News That Matters

Ft.com
The fate of a compromise deal to extend stimulus measures for the US economy for two months was thrown into doubt on Sunday after John Boehner, the Republican Speaker of the House, said he was opposed to the plan, http://ftalphaville.ft.com/thecut/2011/12/19/805041/boehner-casts-doubt-on-us-stimulus-deal/

China will open more channels for foreign institutions to invest in its stock markets, a move aimed at supporting share prices and helping to counter capital outflows as the economy slows. The FT says the Chinese securities regulator announced late on Friday that renminbi held offshore could be used to buy equities within China, http://ftalphaville.ft.com/thecut/2011/12/19/805011/china-opens-door-to-foreign-investors/

Kim Jong-il, North Korea’s dictator, has died, piling pressure on his inexperienced son to ensure the stability of his impoverished, nuclear-armed state, the FT reports. A North Korean television newscasterhttp://ftalphaville.ft.com/thecut/2011/12/19/804971/kim-jong-il-dies/

British banks and insurers are pouring billions into the country’s housing stock as they look to cash in on rising rents and find wealth stores away from the turmoil rippling through the markets, reports the FT. Financial institutions ploughed £2.2bn into houses and apartments in the UK during the 12 months to April this year, http://ftalphaville.ft.com/thecut/2011/12/19/804881/insurers-and-banks-plough-2-2bn-into-housing/

The Federal Reserve is expected to embrace a new global framework that requires giant financial institutions to hold extra capital, the WSJ says, citing people familiar with the situation. The Fed’s embrace of the Basel surcharge is expected to come as part of a draft of new rules for US firms that are considered by regulators to be big enough to pose a risk to the financial system.http://ftalphaville.ft.com/thecut/2011/12/19/804741/fed-to-support-basel-iii/

New home prices in China’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou each retreated 0.3 per cent from October, the biggest monthly falls for these metropolitan areas this year according to official http://ftalphaville.ft.com/thecut/2011/12/19/804651/chinese-property-prices-declined-in-november/

In his first interview since becoming ECB president, Mario Draghi warned of the costs of a eurozone break-up even as he sought to play down market expectations about the ECB’s role in combating the sovereign debt crisis, http://ftalphaville.ft.com/thecut/2011/12/19/804611/draghi-warns-on-eurozone-break-up/

China will open more channels for foreign institutions to invest in its stock markets, a move aimed at supporting share prices and helping to counter capital outflows as the economy slows. The Chinese securities regulator announced late on Friday that renminbi held offshore could be used to buy equities within China, a long-awaited reform that is critical to promoting more international use of the Chinese currency. http://www.ft.com/intl/cms/s/0/2dd28108-2938-11e1-8b1a-00144feabdc0.html#axzz1gxNbLLgv

South Korean equities and the won fell sharply on Monday after North Korean state television said the nation’s leader Kim Jong-il has died. The won fell more than 1 per cent against the US dollar within minutes of the news being announced as traders fled for the safety of the American currency. By late morning in Seoul the currency was trading at Won1,1175.80 per dollar.http://www.ft.com/intl/cms/s/0/76ca2a0a-29f1-11e1-8b1a-00144feabdc0.html#axzz1gxNbLLgv

The government will accept “in full” Sir John Vickers’ report proposing an overhaul of Britain’s banks, said Vince Cable, business secretary, as it emerged that bankers at state-controlled lenders face further restraint on bonuses. The coalition will give its formal response to the report by Sir John’s Independent Commission on Banking this afternoon, endorsing plans to split big banks and place separate retail operations behind a high capital wall. http://www.ft.com/intl/cms/s/0/1f90fcf2-296d-11e1-a066-00144feabdc0.html#axzz1gxNbLLgv

Homeowners in some of the nation’s poorest areas have put themselves at increased risk of mortgage arrears or repossession as a result of the sharp rate at which they withdrew equity from their homes in the run up to the credit crunch in 2007.  Based on data obtained under a freedom of information request from the Financial Services Authority, the FT analysis shows that nationwide, 61 per cent of those remortgaging their properties in 2007 used the opportunity to take equity out of their homes. http://www.ft.com/intl/cms/s/0/ea75635a-2827-11e1-a4c4-00144feabdc0.html#axzz1gxNbLLgv

The Indian economy is in the doldrums: industrial output has stalled, inflation remains high, the rupee has plunged to an all-time low and foreign investors are retreating en masse. Is this a temporary  rough patch or is the shine coming off? India, like many other emerging markets, is not immune to global economic turmoil. Yet there is a palpable sense that the economy is losing its direction as political paralysis sets in, stalling reforms that the country desperately needs. http://www.ft.com/intl/cms/s/0/669673d4-2670-11e1-91cd-00144feabdc0.html#axzz1gxNbLLgv

