Quartz Daily Brief—UK interest rates, Greek bonds, China’s trade surprise, pre-paid NYC taxis

Quartz - qz.com

Good morning, Quartz readers!

What to watch for today

The Bank of England keeps rates low. Growth is looking healthier in the UK and inflation is still below target, so it’s unlikely the bank will move base rates from the current 0.5%.

Greek bonds hit the market. Greece hopes to raise €2.5 billion ($3.45 billion) in its first sovereign debt auction in four years, after booking €11 billion of orders on Wednesday. If it sells the bonds at a yield below 5.3%, it will consider the auction a “great success,” a Greek official said.

Rite Aid takes a knock from Obamacare. Analysts expect the US drugstore chain to post its second consecutive profitable year after a string of losses. Profit margins are set to drop, though, as pharmacies offer deals to lure newly insured Americans.

While you were sleeping

China trade took a surprise fall. Exports and imports both fell in March, surprising most analysts who expected them to increase, putting more pressure on Beijing to stimulate the economy.

Australia’s jobless rate fell too. The number of people with jobs in March rose by 18,000 for an unemployment rate of 5.8%, from a revised 6.1% in March, adding to evidence of a consumer-led economic expansion.

US interest rates could stay low for longer. Minutes from last month’s Federal Reserve meeting showed some members weren’t convinced by Fed chair Janet Yellen’s suggestion that interest rates could rise as soon as mid-2015. Markets took that as a sign the central bank will keep its easy money policy going for longer, and the dollar fell to its weakest level in five months.

Japan’s core machinery orders fell in February, down 8.8% after a 13.4% rise in January. The core orders are a gauge of capital spending, may suggest a lack of confidence in prime minister Shinzo Abe’s economic policies.

BofA coughed up for its credit-card con. The US  Consumer Financial Protection Bureau fined Bank of America $772 million for unfair billing and misleading customers of its credit-card insurance scheme.

BlackBerry could stop making phones. “If I cannot make money on handsets, I will not be in the handset business,” said the CEO of the troubled smartphone maker. Blackberry is considering expansions into other industries that require secure communications, such as healthcare, financial, and legal services.

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Quartz obsession interlude

Leo Mirani on Samsung’s unconventional expansion plans. “Samsung is going where few multinationals have gone before. In India, the South Korean giant will open between 3,000 and 4,000 shops in cities with fewer than 100,000 people, according to the Economic Times. This may not sound like a big deal to readers from countries with populations measured in millions instead of a billion, but towns of that size in India are little more than overgrown villages.” Read more here.

Matters of debate

The future of “Made in America” is Tesla. Ford’s F-150 pickup truck has been the US’s top-selling vehicle for decades, but Tesla is charging toward the number one spot.

America’s sushi habits are funding exploitation. Most of the seafood imported to the US is caught or trafficked illegally.

State meddling is killing Brazil’s oil giant. It’s up to the middle class to save Petroleo Brasileiro.

Wall Street is up to its old tricks. Mortgage-backed securities are out, but rental-backed securities are the new swindle.

Surprising discoveries

The Apple smartwatch will cost over $1,000, according to the most accurate Apple analyst out there.

This email will self-destruct after reading. Two students have built the Snapchat of email messaging.

South Korea is a great place to live while you’re young. Probably wise to get out before adulthood, though.

You can pre-pay for a New York taxi ride. Here’s our step-by-step guide to this time-saving hack.

Our best wishes for a productive day. Please send any news, comments, taxi hacks, and self-destructing emails to hi@qz.com. You can follow us on Twitter here for updates throughout the day.

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Cyprus: Here’s What You Need to Know – 03/31/2013

Cyprus: Here’s What You Need to Know
by Mitch Zacks, Senior Portfolio Manager

The situation in Cyprus has dominated the headlines over the past two weeks. In this article, we will help explain what caused the situation in Cyprus and help you understand what effects these headline events have on your equity and fixed income investments.

