Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Archive | November, 2016

Theresa May’s pre-Brexit split with City

Posted on 04 October 2016 by

Theresa May, U.K. prime minister and leader of the Conservative Party, listens to speeches on the second day of the party's annual conference in Birmingham, U.K., on Monday, Oct. 3, 2016. Business groups and foreign capitals pressed May for more detail after she said she'll start pulling the U.K. out of the European Union in the first quarter of 2017, and hinted that she's tending toward a so-called hard Brexit. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

EC2, we have a problem. City delegates stranded on Planet Tory for the duration of the party conference report the atmosphere has turned toxic. New Conservative administrations usually swing out of big business’s gravitational pull, returning later. However, the settlement this government reaches with Europe over the next couple of years may endure for many years.

That creates difficulties for the UK’s financial services sector. Lobbyists lost in the deep spaces of Birmingham’s convention centre believe Theresa May and her ministers will cut no special deal for the City during Brexit talks. As a result, banks, brokers and insurers could lose streamlined access to the single market, reducing exports to the EU that stood at a net £14bn in 2014.

    David Cameron and George Osborne went in to bat for the City in Europe even when the City did not want them to. Their hostility to banks reflected expediency and internecine sympathy for hedge funds. Mrs May and new chancellor Philip Hammond are different. They identify with small businesses based in Maidstone rather than Mayfair.

    You cannot blame Mrs May for ignoring special pleading from the Square Mile and the corporate sector. Big business’s lack of influence was painfully revealed when the electorate ignored its prophecies of economic doom and voted to leave the EU.

    Post-referendum demands from City grandees for the government to guarantee full access to EU markets show they remain out of touch, critics say. “The government is unmoved by the fear that a relatively small number of people will end up with relatively smaller yachts,” says one Tory spinner. Staunching immigration matters more to Mrs May. That will win her credit with the Tory right and voters. She knows invoking Article 50 by March will weaken her hand in Europe, as foreshadowed by the plunging pound. But it will demonstrate her resolve.

    One City lobbyist predicts subsequent Brexit talks could resemble an “antitrade negotiation” in which each side bids up regulatory barriers as the two-year exit deadline looms. The worst outcome for manufacturers is that exports to the EU are governed by default World Trade Organisation rules. In financial services, market access could be lost altogether.

    Mrs May should adjust her priorities. There is no shame in showing a comparative preference for the one sector in which the UK wields comparative advantage. The City’s clustering effect makes it strong, not invincible. Mrs May is often compared with Margaret Thatcher because she is a woman. She should beware lest history judges there is another parallel. Mrs T’s policies hollowed out manufacturing. Mrs M must not do the same to financial services.

    Trade FX like a CEO

    The internet is awash with adverts urging the public to “trade forex like a pro”. The real winners from the slide in the pound are not day traders, though. They are bosses of large UK-quoted businesses, who stand to make millions if bonus schemes pay out in response to surging share prices.

    That depends on the stock market continuing to play keepy-uppy. On Tuesday the FTSE 100 closed at 7,074, almost 14 per higher since the new year. The main propellant was a fall in sterling to a 31-year low in response to expectations of a hard Brexit, driving up shares in businesses with hefty dollar earnings. Stimulatory monetary and fiscal policies are also responsible, according to Panmure’s Simon French.

    Company bosses cannot claim any credit. Yet their long-term incentive plans are typically configured to deliver ”rewards” when total shareholder returns or earnings per share beat set targets, Manifest research shows. Bosses may thus benefit from a translational increase in profits earned in dollars but expressed in pounds. Companies where this might apply include BAT, Reckitt Benckiser and Vodafone.

    Ironically, a government determined to rein in executive pay may have inadvertently given fat cats an extra helping of sardines.


    We are in the thick of the non-reporting season for the Big Four accountants. Deloitte revealed almost nothing about its performance last month. PwC and EY are taking their turn this week. KPMG is scheduled not to disclose its earnings in December.

    Sure, multinational abacus rattlers reveal revenues – PwC’s were up 7 per cent at $36bn. They tell us little else, a feat in this era of transparency and accountability.

    The accountants presumably calculate their own profits and tax liabilities as adeptly as those of clients. But as networks of partnerships, they have no obligation to publish them.

    Here, then, is one way smart, highly numerate people get rich and stay that way. Talk eloquently about everyone else’s business. When the conversation drifts towards your own, zip it.

