ACCRA (Reuters) - The International Monetary Fund has approved final disbursement of $178.74 million under its current three-year pact with Ghana, but warned steps needed to be taken to fend off risks to macroeconomic stability.
The currency of the world's second largest cocoa producer has been under pressure this year, declining more than 17 percent since January on persistent demand for dollars by local firms hungry for imports to fuel the growing economy.
'A rapid depreciation of the cedi is fuelling inflation and reserve cover has fallen below comfortable levels,' the Fund's deputy managing director Naoyuki Shinohara said in a statement on Friday.
'Furthermore, spending overruns at the end of 2011, large public wage increases and re-emergence of energy subsidies have created the need for corrective actions to achieve fiscal targets,' it said.
The latest tranche is part of the IMF's Extended Credit Facility with Ghana, which was launched in July 2009 and gave the country access to a total $581.3 million funding.
The country will hold presidential and parliamentary elections in December and many fear the government's earlier efforts to stabilise the economy may be jeopardised by election-year demands, especially for public sector wage increases.
The Fund called on the authorities to step up fiscal reforms, prioritising tax administration and public financial management. It also noted that Bank of Ghana's monetary policy has so far been slow in addressing the cedi depreciation and associated inflation risks.
Year-on-year inflation rose for a third time to 9.4 percent in June but remains within the government's single digit target.
'Loose conditions have now been tightened and will need to remain tight to preserve the credibility of the inflation-targeting regime,' the statement said.
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Saturday, July 14, 2012
Friday, July 13, 2012
Romney demands Obama apology over Bain attacks
WASHINGTON (Reuters) - Republican presidential candidate Mitt Romney struck back on Friday against attacks over his business record that are pulling him further away from his campaign message that the White House is mishandling the economy.
In a blitz of television interviews, Romney demanded an apology from President Barack Obama for his campaign's assertion that the Republican may have committed a felony by misrepresenting his position at private equity firm Bain Capital.
'It's ridiculous,' Romney told Fox News in response to the charge. 'And of course it's beneath the dignity of the presidency and of his campaign.'
The Republican challenger has appeared flatfooted in beating back Democrats' accusations that he was involved in firing workers and outsourcing U.S. jobs to foreign countries while at Bain Capital.
Romney has slipped in opinion polls ahead of the November 6 election and his campaign added two Washington veterans to its media relations team on Friday after criticism from fellow Republicans for communications missteps.
Romney was booed by a mostly black audience at the NAACP annual convention this week and earlier gave out mixed messages about whether a key part of Obama's healthcare law does or does not create a new tax.
What drew Romney's ire on Friday was a charge from Obama deputy campaign manager Stephanie Cutter that he might have committed a felony by giving wrong information to the Securities and Exchange Commission about how long he spent at Bain.
Romney told ABC News that Obama 'needs to rein in these people who are running out of control.'
'He (Obama) sure as heck ought to say that he's sorry for the kinds of attacks that are coming from his team,' Romney said.
Romney was put on the spot by a Boston Globe newspaper report citing federal documents as showing he was listed as Bain CEO and sole shareholder in the three years to 2002, a time when he says he no longer ran the company.
The timing matters because Obama's campaign has accused him of being responsible for the firing of workers and bankruptcies at Bain-owned companies during those years.
White House spokesman Josh Earnest, traveling with Obama in Virginia, declined comment on Romney's demand for an apology.
MORE DISTRACTION
It was the latest issue to distract Romney from his focus on Obama's failure to reduce unemployment, running at 8.2 percent. He has struggled for the right messages on healthcare and immigration as the experienced Obama campaign based in Chicago maneuvers the news agenda better. Romney however has overtaken his rival in fundraising.
Two national polls this week showed Obama opening up a wider gap over his opponent. A Reuters/Ipsos survey had the former Massachusetts governor trailing the incumbent by 6 points, although other polls have them in a closer race.
Polls in swing states show negative portrayals of Romney as an out-of-touch rich man are working in Obama's favor.
Romney's campaign is considering announcing its choice for vice presidential running mate soon so as to win back some of the campaign momentum from the other team.
Former Secretary of State Condoleezza Rice's name surfaced briefly as a possible vice presidential pick but faded quickly as an aide said on Friday she was still not interested in the position.
Analysts said members of Romney's team might have floated the Rice speculation as a way to change the subject from the candidate's wealth and business history.
'I think this is a clever diversion by the Romney folks after what has clearly been an off week for them,' Republican strategist Ford O'Connell said.
The Obama campaign has orchestrated an intense focus on Romney's wealth, demanding he release many years of tax returns to explain whether he helped build his fortune through offshore bank accounts that avoided taxes.
'He continues to try and find some way to attack me other than to talk about policy. And it's time to talk about what it will take to get America working again,' Romney said.
Obama himself launched an attack on Friday, saying Romney should clarify whether he worked for Bain longer than previously described.
'Ultimately Mr. Romney, I think, is going to have to answer those questions, because if he aspires to being president one of the things you learn is, you are ultimately responsible for the conduct of your operations,' he told ABC television affiliate WJLA.
(Additional reporting by Patricia Zengerle; Editing by Alistair Bell and Lisa Shumaker)
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In a blitz of television interviews, Romney demanded an apology from President Barack Obama for his campaign's assertion that the Republican may have committed a felony by misrepresenting his position at private equity firm Bain Capital.
'It's ridiculous,' Romney told Fox News in response to the charge. 'And of course it's beneath the dignity of the presidency and of his campaign.'
The Republican challenger has appeared flatfooted in beating back Democrats' accusations that he was involved in firing workers and outsourcing U.S. jobs to foreign countries while at Bain Capital.
Romney has slipped in opinion polls ahead of the November 6 election and his campaign added two Washington veterans to its media relations team on Friday after criticism from fellow Republicans for communications missteps.
Romney was booed by a mostly black audience at the NAACP annual convention this week and earlier gave out mixed messages about whether a key part of Obama's healthcare law does or does not create a new tax.
What drew Romney's ire on Friday was a charge from Obama deputy campaign manager Stephanie Cutter that he might have committed a felony by giving wrong information to the Securities and Exchange Commission about how long he spent at Bain.
Romney told ABC News that Obama 'needs to rein in these people who are running out of control.'
'He (Obama) sure as heck ought to say that he's sorry for the kinds of attacks that are coming from his team,' Romney said.
Romney was put on the spot by a Boston Globe newspaper report citing federal documents as showing he was listed as Bain CEO and sole shareholder in the three years to 2002, a time when he says he no longer ran the company.
The timing matters because Obama's campaign has accused him of being responsible for the firing of workers and bankruptcies at Bain-owned companies during those years.
White House spokesman Josh Earnest, traveling with Obama in Virginia, declined comment on Romney's demand for an apology.
MORE DISTRACTION
It was the latest issue to distract Romney from his focus on Obama's failure to reduce unemployment, running at 8.2 percent. He has struggled for the right messages on healthcare and immigration as the experienced Obama campaign based in Chicago maneuvers the news agenda better. Romney however has overtaken his rival in fundraising.
Two national polls this week showed Obama opening up a wider gap over his opponent. A Reuters/Ipsos survey had the former Massachusetts governor trailing the incumbent by 6 points, although other polls have them in a closer race.
Polls in swing states show negative portrayals of Romney as an out-of-touch rich man are working in Obama's favor.
Romney's campaign is considering announcing its choice for vice presidential running mate soon so as to win back some of the campaign momentum from the other team.
Former Secretary of State Condoleezza Rice's name surfaced briefly as a possible vice presidential pick but faded quickly as an aide said on Friday she was still not interested in the position.
Analysts said members of Romney's team might have floated the Rice speculation as a way to change the subject from the candidate's wealth and business history.
'I think this is a clever diversion by the Romney folks after what has clearly been an off week for them,' Republican strategist Ford O'Connell said.
The Obama campaign has orchestrated an intense focus on Romney's wealth, demanding he release many years of tax returns to explain whether he helped build his fortune through offshore bank accounts that avoided taxes.
'He continues to try and find some way to attack me other than to talk about policy. And it's time to talk about what it will take to get America working again,' Romney said.
Obama himself launched an attack on Friday, saying Romney should clarify whether he worked for Bain longer than previously described.
'Ultimately Mr. Romney, I think, is going to have to answer those questions, because if he aspires to being president one of the things you learn is, you are ultimately responsible for the conduct of your operations,' he told ABC television affiliate WJLA.
(Additional reporting by Patricia Zengerle; Editing by Alistair Bell and Lisa Shumaker)
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TSX rises as commodities rally on China data
TORONTO (Reuters) - Canada's main stock index rose in early trade on Friday, led higher by mining and energy shares, as risk sentiment improved after data from China showed the world's No. 2 economy slowed in the second quarter but avoided a dramatic slowdown.
The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> was up 53.58 points, or 0.5 percent, at 11,479.05, shortly after the open.
(Reporting by Jon Cook; Editing by James Dalgleish)
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The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> was up 53.58 points, or 0.5 percent, at 11,479.05, shortly after the open.
(Reporting by Jon Cook; Editing by James Dalgleish)
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Copper hits 1-wk high after China GDP data
LONDON (Reuters) - Copper rose on Friday after briefly hitting a one-week high as data showed China's economy grew at its slowest rate in three years in the second quarter, but maintained a pace that is not expected to undermine fragile global growth.
China's economy grew 7.6 percent in the April-June quarter from a year earlier. The number was in line with market forecasts, however, giving investors some relief even as it left full-year growth on course for its softest showing since 1999.
The world's top copper consumer also released June reports for fixed asset investment and retail sales, both of which slightly exceeded forecasts.
For a column on China data click:
Three-month copper on the London Metal Exchange rose to $7,666.75 per tonne, its highest since July 6. It was later trading up 1.22 percent at $7,646.50 per tonne by 0906 GMT, on track for a slight 0.6 percent gain for the week.
'I don't think anybody has taken this data positively. Most of the negative risk was already priced, we knew China is slowing down so there is no surprise and (besides) it was better than feared,' said Commerzbank analyst Eugen Weinberg.
Looking forward, he said: 'I think we will bottom out. The future is bright for China. OK Europe is a disaster and U.S. growth has slowed (but) its in the price and central banks (will likely) try counter the trend with more liquidity.'
European Central Bank policymakers held out the possibility on Thursday of taking further measures to boost the flagging euro zone economy after a cut in their deposit rate to zero showed no sign of jolting banks into lending out more money.
Copper came under pressure earlier in the week, however, after minutes from the U.S. Federal Reserve meeting showed the health of the world's biggest economy might need to weaken further before the central bank will launch a new quantitative easing program.
INVESTORS SEEN CAUTIOUS
Overall investors were still expected to stay cautious, even if many market participants expected Beijing would continue introducing more measures to maintain growth, which should help support copper prices.
