News That Matters (July 22, 2011)

Two former News of the World executives have challenged James Murdoch’s testimony to members of parliament, the FT reports, alleging that he had been informed of a critical e-mail relating to phone

US president Barack Obama and Republican House speaker John Boehner were on Thursday still struggling to overcome resistance from their respective parties to a debt ceiling deal, the NYT says. The latest talks

EU’s internal market commissioner says the EU proposal to harmonise capital rules will still allow the UK to ringfence its retail banks. Michel Barnier told the FT that his proposal would split into two jurisdictions so that the UK,
Apple is considering using some of its massive cash pile to bid for Hulu, the online video service, Bloomberg says, citing two people with knowledge of the auction, which began last month. The talks were said to be in Apple an early stage and spokespeople for both companies declined to comment.

European leaders have agreed a new €109bn bail-out of Greece under which private bondholders will be called on to participate for the first time, contributing a target of a further €37bn. The FT says deal will almost certainly lead to the first default on eurozone bonds since the creation of the single currency. In addition to the €109bn in new loans from international lenders,

Speculation about the content of a second Greek bail-out package has delivered a brutally volatile session, with the euro and European bank stocks falling on fears of a selective default by Athens before rallying sharply again in the belief that the EU was finally getting to grips with the eurozone’s fiscal difficulties,

Italy and Germany have voiced their opposition to a second release of oil by western nations’ strategic petroleum reserves, a sign that the International Energy Agency might not extend into August the 60m barrels release it ordered for July

Ericsson’s second-quarter profitability was hurt by contracts in Europe and India, losses at the Swedish telecoms equipment maker’s joint ventures, and higher-than-expected costs for a job reduction plan

Private creditor participation in Greece’s latest rescue programme will be very strictly limited to the Greek crisis and will be specifically excluded as a model for any other eurozone country in financial difficulties. A proposal for bond swaps for all Greek government debt falling due for repayment up to the end of 2019 has emerged as the central element in the scheme, although the eurozone governments now accept that such a plan would almost inevitably trigger a “selective default” declaration by credit rating agencies

One thing is likely after this week’s negotiations in Brussels: Greece will become the first western developed world country to default in more than 60 years. trategists expect all three main rating agencies to determine that Greece has defaulted, because bondholders will suffer losses whatever plan policymakers decide to adopt involving private creditors. The options are debt exchanges, rollovers or buy-backs.

With the euro in peril and the US on the brink of bankruptcy, the west seems to have enough to worry about without fretting about cricket. Yet a private dinner, in London on Monday night, was just the latest indication of how global power is shifting from west to east – and how India’s newly rich and powerful elite is throwing its weight around far from home.

Britain has opted out of an ambitious European Central Bank project to streamline Europe’s multiple securities settlement systems, even though the project could eventually help lower the cost of trading in the region’s capital markets. The move comes as the debt crisis in the eurozone has raised questions among some eurosceptic politicians about integration of the UK’s financial system with the region.
Asian shares rose Friday as sentiment improved after euro-zone leaders struck a deal on a second bailout package for Greece, sending banks around the region higher.  Japan’s Nikkei Stock Average tacked on 0.7%, Australia’s S&P/ASX 200 added 0.7%, South Korea’s Kospi rose 0.4% and New Zealand’s NZX-50 was up 0.4%.  Dow Jones Industrial Average futures were down two points in screen trade.

President Barack Obama and House Speaker John Boehner are moving toward a deficit-reduction deal that could cut as much as $3 trillion in spending and overhaul the tax code by the end of next year to raise up to $1 trillion, according to people familiar with the talks. Until now, Republicans have shot down every proposal that involved higher taxes. But Democrats could be the major obstacle to this package because they worry that upfront spending cuts would be ironclad while any tax increases would be subject to later agreement.

The Federal Reserve Bank of New York again is facing scrutiny over stockholdings held by a senior official during the 2008 financial crisis. Then-New York Fed President Timothy Geithner issued a waiver that allowed William Dudley—executive vice president of the regional Fed bank’s markets group—to work on the controversial bailout of American International Group Inc. even though he held shares in the company, according to a congressional audit report released Thursday.

