October 19, 2011: Some News That Matters

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Apple missed bullish quarterly earnings expectations for the first time in years, sending its shares down almost 6 per cent in after-hours trading, reports the FT. The maker of the iPhone, iPad and Mac computers still reported strong numbers, http://ftalphaville.ft.com/thecut/2011/10/19/705776/apples-results-fall-short-of-expectations/Foreign direct investment in China grew in September at the slowest pace in three months, reports Bloomberg, gaining 7.9 per cent to $9bn, compared with growth of 11.1 per cent in August and 19.8 per cent in July. http://ftalphaville.ft.com/thecut/2011/10/19/705766/chinas-fdi-growth-slows/

US Federal Reserve chairman Ben Bernanke said that communication about future policies will become an increasingly important tool for central banks, in a possible hint about its strategy, says the FT. Addressing a Fed conference in Boston on Tuesday about the effects of the recession, http://ftalphaville.ft.com/thecut/2011/10/19/705756/bernanke-hints-at-communication-changes/

The ratings agency announced a two-notch downgrade, from A1 to Aa2 at the predictably late hour of 11pm Madrid time, says FT Alphaville. The new rating, accompanied by a negative outlook, is attributed mainly to the lack of a eurozone debt solution, http://ftalphaville.ft.com/thecut/2011/10/19/705626/moodys-downgrades-spain-2/

Several “major” European banks were raided by European Commission officials on Tuesday over interbank lending rates, the WSJ says, citing people familiar with the matter. The Euribor probe is an offshoot of a broader investigation under way for more than a year by prosecutors and regulators in the US, http://ftalphaville.ft.com/thecut/2011/10/19/705641/european-banks-raided-in-euribor-probe/

Bank of America reported a third-quarter net profit of $6.2bn, beating analysts’ expectations, but the results were flattered by accounting gains and its sales of shares in China Construction Bank, reports the FT. http://ftalphaville.ft.com/thecut/2011/10/18/705611/bank-of-america-swings-to-6-2bn-profit/

A permanent ban on so-called naked credit default swaps is to be imposed across the European Union after lawmakers reached a deal to restrict the sovereign credit insurance to investors seeking to hedge long positions, http://ftalphaville.ft.com/thecut/2011/10/18/705556/eu-ban-on-%e2%80%98naked%e2%80%99-cds-to-become-permanent/

Britain’s economic recovery is off track, Sir Mervyn King warned on Tuesday night as he defended the Bank of England’s decision to pump money into the economy again by purchasing £75bn of gilts over the next four months. http://ftalphaville.ft.com/thecut/2011/10/18/705536/uk-recovery-off-track-says-king/

Goldman Sachs has reported a third-quarter net loss of $428m, only the second time since it went public in 1999 that Wall Street’s most admired and reviled investment bank has not made a profit, reports the FT. http://ftalphaville.ft.com/thecut/2011/10/18/705526/goldman-reports-428m-loss/

France and Germany have “reached an agreement” to augment the EFSF and recapitalize the region’s banks, in advance of this weekend’s meeting of eurozone leaders, reports the Guardian. Earlier on Monday Nicolas Sarkozy warned that “Allowing the destruction of the euro is to take the risk of the destruction of Europe. http://ftalphaville.ft.com/thecut/2011/10/18/705516/france-and-germany-have-reached-agreement-to-boost-efsf/

France warned on Tuesday that European unity would be at risk if eurozone leaders failed to take bold action to tackle its sovereign debt crisis at a crucial summit this weekend. In sharp contrast to signals from Angela Merkel, Germany’s chancellor, playing down the chances of a breakthrough, President Nicolas Sarkozy said that “an unprecedented financial crisis will lead us to take important, very important decisions in the coming days”. http://www.ft.com/intl/cms/s/0/27a2ad84-f9aa-11e0-9c26-00144feab49a.html#axzz1b0kv6nmS