'I think China should be able to hit 8 percent GDP growth this year although the economy should continue to be weak in the second half of the year,' said Orient Futures derivatives department director Andy Du. Beijing's official full-year target for economic growth is 7.5 percent.
Europe remained a drag on metals markets, however.
Moody's surprised investors earlier by downgrading Italy's government bond rating by two notches to Baa2 and warned it could cut it further, piling on pressure just hours before the euro zone third-largest economy launches its latest bond sale.
Euro zone market strains eased somewhat after Spain unveiled more austerity steps and euro zone finance ministers agreed to grant Madrid the first batch of bailout funds for its troubled banks by the end of July, but pressures could rise after Moody's downgrade.
In other metals traded, soldering metal tin rose 0.95 percent to $18,675 a tonne, while zinc, used in galvanizing rose 1.42 percent to $1,869.25 a tonne.
Zinc producer Nyrstar said late on Thursday it was looking into a A$350 million redevelopment of its Australian Port Pirie smelter into a metals recovery facility to extend its processing capabilities.
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China's economy grew 7.6 percent in the April-June quarter from a year earlier. The number was in line with market forecasts, however, giving investors some relief even as it left full-year growth on course for its softest showing since 1999.
The world's top copper consumer also released June reports for fixed asset investment and retail sales, both of which slightly exceeded forecasts.
For a column on China data click:
Three-month copper on the London Metal Exchange rose to $7,666.75 per tonne, its highest since July 6. It was later trading up 1.22 percent at $7,646.50 per tonne by 0906 GMT, on track for a slight 0.6 percent gain for the week.
'I don't think anybody has taken this data positively. Most of the negative risk was already priced, we knew China is slowing down so there is no surprise and (besides) it was better than feared,' said Commerzbank analyst Eugen Weinberg.
Looking forward, he said: 'I think we will bottom out. The future is bright for China. OK Europe is a disaster and U.S. growth has slowed (but) its in the price and central banks (will likely) try counter the trend with more liquidity.'
European Central Bank policymakers held out the possibility on Thursday of taking further measures to boost the flagging euro zone economy after a cut in their deposit rate to zero showed no sign of jolting banks into lending out more money.
Copper came under pressure earlier in the week, however, after minutes from the U.S. Federal Reserve meeting showed the health of the world's biggest economy might need to weaken further before the central bank will launch a new quantitative easing program.
INVESTORS SEEN CAUTIOUS
Overall investors were still expected to stay cautious, even if many market participants expected Beijing would continue introducing more measures to maintain growth, which should help support copper prices.
'I think China should be able to hit 8 percent GDP growth this year although the economy should continue to be weak in the second half of the year,' said Orient Futures derivatives department director Andy Du. Beijing's official full-year target for economic growth is 7.5 percent.
Europe remained a drag on metals markets, however.
Moody's surprised investors earlier by downgrading Italy's government bond rating by two notches to Baa2 and warned it could cut it further, piling on pressure just hours before the euro zone third-largest economy launches its latest bond sale.
Euro zone market strains eased somewhat after Spain unveiled more austerity steps and euro zone finance ministers agreed to grant Madrid the first batch of bailout funds for its troubled banks by the end of July, but pressures could rise after Moody's downgrade.
In other metals traded, soldering metal tin rose 0.95 percent to $18,675 a tonne, while zinc, used in galvanizing rose 1.42 percent to $1,869.25 a tonne.
Zinc producer Nyrstar said late on Thursday it was looking into a A$350 million redevelopment of its Australian Port Pirie smelter into a metals recovery facility to extend its processing capabilities.
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Thursday, July 12, 2012
Brent slips below $101 as China GDP growth hits 3-yr low
SINGAPORE (Reuters) - Brent crude slipped below $101 a barrel on Friday as China grew at its slowest pace in three years, reinforcing fears that a global economic slowdown could hurt fuel demand.
China, the world's top energy consumer, grew at 7.6 percent in the second quarter from a year ago, its slowest pace since 2009, as it faces stiffening headwinds of economic uncertainty in its two biggest foreign markets -- the European Union and the United States.
Brent was down 37 cents at $100.70 a barrel by 0302 GMT. U.S. crude was at $85.87, down 21 cents.
'The market, at the moment, seems quite happy that the Chinese data weren't drastically lower,' said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.
'Weaker expectations have already been factored into the market,' he said, adding that investors will look ahead to more data out of the United States and Europe to take a pulse on global economic health.
China's refinery throughput fell for the third straight month in June as its economic growth slowed. The country was expected to account for nearly half the world's incremental oil demand, according to the International Energy Agency.
Analysts are hopeful that China's growth will pick up in the third quarter as Beijing further loosens monetary policy and fast-forwards infrastructure spending, boosting its demand for commodities.
OIL UP ON SUPPLY RISKS
Brent is set to post a third straight week of gains by the end of Friday after suffering in the second quarter its largest three-month loss since the 2008 financial crisis.
Oil rose after the euro zone debt resolution last month and as jitters over supply from Iran and the North Sea increased appetite among investors for riskier assets.
The United States ramped up pressure on Iran's ability to export oil on Thursday, identifying Tehran's main tanker firm and exposing dozens of its vessels as government-controlled entities. The measures aim at depriving Iran of oil revenue to pressure it to rein in its nuclear program, which Tehran maintains is solely for peaceful purposes.
Production upsets in the North Sea and a potential record-low export volume in August also supported Brent.
Britain's largest oilfield, Buzzard, suffered a glitch, causing its output to fall to as low as 50,000 barrels per day, or a quarter of its normal rate, earlier this week, traders said. It was unclear if production had returned to normal.
Forecasts of lower fuel demand growth in 2012-2013 due to a global slowdown capped oil prices.
The International Energy Agency said on Wednesday the global economic slowdown could put a lid on oil prices, but 'nasty supply surprises' could reignite a market rally.
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China, the world's top energy consumer, grew at 7.6 percent in the second quarter from a year ago, its slowest pace since 2009, as it faces stiffening headwinds of economic uncertainty in its two biggest foreign markets -- the European Union and the United States.
Brent was down 37 cents at $100.70 a barrel by 0302 GMT. U.S. crude was at $85.87, down 21 cents.
'The market, at the moment, seems quite happy that the Chinese data weren't drastically lower,' said Jonathan Barratt, chief executive of BarrattBulletin, a Sydney-based commodity research firm.
'Weaker expectations have already been factored into the market,' he said, adding that investors will look ahead to more data out of the United States and Europe to take a pulse on global economic health.
China's refinery throughput fell for the third straight month in June as its economic growth slowed. The country was expected to account for nearly half the world's incremental oil demand, according to the International Energy Agency.
Analysts are hopeful that China's growth will pick up in the third quarter as Beijing further loosens monetary policy and fast-forwards infrastructure spending, boosting its demand for commodities.
OIL UP ON SUPPLY RISKS
Brent is set to post a third straight week of gains by the end of Friday after suffering in the second quarter its largest three-month loss since the 2008 financial crisis.
Oil rose after the euro zone debt resolution last month and as jitters over supply from Iran and the North Sea increased appetite among investors for riskier assets.
The United States ramped up pressure on Iran's ability to export oil on Thursday, identifying Tehran's main tanker firm and exposing dozens of its vessels as government-controlled entities. The measures aim at depriving Iran of oil revenue to pressure it to rein in its nuclear program, which Tehran maintains is solely for peaceful purposes.
Production upsets in the North Sea and a potential record-low export volume in August also supported Brent.
Britain's largest oilfield, Buzzard, suffered a glitch, causing its output to fall to as low as 50,000 barrels per day, or a quarter of its normal rate, earlier this week, traders said. It was unclear if production had returned to normal.
Forecasts of lower fuel demand growth in 2012-2013 due to a global slowdown capped oil prices.
The International Energy Agency said on Wednesday the global economic slowdown could put a lid on oil prices, but 'nasty supply surprises' could reignite a market rally.
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Singapore's economy shrinks 1.1 percent in Q2
SINGAPORE (AP) - Singapore's economy shrank in the second quarter as a global slowdown undermined demand for the city-state's exports, the Trade and Industry Ministry said Friday.
Gross domestic product contracted at a seasonally-adjusted, annualized rate of 1.1 percent in the April to June period from the previous quarter, when it expanded 9.4 percent, the ministry said.
Manufacturing in the second quarter dropped 6 percent, reversing from 21 percent growth in the first quarter, while services grew just 0.4 percent and construction 0.3 percent, the ministry said.
Singapore relies on trade, finance and tourism to fuel one of the richest living standards in the world. The government expects the economy to grow as little as 1 percent this year, down from 4.9 percent growth last year.
The economy expanded 1.9 percent in the second quarter from the same period a year earlier, up slightly from 1.4 percent growth in the first quarter.
The GDP results released Friday were preliminary data mostly from April and May, the ministry said. The ministry is scheduled to release more comprehensive results about the second-quarter economy next month.
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Gross domestic product contracted at a seasonally-adjusted, annualized rate of 1.1 percent in the April to June period from the previous quarter, when it expanded 9.4 percent, the ministry said.
Manufacturing in the second quarter dropped 6 percent, reversing from 21 percent growth in the first quarter, while services grew just 0.4 percent and construction 0.3 percent, the ministry said.
Singapore relies on trade, finance and tourism to fuel one of the richest living standards in the world. The government expects the economy to grow as little as 1 percent this year, down from 4.9 percent growth last year.
The economy expanded 1.9 percent in the second quarter from the same period a year earlier, up slightly from 1.4 percent growth in the first quarter.
The GDP results released Friday were preliminary data mostly from April and May, the ministry said. The ministry is scheduled to release more comprehensive results about the second-quarter economy next month.
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A look at economic developments around the globe
A look at economic developments and activity in major stock markets around the world Thursday:
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MADRID - The Spanish government's latest round of austerity measures failed to reassure investors and markets as the country's borrowing costs started to rise again.
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LONDON - Global stock markets declined on fears growth may slow in China and after U.S. Federal Reserve minutes indicated the central bank may not move as quickly as hoped to stimulate the country's economy.
Britain's FTSE 100 closed down just shy of 1 percent. France's CAC-40 shed 0.7 percent, while Germany's DAX fell 0.53 percent.
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TOKYO - In Asia, Japan's Nikkei 225 index fell 1.5 percent, while Hong Kong's Hang Seng dropped 2 percent.
South Korea's Kospi slid by 2.2 percent. China's Shanghai Composite gained 0.5 percent.
___
FRANKFURT, Germany - Banks have drastically cut the amount of money they hold overnight at the European Central Bank after it cut the interest rate on those deposits to zero.
