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OctaFX.Com -Bailout fund boost to 2 trillion euros not feasible: German spokesman
BERLIN (Reuters) - Germany's finance ministry said on Monday that talk of the euro zone's permanent bailout fund being leveraged to 2 trillion euros via private sector involvement was not realistic, adding that any discussion of precise figures was "purely abstract".
Ministry spokesman Martin Kotthaus said there were talks going on in Brussels about leveraging the capacity of the European Stability Mechanism (ESM) in the same way as its predecessor, the European Financial Stability Fund (EFSF).
But, asked about a report in Spiegel magazine that the ESM's capacity could be leveraged to 2 trillion euros, he said this was "illusory".
"It is not feasible to talk about figures at present," he told reporters. "It is purely abstract."
Kotthaus said Germany's government and parliament backed the idea of boosting ESM capacity via "private capital participation in loans or other instruments for states which require them" just as they had supported such instruments for the EFSF.
The ESM is expected to come into force on October 8 with a firepower of 500 billion euros.
Kotthaus said he had no information about a separate Spiegel report on a 20 billion euro hole in Greece's state budget.
Sep 24, 2012 10:41 AM
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OctaFX.Com -Concerns Over Bailout Funds Weighs on Euro, Lifts Japanese Yen
The Japanese Yen and the US Dollar are leading the majors today as some risk-aversion has taken hold amid broadening concerns out of Europe. We note that these influences are three-fold: German business sentiment as measured by the IFO dropped further as investors remain reticent despite the European Central Bank’s ‘bazooka’ plan; the German Finance Ministry has dismissed reports suggesting that the European Stability Mechanism (ESM) would be leveraged from €500 billion to €2 trillion to accommodate the future bailouts of Italy and Spain; and media has concentrated on some disagreements between French President Francois Hollande and German Chancellor Angela Merkel in terms of a pan-European banking union.
With respect to the ESM, the German Finance Ministry did note that no number has yet to be agreed upon for the leverage that will be employed, so essentially it is hapless to speculate on the size of the ESM. That’s that, for now.
With respect to the disagreement between French and German leaders, Chancellor Merkel refuted President Hollande’s quip that the banking union should be completed on a timetable of “the earlier, the better.” With the ECB buying politicians time, it is off little surprise that the urgency behind implementing the necessary safeguards has died down a bit. But Chancellor Merkel is making sure leaders get this round of measures right even as financial markets “are watching Europe [and] want to see results,” saying that “[the banking union] has to be thorough, the quality has to be good and then we’ll see how long it takes,” she said.
Taking a look at credit, peripheral European bond yields are mixed amid the Euro’s weakness. The Italian 2-year note yield has increased to 2.231% (+11.7-bps) while the Spanish 2-year note yield has decreased to 2.973% (-2.7-bps). Likewise, the Italian 10-year note yield has increased to 5.080% (+5.2-bps) while the Spanish 10-year note yield has decreased to 5.716% (+5.1-bps); higher yields imply lower prices.
Sep 24, 2012 11:20 AM
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OctaFX.Com -Eurozone considers boosting bailout fund firepower
Germany: eurozone discussing boosting firepower of new rescue fund, but results uncertain
BERLIN (AP) -- Germany says eurozone officials are discussing the possibility of boosting the firepower of their new, permanent €500 billion ($650 billion) rescue fund by involving private investors.
Finance Ministry spokesman Martin Kotthaus said Monday that "the discussion in Brussels is not concluded" on the issue and it's not possible to say by how much a so-called leveraging of the fund, the European Stability Mechanism, might increase its power.
Eurozone countries agreed last year that the existing temporary rescue fund, the European Financial Stability Facility, could be leveraged, but the possibility has never been used.
Kotthaus said that, whatever happens, Germany's total liability of up to €190 billion won't increase and any agreement would need the German Parliament's approval. The new ESM is expected to start work next month.
Sep 24, 2012 01:36 PM
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OctaFX.Com - Schaeuble says no need for new Spanish program
HELSINKI (Reuters) - Spain does not need a new bailout program but simply to regain market confidence, German Finance Minister Wolfgang Schaeuble said on Tuesday.
Investors are watching euro zone leaders' comments on Spain and its financing needs closely for signs of any terms that may be imposed on Madrid in exchange for aid from the European Central Bank and euro zone rescue funds.
Asked if Spain needed a new bailout, Schaeuble said it did not need a "new program". The country was making progress with reforms, he added, and just needed to win the markets' confidence.
