FT Alphaville " Markets Live transcript 12 Jun 2012 Markets Live chat transcript for the chat ending at 11:04 on 12 Jun 2012. If you are not an FT.com subscriber, there's one very good reason to change that As Joe from Business Insider commented earlier the backlash against the backlash has begun I've been taking plenty of grief this morning For drawing attention to the fact that Italy is pretty much shut out of markets right now And to be clear and fair - it is the case that IT yields have softened sincehitting 6.21 earlier today "Less worse" is not better. Didn't ya love that reverse revolver pic? Or is it just me with warped head No - would be a good Economist cover. So, is it time for some opinions other than yours? So long as they agree with mine Probably the key market development, however, came not in Spain's markets but in Italy's. In particular it was noticeable that the yield in Italy's 10-year sovereign debt was once again challenging the recent highs just above 6%. Although the move was not quite as aggressive as the move seen in Spanish debt, it did suggest that the spotlight was slowly beginning to turn onto Italy. Given that, by definition, the provision of additional support for Spain (although the amount remains unspecified) means that there should theoretically be less available to support Italy (should it ever be needed), this was interesting. Probably the most telling comparison we can therefore make this morning is that the benchmark Italian 10-year yield is currently just 8 basis points below where the equivalent Spanish paper stood last Thursday. Actually there's a load of stuff from Derrick worth sharing this morning Er, but its really depressing Depressing in the sense that this has been going on for so so so long He's been looking at the euro reaction to similar news "events" In short, euro rallies and then collapses Greece: Weekend of 1st/2nd May 2010 The details: European finance ministers announce a EUR 110 Bn support package designed both to rescue Greece and to "safeguard financial stability in the euro area as a whole." The Euro-area countries provides EUR 80 Bn in bilateral loans, co-ordinated by the European Commission, with up to EUR 30 Bn available in the first year. Greece, in return, says it will introduce EUR 30 Bn of spending cuts and tax increases. Market reaction: EUR/USD: The EUR opens around 45 points above the previous Friday's close before declining around 1% on the day. By COB Thursday the EUR has fallen by 4.4% from Monday's open. Creation of Euro-zone stabilisation fund: Weekend of 8th/9th May 2010 The details: EU finance ministers, central bankers and the IMF agree upon an emergency economic stabilisation package. The package consists of EUR 440 Bn in guarantees from EUR area states plus EUR 60 Bn in a European instrument, which in conjunction with an expected contribution from the IMF of EUR 250 Bn, totals around EUR 750 Bn. Market reaction: EUR/USD: The EUR opens around 170 points above the previous Friday's close and then rallies another 170 points. However, by the end of Monday the EUR has fallen 125 points from its opening price. By COB on the Friday of that week the EUR has fallen by 4.4% from Monday's open. Ireland: Weekend of 27th/28th November 2010: The details: The European Union, International Monetary Fund and Ireland agree to a EUR 85 Bn rescue deal. EUR 10 Bn is earmarked for bank recapitalisation, EUR 25 Bn for banking contingencies and EUR 50 Bn for financing the budget. Market reaction: EUR/USD: The EUR opens around 45 points above the previous Friday's close. However, by the end of Monday the price has traded back to almost exactly where it closed on the previous Friday. A recovery finally emerges in the middle of the week. By COB on the Friday of that week the EUR has risen by 1% from Monday's open. Portugal: April 6th 2011: The details: Portuguese caretaker Prime Minister Jose Socrates announces he has asked the EU for financing, saying the risks to the economy have now become too great. A Euro-zone official tells Reuters that it is officially estimated that the Portuguese government is likely to need between EUR 60 - 80 Bn in EU and IMF loans over three years. Market reaction: EUR/USD: The EUR rallies in the aftermath of the announcement, ending up on the day by 116 points. Although the next day sees a brief pullback, the rally in the EUR continues on for the remainder of the week. By COB on the Friday of that week the EUR has risen by 1.8% from the announcement. Greece/EFSF: July 21st 2011: The details: European leaders agree that the private holders of Greek debt will