Wsj.com
Asian stock markets dropped Monday, with South Korea’s stock market and the won tumbling to multiweek lows on news of North Korean leader Kim Jong Il’s death. Japan’s Nikkei Stock Average was off 1.0% and Australia’s S&P/ASX 200 dropped 2.2%—both tapping intraday three-week lows. Taiwan’s Taiex index slipped 2.1% to 6639.74, its lowest since July 15, while Hong Kong’s Hang Seng Index fell 2.5%, China Shanghai Composite slipped 2.6% and India’s Sensex fell 1.7%. Dow Jones Industrial Average futures were 73 points lower in screen trade. http://online.wsj.com/article/SB10001424052970204791104577107231578226966.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

India’s federal cabinet Sunday approved a draft law on food security aimed at providing low-priced staples — mainly rice and wheat — to roughly two-thirds of the country’s 1.2 billion people. “The Cabinet has decided to introduce the [draft law] in the ongoing winter session of the Parliament,” Food Minister K.V. Thomas said. Lawmakers will debate and vote before it’s enacted into law. The food security law, which will be rolled out in several phases, seeks to significantly extend the reach of India’s existing public food distribution system that sells rice, wheat and a few other food items to low-income families much below market prices. http://online.wsj.com/article/SB10001424052970204879004577107422912791382.html?mod=WSJASIA_hpp_LEFTTopWhatNews

Britons who chose to take vacations in the U.K. helped halve the country’s trade deficit between 2007 and 2011, according to a Bank of England analysis published Monday, as a weak pound caused imports of travel services to slump.  A report in the BOE’s quarterly bulletin said the U.K.’s net trade deficit with the rest of the world narrowed to 1.6% of gross domestic product by the third quarter of 2011 from 3% in the second quarter of 2007. U.K. goods exports benefited from a 25% depreciation of sterling between 2007 and 2009, which arrested a slide in the U.K.’s share of goods trade with its major trading partners, the report said. http://online.wsj.com/article/SB10001424052970204791104577106381753284346.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Marketwatch.com
Australian Foreign Minister Kevin Rudd Monday called on world leaders to exercise caution and restraint in the handling of North Korea following the death of its leader, Kim Jong Il. The death of Mr. Kim, a dictator who used fear and isolation to maintain power in North Korea and the threat of nuclear weapons to menace his neighbors and the U.S., opens a potentially dangerous period of transition and instability for North Korea and northeast Asia. In September 2010, Mr. Kim tapped his youngest son to succeed him, although it wasn’t clear whether he’d take control right away.http://www.marketwatch.com/story/australias-rudd-urges-caution-after-kims-death-2011-12-19

Reuters.com
Gold prices fell as much as 0.8 percent on Monday, extending their biggest weekly loss in nearly three months last week, as rating agency Fitch’s warning on downgrading France kept investors on the edge about the situation in Europe. Spot gold lost 0.6 percent to $1,588.89 an ounce by 0331 GMT, after dropping 6.5 percent in the previous week. U.S. gold edged down 0.4 percent to $1,591.40.http://www.reuters.com/article/2011/12/19/us-markets-precious-idUSTRE7AK1M520111219

Bloomberg.com
European finance ministers today will seek to meet a self-imposed deadline for drawing additional aid to the debt crisis and to form new budget rules as investor confidence that a comprehensive solution is achievable wanes.  Euro-area finance ministers will hold a conference call at 3:30 p.m. Brussels time to discuss 200 billion euros ($261 billion) in additional funding through the International Monetary Fund and the mechanics of a so-called fiscal compact that was negotiated at a Dec. 9 European Union summit, according to two people familiar with the planning. http://www.bloomberg.com/news/2011-12-18/european-finance-ministers-to-discuss-crisis-tomorrow-as-confidence-wanes.html

European Central Bank President Mario Draghi damped expectations that the bank will step up bond purchases to tame the sovereign debt crisis, saying it can’t overstep its mandate. “People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations,” Draghi told the Financial Times in an interview, confirmed by the Frankfurt-based ECB. “The important thing is to restore the trust of the people — citizens as well as investors — in our continent. We won’t achieve that by destroying the credibility of the ECB.”http://www.bloomberg.com/news/2011-12-18/draghi-tells-financial-times-bond-buying-unlikely-as-ecb-abides-by-mandate.html

Hong Kong luxury home rents, which fell last quarter for the first time since mid-2009, may slump 10 percent next year as banks and hedge funds scale back amid the threat of a global recession, according to brokers including Jones Lang LaSalle Inc. (JLL) and Colliers International. “We’re definitely at that tipping point,” said Anne-Marie Sage, Hong Kong-based head of residential leasing at Jones Lang, the world’s second-largest commercial brokerage. “We’ve began to see vacancies at the very top end of the market. The banking and the financial sector have basically stopped all movement.”http://www.bloomberg.com/news/2011-12-18/hong-kong-luxury-home-rents-reach-tipping-point-as-banks-halt-expansion.html

