Australian court determines S&P mislead investors | G-20 officials discuss concerns about sovereign debt | RBS prepares for possible settlement of Libor claims
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05 November 2012
CFA Institute: Financial NewsBrief
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Polls put Obama and Romney in dead heat
Voters are divided nearly in half over who should serve as the next U.S. president. President Barack Obama has the backing of 48% of likely voters, while 47% support Republican challenger Mitt Romney, according to The Wall Street Journal/NBC News poll. Other polls have similar results. Obama has a small advantage in the Electoral College. NBC News/First Read blog (04 Nov.), The Washington Post (tiered subscription model) (03 Nov.), The Wall Street Journal (tiered subscription model) (05 Nov.)
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Australian court determines S&P mislead investors
An Australian court ruled that Standard & Poor's engaged in "misleading and deceptive" conduct by giving certain constant proportion debt obligations triple-A ratings. S&P plans to appeal. "We are disappointed with the court's decision, we reject any suggestion our opinions were inappropriate, and we will appeal the Australian ruling, which relates to a specific CPDO rating," S&P said in an e-mail. The ruling is expected to have global implications. Bloomberg (05 Nov.), The Sydney Morning Herald (Australia)/Australian Associated Press/Reuters (05 Nov.), Google/Agence France-Presse (05 Nov.), The Wall Street Journal (tiered subscription model) (05 Nov.)
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G-20 officials discuss concerns about sovereign debt
Leaders from the Group of 20 nations are meeting in Mexico City amid mounting concerns about Europe's debt crisis and the U.S. "fiscal cliff." However, no major agreements or initiatives are expected because the gathering comes right before the U.S. presidential election and leadership transition in China. The New York Times (tiered subscription model) (04 Nov.), Reuters (05 Nov.), Bloomberg (04 Nov.), The Wall Street Journal (tiered subscription model) (04 Nov.)
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RBS prepares for possible settlement of Libor claims
After regulators fined Barclays because of possible manipulation of the London Interbank Offered Rate, Royal Bank of Scotland said it likely faces similar penalties. RBS said it will soon enter negotiations for a potential settlement. The New York Times (tiered subscription model)/DealBook blog (02 Nov.), United Press International (03 Nov.), Financial Times (tiered subscription model) (02 Nov.)
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Morningstar Direct – The New Efficient Frontier
Normal distributions underestimate risk. Click here to read our article on how tail-risk optimization performed in a back-test of the 2008 financial crisis, as published in the Financial Analysts Journal.
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Market Activity
Asian-Pacific markets slide in cautious trading
Most Asian-Pacific markets fell Monday as traders, uncertain over the U.S. presidential election, moved to the sidelines. Hong Kong's Hang Seng Index and Japan's Nikkei 225 each slid 0.5%. South Korea's Kospi fell 0.6%. China's Shanghai Composite edged down 0.1%. Taiwan's Taiex gave up 0.4%. Australia's S&P/ASX 200 rose 0.3%. India's Sensex was nearly flat after midday. MarketWatch (05 Nov.), The Economic Times (India) (26 Feb.)
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Volume on China's futures markets rises almost 19%
Transaction volume China's futures markets reached $21.39 trillion in the first 10 months of this year, an 18.84% increase compared with the same period in 2011, the China Futures Association said. All of the growth was on the Dalian Commodity Exchange, China's biggest futures market for agricultural products, and the China Financial Futures Exchange, which trades financial derivatives. Xinhuanet.com (China) (04 Nov.)
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Investors pile money back into U.S. equities
U.S. stock funds pulled in $1.06 billion in the week that ended Wednesday. It marked the first time since mid-September -- when the Federal Reserve said it would buy mortgage-backed securities -- that money going in exceeded money coming out. The inflow came partly from money market funds, which recorded $28.4 billion in outflow, the most since June. Reuters (02 Nov.)
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Economics
Obama could limit "fiscal cliff" effects, experts say
Boehner/Reuters
Tax and budget experts said President Barack Obama's executive authority over taxes and spending gives him the power to lessen the economic damage of the "fiscal cliff." Obama could order a freeze on the amount of money withheld from paychecks and shift spending from future construction projects to immediate costs such as paying U.S. government salaries, they said. The Washington Post (tiered subscription model) (02 Nov.)