China was a heavy seller of US Treasury debt in August after Standard and Poor’s downgraded the US’s triple A credit rating, according to monthly data released on Tuesday by the Treasury. But foreign demand for US stocks, bonds and other financial assets surged in August as investors focused on buying Treasuries as a haven investment. The eurozone debt crisis and a sharp fall in global equities outweighed any impact on demand from S&P cutting the US credit rating one notch to double A+ in early August. Large purchases of US Treasury securities came from investors in the UK, Switzerland, Japan and Caribbean banking sectors, which are favoured by hedge funds. http://www.ft.com/intl/cms/s/0/b1d54b0e-f98e-11e0-bf8f-00144feab49a.html#axzz1b0kv6nmS

Asian stock markets were higher Wednesday, with Intel’s better-than-expected third quarter earnings lifting some tech shares in Tokyo, although the lack of a clear-cut plan to contain the euro-zone debt crisis tempered demand across the region. Speculation over how much fire power Europe may give its bailout fund, and a downgrade by Moody’s Investors Service of Spain’s government-bond rating by two notches continued to buffet global markets. Japan’s Nikkei Stock Average rose 0.4%, Australia’s S&P/ASX 200 gained 0.6%, South Korea’s Kospi Composite added 0.3% and New Zealand’s NZX-50 rose 0.9%. Dow Jones Industrial Average futures were down 31 points in screen trade. http://online.wsj.com/article/SB10001424052970204346104576639930406935242.html?mod=WSJ_hp_LEFTWhatsNewsCollection

For once, it isn’t the high-frequency traders taking the blame for a wild market ride. Germany’s main exchange operator has found that a miniature “flash crash” in late August—in which stock-index futures dived 4% before recovering in a matter of minutes—was simply the result of a barrage of selling by financial institutions, and not the handiwork of superfast computerized traders.So-called high-frequency trading firms drew suspicions following the gyration, but an internal report by German exchange operator Deutsche Börse AG, completed this month but not widely circulated, determined that such participants’ rapid buying and selling actually helped absorb some of http://online.wsj.com/article/SB10001424052970203658804576639323290529308.html?mod=WSJEurope_hpp_LEFTTopStories

U.S. wholesale prices rose sharply last month on the back of higher costs for gasoline, food and household detergents, pointing to continued inflation pressures in the production pipeline. The index of producer prices, which measures how much manufacturers and wholesalers pay for goods and materials, rose by 0.8% in September from August, the labour Department said Tuesday. It was the biggest monthly gain since April and came after wholesale prices were flat in August and rose by 0.2% in July. But a measure of underlying prices, which strips out volatile food and energy components and is considered a more reliable http://online.wsj.com/article/SB10001424052970204346104576638760396937184.html?mod=WSJEurope_hpp_LEFTTopStories

Foreign companies cut back sharply on new investments in the euro zone’s two largest economies in the first six months of 2011, deterred by the currency area’s fiscal and banking crises, according to figures released by a United Nations agency Tuesday. The decline in new investments in Germany and France was part of a broader pull-back from developed economies in favour of their developing counterparts, which have grown much more rapidly since the onset of the financial crisis in 2008. http://online.wsj.com/article/SB10001424052970204346104576638880126575482.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

In fact, the IMF should pull the plug on the single currency. This is a mess of Europe’s own making. There is no reason to expect the rest of the world to pay for it — and if it does, it will only prolong the agony.  Even by the low standards of “grand plans to save the euro,” the scheme cooked up by the G-20 summit in Paris last weekend seems painfully weak. After all the hype and promises of a final fix for the troubled currency, not much of substance emerged. http://www.marketwatch.com/story/the-imf-should-pull-the-plug-on-the-euro-2011-10-19

Gold prices held steady on Wednesday, shrugging off the downgrade of Spain’s sovereign credit rating, as investors wait for clarity on Europe’s plans to tackle the debt crisis at this weekend’s European Union summit. Spot gold edged up 0.2 per cent to $1,662.55 an ounce by 0312 GMT (11:12 a.m. ET), recovering from $1,626.34 hit in the previous session, its lowest in nearly two weeks. U.S. gold gained 0.7 per cent to $1,664.60. http://www.reuters.com/article/2011/10/19/us-markets-precious-idUSTRE78M11C20111019

