News That Matters (August 26, 2011)

Japan’s parliament passed two pieces of legislation that Prime Minister Naoto Kan said were conditions for him to resign as early as Friday, Bloomberg reports. The upper house of the Diet on Friday passed bills to subsidise renewable energy and authorize the sale of deficit bonds,

Britain’s weakening economy may require another round of monetary stimulus, according to one of the “hawks” on the Bank of England’s monetary policy committee, the FT says. “Substantial further weakening of inflationary pressures would,

John Paulson, one of the world’s most successful hedge fund managers, has extended losses throughout August to leave his flagship fund down almost two-fifths for the year, the FT says, citing a person familiar with the fund’s performance. His Advantage Plus fund was down 38.7 per cent for the year as of Friday,

Goldman Sachs managers have been reminding their London-based employees that temporarily higher salaries granted to them for 2010 would expire beginning in 2012, says the WSJ. The move dates back to a decision to shift bankers’ pay into salaries and away from incentive-based compensation,

A swathe of states along the east coast of the US, from North Carolina to New York, have declared emergencies ahead of the arrival of Hurricane Irene, the BBC reports. The first hurricane of the Atlantic season is now a category three storm,

Short-selling bans on selected European bank stocks have been extended by regulators until the end of September, in an unprecedented degree of regulatory co-ordination, the FT says. Regulators on Thursday

South Korea’s leftwing opposition is celebrating the outcome of an unprecedented referendum on whether the state should pay for school lunches, which they say paves the way for Korea to become a welfare state,

Manmohan Singh, India’s prime minister, has appealed to Anna Hazare, the social activist, to halt his 10-day public hunger strike in an anti-corruption campaign that has spurred thousands to take to the streets,

The context for Ben Bernanke’s speech in Jackson Hole on Friday differs notably from that of a year ago, so anybody expecting a message that sharply changes the current setting of monetary policy is likely to be disappointed.

Brevan Howard, the world’s largest macro hedge fund, has made close to $1.5bn over the past three weeks on the back of turmoil in the global markets. In a month in which equity markets worldwide have seen declines of more than 10 per cent, the gain comes as a vindication for the $32bn London-based fund manager, which for more than a year – like many of its peers – has struggled to make headway in volatile conditions.

Greek sovereign debt yields have spiked on fears that a side deal struck between Athens and Finland on collateral for the Nordic country’s share in the most recent €109bn rescue could imperil the bail-out agreement struck earlier this summer. Greece last week agreed to put an estimated €500m into a Finnish escrow account as collateral for Finland’s share in the bail-out, but the deal has caused consternation among other eurozone members, several of which have now said they also want similar agreements.
Amid choppy trade and after Wall Street’s decline Thursday provided little incentive to buy stocks, Japan’s Nikkei Stock Average was flat, Australia’s S&P/ASX 200 added 0.3%, South Korea’s Kospi Composite was up 0.8% and New Zealand’s NZX-50 was down 0.3%. Dow Jones Industrial Average futures were up 69 points in screen trade.

Eight of Belgium’s main political parties are set to assemble Friday for critical talks on overhauling the country’s complex system of government, discussions analysts say are vital to resolving a political impasse that has exacerbated concerns about its finances. Belgium has been without a government since a separatist party from the Dutch-speaking north garnered the most votes in national elections in June 2010. The party, the N-VA, wasn’t close to a majority and couldn’t form a coalition.

Greece’s worsening slump is threatening to compound another risk for the country: the steady withdrawal of money from Greek banks. In the last 20 months, the country’s banks have suffered an unprecedented withdrawal of customer deposits. Tens of thousands of Greeks—from the well-heeled to the less well-off—have moved their savings out of the country or stashed the cash in safe-deposit boxes or under a mattress, bankers say. The consequence for many Greek banks is a growing shortage of liquidity that is increasing their reliance on emergency funding from the European Central Bank and forcing them to further cut lending to businesses. That, in turn, is deepening Greece’s recession, making it harder for the government to narrow its gaping budget deficit.

