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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

US budget deficit decreases; ECB rate cut likely

Yesterday…
The IMF warned of the Asian bubble, saying too much FDI was leading to explosive credit growth and property prices, and it was to get even worse if Japan’s monetary policy was to have the intended effect on the Japanese economy (hold your horses, Christine). read FT

Deutsche Bank is issuing €2.8bn of new stock to improve its capital base. According to WSJ, Deutsche Bank has one of the lowest capital ratios among European banks. read WSJ

This morning…
The Dutch Queen Beatrix abdicated, to be replaced by her son Willem-Alexander. She will be demoted to Princess Beatrix. read BBC

The US Treasury is expecting the first lowering of the budget deficit since 2007 between April and June 2013, when it is looking to repay $35bn, against the February estimate of shouldering another $103bn in debt. The deficit cut is due to tax increases, spending cuts and tax revenues recoveries. read FT

There was a whole flood of data out of Europe this morning: both Eurozone and German inflation came in at 1.2%, lower than expected, making a rate cut by the ECB on Thursday more likely. German unemployment added to its rise in March, but the adjusted rate is still only marginally above the two-decade low of 6.8%. Eurozone unemployment climbed to 12.1%. No surprise there, when has it not been rising… read Alphaville

Spain reported GDP growth for the first quarter – keyword ‘growth’ – at -0.5%, leading the Bank of Spain to lower it 2013 growth expectations from -0.5% to -1.3%. read CNBC

So long.

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Spain turns to stimuli, as Merkel points to two-tier Europe

Yesterday…
Spain’s unemployment rate rose to a new high of 27.2%, possibly marking the final point that austerity measures haven’t work in this case or simply don’t work at all (hello, Keynesians). Between January and March, almost 240,000 people lost their jobs. read BBC
Following the announcement, Mariano Rajoy announced the government would lay low on cuts and tax hikes, as even though the deficit has shrunk, the country is doing miserable. Stimulus for everyone! read WSJ

The UK dodged the bullet on a triple-drip recession, reporting first quarter GDP growth of 0.3% from the previous quarter

This morning…
Angela Merkel stirred the European debate with remarks about the potential impending rate cut by the ECB. Merkel pointed out that country’s like Germany actually needed a rate increase, while other country’s required further easing, underlining the divide between functional and dysfunctional Europe.

In Italy, coalition building is underway. Prime Minister-to be Enrico Letta said the conservatives would have to work out a compromise regarding the property tax that Berlusconi promised to get rid off before joining the coalition.

Today, the US is announcing first quarter GDP growth, which is expected to come in at 3% from the final quarter of 2012. Over the next three months, this number will be revised three times, once due to the change in government statistics in late July. read WSJ

In Japan, consumer prices have fallen fastest in two years in March, which doesn’t really come as a surprise considering all the excess liquidity in the system. Prices fell 0.5% on the year, slightly more than expected. read Bloomberg

Weekend reading:
Italy’s new heads of state – an evalution, read The Economist
– meet Janet “anti-inflation” Yellen, possibly the next head of the Fed, read NYTimes
– why the city of Los Angeles is suing Deutsche Bank, read Businessweek
real bad boys smuggle dairy, read Bloomberg

Have a good one.

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The next thing – gold price fixing

Things to know today: The new pope is Argentinian (or Argentine if you will) and the first non-European in 1,272 years; the US continues to fail at making the budget happen; Libor, Euribor, now gold and silver, ALL PRICES ARE FIXED.

The US is seeing Republican and Democratic budget proposals this week, with the former having been released on Tuesday. So far so good, surely a compromise can be found, right? No. In an interview with ABC Obama admitted that the two proposals may be too different to be combined in any shape or form, particularly if the Republican idea only relies on cutting social security and healthcare benefits. read article

The Commodity Futures Trading Commission (CFTC) has begun an inquiry in the gold and silver market in London. Though not a ‘real’ investigation yet, the Commission is looking into price fixing, much as they did with Libor. The banks involved in gold price setting in London are BarclaysDeutsche BankHSBCBank of Nova Scotia and Societe Generaleread article

The troika, composed of the EU, ECB and IMF, has decided to delay the latest bailout tranche for Greece, worth €2.8bn, due to “outstanding issues”. One of these could be firing public servants:

Identifying redundant positions and putting in place a system that will lead to mandatory exits for about 150,000 civil servants by 2015 is a so-called milestone that will determine whether the country gets a 2.8 billion-euro aid instalment due this month.

Otherwise, Eurostat released a handful of data including rising Greek youth unemployment (record) and low overall European employment (lowest since 2006). In Brussels, the European leader summit has begun. Rumor has it that France, Spain and Portugal will get more time to shrink their deficitsread article

So long.

