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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

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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Letta new Italian PM; Apple profits drop for first time in decade

Yesterday…
It was a dark day for the European economy, with April PMIs across the globe disappointed, except for France, which beat expectations and soared to four-months highs. China and Germany on the other hand, undercut expectations – Germany even fell below the magic mark of 50, to 48.8, the lowest level in six months. read Bloomberg

After all the united G20 talk of appropriate monetary measures, S&P said that there’s a 30+% chance that Japan will lose its AA rating. The reasoning: it’s great to have quantitative easing, stimuli and private sector involvement, but that strategy doesn’t work if all you do is print money. read Reuters

Meanwhile in Portugal, the government is planning to lower corporate taxes to attract business. Good timing. read WSJ

Right after close, the Twitter account of the Associated Press was hacked, posting a tweet about attacks on the White House. The Syrian Electronic Army claimed responsibility. read Alphaville read BBC

Otherwise, it was all about Apple. The tech giant posted first quarter earnings,showing that profits dropped for the first time in a decade in year-on-year comparison. Alongside quarterly results, the company also announced an expansion to its now $100bn share buyback program to return money to investors. read WSJ

This morning…
Italy is set to announce a new Prime Minister. The current candidates are Guiliano Amato (Prime Minister 1992-1993 and 200-2001), Matteo Renzi (Mayor of Florance) and Enrico Letta (center-left deputy leader), all of which are less crazy than Berlusconi and none of which have worked for Goldman Sachs. read Reuters
BREAKING: Enrico Letta set to become Italy’s new prime minister

In anticipation on next week’s ECB meeting, rumor has it the Mario Draghi is likely to cut another quarter of a point off current interest rates, as inflation rates are below target and the eurozone finds itself back in recession. read Reuters

So long.

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All according to plan – US set to grow 3%; China’s slowdown on purpose

Over the weekend…
the UK lost its Fitch-assigned AAA rating on the back of the weak economy and poor outlook. Moody’s downgraded the country in February, but also assigned a negative outlook, while Fitch is optimistic that the UK will return to credit-worthy prosperity around 2014/2015. read article

In Italy, Giorgio Napolitano was re-elected President for the coming seven years on Saturday. The independent is expected to propose a bipartisan cabinet, considering that he was elected by both sides of the political spectrum to avoid another round of elections. Everybody except for Beppe Grillo seems happy; he had called Napolitano’s re-election a coup d’etat. read article

The G20 meeting ended with everyone promising to not engage in competitive devaluation of currencies, defending Japan’s monetary policy as appropriate and targeting domestic demand. read article

This morning…
word got out that the US will see 3% growth in July, due to a reform of the methodology behind government statistics. 21st century GDP also takes film royalties and R&D spending into account:

Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.” read article

Meanwhile in China, central bank Governor Zhou Xiaochuan justified the country’s below-expectations growth rate of 7.7% in the first quarter of 2013, saying slow growth was necessary as structural reforms are being put into place. read article

Otherwise the counter-austerity voices are getting louder again, this time it’s Pimco’s Bill Gross (not that surprising) and Jose Manuel Barroso of all people, the President of the European Commission. Could this be the beginning of the end of Angela Austerity Merkel’s dominance in European policy? Probably not.

So long.

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China slows, Greece set to grow again

Over the weekend…
Venezuela has elected a new President, after re-elected Hugo Chavez died in early March after long illness. Nicolas Maduro is the man Chavez singled out as a worthy candidate himself, and the election result may have been driven my emotions more so than politics. read article

This morning…
China reported Q1 GDP growth, which came in lower than expected. Year-on-year, the country’s economy grew at a rate of 7.7% in the first three months of 2013. Prior estimates had suggested 8%; Q4 2012 came in at 7.9%. Again, we are facing a week of panic over the Chinese slowdown. read article

Otherwise, troika officials are arriving in Portugal today to assess the country’s austerity plans and post-bailout progress. Simultaneously, the body, composed of the EU, the ECB and the IMF, released a report claiming that Greece could return to growth next year. read article

The week ahead…
will bring us the first batch of earnings from New York-listed corporates, including a bunch of banks like Citigroup, Bank of America and Goldman Sachs, and tech companies Google, Microsoft and IBM.

The Italian parliament will try to elect a new President in the coming days. Officially, the process to find Giorgio Napolitano’s successor begins on Thursday, but it is expected to last a couple of days.

So long.

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Portugal could need second bailout (to pay for the first)

This morning…

the Eurogroup is meeting in Dublin; on the menu: stop messing around with bank stress tests (i.e. tighten measures) and the bailout schemes of Portugal and Ireland. Some say even if Portugal was granted an extension of its bailout repayment, it could potentially face a second collapse and thus a second bailout. Ireland is looking in the same gloomy direction. According to the FT:

Lisbon’s bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14,1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10-€12bn a year. Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country’s projected economic output for this year.