    IFC offers yield carrot for investors

    Posted on 04 October 2016 by

    Pedestrian walk in front of construction of metro rail in Chennai, India on April 17, 2012. (Kuni Takahashi/Bloomberg)©Bloomberg

    IFC advisers helped construction of the Chennai metro in India

    A new lending platform is being created by the World Bank’s private-sector arm to mobilise billions of dollars of much-needed funds for infrastructure projects in emerging markets.

    The International Finance Corporation has an initial $5bn target for its MCPP Infrastructure initiative, due to be announced on Wednesday. The idea is to help plug the gap between the $2tn the IFC says is needed each year for global infrastructure and the $1tn actually spent on new projects.

      The IFC hopes to take advantage of the frustration among insurers and other institutional investors over the low yields on investments in an era of ultra-low or even negative interest rates.

      Private financing currently accounts for less than a third of the world’s total infrastructure spending, and the IFC hopes to lure investors with the prospect of relatively good returns.

      “This is a golden opportunity,” said Jingdong Hua, IFC treasurer. “We want to unlock a viable alternative with attractive returns. If global interest rates were 5 per cent we would not have this opportunity.”

      To meet the requirements of risk-sensitive private-sector investors, the IFC has structured MCPP Infra’s loans to have a low investment-grade rating and yields 4-4.5 percentage points above the London interbank offered rate. Meanwhile, the IFC and the Swedish International Development Co-operation Agency will absorb the first losses in any project. MCPP stands for Managed Co-Lending Portfolio Program.

      The result should be a collection of highly diversified emerging-market assets at a time when many investors are looking for a safe way to increase their exposure to the higher growth and returns available in emerging economies.

      The Global Investors arm of Allianz has made a commitment to join the platform with an investment of $500m, while Axa and the Asian arm of Prudential are expected to sign on shortly.

      “We obviously avoid investments with negative yield,” said Andreas Gruber, chief investment officer at Allianz. “At the same time, we do not accept higher investment risks just to achieve a specific return target. The first loss piece offered by IFC limits our investment risk and perfectly aligns IFC’s objectives with our business interest.”

      The IFC ultimately hopes to extend the programme to sovereign wealth funds and pension funds. These deep pools of capital have historically been leery of the political and completion risks of new projects in emerging markets, and have tended to invest only in brownfield projects.

      But one of the largest pools of all, China’s State Administration for Foreign Exchange, which is in charge of the country’s $3.2tn in reserves, is likely to come in under a pre-existing arrangement with the IFC whereby it has committed $3bn to piggyback on the IFC’s projects for the past two years.

      In recent years, the IFC has financed 15-20 projects a year and since 2007 has invested $25bn of its own money and mobilised an additional $20bn for infrastructure.

      The World Bank is preparing to seek a capital increase at a time when the tenure of Jim Yong Kim, its president, has been marked by controversy and dissent as the development bank pursues its dual mandate of eradicating poverty and sharing prosperity.

      Sompo in talks on $6bn Endurance takeover

      Posted on 04 October 2016 by

      A logo of Sompo Japan Nipponkoa Insurance Inc is seen at the company's headquarters in Tokyo, Japan, May 19, 2016. REUTERS/Toru Hanai - RTSF4A4©Reuters

      Sompo Holdings, one of Japan’s biggest insurers, is close to acquiring Bermuda-based rival Endurance Speciality Holdings for more than $6bn, according to people briefed on the negotiations.

      The two companies were finalising the deal on Tuesday and unless their negotiations collapse an agreement is expected to be announced as soon as Wednesday, those briefed said. 

        In a statement issued after the first reports of the deal, Endurance confirmed that it was in advanced discussions about “a potential strategic transaction” with Sompo but added: “There can be no assurance that the discussions will lead to a definitive agreement.”

        An acquisition of the global provider of property and casualty insurance and reinsurance would be the latest sign that a growing number of Japanese companies — backed by a strong yen — are seeking to expand their exposure to the US, where growth prospects are stronger than in their home market. 

        Shares in Endurance, led by chairman and chief executive John Charman — among the best known characters in the insurance industry — jumped 35.3 per cent to a record $87.87 in New York after Nikkei, the Japanese newspaper, first reported the deal. 

        The talks mark the latest sign that dealmaking in the insurance sector is heating up. Last month Canada Pension Plan Investment Board agreed a deal to buy Ascot Underwriting, the Lloyd’s of London platform tied to AIG, in a $1.1bn deal.

