QE2 Deployed: America's $600bn Stimulus Package and Impact on EM Currencies

Fed CHAIRMAN Ben Bernanke (undergrad Harvard, PhD Economics from MIT) has said the US' $600bn stimulus package will not spur inflation. Will it lead to inflation? Could speculative bubbles appear in bonds and commodities? South Africa's finance minister Pravin Gordhan said the US should pay more mind to the impact of QE2 on other nations. The stimulus will take the form of the government buying (government) bonds in a bid to make loans cheaper and encourage Americans to spend more. The impact on emerging market currencies was for them to strengthen versus the dollar, provoking foreign countries to intervene in the currency markets to maintain export competitiveness.

Bond Yields Bubble Up in Greece

Bond yields in Greece bubbled ahead of the weekend's local government elections (10yr bond yield was 11.34%). Greece was bailed out in May by the EU and the IMF and today's bond yields are approaching those May highs when yields were over 12%. The EU and IMF are insisting wage and pension cuts and higher VAT and excise taxes.

North American Drilling Boom for Schlumberger

Q3 profit more than doubles (NI of $1.7 3billion) leading to rise in share price of 5.4% (one of top gainers in SPX). Their Western Geco unit is also seeing some interest in surveying work. Although prospects in Gulf of Mexico look promising, there is likely to be more stringent process for deepwater permits following the BP oil spill.

Bank of America's Massive One-Off Charge and Banking Environment

BoA in Q3 2010 took a charge of more than $10bn for a revaluation of its credit and debit card business which is being adversely impacted by charge-curbing regulation. This netted out with profits to give a loss of $7.3bn. Apart from the "credit charge", BoA performance is very tied to the US mortgage market: data on foreclosures etc.

Goldman's Q3 profit was $1.73bn, down from last year (blamed on lower prop trading revs due to smaller volumes and lower volatility) although revenue from investment banking advisory increased.

Currency War and the Big Five Reservists

By buying dollars and other currencies, China holds down the value of the yuan and makes its exports more competitive. IMF chief Dominique Strauss-Kahn does not like this and wants China to let the yuan appreciate, but China does not want to move too fast and hurt export businesses. China saves and exports, US spends and imports. This results in global imbalances.
Yuan in Chinese means round object or round coin. Difference between yuan and renminbi is like difference between Pounds and Sterling.
Last month South Korea's foreign reserves hit a record $290bn USD, the world's fifth. Who are the biggest? China, Japan, Russia and Taiwan. 80% of the world's largest FX reserve countries are in Asia. SK is one of the countries recovering fastest from the crisis. BoK estimates this year's growth to be 5.9%.

Economist Brands Wheat Price Spike as Food Crisis 2.0

In 2007-2008, food prices soared. 30 countries, including Mozambique, endured food price riots and Russia restricted sales of grain. Now, with soaring wheat prices Mozambique and Russia are at it again. What to do with such price volatility, should countries resort to autarky and grow their own food?

"Unacceptable Face" Subsumes Varley as CEO of Barclays

Last year Diamond made £40m from his job at Barclays, partly through selling asset management for £8bn, to boost capital ratios (e.g. Tier One Capital ratio: ratio of core equity (common stock and reserves) to risk-weighted assets). RWA is the total assets of the bank weighted by credit risk. The BIS (Bank for International Settlements has formulas for setting RWA). Cash has zero risk weighting whereas debentures (corporate medium- to long-term debt) may have 100% risk weighting.

Vince Cable, business secretary of the Liberal democrats, wants universal banking groups like Barclays to be split up. Mandelson described Diamond as the "unacceptable face" of banking. HSBC Chairman, Stephen Green, will leave HSBC in favour of a role as trade minister in the Lib-Lab coalition. His offical tagline will be "boost British exports and attract inward investment".