South Korea may sell 30-year bonds in 2012 for the first time as it seeks to raise the average maturity of debt and help the government and domestic investors manage risks, said an official from the finance ministry. The securities may be issued in the second half of next year, said the official, who has knowledge of the discussions and declined to be identified because the talks are private. South Korean insurers and pension funds are seeking longer- maturity bonds to increase the stability of their investments, he said on Dec. 16 in comments embargoed until today. http://www.bloomberg.com/news/2011-12-19/south-korea-said-to-consider-its-first-ever-30-year-government-bond-sale.html

Cnbc.com
Bankruptcy proceedings remain on the cards for troubled Swedish car maker Saab after former owner General Motors said Saturday that proposals presented so far to salvage the troubled brand are unacceptable and won’t be supported. Trollhattan-based Saab, bought by Dutch group Swedish Automobile NV in 2010, faces a court-hearing Monday to determine whether it will exit bankruptcy protection. That means that if Saab doesn’t present a viable survival plan, bankruptcy proceedings are likely to start. http://www.cnbc.com/id/45708422

BBC.co.uk
Ratings agency Fitch has affirmed France’s top-notch AAA credit rating but has revised its outlook on the country to “negative” from “stable”. A negative outlook usually means a downgrade is possible in 12-18 months. Fitch said the change in outlook was prompted by the heightened risk of government liabilities arising from the eurozone’s debt crisis. The agency also said it was considering downgrading ratings for Belgium, Spain, Slovenia, Italy, Ireland and Cyprus. http://www.bbc.co.uk/news/business-16226543

Telegraph.co.uk
If the euro is saved then Britain should quit the EU and say good riddance. Why did we join the EU in the first place? We didn’t; we joined the Common Market, which evolved into the EU. But this disguises a more fundamental truth. In the first couple of decades after the Second World War, the UK was in sharp relative decline. Meanwhile, from a state of devastation, the countries of continental Europe advanced rapidly. By contrast, the non–European world, in which we had played out so much of our history, seemed like a backwater. Add in a dose of Britain’s imagined cultural inferiority and a smidgeon of Vorsprung Durch Technik and you have the explanation. http://www.telegraph.co.uk/finance/comment/8964332/If-the-euro-is-saved-then-Britain-should-quit-the-EU-and-say-good-riddance.html

Smh.com.au
It sounds like a contradiction, but as Australia settles in to lower population growth after the 2008 peak, we remain one of the world’s fastest growing nations. Today’s Australian Bureau of Statistics demographics update shows Australia’s population grew by 1.4 per cent in the June year, the same rate as recorded in the year to the end of March. That’s down from the peak rate of 2.2 per cent in 2008 – a change in a major economic driver that parts of the economy are still coming to terms with. http://www.smh.com.au/business/australias-lower-population-growth-remains-high-20111219-1p1qp.html#ixzz1gxUjyoXt

Eurozone finance ministers will hold telephone talks on the debt crisis on Monday to flesh out decisions taken at a key summit earlier this month to save the European currency. With several eurozone nations under threat of a credit rating downgrade, a key focus of the conference call will be plans to boost International Monetary Fund (IMF) coffers to allow it to come to the aid of floundering members. A government source told AFP on condition of anonymity that the eurozone finance ministers, known as the Eurogroup, will hold telephone talks at about 3pm GMT Monday “to discuss what happens after the European summit of December 8 and 9″ on saving the eurozone. http://www.smh.com.au/business/world-business/euro-ministers-plan-followup-debt-crisis-talks-20111219-1p16w.html#ixzz1gxUqHgVL

Xinhuanet.com
As the painful double-dip in the U.S. economy at the beginning of the year still weighs on Americans, a renowned Wall Street economist warned of a triple dip ahead. Ethan Harris, co-head of Global Economics Research at Bank of America Merrill Lynch, said that despite the recent pick-up in growth, the U.S. economy is going to slow down once again over the course of 2012. “Each year since the recession, we’ve had the economy pick up for a while, then fade, and each time there has been some kind of shock that comes along and derails the economy,” Harris said in an exclusive interview with Xinhua. http://news.xinhuanet.com/english/business/2011-12/19/c_131314415.htm