When Google Inc. launched its Google+ social-networking site three weeks ago, executives handed out sailor hats to the hundreds of employees working on the project, symbolizing their year-long journey to that point. So far, the sailing has been mostly smooth. On Wednesday, Web-traffic watcher comScore Inc. estimated Google+ has had 20 million unique visitors since its launch, including five million visitors from the U.S. A Google spokeswoman declined comment.

After a series of missteps, Morgan Stanley found its footing in the second quarter, generating its highest quarterly revenue since 2007 and overtaking rival Goldman Sachs Group in bond trading for the first time since the financial crisis. The New York investment bank’s surprise performance was driven partly by its decision to take on more risk when trading on behalf of clients during the quarter—a move that contrasts with Goldman’s risk-aversion during the same period.

Cotton prices, which surged to historic highs this spring, have plunged 38% so far this month, roiling mill owners and apparel makers. It’s a reversal for clothing makers that spent the last year grappling with higher costs and how much, if any, could be passed along to consumers. Now, retailers are wondering if lower cotton prices, off 53% since their March 4 peak, will last or if the roller-coaster ride will continue. “There’s never been this kind of volatility in cotton—ever,” Eric Wiseman, chief executive of VF Corp., the world’s largest apparel company, said in an interview on Thursday.

Alabama’s troubled Jefferson County faces an 80 percent chance of declaring bankruptcy, one of its commissioners said on Thursday, as U.S. experts gathered to discuss the implications of a possible Chapter 9 filing. Another commissioner said the county has yet to hear a response from creditors over its proposal that $1.3 billion be shaved off its crippling $3.2 billion sewer bond debt as part of a settlement to avoid what would be the largest municipal bankruptcy in U.S. history.
Thirty non-U.S. firms to accept a debt exchange of Greek bonds as well as a still-undetermined-sized buyback, according to the Institute of International Finance. All instruments will be priced to produce a 21% Net Present Value loss based on an assumed discount rate of 9%. “Not withstanding the progress made by Greece during the last one and a half years, the scale of Greece’s economic imbalances and the inefficiencies that have been embedded in its economic structures require a special approach that can enhance debt sustainability and restore confidence in the future of the Greek economy,” they said in a statement.
Gold steadied below $1,600 on Friday, as Europe’s sweeping new action on the debt crisis and signs of progress on a U.S. deficit reduction deal sapped some

safe-haven demand. But lingering uncertainty over the U.S. debt talks supported sentiment. Spot gold edged up 0.2 percent to $1,590.71 an ounce by 0040 GMT.

U.S. gold GCcv1 inched up 0.3 percent to $1,591.40.

A humbled John Paulson told investors on Thursday he was “too aggressive” with some of the stock bets in his flagship funds and he is trimming back some of his riskiest holdings. The hedge fund manager told clients in a conference call that he was dialing back the risk by moving away from bank holdings with heavy mortgage exposure.

The number of Americans filing new claims for unemployment benefits rose more than expected last week, pointing to a labor market that is struggling to regain momentum. Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 418,000, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims rising to 410,000 from a previously reported 405,000.

Standard & Poor’s reiterated on Thursday it sees a real risk that future U.S. government deficits may meaningfully miss discussed targets and that there is a 50-50 chance the U.S. AAA credit rating could be cut within three months, perhaps as soon as August. The deficit reduction debate is coming up against an August 2 deadline when the $14.3 trillion limit on America’s borrowing capacity is exhausted, putting in jeopardy payments on U.S. Treasury debt as well as paychecks for federal employees and soldiers.
Facebook Inc., the world’s biggest social network, is coming under the scrutiny of Australia’s attorneys general who are considering proposals to regulate the website, including raising the age limit of those allowed to join and ensuring parents have access to their children’s pages. The proposals were raised by South Australia’s Attorney General John Rau at a two-day meeting in Adelaide of the country’s top law enforcement officials that began yesterday. They include requiring Facebook to verify ages of people creating an account and restricting access to those 18 years of age and over.

