News That Matters

Equity markets have been rather active over the past sessions. Further Eurozone troubles have absolutely crushed the Spanish and Italian markets. Both these markets are now at our projected short term target levels. Momentum is still weak, but we should be getting a slight bounce from these levels. Note how close the IBEX is to the 2009 “bottom” levels. We are not turning bullish, but see a possible short term bounce as these indices have reached support levels around here.

David Cameron is facing the biggest Conservative rebellion since the election and a severe test of the coalition, after a mutiny by some of his MPs against plans to introduce elections to the House of Lords. At a highly charged private meeting on Thursday, dozens of Tory MPs warned they would vote against the reforms – the centrepiece of next month’s Queen’s Speech.


François Hollande, the favourite to win France’s presidential election, has signalled he would raise the country’s minimum wage, which President Nicolas Sarkozy has frozen for five years in an effort to bolster the country’s competitiveness. The Socialist party candidate said he would give “a small boost” to the minimum wage if elected. He had previously avoided making any promises on the issue as part of his pledge to stick to tough targets on bringing down the budget deficit.


The International Monetary Fund is increasingly confident that its members will stump up at least $400bn in extra firepower to assure markets it can handle any fresh crisis in the eurozone. “We expect our firepower to be significantly increased,” Christine Lagarde, IMF managing director, said on Thursday as G20 finance ministers and central bank governors gathered in Washington for the fund’s spring meeting.


Tim Geithner, US Treasury secretary, raised the stakes over India’s proposed tax laws, telling Pranab Mukherjee, Indian finance minister, that the plan had “dampened enthusiasm” in the Asian nation among US business and investors.  Mr Geithner’s intervention on Thursday comes amid growing concern from US companies that they could be hit with huge levies if Indian measures to tax certain international business transactions retroactively are implemented.


Qatar’s sovereign wealth fund has made its first big investment in a US public company by acquiring a 5.2 per cent stake in Tiffany, the jewellery retailer known for its diamond rings and blue, ribboned boxes. The stake expands the growing luxury portfolio of the Qatar Investment Authority, which also owns Harrods, the upmarket London department store, a 17 per cent stake inVolkswagen, which owns Audi and Lamborghini, and a 1 per cent stake in LVMH, the French luxury group which owns Louis Vuitton bags, Dior perfume and Dom Pérignon champagne.


Egan-Jones and the credit rating agency’s founder are expected to be charged by US securities regulators for allegedly filing misleading information in its 2008 application to rate asset-backed securities and sovereign debt, according to people familiar with the matter.   The Securities and Exchange Commission has decided to file a civil action against Sean Egan and his firm for allegedly providing misleading information about the number of ratings it issued and the length of time it had rated those securities, a lawyer for Mr Egan said.


Bob Diamond has promised higher dividends and pledged to forgo parts of his bonus for 2011 until Barclays has improved profitability, in a last-minute bid by the bank’s chief executive to fend off an investor rebellion over his pay package.  Barclays has come under pressure from many of its largest investors after it revealed that Mr Diamond’s take-home pay was £25m for last year, including a £5.75m payment to compensate him for a tax disadvantage while relocating from the US to the UK.

Most Asian stock markets dropped Friday as disappointing U.S. economic data depressed demand, with Korean and Japanese exporters underperforming on concerns about the global growth outlook. Japan’s Nikkei Stock Average fell 0.3%, Australia’s S&P/ASX 200 eased 0.1%, South Korea’s Kospi Composite slid 1.2%, Hong Kong’s Hang Seng Index lost 0.3%, China’s Shanghai Composite Index rose 0.6% and India’s Sensex declined 0.3%. Dow Jones Industrial Average futures were up 14 points in screen trade.


Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row. New data Thursday provided fresh evidence that the job market is losing the momentum it built earlier this year, which could pressure fragile housing markets that have been showing signs of life. Separate reports this week suggested that the factory sector, a source of strength in the recovery, now is being hurt by weak growth overseas.


The strains are back in the euro zone. The euphoria in stressed government-bond markets generated by the European Central Bank’s two injections of cheap three-year funds to the region’s banks has given way to renewed anxiety about whether Spain and Italy can finance themselves in the bond market.  In an analysis published on Thursday, Moody’s Analytics said borrowing costs in both countries, as measured by 10-year bond yields, “are now above levels that can be sustained, given the weakened state of the countries’ public finances.” In its view, Italy’s current borrowing costs are less manageable than Spain’s.


