News That Matters


Worries about slowing Asian growth and turbulence in Europe pushed Australia’s central bank to cut its core interest rate on Tuesday, its second reduction in as many months. The Reserve Bank of Australia cut the cash rate by 25 basis points to 4.25 per cent. At its November meeting, the bank also reduced the rate by 25bp, which was its first cut since April 2009.


Commerzbank took steps to strengthen its capital as the German government prepared to reactivate crisis measures that would allow it to inject money into struggling institutions. The bank, Germany’s second-largest by assets, is to generate a one-off capital boost by spending up to €600m to buy back hybrid equity from investors, the first of an expected series of moves to improve its balance sheet that may require government support.


Wells Fargo, the largest US bank by market value, has sold $1.5bn of five-year senior unsecured notes at 175 basis points over comparable Treasuries, says the FT, underscoring the ability of US banks to secure funding at a time when their European competitors are struggling to raise money. US banks’ cost of funds last quarter dropped 20bp from last year to 0.7 per cent,


Dubai has for the first time raised the prospect of restructuring some bonds next year as the emirate and its state-related companies face a wall of $10bn in debt repayments, writes the FT, citing an anonymous senior government official. The emirate is also pursuing other options,



The Basel Committee on Banking Supervision may diminish the central role of government bonds in planned banking rules, reports Bloomberg, citing two people with direct knowledge of the plans. The Basel committee may let banks use equities and more corporate debt,


CME Group, the world’s largest futures exchange, will allow international investors to use the Chinese currency as collateral for trading in all its futures products from January 2012, the FT reports.


France and Germany have reached a “comprehensive” agreement on new fiscal rules for the beleaguered eurozone, as a package of measures designed to save the single currency begins to take shape, the FT reports.


Standard and Poor’s has warned Germany and the five other triple A members of the eurozone that they risk having their top-notch ratings downgraded as a result of deepening economic and political turmoil in the single currency bloc,

With the EFSF obviously too light to save the Eurozone, the next take needs to be ECB getting involved by expanding the balance sheet aggressively. The ECB needs to get inspiration from the mighty Fed. The sovereign crisis has spread throughout Europe, and both countries and banks will need to obtain funding. The “normal” market won’t be able to deal with this, so the next step needs to be the ECB getting involved. There is no other way to “fix” the funding of the European mess. The ECB should provide bilateral loans to the IMF, which would be a part of the bail out package for some the ones who need it (Italy).


Belgium’s new cabinet will be sworn in by King Albert II on Tuesday, the royal palace said, ending a world-record 541 days without a federal government for the heavily indebted euro-zone country. Elio Di Rupo will become the divided nation’s first Francophone premier in 32 years, taking office in a Europe dominated by center-right governments in time for a European summit at the end of this week. The palace said Mr. Di Rupo, who led the negotiations that broke the stalemate, presented the king with the names of ministers, who will be sworn in on Tuesday.


Europe has a glut of grand plans but a shortage of growth. The euro-zone economy has already slowed markedly this year, from a 3.1% annualized growth pace in the first quarter to just 0.8% in the third, as revised government figures due Tuesday are likely to show. And the going will only get tougher; it appears Europe is slipping into a recession in the current fourth quarter. By and large, the downturn is expected to be mild


As banks cut staff around the world, they are fighting in China over a rare commodity: a banker licensed by the government to do stock and bond deals. Chinese securities rules require that every underwriter on a domestic initial public offering of shares or a bond sale have two qualified “sponsors” among the bankers working on the deal. The pair nursemaid the IPO from beginning to end and ultimately take responsibility for signing off on the company’s books and business plan. The pressure on sponsors, already great, is increasing as the country’s regulator steps up its efforts to root out accounting fraud by listed companies and cracks down on underwriters.


South Korea’s third-quarter gross domestic product grew by a revised, seasonally adjusted 0.8% from the previous quarter, confirming that Asia’s fourth-largest economy slowed for the second straight quarter amid growing concerns over Europe’s sovereign debt crisis and a global economic slowdown. The revised growth is up slightly from the 0.7% estimate made in October by the Bank of Korea, but slower than the 0.9% quarter-or-quarter expansion in the second quarter and the 1.3% gain in the first quarter.