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DUBLIN, Ireland - Ireland is making good progress in its attempts to wean itself off its international bailout and start paying its own way, according to the country's debt inspectors.
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LISBON, Portugal - Portuguese doctors are staging a 48-hour strike to protest austerity measures they say are weakening the country's publicly funded health service.
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SYDNEY - Australia's unemployment rate hit 5.2 percent in June, up a tenth of a percentage point from the month before.
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MANILA, Philippines - The Asian Development Bank cut growth forecast for developing Asia, citing Europe's worsening financial crisis, sluggish recovery in the U.S. and slower growth in China and India.
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SEOUL, South Korea - South Korea's central bank unexpectedly lowered its key interest rate, in an attempt to guard Asia's fourth-largest economy from Europe's persistent debt woes and slowing growth in China.
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___
MADRID - The Spanish government's latest round of austerity measures failed to reassure investors and markets as the country's borrowing costs started to rise again.
___
LONDON - Global stock markets declined on fears growth may slow in China and after U.S. Federal Reserve minutes indicated the central bank may not move as quickly as hoped to stimulate the country's economy.
Britain's FTSE 100 closed down just shy of 1 percent. France's CAC-40 shed 0.7 percent, while Germany's DAX fell 0.53 percent.
___
TOKYO - In Asia, Japan's Nikkei 225 index fell 1.5 percent, while Hong Kong's Hang Seng dropped 2 percent.
South Korea's Kospi slid by 2.2 percent. China's Shanghai Composite gained 0.5 percent.
___
FRANKFURT, Germany - Banks have drastically cut the amount of money they hold overnight at the European Central Bank after it cut the interest rate on those deposits to zero.
___
DUBLIN, Ireland - Ireland is making good progress in its attempts to wean itself off its international bailout and start paying its own way, according to the country's debt inspectors.
___
LISBON, Portugal - Portuguese doctors are staging a 48-hour strike to protest austerity measures they say are weakening the country's publicly funded health service.
___
SYDNEY - Australia's unemployment rate hit 5.2 percent in June, up a tenth of a percentage point from the month before.
___
MANILA, Philippines - The Asian Development Bank cut growth forecast for developing Asia, citing Europe's worsening financial crisis, sluggish recovery in the U.S. and slower growth in China and India.
___
SEOUL, South Korea - South Korea's central bank unexpectedly lowered its key interest rate, in an attempt to guard Asia's fourth-largest economy from Europe's persistent debt woes and slowing growth in China.
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S.African factory output unexpectedly higher in May
The Reserve Bank has kept rates at three-decade lows since late 2010 but some analysts believe it might have to give domestic growth more stimulus as a global downturn hurts exports while inflation is seen staying within target until 2014.
Growth in manufacturing production, which accounts for about 15 percent of GDP, outpaced forecasts at 4.2 percent year-on-year in volume terms in May, after rising by 1.1 percent in April, Statistics South Africa said.
The median consensus among economists polled by Reuters was for factory output to grow by 1.0 percent in May.
But the outlook for the rest of the year remains gloomy, with sales to Europe, South Africa's main trading partner, waning as the region struggles with the impact of its debt crisis.
'(The May data) is encouraging but I don't unfortunately think it's very revealing about what lies ahead because the global situation actually deteriorated so it catches us with a lag,' said Nicky Weimar, a senior economist at Nedbank.
'The third quarter is probably going to be weaker than this number suggests.'
May's increase in factory output was mainly due to higher output in food and beverages, vehicles and accessories, transport equipment, and petroleum and chemical products, the statistics agency said.
On a month-on-month basis, production rose by a seasonally adjusted 2.7 percent, but contracted by 0.9 percent in the three months to May compared with the previous three months.
The rand recouped some of its earlier losses against the dollar, and was trading at 8.3450 compared with 8.3545 prior to release of the data at 1100 GMT.
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Industrial production increases in euro area
BRUSSELS (AP) - Industrial production in the European Union, an important predictor of future economic growth, rose in May compared to the month before, but was still significantly lower than it was a year earlier, the region's statistics agency announced Thursday,
Eurostat reported Thursday that seasonally adjusted industrial production rose 0.6 percent in the 17-country euro area and 0.5 percent in the full 27-country EU. However, the figure was down 2.8 percent from May 2011 in the euro area and down 2.3 percent in the full EU.
The industrial sector includes manufacturing, mining and utilities. Although the sector represents a small portion of gross domestic product, it is considered an important indicator of future growth in GDP.
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Eurostat reported Thursday that seasonally adjusted industrial production rose 0.6 percent in the 17-country euro area and 0.5 percent in the full 27-country EU. However, the figure was down 2.8 percent from May 2011 in the euro area and down 2.3 percent in the full EU.
The industrial sector includes manufacturing, mining and utilities. Although the sector represents a small portion of gross domestic product, it is considered an important indicator of future growth in GDP.
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Australian unemployment up to 5.2%
The Australian Bureau of Statistics said the seasonally-adjusted jobless rate increased from 5.1 percent in May as full-time employment dropped sharply and the number of people seeking work also fell.
The headline rate was in line with expectations but the number of jobs lost was worse than predicted, with analysts forecasting 10,000.
Prime Minister Julia Gillard said the numbers remained robust compared with other advanced economies.
'By the standards of the world we continue to have a low unemployment rate,' she told reporters.
'When I sit at that G20 table and talk to my counterparts from around the world... they would literally do anything to have the same economic story and statistics as Australia.'
AMP chief economist Shane Oliver said full-time employment had been 'stagnant' since January and anecdotal evidence from the market pointed to 'softness ahead' for the economy.
The Australian dollar fell from US$1.0240 to $1.0211 on the data, which was seen as increasing the case for an interest rate cut.
Australia's central bank held the official interest rate steady at 3.50 percent this month following two rounds of cuts -- 50 basis points in May and 25 points in June -- in a bid to stimulate the economy.
Though robust mining exports to Asia have driven strong Australian growth, the associated lift to its dollar has hit local industries hard, with manufacturing, tourism and education suffering.
Retailers are also feeling the pinch, with confectionery company Darrell Lea going into administration this week, putting 700 jobs at risk, and department store Myer sacking 100 of its 13,000 workers Thursday.
The data reinforced what the government has described as a 'patchwork economy', with key mining states Western Australia and Queensland seeing a drop in unemployment from 3.8 to 3.5 percent and 5.7 to 5.3 percent respectively.
Unemployment crept up in all other states, particularly Tasmania (6.5 to 7.4 percent) and South Australia (5.2 to 6.4 percent).
The government has forecast unemployment to hit 5.5 percent in the financial year to June 30, 2013.
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Wednesday, July 11, 2012
Shares slump after S.Korea rate cut, Australia jobs data
Minutes from a Federal Reserve meeting in June, released on Wednesday, showed conditions may need to worsen before policymakers ease monetary policy further to stimulate the U.S. economy, while U.S. corporate profit warnings and weak results in Europe have fed expectations for a depressing earnings season.
European stocks were likely to decline, with financial spreadbetters calling the main indexes in London <.FTSE>, Paris <.FHCI> and Frankfurt <.GDAXI> to open down as much as 0.7 percent. U.S. stock futures were down 0.3 percent. <.EU> <.L> <.N>
The decision by South Korea's central bank to cut rates for the first time in more than three years follows a raft of rate cuts over the past week from Europe to Brazil and China aimed at ameliorating the impact of the euro zone's debt crisis.
'There are still worries in European markets and foreign markets but it seems BOK (Bank of Korea) decided it is necessary to join in the efforts with the recent movements by China and other countries,' said Kong Dong-rak, fixed-income analyst at Taurus Investment & Securities.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> slumped 1.6 percent to a new low for the month. Australian shares <.AXJO> extended their losses after the jobs data to fall 0.7 percent.
Hong Kong shares <.HSI> led the region's decline with a 1.8 percent fall, with investors wary about China's second-quarter gross domestic product report due on Friday which is likely to show the slowest growth in more than three years.
A senior economist at the cabinet's think-tank said on Thursday China's economy may have grown nearly 8 percent in the first half of 2012 from a year earlier, and will recover steadily in the second half as policy stimulus gains traction.
Japan's Nikkei average <.N225> fell 1.5 percent. <.T>
Australian employment fell by 27,000 in June against a flat outcome forecast, a surprisingly weak result that also sent the Australian dollar down half a cent and led investors to price in a greater chance of further cuts in interest rates.
'Any deterioration in the labor market... means an easing bias is still in,' said Michael Blythe, chief economist at Commonwealth Bank.
The Fed's minutes lifted the dollar index <.DXY>, measured against a basket of key currencies, to a two-year high of 83.61 and pushed the euro to a two-year low of $1.2212. In Asia time, the dollar index eased 0.1 percent while the euro steadied.
Brent crude held above $100 a barrel while U.S. crude erased earlier gains to fall 0.4 percent to $85.51.
BOJ TWEAKS TECHNICALS
The Bank of Japan kept interest rates steady on Thursday but tweaked its asset-buying program to ensure smooth buying of short-term securities.
Japan's 10-year government bond futures hit a nine-year high as the BOJ's decision spurred expectations the step would further push down the yield curve led by short-term maturities.
'The tweaks are mainly aimed at fulfilling the BOJ's asset buying scheme which was strengthened earlier this year and ensure that liquidity is fed to the system,' said Izuru Kato, chief economist at Totan Research in Tokyo.
'Also, the focus on shorter securities may suggest the BOJ's reluctance to boost demand for longer-dated bonds and push yields even lower, which in turn would hurt banks' income,' he said.
The BOJ has been struggling to get sufficient demand for its funding operations due to weak demand.
While Europe made a small step forward on Wednesday with Spain unveiling new austerity measures, it still skirted around a key issue of creating a structure to cap surging borrowing costs in struggling euro zone member states.
Investors were showing no sign of departing from safe assets yet, snapping up U.S. and German government bonds at or near record low yields.
Japanese data showed foreign investors bought a net 1.54 trillion yen in short-term bills in the week to July 7, nearly double the amount in the previous week. Foreigners have been net buyers of short-term Japanese government bills for a third week in a row.
Falling yields on sovereign debts may spur demand for credit products, as reflected in firmness in Asian credit markets, which defied declines elsewhere. The spread on the iTraxx Asia ex-Japan investment-grade index was 3 basis points tighter.
'With government bond yields falling globally, investor interest for credit investment is growing to chase higher returns,' said Mana Nakazora, chief credit analyst at BNP Paribas in Tokyo.
(Additional reporting by Christine Kim and Choonsik Yoo in Seoul and Wayne Cole in Sydney; Editing by Richard Borsuk)
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Business events scheduled for Thursday
Major business events and economic events scheduled for Thursday:
WASHINGTON - Labor Department releases weekly jobless claims, 8:30 a.m.