Sep 25, 2012 10:33 AM
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OctaFx -European Parliament to tackle bank union split fears
BRUSSELS (Reuters) - The European Parliament debates plans for a euro zone banking union on Wednesday, with members likely to raise concerns that the project designed to ease the currency bloc's crisis could sow divisions within the wider EU.
Earlier this month, Brussels proposed that the European Central Bank should supervise all euro zone banks as a first step towards creating the union, under which the 17 member nations would form a united front to back their lenders.
However, the plan has aroused worries in the 10 other European Union states, with their own currencies, that they will be indirectly affected.
They are free to join the scheme but many may not. Britain, home to Europe's biggest financial center in London, will not participate but avoids openly criticizing the project. Other governments have publicly expressed their reservations.
"The European Commission banking union proposal has the problem that it makes it very difficult for countries outside the euro," said Sven Giegold, a German member of the parliament.
"We have a big interest that countries outside have voting rights to stop a split between countries such as Poland and Germany," said Giegold, who will play a leading role in talks with European countries about the plan. "The same goes for Sweden."
Legally the European Parliament will have no say in writing much of the legislation to underpin a banking union. But it has powers to amend other important financial regulations and is likely to exert its influence in changing the new regime. Wednesday's debate starts at 0700 GMT.
Banking union, which aims to restore confidence in an industry that has been battered by crisis, has three major steps: the ECB takes over monitoring euro zone banks - and others that sign up - from national regulators; a fund is created to close down and settle the debts of failed banks; and a comprehensive scheme to protect savers' deposits is established.
Giegold underscored a central problem of the union - that it will drive a wedge between those countries inside the scheme and those outside, whose banks may suffer as a result.
Earlier this Swedish Finance Minister Anders Borg said he would not accept ECB oversight of Nordea (NDA.ST), the Nordic region's biggest bank, as long as his country remained outside the banking union. Nordea has its headquarters outside the euro zone in Stockholm but has major operations in Finland, the sole Nordic country to use the common currency.
While Britain will stay outside the scheme, many international banks in London have operations in the euro zone that will be affected by the ECB's new supervisory reach.
London is worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's financial capital.
Some believe that the European Banking Authority, set up to coordinate the supervision of banks in response to the financial crisis and which is run by regulators from across the European Union, could act as a counterbalance.
The European Commission has already suggested a special voting mechanism among EU regulators as a counterweight to the power of those in the euro zone.
The close ties between some troubled governments and the banks they supervise - and on which they also rely to buy their debt - have dragged both ever deeper into crisis.
A banking union would break this link by making the policing of banks supranational and establishing central schemes paid into collectively to cover the costs of closing failed lenders and protecting savers' deposits.
Sep 26, 2012 12:06 AM
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OctaFX.Com -Europe worries start share selloff, Spanish yields jump
LONDON (Reuters) - World shares fell sharply and the euro hit a two-week low on Wednesday as growing opposition to measures aimed at resolving the euro zone's debt crisis unnerved investors already worried about weak global economic growth.
The selling focused on Spain, where the main share index fell 3.5 percent (.IBEX) and yields on 10-year bonds rose back to six percent, as doubts grew about Madrid's commitment to reform due to violent protests and talk of secession by the wealthy Catalonia region.
A general strike in Greece and signs of discord among top euro zone officials over new policies to tackle the crisis added to investor concerns, taking the gloss off recent moves by the European Central Bank to calm the markets by buying bonds.
"Markets have realized despite reducing a large number of tail risks the ECB's program is not the solution to all the problems in the euro area," Philip Shaw, economist at Investec, said.
Markets were also reacting to a letter from Germany, Finland and the Netherlands on Tuesday that implied that any rescue funds Spain receives for its banks will remain part of its public debt - a decision which would also affect Ireland.
"Once again, it shows that when the ball is back in the governments' court, I think there's all this room for disappointment," said Tobias Blattner, European economist for Daiwa Capital Markets.
The renewed concerns about the euro zone have caused a sharp rise in volatility on equity markets, and led to the biggest daily drop on the S&P 500 index on Tuesday since June and subsequent falls across Asia on Wednesday.
The MSCI world equity index <.MIWD00000PUS> was down 0.8 percent at 332.23 points and has retraced most of the gains made after the U.S. Federal Reserve announced a new round of aggressive monetary easing last week.