Cyprus Background

Cyprus is a country that has long operated as a tax haven, much like the Caymans or Bermuda. The Cyprus GDP is just $22 billion, but they hold up to $120 billion in its tax haven banks. By 2012, an awkward and unstable situation emerged.

The worldwide financial collapse continues to have lingering effects in Cyprus. The unemployment rate in Cyprus went from 6.2% in 2010 all the way up to 12.5% in 2013. The Cypriot sovereign credit rating is “CCC” by S&P, which is default status. In other words, Cyprus is in a situation where their government can’t access sovereign debt markets to finance its debt.

Cyprus needed a bailout to finance their debt. However, the European Union, especially Germany, didn’t want to reward Cyprus’s tax haven status banks. There was the discussion of a levy on all depositors of Cyprus banks.

The Deal

A last minute meeting of Europe’s finance ministers ran late into Sunday night on March 24th. This group approved a focused reduction of the two largest banks, the Bank of Cyprus, and Popular Bank of Cyprus.

As part of this draft package, the EU will assist with the recapitalization of the two major banks and will finance Cyprus’ government. The draft deal protected small depositors below 100,000 euros from any levy or haircut, but effectively forced a 30% haircut onto large depositors, which is the same haircut that was put onto holders of the ill-fated Greek bonds. Furthermore, the deal wipes out the major bank’s equity holders as well as the senior and junior bondholders.

Smaller banks in Cyprus emerged unscathed, but now operate in a much weaker economic environment. Likely, this will cause suffering and banking problems for many years to come. The banking system in Cyprus is also set to shrink to EU ratios relative to the Cyprus economy by 2018.

Effectively, the EU has retroactively taken away the tax haven status and restructured/downsized its banking system. It was done in a focused two-bank fashion to maximize the positive impact on banking system problems, but minimize the effect on the country’s voting public.

At the end of the day, a deal was always inevitable because a disorderly exit from the Euro would have been disastrous for all parties involved.


Tax Haven Status

Cyprus’ economy has been largely supported by an extremely entrenched banking sector. Russian oligarchs have long looked to Cyprus as a safe haven for their accounts. This tax haven status is how Cyprus developed a banking problem. If there was no consequence and a full bail out was made, then a very clear message would be sent to other peripheral European countries that the EU would come to the rescue, again and again. Instead, the new deal closed down the tax haven status, and now the new, smaller banking system is more involved with the rest of Europe’s banking sector.

We also saw this recently in the U.S. with the passage and implementation of the FATCA, or Foreign Account Tax Compliance Act of 2010.

Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. In addition, FATCA requires foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers.

In effect, tax haven attacks are underway globally.

Retroactively bringing Cyprus’ tax status to Europe’s standards is likely to be beneficial for the continent’s major banks. Investors are now incentivized to leave bank deposits throughout the continent or in the U.S. This money can then trickle into the real economy of continental Europe and the U.S. and stimulate economic activity and job growth.

Effectively, by closing out the Cypriot tax haven, it has strengthened the banking systems in Europe and the U.S.

Effects on the U.S. Equity Markets

Reaction to both Cyprus’ banking crisis and ensuing bailout has been relatively muted in U.S. equity markets. However, the Euro currency has continued to trade lower and some market participants have sought safety in U.S. treasuries. As stated in the previous market commentary piece, we believe that a rally in the Euro and a further resolution of this mini-crisis will bolster U.S. stock markets even further.

The market seems to understand that banking events like these will occur. Cyprus is a very small country. This is a relatively small banking issue for the European Union to handle. For Europe, 20 finance ministers hailing from 20 countries can easily squelch the problem. That is what the market anticipated and that is what occurred.

About Mitch Zacks

Mitch is a Senior Portfolio Manager at Zacks Investment Management. He wrote a weekly column for the Chicago Sun-Times and has published two books on quantitative investment strategies. He has a B.A. in Economics from Yale University and an M.B.A. in Analytic Finance from the University of Chicago.

Mitch also is a Portfolio Manager for the Zacks Small Cap Core Fund ( ZSCCX ).