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Central bank center stage: light winds from Canada

Today’s agenda is full, with the ECB press conference this afternoon, future Bank of England governor Mark Carney being quizzed in the UK parliament and the aftermath of the sudden overnight re-ignition of the rate-fixing scandal(s).

Starting with the latter, the Libor investigation has led to fines all around already, but now it uncovered the unfortunate wordings of some RBS traders (to be read here). FYI, I like both steak and sushi. Meanwhile, Japanese banks, as well as RBS’ Tokyo division, have been accused of manipulating Tibor, the Tokyo Interbank Offered Rate, which they have done, of course, because why would something like this be contained in London. On the continent, the investigation of Deutsche Bank’s Euribor fixing is progressing and has led to the suspension of five traders in Frankfurt. More fun to come.

While all that is happening, Mark Carney, former governor of Canada’s central bank and incoming governor of the Bank of England, is facing the Treasury Select Committee. Prior to the session, George Osborne declared how upset he is about the UK’s monetary policy, asking for more easing to stimulate growth. All questions are really just trying to get to the point of one thing: what’s going to change now? We already know about his nominal GDP-targeting idea, but what else? He stressed the importance of flexibility in meeting inflation targets again and gave the current BoE regime his support, praising its “entirely possible, in fact probable” positive impact on the economy. read article.

As for the ECB, Mario Draghi will hold a press conference at 1.30pm London time. Presumably on the agenda are the LTRO repayments, the euro and the latest ECB Bank Lending Survey, which indicated tighter lending conditions due to bank’s capital requirements. Maybe, Draghi will comment on Ireland’s debt burden, which the ECB reportedly eased.

Meanwhile, the People’s Bank of China noted the increased inflation risks due to QE exercised by the US and Japan, which “may push up commodity prices and make global capital flows more volatile.” China reports its January inflation rate tomorrow; it is expected to come in at 2%, as opposed to 2.5% in December.

In other news, India lowered its growth forecast from 5.5% (prior to last week at 5.8%) to 5% and Cathay Pacific decided to up the value of its cargo, switching from e.g. apparel to transporting diamonds and pharmaceuticals to boost revenues. Also, the EU-leaders summit kicked off in Brussels today.

So long.

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US economy shrinks, RIM revives as BlackBerry

So that was quite the surprise. The US economy shrank 0.1% last quarter, while expectations had averaged on 1% growth. This is the first contraction of the economy in three years. To blame are, in part, a decline in business inventories, the fiscal cliff and government spending cuts, including the largest cut in defense spending since the Vietnam war. Employment data released tomorrow, could shed more light on whether the US is actually slowing down. read article

Elsewhere, in China, local government are also feeling the impact of the global economy. Frantic to meet their tax targets, North-Eastern cities demand taxes two years in advance from local steel mills. Now that’s sustainable. While China produces almost half of global steel supplies, the mills’ profits slumped 98% last year. read article

In happier news, RIM has managed to use the defibrillator on itself, officially rebranding to BlackBerry (BBRY) and introducing a new phone… with a touchscreen. Like they don’t know that the keyboard is the best feature. Shares fell 12%. Either way, the company has bought some time until private equity firms will start circling over its Canadian headquarters again. Winning in the category of most puns in single headline: the FT with “Rimless BlackBerry hopes to regain touch.” read article

Deutsche Bank reported losses worth €2.6bn in Q4 2012, mostly related to legal matters and writedowns. €1bn alone was allocated to legal costs arising from the Libor scandal. Over in London, BarclaysRBSLloyds and HSBC have to pay a total of £5bn in compensation after mis-selling interest-rate derivatives to SMEs. read article

Otherwise, Bundesbank president Jens Weidmann called for a more conservative approach to bailouts in Europe, in order to protect wealthier economies from throwing themselves in the deep end out of misunderstood solidarity, and Greek retail sales fell almost 17% in November, indicated that, no, the crisis is indeed not over.

So long.

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Spanish recession gets worse; Toyota recalls 1.1 million cars

Spain’s recession deepened in Q4, when the country’s economy shrank by 0.7% compared to the same period in the year prior. Over the course of 2012, Spain contracted by 1.7%.

The Bank of Spain says the return of international investors to Spain’s battered debt market, has not translated into the real economy, although it has allowed the government to conduct a large chunk of its 2013 borrowing at the start of the year, potentially easing the pressure on it for months to come.