WASHINGTON - Freddie Mac, the mortgage company, releases weekly mortgage rates, 10 a.m.
WASHINGTON - Treasury releases federal budget for June, 2 p.m.
Google Inc. releases quarterly results.
ROME - Italy sells government bonds in a test of market sentiment
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WASHINGTON - Labor Department releases weekly jobless claims, 8:30 a.m.
WASHINGTON - Freddie Mac, the mortgage company, releases weekly mortgage rates, 10 a.m.
WASHINGTON - Treasury releases federal budget for June, 2 p.m.
Google Inc. releases quarterly results.
ROME - Italy sells government bonds in a test of market sentiment
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Global stocks mixed as focus switches to US Fed
In early trading in Europe, Britain's FTSE 100 was down 0.27 percent at 5,648.75. France's CAC-40 shed 0.57 percent to 3,157.06, while Germany's DAX rose slightly 0.02 percent to 6,439.36.
'Some large international investors have declared publicly they are shunning eurozone investments altogether,' said Monument Securities Analyst Stephen Lewis. 'Their asset reallocations are presumably contributing to downward pressure on (government bond) yields in US and UK markets, among others.'
After falls Tuesday, Wall Street was set to recover modestly Wednesday with Dow Jones industrial average opening down up 0.32 percent at 12,611 and the S&P 500 off slightly, 0.09 percent also 0.19 percent higher at 1,339.
With second-quarter corporate earnings beginning to trickle in amid low expectations, attention will focus on whether the U.S. Federal Reserve is likely to follow the European Central Bank and the People's Bank of China in easing policy via another round of Treasury bond purchases known as quantitative easing.
'The eurozone needs dramatic action to stop the downward spiral,' said Jan Amrit Poser, chief economist at Bank Sarasin. 'The economic cycle in the rest of the world hinges substantially on such intervention, but accompanying actions by central banks in the U.S. and emerging economies are also needed to halt an impending downturn.'
Analysts will be combing the minutes of the latest Fed meeting, scheduled to be released later Wednesday, for hints of the central bank's view on the economy and possible policy moves.
Corporations are striking a negative tone, with Advanced Micro Devices saying Tuesday that weaker sales in China and Europe led to an 11 percent drop in revenue in the April to June period. The company had previously forecast a gain of 3 percent. In Britain, retailer Marks & Spencer reported a 2.8 percent drop in sales. Aluminum maker Alcoa beat earnings expectations Monday, but sales fell 9 percent. JPMorgan and Google report results later this week.
Meanwhile, Europe's debt crisis has wounded investor and consumer confidence, and some of the region's countries, such as Greece and Spain, are in deep recession.
Fiscal stimulus is not on the cards for European governments who are cutting spending instead. Spain's Prime Minister Mariano Rajoy announced a new round of spending cuts on Wednesday. Earlier this week European finance ministers promised the country ?30 billion by the end of the month to prop up its weak banks, but Germany's constitutional court said Tuesday it won't decide whether Europe's bailout fund is legal for months.
'Once again these events have highlighted that the crisis in Europe owes a lot to issues regarding governance and underpins the worry that the pace of movement towards greater fiscal ties within the Eurozone will be disappointingly slow,' said Rabobank foreign exchange analyst Jane Foley.
The euro hit year lows against the dollar Tuesday and has only recovered marginally, up 0.28 percent to $1.2281.
Japan's Nikkei 225 index fell 0.1 percent to 8,851.00 ahead of a meeting of the Central Bank of Japan, while Hong Kong's Hang Seng added 0.1 percent at 19,419.87.
Benchmark oil for August delivery was up 67 cents at $84.58 a barrel in electronic trading on the New York Mercantile Exchange. Crude dropped $2.08 to settle at $83.91 on Tuesday in New York.
In currencies, the dollar dropped to 79.25 yen from 79.45 yen.
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Diversifying Mauritius sees steady investment flows in 2012
PORT LOUIS (Reuters) - Mauritius expects this year's foreign direct investments to at least match those of 2011 despite the global slowdown, with money flowing into a new range of sectors of the diversifying Indian Ocean island economy.
Maurice Lam, chairman of the Board of Investment, told Reuters the FDI target for this year was 10 billion rupees, slightly up from last year's 9.5 billion rupees.
Famed for its white sand beaches and luxury spas, Mauritius is shifting an economy traditionally focused on sugar, textiles and tourism more towards offshore banking, business outsourcing, luxury real estate and medical tourism.
Lam said the global economic downturn was affecting investment marketing, but based on a slight year on year rise in foreign direct investment over the first six months, he was confident the 2012 total would match last year's.
'I have asked the people of the BOI to double their efforts in order to be able to match last year's performance given the global economic context,' Lam said.
'We should bear in mind that there will be a shift in the amount of FDI as more investments flow into the light engineering, education and health care sectors.'
Mauritius, which pitches itself as a bridge between Africa and Asia, is looking to the likes of Japan and South Korea for new investors.
The Bank of Mauritius said in June foreign direct investment
rose 15.5 percent to 1.598 billion rupees in the first quarter, led by the real estate and construction sectors.
South Africa was the main source of FDI, followed by France.
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Maurice Lam, chairman of the Board of Investment, told Reuters the FDI target for this year was 10 billion rupees, slightly up from last year's 9.5 billion rupees.
Famed for its white sand beaches and luxury spas, Mauritius is shifting an economy traditionally focused on sugar, textiles and tourism more towards offshore banking, business outsourcing, luxury real estate and medical tourism.
Lam said the global economic downturn was affecting investment marketing, but based on a slight year on year rise in foreign direct investment over the first six months, he was confident the 2012 total would match last year's.
'I have asked the people of the BOI to double their efforts in order to be able to match last year's performance given the global economic context,' Lam said.
'We should bear in mind that there will be a shift in the amount of FDI as more investments flow into the light engineering, education and health care sectors.'
Mauritius, which pitches itself as a bridge between Africa and Asia, is looking to the likes of Japan and South Korea for new investors.
The Bank of Mauritius said in June foreign direct investment
rose 15.5 percent to 1.598 billion rupees in the first quarter, led by the real estate and construction sectors.
South Africa was the main source of FDI, followed by France.
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Beijing sells a land parcel at record high price
BEIJING (Reuters) - City authorities in Beijing have sold at a record high of more than 40,000 yuan ($6,300) a square meter in an auction where they capped the winning price to keep it from going too high.
Tuesday's auction may fuel expectations that rising land costs will drive up home prices again, which in turn could make it harder for Chinese authorities to ease monetary policy to combat slowing economic growth.
Zhonghao Group, a private developer, beat about 10 rivals and bought the land in a heated auction for 2.63 billion yuan, a cap that local authorities applied to the sale, the state-owned Economic Information Daily reported.
The newspaper, run by the official Xinhua news agency, said the developer needs to build 16,400 square meters of 'affordable homes', which will be sold back to the local government for 10,000 yuan per square meter.
The other 61,600 square meters of the project will be kept by the private developer for selling at commercial rates. For that space, the developer paid an average of more than 40,000 yuan a square meter.
The plot is considered the last parcel in Beijing available for residential construction surrounded by apartments where the average sale-price is already more than 50,000 yuan per square meter.
The heated auction and record high price contrasted with an overall cool land market in the Chinese capital in the first half of 2012. In the second quarter, Beijing's land revenue halved from the previous three months to only 4.8 billion yuan, according to the Economic Information Daily.
However, both land and home prices showed signs of a pickup more recently after China launched fresh measures, including two interest rate cuts in less than a month, to boost the slowing economy, and despite Premier Wen Jiabao's reiteration that the government will maintain policies designed to cool property prices.
'At such a sensitive moment of China's property tightening campaign, the (auction's) high land price reminds people of a big surge in home prices in 2010 after land cost hit record highs one after another,' the newspaper said.
A private survey earlier this month showed China's average home prices snapped a nine-month losing streak and inched up in June.
Some developers are starting to replenish their land banks in markets where they have posted improving sales performance.
($1 = 6.3659 Chinese yuan)
(Reporting by Langi Chiang and Kevin Yao; Editing by Richard Borsuk)
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Tuesday's auction may fuel expectations that rising land costs will drive up home prices again, which in turn could make it harder for Chinese authorities to ease monetary policy to combat slowing economic growth.
Zhonghao Group, a private developer, beat about 10 rivals and bought the land in a heated auction for 2.63 billion yuan, a cap that local authorities applied to the sale, the state-owned Economic Information Daily reported.
The newspaper, run by the official Xinhua news agency, said the developer needs to build 16,400 square meters of 'affordable homes', which will be sold back to the local government for 10,000 yuan per square meter.
The other 61,600 square meters of the project will be kept by the private developer for selling at commercial rates. For that space, the developer paid an average of more than 40,000 yuan a square meter.
The plot is considered the last parcel in Beijing available for residential construction surrounded by apartments where the average sale-price is already more than 50,000 yuan per square meter.
The heated auction and record high price contrasted with an overall cool land market in the Chinese capital in the first half of 2012. In the second quarter, Beijing's land revenue halved from the previous three months to only 4.8 billion yuan, according to the Economic Information Daily.
However, both land and home prices showed signs of a pickup more recently after China launched fresh measures, including two interest rate cuts in less than a month, to boost the slowing economy, and despite Premier Wen Jiabao's reiteration that the government will maintain policies designed to cool property prices.
'At such a sensitive moment of China's property tightening campaign, the (auction's) high land price reminds people of a big surge in home prices in 2010 after land cost hit record highs one after another,' the newspaper said.
A private survey earlier this month showed China's average home prices snapped a nine-month losing streak and inched up in June.
Some developers are starting to replenish their land banks in markets where they have posted improving sales performance.
($1 = 6.3659 Chinese yuan)
(Reporting by Langi Chiang and Kevin Yao; Editing by Richard Borsuk)
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Tuesday, July 10, 2012
Oil price drops as China slows, Norway strike ends
NEW YORK (AP) - Oil prices tumbled Tuesday on further signs of an economic slowdown in China and after the government of Norway intervened to end a strike that threatened North Sea oil production.
Benchmark U.S. crude fell by $2.08, or 2.4 percent, to finish at $83.91 per barrel. Brent crude lost $2.35 to close at $97.97 per barrel in London.
China's June imports increased by about 6 percent. That is down from May's rate and worse than analysts had expected. Growth in exports slowed as well. China is the world's second biggest oil consumer behind the U.S. and if its economy slows it won't need to use as much energy.
'Crude imports into the country last month fell 14 percent from May to a seven-month low,' independent oil analyst Jim Ritterbusch said. Traders will closely watch China's second quarter GDP and industrial production numbers, due out at the end of the week, he said.
