Canada considers response to U.S. "fiscal cliff" | Greece approves further austerity to gain aid | Major banks push Euribor and Libor alternative with ECB
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08 November 2012
CFA Institute: Financial NewsBrief
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U.S. lawmakers turn to threat of "fiscal cliff"
With the question of who will be president answered, the U.S. must now confront the "fiscal cliff" of tax hikes and spending cuts that economists say could return the economy to decline. Republican House Speaker John Boehner gave a speech on Capitol Hill that struck a conciliatory tone but seemed to flatly reject any compromise that included an increase in taxes. CNN (08 Nov.), The Washington Post (tiered subscription model) (07 Nov.), The Hill/Hill Tube (07 Nov.)
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Canada considers response to U.S. "fiscal cliff"
Canadian Finance Minister Jim Flaherty said a U.S. failure to avert the "fiscal cliff" would quickly send the U.S. and Canada into recession. Bank of Canada Governor Mark Carney said Canada has several options to avoid following the U.S. into a recession, including monetary policy stimulus. Reuters (07 Nov.), The Gazette (Montreal) (tiered subscription model)/Postmedia News (07 Nov.), Nasdaq.com/Dow Jones Newswires (07 Nov.)
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Greece approves further austerity to gain aid
Greek Prime Minister Antonis Samaras garnered enough votes in Parliament to adopt deeper spending cuts, a condition for obtaining more rescue money. Measures include reducing wages, pensions and benefits; tax increases; and raising the retirement age from 65 to 67. More than 50,000 anti-austerity protesters surrounded the Parliament building. Bloomberg (08 Nov.), Kathimerini (Greece) (08 Nov.), The New York Times (tiered subscription model) (07 Nov.)
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Major banks push Euribor and Libor alternative with ECB
A delegation of leading global banks has proposed to the European Central Bank an alternative to the Euro Interbank Offered Rate and the London Interbank Offered Rate, amid a threat of regulation and low interbank lending. The group supports a benchmark that would be based on "secured market" trades. "The unsecured [interbank] market is ... disappearing, so we need an alternative. A secured index makes a lot of sense," said one person involved in the discussions. Reuters (07 Nov.)
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Analysis: Wall Street must work with Obama
An important task awaiting Wall Street is mending fences with U.S. President Barack Obama, having made a big bet on a Mitt Romney victory, Susanne Craig and Nicholas Confessore write in The New York Times. A senior Wall Street lawyer said financial firms made a serious mistake pushing so hard for Romney. "They are going to pay a price," he said. The New York Times (tiered subscription model)/DealBook blog (07 Nov.)
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Reader Survey
A recent article by The Telegraph notes that the Japanese yen has risen sharply since the onset of the financial crisis in 2008: more than 30% versus the Chinese yuan, more than 65% versus the euro and more than 80% against the British pound. Do you expect the Bank of Japan to become more aggressive in weakening the yen to support exports?
Yes  82.44%
No  17.56%
Poll analysis:
For the first time in at least three decades, Japan is running a trade deficit with foreign trading partners. Although deterioration in net trade creates considerable risk for Japan, its current-account balance continues to be a surplus because of continued income payments from sizable overseas assets. Nevertheless, the current-account balance, though still a surplus, also is deteriorating. Since Japan's asset-price bubble began collapsing in 1989, Japan's lost decades have been financed in large part through a strong current-account surplus. As the current account weakens, it increases pressure on the Bank of Japan to weaken the yen to stem deterioration in exports. But a weaker yen also reduces the value of income payments, which will likely have a greater impact on the current-account balance. This is Japan's conundrum. -- Ron Rimkus, CFA, Content Director, CFA Institute
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Market Activity
U.S. fiscal worries dampen Asian-Pacific markets
Asian-Pacific markets fell Thursday as investors' concerns turned from the U.S. presidential election to its looming "fiscal cliff." Japan's Nikkei 225 dropped 1.5%. Australia's S&P/ASX 200 gave up 0.7%. South Korea's Kospi lost 1.2%. Hong Kong's Hang Seng Index fell 2.4%. China's Shanghai Composite slid 1.6%. India's Sensex was down 0.3% at mid-afternoon. MarketWatch (08 Nov.), The Economic Times (India) (26 Feb.)
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U.S. markets falter amid "fiscal cliff" worries
U.S. stock markets took a big fall Wednesday as investors worried about a divided Congress that might be unable to head off the "fiscal cliff." European economic weakness was another renewed concern. The major U.S. equity indexes fell more than 2%. The New York Times (tiered subscription model) (07 Nov.)
