NEWS,30.09.2012

Wall Street: Spain, central bankers, US jobs

Wall Street will open October with a busy week, highlighted by low expectations for global manufacturing data and the US jobs report. Any positive surprises may help lift the market.Spain is the wild card. And if it's played well, then the bulls might dance.The S&P 500 finished its third positive quarter in the last four on Friday, despite suffering its largest weekly percentage decline since June. For the past three months, the S&P 500 gained 5.9% - its best third quarter since 2010. In contrast, the index was down 1.3% for the week.The benchmark S&P 500 earlier this month reached its highest level since late 2007. Yet uncertainty remains over whether stocks can hold their gains against the headwinds of a struggling economy. That explains, in part, the retreat over the last several days.The S&P 500 hit a high of 1474.51 in mid-September before pulling back by a bit more than 2%. A run at 1500 seems possible, but the flurry of economic and world events ahead probably will prevent a major advance in the coming week.Bulls are betting that last week's Spanish budget proposals will be a preamble to a bailout request by Mariano Rajoy's government. The move would be seen as a first step to get the finances of the euro zone's fourth-largest economy in order and would clear some of the market uncertainty regarding the euro zone crisis.Monetary policy is also on the list of market catalysts this week. Federal Reserve Chairman Ben Bernanke is scheduled to speak today and the minutes of the latest FOMC meeting are set for release on Thursday. The week's agenda includes meetings of the European Central Bank, the Bank of England and the Bank of Japan.Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin, said he believes "we could see a rebound" this week "if we get some of the stars aligning and have Spain ask for a bailout, the ECB announcing favourable terms for that bailout, and if we see the Bank of Japan announce further monetary intervention."If Spain and the ECB don't deliver, we could set ourselves up for a further lateral move in the markets," Jacobsen added. "A negative would be if Rajoy flat-out denies that they need a bailout."The ECB and BOJ are set to meet on Thursday, with the Bank of Japan's meeting extending until Friday.Factories, jobs and the US election Chinese factory and business conditions data will kick off a numbers-heavy calendar for markets. Manufacturing PMI, due on Monday, is expected to show a second straight month of contraction.A snapshot of US manufacturing activity will be provided today when the Institute for Supply Management releases its September index. The September ISM reading is expected to show another month of contraction, but at a slightly slower pace than in August. On Wednesday, the ISM will release its US services-sector Purchasing Managers' Index, which could show a slight deceleration in the pace of growth in the non-manufacturing sector."We have Chinese economic data over the weekend, and we'll see how markets react on Monday," said Wasif Latif, vice president of equity investments at San Antonio, Texas-based USAA Investment Management."It seems like the market is bracing for bad numbers, meaning if they're not as bad, it could be market-positive," Latif said.Non-farm payrolls for September, due on Friday, are forecast to gain 115,000, while the US unemployment rate is seen ticking up 0.1% from August to 8.2% in September.The jobs data will come on the heels of the first of three US presidential debates, scheduled for Wednesday night.With just one month to go before election day on November 6, Wall Street will watch the economic data more closely than it usually does. In a year when the incumbent president is campaigning for a second term, the country's economic numbers tend to become more positive as election day approaches.The US stock market also tends to gain in years when incumbents are re-elected, according to the Stock Trader's Almanac.For the year, the Dow Jones industrial average is up 10%, while the Standard & Poor's 500 Index is up 14.6% and the Nasdaq Composite Index is up 19.6%.Recent poll numbers point to a strengthening lead by President Barack Obama, but a weak payrolls reading could give some hope to Republican challenger Mitt Romney."If Romney doesn't turn the ship with a very strong (debate) performance, the president is going to win," said Jack de Gan, chief investment officer at Harbor Advisory Corp in Portsmouth, New Hampshire.He said the trend in the polls has taken away some of the market uncertainty regarding the presidential election. He added that an ECB- or Spain-related headline out of Europe on Thursday could overcome almost anything that would happen Wednesday night during the debate."I think the market is coming to terms with the fact the president is ahead, and unless something significant changes, (he) will prevail.