In the background, Catalonia requested €9.1bn in aid from Spain’s regional liquidity fund. In 2013, the region will have to repay €13.6bn of debt. read article

Yet, overall the eurozone’s economic sentiment and business climate improved, along with expectations for inflation. read article 

In the US, the Fed is concluding its January meeting this afternoon and for once there won’t be economic projections or a press conference. Maybe, after months of easing, Bernanke wants to keep everyone guessing again. After all, being predictable is boring. According to a Bloomberg estimate released yesterdayQE3 will amount to $1.14tn before it ends in Q4 2014.

In Brussels, the FT got its hands on the blueprint for the financial transaction tax regulation. The draft imposes a levy of 0.1% on stock and bond transactions and 0.01% on derivative trades and would yield €30-35bn per year.

If this design of the tax is adopted, it would mean offshoots of banks headquartered in the tax area – such as Deutsche Bank or BNP Paribas – as well as any trades undertaken on behalf of clients based in the 11 countries will be hit by the levy, even if they are trading in the City of London. Any US or Asian institutions trading securities issued in France, Germany, Italy or Spain would also be taxed.

But on the plus side, the EU has departed from its ringfencing plan, separating investment banking and commercial banking activities, because it could jeopardize Europe’s growth prospects. read article 

Things were going too well for Toyota. Despite Japan’s continuous decline and China’s war on Japanese manufacturing of any kind, the company had nudged General Motors from the pole position of global  car producers. Now, Toyota is recalling 1.1 million cars worldwide, with the majority (752,000) sold in the US, due to defect airbags. This is the third bigger recall since October 2012 and will cost the firm around JPY 5bn ($55m). read article

In other news, Obama has introduced his immigration reform plan, making it easier for skilled workers to obtain US visas, and Zimbabwe‘s Finance Minister said the country has $217 left in the bank after paying public sector salaries last week. read article

So long. 

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Politics is about expectations: a referendum, taxes and inflation

Brace yourselves, it’s a Europe-heavy news day.

The big news of today is David Cameron’s EU speech, announcing a UK membership referendum sometime between now and 2017. Britons are applauding, while the rest of the EU is in a state of frustration. With the words of Laurent Fabius, Foreign Minister of tax hell France: “If you join a football club, you can’t say you want to play rugby.” Well, no. But was that what he was doing? Not really. Good analogy nonetheless. It set the tone for European politics this yearread article 

Eleven European countries (Germany, France, Italy, Spain, Austria, Portugal, Belgium, Estonia, Greece, Slovakia and Slovenia) have proceeded to drafting legislation for a financial transaction tax on the trading of stocks, bonds and derivatives. That sounds specific, but really isn’t, as Brussels hasn’t decided on specifics at all. So one of the best reasons not to go on a rant of the ineffectiveness of the policy that is meant to generate €57bn for various rescue vehicles, is that it might be stuck in parliaments across the continent for a while, despite its scheduled implementation of January 2014read article

In Israel, Benjamin Netanyahu has been re-elected, though not exactly by a landslide. In the sobering words of the BBC:

It was relief more than real jubilation. The simple truth was that the combined list of candidates headed by Prime Minister Benjamin Netanyahu had performed disappointingly. But politics is about expectations.

More analysis from Israel, here: read article

In Davos, where the World Economic Forum [attended by both Merkel and Cameron – awkward] has begun, Russian Deputy Prime Minister Arkady Dvorkovich has admitted that Russia’s perception abroad is bad for foreign investments and is holding the country back. watch video

Overseas news bring us the policy decision of the Bank of Japan, which is braced to do what new PM Abe talked about all January: pump money in the economy to meet the 2% inflation target. In fact, Japan has never had a firm inflation target like that, so you’d expect it to be big news. Yet, nobody, from analysts to the IMF’s Christine Lagarde, seems overly impressedread article

In the background, Deutsche Bank has to simulate a breakup of its consumer and investment banking units. read article

So long.

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Bad PR for corporations as such

Today’s news are mostly dominated by the siege on an Algerian gas plant that started yesterday, triggered by French military action in Mali. All else seems to be on hold.