To contact us by mail:
Zacks Investment Management
Attn: Wealth Management Group
One South Wacker Drive, Suite 2700
Chicago, IL 60606

Massive Bond Supply From Euro Zone As Greek Debt Swap Brings Relief

By Emese Bartha


FRANKFURT (Dow Jones)–Four of the euro zone’s five biggest sovereign issuers will auction government bonds next week as secondary markets may extend their relief, at least for now, over Greece’s apparent avoidance of a disorderly default.

The Netherlands on Tuesday, Italy Wednesday, Spain and France on Thursday will offer up to around EUR25 billion in bonds, with details of Italian and Spanish auctions due later Friday.

Greece’s finance ministry said the average 83.5% participation rate on a total of EUR206 billion in Greek bonds could be lifted to 95.7% once so-called collective-action clauses are activated.

“Overall, this is a very good PSI [private-sector involvement] result and the participation rate is even higher than what the most optimistic market participants were expecting,” said Ioannis Sokos, strategist at BNP Paribas.

Italy is expected to launch a new three-year Buoni del Tesoro Polieannali, or BTP, Wednesday, according to analysts. Nevertheless, despite generally benign market conditions, Commerzbank strategist David Schnautz doesn’t expect this to be the “right moment” for Italy and Spain to tap the ultra-long sector of the curve for the first time in 2012.

Sp far this year, neither country has sold any bonds with a maturity longer than 10 years.

Bond spreads in the euro zone have mostly been tightening this year, massively helped by more than EUR1 trillion in liquidity provided by the European Central Bank in the form of three-year loans, known as long-term refinancing operations, or LTROs, in December and February.

“LTRO money has generated significant demand for Italy and Spain in particular and, we believe, will continue to find its way into the market,” said Mark Schofield, strategist at Citi.

However, he warned of a number of more negative developments, including Spain’s loosening of its deficit target this year.

“If targets begin to slip above agreed limits the risk that the LTRO starts to be seen by core countries as back-door deficit financing will rise, and this will likely lead to more aggressive rhetoric from core nations,” said Citi’s Schofield.

Among the euro zone’s core issuers, the Netherlands will offer EUR2.5 billion to EUR3.5 billion of the 0.75% April 2015-dated bond, while France will auction up to EUR10.2 billion in nominal and inflation-linked bonds in a total of seven different series.

French debt will draw particular attention ahead of upcoming presidential elections that are likely to result in a Socialist win, which may result in France’s abandoning the reform agenda.

“The political atmosphere in France adds to the economic imperative to short the French bond market as a hedge against the possibility of another episode in the euro crisis,” said Jean-Louis Gave of research firm GaveKal Dragonomics.

He noted, however, that the rise of French political risk “has not prevented the average yield across the curve from declining to new historical lows earlier this month, nor kept the yield spread over [German] bunds from falling substantially in recent months.”

-By Emese Bartha, Dow Jones Newswires; +49 69 2972 5516; emese.bartha@dowjones.com


Germany’s Merkel Satisfied With Greek PSI Participation

BERLIN (Dow Jones)–German Chancellor Angela Merkel is satisfied with the participation rate of private sector creditors in Greece’s debt-restructuring deal, the government spokesman said Friday.

Earlier Friday, Athens said it had received a strong response to its proposed EUR206 billion debt restructuring, but warned that it would invoke new legal powers to command almost universal participation in its debt-swap plan.

In a statement, the finance ministry said the average 83.5% participation rate on a total of EUR206 billion in Greek bonds would be lifted to 95.7% once the so-called collective-action clauses are activated.

Merkel’s spokesman Steffen Seibert said it was now important that Greece take up the opportunity presented to it to push ahead with reforms.

-By Andrea Thomas, Dow Jones Newswires, +49 30 2888 4125; andrea.thomas@dowjones.com

(Alkman Granitsas and Nektaria Stamouli in Athens contributed to this article.)

Global FX & Fixed Income News


-Stocks seen higher; dollar down against euro, up against yen; Treasurys lower; April Brent down 65c at $123.52, Nymex March crude down 19c at $108.37; gold up at $1,774.10.