Tennessee (Reuters) The U.S. economy is unlikely to slip back into recession, and an improvement in recent indicators has been encouraging, Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday. Lockhart said growth was still too weak to put a dent in the nation’s 9.1 per cent unemployment rate, but he said conditions would need to worsen before the central bank considers another round of bond purchases. http://www.reuters.com/article/2011/10/19/us-usa-fed-lockhart-idUSTRE79H83F20111019

Herman Cain fought to stay in the top tier of the Republican presidential field as Rick Perry tried to recapture the role of Mitt Romney’s chief tormentor in an anger-tinged debate that spotlighted the sharpening contours of the primary contest.  Cain, a former chief executive officer of Godfather’s Pizza whose surging poll numbers have put the national spotlight on him, saw his 9-9-9 tax plan attacked by the six other candidates on a stage last night in economically battered Las Vegas. http://www.bloomberg.com/news/2011-10-18/candidates-to-debate-in-epicentre-of-turmoil.html

Apple Inc. (AAPL) said China has become its largest market after the U.S. as the iPhone, iPad and iMac computer maker opened an online store last year and six retail outlets in the past three years in the country. China accounted for 16 per cent of fourth-quarter sales, or about $4.5 billion, Chief Executive Officer Tim Cook said on a conference call yesterday. Quarterly sales in China were up almost four times the year-ago level, he said. http://www.bloomberg.com/news/2011-10-19/china-becomes-apple-s-second-largest-market-by-sales-cook-says.html

China, facing a hit to exports from Europe‘s debt crisis, may refrain from cutting interest rates this year as inflation stays above target and domestic spending supports growth in the engine of the global recovery. Industrial output and retail sales rose at a faster pace in September even as the economic expansion cooled to 9.1 per cent in the third quarter, a report released in Beijing yesterday showed. Consumer prices climbed 6.1 per cent, exceeding a 4 per cent target, a release showed last week. http://www.bloomberg.com/news/2011-10-18/most-accurate-china-analyst-sees-no-sudden-ease-as-growth-cools.html

China’s Commerce Ministry warned Wednesday on the nation’s trade outlook, saying conditions for the remainder of the year and into the first quarter of 2012 look tough, according to reports from the region. A Commerce Ministry spokesman also said that China should keep the yuan’s exchange rate stable for the time being. http://www.foxbusiness.com/2011/10/18/chinas-commerce-ministry-warns-on-trade-outlook/#ixzz1bCWVIJ1V

U.S. wholesale prices rose at their fastest pace in five months in September as the cost of gasoline surged, but a small gain in core prices suggested the price pressure was unlikely to be sustained. While the jump in gasoline prices was seen as a blip, details of the report on Tuesday pointed to enough inflation pressure to keep the bar high for any further loosening of monetary policy by the Federal Reserve. http://www.foxbusiness.com/markets/2011/10/18/gasoline-lifts-producer-prices-seen-temporary/#ixzz1bCWcOa2F

Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers. The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York. http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1

Federal Reserve Chairman Ben S. Bernanke said Tuesday that he is more open to using the Fed’s interest rate policies to combat financial bubbles, arguing that in the wake of the economic crisis, central bankers must rethink their assumptions. Before the economic upheaval, Bernanke acknowledged, central banks viewed financial stability as a “junior partner” to the task of tweaking interest rates to try to boost growth. But both stability and monetary policy are of vital importance to the U.S. economy, he said. http://www.washingtonpost.com/business/economy/bernanke-says-fed-should-keep-a-sharper-eye-on-financial-bubbles/2011/10/18/gIQAuosiuL_story.html

Bank of England governor Mervyn King has called on China to import more to help solve global financial problems. “Four years after the financial crisis began, the foreign exchange reserve holdings of China are substantially larger than at the onset of the crisis,” he said in Liverpool. It is a theme he is likely to take to next month’s G20 summit in Cannes. He also said it was time to accept that the problems in the global economy were about “solvency not liquidity”. http://www.bbc.co.uk/news/business-15356756