Brazilian President Dilma Rousseff expressed optimism about the country’s economy next year, saying she expected a 5-percent growth rate. “My goal is 5 percent,” Rousseff said. “I have optimistic expectations.” Thanks to the government’s anti-crisis measures, Brazil managed to get out of the economic trouble in the face of a worrisome global slowdown in 2011, she added. Finance Minister Guido Mantega was also optimistic about the Brazilian economy in 2012. Last week, he said the country’s gross domestic product (GDP) would grow 4 to 5 percent next year.http://news.xinhuanet.com/english/business/2011-12/17/c_131311840.htm

Cs.com.cn
China might start to levy environmental tax during the period of 12th Five-Year Plan (2011-2015), and the corporate income tax would also be adjusted, said Jia Kang, director of the Fiscal Science Research Center of the Ministry of Finance on Saturday. According to a statement released last Wednesday after the country’s annual central economic work conference, China will boost reform concerning the environmental tax. “From the point view of research, I think the regulator would start the environmental tax within the next five years. It also provide more room for the adjustment in corporate income tax.“ Jia kang said. http://www.cs.com.cn/english/ei/201112/t20111219_3175183.html
Thehindu.com
Inflation would moderate to 6 to 7 per cent by March 2012 if the present trend continued, Union Finance Minister Pranab Mukherjee said here on Sunday. “It is true that we are going through difficult times, not just in India, but all over the world,” he told journalists after a meeting with the Chief Ministers of southern States, Union Territories, and CEOs of public  sector banks. The country’s GDP growth in the first quarter of 2011-12 was 7.7 per cent, and 6.9 per cent in the second quarter. In this context, “we are also facing problems,” he said. http://www.thehindu.com/news/national/article2726706.ece

Yonhapnews.co.kr
South Korea’s finance minister said Monday the government is keeping close tabs on developments and will take all necessary steps to determine the economic impact of the North Korean leader’s death. “Seoul is checking all changes, carefully analyzing their implications and what appropriate actions are needed to cope with the situation,” Finance Minister Bahk Jae-wan said in a press release, after the death of Kim Jong-il was announced at noon Monday. He added that real-time monitoring of both overseas and domestic economic developments are underway.http://english.yonhapnews.co.kr/business/2011/12/19/23/0502000000AEN20111219007100320F.HTML

Themoscowtimes.com
India plans to start up a Russian-built nuclear power plant within weeks, Prime Minister Manmohan Singh said Friday, expressing confidence that the government can ease safety concerns that have prompted protests by local residents. After talks in Moscow with President Dmitry Medvedev, whose country is eager to build more nuclear power plants abroad, Singh said the first two reactors at the Kudankulam plant were close to being activated. The power station in the southern state of Tamil Nadu is one of several planned power projects that are seen as vital to plugging huge electricity shortages that have damaged economic growth. However, protests by local people against the power station gathered pace after the Fukushima accident in Japan in March. http://www.themoscowtimes.com/business/article/indian-nuclear-plant-expected-to-start/450088.html#ixzz1gxWyE04A

Fin24.com
Japanese Prime Minister Yoshihiko Noda told ministers at a special security meeting to prepare for any unexpected circumstances, including financial or border issues, following news of the death of North Korean leader Kim Jong-il, the top government spokesman said on Monday.  Chief Cabinet Secretary Osamu Fujimura also told a news conference that Japan would work closely with the United States, South Korea and China in seeking further information. http://www.fin24.com/Economy/Japan-prepares-for-financial-border-crises-20111219

Tehrantimes.com
Iran needs up to $300 billion in foreign direct investment (FDI) to meet objectives of its fifth five-year development plan (2010-2015), and reach 8 percent economic growth rate, the Iranian deputy finance and economic affairs minister said.  “Totally, the country needs around $1 trillion investment by the end of the fifth development plan,” Behrouz Alishiri told the ILNA news agency.  Some $15 billion in foreign direct investments was attracted last (calendar) year, he added. http://www.tehrantimes.com/economy-and-business/93603-iran-needs-300-billion-fdi-to-realize-8-economic-growth

Thetrader.se
The Trader has covered many of the market microstructure questions over the past months, that should concern many more. Majority of investors, managers, traders and others have not adapted to the “new” market, nor have they realized what is actually going on. With HFT dominating every market move, people still feel an increasing frustration, but have not adapted accordingly. This is due to lack of insight. Our biggest “fear”, is that an increasing amount of investors, end up avoiding the markets, purely due to the fact that the markets have become a “monster”, that is overseen by nobody. The competence gap between the regulators (worldwide, not only the SEC) and the market has become huge. http://www.thetrader.se/2011/12/18/market-manipulation-in-the-financial-crisis/

Presented without comment. Another great article full of insight by Stieglitz. From Vanity Fair; It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are falling—the real income of a typical American household is now below the level it was in 1997. http://www.thetrader.se/2011/12/17/the-domino-effect/