France’s President Nicolas Sarkozy made a brief stopover in Beijing, where he urged China to join international efforts to rebuild Libya and was reminded by President Hu Jintao to protect China’s investments in euro debt. Mr. Hu, however, reiterated his faith in the European economy. “China believes that Europe is wise and able to overcome the current difficulties and to maintain the economic stability and growth,” Mr. Hu said. He underscored that China continues to regard Europe as a major investment destination and said it expects Europe “to take measures to ensure Chinese investments there are safe.”

China’s big banks reported hefty profits in the first half of this year, but signs of strain are showing from their massive lending binges and as they struggle to meet tougher capital requirements. Profits of the nation’s five biggest banks by assets, led by Industrial & Commercial Bank of China Ltd., were buoyed in part by a greater focus on business that generates fee income, such as credit cards and wealth-management products. The shift comes amid Beijing’s efforts to rein in bank lending as it fights inflation that resulted from a surge in credit used to stimulate the economy during the global financial crisis.

Japan’s economy minister said Friday that the government on Monday will release a list of suggested responses to the strong yen for the incoming administration, expected to be formed next week after Prime Minister Naoto Kan steps down. Further comments by Economic and Fiscal Policy Minister Kaoru Yosano, at a regular press conference, suggest the government is leaning toward coping with, rather than fighting, a yen whose strength threatens the fragile recovery in the country’s export-reliant economy. He expressed reluctance about further aggressive yen-selling intervention, saying it “is a necessary weapon but not one we can use frequently.”
Crude-oil futures staged a late-day rebound Thursday to close modestly higher as Hurricane Irene fed concerns about a slowdown in refinery production on the East Coast, providing a lift to heating oil and gasoline prices.  Crude for October delivery climbed 14 cents, or 0.2%, to close at $85.30 a barrel on the New York Mercantile Exchange. It had earlier traded as low as $83.01 a barrel, pressured by losses in U.S. equities and strength in the U.S. dollar.

Gold futures closed higher Thursday as lower equities and a swirl of rumors that Germany might be next to get a sovereign-debt downgrade contributed to renewed nervousness in the markets. The yellow metal had spent most of the trading day extending losses, hit by a margin-requirement increase and as investors lost heart that economic stimulus is forthcoming. Gold for December delivery added $5.90, or 0.3%, to finish at $1,763.20 an ounce on the Comex division of the New York Mercantile Exchange. It had traded as low as $1,705.40 an ounce — some $187 below Monday’s record settlement of $1,891.90 an ounce.

Reserve Bank of Australia governor Glenn Stevens said Friday in a statement to the House of Representatives economics committee that markets remain on edge and the global growth outlook does not look as strong as it did six months ago. The year-end consumer price inflation rate will probably remain well above 3% in the September quarter but is then likely to come down, Stevens said. He added that it would be reasonable to expect that a decline in confidence arising from the recent international events may well dampen demand somewhat compared with the outlook the central bank gave in early August.

Japan chalked up a small victory in its war against deflation Friday, as the government announced the core consumer price index posted a surprise increase for July, rising 0.1% compared to a year earlier. Separate forecasts from Dow Jones Newswires and Reuters had expected core CPI, which excludes volatile fresh food prices, to fall 0.1%. A 3.4% year-on-year rise in fuel, light and water charges helped push the index higher. The gain came despite a revision to the index’s base year, which was expected to give a downward bias to the result, according to Dow Jones Newswires.
Spot gold lost 0.4 percent on Friday, on course for its first weekly drop after seven straight weeks of gains, as investors awaited a speech by U.S. Federal Reserve Chairman Ben Bernanke later in the day. Spot gold declined 0.4 percent to $1,762.29 by 0218 GMT after a 1.1 percent rise on Thursday. It was on course for a 4.8-percent decline on the week, its sharpest weekly fall since week ended March 1, 2009. U.S. gold traded nearly flat at $1,764.30.

Astronomers have spotted an exotic planet that seems to be made of diamond racing around a tiny star in our galactic backyard. The new planet is far denser than any other known so far and consists largely of carbon. Because it is so dense, scientists calculate the carbon must be crystalline, so a large part of this strange world will effectively be diamond.