Asian shares declined Tuesday, with investors unsettled after Standard & Poor’s placed most of the euro zone on watch for a ratings downgrade and Australia’s central bank highlighted global growth risks while cutting the country’s policy interest rate.  Hong Kong’s Hang Seng Index lost 1.6%, while the Shanghai Composite Index /fell 0.8%. Japan’s Nikkei Stock Averagedropped 1%, South Korea’s Kospi  retreated 1.2%, and Australia’s S&P/ASX 200 index  declined 1.1%.


The People’s Bank of China may lower banks’ reserve requirement ratio again around the week-long Lunar New Year holiday that will start late January, the state-run China Securities Journal reported Tuesday, citing unnamed analysts. The PBOC lowered reserve ratios by 0.5 percentage point starting Monday, the first such cut since December 2008. Liquidity conditions in the banking system are expected to be tight ahead of the Lunar New Year holiday, so the central bank is very likely to cut reserve ratios around that period to soothe the liquidity squeeze, the newspaper said.


Gold futures extended their fall in electronic trading Tuesday as the U.S. dollar edged higher after Standard & Poor’s warned of possible credit-rating downgrades on 15 euro-zone nations. Gold for February delivery shed $11.70, or 0.7%, to $1,722.80 on the Comex division of the New York Mercantile Exchange during Asian trading hours

The Federal Reserve must take immediate action to inject new life into a moribund U.S. recovery or risk letting the nation settle into a permanently lower growth path, a top Fed official said on Monday. “There is simply too much at stake for us to be excessively complacent while the economy is in such dire shape,” Chicago Fed President Charles Evans told the Ball State University Center for Business and Economic Research. “It is imperative to undertake action now.”


Italy risked a Greek-style economic collapse which could threaten the future of the euro without the austerity package approved by the government, Prime Minister Mario Monti said on Monday, calling on European partners to do their part. Monti’s announcement of the plan on Sunday kicked off one of the most crucial weeks since the launch of the euro more than a decade ago, ending with a summit of European leaders in Brussels on Thursday and Friday to seek a wider set of crisis measures.


OPEC oil producers, at odds over supply policy since June, look set at a mid-December meeting to agree a new production target that legitimizes current cartel output around 30 million barrels a day. OPEC’s leading price hawk Iran, appears to have given up its campaign to have Gulf Arab nations including top producer Saudi Arabia cut back supply. Iranian Oil Minister Rostam Qasemi told Reuters on Monday that Tehran would be guided by the recommendations of the cartel’s Vienna-based secretariat.

Asian economies are facing “much greater downside risks” now because of the possibility of a recession in the U.S. and Europe and the threat of destabilizing capital flows, the Asian Development Banksaid.  The biggest challenge for policy makers in emerging East Asian nations is to safeguard growth against the threat of another global economic crisis, the Manila-based lender said in its Asia Economic Monitor report today. Uncertainty over the world economy means officials in the region must have “sufficient flexibility” to adjust policies quickly, it said.


Vietnam may undermine progress toward economic stability if it loosens monetary policy now, the International Monetary Fund and World Bank said as the nation struggles with the fastest inflation in Asia. “The authorities need to move rapidly and decisively to ensure financial sector soundness while re-establishing macroeconomic stability,” Sanjay Kalra, the IMF’s resident representative in Vietnam, said in comments prepared for a conference in Hanoi today. “Failure to do so, or even loosening policies now, would jeopardize the gains already made.”


Demand for the Bank of Japan’s one- week dollar loans surged 25 times after six central banks cut borrowing costs for the U.S. currency last week to ease credit amid Europe’s sovereign-debt crisis. The BOJ today said it accepted all the bids for its seven- day dollar loans totaling $25 million, the most since March, and will charge borrowers a fixed rate of 0.6 percent. That compares with the total of $1 million in bids to borrow last time it offered one-week dollar loans at 1.08 percent on Nov. 29. “The cut in the rate is the reason for the increase in bids,” said Shinsuke Kanabu, a project and research director at Central Tanshi Co., a Tokyo-based money-market dealer and broker. “Domestic banks have no problem getting dollar funding but probably wanted to get themselves familiar with the process.”

France will not impose a new round of austerity despite ratings agency Standard & Poor’s warning on Monday it could downgrade the country by two notches from its triple-A rating. In a television interview minutes after S&P said it had placed euro zone countries on review for a possible downgrade, Finance Minister Francois said the agency’s move had not taken into account joint proposals made by French president Nicolas Sarkozy and Chancellor Angela Merkel earlier in the day.


