Where finance and media intersect with reality

Spot Markets Live Transcript (27/02/23)

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Anjuli Davies10:56

10:57Good morning and welcome to Spot Markets Live, the weekly round-robin of stocks and markets news.

Today I’m excited to be joined by Helmholtz, a former sell-side pro with nearly 40 years worth of experience running rates desks at various investment banks. Helmholtz has agreed to give us his thoughts on the condition of pseudonymity, but we can testify to his top-rated expertise.

Can you tell us a bit more about yourself Helmholtz before we begin?


Hi there Anjuli

and thank you for inviting me onto Spot Markets this morning

Yes – I’ve been in the financial markets since the early 80s – working first on bond trading desks – particularly government bond trading

and then latterly into Treasury and repo operations from the mid 90s though the GFC

and then in the last decade or so I’ve been involved in fund management and various consulting projects.

Anjuli Davies11:00

SO, you’ve seen it all ?


Not sure all….but lots….

Anjuli Davies11:01

A quick look at equity markets in Europe. They are bouncing after a sell-off last week, where they reached six-week lows.

Fears that major economies would avoid a recession have been trumped by expectations that inflation will remain sticky and interest rates continue to rise.

Where shall we start Helmholtz?


JohnDC77 – I was going to start with Japan, but happy to talk gilts if you prefer

Ha ha – Japan first then

Anjuli Davies11:03

Incoming Bank of Japan (BOJ) Governor Kazuo Ueda has been speaking this morning

TOKYO, Feb 27 (Reuters) – Incoming Bank of Japan (BOJ) Governor Kazuo Ueda said on Monday he had ideas on how the central bank could exit its massive stimulus, but a shift to tighter policy would only come when the country’s trend inflation heightens significantly.

The central bank will reduce its bond buying and likely head toward policy normalisation when sustained achievement of its 2% inflation target comes into sight, Ueda said.

But there’s something more interesting in the small print?


Yes there is –

the latest skirmish in the battle to keep bond yields below target

Anjuli Davies11:05

from Bloomberg:


Thanks Anjuli.

So what’s interesting about this is the very targeted nature of it.

As you probably know, the BoJ has a lot (all?) the government bonds on its balance sheet

So restricting short selling in this way is aggressive….and specifically targeted at the ten year sector

and in particular the CTD bonds for the next two futures deliveries.

I would not be at all surprised to see squeezes develop in those futures going forward

Anjuli Davies11:08

So what happens then?


Well – in Japan there are major penalties for failing to deliver into futures contracts – people may remember CS had its licence suspended many years ago when it deliberately engineered fails in the ten year contract

Anjuli Davies11:10

Ah interesting, I didn’t know that


My guess is this is an attempt by the BoJ to ensure the pressure alleviates on the bond market. It should buy them a little time.

Shall we talk about the UK?

Anjuli Davies11:11

It seems that’s what the rabble want to hear

Did you see this in the Sundays?

Taxpayers on the hook for up to £200bn over Bank of England money-printing losses

MPs say astronomical sum was ‘avoidable’

25 February 2023 • 2:00pm

The Treasury has asked Parliament to authorise up to £200bn to cover losses from the Bank of England’s money-printing programme, as MPs warned that taxpayers were on the hook for an “avoidable” bill.

Officials have asked Parliament for approval to spend an additional £180bn covering losses on the Bank’s so-called quantitative easing (QE) programme. The disclosure is a sign that British households will be forced to cover massive losses as the stockpile of government bonds built up over the last decade and a half is sold down.


I did see that.

These headline figures are eye watering but essentially it will be resolved as accounting between the different arms of government.

Anjuli Davies11:13

SO this isn’t exactly “taxpayers on the hook”


In the end the fiscal stimulus / support comes from the tax payer anyway – it’s just the timing that’s in question. If you like it’s future spending brought forward


it is symptomatic of what JohnDC77 states

monetisation of debt

11:16So longer term the only way to ameliorate it at a government level is to keep real rates negative.

Anjuli Davies11:17

So what does that mean we can expect from Hunt in his budget?

If this is the policy aim


I don’t think they will ever state it as a policy aim, but it is the simplest – and probably least painful – way to escape the trap they are in

Anjuli Davies11:18

And keep house prices in tact ?


Fingers crossed on that one – a huge part of the private economy is linked to house prices and the recent rate rises are still feeding though on mortgages.

Anjuli Davies11:19

From The Telegraph :

Hunt to enjoy £40bn boost in Budget, says Morgan Stanley

Jeremy Hunt will have £40bn in extra headroom for the Budget next month as he spends less than expected on energy bills support, according to forecasts by Morgan Stanley.

