Excuse me, is this Greece? The US deficit has reached $US13 trillion for the first time, the Treasury Department said overnight. The debt reached $US13,050,826,460,886.97 ($A15.72 trillion) on June 1, up by about $US1.6 trillion in the last year and more than doubled in the past 10 years. It now stands at just under 90% of annual gross domestic product.
Euro watch: it’s what central banks fear most, banks hoarding cash and not lending it as they worry that one or more of their peers might not be around to repay loans. And that’s what we are seeing in the eurozone right now where banks are are parking record amounts of cash in overnight deposits with the European Central Bank. The ECB said overnight the cash deposits reached a massive €316.4 billion on Tuesday night, higher than anything seen in the wake of the collapse of Lehman Brothers in September 2008. The banks are willing to accept a sharp drop in income for the safety of the ECB, which only pays 0.25% interest, against the current overnight cash rate of 0.33%. This is the clearest sign that banks in Europe and elsewhere are scared that there’s a problem somewhere waiting to happen. Banks have also lifted their borrowings from the ECB’s open market operations in recent weeks to build up cash for six and 12 months ahead. There’s no sign of these fears in the Australian banking system, with exchange settlement balances at the Reserve Bank at normal levels.
Market watch: there are some nasty profit downgrades emerging in Australia, which call into question valuations on the Australian stock market and the efforts of various analysts who follow these companies. Four companies have reported significant profit downgrades in the past three weeks, and all have seen their shares sold off. The country’s biggest general insurer, IAG, stunned the market yesterday with news that it has had to pump another $365 million into its troubled UK operations (which it is exiting anyway). The shares fell 10% at one stage and finished 6% lower, which was a generous ending given the surprise involved.
Market watch2: IAG’s star turn was after Downer EDI’s shocker on Tuesday when it revealed nearly a quarter of a billion dollars in write-downs and provisions on the dud NSW suburban train contract and other parts of the business. The shares dropped 27% on the day. Last Friday Virgin Blue produced the profit downgrade covered on Monday and the shares shed 33%. Last month Sonic Healthcare shares fell 25% in a day after what’s supposed to be the best health-care company in the country produced a surprise profit downgrade.
Mark watch 3: in the case of Sonic (and Primary Health Care, which has also downgraded its outlook), it’s federal government policy having an impact, and highly paid fund managers and investment analysts being slow to understand the ramifications of the changes. IAG’s write-downs go back years in the UK, so it’s a failure to fully understand what’s happening there. Downer and Virgin Blue downgrades should have really been sniffed out by good analysts. And then there are announcements due to a market failure. Take, for example, would-be biotech Novogen. Yesterday it revealed disappointing results from a trial of a new drug, and the shares fell by about 60% at one stage, and ended down 53%. That’s very hard to foresee.
Market watch 4: and Mirvac, the recovering NSW property group (and would-be acquirer of managed funds) is looking a little lost. The company’s stapled securities are now trading at $1.27, well under the 52-week high of $1.74. Perhaps it’s the six interest rates rises that have hurt, or it’s the moves to buy control of two other property trusts, or the fact that the market just doesn’t quite believe that the Australian property sector is a good way to find growth. Mirvac followed its bigger rival in Stockland yesterday in revealing that its had a good 11 months with its residential property sales, but home lending is getting much tougher and harder to finance, with growth slowing for the banks.
N-de trading watch: those Germans are fun-loving spoilsports. Not content with banning n-ked short selling of certain types of securities, and the shares of 10 leading German financial groups, the government has gone ahead and extended the ban to all securities traded in Germany, as an English translation of the draft bill seemed to suggest last week. According to media reports, the ban “concerns securities that are registered on a regulated German market.” It also covers certain trades on currencies that are not used for hedging purposes, although this can be implemented in times of crisis, not as a permanent measure — a slight watering-down of the original proposals. An earlier draft had envisaged a complete ban on short selling currency derivatives. Seeing most short selling in Europe takes place in London (n-ked, covered or otherwise), the real question is how the German government will enforce ze ban.
Greece watch: Pssst, fancy a nice earner with great views, sun, wine and in southern Europe? Here’s your chance. Greece is going on a privatisation binge to raise funds to keep the joint afloat. The government revealed overnight plans to sell 49% of the national railroad, list ports and airports on the stock market and privatise the country’s casinos. The government will also sell stakes in water utilities serving Athens and Thessaloniki, sell 39% of the post office, and combine its vast real estate assets into a holding company to be listed on the stock market. Just the thing for Macquarie Bank and its various ambitious executives, don’t you think? Greece is looking to raise about €3 billion in the next three years through the sales. But the local market is down 30% this year and the economy is in recession. What’s Greek for fee ripping?
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