U.S. stocks were looking to extend their losses when Wall Street opened with stock index futures pointing to a weak open. (.N)
In Europe the selling was across the board with the STOXX Europe 600 index (.STOXX) down 1.4 percent, its biggest one-day fall since late July, led by declines in Spanish and Italian markets which fell more than three percent. (.IBEX) (.FTMIB)
The FTSEurofirst 300 (.FTEU3) had shed 1.5 percent to 1,103 points, having risen 0.4 percent on Tuesday. It is still up about eight percent for the September quarter.
SPANISH PAIN
Spain's growing problems, exacerbated by uncertainty over when the government might request an EU bailout, pushed the euro down 0.4 percent to $1.2850, its lowest level since September 12.
"The Spanish story does seem to be deteriorating. We are seeing Spanish bond yields pushing higher this morning and that's being echoed by a slightly lower euro," said Daragh Maher, currency strategist at HSBC.
Spain's benchmark 10-year bond yields rose 23 basis points to 6.00 percent, while the cost of insuring the debt against a default has also risen sharply.
But analysts cautioned that the moves came on light turnover with many investors choosing to stay out of the market given the long list of potentially negative news from Madrid this week.
"We've got some major event risks in Spain at the end of the week in Spain and it's not really worth having the exposure," Peter Chatwell, interest rate strategist at Credit Agricole.
In addition to a tough 2013 budget to be unveiled on Thursday, the government is due to release plans for new structural reforms in the economy and the results of stress tests on the Spanish banking sector.
On Friday ratings agency Moody's will publish its latest review of Spain's credit rating, possibly downgrading the country's debt to junk status.
Madrid is also facing all these challenges in an environment in which its economy is still contracting at a "significant rate", the central bank said on Wednesday
Economically important Catalonia's decision to hold early elections added to the pressure on Spanish Prime Minister Mariano Rajoy, who conceded in an interview with the Wall Street Journal that he would ask for a bailout if the country's borrowing costs remain too high for too long.
"Ahead of these elections, we will have that classical political paralysis. So I think the government in Catalonia will probably not try its hardest to meet the targets," said Daiwa's Blattner said of goals set for reducing public deficits.
"All the targets for the year as a whole for Spain I think are now under threat."
GROWTH WORRIES
The stronger dollar and concerns about the global economy added to the European worries to push down oil prices but gold was finding some support from this month's policy easing measures by the world's major central banks.
Brent crude oil futures were down $1.30 to $109.15 a barrel, their second drop in three days, and U.S. crude fell $1.04 to $90.33 per barrel.
Despite the drop, traders said oil was getting some support from the rise in tension between Iran and the West over its nuclear program, and by worries over possible risks to Middle East supply if hostilities break out in the region.
Three-month copper on the London Metal Exchange was down 1.3 percent to $8,164.25 per metric tonne, although this followed a gain of more than 1 percent on Tuesday.
"With worries about Europe and Spain in focus this week, and lingering anxiety over China's economic growth, we see the risk of gains in Q3 turning out to be a false dawn," said ANZ Bank's metals analyst Nicholas Trevethan.
Gold held above $1,760 an ounce on investor demand after the Fed, the ECB and the Bank of Japan all unveiled bond-buying programs this month which will provide markets with extra liquidity.
Sep 26, 2012 07:33 AM
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OctaFX.Com -Euro zone confidence falls in September, inflation expectations rise
BRUSSELS (Reuters) - Euro zone economic sentiment defied expectations of stabilization and again fell sharply in September, underlining the economic gloom brought on by the sovereign debt crisis as the euro zone sinks into a recession.
The European Commission's monthly economic sentiment survey showed the index for the 17 countries sharing the euro falling to 85 points this month from 86.1 in August. Economists polled by Reuters had expected a flat reading on Thursday.
"It is bad. Everything is down, we are heading towards another quarterly economic contraction," said Carsten Brzeski, economist at ING bank.
The euro zone economy stagnated in the first three months of the year quarter-on-quarter and contracted 0.2 percent in the April-June period. Economists expect another contraction in the third quarter, which would take the euro zone into recession.
"The data also shows that while the ECB promise of bond buying and the German court ruling (endorsing the euro zone's permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth," Brzeski said.
The European Commission's business climate indicator for the euro area, which points to the phase of the economic cycle, fell to -1.34 points in September from -1.18 in August, against market expectations of -1.19 points. The September reading was the lowest since October 2009.
The Commission survey showed euro zone sentiment in industry declined to -16.1 in September from -15.4 in August, and to -12 in the services sector from -10.8.
Sentiment among consumers fell to -25.9 from -24.6 and to -18.6 from -17.2 in retail trade. Construction was the only sector where confidence improved marginally, to -31.9 from -33.1 in August.
