscal and credit policy implementation,” and small and mid-sized companies appear to “operate with minimal policy support,” Shen wrote.

Divergences in the manufacturing indexes are common given their different focus and coverage, said Wang Tao, chief China economist at UBS AG in Hong Kong. The decline in the official PMI’s gauge for smaller companies is consistent with the HSBC index, Wang said before today’s release.

Stock Indexes…”

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“Building the $5.3 billion Keystone XL oil pipeline across the middle of the U.S. will require thousands of workers and millions of pounds of steel.

It will also require a lot of smelly dead rats.

The U.S. Fish & Wildlife Service this month said that Keystone’s proposed route across Nebraska put the endangered American burying beetle at risk. The agency said the black and orange-spotted insect could be spared, and the project move forward, if proper procedure is followed.

That means pipeline builder TransCanada Corp. (TRP) will have to trap and relocate the one-inch beetles, using frozen rats that have thawed for at least three days for maximum pungency, according to detailed protocols U.S. authorities have drawn up to protect the burrowing bug.

“It’s amazing that you have to go through all this time and effort to protect a beetle, but they do,” said Michael Whatley, executive vice president of the Consumer Energy Alliance, an industry-backed group based in Washington that promotes low energy costs and supports Keystone. “The take away is that no matter what t’s have to be crossed or i’s dotted, they are doing it.”

The State Department is still reviewing the Calgary-based TransCanada’s application to build the pipeline linking Alberta’s oil sands to refineries along the U.S. Gulf Coast, and a decision on whether it’s in the national interest is expected in the fall. The department has jurisdiction because Keystone would cross the border with Canada.

Birds, Squirrels…”

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“Australia’s dollar and government bond yields climbed amid signs that a slowdown in China is bottoming out, easing concern demand for commodities will decrease in Asia’s biggest economy.

The Aussie gained against all of its 16 major peers after official Chinese data over the weekend showed manufacturing accelerated and as a technical indicator signaled a recent decline in the currency was overdone. Local 10-year bond yields rose before a Reserve Bank of Australia policy meeting tomorrow, when the central bank will probably keep the benchmark rate at a record-low 2.75 percent, economists forecast.

The manufacturing report published June 1 was “the first seemingly positive bit of economic news that we’d had from China for some time,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “There’s a chance that we can push a little bit higher,” he said, referring to the Aussie.

Australia’s dollar added 0.8 percent to 96.49 U.S. cents as of 4:36 p.m. in Sydney after posting a 7.7 percent tumble in May, the biggest monthly slump since September 2011. New Zealand’s dollar rose 0.4 percent to 79.75 U.S. cents following a 7.2 percent decline last month.

The 14-day relative-strength index for the Aussie against the U.S. dollar slid to as low as 19.5 last month, a level unseen since May 2010, and was at 25.5 on May 31. Readings below 30 indicate an asset’s price has fallen too rapidly and is set for a rebound.

Chinese Economy

The Purchasing Managers’ Index of Chinese manufacturing advanced to 50.8 in May from 50.6 the prior month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on June 1. Economists in a Bloomberg News survey had forecast 50, which marks the dividing line between expansion and contraction….”

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“Rio Tinto Group (RIO) is pursuing an initial public offering of its gem unit, the world’s largest supplier of natural colored diamonds, after failing to find a buyer, according to a person familiar with the matter.

Rio hired Morgan Stanley (MS) to oversee an IPO in London, the person said, asking not to be identified because the process is private. The London-based company is still open to offers for the operations, the person said. Rio has been considering divesting the assets since March last year, saying they no longer fit with its strategy….”

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“Seven & I Holdings Co. (3382), the operator of 7-Eleven convenience stores, plans more acquisitions in the U.S. and may more than double North America outlets as consumer spending improves in the largest economy.

In North America the company “could increase our store number to 20,000 or even 30,000,” Chairman Toshifumi Suzuki said in a May 30 interview at the company’s Tokyo headquarters. It currently has more than 8,000 outlets in the region and Suzuki didn’t provide a timeframe for the planned expansion….”

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“Japanese companies’ capital spending fell 5.2 percent in the first quarter from a year earlier, underscoring the challenge the government faces in sustaining momentum in the world’s third-biggest economy.

The decline in spending excluding software compared with a 7.2 percent slide in the previous quarter, a Ministry of Finance report showed in Tokyo today. The median forecast of six economists surveyed by Bloomberg News was for a 5.5 percent decrease. Investment fell 0.9 percent from the prior quarter, according to the report.

Campaigning to boost company outlays and wages through fiscal and monetary stimulus and a loosening of business regulations, Prime Minister Shinzo Abe needs to sustain confidence amid weakness in the global economy and volatility in Japanese stock and bond markets. Abe has pledged to restore annual private investment to the 70 trillion yen ($695 billion) level before the 2008 financial crisis.

“Companies are not confident in the economic outlook as we haven’t seen a clear signal of a solid global recovery,” Daiju Aoki, a Tokyo-based economist at UBS AG. said. “This will pressure the Abe government to come up with measures to support businesses in the growth strategy” due this month, he said….”

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“Japanese shares fell, with the Topix index (TPX) deepening its correction, as Nomura Holdings Inc. paced declines among brokerages and a stronger yen weighed on exporters’ earnings outlook.

The Topix lost 3.4 percent to 1,096.95 at the close of trading in Tokyo, with all of its 33 industry groups falling. The gauge is down 14 percent from its recent high on May 22. The index sank 2.5 percent in May, its first monthly drop since August. Measures of real estate companies and brokerages, the two Topix industry groups that led the rally from November, have fallen more than 25 percent from recent highs.