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Investors expect Obama win to boost global stocks and bonds
One outcome of the re-election of U.S. President Barack Obama, at least for investors, is relief that there won't be upheaval at the Federal Reserve. Investors say they expect global stocks and bonds to fare well as a result. The Fed is expected to continue its weak-dollar stance, which has led to escalating prices for global equities and precious metals, as well as emerging-market and high-yield bonds. Reuters (07 Nov.)
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Chinese property developers plan Hong Kong IPOs
Real estate developers based in mainland China hope to raise more than $2 billion through initial public offerings in Hong Kong before year-end. The China Securities Regulatory Commission has not yet approved their plans. The commission said it may relax requirements for property developers going public in Hong Kong. China Daily (Beijing) (08 Nov.)
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Economics
Home prices rise in most U.S. cities, group says
Single-family home prices in the U.S. increased in 81% of cities in the third quarter, the National Association of Realtors said in a report. The median selling price for existing homes was $186,100, 7.6% higher than it was in Q3 2011, the report said. Bloomberg (07 Nov.), MortgageNewsDaily.com (07 Nov.)
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U.S. Chamber of Commerce's political spending yield few victories
The U.S. Chamber of Commerce has very little to show for the $24 million it spent supporting Republican candidates for Congress. Of the 15 Senate races the group made contributions to, only two candidates it backed won. In the House of Representatives, the chamber put money into 22 races, yielding four wins. The Washington Post (tiered subscription model) (07 Nov.)
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Hu expects China to double per-capita income by 2020
Per-capita income throughout China should double by 2020, President Hu Jintao said, speaking as general secretary of the Communist Party at the 18th National Congress. He called for greater reform of the financial system and said the economy should be redirected to give consumption a bigger role in boosting growth. Market News International (07 Nov.)
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Obama's win lets some solidify tax strategies
Questions remain about how U.S. tax law will look Jan. 1, but some financial advisers are recommending that wealthy clients take income and exercise stock options this year, rather than risk higher taxes next year. President Barack Obama's re-election clarifies the direction of tax policy, advisers say, but some will wait before making recommendations. Bloomberg (08 Nov.), The Wall Street Journal (tiered subscription model) (07 Nov.)
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Geopolitical/Regulatory
Election resolves some Dodd-Frank questions
Uncertainty about the fate of the Dodd-Frank Act mostly has been removed with the re-election of U.S. President Barack Obama. The situation should lead to increased investment; other expected positives include fresh business for exchanges. However, there is speculation that Obama's re-election will slow rule writing. Regulators had been scrambling to write rules before year-end in case Mitt Romney was elected. The Wall Street Journal (tiered subscription model)/Deal Journal blog (07 Nov.), The Wall Street Journal (tiered subscription model)/Washington Wire blog (07 Nov.)
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Regulators discuss CFTC's cross-border swaps rules
Regulators from Europe, Asia and the U.S. met this week in Washington, D.C., to discuss cross-border derivatives rules by the Commodity Futures Trading Commission. Patrick Pearson of the European Commission expressed concern about the rules. "The proposed approaches across the globe simply won't work," he said. "They won't mesh. They won't interact. They will cause conflicts." Bloomberg Businessweek (07 Nov.)
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Obama is expected to press ahead with clean energy
U.S. President Barack Obama's re-election is seen as a boost for alternative-energy and environmental policies he backed in his first term. However, congressional opposition and worries about the economy suggest Obama won't be able to deliver everything environmentalists want. The Washington Post (tiered subscription model) (07 Nov.), ThinkProgress.org/Climate Progress blog (07 Nov.)
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Brazil focuses on protecting intellectual property
Brazil has made a serious commitment to protecting patents and trademarks through World Trade Organization rules, after seeing intellectual property as a threat for half of the 20th century, according to The Economist. "Brazil's laws on patents, copyright and trademarks are in line with other big trading nations," the magazine noted. "More judges now understand intellectual-property law, and an appeal court has been set up in Rio de Janeiro to handle such cases." The Economist (free content) (03 Nov.)
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Financial Products
National Life debuts annuity to complement 401(k)
National Life Group introduced a fixed indexed annuity that gives 401(k) plan participants a complement to traditional investment. The SecurePlus VIP annuity guarantees a fixed minimum interest rate unaffected by market rates or conditions. PlanAdviser.com (06 Nov.)
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