The data also showed that inflation expectations rose among producers, the services sector and households alike, potentially complicating any possible decision by the European Central Bank to cut interest rates and help the economy.
But ING's Brzeski said the results of the Commission survey on inflation expectations were more closely correlated to ongoing price developments, with opinions strongly influenced by the spike in fuel prices.
"It does not make life easier for the ECB, but, under (President Mario) Draghi, the ECB has become more growth oriented with inflation more a derivative of growth, so with this drop in growth, the window for another rate cut this year is still open," he added.
Sep 27, 2012 09:32 AM
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OctaFX.Com - Energy fuels euro inflation but ECB rate cut still on
BRUSSELS (Reuters) - Euro zone inflation accelerated in September as energy costs soared but core prices stayed low, likely leaving the European Central Bank on track to cut interest rates soon.
Consumer prices in the 17 countries sharing the euro rose 2.7 percent year-on-year, the European Union's statistics office Eurostat said on Friday in a first estimate that marked a rise from 2.6 percent in August.
Markets had expected inflation to ease to 2.5 percent.
Energy prices jumped 9.2 percent after a 8.9 percent rise the previous month.
Core inflation, excluding both energy and unprocessed foods, fell to its lowest level in a year of 1.7 percent in August, the latest month for which the data has been published.
Together with recent data indicating that the euro zone economy entered a recession in the third quarter, Friday's inflation reading kept intact expectations that the ECB will not wait long before delivering a growth-boosting rate cut.
"It seems highly likely that the ECB will take interest rates down from 0.75 percent to 0.50 percent in the fourth quarter," said Howard Archer, economist at IHS Global Insight.
"While the ECB could act as soon as its October meeting next Thursday, we lean towards the view that they will probably hold off to November."
Just 14 of 73 economists polled by Reuters this week expect the ECB to cut rates when it meets next Thursday but a majority expect the bank to have lopped off 25 basis points by the end of the year. (ECB/INT)
The ECB kept its main interest rate unchanged at a record low of 0.75 percent at its meeting earlier this month, taking another policy-easing route by agreeing to launch a new and potentially unlimited bond-buying program.
MUTED PRICE PRESSURES
Inflation fell steadily from 3 percent in November 2011 to stabilize at 2.4 percent in May, June and July, as the euro zone economy slowed sharply as a result of the sovereign debt crisis.
But it rose again for the first time in 11 months in August due to higher fuel and transport costs.
The ECB's target is to keep inflation below, but close to 2 percent, a rate it is not expected to drop back to for some time, though price pressures should ease further as the economy continues to struggle.
"Euro zone inflation should resume its downward trend before long as previous sharp increases in energy and food prices cease to boost the annual rate," said Martin Van Vliet, economist at ING bank.
"But with commodity prices remaining high and volatile, and further VAT hikes in the pipeline (e.g. in the Netherlands next month and in Finland in January), it is probably going to be a very gradual descent," he said.
Headline inflation might stay above 2 percent well into next year.
"The bottom line, however, is that underlying inflation pressures remain muted in most parts of the euro zone economy. This gives the ECB scope to ease monetary policy further," he said.
In September, Eurostat for the first time provided year-on-year prices changes in the index's components - food, alcohol and tobacco, energy, non-energy industrial goods and services.
It publishes a more detailed breakdown for September as well as monthly inflation figures on October 16.
Sep 28, 2012 10:59 AM
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OctaFX.Com -Spain's Popular resists state aid with 2.5 billion euro share issue
MADRID (Reuters) - Spanish bank Popular (POP.MC) said on Monday it aims for a 2.5 billion euro ($3.22 billion) share issue by mid-November and will scrap its October dividend to shore up capital and avoid taking funds from a euro zone bailout for the country's banks.
Popular, Spain's sixth biggest bank by assets, was flagged on Friday in an audit of the country's banking sector as needing an extra 3 billion euros in capital in case of a serious economic downturn.
Popular shares sank 9 percent after it said it would not take rescue funds, but other Spanish banking stocks rose on Monday after the publication of the audit removed uncertainty from the sector.
The stress test by consulting firm Oliver Wyman put the extra capital needs of 14 Spanish banks tested at 59.3 billion euros, below the 100 million euro credit line Spain agreed with the euro zone in July to clean up the banking sector.
Many Spanish banks became saddled with repossessed property after a building bubble burst in 2007 but there has also been a steep rise in bad loans from other sectors of the economy which is in a deep recession.
Spain has said it would need 40 billion euros of the euro zone aid since some banks could meet part of the extra capital needs themselves.