        Sompo is following Japanese peers by making a sizeable acquisition in the sector. Last year Tokio Marine sealed a $7.5bn purchase of the US speciality insurer HCC, and Lloyd’s of London operator Amlin accepted a £3.5bn bid from Mitsui Sumitomo. 

        Sompo bought Canopius — a significantly smaller business — for £594m in 2013 and has made no secret of its desire for more deals. 

        The Japanese company attempted to bulk up further in London by bidding for Amlin last year. However, Sompo has since said that it could not have made the Amlin deal work at the 2.4 times book value that Mitsui Sumitomo paid for it. 

        That experience has not dulled Sompo’s appetite for overseas acquisitions, or for the London insurance market. The company generates about 15 per cent of its profits outside Japan, but it wants to increase that to 25 per cent by 2020 and sees acquisitions as the only realistic way of reaching that target. 

        Kengo Sakurada, Sompo’s chief executive, told the Financial Times last month that London in general — and the Lloyd’s market in particular — were still attractive, despite the uncertainties created by Brexit. 

        “I’ll continue to put more resources and capital into Lloyd’s because it gives us access to other developed markets,” he said. 

        Sompo sees specialist insurance markets — which handle niche and complex risks — as far more attractive than retail insurance, which it says is already too competitive. 

        The sale of Endurance comes about three years after Mr Charman — who founded Axis and is a former deputy chairman of the Council of Lloyd’s market — joined the company. 

        Endurance, which specialises in casualty and agriculture coverage, mounted a hostile bid in 2014 to acquire its rival Aspen Insurance Holdings but ultimately its offer was rebuked.

        UK looks for transitional Brexit trade deal

        Posted on 04 October 2016 by

        ©Alamy; Getty Images

        Theresa May and her chancellor, Philip Hammond

        Ministers are looking to negotiate a transitional trade deal with the EU — including possibly paying a single market access fee to Brussels — to avoid a “cliff-edge” for exporters and the City of London after Brexit in 2019.

        A smooth transition over several years after Brexit is a key demand for the City and for countries such as Japan
        , which fear there could be disruption in trade while Britain and the EU hammer out a new free-trade agreement.

          One senior banker said people in the sector were “shooting themselves in the head” on Tuesday after Bloomberg cited a senior figure in Theresa May’s administration saying her team had privately dismissed an interim deal with the EU.

          But the claim was strongly denied by Mrs May’s allies. Several ministers told the Financial Times that a transitional trade deal was likely to be a key part of Brexit negotiations that begin next year.

          “We are working to deliver the best possible exit from the European Union and it is completely wrong to suggest we have ruled in or out transitional arrangements,” a government spokesman said.

          “Just this week we announced that European laws and regulations would be transferred to British law upon our exit from the European Union, in order to provide certainty for businesses that operate in the UK.”

          One option being considered is that Britain might continue to pay into EU coffers as an entry fee to the single market during the interim period, pending agreement and ratification of a new trade deal.

          Although such a move would be contentious with Tory Eurosceptics, ministers acknowledge there would be a gap of several years between Brexit — scheduled for 2019 — and the entry into force of new trade arrangements.

          A similar trade deal between the EU and Canada has been under preparation for seven years; the ratification by all 27 remaining member states of a potentially more complicated deal with Britain could take a number of years.

          There is a “la la la la la la” moment going on. Financial services companies are not the top priority at the moment

          – Iain Anderson, head of public affairs group Cicero

          The City of London nevertheless is increasingly jittery about Brexit and a sense that Mrs May is prioritising controls on immigration over seeking to ensure privileged access to the single market for the financial services sector.

          Mrs May’s allies insist she does care about financial services but the banks needed to realise she also had to take other interests into account and that they should engage with government like any other sector.

          Some senior officials say bankers can appear “too needy” and that they have “cried wolf” before — notably when warning that the City would be badly hit if Britain didn’t join the euro. They also acknowledge that this time the banks may have a point.

          Delegates at the Conservative party conference in Birmingham have noted an absence of ministers from fringe sessions about the financial services industry compared with usual.

          FT Data blog

          UK businesses feel Brexit bite

          File photo dated 27/11/15 of the Union flag and the EU flag. Some of the City's biggest hitters have delivered a withering critique of Theresa May's Brexit negotiations ahead of the 100 day anniversary of Britain's decision to quit the European Union. PRESS ASSOCIATION Photo. Issue date: Sunday September 25, 2016. The likes of Ryanair boss Michael O'Leary and financial PR guru Roland Rudd rubbished the prime minister's oft-used "Brexit means Brexit" catchphrase, while Sir Martin Sorrell has urged the Government to maintain access to the single market. See PA story CITY Brexit. Photo credit should read: Toby Melville/PA Wire

          Extracts from the Future of Business Survey, a new measure of sentiment from Facebook, the World Bank and the OECD

          Iain Anderson, head of public affairs group Cicero — which includes some of the biggest banks among its clients — said some ministers were not in a particularly receptive mood.