-Watch for: Durable goods figures at 0830 ET and consumer confidence data at 1000 ET.

-News: S&P Warns Of Crisis If Euro-Zone Economies Pushed, ECB Suspends Eligibility Of Greek Bonds As Collateral, ECB Lending Won’t Save Real Economy



The markets were on hold with a run of S&P headlines failing to stir reaction, including one indicating that Greece still has highest risk of leaving the euro zone. Heavyweight asset management firm Blackrock was a tad more upbeat, saying it is confident the euro will survive as a currency. On the data front, the EU February sentiment surveys showed slight improvements over the previous month. USD/ZAR slipped to a fresh five-month low under 7.51.

At 0502 ET, the euro was higher at $1.3440, the dollar was higher at Y80.72 and the pound was higher at $1.5850.


Treasurys were down as stocks gained ahead of the ECB’s second three-year LTRO Wednesday. Attention will focus on economic data, with U.S. Durable Goods Orders and Consumer Confidence due at 0830 ET and 1000 ET. March treasurys were down slightly at 131.185, and the 10-year cash yield was 1.928%.

The cost of insuring European debt against default was lower in early trading, as a positive trading session in Asia driven by upbeat U.S. economic data and a drop in oil prices provided a welcome distraction from the travails in the euro zone.

At around 0745 GMT, the SovX Western Europe index, which investors can use to buy or sell credit default swaps on a basket of 15 sovereign borrowers, was at 342/347 basis points, two basis points tighter from Monday’s close, according to data provider Markit.

The iTraxx Europe index, which comprises 125 high-grade borrowers, 25 of which are banks and insurers, was two basis points tighter at 130/131 basis points. The Crossover index of 40 mostly sub-investment-grade European corporate borrowers was nine basis points tighter at 571/574 basis points.


U.S. stocks are called to open higher, in line with U.S. futures and as European markets post modest gains ahead of the ECB Long-Term Refinancing Operation Wednesday, said Michael Hewson at U.K. Spreadbettor CMC Markets. “Investors have shrugged off S&P putting Greece in selective default, choosing to focus on a likely improvement in U.S. durable goods and consumer confidence data this afternoon,” he said.


Crude-oil futures slipped as some market participants took profits after last week’s strong rally and others reassessed their positions as the end of winter approaches in the Northern Hemisphere.

Some investors chose to book profits after the U.S. crude benchmark rallied to a nine-month high last week and a warmer weather outlook signaled the end of peak winter demand in the Northern Hemisphere. At 0506 ET April Brent was down 65c at $123.52, Nymex March crude was down 19c at $108.37.

The gold market appeared to be entering a period of consolidation, HSBC said. While bullion is becoming “a little less correlated” with other assets, responding sluggishly to moves in equities and other commodities, the inability of the market to clear the Nov. 8 high of $1,803/oz is also resulting in some light profit-taking, the bank added. For now, the market may become “more dependent on physical demand.” While the physical market has been quiet in recent weeks, merchants have reported a modest uptick in Indian demand recently, it said.

=======TODAY'S CALENDAR======= 

ET       PERIOD 
0745  US           ICSC-Goldman Sachs Chain 
                   Store Sales Index 
0830  US   Jan     Advance Report on Durable Goods 
0855  US           Johnson Redbook Retail Sales Index 
0900  US   Dec     S&P / Case-Shiller Home Price Index 
1000  US   Feb     Consumer Confidence Index 
1000  US   Feb     Richmond Fed Business Activity 
1000  US           Fed Gov Duke testifies on "State 
                   of the Housing Market:Removing 
                   Barriers to Economic Recovery, 
                   Part II" in Washington. 
1000  US           Senate Committee on Banking, 
                   Housing, and Urban Affairs - 
                   U.S. Senate Urban Affairs 
                   Committee latest hearing on the 
                   housing market 
1630  US   Feb 22  API Weekly Statistical Bulletin 
1915  US           Cleveland Fed Pres Pianalto speaks 
                   on "Prospects for the Nation 
                   and the Region" in Westfield Center 
N/A   US           Federal Reserve Bank of Cleveland 
                   - Cleveland Fed President Sandra 
                   Pianalto speech in Medina County, OH 
N/A   US           State of Michigan - Michigan 
                   presidential primary election 