take a hit of EUR 50 Bn over three years. In addition Greece will receive another bailout package worth EUR 159 Bn. The EU also announces that "to improve the effectiveness of the EFSF and address contagion" by allowing it to "intervene on the basis of a precautionary programme, with adequate conditionality," "finance recapitalisation of financial institutions through loans to governments including in non programme countries," and "intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional circumstances and a unanimous decision of the EFSF Member States." However, no move is made to increase the size of the EFSF. Market reaction: EUR/USD: The EUR rallies in the aftermath of the announcement, ending up on the day by 197 points. Although the price continues to rally over the next four trading days (eking out another 115 points), this pretty well proves to be the peak. Around a month later the EUR begins to trend aggressively lower. Greece/EFSF: October 27th 2011: The details: The EU announces that of the EUR 290 Bn remaining in the EFSF, around EUR 250 Bn will be leveraged 4-5 times, producing a headline figure of around EUR 1.0 Trn. The new EFSF framework will include risk insurance and SPV options. Private bondholders of Greek debt agree to a 50% haircut which is expected to reduce Greece's debt burden by EUR100 Bn, cutting its debts to 120% of GDP by 2020, from 160% now. The EU will also offer "credit enhancements" to the private sector totalling EUR 30 Bn and the aim is to complete negotiations on the package by the end of the year. Market reaction: EUR/USD: The EUR rallies in the aftermath of the announcement, ending up on the day by 308 points. However, this proves to be the peak of a rally that began at the start of October. The EUR begins to trend aggressively lower at the start of the following week. Greece: February 21st 2012: The details: Eurozone finance ministers finalise the details of the EUR 130 Bn second bail-out for Greece. Officials announce that private sector bondholders will now be offered a "voluntary" deal with a 53.5% haircut rather than the 50% agreed in October. Market reaction: EUR/USD: Reaction on the day is very muted. However, the next three trading days sees the EUR rally by over 300 points to leave it trading at its highest level since early December 2011. This, however, proves to be the high for the year (so far). Those who don't learn from history, etc etc etc. Euros all over the shop btw What I don't quite get is why the usual media mouthpieces are blabbing about sentiment, optimism, blah blah blah. It seems very simple, even to me. So the E100bn will be a sovereign liability .... It may well come from the ESM, which sticks Spain with debt equivalent to 10% of GDP .... And it'll subordinate existing bond holders. Spain's market access is shut off. And Spain then needs a sovereign bailout. Move to Italy and repeat. you are so cynical Bryce I've a simple brain that needs simple explanations. That one, to me, seems Occam's Razor. Anyway, should we look at the scores today? Equities picking up where they failed to leave off yesterday. FTSE up 25 points at 5457. Nope. You're right. Called a 100 point fall correctly here yesterday, pretty much to the point. Will try and repeat the trick today. FTSE to finish lower by 20-ish. That said, footsie now up 30 points as we type There's there's no news to support, at least corporate. How about the crap UK manufacturing stuff? Not a blue-chip driver, but worth noting certainly. Industrial production flat in April Hey, but it brings on QE# no? maybe Problem here's manufacturing output Market was expecting 0.1% It seems to be oil and gas extraction that's the problem. Want some comment? I have UBS to hand. Ive got some CS snaps also Today's UK industrial production data echoes weak prints in the large euro area economies. German industrial output, for instance, fell by 2%, Italian by 1.9% and Spanish by 0.7%. The one exception to this was France, where output expanded by 1.5% in April. Taking a slightly longer horizon, we find that UK industrial output is broadly flat over the year (-1%) as is the case in Germany (-0.7%) and France (+0.9%). More alarming is the Spanish and Italian performance, where output is around 8-9% lower over the year. All this suggests that UK manufacturers are suffering from a broad European malaise, but it's also worth pointing out that the latest PMI survey showed a sharp decline in domestic orders, suggesting that weakness cannot be attributed to the euro area alone. Clearly, Q2 has got off to a bad start and if the CBI and PMI surveys are