          “There is a ‘la la la la la la’ moment going on. Financial services companies are not the top priority at the moment,” he said. “This is all about the message that they want to govern differently. Finance for its part needs to learn how to talk differently to this government.”

          The City of London has lobbied hard for adequate transitional arrangements that will minimise the impact of even a “hard” Brexit — which the latest City report forecasts will cost the UK as many as 75,000 jobs and £10bn of tax revenues.

          The report from Oliver Wyman, the consultants, says transitional arrangements and grandfathering rights are “critical”.

          Wall Street bankers last month warned Theresa May that they needed a “long runway”, and a transition period lasting several years, in what was described by British officials as “a frank exchange of views”.

          Deutsche Bank offers a tough lesson in risk

          Posted on 04 October 2016 by

          James Ferguson©James Ferguson

          All banks are weak, but some banks are weaker than others. This is the chief lesson of the market turmoil surrounding Deutsche Bank. Yet there is also a host of further lessons: the approach taken to punishing banks for their failings is more like firing a blunderbuss than a rifle; and it is still hard to recapitalise banks without public money. Above all, more than nine years after the start of the global financial crisis, worries over the health of the financial system remain significant, especially in Europe. This should not be surprising. But it should be disturbing.

          The proximate cause of Deutsche Bank’s weakness has been the demand by the US Department of Justice for a settlement of $14bn of its case against the bank over its alleged mis-selling of mortgage-backed securities in America.

            But the bank is structurally weak. Its name is also misleading: lacking a solid retail base in Germany’s highly fragmented banking system, it is mainly a global investment bank and so similar to Goldman Sachs. In an effort to retain high profitability, Deutsche Bank is highly leveraged by the standards of its peers. Roughly half of its €1.8tn in assets are linked to its trading activities, with a significant proportion of those assets (€28.8bn, in total) without market prices. Even by the standards of its peers, it is a highly-leveraged bank with a doubtful business and opaque assets.

            So what does all this turmoil tell us?

            A first lesson is that banks remain highly fragile businesses. By their nature, banks are highly leveraged entities with ultra-liquid liabilities and far more illiquid assets. The balance sheets of many banks are also huge. Customers view the liquid liabilities of banks as utterly reliable stores of value and means of payment. Banks are also highly interconnected, directly, via their transactions with one another and, indirectly, via euphoria and panic.

            The high pre-crisis returns on equity promised by banks depended on their ultra-high leverage and so on the taxpayer support in the resulting crash. Even strong banks benefit from post-crisis support to their weaker brethren, because that helps keep their counterparties and so the system upright. As public institutions have been dragged into the industry as insurers of its liquidity and solvency, they have also been forced to impose ever tighter regulation. The recent market turmoil reminds us of all this.

            A second lesson is that the way in which all the regulators have gone about punishing banks for their many wrongdoings is unsatisfactory. It is indeed reasonable to punish shareholders for the misdeeds of the banks whose shares they own. Yet it must be doubted whether it makes sense to impose a penalty so large that it imperils the survival of an institution. Far more important, the idea that shareholders control banks is a myth. It is management that is responsible. What remains disheartening is that shareholders and a few small fry among the employees have been punished, but the decision makers who ran these institutions have escaped more or less unscathed. Indeed, that is one explanation for the rise of Donald Trump. The sheer size of the envisaged penalty upon Deutsche Bank’s shareholders highlights this anomaly.

            A third lesson is that banks are still undercapitalised, relative to the scale of their balance sheets, as Anat Admati and Martin Hellwig have pointed out. More immediately, we lack reliable means of rectifying this. So, while governments insist bailouts are ruled out, few believe this, particularly in the case of a bank of Deutsche’s importance. The European Central Bank has proposed temporary bailouts as an option. But it is hard to believe such bailouts would ever be reversed. In practice, private creditors would flee and the government would end up as the owner of the bank in question.