Thus, the world is quiet in anticipation of next week’s news country of choice. It might be early days for Slovenia, so maybe it’ll drift back to Cyprus or Italy.

Meanwhile, Japan will officially enter the Asia-Pacific trade talks this summer, which are currently held between Canada, Mexico, Australia, Chile, Peru, Singapore, Malaysia, Vietnam, Brunei and the US. read article

Weekend reading…
– The Economist on Margaret Thatcher‘s legacy, read article

– William Cohan on the revolving door between Wall Street and the White House, read article

Climate change may double turbulence on transatlantic flights, read article

– The Winklevoss twins are all over bitcoin, read article

JPMorgan explains why you should avoid investment banks, read article

Have a good one.

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Cyprus to exit the news

Over the weekend…

actually right before, Fitch but the UK on its watchlist for downgrades.

The United States Congress is working on reforming the taxability of debt and equity, changing the traditional debt-bias (i.e. tax-deductible interest payments) to an equity-bias. read article

The Basel Committee on Banking Supervision received at hat tip that there was a MASSIVE loophole in the Basel III regulation that imposes, among other things, higher capital standards on banks. What it doesn’t regulate, however, is the use of credit default swaps to handle riskier assets that count into those capital standards. Changes to be made. read article

Speaking of Basel – after Switzerland came under scrutiny (again) by facilitating tax avoidance, the US Department of Justice has now asked Lichtenstein to hand over documentation of American-held accounts. read article

Over night…

The Eurogroup of Finance Ministers approved troika-sponsored bailout plan for Cyprus, totalling €10bn. In short, bank deposits under €100,000 will be guaranteed, while larger deposits are facing a crazy haircut, possibly up to 40% (others say the cuts will be capped at 20%). After ten days closure, Cypriot banks re-open todayread article

And let’s not forget that besides all this, we’re still waiting on Italy.

Have a good week.

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Budget cuts and peripheral misery

Today at midnight (Saturday morning in the old world), the US is facing the much discussed spending cuts, decreasing government spending by €85bn until the end of the federal budget year in September. Maybe it’s time to depart from discussing the sheer possibility of this scenario. If you believe Bernankethe pain will be close to intolerable, slowing the economy down by 1.5%. The Congressional Budget Office estimates a 0.6% decrease in GDP. If you believe Fortunecompany earnings are strong enough to allow ignoring the issue. Without a budget fix, the automatic cuts will continue in the following financial year. read article

And things aren’t pretty in Europe’s periphery either. First, numbers out of Spain showed that Spanish corporations faced the largest decrease in earnings ever recorded in Q4, including Bankia’s €19.2bn net loss. Meanwhile in ItalyBersani rejected all rumors regarding coalition talks with Berlusconi. Over in Greece, 2012 revenue targets were missed and the burden of unpaid taxes increased, causing skepticism in Brussels, where the next loan instalment, worth €2.8bn, can be withheld if Greece’ financial report is not satisfactory. At the same time, the IMF, usually in bed with the EU, was more positive, saying Greece had collected more taxes recently and could avoid a further reduction in government salaries.

We shouldn’t forget, however, that despite the mess that is Southern Europe (oh yes, I made that generalization), there are still countries out there that want to join the union and currency. Poland, for example, which originally wanted to have the euro by 2012, is now discussing meeting all criteria (the same criteria that Greece met once…) by 2015read article

In India, Q4 GDP growth dropped to 4.5%, as the government announced a more pro-business deficit-reducing budget for the coming year. read article

Otherwise, Andrew Mason removed from his position as CEO of discount firm Groupon, which recorded losses in the last two quarters of 2012. In his own words:

After four and a half intense and wonderful years as C.E.O. of Groupon, I’ve decided that I’d like to spend more time with my family. Just kidding – I was fired today. If you’re wondering why… you haven’t been paying attention.

Weekend reading

– The “Because I Can” attitude of senior managementread article

– Dear Banker, this is how we’ll pay you in the futureread article 1 read article 2

– the European Union and Ricardian equivalenceread article

Have a good one.

