News That Matters


Low yields on US Treasuries may be sending a false signal to Washington that it is unconcerned by the prospect of default should wrangling politicians fail to raise the Federal debt ceiling, the FT says. While the consensus in the bond market is for a last-minute deal ahead of the August 2 deadline

Banks that scraped through the European Union’s stress test of 90 lenders will start feeling the heat Monday from investors to beef up capital buffers, Reuters says, although a wide sell-off was not anticipated by analysts or regulators. The relatively small shortfall identified by the European Banking Authority in the results,

The head of the ECB placed a major obstacle on the path to a new agreement on a Greek financial bail-out, the FT reports, saying the bank could not accept defaulted bonds as collateral, potentially cutting off fundng from the Greek banking system. Jean-Claude Trichet

UK prime minister David Cameron has cut short a trade tour of Africa, the FT reports, to escape criticism for being out of the country as the eurozone crisis deepens and the phone hacking scandal continues

Spain and Italy’s leading banks were the strongest performers in last week’s European stress tests, in a surprise result that could help relieve the funding pressure that had been building on them. The European Banking Authority, which conducted the exercise, found an aggregate capital shortfall of only €2.5bn ($3.5bn) at eight banks, prompting criticism that the tests were not tough enough, in part because they did not account for any sovereign failure even as Greece teeters on the brink of default.
Asian shares were lower Monday amid continued concerns over euro-zone sovereign debt and as U.S. debt negotiations showed little progress over the weekend. Australia’s S&P/ASX 200 was down 0.5%, South Korea’s Kospi Composite was shed 1.0% and New Zealand’s NZX-50 lost 0.6%. Japan’s markets were closed for the Marine Day holiday.  Dow Jones Industrial Average futures were down 88 points in screen trade.

China welcomed findings by the World Trade Organization’s Appellate Body in a Chinese antidumping case against the European Union, China’s Commerce Ministry said Saturday. The Appellate Body supported China’s position on the EU’s application of antidumping tariffs to imports of certain metal fasteners from China. Both the EU and China had filed appeals after the WTO in December condemned the tariffs, handing Beijing its biggest legal victory so far at the WTO.

SYDNEY—Is the tide turning for Australia’s economy? Westpac Banking Corp. thinks it could be about to. The second-largest Australian bank surprised currency markets on Friday by becoming the first of the country’s big-four lenders to forecast that the Reserve Bank of Australia will begin cutting rates by year’s end to ease pressure on the economy from falling consumer confidence and doubt over the global outlook. Doubts about whether China’s demand for Australia’s raw materials like coal and iron ore can continue, and the risks presented by the unresolved debt crisis hitting Europe, are challenges for Australia, which has emerged from the global financial crisis in relatively good shape. Since

Prices of newly built homes in 44 of the 70 large and medium-size Chinese cities covered in a government survey rose in June from the previous month, down from 50 cities in May, indicating the central government’s tightening efforts are showing modest results. Prices of newly built homes in 67 of the 70 cities covered by the survey rose in June from a year earlier, unchanged from the 67 recorded in the three months from March to May and lower than the 68 recorded in both January and February, the National Bureau of Statistics said in a statement Monday.

Fitch Ratings Inc. cited companies’ use of Chinese accounting standards and their listings on the Shanghai Stock Exchange as “key weakness indicators” in a report on Monday screening 35 Chinese companies that it rates for governance stresses. The ratings firm had said on Thursday that “a spate of allegations” about Chinese companies had spurred it to review its Chinese corporate portfolio, making Fitch the latest ratings firm to weigh in on risks at companies from the mainland in a nervous investment climate.

Treasurys have long been the trusty mattress under which jittery investors stuff their cash.Now, as the Aug. 2 debt-ceiling deadline approaches and ratings firms fire off warnings on the U.S. credit rating, some on Wall Street are wondering where investors might run should a worst-case scenario materialize. Gold. German bunds. Bank deposits. They all could be candidates for some of the capital seeking a stable, safe place amid the financial chaos that would ensue if the U.S. were downgraded, or worse, actually failed to pay its obligations.