Japan Fin Min Told G-20 That Tokyo Will Take Decisive Steps As Needed On Yen

TOKYO (Dow Jones)–Japan’s finance minister reiterated at a weekend meeting of Group of 20 finance ministers and central bankers that Tokyo will take action as needed in currency markets to combat excessive and speculative-driven movements in the yen, the minister said Tuesday.

Ex-IMF Official Expects Resistance Against China Reform

The proposals in a World Bank report on a future development path for China’s economy reflect the views of reform-minded Chinese officials, but are likely to face strong opposition, a former top China hand at the IMF says.

ECB's Nowotny Says Euro-Zone Firewalls Sufficient

Euro-zone governments don’t need to increase the size of the rescue funds they have established to provide financial assistance to struggling members of the single currency, ECB governing-council member Ewald Nowotny says.

BlackRock Exec: Confident Euro Will Survive As A Currency

Asset management firm BlackRock Inc (BLK) signalled Tuesday that it does not share widespread fears that the euro area’s debt crisis could fell the common currency.

Market Participant Asks ISDA If Greek CDS Have Been Triggered

An unidentified market participant asks a committee of the International Swaps and Derivatives Association to rule on whether the passage of legislation approving collective-action clauses for Greek debt should trigger payouts on credit-default swaps tied to Greek sovereign bonds.

China Local Government Debt Risks Controllable - Official

Risks in China’s local government debt are controllable and won’t become as big as feared, so long as Beijing allows banks to roll over loans to regional authorities says the director general of Shanghai Financial Service Office.

S Korea Runs Current Account Deficit For First Time In 2 Years

South Korea ran a current account deficit in January for the first time in nearly two years as the euro-zone sovereign debt crisis and stalling U.S. economy undercut global demand, the Bank of Korea says.

WSJ: FBI Is Building Cases On 120 People For Alleged Illegal Trading

Federal authorities are seeking to build insider-trading cases against roughly 120 individuals on and off Wall Street in an expanding criminal insider-trading investigation that has shaken the financial and corporate worlds.

German Lawmakers Back Greek Bailout

German lawmakers approve a second Greek bailout package by a wide margin, but the vote in the Reichstag took a twist when the final tally showed that Chancellor Angela Merkel didn’t receive full backing from her own coalition for the rescue.

-By Iman Dawoud; Dow Jones Newswires; +44 207 842 9344; iman.dawoud@dowjones.com

GLOBAL MARKETS: European Stocks Up With ECB’s LTRO Main Focus

By Andrea Tryphonides and Ishaq Siddiqi 

LONDON (Dow Jones)–European stock markets were marginally higher Tuesday, with banking stocks gingerly higher ahead of the European Central Bank’s second long-term refinancing operation due Wednesday while investors were unsurprised by Greece’s downgrade to “selective default” by rating agency Standard & Poor’s.

The downgrade came late Monday, after banks agreed to write off more than half of their Greek debt holdings as part of the second bailout of the country. On Tuesday, the ECB temporarily suspended the eligibility of Greek bonds as collateral.

However, the move was largely expected and, as a result, equity markets were generally lackluster. By 1125 GMT, the benchmark Stoxx Europe 600 index was up 0.2% at 264.46. The market was largely unmoved by the euro-zone economic sentiment indicator, which showed consumers and businesses in the euro zone were becoming more confident. The ESI increased to 94.4 in February from 93.4 in January.

“It looks as if the improvement in financial market sentiment and better economic news from abroad have made euro-zone consumers and businesses less gloomy about their economic prospects,” said Martin van Vliet, economist at ING Bank NV. “However, with more fiscal austerity in the pipeline, the debt crisis still unresolved and oil prices in euro terms breaching record highs, consumers and businesses still have plenty to worry about.”