President Barack Obama held a conference call on Thursday with top advisers to discuss the economy and progress on a plan he will announce next month to lift U.S. hiring and growth, the White House said.  Obama, vacationing on this upscale island off the coast from Boston, spoke with Treasury Secretary Timothy Geithner, chief of staff William Daley, White House budget chief Jack Lew, and National Economic Council director Gene Sperling.
Warren Buffett may have earned $1.3 billion in one day on his $5 billion investment in Bank of America Corp. (BAC) The preferred shares Buffett’s Berkshire Hathaway Inc. (BRK/A) bought are worth about $3.53 billion, Phil Jacoby, chief investment officer at Spectrum Asset Management Inc. in Stamford, Connecticut, estimated. Warrants included in the deal are worth about $2.73 billion, based on Bank of America’s share price of $7.65 as of 4:15 p.m. in New York trading, said Clay Struve, a partner with Chicago-based CSS LLC.

Philippine economic growth probably slowed for a fourth straight quarter as government and consumer spending eased while faltering global demand hurt exports. Gross domestic product increased 4.1 percent in the three months through June from a year earlier, according to the median estimate of seven economists surveyed by Bloomberg News ahead of an Aug. 31 report. The economy expanded 4.9 percent in the first quarter, the least since 2009. Philippine markets will be shut Aug. 29 and Aug. 30 for holidays.

The global economy has a 50 percent chance of slipping into recession as Europe and the U.S. struggle to grow, according to Nobel laureate Michael Spence. “I’m quite worried,” Spence said in a Bloomberg Television interview in Hong Kong yesterday. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in Chinaparticularly, and that will then immediately spread to the rest of the emerging economies.” He put the likelihood of such a scenario “at about 50 percent.”

The Federal Reserve’s decision to keep record-low interest rates and the possibility of further steps to spur the U.S. economy may stoke commodity prices and fan inflation in India, the Asian nation’s central bank said. “Given the fiscal limitations and growing signs of weakness in the U.S., the Fed has already indicated that it will pursue its near-zero rate policy at least till mid-2013,” the Reserve Bank of Indiasaid in a report in Mumbai yesterday. “It has also hinted at another dose of quantitative easing. This policy stance may keep the commodity prices elevated.”

Federal Reserve Bank of Kansas City President Thomas Hoenig said there’s a limit to how much more the central bank can help the U.S. economy and that the focus should now be on solving the country’s fiscal problems. “We can’t do it all,” Hoenig, the central bank’s longest- serving policy maker, said in an interview with Bloomberg Television that airs today. “We have a problem in this country with debt” and “if we don’t turn to the long run, we will be dealing with overnight crises for as far as the eye can see.”

A plunge in recent economic data puts the probability of a double-dip recession , 80 percent, according to modeling by Bank of America Merrill Lynch released Wednesday, reflecting the toll the U.S. debt downgrade, Europe’s woes and stock market volatility has taken on economic activity.

A third round of quantitative easing by the Federal Reserve is coming by year end, influential economist Nouriel Roubini told CNBC Thursday. “The reality is we’re heading toward recession, and one of the few policy bullets has left is monetary policy or QE3,” Roubini said.

Facing pressure to keep money printing in check, U.S. central bankers are mulling a modest approach to stimulus that would give the struggling economy only a tiny boost — if it helps at all. After two rounds of bond purchases that have pumped $2.3 trillion into the banking system, the Federal Reserve could buy long-term Treasury debt while selling short-term securities it already holds.

At a time when the economy should be creating employment at a fairly steady pace, the U.S. actually may have lost jobs in August. That disturbing trend could be made apparent next week when the government releases its monthly nonfarm jobs report. Some prominent economists think the report will show a modest decrease in jobs when the final tally is made for the turbulent month.
While China has been able to use its considerable economic clout to forge strong ties with Africa, experts say India is hoping that a mix of soft power and business expertise can win it friends and customers on the continent. Over the last few years, Beijing has struck deal after deal with African countries, often building extensive infrastructure projects and providing loans in exchange for access to natural resources, trade opportunities and expansion into new markets. Lacking China’s deep pockets, analysts say India has often struggled to compete directly with Beijing, especially for natural resources such as oil and gas.
Fixed mortgage rates edged up this week from their lowest levels in decades. But few potential home buyers have been able to capitalize on them.The average rate on the 30-year fixed mortgage rose to 4.22%, Freddie Mac said Thursday. That’s up from 4.15% last week, lowest level on records dating to 1971. The average rate on the 15-year fixed mortgage, a popular refinancing option, rose to 3.44%. Last week it fell to 3.36%.
Porsche AG and Bayerische Motoren Werke AG, predicting record sales for their luxury German cars this year, are vying to find enough Wunderkinder to make them. An aging workforce and declining enrollment in technical studies caused the shortfall of available engineers in Germany to rise to an all-time high of about 77,000 last month, according to the VDI German engineering association.
A UK government minister has defended a deal with the Swiss that could capture tax of up to £5bn but keep bank account holders’ identities secret. Undeclared money held by UK taxpayers in Swiss accounts will be taxed for the first time, at up to 34% of the total. Treasury minister David Gauke said the deal was historic, with no chance of the Swiss abandoning tax secrecy altogether.
Greece has been forced to activate an obscure emergency fund for its banks because they are running short of collateral that is acceptable to the European Central Bank (ECB).  In a move described as the “last stand for Greek banks”, the embattled country’s central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night.