France's Hollande faces protests over EU fiscal pact

Thousands have marched through Paris to protest against a European fiscal pact, the first major display of public anger to face President Francois Hollande since his May election.The march organised by the Left Front coalition drew trade unionists, far-left sympathisers and other opponents of the EU accord, two days before lawmakers start to debate a draft law of the budget pact in the lower house of parliament.The budget discipline pact, which Hollande supports, is expected to pass in both houses of parliament thanks to support from Socialist lawmakers helped by advocates of fiscal discipline in the centre-right opposition.But the vote has exposed rifts in Hollande's ruling coalition, with far-left allies and Greens planning to vote against it in a challenge to the increasingly unpopular Socialist leader's authority.If Hollande has to rely on opponents to pass the pact, the vote could deepen the rift in his alliance and embolden left-wing allies seeking a change of course from strict adherence to European deficit targets."To him (Hollande), this vote was a formality that simply needed to be rushed through," said Jean-Luc Melenchon, a fiery leftist orator who ranked fourth in an April presidential vote."Now he will understand this is not the case, that in France and in the rest of Europe there is an organised opposition to this pact and to all austerity policies."Wearing his signature red scarf, Melenchon marched at the head of protesters among giant banners bearing slogans such as "Francois Hollande, We Don't Want Your Treaty" and "In Greece and in France, Let's Fight Against Finance".It was the latest in a series of protests across southern Europe this week as tens of thousands took to streets in Spain, Italy, Greece and Portugal to voice their anger over hardship imposed by austerity policies.For Hollande, the outcry from many people who voted him into power highlights the difficulty of pleasing a largely left-wing support base even as he shuns painful cuts to welfare programmes.A 2013 budget unveiled on Friday shaves 30 billion euros off the public deficit, largely through tax increases on big businesses and the wealthy. But it avoids the type of painful austerity measures imposed elsewhere in Europe.Efforts to preserve the generous public safety net have done little to preserve Hollande's approval rating, which has plummeted since his election, hitting a low of 43 percent in one poll last week."This treaty will considerably worsen the situation in the European Union and in France," said one protester, Pierre Khalfa. "We can already see that austerity policies in Europe are leading to recession, so we need to start a movement against these policies, which will lead our country into a wall."Left Front organisers said some 40,000 people joined the Paris protest. Police declined to provide an estimate.

Economic protests in Spain, Portugal

Tens of thousands of Spaniards and Portuguese rallied in the streets of their countries' capitals on Saturday to protest enduring deep economic pain from austerity measure, and the demonstration in Madrid turned violent after Spaniards enraged over a long-lasting recession and sky-high unemployment clashed with riot police for the third time in less than a week near Parliament.The latest violence came after thousands of Spaniards who had marched close to the Parliament building in downtown Madrid protested peacefully for hours. Police with batons later moved in just before midnight to clear out those who remained late because no permission had been obtained from authorities to hold the demonstration.Some protesters responded by throwing bottles and rocks. An Associated Press photographer saw police severely beat one protester who was taken away in an ambulance.Spain's state TV said early on Sunday that two people were hurt and 12 detained near the barricades erected in downtown Madrid to shield the Parliament building. Television images showed police charging protesters and hitting them with their batons, but the violence did not appear as severe as a protest on Tuesday when 38 people were arrested and 64 injured.Earlier, the boisterous crowds let off ear-splitting whistles and yelled "Fire them, fire them!" referring to the conservative government of Prime Minister Mariano Rajoy, and venting their anger against tax hikes, government spending cuts and the highest unemployment rate among the 17 nations that use the euro currency.Freezing salariesOn Friday, Rajoy's administration presented a 2013 draft budget that will cut overall spending by $51.7bn, freezing the salaries of public workers, cutting spending for unemployment benefits and even reducing spending for Spain's royal family next year by 4%.Pablo Rodriguez, a 24-year-old student doing a master's in agricultural development in Denmark, said the austerity measures and bad economy mean most of his friends in Spain are unemployed or doing work they didn't train for.He doubts he will put his education to use in Spain until he is 35 or 40, if ever, will probably get job abroad and stay."I would love to work here, but there is nothing for me here," Rodriguez said. "By the time the economy improves it will be too late. I will be settled somewhere else with a family. One of the disasters in Spain is they spent so much to educate me and so many others and they will lose us."Madrid authorities put the number of protesters at 4 500 though demonstrators said the crowd was larger. In neighbouring Portugal, tens of thousands took to the streets of Lisbon on Saturday afternoon to peacefully protest against even deeper austerity cutbacks than Spain has imposed.Retired banker Antonio Trinidade said the budget cuts Portugal is locked into in return for the nation's $101bn bailout are making the country's economy the worst he has seen in his lifetime. His pension has been cut, and he said countless young Portuguese are increasingly heading abroad because they can't make a living at home.Robbing the people"The government and the troika controlling what we do because of the bailout just want to cut more and more and rob from us," Trinidade said, referring to the troika of creditors -the European Commission, the European Central Bank and the International Monetary Fund. "The young don't have any future, and the country is on the edge of an abyss. I'm getting toward the end of my life, but these people in their 20s or 30s don't have jobs, or a future."In Spain, Rajoy has an absolute majority and has pushed through waves of austerity measures over the last nine months - trying to prevent Spain from being forced into the same kind of bailouts taken by Portugal, Ireland and Greece. But the country has an unemployment rate of nearly 25%, and the jobless rate is more than 50% for those under age 25.Investors worried about Spain's economic viability have forced up the interest rate they are willing to pay to buy Spanish bonds.Finance Minister Cristobal Montoro said on Saturday that the budget cuts for next year were necessary to ease market tensions and try to bring down high interest rates Spain must pay to get investors to buy its bonds.