Elsewhere, Paris’s CAC 40 was 0.4% higher at 3454.78 and Frankfurt’s DAX was up 0.5% at 6882.44. London’s FTSE 100 index was up just 0.2% at 5926.57. On the data front for the U.K., retail sales were flat in February with little improvement expected in March, according to a survey conducted by the Confederation of British Industry.

Banking stocks were higher Tuesday, as investors positioned themselves before Wednesday’s second round of LTRO by the ECB. The Stoxx 600 index for the sector was up 0.3%.

Investors were uncertain what a small or large take-up of the LTRO would mean for markets.

“It will be interesting to see how the market reacts to a surprise either way: if banks are still stressed and in need of funding, a more modest outcome may be a better one for markets; but a larger number may be viewed positively should banks use the availability of unlimited financing to stock up on cheap peripheral assets and make profits on the ‘free carry’ being provided by the central bank,” said Bill O’Neill, chief investment officer of European, Middle-East & Africa at Merrill Lynch Wealth Management.

Estimates for the size of Wednesday’s LTRO range from EUR250 billion to EUR600 billion.

Meanwhile, retreating oil prices have provided some relief to investors’ worries about fresh headwinds for the global economy. Morgan Stanley’s analysts appear to be rather optimistic on the recent rise in oil prices. “We do not believe that the current rise in the oil price is sufficient to derail the global economic outlook,” they said. “We believe the global economy is in a stronger position today than it was back [in 2008] when we were facing a financial crisis and impending recession.”

April Nymex crude oil futures were down $0.27 $108.29 a barrel at 1115 GMT, while April Brent oil futures were down $0.94 at $123.23.

In corporate news, Peugeot SA shares surged 7.1% on reports General Motors Co. was in talks to take a small stake in the French auto maker. By contrast, Dutch navigation equipment maker TomTom NV shares slumped 16.5% after it said revenue is set to decline in 2012 as lower sales at its consumer business contributed to a 77% drop in fourth-quarter net profit.

In the currency markets, the euro was higher against the dollar but still struggled to make much headway as investors focused on the ECB’s second LTRO. At 1115 GMT, the single currency was at $1.3437 against the greenback from $1.3397 late Monday in New York.

Elsewhere, spot gold was at $1,775.48 a troy ounce, up $0.58 cents from its New York settlement on Monday. The March bund contract was down 10 ticks at 139.64.

U.S. stock futures were higher Tuesday, indicating a positive start for Wall Street. The Dow Jones Industrial Average was up 0.3% at 13,011.0 and the S&P 500 front month futures contract was 0.4% higher at 1372.40.

On Monday, the DJIA finished down one point at 12,891.51 narrowly missing the key 13,000-mark. The S&P 500 gained two points to 1367.59.

-By Andrea Tryphonides and Ishaq Siddiqi, Dow Jones Newswires; +44-20-7842-9281; andrea.tryphonides@dowjones.com

Markets Finish Higher After ECB Announces Greek Debt Swap

Today’s Financial Recap


348,000 compared to last week%u2019s 365,000. Housing starts also grew more than expected, leading equity indexes to rally over 1% on the day.

Markets rose higher midday when news reports indicated the ECB would exchange its current Greek bonds totaling 50 billion euros for new bonds that would be exempt from any Greek debt restructuring. The bonds would also be exempt from any retroactive collective action clauses, which is something that the S&P has stated will trigger a selective default if instated. This effectively subordinates all private holders of Greek bonds.

European officials reiterated their conviction today that the Eurogroup would come to an agreement on Monday that would provide the Greeks with a 135 billion euro bailout and potentially save the country from default.

Tomorrow’s Financial Outlook

Options expiration is tomorrow, so markets can expect a fair amount of volatility and pin risk, where stocks usually close near a round number.

The US will release Consumer Price Index numbers for the month of January tomorrow. These numbers will show a realistic gauge of the severity of inflation in the US. The Conference Board will also release Leading Economic Indicators, which is an excellent way to gauge any potential growth on the horizon for the US.