Looking beyond the debt-limit shenanigans preoccupying Washington, the big issue for the U.S. economy is long-term unemployment and what to do about it.  President Barack Obama is always hawking some kind of jobs plan, whether it’s training more engineers, enticing businesses with short-term hiring incentives or creating yet another commission to study the issue. On the Republican side, House Speaker John Boehner is fond of beginning his press statements with the question, “Where are the jobs?” The implication is that the GOP has a better jobs plan than the president’s $830 billion fiscal stimulus. (There are 1.3 million fewer private-sector workers today than when the American Recovery and Reinvestment Act was passed in February 2009.)
Sales of Microsoft’s core Windows computer operating system continued to erode for the second consecutive quarter as consumers shifted away from PCs to tablets. The software giant’s mixed financial results, reported Thursday, showed a company struggling with the muted demand for computers while winning strong sales for Xbox 360 and products for business customers. “We felt like it was a very solid close to a very solid fiscal year,” Peter Klein, Microsoft’s chief financial officer, said in an interview.
Britain’s public sector borrowed more in June than it did a year earlier, highlighting the difficulties the Chancellor faces in hitting his target to shrink the annual overshoot in spending. The public sector borrowed £14bn last month, the Office for National Statistics reported, an increase on the £13.6bn seen a year earlier and disappointing market expectations for a fall. The rise mainly reflected the fact that central government spending was £2.3bn up the previous year, while receipts from taxes and other income grew only £2.1bn.

Retail sales returned to growth last month after stores started their summer sales early to lure cautious consumers.  Sales including fuel bounced back with a modest 0.7pc growth in June. In May they dropped a revised 1.3pc, according to Office for National Statistics (ONS) figures released on Thursday.  The monthly increase was led by household-goods stores, where sales jumped 2.6pc. However, the rise was not enough to make up for May’s decline.

Rising utility and food bills have prompted the Bank’s Monetary Policy Committee (MPC) to raise its expectations for inflation. The outlook for inflation looks grim – especially for the 70pc of consumers that are already cutting back on everyday expenses such as food and petrol, according to a survey, by Brewin Dolphin, the private client investment manager. The Bank of England had hoped that it would soon start to fall nearer to its 2pc target, but the minutes of the Monetary Policy Committee published this week suggest otherwise.
britain’s banks are still lending less money to businesses, the Bank of England warned yesterday, publishing figures which showed that two years’ of declines continued over the second quarter of 2011. Lending to business fell at an annualised rate of 3.7 per cent over the three months to the end of June, the Bank said, despite the promises of the banking sector, under the Project Merlin agreement, to make finance more widely available.
Brent crude futures rose as Europe’s sweeping new action on the debt crisis and signs of progress on a US deficit reduction deal offset weak economic data from the world’s second largest oil consumer, China.The International Energy Agency’s decision to not release more oil from emergency reserves also supported prices. Brent for September rose 29 cents to a low of $US117.80 a barrel, after reaching a high of $US118.17 earlier. US crude was up 29 cents at $US99.42 a barrel, headed for a 2 per cent rise this week, its fourth straight weekly gain.

Import and export price figures show the terms of trade most likely hit a new high in the June quarter. The terms of trade is an index of the ratio of export prices to import prices. High export prices boost domestic income and encourage investment in export industries, while lower import prices mean the buying power of the nation’s income is boosted even more. The figures from the Australian Bureau of Statistics (ABS) on Friday showed the export price index rose by 6.0 per cent in the June quarter while import prices rose by 0.8 per cent. Over the year to June, the export price index was up by 10.5 per cent, while the import price index actually fell back by 1.0 per cent.
Bank of China (BOC), a major state-owned commercial lender, said Thursday that it has provided more than 12 billion yuan (1.9 billion U.S. dollars) of loans to support Tibet’s development over the past ten years. These loans have made possible the much-needed assistance to the development of the region’s transportation, telecommunications, energy, and water-related infrastructure sectors. They have also boosted the mining, tourism, Tibetan medicine and ethnic handcraft industries in the southwestern region, said a statement publicized Thursday on the BOC’s website.

China’s consumer prices will likely fall in the second half of the year, trimming growth of the consumer price index (CPI) to 4 percent by the year’s end, the Bank of Communications said in a report Thursday. The bank forecast the rise of CPI, the main gauge of inflation, would be controlled at around 5.2 percent from a year earlier this year. The report attributed the weakening inflation mainly to tighter liquidity, slower economic growth, lower international commodity prices and adequate grain supplies.