NEWS,30.06.2012

Germany agrees to concessions in eurozone pact

 

By the end of a vital two-day summit here, European diplomacy had played out like soccer, with Spain and Italy - the two nations headed to the Euro 2012 finals - emerging victorious and the Germans returning home in shock.After a marathon 14 hours of talks, the deal that came together saw Berlin offer surprise concessions that could aid both Madrid and Rome in their desperate struggle to stave off economic collapse, even as it hinted at new political dynamic in Europe.Amounting to a series of highly technical rule changes, the deal addressed the core of the questions facing Europe: Who will cover the tab for its 2 1/2-year-old debt crisis, and how?Troubled eurozone countries could now have more options for aid, including using a pool of European rescue funds to directly recapitalize ailing banks. That, in turn, could spare governments the humiliation of having to ask for aid themselves to channel to domestic banks, sidestepping the kind of intrusive financial inspections imposed on Greece, Ireland and Portugal.The change could ultimately halt a toxic cycle that, while holding countries accountable for their banks' errors, also saw the balance sheets of indebted nations sink deeper into the red as they took on ever more rescue cash to bail out their financial institutions.The new plan would kick in only once a regional supervisor is established to regulate banks in the 17-nation eurozone - itself a major step that could see regulators based at the European Central Bank override the authority of national governments, bolstering market confidence in the region's financial system. Leaders said they would agree on such a move by the end of the year.In addition, leaders agreed that countries could access bailout funds to buy up their government bonds on open markets - and thus bring down dangerously high borrowing costs - with fewer conditions attached.The compromise reached here Friday fueled new optimism about the region's ability to finally break the diplomatic impasses that have made its debt crisis as much political as economic."We have taken decisions that were unthinkable just some months ago," European Commission President Jose Manuel Barroso said.The breakthrough also signaled a reshaping of Europe's political landscape.German Chancellor Angela Merkel, the frugal East German physicist, had laid down the rules for coping with the crisis through her alliance with Nicolas Sarkozy when he was France's president. But with his successor, the intellectual socialist Francois Hollande, leaning more toward the Italian and Spanish leaders' vision of crisis management, a new three-against-one dynamic took hold here.Backed by the French, Spanish Prime Minister Mariano Rajoy, a conservative who is protective of Spanish pride, and Italian Prime Minister Mario Monti, a sober and highly respected former EU official, resorted to brinksmanship. Both leaders vowed to block a $150 billion growth plan, seen as a centerpiece of the forum, if they did not win major concessions. Against their united front, Merkel blinked."The discussions were hard and tense," Monti said Friday. "But it was worth the effort.""This was not France and Germany arriving with a solution, like in the past," added Hollande. "It was France and Germany, along with others, reaching a solution. That's why it took so long and went so far."