            Adam Lerrick of the American Enterprise Institute has, instead, proposed a mirror-image: a temporary bail-in of private creditors. His plan starts from the need to avoid further government rescues. A temporary bail-in of creditors would raise the bank’s capital to adequate levels. If the bank were subject to just temporary panic, it would raise fresh equity once those worries had faded. The creditors’ claims might then be reconverted into debt, at par. If it were to prove impossible to raise equity in future, because the capital shortfall was structural, the bail-in would be permanent. To protect small creditors, only the excess of each investor’s holdings above, say, €200,000 would be converted into equity. The probability of such a bail-in and the chance that it would become permanent, would affect the price of debt, as it should.

            In sum, the problem of banks has not disappeared. A fundamental part of the danger is that these are inherently fragile institutions. It is also likely that the balance sheets they inherited from the excesses of the pre-crisis period are insufficiently profitable and so will need to shrink. Most important of all could be the impact of new information technologies and business models on the health of the historic banking industry, particularly given the damage done to its reputation for competence and probity. Many would add to all this the impact on profitability of central banks’ ultra-loose monetary policies.

            Yet, against this, note that these reflect the post-crisis economic malaise. If monetary policy were tighter and so economies weaker than they are today, the banking sector — ultimately a leveraged and so volatile play on the economy as a whole — would be weaker, too.

            A little while ago the focus was on the Italian banks. Today, it is on Deutsche Bank. In all probability, even the latter will not trigger a big crisis. But risks in banking remain. The solution is to ensure adequate capital at all times and, in its absence, sufficient bail-in-able debt. In the absence of either, banking remains an accident waiting to happen.


            SVG proposes windup after portfolio sale

            Posted on 04 October 2016 by

            LONDON, ENGLAND - SEPTEMBER 07: Lynn Fordham of SVG Capital descends the Cheesegrater for The City Three Peaks with The Outward Bound Trust And The Royal Navy And Royal Marines Charity on September 7, 2015 in London, England. (Photo by Eamonn M. McCormack/Getty Images for the Outward Bound Trust and the Royal Navy and Royal Marines Charity)

            Lynn Fordham of SVG Capital

            SVG Capital, the UK private equity group, has proposed winding down the company and selling half of its investment portfolio to rival fund managers Pomona Capital and Pantheon Ventures.

            SVG rejected an unsolicited £1bn takeover offer from US fund manager HarbourVest last month but is under pressure from shareholders who support the bid.

              Management presented an alternative plan on Tuesday, saying that SVG had agreed to sell Pomona and Pantheon 50 per cent of its investment portfolio for £379m, which had an asset value of £401m at July 31. The price represents a 7.8 per cent discount on a constant currency basis.

              The portfolio included “mature and non-mature assets”, it said, including stakes in funds managed by Cinven and Clayton Dubilier & Rice.

              SVG said the deal would be followed by a proposed wind down of the company through a £450m tender offer before year-end at 700p per share — a 5 per cent discount to its stated net asset value — and a further £300m tender offer at prevailing net asset value early in 2017. Further tender offers would be made as investments were sold, it said.

              The SVG board said that it “believes the wind down of the company will maximise returns for shareholders”, compared with an “existing 650p a share cash offer from HarbourVest”.

              At the time, Boston-based HarbourVest, which has $42bn under management, said its offer was “final”.

              SVG chief executive Lynn Fordham has said that HarbourVest’s offer undervalues the company.

              SVG’s largest shareholder, Coller Capital, has irrevocably backed HarbourVest’s bid, and HarbourVest recently bought an 8.5 per cent stake in SVG. Other shareholders with a combined 22.7 per cent stake, including Aviva, Old Mutual and Legal & General have signed non-binding letters of intent to back the bid.

              The statement comes just one day after SVG said that Goldman Sachs and Canada Pension Plan Investment Board were considering a joint bid for the private equity group.

              Earlier on Tuesday, HarbourVest urged investors to accept its offer, saying it “provides shareholders with clarity and certainty”.

              Claim ‘hard Brexit’ could cost UK £10bn in tax

              Posted on 04 October 2016 by

              Pedestrians walk across London Bridge towards the City of London financial district, as The Shard tower stands on the horizon in London, U.K., on Monday, Jan. 4, 2016. U.K. stocks got no respite in the new year, after their worst annual drop since 2011, amid investor concern over a slowdown in China, the biggest consumer of commodities. Photographer: Simon Dawson/Bloomberg©Bloomberg

              About £10bn in tax revenues and 71,000 jobs hinge on the outcome of the UK’s exit negotiations with the EU, according to a new report on the potential impact of Brexit on the financial sector.