A leading Nobel economist has backed Labour’s warnings that the UK is slashing spending too fast and risks tipping a fragile economy into another downward leg. Britain has jumped on the band-wagon of fiscal tightening in a big way,” said Professor Edmund Phelps from New York’s Columbia University. “I have some sympathy with that but I’m not sure it is being implemented as deftly as it should be. If you slam on the brakes too hard you risk throwing the infant through the windscreen,” he told The Telegraph at a forum of Nobel laureates on Lake Constance.

Consumer confidence continued to fall last month amid increased uncertainty around the UK’s economic outlook and is set to dip further in August, according to the Nationwide’s latest survey. Nationwide, the UK’s third largest mortgage and savings provider, said its Consumer Confidence Index recorded a reading of 49, well below its average reading of 79 and down on 51 in June.

Britain’s economic recovery will be undermined by new European employment laws which will cost companies almost £2 billion a year, business groups have warned. Vince Cable, the Liberal Democrat Business Secretary, has agreed to a controversial European directive to give agency workers the same rights as full-time employees of British companies.

The recession on Britain’s high street is the worst for more than 40 years, the boss of the Co-operative Group has claimed, as shares in a trolley-full of retailers plunged. Peter Marks said that for the first time people have been cutting food budgets – normally an area that is relied upon as “recession-proof”. “People are spending less on food – that’s a first,” said the Co-op’s chief executive. He added that he and other retailers are having to cut prices radically to shift stock.
A flash slide in Germany’s stock market dragged down indexes in Europe on Thursday, erasing earlier gains and shaking the confidence of investors cheering a $US5 billion ($A4.78 billion) investment by Warren Buffett in Bank of America. Germany’s main index, the DAX, fell about 250 points in a matter of minutes to trade down more than 4 per cent before recovering somewhat. By the close it was down 1.7 per cent at 5,584.14.
Peru’s government is to wring an extra $1.1-billion (U.S.) of taxes from the country’s mining sector, making the Andean country the latest resource-rich nation to demand a greater share of the commodities boom. The decision, announced by prime minister Salomón Lerner in a speech to Congress on Thursday, brings to an end two months of hard-fought negotiations between mining companies and the new government.
A senior Chinese official said on Thursday that stabilizing the general price level remains the government’s top priority, calling for all macro control policies in force to be fully implemented as it will be difficult to fulfill the government’s inflation control target. The remarks by Zhang Ping, the head of the National Development and Reform Commission (NDRC), China’s top economic planner, came at a bi-monthly legislative session of the Standing Committee of the National People’s Congress (NPC), China’s top legislature.

Standard & Poor’s on Thursday raised its outlook for Brazilian local currency credit rating to positive from stable, citing greater macroeconomic stability and stronger defense against external shocks. The rating was affirmed at the third lowest investment grade of “BBB+” and while the country’s foreign currency debt rating was kept at the lowest grade of “BBB-”.

Indonesia’s economy may not be seriously impacted by the gloomy global economic condition as it is predicted to keep growing by year end and next year amid growing exports, investment and consumption. The country’s economy has been well prepared to face the risks of possible economic crisis in the United States and Europe. Strong fundamentals, relatively stable political condition, and modest interest rate have the economy survived in the global financial routs in 2008-2009. Recently, growing middle classes, emerging wealth, expectation to jump to investment grade and moderate interest rate and economic growth, have lured more foreign funds.