 

Angela Merkel: Big Loser Of Eurozone Showdown

 

Angela Merkel was portrayed across Europe as the big loser of a euro zone showdown in Brussels after the German chancellor was forced to accept the crisis-fighting measures championed by countries struggling with their debts.Newspapers in Spain, Italy and France on Saturday toasted the triumph of their leaders - Mario Monti, Mariano Rajoy and Francois Hollande - in pushing Merkel into a U-turn that would long have been unthinkable.Even German newspapers said Merkel had been made to accept demands for the euro zone rescue fund to be able to inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states."There's no doubt about it - the chancellor was blindsided at the euro summit," wrote influential columnist Nikolaus Blome of Bild, a daily with 12 million readers.The summit ended on Friday with agreement on new steps to try to prevent a catastrophic breakup of the single currency.Popular at home for insisting on austerity measures and tough conditions for those indebted euro zone states getting help, Merkel was quick to put a positive spin on the summit, telling reporters: "We had an interest in finding solutions."There was no sign that the summit had damaged her reputation on Friday as both houses of parliament voted to back the euro zone's permanent bailout scheme. And Merkel does not face any particular political challenge at the moment.But the concessions of "Frau Nein" were far bigger than earlier compromises in the name of saving the euro."Merkel caves in - money for ailing banks," read the headline on Germany's left-leaning Sueddeutsche Zeitung.Bild wrote: "Italy and Spain got what they wanted: It'll be easier to borrow excessively again... It was the first time in more than two crisis years that euro states didn't follow Germany's orders."Footballing comparisons have been widespread after Italy knocked Germany out of the Euro 2012 tournament in a shock 2-1 victory on Thursday."This time it was worse, the defeat was about the euro," said respected Deutschlandfunk radio.'1-0 TO HOLLANDE'In France, left-leaning daily Liberation had a front page splash showing Hollande and Merkel dressed in their national football shirts with "1-0 to Hollande" over the top. It devoted its first four pages to his summit triumph.Liberation said it was the pressure from Hollande, Monti and Rajoy that made Merkel buckle and accept a growth plan and banking union mechanism. It applauded his negotiating prowess."The night the South made Merkel cave in," was the headline over a Liberation report on the Brussels summit.France's right-leaning daily Le Figaro called Spain and Italy the real winners. "Just like in football, it is thanks to Italy and Spain that the dynamics of the match have changed and that Angela Merkel has been forced back against the wall."Italy's leading daily, Corriere della Sera, captured the euphoric mood in Italy. A front-page cartoon "A super Mario in Brussels too" showed Monti in the triumphant clenched-fists pose of Italy striker Mario Balotelli after his second goal against Germany. The diminutive figures of an annoyed-looking Merkel and a meek-looking Hollande watch him."Italy is not just a great team, it's a great country and it may be good to remember it," the paper wrote, giving credit to Monti for making Italy a leading player in Europe again.Left-leaning daily La Repubblica noted that after four years during which Germany had "dictated both the music and the lyrics" at euro zone summits, three of the four main countries had refused to dance to Merkel's beat."Although the Chancellor retains her undisputed primacy at the heart of the Council, she was forced to listen to them."Spanish newspapers saw a victory too - particularly in the fact that inspectors from the European Union, International Monetary Fund and European Central Bank would not put Spain under the same scrutiny as countries bailed out earlier.But El Mundo noted that as Spain gets support for its troubled banks: "the Men in Black... will be atop the Pyrenees watching over everything we do."In bailed-out Portugal, Publico newspaper mocked Merkel's U-turn, saying: "Nein! Non! No! Yes!".In the northern European countries aligned with Germany in demanding tough measures for indebted countries getting help, Merkel was also identified as the loser with the softening of terms for the most indebted."The southern euro countries are taking the north hostage," wrote Dutch financial daily Het Financieele Dagblad.