The New Zealand government has approved the sale of 16 dairy and drystock farms to Chinese development firm Shanghai Pengxin Group Co.—the second time it’s done so after a High Court ruling in February forced it to review its original decision. Minister for Land Information Maurice Williamson and Associate Finance Minister Jonathan Coleman said Friday they had approved the Overseas Investment Office’s recommendation to allow Milk New Zealand Holding Ltd., a wholly-owned subsidiary of Pengxin, to buy the properties, which cover a total 7,892 hectares of farm land.


Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row. New data Thursday provided fresh evidence that the job market is losing the momentum it built earlier this year, which could pressure fragile housing markets that have been showing signs of life. Separate reports this week suggested that the factory sector, a source of strength in the recovery, now is being hurt by weak growth overseas. However, recent signals have been mixed, with worrisome indicators following positive ones—such as consumer confidence

Big banks will have at least until July 2014 to fully conform to the Volcker rule, the regulation that aims to restrict speculative trades with their own money, bank regulators said Thursday. Regulators, including the Federal Reserve, provided banks with guidance in response to concerns that they would need to comply with a statutory deadline of July 21, 2012 in adopting new rules. The central bank added that July 21, 2014 is the deadline, “unless that period is extended by the Fed.”


In an odd twist for China’s powerful banks, the biggest state-owned lenders last year started running low on the foreign currency needed for loans to enterprises investing overseas. “Some commercial banks suspended U.S. dollar loans” after the dry spell began in mid-2011, a source at a Shanghai branch of a state-owned bank told Caixin. “Others charged interest rates of more than 5%. The market’s foreign currency supply has been tight.” Fortunately for borrowers and banks, though, the drought appears to be easing.

Brent held above $118 per barrel on Friday, with prices headed for their steepest weekly drop in more than three months as fears that the euro zone debt crisis could flare up again dented the demand outlook. Brent crude gained 34 cents to $118.34 a barrel by 0358 GMT, on track for its steepest weekly loss in 14 weeks. U.S. crude gained 44 cents to $102.71, after settling lower at $102.27 in the previous session.


Gold held steady on Friday in listless trading as persistent concerns about the euro zone’s finances and disappointing U.S. economic data put off most investors. Spot gold edged up 0.1 percent to $1,644.15 an ounce by 11:27 p.m. EDT, on course for a 0.9-percent weekly fall. U.S. gold inched up 0.2 percent to $1,645.10. Technical analysis suggested that spot gold could fall to $1,611.80 an ounce during the day, said Reuters market analyst Wang Tao.


Large U.S. manufacturers are much more likely than their smaller peers to move production to the United States from China, according to a survey. Labor costs and the quality of goods are the top reasons for companies to consider so-called “re-shoring,” with some companies considering the United States a de facto low-cost country because of its high unemployment, according to the survey by the Boston Consulting Group. It found that 37 percent of all U.S.-based manufacturing executives either plan to or are actively considering moving production from China. That rises to 48 percent among companies with more than $10 billion in revenues, the poll found.

Iceland will show off its volcanic power in a bid to increase trade with the fastest growing major economy as Chinese Premier Wen Jiabao visits the island. Wen, whose two-day visit starts today, will tour Hellisheidi, Iceland’s largest geothermal power plant, and meet with President Olafur R. Grimsson and Prime Minister Johanna Sigurdardottir. It’s the first visit by a Chinese premier since diplomatic relations were established 41 years ago, according to the Foreign Ministry in Beijing.

Sales of existing homes continue to drop, and while tough credit and weak consumer confidence are certainly factors, lack of supply appears to be the latest culprit. Inventories of existing homes historically rise in the spring, as sellers look to take advantage of the busy season; not so this spring. Inventories fell 1.3 percent to 2.37 million units for sale. That’s down nearly 22 percent from a year ago. Inventory is dropping because the number of distressed properties for sale is dropping.


U.S. state tax revenue has finally returned to its peaks before the recession and likely continued growing at the beginning of this year, according to a report released on Thursday. States are currently finishing work on their fiscal 2013 budgets and many are eager for stronger revenue that will prevent more spending cuts. Overall state tax revenue increased 3.6 percent in the final quarter of 2011 from the fourth quarter of 2010, according to the New York-based Rockefeller Institute, a think tank that closely watches state revenue.