              If the UK secures similar access to what it has now under the single market, Britain would lose £0.5bn a year in tax revenues and 4,000 jobs — both about 1 per cent of the current respective totals, according to the report by consultancy Oliver Wyman for TheCityUK, the lobby group that argued for remaining in the EU.

                However, in its worst-case scenario of a “hard Brexit” with severe restrictions on the UK’s ability to trade with the rest of the EU, 35,000 financial services jobs would be at risk, along with as much as £5bn in tax revenue.

                The authors describe this scenario as “conservative” because it does not take into account the effects of job losses and lower spending on the wider economy.

                Oliver Wyman estimates that a further 40,000 jobs and £5bn in tax revenues would be affected in the business ecosystem around financial services.

                The findings have been presented to the Treasury and other government departments. The £205bn financial sector pays as much as £67bn in tax each year and employs more than 1m people, the report says.

                Financial service companies in the UK are already making contingency plans in case they lose the ability to “passport” their services across EU borders without local regulatory approval. The report says securing transitional arrangements on passporting will be crucial for minimising detrimental effects on the City of London.

                Sir Hector Sants, the former City regulator who is one of the authors of the report, told the Financial Times that its purpose was not to forecast a particular scenario but to present independent and “robust” data to inform debate.

                “What the data does not model is the impact of uncertainty before the end-game is determined,” said Sir Hector. “It would be fair to say in the event of a long period of uncertainty, you would expect adverse impact to accrue, which would be over and above whatever the impact is of the final conclusion of the process.”

                The report also assumes the UK can negotiate equally favourable deals with trading partners such as the US as the one it has as an EU member state.

                The prime minister, Theresa May, has promised to trigger the process by which the UK will leave the EU by the end of March. The huge difference in outcomes forecast by the report underscore the importance and delicacy of the negotiations on the UK’s new trading arrangements with Europe.

                Mrs May warned this week that the UK would not accept the jurisdiction of the European Court of Justice and would have absolute control over immigration — key promises of Brexiters but issues that will put the UK at odds with the EU: freedom of movement and the ECJ are pillars of the union.

                The Treasury has so far been sympathetic to dire predictions about the City’s future if it were restricted on dealing with the EU, but other key Brexiters shaping Britain’s future, such as Liam Fox and David Davis, are said to be more phlegmatic.

                While there are opportunities for the City post-Brexit — with fintech, green finance and sharia-compliant central bank facilities all up-and-coming — these will all be boosted by continued access to the single market, the report finds.

                Gold miners under pressure

                Posted on 04 October 2016 by

                Gold miners were poised for their biggest one-day drop in more than a month on Tuesday, as more hawkish expectations on US rate rises saw the dollar strengthen and prices for the yellow metal weaken.

                The precious metal fell more than 2 per cent to $1,282.07 a troy ounce as upbeat US economic data and hawkish remarks from Cleveland Fed president Loretta Mester — a member of the monetary policy setting Federal Open Market Committee — pushed the greenback higher.

                  The dollar index, a gauge of the US dollar against a basket of peers, rose 0.8 per cent. As gold is dollar-denominated, strength in the currency makes it more expensive for foreign buyers.

                  Moreover, investors again began to eye the prospects of a rate rise by the Federal Reserve this year, which would make gold less attractive because it offers no yield. “Fed commentary has become more hawkish over the past few days, and combined with better than expected manufacturing data that has helped push December rate hike odds above 60 per cent,” said Dennis DeBusschere, strategist at Evercore ISI, referring to data released on Monday that showed the factory sector revved up more than forecast last month.

                  Federal funds futures imply a 62.7 per cent chance of a rate rise in December.

                  “This is very much a technical move (for gold) where we’ve breached the 100-day moving average,” said Bart Melek, strategist at TD Securities, pointing to a few other factors in play. He added: “There has also been a ramp up in short-term and long-term yields on the back of the polls that show [Republican presidential candidate] Donald Trump is further away from the presidency.”

                  The NYSE Arca gold miners index, consisting of 39 global miners, was down 5 per cent.

                  Barrick Gold shares fell nearly 8 per cent to $16.03, Kinross Gold shares tumbled more than 10 per cent to $3.69, Goldcorp shares fell 7 per cent to $14.65 while Newmont Mining shares slid 7 per cent to $35.40.

                  Meanwhile, the S&P 500 US utilities sector fell 2 per cent. AES Corp was the biggest decliner, falling 3.9 per cent to $11.99. Shares in American Water Works fell 2 per cent to $72.51, NiSource shares fell more than 3 per cent to $22.87.