Britain is at risk from a fundamental crisis in the world economy and “time is running out” to solve it, the Governor of the Bank of England has said.  Despite record low interest rates, printing new money and other emergency measures, governments had not yet addressed the underlying problem of overspending that was at the root of the financial crisis, Sir Mervyn King warned. The consequences threatened to “inflict pain on everyone”, he said. http://www.telegraph.co.uk/finance/financialcrisis/8835221/Mervyn-King-time-running-out-to-solve-world-economy-crisis.html

Concerns over the health of the French economy in the event of further European sovereign bail-outs saw yields on the country’s debt spike to their highest level relative to Germany’s since 1992.  The news came as Moody’s downgraded Spain’s government bond ratings by two notches to A1 from Aa2. The ratings agency said that “Spain continues to be vulnerable to market stress and event risk” and also cited low economic growth. The jump in France’s bond yields was a result of Moody’s warning that the country’s triple-A credit rating was under threat in the event of further bail-outs or a rescue of the sovereign’s banking system. http://www.telegraph.co.uk/finance/financialcrisis/8835013/French-economy-fears-push-debt-yields-to-19-year-high.html

Inflation jumped to a 19-year high of 5.2pc in September driven by higher energy prices, underlining the squeeze on living standards and landing the Government with a bumper bill for increased state benefits. This is the second time the consumer prices index (CPI) has risen above 4.7pc since it reached 7.2pc in March 1992, according to the Office for National Statistics (ONS). The last time it hit 5.2pc was in September 2008 when oil rocketed to an all-time high of $147 a barrel and the global financial system was on the brink of collapse following the failure of Lehman Brothers. The ONS said that the price rises of four of the six large utility companies have been factored into the inflation figure so far. The other two will be reflected in the October inflation figures. Bills for gas, electricity and other fuels rose 18.3pc on the year in September, while transport costs were up 12.8pc. Food prices were 6pc higher than last year. Economists had expected CPI to be between 4.9pc and 5.1pc. http://www.telegraph.co.uk/finance/economics/8833346/Inflation-hits-19-year-high-of-5.2pc-on-higher-energy-costs.html

British businesses face the biggest annual jump in rates for more than 20 years as the Government uses September’s 5.6pc retail price inflation to set next April’s rates rise. Retailers called for the Government to head off the £350m tax blow, which hits as more than one-in-10 town centre premises are vacant. Ratings experts predicted the tax rise would collect an additional £1.35bn in business rates across all industry sectors next year. Since 1990 successive governments have linked the Uniform Business Rate to the previous September’s inflation figure even though the legislation permits the adoption of a lesser figure. http://www.telegraph.co.uk/finance/economics/8834750/Inflation-to-fuel-biggest-business-rates-rise-in-20-years.html

Goldman Sachs posts surprise $393m loss in third quarter, as pay and bonus pool hits $10bn. Goldman Sachs has slumped to only its second loss since floating in 1999, leaving its bankers facing the prospect of much smaller bonuses this year. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8834083/Goldman-Sachs-posts-surprise-393m-loss-in-third-quarter-as-pay-and-bonus-pool-hits-10bn.html

France and Germany ready to agree €2tn euro rescue fund. Leaders of France and Germany aim to calm market fears before G20. France and Germany have reached agreement to boost the eurozone’s rescue fund to €2tn (£1.75tn) as part of a “comprehensive plan” to resolve the sovereign debt crisis, which this weekend’s summit should endorse, EU diplomats said. The growing confidence that a deal can be struck at this Sunday’s crisis summit came amid signs of market pressure on France following the warning by the ratings agency Moody’s that it might review the country’s coveted AAA rating because of the cost of bailing out its banks and other members of the eurozone. http://www.guardian.co.uk/business/2011/oct/18/france-and-germany-move-towards-2tn-euro-fund

The recent Sydney Housing Valuation Report argued that Sydney’s housing market, despite being Australia’s most expensive when measured against household incomes, is built upon relatively sound fundamentals and offers a safer-than-average (Australian) proposition from an investment housing viewpoint. Now this column wants to focus on the Melbourne housing market, which is built upon far shakier foundations and is arguably Australia’s major market most at risk of a significant price correction. http://www.smh.com.au/business/australias-most-overpriced-property-market-20111019-1m73h.html#ixzz1bCYy0QAC

