Good morning New York,
FT ALPHAVILLE
The rise of the real collateral 'mining' business - Izzy summarises her presentation on the collateralisation of commodities, arguing that marginal commodity prices are increasingly being dictated by the market's alternative collateral, store-of-value, and safe-asset role in the global economy. This is being fuelled by a general scarcity of quality collateral in the market. As a result commodity producers have become the equivalent of real-estate developers in subprime era.
What have inventories got to do with QE? - Oil market veteran Philip K. Verleger sets out the case that inventories of crude oil, at least in the US, seem to have become one of the assets replacing treasury bills. Izzy notes this fits FT Alphaville's running hypothesis that the collateralisation of commodities has been propping up prices and leading to excess inventories in many commodity markets.
Ignored many flaws - That's the IMF's "ex post evaluation" of its role in the Greek bailout and as Joseph notes also its mea culpa. This is even though the report decides Greece's exceptional access to IMF lending was justified (generally), and it still says much fiscal adjustment could not be avoided.
The Aussie dollar's value merry-go-round - Or as Neil puts it "from south pacific peso to southern Swiss franc and back again" . The latest swoon comes amid further consideration of Wednesday's weak GDP print and softer than forecast trade data. Neil brings you more analysis on the move from Goldman Sachs.
Monetary policy and US inequality, again - Cardiff notes that although they work for an institution that has neither the mandate nor the ideal weaponry to fight inequality, Fed officials have spent a lot of time thinking and talking about it lately. Last week, Pew reported that the rebound in net worth has been unevenly distributed in the economic recovery: the wealth of the richest 7 per cent of households climbed by 28 per cent on average, while the rest of the population lost 4 per cent of its wealth. Cardiff scrutinises the findings.
US inequality, and digging into aggregate data - And just because Cardiff couldn't squeeze all the charts from Edward Wolff's paper on inequality into the earlier post, here's a follow-up with a few more eye-catching charts.
NEWS
ECB and Draghi day: "The European Central Bank is expected to keep its main interest rate at a record low 0.5 percent on Thursday... With economic data improving in May, the ECB will probably want to save its last remaining policy firepower for a later date, while stressing it is not out of ammunition." (Reuters)
France is threatening to upstage talks on the EU-US trade pact. Paris is said to have made "l'exception culturelle" — protection of subsidies for local film, music and television — a "red line" in advance of the talks' scheduled launch at this month's G8 summit. (Financial Times) The French government has also led the charge over a budding EU trade war over tariffs on Chinese solar-power exports. Beijing retaliated with an investigation into imports of French wine. (Wall Street Journal)
The ESM will likely have a €50bn-€70bn limit on direct investments in banks. The condition on the bailout fund's draft direct recapitalisation tool was outlined in a policy paper following six months of talks on breaking the "vicious circle" between sovereigns and banks. The limit to recapitalisation funds reflects the higher provisions on this kind of investment compared to the ESM's more normal practice of lending to governments. (Reuters)
London should hand Libor supervision to EU, says Brussels: Brussels is proposing to put the scandal-ridden Libor lending rate under the watch of a European supervisor based in Paris as part of an overhaul of regulation of pricing benchmarks for an array of markets from oil to gold. A draft of the European Commission regulation, seen by the Financial Times, seeks to call time on the era of self-regulation for hundreds of benchmarks and moves direct supervision of Libor from London to the European Securities and Markets Authority, based in France. (Financial Times)
Pro-austerity Finland falls into triple-dip recession: Finland's economy has flirted with growth and contraction ever since the 2008 financial crisis with technical recessions of two or more consecutive quarters of falling production also recorded in 2008-09 and 2009-10. Coupled with an unemployment rate that jumped to 8.8 per cent in the first quarter from a year earlier, it has left some questioning whether Finland's pursuit of austerity is appropriate. (Financial Times)