"We expect to launch the share increase in the next five weeks, probably by mid-November," Popular's Chief Financial Officer Jacobo Gonzalez-Robatto told a conference call with analysts on Monday after announcing the capital raising plan.
Popular needs to reduce its capital shortfall to around 2 billion euros by December if wants to avoid a public capital injection in the short term.
The Wyman report said Popular's estimated capital needs were based on an adverse scenario in which the economy contracts more sharply than economists currently forecast.
Popular, one of seven banks that failed the stress tests, is not planning to merge or acquire another bank in the near future, Gonzalez-Robatto said.
Of the seven banks that need capital, four of them have already been taken over by the state. Bankia (BKIA.MC), Spain's biggest failed bank, was seen needing almost 25 billion euros of capital in a stressed scenario.
Banco Mare Nostrum, which the audit showed needing 2 billion euros in capital, said on Friday it would sell assets to reduce needs by 1 billion euros. Banco Mare Nostrum and Popular had been in talks for a merger, but the government said on Friday it would not promote tie-ups between weaker banks.
Another bank with capital needs, a three way merger known as Liberbank-Ibercaja-Caja3, said it would put soured assets into a "bad bank" the government is setting up as part of the conditions for receiving European aid for the banks.
Popular said it would form its own asset management company to handle toxic assets left over from Spain's property market crash four years ago.
Popular said it would not pay its October dividend, but hoped to maintain plans for a 50 percent payout in 2013.
The bank's shares were suspended on Monday morning after the share issue announcement. When they began trading again they fell 9.11 percent to 1.547 euros per share.
Oct 1, 2012 10:39 AM
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Dollar stronger across the board, hits 11-mth high vs yen
Talking Points
- Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate
- British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway
- U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke
Euro: Jobless Rate Hits Record-High, ECB Overstepping Mandate
Although the EURUSD bounced back from an overnight low of 1.2802, the economic docket continued to instill a weakening outlook for the euro-area as the jobless rate climbed to a record high of 11.4% in August.
As the debt crisis continues to raise the threat for a prolonged recession, European Central Bank board member Joerg Asmussen warned ‘there could be additional need for external financing’ in Greece, while there’s talk that the periphery country may receive a portion of its next bailout payment as the region continues to request more time in meeting its budget target.
As the governments operating under the single currency become increasingly reliant on monetary support, former ECB board members Juergen Stark and Otmar Issing argued that the unlimited bond purchasing program goes beyond the mandate to ensure price stability, and the Governing Council may come under increased scrutiny as President Mario Draghi puts the central bank’s credibility on the line to buy more time.
Indeed, the negative headlines coming out of Europe instills a weakening outlook for the region as policy makers struggle to restore investor confidence, and the rebound off of trendline support is likely to be short-lived as the EU maintains a reactionary approach in addressing the debt crisis. In turn, we should see the EURUSD come under additional pressure over the coming days, and we will be keeping a close eye on the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the pair searches for support.
British Pound: Fitch Continues To Fire Warning Shots, Larger Correction Underway
The British Pound slipped to 1.6107 as manufacturing in the U.K. contracted more-than-expected to September, while private sector credit in Britain remained stagnant as mortgage approvals increased an annualized 47.7K in August amid forecasts for a 49.2K print.
Meanwhile, Fitch continued to fire warning shots against the U.K., with the rating agency warning that the government is now ‘standing still in terms of deficit reduction,’ and the growing threat for a credit-rating downgrade may continue to dampen the appeal of the sterling as the fundamental outlook for the region remains clouded with high uncertainty.
As the GBPUSD carves out a near-term top coming into October, the pullback from 1.6308 should turn into a larger correction, and we may see the pound-dollar threaten the ascending channel from earlier this year as the relative strength index fails to maintain the bullish trend carried over from June.
U.S. Dollar: ISM Manufacturing, Construction Spending On Tap- All Eyes On Bernanke
The greenback is struggling to hold its ground ahead of the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) giving back the advance to 9,891, but we may see the reserve currency regain its footing as the economic docket is expected to reinforce an improved outlook for growth.
Indeed, the ISM Manufacturing report is anticipated to show an expansion in business outputs, while building activity is projected to rebound in August as the recovery gradually gathers pace. However, as Fed Chairman Ben Bernanke is scheduled to speak on monetary policy later today, market participants may show a muted reaction to the data, and the fresh batch of central bank rhetoric may set the tone for the first trading week of October as market participants weigh the prospects for future policy.
Oct 1, 2012 12:50 PM
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