New U.S. claims for unemployment benefits fell less than expected last week, according to a government report on Thursday that could dampen hopes of a pick-up in job creation in April after March’s slowdown. Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 386,000, the Labor Department said. But the prior week’s figure was revised up to 388,000 from the previously reported 380,000. The four-week moving average for new claims, considered a better measure of labor market trends, rose 5,500 to 374,750. Economists polled by Reuters had forecast claims falling to 370,000 last week.

Some of the same spoilers that interrupted the recovery in 2010 and 2011 have emerged again, raising fears that the winter’s economic strength might dissipate in the spring. There is a “light recovery blowing in a spring wind” with “dark clouds on the horizon,” Christine Lagarde, managing director of the International Monetary Fund, said Thursday, at the start of meetings here that will focus on Europe’s troubles and global growth. Ms. Lagarde implored world leaders not to become complacent. Forecasters have said that the trends point to a moderation of economic growth in the United States, but they still expect the recovery to continue this year. The slowdown in part reflects an unusually warm winter, which pulled forward economic activity, making January and February seem artificially good and perhaps making recent weeks look worse than they truly were.

The European Central Bank pulled out all the stops to prevent a credit crunch by providing banks with €1 trillion in ultra-low cost financing. The move, which was hailed as a game changer, helped ease pressure on eurozone nations as some banks used the money to buy government bonds.  But the potency of the ECB’s two long-term refinancing operations, or LTROs, appears to be fading as yields on Spanish and Italian bonds have shot higher in recent weeks. ECB president Mario Draghi has said the goal is to support the economy by helping banks that have been struggling to fund themselves amid concerns about exposure to sovereign debt. He has called on eurozone officials to take advantage of improved market conditions to push ahead with fiscal consolidation and structural reforms aimed at increasing economic competitiveness.

The pace of factory activity in the U.S. mid-Atlantic region waned in April for the first time in five months as new orders fell to their lowest since September, a survey showed on Thursday. The Philadelphia Federal Reserve Bank said its business activity index fell to 8.5 from 12.5 in March, worse than economists’ expectations for a modest decline to 12.0, according to a Reuters poll. It was the lowest level since January. New orders slipped to 2.7 from 3.3.

Microsoft’s profits in the three months to the end of March dropped slightly but the results still beat analysts’ expectations after a surprise rise in sales of its Windows operating system. The world’s largest software firm made a net profit of $5.11bn (£3.2bn), compared with $5.23bn a year earlier. Sales rose by 6% to $17.41bn. Windows sales rose 4% against forecasts of a 4% decline, though sales at its entertainment division, which includes the Xbox console, fell 16%.


Bank of America has reported a fall in first-quarter net income to $653m (£407m; 498m euros) after making $2bn a year ago. The fall was caused by accounting charges related to its debt. Revenue was $22.5bn compared with $27.1bn for the same period in 2011.  Rival bank Morgan Stanley also fared less well in its first quarter, because of an accounting charge of $2bn leaving it with a loss of $119m, compared with a profit of $736m a year ago. Leaving that aside, however, Morgan Stanley would have earned $1.4bn, compared with $1.1bn a year ago.


There was relief at the result of Spain’s bond auction on Thursday, in which there was strong demand, even though some borrowing costs rose. The 10-year bonds were sold at a yield of 5.743%, up from 5.403% when the bonds were last sold in February. But the rate for two-year bonds dropped to 3.463% from 3.495% in October. Spain sold all the 2.54bn euros ($3.33bn; £2.08bn) of bonds it was offering, with demand higher than at the previous sale.

Christine Lagarde has piled the pressure on Britain and the US to increase their contributions to the International Monetary Fund ahead of a series of decisive meetings on Friday. Ms Lagarde, the IMF managing director, has set a target of at least doubling the fund’s resources to $800bn (£498bn) to help stabilise the global recovery. Speaking at the start of the IMF spring meeting in Washington, she said: “I hope that the entire membership will seize the moment.” On the UK, she added that it was “in their interest” to commit more funds. Chancellor George Osborne is expected to agree on Friday to provide at least another £10bn of taxpayer money to the global economic watchdog, but has yet to make a final decision. Britain has already pledged £30bn to the IMF.

Car production inched ahead last month but commercial vehicle (CV) production slowed considerably, figures revealed today. A total of 135,456 cars were made in the UK in March 2012 – a 0.3% increase on the March 2011 figure, the Society of Motor Manufacturers and Traders (SMMT) said. But CV production only totalled 9,648 last month – a 21.3% drop on March 2011. There were 227,957 engines made last month – 8.7% fewer than in March last year.   Car production for the first three months of this year, at 401,134, was 12.3% up on the January-March 2011 total.

