Business news and markets: as it happened- January 27, 2014

Meanwhile, Dow Jones is down 0.09pc, SP 500 has dropped

0.32pc and Nasdaq is down 0.92pc.

Bitcoin exchange operators arrested

16.29 Two men operating a Bitcoin exchange business have been arrested

for attempting to sell $1 million in the digital currency to users of the

underground black market website Silk Road, which was shut down by

authorities in September.

The US Attorney’s office in Manhattan said in a statement that authorities

arrested Charlie Schrem, chief executive officer of the exchange

BitInstant.com, on Sunday and Robert Faiella, who ran an underground Bitcoin

exchange called BTCKing, on Monday. The two were charged with conspiring to

commit money laundering and operating an unlicensed money transmitting

business.

RBS surprise trading update

16.14 An unscheduled announcement from RBS shows the bank has set aside

£2.9bn for conduct issues, PPI and interest rate swap mis-selling. The bank

also says none of its execs will get bonuses for 2013 or 2014.

RBS shares are now down 2.1pc.

RBS CEO Ross McEwan said:

At the peak of the financial crisis, RBS was the biggest bank in the world.

When the crisis broke the bank was involved in a number of different

businesses in multiple countries that have subsequently faced heavy scrutiny

by customers and regulators. The scale of the bad decisions during that

period means that some problems are still just emerging.

Billions of pounds have been spent to resolve conduct and litigation issues in

recent years. Costs on this scale were not predicted by anyone when RBS was

rescued in 2008. They come in addition to the costs of restructuring the

bank’s bad assets and restoring its funding to prudent levels after the

financial crisis. They were a key reason we took the difficult decisions to

reset our capital position last November.

After five years of hard work and tough choices, the path ahead for RBS is

much clearer. We have restored our fundamental soundness and have the

financial strength to deal with issues like this. We will now become a much

simpler, more effective bank for our customers and shareholders. We are now

well advanced in our efforts to deal with those things that distract us from

building a better bank for customers, employees and shareholders. I am

confident that we will build a great bank for the UK and I will have more to

say on this in the coming weeks.”

Nasdaq investigates possible erroneous transactions

16.10 Nasdaq MarketWatch said it was investigating potentially

erroneous transactions in 11 securities, including Black Box Corp and Haynes

International Inc.

The transactions occurred during the first minute of trading today, between

9.30am and 9.31am EST (2.30pm to 2.31pm GMT), the exchange said in an alert.

Nasdaq did not say what may have caused the error, or whether it would cancel

any trades.

Lagarde for European Commission?

15.55 Apparently, Christine Lagarde is tipped to join the European Commission.

What will Turkey’s central bank propose?

15.32 Turkey’s central bank has called an emergency meeting after the

lira fell sharply last week against the dollar.

Kathleen Brooks, research director at FOREX.com, says we shouldn’t expect a

“silver bullet” solution.

The Bank’s special meet-up on Tuesday is veiled in secrecy and it will make an

announcement at midnight tomorrow. This is an odd time to for a central bank

to release a statement, and since it comes hot on the heels of last week’s

monetary policy decision, it suggests that the Bank is not going to merely

adjust standard monetary policy tools like interest rates. The Bank may

choose a more radical option such as imposing capital controls. By limiting

the amount of currency that can leave the country it could limit TRY

depreciation in the short-term, however, it is a risky strategy. Though if

capital controls are enforced in Turkey or elsewhere, it could cause the

market to panic.

Equities and local bond markets have fared better than currencies and there

are no signs yet that longer-term, more stable investors are cutting out of

their EM positions. However, EM crises tend to start in the FX market,

before spreading to other asset classes. This is because FX losses erode

returns for international investors, and as losses mount the pain can become

unbearable, which triggers selling in other asset classes. So FX matters

right now.”

US home sales dropped in December

15.10 US new home sales fell 7pc in December, below economists’

expectations. The figures mean 2013 ended on a low note, though the

unusually cold weather may have affected sales.

A break down 27of sales shows that there was a 27.6pc drop in the north east,

which faced some of the coldest conditions.

The mid west, south and west saw a rise of 25pc, 4.1pc and 5.1pc respectively.

^{The cold December weather likely affected US home sales}

US stocks shows signs of rebounding

14.46 US stocks are slightly up after opening, seeming to rebound after

a significant fall on Friday.