NEWS,29.06.2012

European leaders' breakthrough defied expectations

Europe's leaders finally rose to the challenge of a debt crisis that has hobbled economic growth and threatened the global financial system.Markets roared their approval after leaders of the 27 European Union countries backed bold ideas to help weak countries cope with rising debt levels and frail banks.For the first time in 19 summits since the start of the crisis, the EU leaders defied low expectations Friday by announcing plans to:

—    Bail out banks, without putting any financial burden on strapped governments.

—    Ease borrowing costs on Italy and Spain, the euro region's third and fourth largest economies.

—    Seek stronger, centralized regulation to European banks.

—    Rescue floundering countries, without forcing them to make painful budget cuts if they've already made economic reforms.

—    Tie their budgets, currency and governments more tightly.

Europe's leaders trumpeted the agreement. The prime minister of Ireland  one of the five euro countries that has required emergency funds  said the plans marked a "seismic shift in European policy." British Prime Minister David Cameron said that "for the first time in some time we have actually seen steps ... to get ahead of the game."The Dow Jones industrial average recorded one of its biggest gains of the year, and stocks advanced even further in Europe  in strong and weak countries alike. The benchmark stock index in Germany rose 4.3 percent, by far its best performance this year. Germany has the healthiest economy in Europe, and a warm reaction there was a crucial sign of approval for the plan. Prices for oil and other commodities shot higher.The decisions made at the European Union summit in Brussels won't end the crisis that has gripped Europe for nearly three years. Plenty of questions remain about how the bank bailouts would work, whether there's enough money committed to rescue banks and governments and whether impoverished, indebted Greece will be forced out of the euro club.But for EU leaders who have consistently underwhelmed their exasperated publics and nervous financial markets, Friday's plans marked a breakthrough.At first it looked like the summit would produce little more than a modest plan to stimulate growth in Europe. But Italy and Spain, whose borrowing costs have soared to dangerous levels, refused to sign off on a $150 billion spending plan unless something was done to ease their financial burdens.So the leaders signaled a willingness to expand the use of Europe's two rescue funds. The money could be used to buy bonds to drive down a country's borrowing costs. Or it could be loaned directly to troubled banks, which would EU leaders said would help break "the vicious cycle" in which weak banks and weak governments threaten to drag each other down.Before the summit, European leaders insisted that bailout funds be used only to rescue governments  like Ireland, Portugal and Greece. If money was going to be used for banks, it had to first go to a government, which then funneled it to the troubled banks. But that added to the debt on a government's books because it was responsible for repaying the money.So efforts to help the banks ended up raising fears about governments. That is why Spain's borrowing costs rose dramatically after the eurozone countries agreed to lend it $125 billion to rescue its banks.The EU plans also call for a single regulator probably the European Central Bank to oversee Europe's banks. Currently, banks are regulated by their national governments such as Spain's, which have been slow to recognize loan problems and shut down the worst banks.As part of a broad "banking union" the new regulator will likely get power to close failing banks if their national regulators won't do it. The plan is also expected to include deposit insurance across Europe. Individual European countries now insure bank deposits within their borders. But bank failures could overwhelm those national funds.The bank overhaul is supposed to be completed by the end of the year.The leaders said they were committed to linking their countries closer together economically and politically. But they put off the hard work of closer integration, which is likely to require countries to give up some of their taxing and spending powers to a European budget authority.Most analysts cheered the EU plans but worried about the questions left unanswered. And they said the bailout funds are too small to handle the tasks that could be thrown at them.Europe's two bailout funds have a combined $625 billion in lending power; up to $125 billion of that is already committed to helping Spain bail out its banks. The remaining $500 billion looks small compared to $3.1 trillion in Spanish and Italian bonds outstanding.The solution hovering in the background, say some economists, is the European Central Bank. The ECB could buy any necessary amount of government bonds, backed if need be by the bank's theoretically limitless power to create new money. So far the bank has been unwilling to take this step, which could risk running afoul of its mandate to fight inflation and a ban on central bank financing governments. The ECB's next policy meeting is Thursday in Frankfurt.The summit deal leaves out crucial details of just how any bank bailouts would work. Would bank creditors have to take a loss on their investments, or would taxpayers foot the whole bill? The deal didn't specify.If the banking regulator and a rescue fund take ownership stakes in failed banks, manage those stakes in the taxpayer interest while forcing losses on shareholders and creditors, it could be positive, said Clemens Fuest, an expert in public finance at Oxford University's Said Business School.Otherwise, simply charging taxpayers could be "a huge burden on growth in Europe for a very long time," Clemens said.

