Analysis: Sequester could end U.S. economic recovery | China plans bond-market liberalization to fund investment | Democratic lawmakers reintroduce derivatives-transaction tax
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01 March 2013
CFA Institute: Financial NewsBrief
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Congress gives up on efforts to avoid sequestration
Hopes of averting $85 billion of spending cuts set to take effect Friday disappeared as Congress left the U.S. Capitol for the weekend. Congressional leaders are scheduled to meet with President Barack Obama on Friday to talk about the matter, but Obama has offered little optimism that the effort will accomplish anything. In the House, Republicans are now focused on the March 27 deadline for preventing a government shutdown. The Washington Post (tiered subscription model) (28 Feb.), CNN (01 Mar.), The New York Times (tiered subscription model) (28 Feb.)
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Analysis: Sequester could end U.S. economic recovery
The housing market's vitality has been enough to help the U.S. economy survive austerity so far, but headwinds from the sequestration may be enough to shut down the economic recovery, according to The Economist. "If you wanted to cut the deficit in the most damaging way, you'd choose the sequester," the magazine notes. The Economist (tiered subscription model) (02 Mar.)
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China plans bond-market liberalization to fund investment
Chinese leaders are working to overhaul the bond market in preparation for raising $6.4 trillion to stimulate the economy, bringing 400 million people into cities and narrowing the gap between the rich and the poor. The moves are key to a plan by incoming President Xi Jinping and Premier-designate Li Keqiang to transform China into a wealthy world power, with economic expansion driven by consumer spending. Reuters (28 Feb.)
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Democratic lawmakers reintroduce derivatives-transaction tax
Derivatives, including futures, would face a 0.03% transaction tax under legislation introduced this week by U.S. Rep. Peter DeFazio and Sen. Tom Harkin. The Democratic pair floated similar bills in recent years, but the legislation never took hold. "There is no question that Wall Street can easily bear this modest tax," Harkin said. Platts (28 Feb.)
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CFTC's Gensler suggests Libor replacements
Commodity Futures Trading Commission Chairman Gary Gensler says a rate determined by a traded market, such as overnight indexed swaps, should replace the London Interbank Offered Rate. "Given what we know now, it's critical that we move to a more robust framework for financial benchmarks, particularly those for short-term, variable interest rates," Gensler said. "There are alternatives ... grounded in real transactions. These include the overnight indexed swap rate, benchmark rates based on actual short-term collateralized financings and benchmarks based on government borrowing rates." Risk.net (subscription required) (28 Feb.)
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Mexican state oil company posts profit after 2011 loss
Mexico's state-owned oil company Petróleos Mexicanos, the world's fifth-largest by production, reported net income of $390 million for 2012, a dramatic turnaround from a $6.54 billion loss in 2011. Revenue from sales and services hit a record high of $128.7 billion, up 5.4% from 2011. Latin American Herald Tribune (Venezuela)/Agencia EFE (Spain) (28 Feb.)
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Market Activity
Lackluster manufacturing data drive down China's market
Asian-Pacific markets were mixed Friday amid disappointing data about Chinese manufacturing activity, sending the Shanghai Composite down 0.3% and Hong Kong's Hang Seng Index faltering 0.6%. Australia's S&P/ASX 200 lost 0.4%. Japan's Nikkei 225 rose 0.4%. India's Sensex was up 0.3%. South Korea's Kospi was closed for a holiday. MarketWatch (01 Mar.), The Economic Times (India) (29 Aug.)
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Groupon fires CEO after disappointing Q4 results
The board of Internet marketer Groupon dismissed co-founder and CEO Andrew Mason after a poor fourth-quarter earnings report sent its share price plummeting. When the company went public in November 2011, it was valued at more than $17 billion. Today, its market value is less than $3 billion. Chicago Tribune (tiered subscription model) (28 Feb.)
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Argentine bonds drop and CDSs rise amid default threat
In U.S. court, attorney Jonathan Blackman said Argentina would rather stop payments to creditors who had agreed to restructure debt than agree to pay creditors who had held out. The news sent Argentina's bonds down and drove up credit default swaps covering the nation's debt. Bloomberg (28 Feb.)