The threat of an industry shutdown in Norway ended Monday night after the government imposed binding arbitration on striking Statoil workers. That prevented a lockout that would have cut off about 1.6 million barrels a day of Brent crude. Brent is the benchmark used to price a variety of foreign oils, and many East Coast refineries use it to make gasoline.
There was also the chance that the strike would crimp supplies to major export markets, namely the U.K., the Netherlands, France and Germany, just as Europe puts in place an embargo on Iranian oil in a bid to curb its nuclear program.
'The resolution of the labor dispute in Norway is significant.' said energy trader and consultant Stephen Schork.
In the U.S., the Energy Department released its monthly Short-Term Energy Outlook on Tuesday. Among the highlights:
--- Benchmark U.S. crude is expected to average $88 per barrel in the second half of the year, down $7 from last month's outlook.
--- Retail gasoline is seen averaging $3.39 a gallon in the third quarter, $3.49 a gallon for the year and $3.28 per gallon in 2013.
--- U.S. crude oil production should average 6.3 million barrels per day, the highest production level since 1997. Production should rise to 6.7 million barrels per day next year.
On Wednesday the Energy Department releases its weekly report on the nation's crude oil supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill, estimate stocks will shrink by about 1.5 million barrels. That would be less than the five-year average draw of 3.7 million barrels for the comparable week. The amount of crude in storage is about 11 percent above the five-year average.
At the gas pump, the national average for a gallon of regular remained at $3.38 a gallon, according to AAA, Wright Express and Oil Price Information Service. That's about 5 cents higher than a week ago, but still around 25 cents lower than a year ago.
In other energy trading heating oil futures fell 3 cents to finish at $2.72 a gallon. Wholesale gasoline fell 1.25 cents to close at $2.75 a gallon. Natural gas lost 14 cents to finish at $2.737 per 1,000 cubic feet.
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Benchmark U.S. crude fell by $2.08, or 2.4 percent, to finish at $83.91 per barrel. Brent crude lost $2.35 to close at $97.97 per barrel in London.
China's June imports increased by about 6 percent. That is down from May's rate and worse than analysts had expected. Growth in exports slowed as well. China is the world's second biggest oil consumer behind the U.S. and if its economy slows it won't need to use as much energy.
'Crude imports into the country last month fell 14 percent from May to a seven-month low,' independent oil analyst Jim Ritterbusch said. Traders will closely watch China's second quarter GDP and industrial production numbers, due out at the end of the week, he said.
The threat of an industry shutdown in Norway ended Monday night after the government imposed binding arbitration on striking Statoil workers. That prevented a lockout that would have cut off about 1.6 million barrels a day of Brent crude. Brent is the benchmark used to price a variety of foreign oils, and many East Coast refineries use it to make gasoline.
There was also the chance that the strike would crimp supplies to major export markets, namely the U.K., the Netherlands, France and Germany, just as Europe puts in place an embargo on Iranian oil in a bid to curb its nuclear program.
'The resolution of the labor dispute in Norway is significant.' said energy trader and consultant Stephen Schork.
In the U.S., the Energy Department released its monthly Short-Term Energy Outlook on Tuesday. Among the highlights:
--- Benchmark U.S. crude is expected to average $88 per barrel in the second half of the year, down $7 from last month's outlook.
--- Retail gasoline is seen averaging $3.39 a gallon in the third quarter, $3.49 a gallon for the year and $3.28 per gallon in 2013.
--- U.S. crude oil production should average 6.3 million barrels per day, the highest production level since 1997. Production should rise to 6.7 million barrels per day next year.
On Wednesday the Energy Department releases its weekly report on the nation's crude oil supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill, estimate stocks will shrink by about 1.5 million barrels. That would be less than the five-year average draw of 3.7 million barrels for the comparable week. The amount of crude in storage is about 11 percent above the five-year average.
At the gas pump, the national average for a gallon of regular remained at $3.38 a gallon, according to AAA, Wright Express and Oil Price Information Service. That's about 5 cents higher than a week ago, but still around 25 cents lower than a year ago.
In other energy trading heating oil futures fell 3 cents to finish at $2.72 a gallon. Wholesale gasoline fell 1.25 cents to close at $2.75 a gallon. Natural gas lost 14 cents to finish at $2.737 per 1,000 cubic feet.
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Spending on IT to hit $3.6 trillion this year: Gartner
The revised estimate by Gartner projects that IT spending will be slightly more than previously expected, climbing three percent from the prior year's tally.
'While the challenges facing global economic growth persist -- the eurozone crisis, weaker US recovery, a slowdown in China -- the outlook has at least stabilized,' said Gartner research vice president Richard Gordon.
'There has been little change in either business confidence or consumer sentiment in the past quarter, so the short-term outlook is for continued caution in IT spending.'
Investments in storing data or hosting computer services in the Internet 'cloud' and in telecom equipment and services were bright spots in the growth outlook, according to Gartner.
Companies were on track to spend a combined total of nearly $1.7 trillion on telecom services and $377 billion on telecom equipment in what would represent increases of 1.4 percent and 10.8 percent, respectively, from the prior year.
Researchers expected spending on public cloud services to grow from $91 billion last year to $207 billion by the year 2016.
'Business process as a service still accounts for the vast majority of cloud spending by enterprises, but other areas such as platform as a service, software as a service and infrastructure as a service are growing faster,' Gordon said.
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Italy eyes euro zone aid to ease debt pain
Prime Minister Mario Monti, who is under intense market pressure to shape up his economy and avoid being drawn into the center of the debt crisis, said Italy could be interested in tapping the euro zone's rescue fund for bond support.
'It would be hazardous to say that Italy would never use (this mechanism),' he said after a meeting of European finance ministers in Brussels. 'Italy may be interested.'
He is worried by a rise in Italian bond yields, which were slightly below 6 percent on Tuesday having bounced above the day before. A sustained period above that threshold could open the way to 7 percent, beyond which servicing costs are widely deemed unsustainable.
Monti's comments show the 2-1/2 year-old euro zone crisis risks engulfing Italy, the bloc's third-largest economy and a member of the Group of Seven economic powers that is widely viewed as too big to bail out.
Overnight, finance ministers outlined an aid package for Spain - the euro zone's fourth-largest economy - but they struggled to convince markets it would help stabilize the bloc.
The ministers agreed to grant Madrid an extra year until 2014 to reach its deficit reduction targets in exchange for further budget savings. They also set the parameters of an aid package for Spain's ailing banks.
The decisions were aimed at preventing Spain, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.
Markets were disappointed the meeting did not offer more. The euro initially traded near a two-year trough against the dollar and hit a five-week low versus the yen, with sentiment edgy as the focus shifted to a German court hearing.
Germany's top court also addressed whether Europe's new bailout fund and budget rules are compatible with national law in a process influencing not just how to tackle the euro zone crisis, but how much deeper European integration can go.
The hearing into complaints about the fund, the European Stability Mechanism (ESM), and fiscal pact may indicate how long the court will keep Europe on tenterhooks.
Anything more than a few weeks would mean a serious delay to implementing the ESM, which has already been postponed from July 1, and raise serious doubts about whether Europe will really get the extra firepower it needs to combat the crisis.
'A considerable postponement of the ESM (bailout fund) which was foreseen for July this year could cause considerable further uncertainty on markets beyond Germany and a considerable loss of trust in the euro zone's ability to make necessary decisions in an appropriate timeframe,' German Finance Minister Wolfgang Schaeuble told the court.
Bundesbank President Jens Weidmann, a member of the ECB's policymaking Governing Council, went further and said a speedy ratification of the ESM fund and rules on budget discipline was no guarantee that the euro zone debt crisis would not worsen.
'A temporary ruling does not ensure that the risks can be comprehensively limited. Conversely, a quick ratification is no guarantee that the crisis will not escalate further,' Weidmann told the court.
Keeping up the pressure on Monti, the International Monetary Fund said Italy must continue down the road to reform the economy Monti began when he took over last year.
SPAIN AID
At their meeting overnight, euro zone finance ministers did not agree a final figure for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of 100 billion euros ($123 billion) and some 30 billion euros would be available by the end of July if there was an urgent need.
A final loan agreement will be signed on or around July 20, Eurogroup Chairman Jean-Claude Juncker told a news conference.
Luxembourg Finance Minister Luc Frieden said the 100 billion euros available to Spanish banks was much more than they needed.
'There's no emergency here, there's a clear path towards stabilization,' said Frieden. 'The markets have to realize that the money is there, more money than is necessary.'
In one key decision watched by investors, ministers agreed overnight that once a single European banking supervisor is set up next year, Spanish banks could be directly recapitalized from the euro zone rescue fund without requiring a state guarantee.
That fulfils an EU summit mandate to try to break a so-called 'doom loop' of mutual dependency between weak banks and over indebted sovereigns, but represented a climbdown for hardline north European creditor countries.
'It is a very, very positive agreement,' Spanish Economy Minister Luis de Guindos said on arrival for Tuesday's meeting.
The Eurogroup ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc's rescue funds to stabilize bond markets.
But differences persisted between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain.
On Monday, ECB President Mario Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.
GREECE SEEKS EXTENSION
EU finance ministers formally agreed on Tuesday to give Spain another year to bring its budget deficit down to within the EU's 3 percent of GDP ceiling, giving Madrid some oxygen, but even the new targets could be difficult to reach.
In a vote, ministers fixed Spain's deficit goals at 6.3 percent of GDP for this year, 4.5 percent for 2013 and 2.8 percent for 2014. Spain had originally been expected to reach the 3-percent level in 2013 and could face EU sanctions if it fails to meet its goals again.
Greece's new Finance Minister Yannis Stournaras told Reuters Television that he wanted to get his country's adjustment program back on track before requesting any kind of extension to a 130 billion-euro bailout from the EU and IMF.
Athens' second rescue envisages it returning to markets in 2015, but a five-year recession makes that look unlikely and the country may need more time to bring down its debt and regain investor confidence. Stournaras' stance appeared to mark a more measured tone. Last month the new Greek government said it wanted a two-year extension.
'We want to bring the program back on track and then we will see what kind of extension we can have,' he said. 'We have put forward the issue. The size of the recession justifies - as Spain got an extension - that we should get an extension.'
(Additional reporting by Paul Carrell, John O'Donnell, Francesca Landini, Daniel Flynn, Ilona Wissenbach and Ethan Bilby and Rex Merrifield.; Writing by Paul Taylor/Paul Carrel, editing by Jeremy Gaunt)
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Monday, July 9, 2012
Shares edge lower after weak China imports
China's imports rose 6.3 percent in June from a year ago, less than half the forecast of a 12.7 percent rise, while exports grew 11.3 percent on the year, faster than expectations for a 9.9 percent increase.