                  Utilities declined for the eighth consecutive day in what would be the longest losing streak in a month and a half. The fall has coincided with several upbeat economic reports that have left some strategists feeling more confident the Federal Reserve will raise its benchmark interest rate in December.

                  But the sector, which benefits in a low interest rate environment and had rallied in the first six months of 2016 driven by yield-hungry investors seeking its fat dividends, has given up those gains as investors eye the upcoming Fed meetings.

                  The sell-off in shares of gold miners and utilities arrived as US stocks fluctuated between gains and losses. By midday, the S&P 500 was 0.2 per cent lower at 2,157.43, the Dow Jones Industrial Average slid 0.1 per cent to 18,228.40. The Nasdaq Composite was flat at 5,303.75.

                  Supreme Court tackles insider trading law

                  Posted on 04 October 2016 by

                  Radiolab's new podcast series looks at the death penalty and the workings of the US Supreme Court©Mandel Ngan/AFP/Getty

                  The Supreme Court on Wednesday is scheduled to hear a case that could mark the biggest rewrite of insider trading law since the days of Michael Milken and Ivan Boesky.

                  Salman v United States lacks the Wall Street stars that made trading on insider information a defining feature of the 1980s. But Bassam Salman’s appeal of his 2013 conviction for trading on information he received from his brother-in-law, at the time a Citigroup investment banker, could settle a question that has bedevilled markets players. 

                    At issue is whether insider trading prosecutions require that corporate tipsters receive something of value in return for disclosing market-sensitive information. Two lower courts in two years have disagreed on the issue, piquing the high court’s interest.

                    Prosecutors warn that such a requirement would hamstring their efforts to keep markets clean, but hedge fund managers, research analysts and traders worry that too broad a definition of insider trading would criminalise the flow of routine market chatter. 

                    “It’s potentially the most important case for market professionals in over 30 years,” says attorney Jon Eisenberg of K & L Gates in Washington. 

                    Among those watching is hedge fund magnate Leon Cooperman. In a civil suit last month, the Securities and Exchange Commission accused the Omega Advisors chief executive of insider trading. Prosecutors in the Southern District of New York are awaiting the Supreme Court’s Salman verdict before deciding on criminal charges, Mr Cooperman has told his investors. 

                    In the Salman case, Maher Kara, Salman’s brother-in-law who worked in Citi’s healthcare investment banking group, disclosed planned merger deals to his older brother Mounir. The brother traded on the intelligence and tipped Salman, who with an associate reaped roughly $1.7m in profits.

                    A federal judge in San Francisco last year sentenced Salman to three years in prison and ordered him to pay more than $738,000 in restitution. Salman’s argument in the Supreme Court hearing is that the government failed to show that the insider, Mr Kara, received a benefit in return for the disclosures.

                    Salman’s appeal follows a multiyear insider trading offensive by US Attorney Preet Bharara in New York, which notched up several dozen convictions and rocked the hedge fund industry. The SEC, meanwhile, filed civil charges against 87 individuals in fiscal 2015 with trading on the basis of inside information, roughly double the number from two years earlier. 

                    US Insider Trading: Hello Newman

                    Manhattan U.S. Attorney Preet Bharara

                    In the US, there is no statute that explicitly addresses insider trading

                    Insider trading captured the popular imagination in the 1980s as figures such as junk bond king Michael Milken, and Ivan Boesky, a stock trader, rose to wealth and prominence before drawing the scrutiny of prosecutors. In the 1987 film Wall Street, the Boesky-like character Gordon Gekko counsels a young protégé: “If you’re not inside, you’re outside.” 

                    Yet for all the notoriety, insider trading is not defined in US law. Market enforcers and a succession of judges have inferred the prohibition on such activity from a provision in the 1934 Securities Act barring deceptive or manipulative trading. Christopher LaVigne, a partner at Shearman & Sterling, calls insider trading law “an amorphous area”. 

                    The Supreme Court set the rules with a landmark 1983 ruling that overturned the conviction of analyst Ray Dirks. He had been prosecuted after alerting shareholders to a fraud at Equity Funding Corporation of America, an insurance company. In Dirks v SEC, the court ruled that prosecutors must prove that a tipster received a “personal gain” in return for violating his duty to keep market-moving information secret. 

                    Defining personal gain, other than financial payments, has proven difficult. The court held that a gift of valuable information to a friend or relative also qualified, reasoning it was akin to the insider trading on the information himself and making a gift of the proceeds. 