anything to go by, there is more weakness ahead. Sure, the services sector appears to have held up, but here again the forward-looking indicators with the PMI survey point to softness ahead. All in all, our forecast, at this stage, is for the economy to suffer another negative quarter. Today's release supports our view that the MPC will expand its QE programme once again, in our view by August. And here's Credit Suisse in a similar vein Manufacturing output fell by 0.7% m/m in April (against Reuters expectations of 0%, and a prior value of plus 0.9%). This is surprisingly weak, and may be capturing the slowdown in our euro area trading partners. Indeed, the manufacturing PMI data for April showed that new export orders were incredibly poor. If today's number is reflective of this fact it may well herald weaker UK economic momentum in the coming months. Overall industrial production was stronger, with a flat reading on the month and only marginally weaker than Reuter's expectations of plus 0.1% m/m. The relatively strong headline performance was due to a 13.6% m/m increase in electricity and gas output, one of the strongest monthly increases in the past 20 years. On a three-month-on-three-month basis manufacturing is now at -0.6%, revisiting the lows seen during Q4 2011. This number also provides our first hard-data insight into Q2, suggesting that the quarter could continue the weakness seen in Q4 2011 and Q1 of this year. The weakness in manufacturing is likely to increase pressure on the Bank of England to undertake some form of further policy stimulus. The MPC's current approach, which broadly appears to be conditional on further developments in Europe, may begin to become untenable if hard data in the UK seriously begins to disappoint. To this end, next week's data on the UK's labour market will be of particular interest. And we should offer a reminder abotu Adam Posen yesterday Yeah - pointing the QE hosepipe at private sector assets All our politicians are just faffing around with Leveson tho Burying hatchets and losing electronic organisers. It'd be nice if they mentioned this stuff every now and then. Anything corporate to focus on? Perhaps we can make our regular stopover at BSkyB Since Levenson was mentioned above. British Sky Broadcasting Group PLC (BSY:LSE): Last: 685.50, down 2 (-0.29%), High: 699.00, Low: 679.50, Volume: 2.18m Down in spite of a push from Morgan Stanley And the reason is here Sports Market Intelligence We don't ahve a log in Im not on Firefox so don't have my Google Bot impersonator to hand Won't work. It's very high net specialist this. But Merrill Lynch has a login. So what's the intelligence behind the wall? Al Jazeera, the Qatar-based broadcaster, is definitely involved in the second round of bidding for domestic live rights for English soccer's top-tier Premier League in the next contract period, Sportcal understands. Which is bad news, in the scheme of things. Assuming it is news, and true. You'll remember Al Jazeera made a big mess of France by stepping in and being disruptive with football rights. The suggestion that they may do the same in the UK has been going round for quite a while. Though it's been on-off for ages. @Opec: how so, sportsfan? Merrill reckons they won't be any more than an irritation. The market had widely assumed that AJ would not bid given its focus on France, it did not bid in Germany, its lack of UK content and the logistics / infrastructure required to put a viable bid in place for next year. However, AJ may be prepared to absorb initial start up losses to build a UK sports platform, and potential losses would be reduced by lower Sky platform fees (falling by >50% by 2014) and OTT which reduces SAC and could help grow the market. If AJ is indeed involved, then BSkyB and ESPN will be under pressure to bid up to retain the rights. Given the opportunity cost of losing the rights, we believe that the most likely scenario, in the event that AJ has indeed bid for the rights, would be for Sky to bid up to secure the majority of the rights. So it's an auction BSkyB can't afford to lose. So they won't lose it. Anyway, as I say, AJ's overshadowed a MOST upgrade today Which I'll chuck up here for completeness. Lacklustre ytd (-4% relative), we see Sky entering a period of better news with the resolution of the Premier League rights, the price increase due in July and a potential further buy back (July 26). With 12% pa EPS growth 2011-14 on a 2012/13 p/e of 13x, the shares look good value. Upside optionality? Two key factors could swing Sky's way: (i) We assume a 2% price increase in September