Lower RPI inflation affecting debt interest payments, an improving interest rate picture and better near-term GDP forecasts have also helped the Chancellor amass £25bn in savings this year compared to OBR forecasts in November.

Meanwhile, the energy price guarantee is expected to cost just £200m in the second quarter of this year, compared to £12.8bn earmarked for the scheme in November.

The underspend this financial year and savings next year add up to £40bn.

However, the investment bank warned that the Treasury’s borrowing and cash needs would likely increase in the medium term as a result of lower potential growth.


Coupled with that the current tax measures due to come in are predominantly towards the small biz person

Roger & John – I agree

It feels like the Spring could be very tough – rate and energy price rises feed through, tax rates up, etc.

Anjuli Davies11:21

Ursula von der Leyen apparently has an audience with King Charles today


My guess is Hunt will be tough this budget holding back fire power for later in the year.

Brexit deal – yes

And I believe CPPTP is close as well?

Anjuli Davies11:22

I was speaking to someone at one of the Big Oil companies and they believe next year is going to be horrific….this year was a lucky escape but prices are going to rocket next year



Anjuli Davies11:23

I think a confluence of things, but that’s what’s feeding into their statistics

11:24But at least Ursula has landed


I think Keir Starmer is due to give more details of his five missions this morning?


Anything of note yet?

Anjuli Davies11:26

Not so far …

Should we move on to Europe on that note


OK. In ECB land there were similar stories to the BoE story

Anjuli Davies11:28

This is something Izzy loves to talk about…


and there was also this Reuters article:

FRANKFURT, Feb 23 (Reuters) – The European Central Bank made a loss last year as its own interest rate increases forced it to write down the value of some bonds and fork out billions of euros on balances created during a decade of money-printing, its annual accounts showed.

While the 1.6 billion euro ($1.7 billion) loss was entirely covered by provisions, it raises questions about whether the ECB might one day run out of such buffers and who will foot the bill of its past largesse now that inflation is back and rates high.

Most of the loss revealed on Thursday came from writedowns in the ECB’s relatively small own-funds and U.S. dollar portfolio, and from the interest it paid to central banks of euro zone member countries.

Values have probably plunged since the ECB started raising borrowing costs and curbing asset purchases last year to fight a sudden surge in inflation.

Policymakers decided against writing down the value of those bonds on the ECB’s balance sheet, where they are accounted for “at amortised cost subject to impairment” – a formula that gives them scope to ignore some market fluctuations.

Anjuli Davies11:29

It does sound similar to the BoE

Or are they holding Apple shares (like the SNB)


The loss was only on about 10% of the portfolio, and the ECB is not going to write it’s Euro govie portfolio.

I’m not aware of Apple at the ECB but I’m sure there’ll be one of their bonds in there somewhere.


The losses are not good but (as Izzy would no doubt confirm) it’s the stresses in the T2 system that are worth watching

Anjuli Davies11:32

the all important chart



It just keeps going.

and now the ECB is winding down its purchase programmes

But these stresses have been evident for years

so I am inclined to believe it’ll be more of the the same

Anjuli Davies11:34

So, where do we start seeing the strains?


well – it will have to be a political event to cause a break in the ranks

as with Greece a decade ago

Italy is the obvious problem child but

Darren – if I remember correctly it was only private sector holders who were haircut on the bonds

Anjuli Davies11:36


And by more of the same it’ll be monetisation again.

Anjuli Davies11:38

Interesting to watch how that unfolds…

Talking of the oil story earlier, we thought we’d turn now to Nigeria, where elections are underway


Darren – I think because those holdings are USD denominated.

Anjuli Davies11:38

It’s the biggest democratic vote in Africa at the continent’s top oil producer

ABUJA, Feb 26 (Reuters) – Nigeria’s electoral commission began announcing state-by-state results from national elections on Sunday, amid complaints of irregularities, though it is not expected to name a victor in the race to succeed President Muhammadu Buhari for several days.

The presidential vote is expected to be the closest in Nigeria’s history, with candidates from two parties that have alternated power since the end of army rule in 1999 facing an unusually strong challenge from a minor party nominee popular among young voters.


Why is this important Helmholtz?

More than 87 million people were eligible to take part, making it the biggest democratic exercise in Africa.

The election has seen an unprecedented challenge to the two-party system that has dominated Nigeria for 24 years.

Peter Obi from the previously little known Labour Party, Bola Tinubu from the ruling All Progressives Congress (APC) and Atiku Abubakar of the main opposition Peoples Democratic Party (PDP) are all seen as potential winners. There are 15 other presidential candidates.

The BBC has a one stop shop on the runners and riders

Bola Ahmed Tinubu, 70, is standing for the governing All Progressives Congress (APC) party. Known as a political godfather in the south-west region, he wields huge influence but has been dogged by allegations of corruption over the years and poor health, both of which he denies. Some say his campaign slogan Emi Lokan, which means “it’s my turn [to be president]” in the Yoruba language, shows a sense of entitlement.