“Japan is somewhat of an overcrowded trade since a lot of investors have been buying in,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd., which manages about $51 billion. “Hedge funds probably needed to lock in profits. We’re still overweight on Japanese equities.”

Nomura tumbled 8.4 percent as brokerages dropped the most on the Topix. SoftBank Corp. slid 4.8 percent after a shareholder advisory firm opposed the carrier’s takeover of Sprint Nextel Corp. Toyota Motor Corp., the world’s largest carmaker, lost 3.3 percent as the yen traded near its highest level since May 9. Mitsubishi Estate Co., the country’s biggest developer, slid 7.5 percent to pace a decline among property stocks….”

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“Global bond markets posted their biggest monthly losses in nine years in May as the U.S. dollarrallied and stocks reached record highs amid speculation a strengthening U.S. economy will allow the Federal Reserve to reduce its monetary stimulus.

The over $40 trillion of bonds in the Bank of America Merrill Lynch Global Broad Market Index fell 1.5 percent on average, led by a 2 percent drop in Treasuries. The MSCI World Index lost 0.3 percent while the Standard & Poor’s 500 reached a record high. The U.S. Dollar Index jumped 2 percent as the greenback gained versus all its major peers. The S&P GSCI Total Return Index of metals, fuels and agricultural products dropped 1.5 percent a month after falling the most since May 2012.

Employment gains and increases in housing and consumer confidence suggested the recovery in the U.S. economy, the world’s largest, is gaining momentum, prompting traders to increase bets the Fed will scale back its $85 billion in monthly debt purchases later this year. The Organization for Economic Cooperation and Development predicts faster global economic growth, led by the U.S. and Japan.

“Investors’ attempt to access what the Fed will do with its bond-buying program has been pretty central to the performance of all asset classes,” Neil Mackinnon, a global macro strategist at VTB Capital Plc in London, said May 30 in a telephone interview. “The markets are very sensitive to the idea that the Fed might ease back on their debt purchases.”

Bernanke Testimony….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

Dodge the tax man…..

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Cheers on your weekend !

Consuming Kids throws desperately needed light on the practices of a relentless multi-billion dollar marketing machine that now sells kids and their parents everything from junk food and violent video games to bogus educational products and the family car. Drawing on the insights of health care professionals, children’s advocates, and industry insiders, the film focuses on the explosive growth of child marketing in the wake of deregulation, showing how youth marketers have used the latest advances in psychology, anthropology, and neuroscience to transform American children into one of the most powerful and profitable consumer demographics in the world.

Try your hand at monetary policy….

The Federator Game

“A selloff in junk bonds is fueling fears among some investors that the best days of the bond boom may be in the past.

The spread between the yields on low-rated corporate debt and comparable U.S. Treasurys jumped 0.18 percentage point Wednesday to 4.39 points, its highest level since April.

The action is unusual because junk bonds tend to outperform higher-rated debt such as Treasurys and high-rated corporate bonds when interest rates rise. The yield on the benchmark 10-year Treasury note has risen 0.5 percentage point over the past month.

“The salad days for risk assets might be drawing to a close,” said Thomas Byrne, director of fixed income at Wealth Strategies & Management LLC. He said the selloff has been driven by investors fleeing from bonds amid chatter that the Federal Reserve might soon begin reducing the scale of its $85 billion monthly bond-purchase program known as quantitative easing.

Typically, the spread between Treasurys and junk bonds narrows as Treasury yields rise, as investors bet that an improving economy will mean fewer defaults on bonds issued by low-rated companies.

But in the past four weeks, not only did premiums on junk bonds not improve much, they recently worsened. Some see that break in the pattern as a potential inflection point in the debt markets…..”

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“It’s been ten years since prosecutors announced a $1.4 billion settlement with the Wall Street’s biggest investment banks and two individual stock analysts over accusations that the firms and analysts had duped investors to curry favor with corporate clients. Under the terms of the settlement, twelve investment banks agreed to separate their securities analysis from their investment banking business.

One of the key reforms put in place in the settlement was the bar on basing the compensation of stock analysts on their contribution to investment banking revenue. This was meant to prevent analysts from becoming shills for the corporate clients that were paying fees to the investment banks for stock and bond underwriting deals.

A new study suggests that this part of the settlement may have fallen by the wayside.

Four researchers—Lawrence Brown of Temple University, Andrew Call of Arizona State University, Michael B. Clement of the University of Texas at Austin and Nathan Y. Sharp of Texas A&M University—surveyed 365 sell-side analysts to see how the business of stock analysis is conducted these days. Startlingly, they found that 44 percent of the analysts indicated that their success at generating underwriting business or trading commissions is “very important” to their compensation.

Only 20 percent indicated that underwriting and commissions were “not important” to their compensation. Which means that another 36 percent said these things—supposedly walled off ten years ago—were somewhat important. That’s a total of 80 percent who said that generating underwriting business and trading commissions play some role in their compensation.

In other words, the so-called Chinese walls between analysis and investment banking appear to have come crashing down—and almost no one has noticed….”

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After being stuck at $19.17 a share in early 2009, Dow earnings jumped to a peak of $36.15 in 2012.

But they’ve stayed in that range over the past two quarters, hovering around $35 and most recently at $34.84 in the first quarter.

A similar situation has happened on the Standard & Poor’s 500, which saw first-quarter earnings increase 5.1 percent on revenue growth of just 1.1 percent.

At one point not long ago, earnings for S&P 500 and the price surge from the 2009 lows were nearly identical, but that relationship also has begun breaking down….”

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