after a 24-month price freeze. An extra 1% increase would boost FY 13 EBITA by c£43m or 2p per share. (ii) For 2013/14 (the first year of the new Premier League contract), we assume a 20% cost increase to £649m pa (current deal £541m pa). Potentially if cost was held flat, this would boost Sky 2013/14 EBITA by £100m and EPS by 8%. A decision is imminent. Medium-term concerns fading: (i) The EPL rights renewal decision will be in next week with hopes growing Sky will face muted competition; (ii) the recent Competition Commission decision on first pay TV window film rights maintains BSkyB's competitive advantage; (iii) YouView looks delayed until Q4, while, by contrast, Sky's own Now TV should be launched by the end of this month; (iv) the "fit and proper" debate will rumble on, but we do not see News having to sell its Sky shares. Positive news on the way: (i) The letters announcing the price increase will go out in July; (ii) BSkyB will end the year with modest gearing (1.1x net debt/EBITDA and could announce another £500m-£750m cash return (announcement with the full year results on July 26). At our PT, Sky would trade in line with the European cable sector on EV/OPFCF of 12.5x in 2012, growing OPFCF at 7.3% pa (the cable sector is also on 12.4x in that year, growing OPFCF at 7%). Morgan Stanley, I should note IN BIG FLASHING LIGHTS, is BSkyB's shop broker. Honestly? I have no idea. Let's make something up. Stability switch versus the LSE. That'll do. London Stock Exchange Group PLC (LSE:LSE): Last: 964.50, up 1.5 (+0.16%), High: 968.50, Low: 961.00, Volume: 113.31k After the LSE's boardroom carpet was turned into a scene from Scarface. Director of Post-Trade Services gone. New director of Strategic Development. Head of Primary Markets gone. So they've hired this chap from Nasdaq Yup. Whoich you could see as signalling closer ties. Though the market doesn't seem to be reading it that way. Likewise, parting with your CFO's rarely good news. It's a strangely sanguine reaction to rather a lot of change. Mr Rolex fixing things to how he wants them? I dunno. And I'm lacking decent comment as well. Doug was a good finance director in our view and he will be missed, but perhaps his position had become untenable given that he was to leave if LSE were successful in acquiring TMX, and inorganic development continues apace at the LSE. His replacement, David Warren, has plenty of relevant experience having spent nine years as Nasdaq OMX's finance director. For the avoidance of doubt, we do not believe today's announcement signals any change to financial estimates. Oh and there's some nonsense coming out of Brussels So they are "denying" this ATM / capital controls story from Reuters yesterday These guys really do need to go to PR school They've painted themselves into a corner there. "Yes, we have talked about capital controls" = panic! "No, we have not talked about capital controls" = panic! I assume that's a typo, by the way. Digging E40m out of kids" forgotten starter accounts. Otherwise, it's a depressingly small figure to go grubbing after. Glencore International PLC (GLEN:LSE): Last: 366.25, up 2.7 (+0.74%), High: 366.75, Low: 358.55, Volume: 7.21m Just noticed that Ivan Glasenberg has been taking advantage of the current oversold situation That's the third purchase inside a week I think. Doesnt give his total holding on the announcement Or he's personally acting as the buyer of last resort. A bit like Bramson does at F&C. Maybe if the Xstrata merger fails he'll buy the company back it almost when bust when private... That is a drawback, yes. Reggie Perrin made the point more elegantly But now it's not going bust, the shareholders are an inconvenient intermediary to transferring revenue into your own bank account. Anyway, Xstrata following today ... Xstrata PLC (XTA:LSE): Last: 968.70, up 7.1 (+0.74%), High: 969.60, Low: 950.00, Volume: 5.82m Bit of a gap appeared yesterday, which I can only assume was on the grumbling about Mick's bonus. And the realistic prospect that shareholders may vote with a conscience rather than for quarterly loss protection. Ok - few more things to cover before we slope off. Paul's zapping someone on the main blog Warning to rude and abusive commenters - your ability to comment will be terminated immediately and permanently, without warning. Henceforth, FTAlphaville has instituted a One Strike and You Are Out policy. We've had enough. We are going to clean up these pixels once and for all. Long time since we've had to use that here. Indeed. I think the harsher policy is helping across the site And overcourse this