But there’s some drama: Tom Albanese, chief executive of Rio Tinto, British-Australian metals and mining company and gold star member of the companies-that-are-what’s-wrong-with-the-world club, has stepped down after the company had to admit to $14bn in impairment charges following unsuccessful acquisitions under Albanese’ supervision. In February 2012, one of these questionable assets, aluminum business Alcan, was written down by $9bn. read article

Thanks to a little €1.5bn incident in Italy, Deutsche Bank got bad PR again. In 2008, the aforementioned amount was loaned to Banca Monte dei Paschi di Siena, the world’s oldest established bank. As part of the deal, the Italian bank avoided a €367 loss on an old derivative contract and bet against Italian government bonds. A year later, Monte Paschi received a €1.9bn bailout from the Italian government, following by the December 2012 EU approval of a total €3.9bn bailout. It may raise a question of fairness, if not at least of proportion. While Monte Paschi is being investigated for manipulation and obstruction of regulatory activities (in Italy… that’s convincing), German authorities are trying to justify another investigation of Deutsche Bank. They promised to leave the machine guns at home this time. read article

As more or less all of Boeing’s Dreamliner fleet [globally] is now grounded for inspection, aircraft order numbers for 2012 were released. And guess which manufacturer has re-taken the number one spot after five years… exactly, Boeing. The difference to Airbus: 13 planes. And for all you know, those aren’t even fit to fly. In the US and Europe, it is not even the airlines that keep their fleet on the ground, the authorities have banned Dreamliners from flying until Boeing can resolve the risk of battery fires. read article

And the headline of the day: “Dimon Takes a ‘Whale’ of a Pay Cut

So long.

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EU cuts its losses on bank bailouts

The week starts relatively quiet with some news from Europe and last week’s news from Japan.

The EU is doing something that could be interpreted as cutting its losses: in a redraft of terms and conditions for countries whose banks sought a bailout from the European Stability Mechanism (ESM). Under the new proposal, the countries in question (Spain, Ireland, Cyprus) will have to co-invest [into the failing banks] alongside the ESM or guarantee indemnities for the EU fund. Fair enough, but why only now? Is it possible that the real smart guys in Brussels noticed that money is finite? read article

In the background S&P is riding the New Year’s resolution wave and announced that 2013 will be a turning point for Europe: it will quit smoking, lose weight and stop defaulting on debt. read article

And it generally seems to have been a busy weekend in Brussels. After UPS proposed a €5.2bn takeover bid for Dutch delivery firm TNT Express, the Commission now swore to block the deal under antitrust rules. In response, TNT’s shares fell by 49%. read article

In other news, Swiss watch maker Swatch bought luxury jeweller Harry Winston for $750m, AIG is suing the New York Fed over bond issuer rights and investment banks Credit Suisse and Deutsche Bank are considering bonus cuts of up to 20%.

After the London Whale shook all of JP Morgan‘s senior management, prompting six of the 15 members of the firm’s operating committee to leave, the bank is now issuing a report for its board of directorsblaming CEO Jamie Dimon, ex-CFO Doug Braunstein and ex-CIO Ina Drew for the losses incurred. The board will vote on whether the report should be made public tomorrow, a day ahead of the firm’s earnings report. read article

So long.

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Deutsche Bank profits from Libor fixing (maybe and also, duh!)

Whether any of today’s apparent top stories are actual top stories remains to be seen. There is Deutsche Bank’s profits from Libor trades (or not), ECB action (or not), and the suspiciously low Vix volatility index showing that all problems are solved (or not). Hm.

So the Vix hasn’t been this low in 5.5 years. Now that the US didn’t fall off the cliff, there’s hardly anything left to worry about… Is it going to stay like this? Of course not, there’s a debt ceiling on fire, spending cuts lying around and an earnings season to come. This merely seems to be a reflection of ‘stopping to care’ and ‘calming the f*uck down’. read article

Months after the Libor scandal unravelled and shook the City of London, the Wall Street Journal reported that Deutsche Bank recorded €500m in profits from trades linked to the notorious benchmark rate in 2008. In the worldwide rate-rigging investigation, the bank had not been charged with any fines yet. In response, Deutsche Bank emailed Bloomberg, outraged, saying trades relied on analysis and “not on any belief that the bank could inappropriately influence interbank lending rates.” Of all global players, Deutsche Bank has been bashed significantly less than other investment banks. Only in home-sweet-home Germany, where traditionally all social democrats hate the firm, things are a bit more difficult.

AIG decided against participating in a shareholder lawsuit against the US government for not being nice enough during the insurer’s $40bn bailout yesterday. The case is being pursued by former AIG CEO Maurice R Greenberg, whose Starr International Corporation used to be a shareholder of the insurance company. In short:

The suit contends the US government extracted too-onerous terms in its rescue package for AIG, and seeks about $25bn from the government. A federal claims court in Washington ruled in July that the case could proceed, after the US government sought to dismiss it.

In the background, Barack Obama has chosen his chief of staff Jack Lew as Treasury Secretary and the ECB is meeting to discuss this month’s policy decision, which are unlikely to result in anything new if you believe a Reuters poll. (Aha, there we go, nothing happened.)

So long.

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