China’s centrally-administered state-owned enterprises (SOEs) reported net profits of 181.37 billion yuan (28.77 billion U.S. dollars) in the first quarter, down 13.6% year on year, the country’s SOE regulator said Friday. The drop was attributed to the sluggish world economy cutting into the profitability of centrally-administered SOEs with close ties to international markets, the State-Owned Assets Supervision and Administration Commission of the State Council said in a statement on its website. “But judging from the general business situations of central SOEs, operations in March saw an obvious turnaround, as net profits surged 50.6% month on month to 82.6 billion yuan,” the statement said.


China’s central bank has indicated that a further relaxation of monetary policy is on the horizon, such as more cuts in the reserve requirement ratio for commercial lenders to ensure adequate liquidity in the financial system. “We will continue to implement prudent monetary policies, and fine-tune the measures when necessary to guide credit growth in a stable and appropriate way,” Xinhua News Agency cited an official from the People’s Bank of China as saying on Wednesday night. In the coming months, the central bank will adjust banking liquidity, and take “targeted” action by considering foreign exchange inflows, capital demand, and short-term special factors, it reported.


The role and reform of the International Monetary Fund (IMF) must better reflect the growing role of developing countries as a whole in the global economy, said a group of 24 developing countries on Thursday. “We ask that the realignment of the Board result in an increase in the number of chairs held by emerging and developing countries,” said the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G24) in a communique after its 87th meeting in Washington D.C. The group welcomed the efforts to expand IMF resources in responding to heightened risks in the global economy, but stressed that the efforts to strengthen the IMF’s lending capacity must not undermine its character as a quota based institution and must be anchored in a firm commitment to governance reform.


South Korean economy was expected to grow 3 percent in 2012 due to slowing exports to advanced economies such as Europe, Standard & Poor’s said Thursday. According to an e-mailed report, the global credit rating agency estimated that the South Korean GDP growth will slow to 3 percent in 2012 compared with 3.6 percent in 2011 amid weak demand from developed countries. The agency noted that global economic uncertainties would result in declining export demand from developed economies including Europe, adding that the slowdown in exports could also weaken growth in domestic demand and lead to smaller gains in income for households. The S&P estimation was lower than 3.5 percent growth forecast by the International Monetary Fund (IMF) and the Bank of Korea ( BOK) earlier this month.


Philippine monetary officials decided on Thursday to keep key policy interest rates on expectations that the inflation level will remain well anchored for the rest of the year. The overnight borrowing rates or reverse repurchase facility ( RRP) is steady at 4 percent while overnight lending or repurchase facility (RP) is at 6 percent. The interest rates on terms RRPs, RPs and special deposit accounts were also left unchanged. The reserve requirement ratios were kept steady as well. Monetary officials said the latest baseline forecasts continue to indicate that inflation will likely settle within the 3-5 percent target range in 2012 and 2013. They also expect the local economy to remain strong despite global uncertainties

Braving the downturn in the United States and the economic slowdown in the eurozone, India, on Thursday, announced that it had surpassed the export target of $300 billion for 2011-12.  The rising trade deficit, touching $184.9 billion mark, was a worrying factor. Briefing newsmen here, Commerce Secretary Rahul Khullar said the country had been able to surpass the trade target of $300 billion despite slowdown in demand in its traditional markets of the U.S. and Europe.  Exports surged by 21 per cent to $303.7 billion in 2011-12 powered by a strong growth in petroleum, pharmaceuticals and engineering products.  India managed to go past the export target by adopting product and market diversification strategy. However, imports surged by 32.1 per cent to $488.6 billion, leaving the highest-ever trade deficit of $184.9 billion. Interestingly, the government had set a target of $150 billion trade deficit.

Major economic reforms in India would hit the roadblock and are unlikely to happen before the next Parliamentary elections in 2014, Chief Economic Advisor Kaushik Basu has said. Addressing a meeting at the Carnegie Endowment for International Peace, an eminent Washington-based think tank, Basu said that relatively less important bills might go through Parliament.  Post-2014, he said, “you would see a rush of important reforms” and after 2015 India would be one of the “fastest growing” economies of the world. The new government, if in majority, would start with the reforms in a big way because there is a sense that it needs to pick up, Basu added.