“As part of an effort to restore trust in the scandal-hit Euribor interest rate, regulators said the number of maturities that make up the benchmark for trillions of euros of lending should be cut from 15 to seven.
Europe’s top banking and markets regulators told the European Banking Federation, which oversees Euribor, to strengthen governance procedures to ensure no banks try to manipulate the rate. Cutting the number of tenors would “have the benefit of simplifying” submissions….”
Comments »“The Japanese government will spend 10.3 trillion yen ($116 billion) to drive a recovery from a recession in Prime Minister Shinzo Abe’s first major policy initiative to end deflation and boost growth.
About 3.8 trillion yen will be for disaster prevention and reconstruction, with 3.1 trillion yen directed to stimulating private investment and other measures, according to a statement released today by the Cabinet Office. Extra spending will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, the government said.
A pick-up in China’s inflation reported today highlighted a rebound in Asia’s biggest economy that may aid efforts by the newly elected Abe to lead Japan out of its third recession in five years. The stimulus may heighten concern that the government’s commitment to fiscal reform is slipping, adding to the risk that a public debt more than twice the size of the economy may trigger a surge in bond yields….”
Comments »“Liam Fisher writes: “The global debt crisis is continuing, largely unabated. While significant measures are being put into place by governments around the world, there is little tangible effect being had on deficits that are continuing to pile up. Indeed, there is only limited agreement amongst economists on the severity of the debt crisis and its implications for the people of the world or the best ways to go about rectifying the problem. Some advocate drastic austerity measures and strict fiscal conservatism, while others take a more Keynesian approach that sees deficit spending as a way out of recession.
In this infographic from IronFX.com…”
Comments »The automaker announced Thursday that it will pay 10 cents a share to shareholders on March 1. Ford resumed paying dividends at the beginning of 2012 after suspending the payments in 2006 due to mounting financial losses and a need to preserve cash….”
Comments »“Banks and financial institutions are leading the pack of global borrowers that have rushed to the U.S. debt markets at the start of the year.
Global corporations began 2013 with a wave of issuance that pushed total bond sales in the U.S. over the $40 billion mark in less than a week. But no group of borrowers has been more aggressive than banks and financial institutions.
Citigroup, Allstate, and MetLife, among others, were joined by the U.K.’sStandard Chartered and Italy’s Intesa Sanpaolo, sending dollar-denominated sales of bank debt to $14.3 billion so far this year, according to Dealogic. In a single blockbuster sale, Bank of America offered $6 billion in three parts on Tuesday. That was the largest bond sale so far in 2013.
Banks are rushing to squeeze in as many sales as possible ahead of the so-called quiet period, which precedes the release of their quarterly earnings reports, analysts said. Wells Fargo kicks off the US bank results season on Friday, withJPMorgan Chase, Citigroup, Morgan Stanley, and Goldman Sachs coming next week.
“Banks tend to come to markets earlier in the year, but they are certainly being more aggressive,” said Jason Brady, portfolio manager at Thornburg Investment Management. “It’s a sign they are growing more comfortable with their balance sheets and in a position to take more debt.”
A recent rise in Treasury yields may also be contributing to the banks’ rush to lock in new funding sooner rather than later. The yield on the 10-year note moved close to 2 percent from 1.7 percent in a matter of days, before paring some of its advance….”
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“Italy sold 8.5 billion euros ($11.1 billion) of one-year Treasury bills at the lowest in three years as bond investors bet that caretaker Prime Minister Mario Monti’s economic policies will continue even if he doesn’t become premier for a second time.
The Treasury in Rome today sold the 365-day bills at 0.864 percent, down from 1.456 percent at the previous auction of similar-maturity debt Dec. 12 and the lowest since Jan. 12, 2010. Investors bid for 1.79 times the amount of bills offered, down from 1.94 times last month.
Even if Monti’s coalition of centrist parties has little chance of winning the Feb. 24-25 vote, markets seem convinced his policies will remain in place after the elections. Opinion polls show the center-left bloc led by the Democratic Party’s Pier Luigi Bersani probably will win a comfortable majority in the Chamber of Deputies, thought it may fall short of a majority in the Senate and need Monti’s support to govern….”
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“The European Central Bank kept interest rates on hold as improving economic sentiment underpinned expectations of a gradual recovery this year.
Policy makers meeting in Frankfurt today left the benchmark rate at a record low of 0.75 percent, as predicted by 50 out of 55 economists in a Bloomberg News survey. The deposit and marginal lending rates were also unchanged at 0 percent and 1.5 percent, respectively. ECB President Mario Draghi will hold a press conference at 2:30 p.m. to explain the decision.