The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey.”There is no demand,” said Paul Ashworth of Capital Economics. “Businesses aren’t confident enough, and the longer this goes on the harder it is to convince them that they should be.” In the survey, conducted July 8-13 and released Monday, 53 economists—not all of whom answer every question—were asked the main reason employers aren’t hiring more readily. Of the 51 who responded to the question, 31 cited

The U.S. wireless industry is booming as more consumers and businesses snap up smartphones, tablet computers and billions of wireless applications. But for the industry’s workers, the story is less rosy. In May, on the heels of a record year for industry revenue, employment at U.S. wireless carriers hit a 12-year low of 166,600, according to U.S. Labor Department figures released earlier this month. That’s about 20,000 fewer jobs than when the recession ended in June 2009 and 2,000 fewer than a year ago.
Spot gold touched a record high on Monday, reflecting persistent worries about the euro zone debt crisis and a growing threat of a U.S. government default. Spot gold rose to an all-time peak of $1,598.41 and U.S. gold hit a record high of $1,599.20. The appetite for bullion as a safe storage of value increased, as investors feared that the stalemate in negotiations over U.S. deficit plan could lead to a default, which might wreak havoc in global markets and send the world’s top economy back to recession.

Brent crude dipped below $117 a barrel on Monday as the ongoing debt crises in Europe and the United States kept skittish investors away from risky assets, while the possibility of a second IEA oil release also weighed on sentiment. Policymakers on both sides of the Atlantic have offered no clear solutions to markets on their respective debt problems, keeping investors risk averse. Brent fell 31 cents to $116.95 a barrel at 0354 GMT, while U.S. crude eased 22 cents to $97.02 a barrel.
Equities in Japan are rising more than any other developed country on speculation earnings will improve as the country recovers from its strongest earthquake. The Nikkei 225 Stock Average climbed 2.9 percent since the start of June, posting the biggest increase among 24 developed countries in the MSCI World Index, according to data compiled by Bloomberg. Toyota Motor Corp. climbed 4.9 percent since June 17 after saying production is rebounding faster than expected.

European Central Bank President Jean-Claude Trichet said Europe can surmount its sovereign debt crisis by showing the will and determination to do so. “Naturally the Europeans can manage the issue,” Trichet said in an interview with the Financial Times Deutschland, according to a transcript released yesterday by the Frankfurt- based ECB. “It is not a question of technique. It is a question of will and determination.”
Global consumer confidence fell in the second quarter to its lowest level in a year and a half as an uncertain economic outlook, a deepening euro zone debt crisis and rising inflation made people more cautious, a survey showed on Sunday. Consumer sentiment in the United States was weaker than in the second half of 2009 at the height of the global recession, according to The Nielsen Company’s quarterly survey of global consumers.

Britain’s top police chief resigned and the former head of Rupert Murdoch’s UK newspaper business was arrested on Sunday over a phone-hacking scandal that is lapping at Prime Minister David Cameron’s door.  Analysts said the gathering pace of heads rolling had turned up the heat on Cameron and Murdoch over their handling of the scandal, with the media tycoon due to be questioned by parliament in a possible showdown on Tuesday.
German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country’s debt burden.Officials proposed a range of schemes for Europe’s bailout fund, the European Financial Stability Facility, to finance a buy-back or a swap in which private owners of Greek government bonds — banks, insurers and other investors — would accept cuts in the face value of their holdings.…

- The European Central Bank’s chief said it could not accept defaulted bonds as collateral and that governments would have to intervene and correct things were Greece government debt to be rated as a default. ECB President Jean-Claude Trichet, in the interview with Financial Times Deutschland conducted on July 14, criticized euro zone governments for their crisis management in the bloc’s sovereign debt crisis, saying they needed more discipline.
China has announced plans to release supplies of pork onto the market to help cut the price of the country’s most widely consumed meat product. It also said it was planning to build up its reserves of the meat. The move comes as the price of pork has jumped by almost 60% pushing the rate of inflation to a three-year high. Pork prices have been rising after an outbreak of disease two years ago led to a cull of livestock and delays in boosting production.

Greece’s enormous debts are sustainable but on a “knife’s edge,” according to the International Monetary Fund. A 110bn-euro (£96bn) rescue package for Greece is being implemented but investors still fear a default. Given the situation, Greece must stick to its reform programme, IMF Athens mission chief Poul Thomsen said. His comments came as UK Deputy Prime Minister Nick Clegg said he was “incredibly worried” about the Greek debt crisis.
Interest rates will start to rise in November in anticipation of falling inflation in the new year and an increasingly strong recovery, according to predictions from the Ernst & Young ITEM Club. Although major risks remain, Peter Spencer, ITEM’s chief economic adviser, said that as long as European and US policymakers can allay sovereign debt concerns and calm the bond markets “things should turn out OK”.  Striking a hopeful note, he added it is “unlikely events will blow up in our face”.

