Ben Bernanke said that QE could end completely by mid-2014, and that it would be "appropriate to moderate the monthly pace of purchases later this year" on current economic trends. Ten-year Treasury yields hit their highest level since March 2012 after the Fed chairman's press conference on Wednesday, rising to 2.36 per cent (Wall Street Journal, Reuters).
Bernanke: "when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 per cent, with solid economic growth supporting further job gains" (Financial Times).
Chinese manufacturing activity slumped further in June. The HSBC-Markit flash PMI came in at 48.3, lower than forecasts of 49.1, and May's reading of 49.1 (Bloomberg). The Australian dollar fell to its lowest level against the US dollar since September 2010, below $0.93, following the PMI release (Wall Street Journal).
UK bank capital hole: RBS is £10bn-£12bn short, Lloyds £8bn-£9bn, and Barclays £3bn-£5bn according to Prudential Regulation Authority findings out early on Thursday (Financial Times).
The UK government will launch an "urgent investigation" into creating a bad bank from RBS's toxic assets, Chancellor George Osborne said in his annual Mansion House speech. "We will see whether it's right for Britain to, in effect, see RBS broken up," the Chancellor said, indicating that the bank's Irish and UK commercial estate exposures, or £65bn-£130bn of its balance sheet, could be bad-banked (Financial Times). The bad-bank proposal has gathered momentum after a Treasury rethink of its effects on RBS's capital, but one key drawback is the time a split would take (Financial Times).
The Treasury is also "actively considering options" for how to begin selling its Lloyds shares, the Chancellor said, but warned no fixed timescale was in place (Wall Street Journal).
Chinese interbank rates spiked again, to their highest level since 2006. The seven-day repurchase rate rose 1.24 percentage points on Thursday, to hit 12 per cent. The central bank again declined to conduct liquidity operations (Bloomberg).
Sony will study Third Point's proposal for the company to spin off its entertainment arm, its chief executive told shareholders. But Kazuo Hirai reiterated that the business was not for sale (Reuters, Dealbook).
Microsoft recently came close to buying Nokia's handset business. The 'advanced' talks ran aground over price, which was not disclosed (Wall Street Journal).
The UK's Financial Conduct Authority has begun to vet senior appointments to hedge funds, including US funds with operations in London. Several candidates for positions have been informally vetoed after interviews with the regulator. "The FCA is looking more closely at US hedge funds than the SEC is," according to one lawyer (Financial Times).
COMMENT AND CURIOS
- President Obama kept calling George Osborne "Jeffrey" at the G8. (Financial Times)
- Big Steel has become too big too fail in China, says John Gapper. (Financial Times) Meanwhile, the Verrazano-Narrows bridge in New York is being repaired with... Chinese steel. (Wall Street Journal)
- Are UK banks in recovery mode? Chris Giles: "The simple answer is No." (Financial Times)
- "Count seven covers the grave offence of the defendant paying himself as much money as he legally could..." Fred Goodwin on 'trial'. (Financial Times)
- Where next for Japan's big, $2,400bn pile of corporate cash? (Bloomberg)
OVERNIGHT MARKETS: DOWN
Asian markets
Nikkei 225 down -129.67 (-0.98%) at 13,115
Topix down -11.51 (-1.04%) at 1,095
Hang Seng down -528.72 (-2.52%) at 20,458
US markets
S&P 500 down -22.88 (-1.39%) at 1,628
DJIA down -206.04 (-1.35%) at 15,112
Nasdaq down -38.98 (-1.12%) at 3,482
European markets
Eurofirst 300 down -3.23 (-0.27%) at 1,180
FTSE100 down -25.39 (-0.40%) at 6,348
CAC 40 down -21.21 (-0.55%) at 3,839
Dax down -32.43 (-0.39%) at 8,197
Currencies
€/$ 1.325 (1.339)
$/¥ 96.92 (95.21)
£/$ 1.544 (1.56)
Commodities ($)
Brent Crude (ICE) down -1.33 at 104.79
Light Crude (Nymex) down -1.31 at 96.93
100 Oz Gold (Comex) down -29.50 at 1,344
Copper (Comex) down 0.03 at 3.12
10-year government bond yields (%)
US 2.36
UK 2.13
Germany 1.56
CDS (closing levels)
Markit iTraxx Europe -0.8bps at 107.3bp
Markit iTraxx Xover +0.1bps at 442.5bp
Markit CDX IG +5.7bps at 87.3bp
Sources: FT, Bloomberg, Markit