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Economics
Germany welcomes southern and Eastern European workers
Germany, once reluctant to admit immigrants, is welcoming a wave of young, highly educated and multilingual workers from southern and Eastern Europe. The country has discovered it needs such guest workers to maintain economic vitality. If immigration fails to exceed emigration by 400,000 a year, the workforce will contract faster than that of any other industrialized nation, demographers say. Der Spiegel (Germany) (English online version) (28 Feb.), The Times of Malta/Reuters (28 Feb.)
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EU will guarantee job, apprenticeship offer for young adults
EU labor ministers plan to launch a program to bolster employment among young adults. Jose Manuel Barroso, president of the European Commission, encourages member nations to quickly implement the measure. "With our youth guarantees, young people will have a real chance of a better future for themselves," Barroso said. Unemployment among those younger than 25 exceeds 23% in the EU. Deutsche Welle (Germany)/Deutsche Presse-Agentur/Agence France-Presse/Reuters (28 Feb.), European Voice (Brussels) (tiered subscription model) (28 Feb.)
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First-time unemployment claims decline in U.S.
Initial jobless claims decreased by 22,000 last week, to 344,000, the Labor Department says. The total is close to a five-year low and higher than economists' forecasts. MSNBC/The Maddow Blog (28 Feb.), The Christian Science Monitor/Paper Economy blog (28 Feb.)
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China cites holiday for manufacturing slowdown
China's official manufacturing index declined in February for the second consecutive month, hitting 50.1, compared with January's 50.4. The China Federation of Logistics and Purchasing cited Chinese New Year, which is celebrated for a week in the country. Xinhuanet.com (China) (01 Mar.), Bloomberg (01 Mar.)
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Revision shows U.S. GDP expanded 0.1% in Q4
The Commerce Department has revised gross domestic product for the fourth quarter from 0.1% contraction to 0.1% expansion. Government spending declined 15% during the quarter, and investment in inventory was lower than forecast. Despite uncertainty about the "fiscal cliff," consumer spending held up better than expected. Forbes (28 Feb.), MarketWatch/The Tell blog (28 Feb.)
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Geopolitical/Regulatory
SEC updates FSOC on money-fund rules
The Securities and Exchange Commission has updated the Financial Stability Oversight Council on possible changes to rules for money market mutual funds. Jack Lew, sworn in as U.S. Treasury secretary Thursday, leads the FSOC. The risk council also discussed the designation of nonbank financial companies as systemically important. Meanwhile, Sheila Bar, former head of the Federal Deposit Insurance Corp., has criticized regulators' process of determining whether a company is systemically important. Bloomberg (28 Feb.), Bloomberg (01 Mar.)
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EU regulators to investors: Beware of contracts for difference
The European Securities and Markets Authority and the European Banking Authority are warning investors about contracts for difference. "These products appear to promise investors substantial returns at a low cost but may ultimately cost them far more than they may have intended or could afford to lose," the regulators said in a joint statement. Reuters (28 Feb.)
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Wetjen reportedly suggests CFTC alter proposed SEF rules
Mark Wetjen, a member of the Commodity Futures Trading Commission, has recommended that the agency change proposed regulations governing swaps-execution facilities, sources say. Wetjen reportedly wants the CFTC to abandon a proposal that would force institutional investors to gather "requests for quote" from five counterparties. Financial Times (tiered subscription model) (28 Feb.), The Huffington Post (28 Feb.)
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Financial Products
ProShares rolls out ETF investing in private-equity firms
ProShares has launched on BATS Exchange an exchange-traded fund that invests in shares of publicly traded private-equity firms. The ProShares Global Listed Private Equity ETF is linked to the LPX Direct Listed Private Equity Index, which has a maximum of 30 stocks. Bloomberg (28 Feb.), Barron's (free content)/Focus on Funds blog (27 Feb.), ETF Trends (28 Feb.)
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