was mentioned earlier http://www.bbc.co.uk/news/technology-18404621 Not at all - I think I may be on my own on this one anyway ... But this statement from Playtech is interesting. Well, the backstory here is that Playtech decided to pay its 48% shareholder Teddy Sagi some €95m For some companies whose value was, let's say, opaque. Lots of stuff about social media gaming and so forth. Not a lot of figures. None, in fact. This was part of a corporate kitchen sinking before Playtech steps off Aim and onto the main market. Now the good news is that the transaction's collapsed. The bad news is that they've come to a rental deal instead. Sagi gets €6m per annum, plus 20% of incremental social gaming revenues generated Capt B - learned.english.dog "social gaming assets" (nope, me neither) are licensed for 3 years And there's a ten-year lease on an office in Camden. Which Playtech had previously promised to buy. Oh, and Mr Sagi to becomes a consultant to the group With a wage of €1 per annum And this is moving to the main list? This is all in preparation, yes. This was, believe it or not, the cleanup of its corporate structure. Now, there's lots of guff about the exponential growth of social media gambling in the statement But, again, no actual figures as to how much these businesses are actually worth. I guess shareholders can take some comfort from the fact that Sagi's rewards are revenue linked, a bit. I'm not sure I'd be taking much comfort, in the scheme of things. But, if you buy into a corporate fiefdom, this kind of thing does tend to happen. Hang on - I'll see if anyone has an opinion. The software deals should strengthen Playtech's position in the key growth markets of social gaming and mobile. Offsetting this to a degree are the questions raised by what appears to be a rather complex related party deal. On balance, our view remains that Playtech is an attractive business in a global growth market and remains good value for those comfortable with the corporate situation. Related party deals announced: As expected, Playtech has concluded a number of related party transactions with major shareholder Teddy Sagi. The relatively straightforward arrangements are two 10-year leases for 10,000 sq ft of office space for Playtech subsidiary GTS at a cost of £750,000 per annum, and an initial five-year advisory agreement with Teddy Sagi at a cost of €1 per annum. The software licensing agreement is less straightforward. Oh, did I not mention that? £750,000 a year, for an office in Camden. Software deal complex Playtech is boosting its social gaming capabilities via a licensing deal with Skywind, a company controlled by Teddy Sagi. The group is paying €6m per annum plus 20% royalties on the social gaming element of the software deal (under a three-year licence) but no royalties on the real gaming element (perpetual licence). Some ancillary development and marketing services are also part of the deal. The deal covers B2B and any future B2C business model that Playtech may adopt. Playtech will also grant the supplier use of the company's games content on a royalty-free basis. In addition, under a separate agreement, Playtech will licence its software to Skywind on an arm's length basis More clarity required Today's announcement was expected, but such transactions hardly help allay the fears of those concerned about corporate governance. Rather than clarify the situation with related parties, the software licensing deals appear to cloud the picture further. Ironically, if Playtech had acquired the business as it originally proposed, then this would not have arisen, although it did raise other questions and the upfront cost would have been significantly more. Strategically well placed To date the related party transactions have served Playtech well, in terms of the underlying business and strategic positioning. While we believe that the licensing deal needs further explanation, the initial sums involved are small. For those comfortable with the corporate situation, the business itself continues to look good value. (@SilverFox: I used to live in Camden as it happens. Great place, providing you're 20.) EFSF trying to flog some paper Atarashī: I don't think Peel Hunt is shop, though can't say for sure right now. Austrian/italian war averted Fekter withdrawn comments that Italy may need a bailout lets slope off quietly FATDAZ - tell you what happened - we have to put freebies like going to a test in a register here... Thanks everyone for the comments. This entry was posted by Paul Murphy on Tuesday, June 12th, 2012 at 11:00 and is filed under Uncategorized.