Atiku Abubakar, 76, is running on behalf of the main opposition People’s Democratic Party (PDP). He has run for the presidency five times before – all of which he has lost. Most of his career has been in the corridors of power, having worked as a top civil servant, vice-president under Olusegun Obasanjo and a prominent businessman. Just like Mr Tinubu, he has been accused of corruption and cronyism, which he denies.

Peter Obi, 61, is hoping to break up the two-party system which has dominated Nigeria since the end of military rule in 1999 and is running for the little known Labour Party. Although he was in the PDP until last year, he is seen as a relatively fresh face and enjoys fervent support on social media and among Nigeria’s youth. The wealthy businessman served as governor of the south-eastern Anambra State from 2006 to 2014. His backers, known as the “OBIdients” say he is the only candidate with integrity, but his critics argue that a vote for Obi is wasted as he is unlikely to win.


Well – the most populous country in Africa, a major oil producer, and one of the UK’s (intended) major trade partners.

Roger – yes that’s correct. A good chance the ECB will cease interest payments to EU zone CBs as well

11:41Nigeria – and a major battleground between Western friendly government and extremist / Wagner types

Anjuli Davies11:42

So who do the West want in power?


I think the incumbent? But probably more want to see fair-ish and transparent elections. As far as I know all three candidates seem West friendly?

But yes, second round looks likely

Anjuli Davies11:44

So Helmholtz, we’ve managed to go 45 minutes so far without talking about America?


We have. A record?

Anjuli Davies11:44

Must be

Fed futures now have rates peaking around 5.42%, implying at least three more hikes from the current 4.50% to 4.75% band, and some chance of 50 basis points in March.

When the Fed concluded its last policy meeting in early February – prior to the release of bumper January employment and business-sector activity data – markets showed traders expected a peak rate of 4.73%, meaning that there’s almost an extra three-quarters of a point now priced in.

At the start of the year, we were talking about possible rate cuts…


The inflation print was a bit higher than expected (wanted?); the inflation reduction act is now coming into play.

Anjuli Davies11:45


It seems like the USA is showing a lot of resilience economically; more than this side of the Atlantic.

Anjuli Davies11:46

What does a strong dollar do though to other major economies?

I read a good piece on Reuters, in the sense that it sums up the befuddlement

“We’ve been talking about impending recession for several quarters now,” said Malone, whose Virginia Beach-based company has a national footprint. “There’s a lot of confusion and mixed signals as to what’s going on with the consumer … At the end of the day, we have not seen it affect our business yet.”

Such is the mystery of the U.S. economy, and increasingly the global one as well, three years after the onset of a devastating pandemic, a year and a half into a still-developing inflation surge, and many months into predictions of recessions that continue to miss the mark.

Stop start economics – I like that


Yes that’s how I feel. A month to go to the end of the quarter, equity market rallies seem to be reaching exhaustion, inflation outlook unclear, Ukraine war? etc….

Anjuli Davies11:49

Yes, how do you trade these markets?


Put more in short dated bonds?

as per the beginning of the chat below?

at least you get some reward for sitting on your hands now

Anjuli Davies11:50

I know someone who made a killing last year just selling Euro, buying dollars – but that’s not what you’re paid top money for


I think that trade was much easier last year (in hindsight)

Anjuli Davies11:53

Helmholtz, Something on The Blind Spot last week caught your eye ?

ETFs as a ticking time bomb?


Yes – the leveraged ones remind me of synthetic CDOs and similar from 20 years ago

Anjuli Davies11:55

Izabella Kaminska
– The authors of a new academic paper about ETFs and bond liquidity have found that ETFs exacerbate illiquidity issues during times of financial panic or crisis. At the heart of the issue are protocols surrounding optimized baskets. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4053844…


Ok, we will wrap up in a couple of minutes – anyone got anything else?

This caught my eye earlier, just as a former banking correspondent and Andrea Orcel watcher

UniCredit Set to Boost Bonus Pool by Up to 20% After Strong Year

  • Top management to get average bonus boost of 22%, sources say

  • CEO Orcel could see increase of up to 40% after strategy wins

How is this possible in this market?

Apparently they had a good year !

Profit beats and increased shareholder returns

I’m still waiting for the mass job cuts… apparently one of the major US banks has decided to postpone its annual RIF

and is looking to cost cuts elsewhere and/or paying zero bonuses in order to retail staff


Wow. Not sure that is reading the room very well?

Anjuli Davies11:59

On that note…

we are out of time

Thank you so much for joining us Helmholtz

Do come back soon


Thank you !

and I would love to.

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