Demand for Chinese goods in June was well off the historical pace in part because the U.S. economy has not fully recovered, a senior Chinese customs official said on Tuesday.
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> gave up slight early gains to inch down 0.3 percent, after slumping 1.6 percent on Monday for its biggest daily loss in about a month.
Japan's Nikkei average <.N225> fell 0.1 percent, reversing a rise in the morning as the Chinese data weighed on the market. <.T>
Hong Kong and Shanghai shares also relinquished early gains, with Shanghai stocks <.SSEC> falling 0.3 percent and Hong Kong <.HSI> down 0.2 percent after the Chinese numbers. Both markets suffered their steepest drops in five weeks on Monday, after weaker-than-expected inflation data raised fears of softening consumer demand in China.
'The more worrying sign is the slowdown in imports ... It reinforces worries about the slowdown in the Chinese economy,' said Li Wei, an economist at Standard Chartered in Shanghai.
'As long as the country can maintain 5 to 10 percent growth in exports and imports, it will be able to keep a relatively healthy labor market. In the short term, the (stock) market will continue to see some downward pressure,' Li said.
The data so far will likely keep risk sentiment firmly in check, with China's second-quarter gross domestic product report due on Friday likely to show the lowest growth in at least three years.
The Chinese trade data pushed Australian shares into negative territory <.AXJO>, down 0.4 percent from up 0.2 percent prior to the release, while weighing on the Australian dollar, which eased to around $1.0170 from $1.0203.
China is Australia's single largest market and its currency is typically associated with investor risk appetite.
While the data did little to ease worries about fragile economic conditions around the world, it was not sufficient to decisively tip the risk balance towards a hard landing, said Hirokazu Yuihama, a senior strategist at Daiwa Securities.
'Firm exports suggest external demand, probably mainly in the United States, has emerged from its worst phase and is picking up, partially offsetting weak domestic demand,' Yuihama said.
'It's not a bad enough number to heighten the risk of a hard landing and is not likely to prompt much further selling in the markets, which have already priced in concerns over slowing growth,' he said.
EUROPE STANDS STILL
The euro, which hit a two-year low of $1.2225 in early Monday Asian trade, was down 0.2 percent at $1.2290.
Europe's three-year debt crisis has dragged down economic activity around the world, ushering in the current deterioration in global growth and undermining investor appetite for risk.
Euro zone ministers agreed early on Tuesday to grant Spain an extra year, until 2014, to reach its deficit reduction targets in exchange for further budget savings, and set the parameters of an aid package for Madrid's ailing banks.
But they remained far from pinning down details of bank rescues and emergency bond-buying that are of imminent concern to markets.
A surprise bare-bones agreement reached in late June to allow euro zone rescue funds to buy sovereign bonds issued by struggling states and to establish a European banking supervisor was aimed at breaking the link between banks and sovereigns.
But disappointment over a lack of swift follow-up action has pushed Spanish 10-year yields back above the 7 percent level, seen as unsustainable, and put upward pressure on yields in Italy and France.
'Markets have now repriced the linkage between the Spanish Sovereign and its banks, leading to jitters,' said Sebastian Galy, strategist at Societe General, adding that the euro still has the potential to fall further against the dollar regardless of short covering risk.
Oil fell after the Chinese data, retreating from Monday's rally, with U.S. crude down 1.3 percent at $84.87 a barrel.
Brent plunged 1.7 percent to $98.62 on the Chinese data and on Norway's government ordering a last-minute settlement on Monday in a dispute between striking oil workers and employers to alleviate market fears over a full closure of its oil industry and a steep cut in Europe's supplies.
(Editing by Edmund Klamann)
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EU gives Spain more time on deficit, sets bank aid
The decisions were aimed at preventing the currency area's fourth largest economy, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.
'The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014,' ministers said in a statement.
No final figure was agreed for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of 100 billion euros ($123 billion) and some 30 billion euros would be available by the end of July if there was an urgent need.
A final loan agreement will be signed on or around July 20, Eurogroup chairman Jean-Claude Juncker told a news conference.
In one key decision closely watched by investors, ministers agreed that once a single European banking supervisor is set up next year, Spanish banks could be directly recapitalized from the euro zone rescue fund without requiring a state guarantee.
That fulfils an EU summit mandate to try to break a so-called 'doom loop' of mutual dependency between weak banks and over indebted sovereigns, but represented a climb-down for hard-line north European creditor countries.
In a nine-hour marathon meeting ministers of the 17-nation euro zone also settled a series of long delayed appointments.
But they made no apparent progress on activating the bloc's rescue funds to intervene in bond markets to bring down the spiraling borrowing costs of Spain and Italy, which threaten to drive them out of the market.
The ministers reappointed Juncker as their chairman for a further term of up to 2-1/2 years, though Europe's longest-serving government leader said he intended to step down from the position at the end of this year or early in 2013.
They nominated another Luxembourger, inflation hawk Yves Mersch, to the vacant position on the European Central Bank's six-member executive board, and picked German Klaus Regling to head their permanent bailout fund, the European Stability Mechanism, due to come into force this month.
Regling had already set up and run the temporary European Financial Stability Facility which has funded rescues for Greece, Ireland and Portugal.
As ministers were meeting, a top ECB policymaker warned that Europe's debt crisis was now more acute than the 2008 financial turmoil that felled U.S. investment bank Lehman Brothers.
'The euro zone crisis is now much more profound and more fundamental than at the time of Lehman,' ECB Executive Board member Peter Praet told a conference in Lisbon.
The Eurogroup ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc's rescue funds to stabilize bond markets.
But differences persisted between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain.
Earlier, ECB President Mario Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.
A wider gathering of EU finance chiefs on Tuesday will formally ease a deficit reduction goal that has forced Madrid to make punishing cuts that are exacerbating a recession.
SLIPPAGE
Spanish and Italian borrowing costs continued to rise on Monday, with Spain's 10-year bond topping the critical 7 percent level.
Spanish Economy Minister Luis de Guindos spelled out to the euro zone ministers his government's plan for a package of up to 30 billion euros over several years through spending cuts and tax hikes that are due to be announced this Wednesday.
A source close to the Spanish government said 10 billion euros of cuts would come this year and that the measures would include a hike in VAT sales tax, reduced social security payments, reduced unemployment benefits and changes to pensions calculations.
The European Commission proposed in return easing Madrid's deficit goal for this year to 6.3 percent of economic output, 4.5 percent for 2013 and 2.8 percent for 2014.
European Economic and Monetary Affairs Commissioner Olli Rehn said Spain was expected to take additional savings measures very soon to ensure it meets its new targets.
The new targets may still prove hard to reach, according to a draft recommendation from European partners, loosening Spain's goals and demanding the country be subjected to three-monthly checks.
The figures highlighted Spain's dramatic fiscal slippage due to a worsening recession. Madrid was originally meant to cut its budget shortfall to 4.4 percent this year. Prime Minister Mariano Rajoy unilaterally changed the target to 5.8 percent in March before eventually accepting an agreed goal of 5.3 percent.
De Guindos said he was satisfied with the draft memorandum of understanding on the bank rescue, under which Spain will create a single bad bank to house toxic assets from its banking sector.
Spain and Italy continued to press for European action to put a cap on their borrowing costs.
'At this moment the only institution that has enough money to act is the ECB,' Spanish Foreign Minister Jose Manuel Garcia-Margallo said at a conference.
But ECB President Draghi told EU lawmakers the key to restoring market confidence was for countries in difficulty to fully implement promised structural reforms and stick to programmes agreed with Brussels and international lenders, even if they caused 'social tensions'.
He left the door open to a possible further cut in interest rates after last week's 25 basis point cut to 0.75 percent but voiced concern that the ECB was being expected to act 'in areas which don't seem to have a connection with monetary policy's traditional remit'.
The euro zone ministers also had a first discussion with new Greek Finance Minister Yannis Stournaras but made no decision on any change in Athens' draconian austerity programme, which is off track following June 17 elections.
Juncker said arrangements would be made to ensure a Greek debt repayment due in August did not plunge the country into bankruptcy.
'We will find solutions for August. There's no reason to worry about August,' he said without elaborating.
(Additional reporting by Paul Carrell, John O'Donnell, Francesca Landini, Daniel Flynn, Ilona Wissenbach and Ethan Bilby and Rex Merrifield.; Writing by Paul Taylor, editing by Mike Peacock)
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Highlights: ECB's Draghi at European Parliament
FRANKFURT (Reuters) - European Central Bank President Mario Draghi testified at the European Parliament's Economic and Monetary Affairs Committee on Monday.
Following are highlights of his comments. For the text of his statement, see http://www.ecb.int/press/key/date/2012/html/sp120709.en.html
ON INTEREST RATES, AFTER LAST WEEK'S CUT:
'Whether we are going to do more than that ... we have to look at what the situation is, look at the data and the developments and then we'll make up our minds in the Governing Council about what next actions we'll do.'
ON ECB'S ROLE IN ADJUSTMENT PROGRAMMES:
'Effective crisis resolution needs bold actions by central banks but it also needs bold actions by other policy actors, notably governments.
'Since finance assistance can only be temporary, the quality of the reforms and their implementation are absolutely essential.'
ON A LONGER-TERM VISION:
'Why do we still have tensions in a number of market segments? Let me first stress that a lot has been done at country as well as euro area level in terms of economic reforms and governance. But we still need full implementation. We have to make clear that EMU is a union based on stability at national and aggregate levels.
'The central message of that vision is this: the euro is here to stay - and the euro area will take the necessary steps to ensure that.'
ON EURO ZONE INTEGRATION:
'We need to move towards a further sharing of sovereignty in the fiscal, financial and economic domains. There can be no shortcuts in establishing a sound and stable EMU.'
ON REFORM IN THE EURO ZONE:
'Many governments have started in their reforms. I have said many times, compared to six months ago, in November last year when we were closest to a major credit accident, the world is a completely different one. Much progress has been achieved in the fiscal consolidation effort and in the reforms.
'So why are we not seeing the benefits of this? One reason has to do with the fact that the reforms have just started. This action is relatively recent. Much of this has been legislated and needs to be implemented.
'On the fiscal consolidation front, governments focused on fiscal consolidation efforts a lot on tax increases, which are the easiest thing to do in a hurry.'
ON BANKING UNION:
'Going back to the summit, I do think that this was a major step. The leaders' commitment to having a successful supervision was a strong one. And that's why we should expect a strong proposal from the Commission that would put the ECB in a position to carry out its duty with effectiveness, rigor, independence and without risk to its reputation.
'But how can we find an arrangement whereby we retain our monetary independence from the supervision. At the same time that we shouldn't forget that 14 out of 17 governors around the table at the ECB are supervisors, so there are extraordinary synergies, as I can testify.'