The growth of the Australian economy is set to pick up pace in 2012, according to the Westpac-Melbourne Institute Leading Index. The index, which measures the likely pace of economic activity three to nine months into the future, was at 4.5 per cent in August, above the long-term trend of 3.3 per cent. Westpac chief economist Bill Evans said it was too early to embrace the forecast that growth would surge above trend in early 2012, but the signal ”warrants respect”. http://www.smh.com.au/business/economic-growth-set-to-pick-up-pace-20111019-1m70b.html#ixzz1bCZ3VuWd

Oil prices were mixed but well-supported in Asian trade Wednesday thanks to buoyant gains on Wall Street and a sharper than expected fall in US crude inventories, analysts said. New York’s main contract, light sweet crude for delivery in November, fell four cents to $US88.30 per barrel. Brent North Sea crude for December delivery was up 13 cents to $US111.28.http://www.smh.com.au/business/markets/crude-mixed-on-us-inventory-falls-20111019-1m7cr.html#ixzz1bCZ89TCV

Singapore investment firm Temasek Holdings is raising up to $800 million from large investors by selling a type of bond rarely seen here. The deal involves investors buying bonds that can be exchanged for Standard Chartered Bank shares at a pre-set price. Temasek is Stanchart’s biggest shareholder, with a stake of about 18.2 per cent. The bond sale allows it to generate cash from its stake in the bank without having to sell its shares now. http://www.straitstimes.com/BreakingNews/Money/Story/STIStory_724929.html

More cities reported a slowdown in year-on-year increases in property prices in September as a result of government’s tightening efforts to cool the market, the National Bureau of Statistics (NBS) said Tuesday. “The rapid growth in property prices has been markedly contained, as prices in some cities begin to retreat,” NBS spokesman Sheng Laiyun said in a press conference.http://news.xinhuanet.com/english2010/china/2011-10/18/c_131198891.htm

The Ministry of Finance (MOF) said Tuesday that China’s fiscal revenue in September rose 17.3 per cent year-on-year to reach 737.7 billion yuan (115.7 billion U.S. dollars), much slower than the 34.3-per cent growth rate posted in August. The slowdown in fiscal revenue growth was the latest of a series of economic data released on Tuesday that pointed to a slower economic growth in the world’s second largest economy. http://news.xinhuanet.com/english2010/china/2011-10/18/c_131198486.htm

South Korea’s corporate bankruptcies went down last month mainly due to a decrease in defaults among manufacturers and service companies, the central bank said  Wednesday. The number of companies that went belly-up stood at 97 in September, down 6 from a month earlier, the Bank of Korea (BOK) said in a statement. The September figure came near to a record low of 96 tallied in July.http://news.xinhuanet.com/english2010/business/2011-10/19/c_131200209.htm

Export from the fast-growing services sector can be a significant propeller for job creation in America, a trade expert said Tuesday. American policy makers have largely overlooked the export potential of the services sector, which could become an abundant source of well-paying jobs for Americans, said J. Bradford Jensen, a senior fellow with Washington-based think tank Peterson Institute for International Economics. http://news.xinhuanet.com/english2010/business/2011-10/19/c_131199813.htm

Greece raised 1.625 billion euros (2.24 billion U.S. dollars) in the latest three-month treasury bills auction on Tuesday, said the Public Debt Management Agency (PDMA). The 13-week treasury bills were sold at an interest rate of 4.61 per cent in comparison to the 4.56 per cent secured in the previous sale on September 20. Without the sixth 8-billion-euro (10.94 billion U.S. dollars) tranche of this vital foreign aid in November, Greece could declare default by December. http://news.xinhuanet.com/english2010/business/2011-10/18/c_131198972.htm

The real effective exchange rate index of RMB in September is 125.01 point, rising 3.77 per cent in comparison with August, according to statistics of the Bank of International Settlement on September 18. The real effective exchange rate index of RMB fell 3.02 per cent in the first half, but thereal effective exchange rate index of RMB has risen for three months since July. Analysts said, the main reason is the depreciation of Euro. As the cash returns to America, the dollar index rises 6.29 per cent in September. http://www.cs.com.cn/english/ei/201110/t20111019_3092821.html