Gabon seeks to reclaim Chinese oil assets: Gabon is planning to take assets back from three international oil companies including a subsidiary of China's Sinopec in a sign of Africa's growing assertiveness as competition intensifies for its natural resources. The move will exacerbate tensions over a lack of clarity in the terms and conditions of investment as Gabon prepares to launch a licensing round for the deep waters off its coast. Experts say reserves in the Gabon Basin could rival deep offshore discoveries in Brazil. (Financial Times)
IMF admits to errors in international bailout of Greece: The International Monetary Fund has published a scathing report about how it and the European Union handled Greece's first €110bn bailout, saying growth assumptions were too optimistic and that debt restructuring should have occurred earlier. The study says that the rescue went ahead even though Greece did not meet one of the IMF's four criteria for such a huge programme – a good chance of debt sustainability in the medium term – and may have failed two of the others as well. According to the study, the decision to force losses on private holders of Greek bonds should have occurred much earlier than October 2011, but it argues that resistance from Europe made that impossible. (Financial Times)
NSA collecting Verizon customer data, Guardian says: The US National Security Agency is collecting telephone records of millions of Verizon Communications customers, according to a secret court order obtained and published by the Guardian newspaper's website. The order marked "Top Secret" and issued by the US Foreign Intelligence Surveillance Court directs Verizon's Business Network Services and Verizon Business Services units to hand over electronic data including all calling records on an "ongoing, daily basis" until the order expires on July 19 2013. The order can be seen at the newspaper's website. (Financial Times)
FBI and Microsoft take down botnet criminal network: A vast criminal network of hijacked computers responsible for more than $500m in bank fraud has been taken offline by an assault involving Microsoft and the US Federal Bureau of Investigation. The FBI and Microsoft on Wednesday said that they, together with financial services groups, had "disrupted" more than 1,000 botnets – each a group of thousands of infected Windows PCs – through "co-ordinated operations". (Financial Times)
SAC Capital told employees it expects to stay open following a wave of client redemptions. Although the fund will not release a number for the amounts withdrawn by investors after a deadline this week, it will remain open to outside money and does not plan large reductions of staff. Some investors may reconsider their redemption requests if the legal situation becomes clearer over the fund's targeting by a government insider trading probe SAC founder Steve Cohen's "decision not to throw in the towel is in keeping with his personality". (Bloomberg)
Finra in the US has increased its scrutiny of dark pools. The requests for information from operators of the off-exchange share-trading venues are part of assessing whether their customers are being told how orders work, and to find out more about a fast-growing area of trading that remains relatively lightly-regulated. (Wall Street Journal)
A Kiev court has frozen local assets of Bank of Cyprus and Laiki after claims were filed by Ukrainian depositors hit by losses imposed as part of the Cypriot bailout. (Reuters)
"U.S. researchers are bracing for the prospect that China will once again have the world's fastest computer—and could hang on to the speed crown for some time. China's National University of Defense Technology last week informed visiting scientists about a massive machine in Changsha whose initial test results appear likely to top the next ranking of the 500 largest supercomputers, scheduled for release later this month." (Wall Street Journal)
Markets: World stocks are hovering at six-week lows as fretting about the duration and impact of central bank intervention, alongside patchy economic data, delivers a pullback from recent cyclical highs. Japanese equities have endured another volatile session, contributing to the nervousness of traders wary of potential "headline risk" in the form of crucial US jobs numbers and policy decisions from European central banks. Such caution sees the dollar index barely changed, industrial commodities soft, gold off $5 to $1,397 an ounce and Treasury yields near two-week lows of 2.09 per cent. The FTSE All-World equity index, which hit a near five-year peak of 250 at the end of May, is down 0.2 per cent to 237.9 as trading in many European stocks is delayed by a glitch, and after the Asia-Pacific region dropped 1.2 per cent to fresh 2013 lows. US index futures suggest the S&P 500 in New York will recover some of the ground lost on Wednesday, in line to gain 5 points to 1,614 writes the FT's Global Markets bell diver Jamie Chisholm.