ON THE ECB'S ROLE IN CRISIS MANAGEMENT:
'In a normal situation where you don't have current account imbalances, where you don't have fragmentation of the euro area, where you don't have the need for structural reforms, and I can go on and on, where budgets are in order, then our mandate of ensuring price stability in the medium term for the whole of the euro area implies financial stability.
'But if you don't have such reforms, if you have unsustainable current account balances, if you have the fragmentation of the euro area, you can't have price stability as a by-product of financial stability.
'That is why the ECB role is more and more heard in areas which don't seem to have a connection with monetary policy's traditional remit. That is why the ECB needs to speak on certain issues.
'And it is not a situation that we enjoy, we have to do this.'
ON MORE EXTRAORDINARY CRISIS MEASURES, INTEREST RATES:
'The present condition of the euro zone is not due to interest rates being too high.
'As we realized that the inflation rate path is moving favorably from the viewpoint of price stability in the medium term, we thought it was a wise thing to lower interest rates in the last Governing Council.
'Whether we are going to do more than that: We never pre-commit. We have to look at what the situation is and then we will make up our minds.'
(Reporting by Sakari Suoninen, Marc Jones and Robin Emmott; Editing by Catherine Evans)
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Following are highlights of his comments. For the text of his statement, see http://www.ecb.int/press/key/date/2012/html/sp120709.en.html
ON INTEREST RATES, AFTER LAST WEEK'S CUT:
'Whether we are going to do more than that ... we have to look at what the situation is, look at the data and the developments and then we'll make up our minds in the Governing Council about what next actions we'll do.'
ON ECB'S ROLE IN ADJUSTMENT PROGRAMMES:
'Effective crisis resolution needs bold actions by central banks but it also needs bold actions by other policy actors, notably governments.
'Since finance assistance can only be temporary, the quality of the reforms and their implementation are absolutely essential.'
ON A LONGER-TERM VISION:
'Why do we still have tensions in a number of market segments? Let me first stress that a lot has been done at country as well as euro area level in terms of economic reforms and governance. But we still need full implementation. We have to make clear that EMU is a union based on stability at national and aggregate levels.
'The central message of that vision is this: the euro is here to stay - and the euro area will take the necessary steps to ensure that.'
ON EURO ZONE INTEGRATION:
'We need to move towards a further sharing of sovereignty in the fiscal, financial and economic domains. There can be no shortcuts in establishing a sound and stable EMU.'
ON REFORM IN THE EURO ZONE:
'Many governments have started in their reforms. I have said many times, compared to six months ago, in November last year when we were closest to a major credit accident, the world is a completely different one. Much progress has been achieved in the fiscal consolidation effort and in the reforms.
'So why are we not seeing the benefits of this? One reason has to do with the fact that the reforms have just started. This action is relatively recent. Much of this has been legislated and needs to be implemented.
'On the fiscal consolidation front, governments focused on fiscal consolidation efforts a lot on tax increases, which are the easiest thing to do in a hurry.'
ON BANKING UNION:
'Going back to the summit, I do think that this was a major step. The leaders' commitment to having a successful supervision was a strong one. And that's why we should expect a strong proposal from the Commission that would put the ECB in a position to carry out its duty with effectiveness, rigor, independence and without risk to its reputation.
'But how can we find an arrangement whereby we retain our monetary independence from the supervision. At the same time that we shouldn't forget that 14 out of 17 governors around the table at the ECB are supervisors, so there are extraordinary synergies, as I can testify.'
ON THE ECB'S ROLE IN CRISIS MANAGEMENT:
'In a normal situation where you don't have current account imbalances, where you don't have fragmentation of the euro area, where you don't have the need for structural reforms, and I can go on and on, where budgets are in order, then our mandate of ensuring price stability in the medium term for the whole of the euro area implies financial stability.
'But if you don't have such reforms, if you have unsustainable current account balances, if you have the fragmentation of the euro area, you can't have price stability as a by-product of financial stability.
'That is why the ECB role is more and more heard in areas which don't seem to have a connection with monetary policy's traditional remit. That is why the ECB needs to speak on certain issues.
'And it is not a situation that we enjoy, we have to do this.'
ON MORE EXTRAORDINARY CRISIS MEASURES, INTEREST RATES:
'The present condition of the euro zone is not due to interest rates being too high.
'As we realized that the inflation rate path is moving favorably from the viewpoint of price stability in the medium term, we thought it was a wise thing to lower interest rates in the last Governing Council.
'Whether we are going to do more than that: We never pre-commit. We have to look at what the situation is and then we will make up our minds.'
(Reporting by Sakari Suoninen, Marc Jones and Robin Emmott; Editing by Catherine Evans)
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Sunday, July 8, 2012
Global uncertainty to weigh on U.S. growth: Fed official
BANGKOK (Reuters) - Slow U.S. economic growth will probably continue for quite some time as firms postpone hiring and investment in the face of an uncertain global economy, a top Federal Reserve official said on Monday.
Boston Fed President Eric Rosengren, a dovish policymaker at the U.S. central bank, warned about the weak recovery in the U.S. labor market and the significant number of Americans who remain unemployed more than three years after the recession.
'Apparently, firms have become more tentative in the face of growing global economic uncertainties,' Rosengren was to tell the Sasin Bangkok Forum, according to prepared remarks.
But a quick resolution 'may remain elusive' for Europe's sovereign debt concerns, the large deficit problems in many countries, and for global banking problems, he said. 'This suggests that slow growth is likely to continue for quite some time.'
Last week, a handful of central banks including that of China and the euro zone took steps to ease monetary policy, reflecting growing alarm over the health of the world economy.
On Friday, a report showed U.S. jobs growth was tepid for a fourth straight month in June, which could put pressure on the Fed to ease policy even more. Last month, the central bank prolonged a bond maturity-extension program called Operation Twist through the end of the year.
Rosengren does not have a vote on the U.S. central bank's policy-setting committee this year but strongly endorses a strong Fed response to ratchet down the still-high 8.2 percent unemployment rate. He had pushed for the expansion of Twist.
'Significant excess capacity' remains in the U.S. labor market, and job growth has 'slowed fairly noticeably' in the last few months, the policymaker said on Monday.
While the Fed did not launch a third controversial round of large-scale bond buying - known as quantitative easing, or QE3 - as some expected last month, its policy-setting Federal Open Market Committee (FOMC) did lower expectations for U.S. growth and inflation, and raised that of unemployment.
Lower commodity prices, a stronger dollar, and subdued labor costs led Fed policymakers to adjust the 2012 inflation adjustment, Rosengren said.
The policymaker added that he is personally 'more pessimistic' on the economy than the FOMC. He said he expects inflation at roughly 1.2 percent in 2012; lower GDP growth than the FOMC's 1.9-2.4 percent range; and higher unemployment than the FOMC's 8.0-8.2 percent range.
'My pessimism is rooted in an expectation of weakness in investment, net exports, and government spending,' including 'concerns about economic and financial conditions in Europe,' Rosengren said.
More broadly, economic activity is slowing in many parts of the world, including in the United States and China, while 'it looks like Europe is in a recession,' Rosengren added.
'This likely reflects a widespread concern that global trade may be disrupted if there is an international financial shock, and that businesses are postponing hiring and investment decisions until the global outlook is more certain.'
(Reporting by Orathai Sriring and Alan Raybould in Bangkok; Writing by Jonathan Spicer in New York; Editing by Chizu Nomiyama)
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Boston Fed President Eric Rosengren, a dovish policymaker at the U.S. central bank, warned about the weak recovery in the U.S. labor market and the significant number of Americans who remain unemployed more than three years after the recession.
'Apparently, firms have become more tentative in the face of growing global economic uncertainties,' Rosengren was to tell the Sasin Bangkok Forum, according to prepared remarks.
But a quick resolution 'may remain elusive' for Europe's sovereign debt concerns, the large deficit problems in many countries, and for global banking problems, he said. 'This suggests that slow growth is likely to continue for quite some time.'
Last week, a handful of central banks including that of China and the euro zone took steps to ease monetary policy, reflecting growing alarm over the health of the world economy.
On Friday, a report showed U.S. jobs growth was tepid for a fourth straight month in June, which could put pressure on the Fed to ease policy even more. Last month, the central bank prolonged a bond maturity-extension program called Operation Twist through the end of the year.
Rosengren does not have a vote on the U.S. central bank's policy-setting committee this year but strongly endorses a strong Fed response to ratchet down the still-high 8.2 percent unemployment rate. He had pushed for the expansion of Twist.
'Significant excess capacity' remains in the U.S. labor market, and job growth has 'slowed fairly noticeably' in the last few months, the policymaker said on Monday.
While the Fed did not launch a third controversial round of large-scale bond buying - known as quantitative easing, or QE3 - as some expected last month, its policy-setting Federal Open Market Committee (FOMC) did lower expectations for U.S. growth and inflation, and raised that of unemployment.
Lower commodity prices, a stronger dollar, and subdued labor costs led Fed policymakers to adjust the 2012 inflation adjustment, Rosengren said.
The policymaker added that he is personally 'more pessimistic' on the economy than the FOMC. He said he expects inflation at roughly 1.2 percent in 2012; lower GDP growth than the FOMC's 1.9-2.4 percent range; and higher unemployment than the FOMC's 8.0-8.2 percent range.
'My pessimism is rooted in an expectation of weakness in investment, net exports, and government spending,' including 'concerns about economic and financial conditions in Europe,' Rosengren said.
More broadly, economic activity is slowing in many parts of the world, including in the United States and China, while 'it looks like Europe is in a recession,' Rosengren added.
'This likely reflects a widespread concern that global trade may be disrupted if there is an international financial shock, and that businesses are postponing hiring and investment decisions until the global outlook is more certain.'
(Reporting by Orathai Sriring and Alan Raybould in Bangkok; Writing by Jonathan Spicer in New York; Editing by Chizu Nomiyama)
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Miliband calls for two new national banks
The proposal comes as politicians argue over how best to respond to an interest rate rigging scandal that reignited public anger towards banks which many people blame for sinking the economy into recession.
'Let's break the dominance of the big five banks. Let's turn five into at least seven so there is proper choice for the consumer,' Labour's Miliband is expected to say on Monday, according to text of his speech released in advance.
'The quickest way to do that is to force existing banks to sell off hundreds more branches to create the space needed for a challenger to thrive.'
For years, the country's banking system has been dominated by a handful of large lenders but many individuals and small companies say they are unable to access credit.
New entrants have already begun to emerge in the wake of the 2008 financial crisis, looking to fill the gap as the big banks focus on shrinking their balance sheets and building up capital reserves to meet new regulations
Although a fraction of the size of the top banks, challengers such as Metro Bank, Virgin Money and Aldermore have emerged while the planned sale of over 600 branches by Lloyds to the Co-operative Group will create a competitor with 7 percent of the total market for current accounts in the country.