                    The SEC’s view of who qualified as a “friend” expanded over the years to encompass insiders’ networks of business contacts. But In 2014, the Second Circuit appeals court issued a ruling that limited the government’s ability to bring such prosecutions within the states that it covers, including New York. 

                    The court overturned the conviction of two hedge fund managers, Todd Newman and Anthony Chiasson, ruling that they were too far removed from the initial trading tip to know that an insider had improperly disclosed the information in return for a gain. 

                    Prosecutors said the decision severely restricted their ability to bring cases against Wall Street insiders. And more than one dozen insider trading convictions subsequently have been set aside, including that of SAC Capital portfolio manager Michael Steinberg and six of his firm’s analysts. 

                    Salman is now arguing that the Supreme Court should extend that ruling nationwide. Attorneys representing billionaire Mark Cuban, who was acquitted in 2013 on insider trading charges, also have filed an amicus brief arguing that Salman’s conviction only compounded the ambiguity over what trading is banned. 

                    “The government will continue to bring insider trading cases,” says John Zach, who prosecuted the Newman case and is now a partner at Boies, Schiller & Flexner in New York. “But should they rule for (Salman), this will limit the types of cases they can bring.” 

                    Casual tips to “golfing buddies” and relatives, which have been targeted in the past, would escape the government’s net, he says. 

                    Defence attorneys are hoping the court clarifies both what sort of benefit an insider must receive and what someone who receives the tip must know about its origins. “These are the two key uncertainties,” says Tom Sporkin, a former SEC enforcement official and now a partner at Buckley Sandler in Washington. “This is an opportunity for the Supreme Court to settle these questions.”

                    Gold sinks to lowest level since Brexit vote

                    Posted on 04 October 2016 by

                    Two hundred and fifty gram gold bars sit stacked in this arranged photograph at Solar Capital Gold Zrt. in Budapest, Hungary, on Thursday, March 10, 2016. Gold advanced to the highest level in a year after the European Central Bank indicated it wouldn't cut interest rates further, boosting the euro and making dollar-denominated bullion less expensive for investors. Photographer: Akos Stiller/Bloomberg©Bloomberg

                    Gold slumped 3 per cent to its lowest level since the UK vote to leave the EU as investors eye a US interest rate hike later this year and demand remains weak in India and China.

                    The price of the precious metal fell by the most in more than a year to touch $1,270.4, its lowest level since June 24, the day after the referendum. Shares in gold miners also fell. .

                      Gold’s 21 per cent rally this year has started to stall as investors take profits and anticipate a second rise in US interest rates in December.

                      Higher US rates could be negative for gold, as they make other yield-bearing assets more attractive. Expectations for a rate rise have also boosted the dollar, which hit a 13-day high against a basket of major currencies.

                      Investors have piled into gold-backed exchange traded funds this year buying more than central banks for the first time since the financial crisis, according to Deutsche Bank.

                      But inflows have started to slow with investors buying 11 tonnes of gold in September, the lowest level since April, according to data compiled by Bloomberg.

                      Sales of gold coins in the US such as the Gold Eagle, a popular way for retail investors to gain exposure to bullion, have also been weak amid higher prices, according to analysts.

                      “It would appear that weaker physical demand has put the brakes on the rise in gold prices,” analysts at Commerzbank said.

                      Net sales volumes to retail investors in the US of gold and silver coins and bars fell 40 to 50 per cent in the third quarter, according to Thomson Reuters GFMS.

                      Interest rate futures are now implying a 61 per cent chance of a Fed rate hike in December.

                      But key will also be inflation and inflation expectations, which could boost gold, even if the Fed hikes rates. Low inflation and weak global growth could sustain low real yields — the yield after taking into account inflation — a positive for gold, according to Deutsche Bank.

                      Analysts at Citi expect gold to trade between $1,300 to $1,350 a troy ounce until the Fed could decide to raise rates for a second time in December, after which prices will decline in 2017.

                      Without ETF buyers, gold has also had little support from consumers in India and China.

                      India’s imports of gold fell 43 per cent in September due to weak retail demand, according to provisional data compiled by GFMS, while in China, imports of gold from Hong Kong fell to their lowest level since January in August.

                      That could improve ahead of the Chinese new year and as the Diwali festival approaches in India. The discount between local Indian gold prices and international prices is narrowing, according to HSBC.

                      Investors are also positioning for a rise in gold prices if Republican candidate Donald Trump wins the US election in November. They are selling options expiring before the election to buy options expiring after November 8, according to analysts at Citi.