Even with the European Union economy almost certainly headed for recession, hopes are growing that the U.S. will be able to escape the worst of the sovereign debt storm and keep moving on a slow-growth trajectory. “Slow,” of course, would be the operative word, as even the most optimistic economists don’t put 2012 growth at much better than 2.5 percent or so.


The first half of 2012 “will be difficult,” both in Europe and in the U.S., Abby Joseph Cohen, Goldman Sachs senior investment strategist, told CNBC Monday. She also expects that U.S. fiscal policy will get tighter. However, “things will start to look better in the second half” of next year, the long-time bull said in her latest forecast. Stocks will stay undervalued until “confidence is rebuilt,” Cohen said. “There’s still many problems that need to be resolved. Although we think there is not a global recession in 2012, by many measures there are already several countries in Europe already in recession,” she said.


Up until last week, China’s government had been making all the right moves to manage the financial crisis. Unlike the Obama administration, the Chinese government demonstrated it had a plan and the political capital to push that plan through. It forced state-owned banks to keep lending; created jobs by launching massive public work projects and cut corporate and personal income taxes to spur consumption.

Australia’s seasonally adjusted current-account deficit narrowed 15% to 5.64 billion Australian dollars ($5.8 billion) in the three months to September 30, the Australian Bureau of Statistics reported Tuesday. Economists had expected a current-account deficit of A$5.6 billion in the quarter, according to an estimate compiled by Dow Jones Newswires. In seasonally adjusted, chain volume terms, the goods-and-services deficit rose 17% to A$13.27 billion in the quarter. “This is expected to detract 0.6 percentage points from growth in the September quarter volume measure of gross domestic product,” the ABS said.

In the latest attempted crackdown on excessive pay, the Association of British Insurers (ABI) has told banks to award smaller bonuses to investment bankers without resorting to increasing base pay to make up for it.  The ABI said that now is the time to curb total pay because bankers are unlikely to quit for a competitor, with very few banks hiring and most cutting jobs.


Ever since central banks agreed to provide additional liquidity support to Europe’s stricken banks, stock markets have been surging in anticipation of an eventual, much wider ranging deal to save the euro. Are they right to do so?  Not on the evidence of Monday’s press conference by Nicolas Sarkozy and Angela Merkel, where any agreement that might have been reached was about as clear as mud. Nor was there anything in what they said to address the immediate crisis.


Sales figures from the British Retail Consortium for November have added to the gloom about the high street, suggesting customers are just not spending as much as last year. The BRC figures showed that sales fell by 1.6pc on a like-for-like basis, which strips out the effect of new shop openings. On a total basis, sales climbed by 0.7pc, despite inflation and higher levels of VAT this year, compared with last year. The sales performance on both measures is the weakest since May. It is the latest evidence to suggest the high street is struggling to attract consumers, with many leading chains reporting profit warnings.


The Treasury is to close a loophole that allows wealthy people to avoid stamp duty on expensive property transactions as part of a raft of tax changes due to be unveiled on Tuesday. George Osborne is set to announce that even properties bought through offshore companies will be subject to 5pc stamp duty, rather than 0.5pc rate they can currently pay. The Chancellor hopes the proposal, which is expected to be included in the draft legislation for Finance Bill published today, will generate more tax revenues and be politically popular. The other measures expected today are designed to attract wealthy investors to Britain and boost business confidence.

Britain’s manufacturing sector is poised to give up the strong gains it has made since the end of the last recession, the industry will warn today, undermining the Government’s claims that it is beginning to rebalance Britain’s economy. The EEF, the manufacturers’ organisation, will warn that growth in the sector fell sharply over the past three months, that the majority of companies expect their order books to shrink next year and that predictions for the performance of industry in 2012 have had to be slashed back.

The head of the International Monetary Fund on Monday said Greece’s adjustment program was in a “difficult phase” with economic reforms moving slowly and growth extremely weak, a warning that came as the global lender approved a new aid tranche for the debt-burdened country. IMF Managing Director Christine Lagarde urged the new unity government to implement agreed policies and said fiscal adjustment was the most pressing challenge for Prime Minister Lucas Papademos’ new coalition government.