Improving confidence indicators have eased pressure on the ECB to reduce rates from a record low, a move fraught with the unknown consequences of possibly pushing the deposit rate below zero. A pledge last year to buy as many government bonds as it takes to stabilize the single currency, buttressed by political progress on bringing economies of the 17 member states closer together, has eased fears the bloc would splinter.
“Risks will always be there but there’s no reason to cut rates,”Marco Valli, chief euro-area economist at UniCredit Global Research in Milan, said before the decision. “Signs of economic stabilization are likely already in the first half of the year, thanks to the latest stabilization in financial markets. We’ll then see a modest recovery.”
“Bank of England policy makers refrained from adding further stimulus to the U.K. economy today after their new credit-boosting program showed signs of success.
The nine-member Monetary Policy Committee led by Governor Mervyn King kept the target for quantitative easing at 375 billion pounds ($602 billion), in line with the forecast of all 39 economists in a Bloomberg News survey. They also held the key interest rate at a record low of 0.5 percent.
While the bank’s five-month-old Funding for Lending Scheme is starting to loosen credit conditions, the economy remains at risk of succumbing to a renewed recession. That’s left policy makers weighing signs of strength against threats from the euro crisis and Prime MinisterDavid Cameron’s austerity drive, the deepest since World War II.
“Most MPC members seemingly believe that there is currently not a compelling case for more QE, for now at least,” said Howard Archer, an economist at IHS Global Insight in London. “With the economy likely to continue to struggle to generate significant, sustainable growth, we expect the Bank of England to eventually give the economy a further helping hand.”
The European Central Bank in Frankfurt kept its benchmark rate at a record low of 0.75 percent today, as predicted by 50 out of 55 economists in a Bloomberg survey. The deposit and marginal lending rates were also unchanged at 0 percent and 1.5 percent, respectively….”
Comments »“Brazil’s swap rates dropped after a report showed inflation slowed more than forecast, fueling speculation that the central bank will keep borrowing costs at record lows to support the economy.
Swap rates due in January 2015 fell one basis point, or 0.01 percentage point, to 7.78 percent at 10:12 a.m. in Sao Paulo after rising nine basis points yesterday, the most this month. The real slid 0.1 percent to 2.0437 per dollar.
The IGP-M price index increased 0.41 percent in the 10 days through Dec. 31 from a month earlier after climbing 0.69 percent in the prior period, the Getulio Vargas Foundation reported today. The median forecast of 14 analysts surveyed by Bloomberg was for a 0.5 percent advance. The gauge is composed of 60 percent producer prices, 30 percent consumer prices and 10 percent construction costs.
“Local swap rates should be responding to the inflation indicators,” Octavio de Barros, an economist at Banco Bradesco SA, wrote in an e-mailed report today.”
Comments »“China’s bank loans as a share of funding in the economy may have fallen to a record low, highlighting the growth of alternative financing channels that have prompted warnings of rising credit risks.
New yuan loans probably dropped 14 percent last month from a year earlier, according to the median projection in a Bloomberg News survey of 37 analysts ahead of data due by Jan. 15. That would give bank lending a 55 percent share of aggregatefinancing for 2012, based on UBS AG estimates, the least in figures dating to 2002.
The decline underscores the waning ability of official loan data to capture the scale of debt in the world’s second-largest economy as borrowers and investors turn to less-regulated, higher-return shadow-banking products. The People’s Bank ofChina is putting greater emphasis on aggregate financing and the International Monetary Fund says the growth of nonbank credit poses “new challenges to financial stability.”
“China’s economic performance in 2013 will be significantly affected by how seriously Chinese regulators are going to treat non-bank financing,” said Shi Lei, a Beijing- based analyst with broker Founder Securities Co., who has provided research advice to China’s securities regulator. While a hands-off approach will help the economy, a crackdown “would be really bad for growth.”
The PBOC lending figures are among December data in the coming days that will show whether an economic rebound that began in September picked up or slowed last month after a seven- quarter growth slowdown. Trade figures due tomorrow may show exports rose at a faster pace and a Jan. 11 report may indicate inflation accelerated….”
Comments »“Thailand kept its policy interest rate unchanged for a second straight meeting on signs of an improving outlook for exports and strengthening domestic demand.
The Bank of Thailand held its one-day bond repurchase rate at 2.75 percent, it said in Bangkok today, as predicted by all 22 economists in a Bloomberg survey. The decision was unanimous, and forecasts for growth last year and this year will be revised upward after a better-than-expected expansion in the fourth quarter, the monetary policy committee said.
Prime Minister Yingluck Shinawatra’s government has extended subsidies, raised minimum wages and increased infrastructure investments to shield growth after the floods of 2011. While weakness in Europe and Japan persist, there is a broad-based recovery in Thai exports and the performance of Asian economies has turned positive, the central bank said today.