Despite that, Miliband is expected to demand support for a probe into competition in banking to be brought forward to 2013. Britain's retail banking industry is dominated by Lloyds, RBS, Barclays, HSBC and Santander.
He will also promote support for customer-owned financial services firms. Britain said on Friday it was prepared to relax lending and funding requirements to make it easier for building societies to lend to small businesses.
'The revelations of the last two weeks have shown precisely what has gone wrong with our economy in the last decades. And the test of whether we can change things now starts with our banks,' Miliband will say.
The coalition government plans to flood the nation's banking system with more than 100 billion pounds of cheap funding as it seeks to pump credit through an economy struggling to escape recession amid the euro zone crisis.
Miliband will say it needs to go further and create a 'British Investment Bank' to provide loans for small companies and infrastructure and offer the credit which banks are failing to do.
'Our banking system is letting down our small businesses. Every other major country understands that government needs to act to tackle this. It's time that British business stopped having to compete with one hand tied behind its back,' he will say.
Miliband will also propose that a specialist banking crime unit be set up within the state Serious Fraud Office with the remit of investigating serious financial services fraud such as the rigging of the London Interbank Offered Rate (Libor). (Editing by Robin Pomeroy)
Italy PM: include non-euro states in European integration
'I'm a bit uncertain whether we should really try to pursue a more cohesive European economic and political process simply based on the euro zone,' Monti told a conference in Aix-en-Provence, in southern France.
'I know in France that is a widely held view, but I have reservations. It would be best not to isolate ourselves too much from the other parts of the European Union,' he said.
(Reporting by Leigh Thomas and Michel Rose; Editing by Erica Billingham)
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China's premier warns of further economic slowdown
Companies and investors are closely watching the world's second-largest economy for signs of a further slowdown which could have global repercussions by hurting Chinese demand for goods from the United States, Europe and other struggling economies.
'The economy is running at a generally stable pace, but there is still huge pressure for it to go downward,' the official Xinhua News Agency paraphrased Wen, the country's top economic official, as saying during a weekend visit to eastern China.
The government has cut interest rates twice in a month, reduced gasoline prices and promised more spending on low-cost housing and other public works to revive growth that fell to a nearly three-year low of 8.1 percent in the first quarter.
Despite that, forecasters expect data due out this week to show that growth fell as low as 7.3 percent in the second quarter.
The slowdown raises the risk of job losses and unrest at a politically awkward time for the ruling Communist Party. It is trying to enforce calm ahead of a once-a-decade handover of power to younger leaders.
In his weekend remarks, Wen said government measures to boost economic growth were showing results, Xinhua reported. 'The economic slowdown is tending toward stability,' Xinhua paraphrased him as saying.
The government is trying to reduce reliance on exports and investments to drive growth by boosting domestic consumption. Wen said that is Beijing's 'fundamental standpoint' to improve the economy.
He said the government also is trying to diversify and promote stable export growth. The government has set a 10 percent growth target this year for trade, which the Commerce Ministry has said is achievable, barring unexpected setbacks in Europe or elsewhere.
Wen promised to 'fine-tune economic policies,' according to Xinhua, but no details or new initiatives were reported. He said the government will press ahead with changes in the tax system that should reduce the burden on many taxpayers, but gave no timetable.
On the same visit, Wen also vowed that the recent interest rate cut aimed at stimulating economic growth will not ignite a new bout of real estate speculation that would push up housing costs, state media said.
Wen ordered local officials on Saturday to enforce rules aimed at cooling a surge in housing prices and called for those who tried to evade curbs to be punished, Xinhua reported.
Wen also called for faster construction of affordable housing, saying that local authorities should facilitate the approval of land and improve the quality of construction by inviting all types of investors to participate in projects, Xinhua said.
Wen said regulation of the housing market is still at a 'critical moment' and described the task as 'tough,' it said. The measures to control the market include limits on home purchases and high down payments to qualify for mortgages.
The controls have helped push prices slightly lower over the past year but they remain near record-high levels. A nine-month decline ended in June, when the average home price in 100 major cities rose 0.05 percent from a month earlier, Xinhua reported, citing data from the China Index Academy.
Surging housing costs have fueled political tensions. The rise in real estate prices was driven in part by a large amount of government stimulus spending and bank lending pumped into the economy after the 2008 crisis.
On Thursday, China's central bank cut the interest rate on one-year loans by 0.31 percentage points to 6 percent. It said banks will be allowed to offer discounts to borrowers of up to 30 percent below that benchmark, an increase from the 20 percent discount previously allowed.
In an unusual step, the central bank also called on banks to control mortgage lending. That suggested authorities are worried about a possible resurgence in real estate speculation as they try to stimulate industrial activity and job creation.
___
Associated Press writer Joe McDonald contributed to this report.
China boosts state firms as entrepreneurs struggle
Across town from Liu's office is a project that exemplifies China's mini-stimulus: A 69.6 billion yuan ($11 billion steel) mill being built by a government company and financed by state-owned banks that lend little to the private sector. It will employ 5,000 people - or one job for each $2.2 million of investment.
'We get no government help,' said Liu, as his office air conditioner struggled against the muggy heat of this southern city. 'But we're a small company, and small companies shouldn't bother the government.'
Spending like that of Baosteel Group, owner of the Zhanjiang mill, is expected to help push up economic growth later this year. But the emphasis on state industry that creates few jobs will come at a longer-term cost, setting back efforts to reduce reliance on investment and generate self-sustaining growth powered by consumer spending.
The strategy will further entrench subsidy-guzzling government companies that dominate industries from oil to telecoms. That might hamper reforms the World Bank and others say are needed to keep the economy growing by curbing state industry and nurturing free-market competition and more dynamic private companies.
'When the economy gets into trouble, all those good intentions get thrown out the window, and we revert to Plan A, which is always to encourage more investment and ensure that funds keep flowing to state-owned companies,' said Mark Williams, chief Asia economist for Capital Economics.
Beijing has cut interest rates twice since the start of June and reduced fuel prices as it tries to buoy growth that declined to 8.1 percent in the first quarter. It has promised more spending on low-cost housing, airports and other public works. That will pour money into state-owned construction companies and suppliers of steel and cement.
Baosteel's Zhanjiang mill is one of a series of industrial projects the government approved in May as stimulus measures after previously blocking them to prevent overinvestment in unneeded facilities. State-owned Wuhan Iron & Steel Group also received approval for a new mill state media say will cost more than 60 billion yuan ($9.5 billion).
Both are to be financed by state banks, which still channel at least 80 percent of lending to state companies despite China's three decades of market-oriented reforms and the growth of private business that has driven its economic boom.
Leaders including Premier Wen Jiabao have promised to help the private sector with more bank lending and other measures, but entrepreneurs say they have yet to see changes.
'I have never been able to get a bank loan,' said Deng Mingxin, owner of a company in Changshu, a city northwest of Shanghai, that makes components for zippers. He said state companies appear to get credit easily while bank employees expect bribes to approve loans for private borrowers.
Deng's workforce has shrunk by two-thirds to 10 people over the past six months as employees left after wage hikes of up to 30 percent failed to keep pace with rising living costs. He said he is considering moving to lower-cost Vietnam.
'I am disappointed at the situation in China,' he said. 'This is unfair.'
Today's state companies and their relationship to the private sector have changed drastically from the era of central planning.
Beijing cut back state industry in the late 1990s, wiping out tens of millions of jobs. Then a new generation of leaders began in 2005 to build up elite companies such as oil giant PetroChina Ltd., phone carrier China Mobile Ltd. and Bank of China Ltd. to control industries deemed strategic.
State companies benefit from monopolies, low-cost bank loans, free land and other favors. Instead of competing with private companies, state firms extract money from them by controlling access to oil, electric power, phone service and other essential resources.
Communist leaders say China needs big companies that can compete globally. But the system also serves a political goal by providing a source of jobs and money to reward the party's supporters and keep it in power in a rapidly changing society.
Beijing's 4 trillion yuan ($586 billion) stimulus in response to the 2008 crisis added to the growth of state industry. Government-owned construction and other enterprises received the bulk of that while thousands of small manufacturers and other private companies went bankrupt.
State industry growth also has been driven by official directives that say companies in steel, energy and other industries deemed strategic must have at least 50 percent government ownership. In some cases, private entities were forced into being acquired by state companies.
Estimates of the portion of the economy controlled by non-private companies range from 30 percent to as much as 50 percent if entities such as worker cooperatives are included.
State industry's vast wealth - and high pay for executives who are political appointees, not risk-taking entrepreneurs - is fueling public resentment.
The top tier of 119 state companies directly controlled by the Cabinet received subsidies worth an estimated 7.5 trillion yuan ($1.2 trillion) in 2001-09 in the form of low-cost land, bank loans and other resources, according to the Unirule Institute of Economic Research, an independent group in Beijing.
'People are gradually becoming aware that state-owned enterprises are inefficient and unfair institutions that occupy the people's resources to serve their own circle,' said Unirule director Sheng Hong.
'The high levels of government and the ruling party increasingly recognize this,' Sheng said. 'On the other hand, state-owned enterprises are a huge interest group. They have a lot of political influence and money.'
Zhanjiang, in Guangdong province, the heart of China's export-driven manufacturing industries, reflects the conflict between the Communist Party's need for a robust private sector and its determination to build up state-owned companies.
The backbone of the local economy is private factories that employ thousands of people making furniture and traditional Chinese medicines or processing seafood.
Liu, who named his company Yi Pian Hong after a 1960s postage stamp that shows communist radicals holding aloft Mao Zedong's Little Red Book, expects this year's sales to be comparable to 2011. That is better than some competitors, but below the 20 to 40 percent annual growth his 5-year-old company is used to. The company pays for its financing needs out of revenues or credit from suppliers.
'Certainly, it's hard to get a bank loan,' Liu said.
At another furniture company, a manager said sales might be down 10 percent due to government curbs on housing sales that were imposed to cool surging prices. He asked not to be identified by name because he was not authorized to speak for his company.
The local branch of China's central bank said a survey of small businesses in Zhanjiang found 90 percent reported cash shortages or trouble credit.
Despite the prominence of private industry in Guangdong, only 12 percent of its bank lending goes to entrepreneurs, according to a speech by the province's deputy party secretary, Zhu Mingguo, reported by a party newspaper.
'The bigger state-owned companies can stay afloat because they have access to finance, and that means that they have a huge competitive advantage,' said Williams. ' So whether it just involves them taking market share or outright taking over the smaller firms, the result is, they come out the other end in a much stronger position.'
___(equals)
AP researchers Zhao Liang in Beijing and Fu Ting in Shanghai contributed.
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