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"Fiscal cliff" could add $3,700 to 26M households' tax bill
Millions of middle-class U.S. taxpayers will face an average $3,700 tax increase from the alternative minimum tax if the "fiscal cliff" is not averted. Because the 26 million middle-income households affected have never had to pay this tax, most are completely unaware of its likely effect on them when they pay their federal income taxes. The Washington Post (tiered subscription model) (04 Nov.)
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China's services sector recovers from slow growth
Expansion of China's services sector is accelerating, suggesting that it might be rebounding from a slowdown that lasted seven quarters. The purchasing managers index rose from 53.7 in September to 55.5 in October, according to the National Bureau of Statistics and the China Federation of Logistics and Purchasing. Anything above 50 indicates growth. Bloomberg (05 Nov.), Xinhuanet.com (China) (03 Nov.)
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Factory orders climbed 4.8% in September
Orders for manufactured goods in the U.S. increased 4.8% in September, largely because of higher demand for commercial aircraft. The gain nearly reversed August's 5.1% decline. MarketWatch (02 Nov.)
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Analysis: Companies' cash hoarding contributes to stagnation
Corporations worldwide might be contributing to economic stagnation by hoarding cash, rather than using the money for expansion, according to The Economist. "Investment has steadily risen since the recession ended, but not as vigorously as profits," the magazine notes. "In America, for example, nominal capital expenditure this year (on an annualised basis) has risen by 6% compared with 2007; internal cash flow is up by 32%." The Economist (free content) (03 Nov.)
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CNN Money ranks financial adviser No. 6 among best jobs
The job of financial adviser came in sixth on CNN Money's annual list of occupations offering the best pay, worker satisfaction and growth opportunity. Based on data from PayScale.com, CNN Money said median pay for advisers with five or more years of experience is $90,200 annually. CNNMoney (01 Nov.)
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India anticipates 2012 growth of 5.5% to 6%
Indian Finance Minister Palaniappan Chidambaram said he expects gross domestic product to expand 5.5% to 6% this year and widen 7% next year. "We have slowed down thanks to the world and some domestic factors, but we are absolutely confident that we will get back to the higher-growth path," he said. Reuters (05 Nov.)
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Geopolitical/Regulatory
G-20 needs to enforce Basel III, Mexican official says
Manuel Valle, head of the Mexican finance ministry's banking unit, said the Group of 20 nations should develop enforcement mechanisms for nations that fail to implement Basel III rules by year-end. "If these measures were agreed upon at the G-20 level, we have to find mechanisms within the G-20 to require that everyone complies with them," Valle said. That could include sanctions for noncompliance, he said. Bloomberg (04 Nov.), Reuters (04 Nov.)
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ECB investigates its lending to Spanish banks
The European Central Bank, following up on a report in a German newspaper, is looking into the possibility that it lent to Spanish banks on terms that were too favorable. "Dealings with certain Spanish government bonds casts doubt on the quality of the ECB's risk management ... because the bonds pledged by the banks as security meet the central bank's requirements only in part," Welt am Sonntag reported. Reuters (04 Nov.)
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IASB proposal to boost authority leaves Europe cold
The International Accounting Standards Board laid out a plan "to establish a multilateral forum where representatives of the standard-setting community can come together with the IASB," Chairman Hans Hoogervorst said. However, the proposal hasn't been universally welcomed by Europe, which thinks its authority would be reduced. Reuters (01 Nov.)
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Financial Products
BlackRock adds 7 ETFs for iShares 529 Plan
BlackRock made seven exchange-traded funds available for the iShares 529 Plan for college savings. The portfolios are the Barclays 1-3 Year Credit, the MSCI Emerging Markets Minimum Volatility, the MSCI EAFE Minimum Volatility, the MSCI ACWI ex US, the iBoxx $ Investment Grade Corporate Bond, the iBoxx $ High Yield Corporate Bond and the High Dividend Equity. PlanAdviser.com (03 Nov.)
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