“The unanimous decision confirms our view that the easing cycle in Thailand has drawn to an end,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “There seems to be no change in their view on the strong domestic demand and benign inflation. The BOT’s focus in the near-term will be on the potential impact of volatile capital flows.”
The Thai baht rose 0.2 percent to 30.38 per dollar as of 3:01 p.m. in Bangkok today, approaching a 10-month high. The benchmark Stock Exchange of Thailand index gained 0.6 percent, having surged 36 percent in 2012…”
Comments »“The U.S. might run out of funds to pay all its bills as early as Feb. 15 after it exhausts emergency measures undertaken when it hit the $16.4 trillion debt ceiling at the end of last month, the Bipartisan Policy Center said Monday.
The Treasury Department has started using so-called “extraordinary measures” to keep funding the government. Treasury Secretary Timothy F. Geithner said Dec. 26 that “under normal circumstances” those safety lines would last for about two months and create about $200 billion of “headroom.”
“Based on financial data from Treasury, we estimate that the government will be unable to pay all of its bills as early as Feb. 15,” Steve Bell, senior director of the economic policy project at the Washington-based Bipartisan Policy Center, said in an e-mailed statement Monday. “We have less time to solve this problem than many realize.”
Republicans in Congress want to focus on spending cuts….”
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“Thursday’s meeting of the European Central Bank’s rate-setting committee could mark a key moment in the evolution of the euro zone debt crisis, as a growing number of economists predict that it will vote to cut interest rates again.
ECB President Mario Draghi has made several bold decisions in his first year in charge, notably the pledge to support struggling states through bond buying viaOutright Monetary Transactions(OMTs), and an interest rate cut could be the next.
A cut would make the ECB’s deposit rate, currently 0, negative – effectively charging companies to deposit money. While this could mean that banks put their money to work elsewhere, it could also mean that ordinary savers have less incentive to put money aside.
The headline refinancing rate is currently 0.75 percent, but at the moment this has less effect on short-term borrowing than the deposit rate because cheap ECB loans have already made borrowing money less expensive….”
Comments »“Encouraged by the rise of China and India in the past decade, investors and economic commentators have eagerly looked toward other emerging market nations in hopes of finding “The Next China” – or at least the next country to supply the raw materials that China needs for its construction-driven growth boom and bubble (which entails the building of empty cities to create economic growth).
Furthermore, since the 2008 Global Financial Crisis, investors have sought to invest in emerging markets as a way of diversifying away from investments in the heavily-indebted and slow-growing American and European economies.
Unfortunately, the vast ocean of “hot money” that has poured into emerging markets has created a massive economic bubble throughout nearly the entire emerging world, including overheating economies and property bubbles everywhere from Brazil to Indonesia to Turkey.
Ballooning asset prices and easy money has led to “luxury fever” as emerging market nations copy the spendthrift ways that contributed to the West’s downfall just a few years earlier.
The Emerging Markets Bubble is a derivative of the bubbles in China and commoditiesand will pop when they inevitably do.
How the Emerging Markets Boom Started….”
Comments »“Brazil swap rates rose as a measure of inflation accelerated, bolstering bets that policy makers will have to raise borrowing costs to tame price increases.
Swap rates on contracts due January 2015 rose four basis points, or 0.04 percentage point, to 7.74 percent, matching a one-week high reached on Jan. 4. The real gained 0.2 percent to 2.024 per U.S. dollar at 10:06 a.m. in Sao Paulo.
The Getulio Vargas Foundation’s IPC-S gauge, which monitors prices in Brazil’s seven biggest cities, rose 0.77 percent in the 30 days ending Jan. 7. The median estimate of 14 analysts surveyed by Bloomberg was for a 0.71 percent increase.
“Inflation numbers continue surprising on the upside and are one of the principal risks for 2013,” said Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA (ACA), said in a phone interview from Sao Paulo.”
Comments »“Japanese pension funds, the world’s second-largest pool of retirement assets after the U.S., will more than double their gold holdings in the next two years as the new government pushes for a higher inflation target, according to an adviser to the funds.
Assets held by Japanese pension funds in gold-backed exchange-traded products may expand to 100 billion yen ($1.1 billion) by 2015 from less than 45 billion yen at present, said Itsuo Toshima, who represented the Tokyo office of World Gold Council for 23 years through 2011.
New Prime Minister Shinzo Abe’s pledge to spur inflation to 2 percent and end the yen’s appreciation means Japanese pension funds now have to hedge against rising prices and a currency decline after two decades of stagnation. They’re set to jump into gold after 12 straight years of gains with the precious metal now 14 percent below its all-time high reached 2011. Gold priced in yen reached a record a week ago.
“Bullion’s role as an inflation hedge, long ignored by Japanese fund operators, has come under the spotlight thanks to Abe’s economic policy,” Toshima, who now works as an adviser to pension-fund operators, said in an interview today in Tokyo. “Gold may be a standard asset-class in the portfolio of Japanese pension funds as Abe’s target is realized.”