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Why an EU policy success may do no good

Brussels is celebrating one of the rare agreements on European blanket policy, while the City of London is collectively banging its head against the wall. In a nutshell, the latest Basel III negotiations have led to this: more capital, more capital, more capital, and capping banker bonuses at 100% of salary (or at 200% with shareholder approval). Currently in draft form, the legislation is set to be implemented in January 2014. Enough time to find a place in Hong Kong. read article

Across the globe, Argentina is kind of blackmailing the American legal system. In November, three New York judges ruled that Argentina had to repay selected creditors a total of $1.3bn. Since then, the country has behaved like a child, fighting its creditors (and winning), bringing the case to the appeals court culminating in its attorney announcing that it was willing to default – again – on its government debt, if the ruling wasn’t reversed. It is unsure whether the final ruling can be issued before new repayments fall due. read article

Following Bernanke’s QE comments yesterday, Mario Draghi confirmed his commitment to the ECB pumping money into Europe. Meanwhile in Italy, Bersani and Berlusconi are looking into forming the mother of all coalition governments, says Finance Undersecretary Gianfranco Polillo. Apparently, the idea has been buzzing around the Italian press for days. Might be a rumor. All we know for certain is that Grillo is not going to make an effort to move towards Bersani whatsoever. read article

The aviation industry is swinging up an down in the meantime, with Iberia‘s restructuring causing its parent International Airlines Group a €997m pre-tax loss, while EADS is being celebrated as a “European success story” (that’s a thing?) by the Handelsblatt.

Otherwise, Europe got its own “fear” index called Ivi (implied volatility index), modelled on that of the US, measuring volatility in the Londoner FTSE 100 and Italy’s FTSE MIB indices, and the US is getting ready for the dramatic advent of the sequester spending cuts tomorrow.

So long.

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Italian elections: the morning after the morning after

As expected, center-left Pier Luigi Bersani is looking to form a minority government to lead Italy out of its post-election stalemate misery. A minority government with whom, you wonder? Well, Bersani asked for everyone’s support to curb austerity and promote job creation. Meanwhile, Mario Monti, who definitely lost the election, is considering leaving a €3.9bn bailout of Banca Monte dei Paschi di Siena be until the new administration is in place. Someone’s had enough. read article

Unfortunately for Italy, the country will try to sell €6.5bn worth of debt today.

Over in Brusselsnervous voices get louder with regard to the ECB, formerly known to do whatever it takes to save the euro for the Europeans through its OMT program. With Italy so obviously against austerity measures, future budget cuts that could be conditional for help from the ECB seem out of the questionread article

When addressing the Senate Banking Committee yesterday, Ben Bernanke advocated the Fed’s current course on monetary policy, saying the risks were clearly outweighed and investors should be encouraged by fair values and high corporate earnings. read article

J.P. Morgan is planning to fire up to 17,000 people, 6.5% of its staff, over the next two years in an effort to reduce costs by $1bn.annually. Most cuts will take place in 2014 in the bank’s mortgage groupread article

In other news, Visa and Samsung have struck a deal to advance mobile payments through Visa’s payWave software, and Chuck Hagel‘s nomination to US Secretary of Defense has been passed by the Senate. read article

So long.

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Italian elections – Berlusconi with a vengeance

Italy is left in limbo without a conclusive election result, probably another round of elections looming, preceded by an embarrassing attempt by [presumably] Pier Luigi Bersani to form a coalition, and a full re-appearance of Silvio Berlusconi on the political stage (in the Senate). But despite the obvious screw-up that this election seems to be, there are clear winners and losers: Mario Monti, in the rational corner, plays the role of the latter. Beppe Grillo, anti-euro comedian in the ridiculous corner, came out heading the largest single party in the country’s lower house. Winner. Inconclusive is only one way of putting it, although I guess we can gather that the Italian people generally have an issue with austerity measures. Let the name-calling begin. read article

Just in: Bersani will hold a press conference at 5pm CET in Rome.

Summarizing some reactions:

Notably, the European markets display alarming symptoms of contagion: Italian elections drove up yields in Spain, Portugal, Greece and Ireland, and pulled down yields in Germany, France, the Netherlands, Austria and Finland.

Meanwhile, everything Italian that can be bought or rather sold is about to be subject to a short-selling ban. Elsewhere, US stocks fell the most since November of last year, with the volatility index at its 2013 record high.

But there are a couple of other things quietly happening in the background. The Japanese government will sell a third of its 50+% stake in Japan Tobacco, the third largest tobacco company and formerly a Japanese monopoly. The sale comes as part of policies to reduce stakes in state-backed companies to raise funds for this economic recovery that’s taking so long. read article

Over in the Netherlands, Rabobank, commonly clean slate poster-child bank, one of the safest institutions and bailout-free, is looking at a $440m+ in fines for involvement in the Libor rate rigging scandal. The fine could come as early as May. read article

Back in New York at Moody’s, it seems like lessons have been learned since 2008. The rating agency announced that any mortgage-backed securities can’t receive top ratings any longer. Aa is the new Aaa. Other agencies are expected to follow suit. read article

So long.

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