Caterpillar Inc, the world’s largest maker of heavy machinery, was up 6pc,

helping to lift the Dow Jones up 0.31pc, while industrials boosted SP

500. The Nasdaq is also up slightly, rising 0.2pc.

ATT shares are also slightly up, suggesting shareholders are unconcerned

the company is not planning a Vodafone deal.

Dow Jones opens up

14.30 The Dow Jones has opened slightly up, at 0.2pc higher than the

close on Friday.

Diageo buys Peligroso tequila

14.25 Diageo, the world’s biggest spirits maker, has added to its

tequila offering with the acquisition of super-premium brand Peligroso.

Diageo said Peligroso, founded by two avid surfers, was popular in the action

sports and surfing scene of southern California and would give the firm a

foothold in super premium $20-$40 (£12-£24) tequila, the fastest growing

tequila segment in the U.S., according to Nielsen.

Why kale crisps cost so much

14.10 As we wait for the Dow to open, here’s a video on why kale (which

is relatively cheap) costs so much once it becomes a kale crisp (or chip, as

this comes from Business

Insider).

Brad Gruno, the owner and founder of Brad’s Raw Food, said the dehydration

process is very expensive, as it requires special machines and each kale

leaf must be dehydrated for 12- 18 hours. Plus, it’s all home made.

It’s real food. It’s going to cost more than a processed chip that isn’t even

real food”, said Mr Gruno.

‘No Eurozone risk of contagion from emerging markets’

13.49 The eurozone’s recovery will not be affected by contagion from

growing fears over emerging economies, according to Eurogroup chief Jeroen

Dijsselbloem.

“I think they’re quite different, separate issues,” Dijsselbloem

told reporters ahead of a meeting in Brussels of finance ministers from the

18 countries that use the euro.

UBS CEO had enough of ethics “lecturing”

13.36 Sergio Ermotti, chief executive of UBS AG, has said stakeholders

should stop criticising UBS and the banking industry, the

WSJ reports.

“Life is hard enough, and I think this constant lecturing on ethics and

on integrity by many stakeholders is probably the most frustrating part of

the equation. Because I don’t think there are many people who are perfect,”

Mr Ermotti said in an interview at the World Economic Forum in Davos.

Consumers aren’t seeing household finances improve

13.16 Just 8.7pc of consumers saw their household’s financial situation

improve over the last three months while 24.3pc said it got worse, according

to YouGov’s consumer confidence figures.

The index also found that consumer confidence remains steady at the highest

levels since 2007. Although consumers are less worried about unemployment,

more than 61pc now expect a rise in interest rates.

^{YouGov/ Cebr graph on consumer confidence since May 2007}

Stephen Harmston, head of syndicated reports at YouGov said:

While they are optimistic about the economy as a whole, consumers are still

pessimistic about their own circumstances. People’s household financial

situations are slowly improving but so far the vast majority are failing to

feel the benefits of the recovery while only a few see things improving. For

optimism to spread, it needs to be felt in their daily lives.

The survey echoes that from Markit Household Finance Index, also out today,

which shows worries over jobs security and inflation are both lower.

Tim Moore, SeniorEconomist at Markit and author of the report said:

January’s survey highlights some light at the end of the tunnel for UK

households, with falling consumer price inflation and better labour market

conditions helping to bring down the squeeze on finances after five years of

gloom. Worries about job security are now the lowest for at least five

years, while survey respondents indicated a further robust increase in

workplace activity at the start of 2014. However, households continued to

register only a marginal rise in income from employment, suggesting that

lower inflation perceptions played a greater role than pay trends in

reducing the overall squeeze on finances during January.

Will the Fed continue tapering as Janet Yellen takes over?

12.44 Colin Cieszynski, senior market analyst at CMC Market says Janet

Yellen is likely to stay the course.

This is Chairman Bernanke’s last meeting at the helm but it’s unlikely that

the tapering process will change very much on the transition to Dr. Yellen.

As the current Vice-Chair and on her way to confirmation at the time of the

last meeting, she would have played a significant role in the decision to

start tapering already. In addition, support at her confirmation vote was

weak due to her dovish reputation suggesting that a U-turn on tapering could

face political opposition.

One external factor that could play a role though is the debt ceiling

negotiations. Although the spending deal recently sailed through Congress

and Republicans still appear to be smarting from the reputational hit they

took back in October, there is still a small risk that some elements could

try to cause an issue over the February/March debt ceiling deadline ahead of

the mid-term election primaries.

Because of this small political risk, the Fed may decide to trim QE by $5

billion instead of $10 billion this time around. The debt ceiling deadline

is February 7th with the Treasury able to use emergency measures to keep

payments going for about a month

Mr Cieszynsk added that any decision to pause tapering could have a larger

impact on USD as that could undermine the gains of recent months.