Japanese pensions oversee $3.36 trillion….”
Comments »“Syndicated lending in Asia fell to the least in two years in 2012 as companies use their bank relationships to strike cheaper bilateral or club deals in the private market.
Lending volumes in the Asia-Pacific region outside of Japan slumped 17.6 percent to $376.4 billion last year from $456.8 billion in 2011, according to data compiled by Bloomberg. Average interest margins for dollar-denominated loans increased 15 basis points to 273.6 basis points, versus a rise of 40 to 351.8 in the U.S., where the decrease in syndicated debt was a smaller 14.8 percent.
At the same time as the economy slows, reducing companies’ willingness to make new investments and expand, higher-rated borrowers in Asia are finding that reverting to loans which aren’t marketed to a wider group of banks in syndication is a more competitive source of funding. The rise of Japanese and Chinese bank participation in some parts of the syndicated market meanwhile is reducing costs, with other lenders forced to match lower rates or bow out of transactions.
“High-grade borrowers are turning maturing facilities into bilateral loans because they can leverage their relationships to get better pricing and more favorable terms,” Priscilla Lee, the head of northeast Asia loan syndications at Bank of Tokyo- Mitsubishi UFJ Ltd., said in a Dec. 14 interview. “Many don’t care to go to the syndicated market….”
Comments »“Japan plans to use its foreign- exchange reserves to buy bonds issued by the European Stability Mechanism and euro-area sovereigns, as the nation seeks to weaken its currency, Finance Minister Taro Aso said.
“The financial stability of Europe will help the stability of foreign-exchange rates, including the yen,” Aso told reporters today at a briefing in Tokyo. “From this perspective, Japan plans to buy ESM bonds,” he said. The purchase amount is undecided, Aso said.
The move may help Prime Minister Shinzo Abe temper criticism of Japan’s currency policies from trading partners such as the U.S. The yen has fallen around 8 percent against the dollar since mid-November on Abe’s pledge to reverse more than a decade of deflation as his Liberal Democratic Party won an election victory last month.
“The Europeans would be happy to see Japan buy ESM bonds, so Japan can avoid criticism from abroad and at the same time achieve its objective,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former central bank official.
The yen erased gains after Aso’s comments, reaching 87.81 per dollar, before appreciating again to 87.51 as of 7:14 a.m. New York time. The Japanese currency appreciated 0.3 percent to 114.86 per euro….”
Comments »“TOKYO (Reuters) – Japan’s new government will set up schemes worth nearly $5 billion to boost businesses, including helping them buy foreign companies, according to a draft economic stimulus package seen by Reuters on Monday that could be approved this month.
Prime Minister Shinzo Abe has made reviving the economy his top priority after his Liberal Democratic Party (LDP) won elections last month, combining aggressive monetary easing with fiscal spending to encourage investment and spur growth.
His spending promises have raised concerns that Japan’s public debt burden, already the worst among major economies, could deteriorate further. Some economists say structural reforms might have a bigger impact after years of stop-start growth.
The Development Bank of Japan (DBJ), a state-backed lender, will administer a 150 billion yen ($1.7 billion) lending scheme to encourage firms to develop new technologies and collaborate on new business lines, the draft showed.
The stimulus package would also establish a 200 billion yen fund with the Japan Bank for International Cooperation (JBIC), another state-sponsored lender, to encourage foreign mergers and takeovers.
It also includes 83 billion yen in loan guarantees and low-interest-rate loans for small firms, the draft showed.
A LDP sub-committee approved the draft on Monday, and it could be approved by the Cabinet as soon as this week.
MORE DEBT…”
Comments »“Speculators increased their bullish commodity wagers for the first time since November as signs of accelerating growth in China and the U.S. drove prices higher for a fourth consecutive week.
Hedge funds and other money managers raised their net-long positions across 18 U.S. futures and options by 2.4 percent to 691,832 contracts in the week ended Dec. 31, the first gain since Nov. 27, U.S. Commodity Futures Trading Commission data show. Cotton holdings climbed to the highest since September 2011, and those for sugar reached a nine-week high. Gold wagers rose for the first time in three weeks.
The Standard & Poor’s GSCI gauge of 24 raw materials rebounded 3.8 percent since reaching a three-month low on Nov. 5. China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, a private survey showed Dec. 31. The U.S. added more jobs than forecast last month, capping a third year of rising payrolls, the government said Jan. 4.
“In 2012, we had a lot of liquidating by hedge funds, but there’s an incentive to reverse that because of growth in emerging markets and especially China,” said Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management inSeattle, which oversees about $111 billion of assets. “It’s going to be a good year for commodities.”