The eurozone can in theory still be saved, if two sets of conditions are fulfilled; if the leaders of Germany, Austria, Finland, and the Netherlands accept fiscal union and a common pooling of debt, and can persuade their parliaments and courts to ratify such a revolution.
British Columbia’s lumber sales to China are booming beyond the most optimistic expectations, eclipsing those to the United States for the first time. In May, a record month, B.C.’s producers sold $120-million of softwood lumber to mainland China, triple the level of a year earlier and, more significantly, edging out the $119-million in sales to the United States.

A SIGNIFICANT rice surplus is forecast to shrink by the end of the decade if more farmland in top exporting nations is put to industrial use and weather conditions worsen, keeping prices high as a growing world population boosts demand. Ample supply may insulate Asia’s main staple for at least two more years from price surges that have hit other grains, but costlier rice would feed food inflation worries, stirring fears of a repeat of the 2007/08 global food crisis that led to riots in some developing nations.
China’s land prices in 105 cities rose 1.87 percent on average in the second quarter over the first, but the rate of growth slowed, the China Urban Land Price Dynamic Monitor, a land price information provider, announced Sunday. < In the second quarter, land price for business properties averaged 5,506 yuan (about 847 U.S. dollars) per square meter, up 2.77 percent from the previous quarter. The growth rate slowed by 0.56 percentage points. Land price for residential properties averaged 4,443 yuan per square meter, up 2.17 percent. The growth slowed by 0.27 percentage points. The price for industrial uses, meanwhile, was up 1.13 percent to reach 645 yuan per square meter. The growth fell 0.3 percentage points.

China’s economy is heading for a soft landing, said Chinese economist Fan Gang. Fan said inflation would ease in the second half of the year as the effect of interest rate rises usually can be seen in about six to nine months, the China Business Journal, a newspaper run by the Chinese Academy of Social Sciences, reported Saturday. To soak up liquidity, China’s central bank has raised the benchmark interest rate three times this year and hiked the reserve requirement ratio for banks six times.

World Bank Group President Robert Zoellick urged the world’s trading nations to “think big” to facilitate the Doha Round of trade talks and provide a significant boost to current troubled global economy, the bank said in a Sunday statement. In a speech to be delivered in Geneva, Switzerland to the World Trade Organization (WTO) on July 18, Zoellick noted that the fate of the Doha Round that he helped launch in 2001 was “deeply disappointing” and the consequence could be a missed opportunity for a global growth strategy when the world badly needed one.

The United States had a responsibility and an opportunity to reduce its deficit as much as possible and solve the problem in a real and comprehensive way, U. S. President Barack Obama said on Saturday.”For a decade, America has been spending more money than we’ve taken in. For several decades, our debt has been rising,” Obama said in his weekly address. He said both parties had “talked this problem to death without doing enough about it,” adding that it will take a balanced approach and shared sacrifice to solve the problem.
The Reserve Bank of India (RBI) released its Financial Stability Report (FSR) recently. The third in a series, the recent FSR follows the tradition of the two preceding reports (March and December 2010) and represents the central bank’s “continuing endeavour to communicate its assessment of the incipient risks to financial stability”.

India’s exports may not sustain the growth rate of 40-45 per cent in the coming months due to the uncertain economic conditions in the western markets, Commerce Secretary Rahul Khullar cautioned on Saturday.  The average exports growth in the last five months has been over 40 per cent and even touched 57 per cent in May.  “…wait for another 3-4 months. Things are not well with the global economy right now. These heady growth rates of 40-45 per cent may not continue…the 40 per cent growth rate is a pipe dream that will not continue for rest of the year,” Mr. Khullar said here at a PHD chamber function.
The Economic Development Ministry expects to earn 1 trillion rubles ($35.6 billion) a year under an expanded asset-sale program, Economic Development Minister Elvira Nabiullina was cited as saying Saturday. The government’s previous plan called for a total of 1 trillion rubles of asset sales over the next three years. President Dmitry Medvedev ordered the government last month to amend the list by Aug. 1, saying the plan was “too modest.” “We’re discussing about 1 trillion rubles annually from state asset sales and keeping a ‘golden share’ in a number of the companies,” RIA-Novosti reported, citing Nabiullina. “For infrastructure companies, we’re not proposing going below less than 50 percent plus one share.”
The Indian company that launched the world’s cheapest car has unveiled its latest product for the fast-growing nation: a flat-pack house that costs just $700 and can be built in a week. The Tata group, maker of the $2,500 Nano car, said that the 20-square-metre (215-square-foot) home comes from a pre-fabricated kit that includes doors, windows and a roof. “We have already prepared two-three different designs based on discussions with users and are gathering more feedback,” Sumitesh Das, the head of the project at Tata, told reporters in Hyderabad on Friday.


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