Indonesia’s economy is forecast to grow by about 6.5 percent this year, as exports, investment and consumption pick up, Finance Minister Agus Martowardojo said here on Thursday. The minister forecast that the GDP to expand by 6.5 percent in the third quarter and slightly above the figure in the fourth quarter, as the government spending normally rises at the last quarter. “This year our economic growth is targeted at 6.5 percent,” Martowardojo was quoted by the biggest portal detik online as saying.
Inflation is likely to remain high and moderate only towards the latter part of the year to about 7 per cent by March 2012, the Reserve Bank of India said on Thursday, while warning against accepting the present inflation level as the “new normal”. “The decline in global commodity prices has not been very significant. Should the global recovery weaken ahead, commodity prices may decline further, which should have a salutary impact on domestic inflation,” the RBI said in its Annual Report for 2010-11, which was released on Thursday. However, the RBI said that the U.S. Fed’s policy stance “may keep the commodity prices elevated”. The U.S. Fed has indicated that it would pursue its near zero rate policy at least till mid-2013. It has also hinted at another dose of quantitative easing.

In what Finance Minister Pranab Mukherjee sought to dub as ‘disturbing’, food inflation surged to 9.80 per cent for the week ended August 13 from 9.03 per cent in the previous week, driven mainly by soaring prices of certain vegetables such as onions and potatoes, fruits, milk and protein-rich items. As per the WPI (Wholesale Price Index) data released here on Thursday, the fact that food inflation during the like week in 2010 was way higher at over 14 per cent did not provide any consolation to the common man even in terms of the high base effect anomaly. Showing an all-round surge in prices during the week, onions and potatoes turned dearer by 44.2 per cent and 16.39 per cent, respectively, on an annual basis. Fruits were also more expensive by 27.01 per cent while the prices of protein-based edibles such as eggs, meat and fish also went up by 13.37 per cent. Alongside, price of milk was higher by 9.51 per cent and cereals also turned 5.22 per cent dearer.
The Reserve Bank of India has more than doubled its reserves for contingencies this fiscal amid fears of the return of financial instability, such as the one in 2008, due to the worsening European sovereign crisis and flagging US economic recovery. Financial market troubles had eroded the profitability of the central bank’s international transactions in its last fiscal as interest rates on safe treasury securities, such as the US and the UK, remained at record low levels. But tightening domestic credit market partly compensated for the lower profits from overseas.
Lower returns on some of the assets also led to the central bank reducing transfer of surplus funds to the treasury by 20%.

India’s macro-economic fundamentals could deteriorate if the world slips back to recession as the government finances do not leave much room for stimulus measures, a central banker said. Uncertainties in the markets have risen after the Standard & Poor’s downgrade of the US credit rating and much depends on what the Federal Reserve Chairman Ben Bernanke says during the weekend at the annual conference in Jackson Hole in the US. “The fiscal space to provide counter-cyclical policy is limited compared to what it was in 2008,” said RBI deputy governor Subir Gokarn after releasing the central bank’s annual report. “A lot will hinge on the stand that Fed governor Bernanke takes,” he said.
South Korea’s fiscal deficit shrank in the first half from a year earlier as the economic recovery helped boost the government’s tax revenue, the finance ministry said Friday. The consolidated fiscal account, which reflects the central government’s total income and expenditures, posted a 2.3 trillion won (US$2.1 billion) deficit during the January-June period, down about 9.1 trillion won from a year earlier, the ministry said. The shrinkage stemmed mostly from increased tax revenue buoyed by the continued economic recovery.
Russia, Ukraine, Poland and “possibly” Hungary may be upgraded after Standard and Poor’s decision yesterday to raise the Czech Republic’s credit rating, ING Groep said Thursday. The countries may have assessments of creditworthiness lifted in the next six months, Simon Quijano-Evans, chief economist for the Europe, Middle East and Africa region at ING in London, wrote in a note to clients. S&P raised the Czech Republic’s long-term foreign-currency debt two steps to AA- from A, citing the government’s low indebtedness and the “prudently managed and balanced economy.” The country now has the fourth-highest grade, on par with euro-region Estonia.

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