The Fifth Summit of the India-Brazil-South Africa (IBSA) grouping came up with its most comprehensive declaration so far, spelling out its stand on major issues troubling the world and asking the West to meet its commitments towards the world.  The West should act on a wide swathe of issues to receive reciprocation on tackling the financial crises. http://www.thehindu.com/business/Economy/article2548678.ece

India’s industrial production is likely to decline significantly in October, exacerbating an already dismal scenario that has resulted from growing global uncertainty and the central bank’s serial monetary tightening aimed at containing inflation. The industry faces the double whammy of a serious power crisis and a seasonal decline this month. As a result, the index for industrial production, data for which is released with a two-month lag, is likely to add to the woes of a worsening slowdown, they say. http://economictimes.indiatimes.com/news/economy/indicators/iip-may-decline-in-october-on-diwali-offs-power-crisis/articleshow/10409188.cms

High interest rates, global economic uncertainty and the lack of new policy initiatives have driven new project announcements in the country to its lowest in the past two years.
Project investments are the number and value of industrial entrepreneur memoranda filed with the government, letters of intents issued by authorities, amount sanctioned and disbursed by financial institutions, capital raised for project investments, foreign collaborations approvals and the aggregate results of CMIE’s Quarterly Survey on Investment Projects.http://economictimes.indiatimes.com/news/economy/indicators/new-projects-dry-up-for-india-inc-due-to-high-interest-rates-and-global-economic-uncertainty/articleshow/10411627.cms

Russia’s services sector activity picked up slightly in September from the year-low growth rate posted in August, but the rise in new business eased for the sixth straight month, clouding the economic growth outlook, the HSBC Purchasing Managers Index indicated Wednesday. The headline figure inched up to 53.3 in September from 53.2 in August, holding above the 50 mark that separates expansion from contraction. “The … survey for September reflected growing downside risks for the economy,” said Alexander Morozov, chief economist for Russia and the CIS at HSBC. “The services sector sustained a moderate level of economic expansion in September, while overall output growth in the economy edged down due to slower production growth in manufacturing.” http://www.themoscowtimes.com/business/article/services-follow-manufacturing-toward-stagnation/444892.html#ixzz1bCbUOs00

Nigeria has begun putting in place its sovereign wealth fund (SWF), which will be managed by global auditor and consultancy KPMG, the country’s finance minister said on Tuesday.  Ngozi Okonjo-Iweala said the management team of the SWF would be confirmed by mid-December. An initial $1bn has been taken from the Excess Crude Account (ECA) to be used in the SWF. The ECA now contains around $5bn, she said. http://www.fin24.com/Economy/Nigerian-starts-up-sovereign-wealth-fund-20111018

The next meeting of the organisation of Petroleum Exporting Countries may debate how to accommodate returning Libyan crude, a top Iranian oil official said. The gathering due Dec. 14 in Vienna is widely expected to be more peaceful than an acrimonious June meeting. But the remarks underscore that it could see some lively debate on the implications of a faster-than-expected Libyan recovery for other producers. http://tehrantimes.com/index.php/economy-and-business/3677-opec-meeting-may-debate-accommodating-libyan-crude-iran

Did the real Black Swan just occur? Apple misses forecast first time since 2002. As we posted earlier, not even Apple (nor GS), is doing God’s work anymore. The stock is selling off in after hours, and trading below 400. Watch out below, as all shorts have abandoned the Apple short, cause it Ruled the World, unless they come up with an iHFT. We live in interesting times. http://www.thetrader.se/2011/10/18/i-used-to-rule-the-world-2-0/

Solution to HFT coexisting with humans and other computers. Must read by Nanex. We have thought a lot about how HFT can coexist with human traders and computers that aren’t co-located or wired for speed. We believe a strong and stable market requires a diversity of participants, which isn’t possible when speed is valued above everything else. If everything is wired for speed, then you can count on software engineers wringing every last line of analytical code out of their systems to gain that one extra cpu cycle that will put them ahead. http://www.thetrader.se/2011/10/18/coexisting-without-colocating/

This post originally appeared at The Trader.

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