Recovery from the financial crisis still had a long way to go in spite of the economic growth, U.S. Federal Reserve Chairman Ben Bernanke said Thursday. “Nearly three years later, the recovery from the crisis in the United States and in many other countries remains far from complete,” Bernanke said in a testimony to a Senate panel. He said the financial crisis of 2008-2009 was unprecedented in its scope and severity, adding federal regulators would finalize some of the rules for the financial reform act during this summer.
Food inflation eased marginally to 7.58 per cent for the week ended July 9 from 8.31 per cent in the previous week owing to a fall in prices of pulses even as other edibles such as vegetables, cereals, fruits and milk continued to rule at higher levels. The WPI weekly data on food and other primary articles revealed that the fall in food inflation despite the rise in prices may perhaps be just a statistical anomaly owing to high base effect as the rate of price rise in the like week a year ago was at a high of 19.52 per cent.

India achieved tenth rank in export of services worldwide, while emerged as the 20th biggest merchandise exporter in 2010, according to a latest WTO report. In 2009, the country stood at the 12th and 22nd position globally in services and goods exports, respectively. In value terms last year, India exported services and merchandise worth $110 billion and $216 billion, respectively, the ‘World Trade Report 2011′ said.

Encouraged by moderation in food inflation to 7.58 per cent for the week ended July 9, Finance Minister Pranab Mukherjee on Thursday expressed hope that price situation would improve in the days ahead. “If this declining trend continues, I do hope it will have a moderating influence on the price front,” Mr. Mukherjee told reporters here. His comments came after food inflation fell to a three-week low of 7.58 per cent for the week ended July 9 on the back of cheaper pulse prices and a high base last year.
South Korea’s imports of leisure products jumped during the first half of this year as demand for equipment for camping and other family activities increased, customs data showed Friday. According to the data by the Korea Customs Service, South Korea imported US$198 million worth of leisure products during the January-June period, up 26.8 percent from a year earlier.
Billionaire Alexander Lebedev denied an interest in acquiring Rupert Murdoch’s defunct News of the World but said he wanted to publish a similar newspaper in Russia. Lebedev, whose media assets include three British newspapers and Novaya Gazeta, was quoted by Bloomberg as saying in an interview this week that he “half-jokingly” wished to remake News of the World under the brand World News and use it to expose corruption by rich and powerful people.

Russia may be able to balance its budget this year thanks to higher oil prices and a growing economy, Prime Minister Vladimir Putin said after the surplus widened in June. “We hope the deficit this year will be minimal, and perhaps we’ll be able to make it through this year without one,” Putin told a government meeting in Moscow on Thursday. The government expects deficits in 2012-14 and will need “strenuous work” to rein in costs. The federal budget surplus surged to 640.2 billion rubles ($23 billion) through June, equivalent to 2.7 percent of gross domestic product, the Finance Ministry said Thursday on its web site. The surplus in June widened to 5.9 percent of GDP from 5.3 percent a month earlier.
Pretoria – The Reserve Bank left its repo rate unchanged as expected on Thursday, saying a forecast that inflation would now breach its upper target level by year-end was balanced by risks to fragile economic growth. The dovish tone of Governor Gill Marcus’s statement, which suggested monetary policy could remain accommodative this year, led government bonds to extend gains, pushing yields to their lowest levels in about two weeks. The Bank’s monetary policy committee (MPC) has now left rates on hold at its last four policy meetings after a two-year loosening cycle that ended in November 2010 and saw 650 basis points lopped off the repo rate, taking it to an historic low of 5.5%.
The Organization for Investment, Economic and Technical Assistance Of Iran (OIETAI) has approved 134 million dollars worth of new foreign investment plans in the country, IRIB reported on Wednesday.  OIETAI head Behrouz Alishiri said that the newly approved plans are related to industry and tourism sectors as well as fuel products and packaging industry.
Executing these plans will improve Iran’s economy by increasing job creation, accelerating transfer of technology and developing exports, he added.

Inflation in Iran in its last calendar month of Khordad (May 22-June 21) reached 15.4 percent, ISNA news agency reported on Wednesday, quoting Subsidies Reform Organization Chief Behrouz Moradi as saying.  “”According to statistics from the Central Bank of Iran, the inflation rate in the first three months of the current Iranian calendar was 13.2%, 14.2 % and 15.4%, respectively”, Moradi added.


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