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Showing posts from June 28, 2014

UPDATE 4-Carney signals earlier British rate rise, sterling soars

Britain could become the first major economy to tighten monetary policy since the 2008 financial crisis, Bank of England Governor Mark Carney has signalled, sending sterling shooting towards a five-year high against the dollar on Friday. British government bond yields soared, construction stocks tumbled and interest rate futures priced in a first hike by December after Carney said rates could rise sooner than markets had thought - his most hawkish comment to date. "There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced," Carney said in a speech late on Thursday alongside British finance minister George Osborne. "It could happen sooner than markets currently expect." Few economists had expected rates to increase until the second quarter of next year given the central bank's previous guidance that there was plenty of scope for Britain's economy to expand further without causing infla

Taste for little luxuries suggest Japan's tax rise hangover fading

Bartender Yoshiro Tsuneoka smiled with satisfaction between popping open bottles of champagne. It was midweek, 8 pm, and business was good at the tiny bar in downtown Tokyo. Watching a bevy of young professionals quaffing sparkling wine, there was little sign that an increase in Japan's sales tax in April caused anything more than a hiccup in the economy. "Sales have been doing well for a while now and we've noticed no change after the tax increase," Tsuneoka said above the sound of clinking glasses. "We get a broad range of customers, and their spending hasn't changed." Japan needs people spending with confidence if a radical strategy adopted by Prime Minister Shinzo Abe is to succeed in breaking the economy free of two decades of deflation and sub-par growth. Government data covering the period after the tax was increased to 8 percent from 5 percent at the start of April has begun to trickle in. Household spending and retail sales in April dropp

Fed should stop sending profits to Treasury, economist argues

The U.S. Federal Reserve should suspend payments to the Treasury to avoid a potential cash crunch when the time comes to raise interest rates, according to former Richmond Fed policy adviser Marvin Goodfriend. Such a reversal in policy is critical to protecting the Fed's inflation-fighting credibility, Goodfriend said in an interview Thursday, because otherwise the central bank will find itself needing to print money to pay for its obligations as it raises interest rates, an untenable situation in his view. "It's not good idea for a central bank to ever put itself in the position of having to create money to stabilize the value of money against inflation," said Goodfriend, now an economics professor at Carnegie-Mellon University. "You are throwing fuel on the fire." The U.S. central bank has sent about $320 billion to the Treasury since 2010. The money comes from interest earned on the Fed's massive portfolio of bonds acquired in its ongoing effort

U.S. Fed plans changes to annual bank stress tests

The U.S. Federal Reserve on Thursday proposed tougher conditions for banks to pay dividends or buy back shares as part of a number of changes to its annual stress tests to measure banks' ability to withstand financial shocks. _0"> Banks need to ask the Fed for approval for shareholder payouts each year, part of a set of new rules to make banking safer after the financial crisis. Banks must submit capital plans that disclose whether they intend to pay dividends or buyback shares, as well as any planned increases in capital through raising new debt or shares. The new rule would prevent banks from increasing dividends or buying back shares if they did not meet the capital increases that they had pledged to the Fed. "Some large bank holding companies included issuances of capital instruments in their capital plans, but did not execute these planned issuances," the Fed said. For instance, if a bank had planned a $50 million stock issuance, and combined dividends

Taste for little luxuries suggest Japan's tax rise hangover fading

Bartender Yoshiro Tsuneoka smiled with satisfaction between popping open bottles of champagne. It was midweek, 8 pm, and business was good at the tiny bar in downtown Tokyo. Watching a bevy of young professionals quaffing sparkling wine, there was little sign that an increase in Japan's sales tax in April caused anything more than a hiccup in the economy. "Sales have been doing well for a while now and we've noticed no change after the tax increase," Tsuneoka said above the sound of clinking glasses. "We get a broad range of customers, and their spending hasn't changed." Japan needs people spending with confidence if a radical strategy adopted by Prime Minister Shinzo Abe is to succeed in breaking the economy free of two decades of deflation and sub-par growth. Government data covering the period after the tax was increased to 8 percent from 5 percent at the start of April has begun to trickle in. Household spending and retail sales in April dropp

Words cannot rid securitized debt of 'bad boy' image in Europe

Six years after mind-blowingly complex securitized debt brought the global financial system to its knees, the bankers behind the market are wary of official efforts to rehabilitate it in Europe. In the years leading up to 2008, when loans were transformed into bonds, many were repackaged again and again, acquiring triple A ratings despite links to U.S. sub-prime mortgages, and earning the nickname "toxic sludge". Yet the European Central Bank (ECB) and Bank of England (BoE) say they want to revive more straightforward asset backed securities (ABS) in the hope of ramping-up lending to credit-starved businesses and rebooting the regional economy. Attendees at the industry's annual meeting in Barcelona say it will take more than positive words to overcome their pariah status in Europe and worry that official efforts to exclude the riskier parts of the market will make it unworkable. "Don't confuse words with action," James Hewer, a partner at PwC's st

Once a model for Africa, Ghana's economy loses its shine

Rising bond yields, mounting inflation and a weakening currency have taken the shine off Ghana, a country until recently hailed as a model for African growth. An oil boom helped fuel five years of GDP growth above 8 percent making Ghana an emerging market star, a stable democracy whose population of 25 million was moving steadily into middle income status. It is now, however, paying a steep price for not coming through with a new tranche of fiscal reforms. Political consensus is stymied, the public is dismayed by rising costs and the dream of new wealth is on hold. Analysts put the immediate difficulty down to a delay in announcing reforms, saying it makes it harder for the government to meet its 2014 economic targets and has increased the chance it will eventually need a bailout from the International Monetary Fund (IMF). It has also created a perception of policy drift at a time of economic trouble rather than decisive action to shore up gains made during the boom years in whic

Jean-Claude Juncker: Federalist danger man or skilled fixer?

Four months ago, Jean-Claude Juncker would have struggled to have his name recognized in much of Europe. Now he could be forgiven for wishing people would shut up about him. As the top candidate of Europe's largest center-right political group, which won the European elections last month, the former prime minister of Luxembourg is in pole position to become the next president of the European Commission. While Britain's David Cameron is adamantly opposed and The Sun tabloid has described him as "The Most Dangerous Man in Europe", Juncker remains on track to secure the powerful post, which has influence over policy from telecommunications to banking and trade affecting 500 million Europeans. Cameron's opposition is based on a belief that Juncker, 59, is an "old-school federalist" wedded to the concept of "ever closer union", not a modernizer who will shake up and refocus Brussels institutions regarded in London as bloated and opaque. After