The Chinese currency Renminbi, or the yuan, strengthened 15 basis points to 6.3334 against the U.S. dollar on Tuesday, according to the China Foreign Exchange Trading System. In China’s foreign exchange spot market, the yuan is allowed to rise or fall by 0.5 percent from the central parity rate each trading day. The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.


The Asian Development Bank (ADB) downgraded its growth forecast for the Philippines this year to 3.7 percent on back of a global slowdown. According to the latest Asia Economic Monitor (AEM) issued Tuesday, the debt crisis in Europe and the U.S. fiscal problems will hurt the Philippines and other East Asian economies. “The turmoil emanating from Europe poses a growing danger to trade and finance within emerging East Asia; so the region’s policymakers must be prepared to act promptly, decisively, and collectively to counter what could be an extended global economic slowdown,” ADB Office of Regional Economic Integration Head Iwan J. Azis said.

The Asian Development Bank (ADB) is extending a 200 million U.S. dollars loan for infrastructure upgrades to improve the living conditions and to open up new economic opportunities in three seaport cities in Guangxi Zhuang Autonomous Region of China, the bank announced on Monday. “Improving public facilities will help reverse the current deterioration in the quality of life for many citizens, especially the poor and rural migrants,” said Satoshi Ishii, Urban Development Specialist in ADB’s East Asia Department.

Even as other foreign investors are increasing their exposure to US treasury bonds, India has trimmed its exposure in line with the overall reserves management strategy of the Reserve Bank of India (RBI). Data released by the US treasury department indicates that India, essentially the central bank, trimmed its exposure by $5.6 billion between April and September this year to $36.5 billion. India figures among the top 20 investors in the US treasuries.  Interestingly, Indian investors (or RBI) are pulling out of the US treasuries even though bonds rallied after the sovereign downgrade by ratings firm Standards and Poor’s . “It could be merely because of diversification of assets, as a change in reserves management strategy, since at some point there were jitters about rising yields on US treasury bonds,” said an economist with a new private bank requesting anonymity.


India’srobust export growth is not corroborated by a matching increase in outbound cargo volumes, providing fresh ammo to sceptics and raising doubts about data credibility.

While the value of goods exported rose 53.2% during three months to September, traffic of overseas shipments at major Indian ports grew by only 2.7%, according to data collated by Mumbai-based Centre for Monitoring Indian Economy. Experts are at a loss to explain this divergence in data.

China has room to further cut the required amount of money local banks must keep in reserves, Chinese fund mangers said Tuesday, suggesting the country will move toward easing its monetary policies. The central People’s Bank of China (PBOC) surprised markets last Wednesday by announcing a 50 basis-point cut in the required reserve ratio (RRR), which was effective starting Monday. China’s seventh largest fund management company Dacheng Fund Management Co. said that the central bank may announce an additional cut in the RRR between December and February.

Russian services industry growth accelerated in November to the fastest pace in four months, showing the economy will end the year on a “optimistic note,” HSBC Holdings said. The HSBC Russia Services PMI rose to 54.8 from 53.5 in October, the British bank said in a report Monday, citing data compiled by Markit Economics. A reading above 50 shows growth, below 50 indicates contraction. The measure reached 56.9 in July. Combined with manufacturing, which expanded


Russia’s annual inflation rate slipped in November to 6.8 percent, according to data on Monday showing a sixth consecutive monthly fall, increasing chances that the Central Bank may loosen monetary policy as the economy slows. The month-on-month rate of price growth, watched closely by policy makers, slowed to 0.4 percent in November from 0.5 percent in November and undershot expectations in a poll of economists of a rise of 0.7 percent. On a year-on-year basis, inflation slowed from 7.2 percent across a broad front as the so-called ‘basis effect’ of last year’s drought-hit harvest flattered the current figures, putting the official year-end target of 7 percent within reach.

Energy-rich Qatar moved on Monday to reassure consumer countries that the Arab Spring will not disrupt supplies from the Gulf, as Saudi Arabia stressed its goal to ensure stability on oil markets. Iran’s oil minister, meanwhile, dismissed EU threats of sanctions on Tehran’s financial and oil sectors, after a top official in Tehran warned that oil prices would skyrocket to $250 a barrel if sanctions were imposed on its energy sector. “Events in the Arab region raised concern over energy supply… I would like to stress on the commitment made… to maintain oil supply,” the Amir of Qatar, His Highness Shaikh Khalifa bin Hamad Al Thani, said at the opening of the World Petroleum Congress in Doha.