The Fed’s QE3 program has propelled stocks dramatically higher over the last

year, but as tapering winds down the big inflows of Fed money into the

system, there is a risk stocks could fall back under their own weight.

With US indices trading at or near all-time highs in January, it appears

while the street has recognized the potential for tapering this year, it has

not really affected stocks in a meaningful way yet. That being said, the

Generals in the Dow and SP have shown signs of shifting from

accumulation to distribution which could accelerate on a decision to

continue or accelerate tapering.

FC Asset Management takeover

12.32 Investment firm FC Asset Management has shot up to the top

of the FTSE 250 after announcing that it has received a 120p firm cash offer

from BMO Financial Group. Shares in the London listed company have shot up

22pc to 114.8p The takeover offer values FC Asset Management at £700m.

This afternoon’s markets

12.28 Dow futures point to the Dow opening slightly higher at 0.2pc up

after Friday’s big fall.

Ashley Armstrong has done a round up of the markets today:

• London’s bluechips continued to fall on Monday after the FTSE

100 lost more than 100 points on Friday on the back of fears over a new

emerging markets rout. The FTSE 100 fell by another 99.39 points to 6564.95

in morning trading, although traders said around 50 points of the session’s

fall were down to just two stocks: BG Group and Vodafone. The FTSE 250

is also 173.57 points lower at 15529.96.

• Oil and gas firm BG Group led the FTSE 100 fallers lower

this morning as its shares dropped by as much as 15pc. The group said that

the Egyptian government has not honoured agreements covering BG’s share of

gas from fields which will prevent it from meeting its export obligations.

Egypt counts for about a fifth of the company’s gas production.

• Fashion retailer SuperGroup is the biggest FTSE 250 faller,

losing 105 points – or 6.8pc – to £14.81 pushed down by an analyst note from

Oriel Securities cutting its recommendation from Buy to Hold on the belief

the retailer will not be able to match its stellar growth reported last

time.

• Vodafone has sunk by 5.8pc to 219p after US telecom ATT

quashed takeover rumours by saying it has no intention to bid. UK takeover

panel rules prevent the group from returning with a bid for 6 months, unless

Vodafone invited them back.

• Shares in Albemarle Bond tumbled by 58.44pc this

morning to a record low of 8p after the embattled pawn broker ended its sale

process without success. The cash-strapped company has managed to negotiate

another extension with its banks to postpone its covenant testing dates to

31 March.

PwC calls for “wider review” of UK tax system

12.12 Kevin Nicholson, head of tax at PwC, has said the 50p debate

distracts from the real point.

The 50p tax debate is highly emotive, but it’s a distraction from a more

important issue. Any change to income tax needs to be considered as part of

a wider review of the UK tax system. Workers and wealth are becoming more

mobile, and income taxes need to be considered in this context. Our economy

is also increasingly dependent on international firms, overseas capital and

jobs. We need a vision for where taxes will come from for the medium and

longer term.”

Fallon on energy

11.57 Energy Minister Michael Fallon is speaking at a Chatham House

conference on Middle East and North Africa energy.

Here are some key points form Twitter:

The world’s biggest investor warns EM markets are at risk

11.44 Outside of David Cameron’s speech, Dominic Rossi, Global CIO

Equities at Fidelity Worldwide Investment has warned that “the tide is

coming out of emerging markets”

So the tide is coming out of emerging markets. The prospect of the end of

cheap money in the west, with the certainty of the end of even cheaper money

in China, is forcing up the cost of capital across the EM asset class. We

have seen this movie before. One EM country after another gets left stranded

on the shore as the tide goes out. The weakest ones first, Argentina and

Turkey, soon to be followed by Brazil, Russia and others.

We have argued for some time that emerging markets are in search of a new

economic model. The 1997-2010 model which focused on export growth cannot

succeed in a world in which the EU has a current account surplus and where

the US is rapidly shrinking its trade deficit. The EM world needs to dust

down the structural reform agenda it put to one side 15 years ago and

stimulate their domestic economies. Those that do will avoid the an extended

period of sub par growth, those that do not will look back at the last 10

years as a golden era.

Questions on business rates, personal credit rates

11.39 David Cameron now taking questions, has said there’s a need to

re-examine business rates and recognises concerns on personal credit rating

affecting business.

Another audience member points out that there are 10 times the number of jobs

being created in London as elsewhere in the UK.