German lawmakers OKs fiscal pact, euro fund

German lawmakers on Friday approved Europe's new budget-discipline pact as well as the eurozone's permanent €500 billion ($623 billion) rescue fund, hours after Chancellor Angela Merkel defended concessions she made to financially troubled European nations at a summit.A solid majority of more than two-thirds of all lawmakers of Parliament's lower house endorsed the two sets of legislations in a late night session, following urgent calls by Merkel to back the projects deemed crucial to stabilizing the 17-nation currency zone.Merkel said supporting the fiscal pact and rescue fund sent "a signal of unity and determination, domestically and abroad; a signal toward overcoming the European government debt crisis sustainably, and a signal that for us Europe means our future.""With these agreements, we are taking irreversible steps toward a sustainable stability union," she said.The plans had support from Germany's two main opposition parties. A two-thirds majority was needed for the fiscal pact because it involves an internationally binding commitment to keep Germany's deficit low.Parliament's upper house, which represents Germany's 16 states, is expected to approve both plans later in the evening, but its approval doesn't mean that the legislation will take effect immediately.Germany's Federal Constitutional Court has asked President Joachim Gauck not to sign it into law immediately after Friday's parliamentary votes so that it has time to decide on expected calls for injunctions blocking the legislation. A decision could take as much as a few weeks.Lawmakers voted 491-111 Friday with six abstentions to back the discipline pact  the so-called fiscal compact to which 25 of the European Union's 27 members have signed up.Lawmakers also voted 493-106 in favor of the rescue fund, the European Stability Mechanism, with five abstentions.The fund is meant to be operational next month, which required lawmakers to pass the legislation at the latest on Friday. Germany must pay about €22 billion in capital to underwrite the fund, and it guarantees about a third of its lending capacity.Merkel noted that, in the future, countries will have to implement the fiscal pact to be eligible for aid from the ESM. "There is a legal link between solidity and solidarity, and I consider that very important," she said.In her speech a few hours after returning from the summit in Brussels, Merkel defended concessions she had made there. She assured lawmakers that help to struggling countries and banks will still come with strings attached and insisted that some decisions were misunderstood.Merkel had been opposed, at least in the near term, to some of the measures that she and the other 16 leaders of the euro countries agreed upon Friday. They include allowing Europe's bailout fund in the future to give money directly to a country's banks, without imposing strict austerity conditions on the government.German media headlines immediately after the summit portrayed the outcome as a political defeat, but Merkel said her tough-love approach was intact.Merkel told Parliament it was a "sensible decision" to allow countries that pledge to implement reforms demanded by the EU's executive Commission to tap rescue funds without having to go through the kind of tough austerity measures demanded of Greece, Portugal and Ireland. It was a concession to Italy and Spain in particular.Merkel insisted it was only about helping countries whose financial stability is threatened by high interest rates but don't need to be taken off markets all together.She said there will always be conditions and a time frame, which will be supervised, and told lawmakers they should read the EU Commission's current economic policy recommendations for Italyand Spain  "they are tough conditions.Heading in to the Thursday-Friday summit in Brussels, Merkel had appeared thoroughly uncompromising  insisting on the importance of getting budgets in order and improving eurozone strugglers' competitiveness while brushing aside talk of shared debt liability in Europe.But in a victory for Spain and Italy, she agreed that funds set up to bail out indebted governments could be allowed to funnel money directly to stressed banks, once an "effective single supervisory mechanism" for banks is set up.Merkel said that it was a matter of "several months or perhaps a year" but that having an effective supervisor that could set and enforce conditions "changes the conditions for the question of how we can deal with banks in the eurozone."