Good morning New York,
FT ALPHAVILLE
On crossing the ECB interest-rate streams: If the ECB were to introduce negative rates, FT Alphaville has mostly focused on the idea that the it would do so primarily in its deposit rate. That's where market chatter has largely concentrated. What we never considered, however, is that the ECB could get really controversial and leave both its deposit and reserve account rate at zero, while setting its refinancing rate at a negative rate instead. Izzy does so now.
Garthwaite: 'Just buy stocks': Worried about the Fed's taper tactics? Maybe Abe's poisoned third arrow? Andrew Garthwaite's not. The Credit Suisse equity strategist has just hiked his S&P 500 forecast to 1,730 (from 1,640). For 2014 he's going for 1900. Yes, Garthwaite sees another 15 per cent… Paul's post has more.
NEWS
Abe unveils 'third arrow' reforms of low tax and deregulation: Shinzo Abe, Japan's prime minister, said the government would relax rules governing the sale of non-prescription drugs and allow selected cities to experiment with lower taxes and deregulation as he finished outlining his economic reform plans on Wednesday. The proposals, which had been widely discussed in advance by Mr Abe's advisers, are to be included in a broad "national growth strategy" that the government plans to approve next week. So far, Mr Abe has laid out a list of targets but offered few details about how they will be achieved. He wants to double farm incomes, tourism and foreign direct investment, triple exports of transport and power-generation equipment and boost annual corporate capital investment by 10 per cent. On Wednesday, he said he believed his economic policies would increase Japanese per capita gross domestic product by Y1.5m in a decade, or 40 per cent. That would be roughly consistent with the 3 per cent annual economic growth that his administration has previously targeted. (Financial Times) (New York Times) The Nikkei did not react well, losing another 3.8 per cent bringing its losses since the 22nd of May to 16.7 per cent:
Of note: Dollar-yen was less than impressed by news that "Japan will seek experts' views on whether public pensions and other public funds should seek higher returns by raising their investment in equities, and will aim to reach a conclusion by autumn, a draft government growth strategy showed on Wednesday." (Reuters)
China takes tit-for-tat move against EU wine exports: China has launched a trade investigation into European wine exports, in apparent retaliation for Europe's proposed tariffs on Chinese solar panels, sharply escalating the dispute between two of the world's largest trading partners. The investigation comes just one day after the EU offered an olive branch to Chinese solar-panel makers, announcing a temporary lowering of tariffs on Chinese panels while the two sides try to negotiate a solution to their long-running trade dispute. (Financial Times)
Apple could face a US import ban on certain iPhone and iPad models after a trade panel said they infringed Samsung patents. AT&T variants of the iPhone 4, 3GS and 3G, as well as the original iPad and iPad 2 could be affected by the ruling of the International Trade Commission, which said its decision was final. Apple may still appeal what would otherwise be a significant victory for Samsung in its legal disputes with the company. (Financial Times) (Reuters)
Brazil got rid of its tax on foreign investment in domestic bonds.Tuesday's cut in the 'IOF' rate from 6 per cent to zero showed official concern that the real is weakening too quickly against the dollar. The tax was originally a key weapon in Brazil's 'currency war' against inflows caused by the Fed's easy policy. (Financial Times)
Australian growth disappointed in the first quarter. The 0.6 per cent quarterly expansion, below expectations of 0.7 per cent, fed speculation that the Reserve Bank of Australia will cut rates again in August. The economy grew 2.5 per cent compared to a year earlier. (Bloomberg)
Japanese hedge funds have ploughed into the country's small-cap stocks as Abenomics takes hold. Daily trading volumes by the Jasdaq index have more than doubled this year compared to 2012, partly aided by changes to margin trading. (Bloomberg)
More signs of ECB wariness ahead of Thursday's meeting. The central bank is unwilling to do more to boost cross-border lending because political foot-dragging over a eurozone banking union may encourage fragmentation anyway. (Wall Street Journal)
Tesco recovery stalls as sales fall: Underlying UK sales at Tesco fell 1 per cent in the past three months, raising questions about whether its domestic recovery plan is veering off-track. Tesco shares, which have risen nearly a fifth in the past year as hopes for the recovery took hold, fell 3.4 per cent on Wednesday to 352.1p. (Financial Times)
JPMorgan and Morgan Stanley are designing new synthetic CDOs. The return and size of the deals remain unclear, but their design follows investor requests that the two banks create the products. (Wall Street Journal)
JPMorgan's Alabama debacle set to cost bank $1.5bn: "The biggest U.S. bank by assets agreed to forgive $842 million of debt owed to it by Jefferson County, Alabama, where it took the lead in arranging risky securities deals that pushed the county into the largest U.S. municipal bankruptcy. That comes on top of a $722 million settlement in 2009 with the U.S. Securities and Exchange Commission tied to Jefferson County deals." (Bloomberg)
HSBC has been landed with a civil lawsuit from the state of New York,alleging that the bank failed to file paperwork in foreclosure cases where it could have settled with homeowners. The suit seeks recovery of unfair mortgage charges. (Financial Times)
MF Global is effectively out of bankruptcy after Louis Freeh, its trustee, stepped down, handing control of the broker's liquidation to a new panel. (Reuters)
IKEA founder steps aside: "IKEA founder Ingvar Kamprad has left the parent company of the furniture brand and his son has been appointed chairman, representing the latest step in the 87-year-old billionaire's continuing handoff of power." (Wall Street Journal)
Markets: Markets are experiencing more volatility as news of Japan's structural reforms joins monetary policy headline risk to frazzle traders. Sellers of growth-focused products have the upper hand, with equities and industrial commodities softer, while prices of fixed income assets are moving higher. Gold is up $7 to $1,406 an ounce as the dollar index slips 0.2 per cent. The FTSE All-World equity index is down 0.6 per cent as the FTSE Eurofirst 300 opens with a loss of 0.7 per cent after the Asia-Pacific region, excluding Japan, fell 1.3 per cent to its lowest level this year. US index futures suggest Wall Street's S&P 500, which hit a record intraday high of 1,687 last month, will slip 5 points to 1,626, on course for its lowest close in three weeks writes the FT's Global Market's yogi Jamie Chisholm.