Enterprise and exports

11.31 David Cameron thanks small businesses for their entrepreneurship.

“It is working, we’re on the right track, we’ve got to stick with the plan”,

he said.

Cameron said if the number of businesses who export their products increased

from one in five, to one in four, that would wipe out Britain’s trade

deficit.

Cameron: Maths English good for growth

11.25 Cameron told FSB that literacy and numeracy are the key skills

needed for small business growth.

And here’s some more Twitter feedback:

Cameron announces plans to cut red tape

11.18 David Cameron is announcing plans to cut red tape for firms in a

speech to the Federation of Small Businesses (FSB).

More than 3,000 rules will be dropped or changed, saving more than £850m a

year, he will tell the FSB.

Our sketch writer, Michael Deacon, is worried about things running smoothly.

^{The dangers of red tape}

FTSE still declining

11.05 The FTSE 100 has continued to drop and is now down by 1.46pc.

We should expect market volatility

10.55 Joachim Fels and Sung Woen Kang from Morgan Stanley Research say

we should come to expect the current levels of turbulence.

This was the week of the pain trade. Stocks and the dollar — the two

darlings of most investors and analysts — are down while bonds, the yen and

gold — three popular shorts — are up. I hesitate to make too much of these

market wobbles, but they serve to illustrate a point we’ve been making in

our 2014 Macro and Strategy Outlooks: the global economy, markets and

policy-makers are facing several tricky, tough and testing transitions this

year, and as we go through these transitions, macro and market volatility

will inevitably rise.

How will the US react?

10.42 Kit Juckes from Societe Generale said the pressure on Emerging

Markets probably won’t affect the Federal Reserve’s plan to reduce the pace

of buying to $65bn per month

As Janet Yellen takes over the helm of the global economy this week, she

could be tempted to quote Oliver Hardy at Stan Bernanke ["Well, here"s

another nice mess you"ve gotten me into.”] The FOMC’s first decision under

new management will be whether to press ahead with a further reduction in

the pace of bond-buying amid emerging market turmoil. ‘EM’ economies now

account for a lot more of global GDP than they did the last time we had an

EM crisis, but if history is any guide the Fed will focus on the domestic

not the international environment.

Vietnamese court takes hard line on financial misconduct

10.35 A Vietnamese court has sentenced a former banker to life in

prison for a fraud involving more than $230 million, one of the communist

country’s largest-ever such cases.

Huynh Thi Huyen Nhu, 37, was convicted alongside 22 other defendants who were

given sentences of up to 20 years in prison after a three-week trial ended

Monday, a clerk at the People’s Court in the southern metropolis of Ho Chi

Minh City told AFP.

Nhu raised some $231 million in loans from individuals, companies and other

banks when she worked for the state-run Vietnam Joint Stock Commercial Bank

for Industry and Trade (Vietinbank). She forged some 200 documents and hired

other people to counterfeit the official stamps of Vietinbank and other

companies in order to obtain the loans, the Tuoi Tre newspaper reported.

Albemarle Bond shares fall

10.25 Shares in Albemarle Bond tumbled by 58.44pc this morning to

a record low of 8p after the embattled pawn broker ended its sale process

without success. The cash-strapped company has managed to negotiate another

extension with its banks to postpone its covenant testing dates to 31 March.

Compensation for those who invested in Arch cru funds

10.07 £31m in compensation has begun to be paid out to people who

invested in the CF Arch cru Investment and Diversified funds as a result of

unsuitable advice.

Arch cru funds were high-risk products that typically invested in

non-mainstream assets such as private equity and private finance. Advisers

should only have recommended the funds to investors who fully understood –

and were willing to accept – the risks but the Financial Conduct Authority

fund that the funds were unsuitably sold to some investors as low or medium

risk products.

More than £8.26m has so far been received by consumers and the money paid out

under the scheme is in addition to any redress investors may have received

under a separate process administered by Capita Financial Managers.

Vodafone and BG Group dragging FTSE down

10.03 Falls in Vodafone and BG Group are leading the FTSE decline to

five-week lows today, with FTSE underperforming European indexes.

Vodafone, the third biggest company in the FTSE, took 25 points off the

British blue-chip index, while BG Group contributed another 24 points of the

drop.

The FTSE 100 is currently down 1.05pc, more than double the faqll in Germany’s DAX,

France’s CAC and Spain’s IBEX.

The overall sentiment is extremely negative. This morning we are seeing

real money accounts exiting BG on this shock profit warning, which shows a

dramatic shift in sentiment”, said Jordan Hiscott, trader at Gekko

Global Markets.

Google buys UK artificial intelligence company

09.33 Google has agreed to buy London AI company DeepMind for a

reported $400m (£242m).

Google, which is working on projects including self-driving cars and robots,

has become increasingly focused on artificial intelligence in recent years.

DeepMind, founded in 2012, uses general-purpose learning algorithms for

applications such as simulations, e-commerce and games.

Technology news website Re/code, which reported news of the deal earlier, said

the price was $400 million, without disclosing where it got the information.

09.18 Germany’s business confidence at 30-month high

Germany’s business confidence rose more than expected in January with IFO at

110.6 — the highest level since July 2011.

^{Graph by Bloomberg}

08.53 David Cameron on the economy

Prime Minister David Cameron was on Radio 4’s Today Show this morning.

He said the UK was seeing a “balanced economic recovery” and also

pledged to cut red tape for businesses.

08.43 European stocks overall have dropped today, continuing last

week’s selloff as nagging concerns over China’s growth pace and volatility

in emerging market currencies continued to spook investors.

The DAX in Germany is down 0.56pc, Spain’s IBEX fell 0.96pc and

France’s CAC slid 0.46pc.

Sudden fears about emerging markets and also potential capital shortfalls

for some European banks are rattling investors. People have been a bit

complacent lately, so it’s quite logical to get a correction,” said

David Thebault, head of quantitative sales trading, at Global Equities.

0.832 A graph of the FTSE over yesterday and this morning shows the

FTSE’s drop soon after markets opened today.

08.22 The FTSE 100 is now down 1.2pc. Sentiment has been weighed

down by worries over emerging markets but the index fell sharply after ATT’s

said it was not planning a bid for Vodafone. Shares in Vodafone are

down 7pc. The fall is not as big a that at BG Group where the shares

are down 13pc after a guidance downgrade.

8.14 After opening fairly flat, the FTSE now seems to be falling and is

down -0.97pc

,

Mike Van Dulken, head of research at Accendo Markets, said the FTSE has taken “another

leg down following Friday’s European close as US bourses closed -2% on

persistent emerging market jitters (China/global recovery, FX devaluation,

tapering, political unrest).”

We are, however, off our worst levels in spite of Asian bourses having a

bad start to the week (biggest three-day drop in seven months) and the

emerging market VIX hitting a two year high.

8.00 The FTSE has opened slightly down today following ermerging market

jitters and Wall Street closing down last week.

07:32 Asian shares dived on Monday as emerging markets remained under

pressure and losses are expected to spill over into Europe.

Japan’s Nikkei 225 sank 2.5pc, the Hang Seng loss 1.98pc,

China’s CSI 300 slipped 1.3pc and South Korea’s Kospi dropped

1.56pc. Benchmarks in Taiwan, Singapore, Philippines, Indonesia and New

Zealand also slipped. The Australian market was closed for a holdiay.

In the US on Friday, the Dow finished down 2pc at 15,879 and the Standard

Poor’s 500 fell 2.1pc to 1,790. The Nasdaq composite fell

2.2pc to 4,128.

Markets are worried that the US Federal Reserve poised to continue tapering

stimulus when it meets this week and by tighter credit conditions in China.

With the US Federal Reserve looking increasingly likely it could announce a

further $10bn tapering of its asset purchase program this week, it seems

quite likely that today’s European market open could be a pretty volatile

affair, with a sharply lower open expected,” said Michael Hewson,

chief strategist at CMC Markets, in a note to clients.

Financial spreadbetters expecting Britain’s FTSE 100 to open down as

much as 1.3pc; Germany’s DAX as much as 0.8pc; and France’s CAC 40 0.8pc.

Everyone was reminded about last May’s turmoil when investors unwound their

positions in emerging markets on worries about Fed’s tapering,”

said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ

Morgan Stanley Securities in Tokyo.

07:31 Here’s are the main business stories today in the Daily Telegraph

• MPs

to scrutinise Labour’s 50p tax rate proposal before the

Budget in March

• Mark Carney, the Governor of the Bank of England, has warned

senior bankers that conduct costs related to past misbehaviour have

become the most pressing issue for the industry.

• Tata

Motors boss Karl Slym dies after hotel balcony fall

• Barclays

considers exit from Premier League sponsorship deal

07:30 Good morning and welcome to our daily business and markets live

blog, your one stop shop for all the breaking business stories of the day.

Business news and markets: as it happened- January 27, 2014