EU releases plan for accelerating eurozone integration | German and U.K. officials delve into Libor issues | Obama calls for extension of middle-class tax cut
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29 November 2012
CFA Institute: Financial NewsBrief
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Greece plans debt buyback using borrowed money
Greek Finance Minister Yannis Stournaras says the government will proceed with a debt buyback demanded by creditors as a condition for releasing more financial aid. To pay for the purchase, Greece must borrow €10 billion to €14 billion from the European Financial Stability Facility. Stournaras says Greece has a Plan B if the buyback fails, but he refused to provide details. The New York Times (tiered subscription model) (28 Nov.), Kathimerini (Greece) (29 Nov.), EuroNews.com (France) (28 Nov.)
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EU releases plan for accelerating eurozone integration
The European Commission unveiled a plan to financially integrate the eurozone faster than the EU. President Jose Manuel Barroso says the ability to issue common eurobonds is necessary to strengthen the region. Germany opposes the plan. Deutsche Welle (Germany)/Deutsche Presse-Agentur/Reuters/The Associated Press (28 Nov.), EUObserver (Brussels) (28 Nov.), Financial Times (tiered subscription model) (28 Nov.)
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German and U.K. officials delve into Libor issues
A German banking regulator told lawmakers that banks more than likely manipulated the London Interbank Offered Rate. At a hearing, parliamentarians also questioned Deutsche Bank officials about rate rigging. Meanwhile, U.K. officials are seeking feedback on a plan to restructure Libor. Among changes proposed are legal authority applied to the way the rate is set and criminal penalties for manipulation. Separately, Barclays dismissed five employees and disciplined eight others after an internal investigation of Libor rigging. Bloomberg (28 Nov.), Reuters (28 Nov.), Bloomberg Businessweek (28 Nov.), The Wall Street Journal (tiered subscription model) (28 Nov.)
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Obama calls for extension of middle-class tax cut
U.S. President Barack Obama said both political parties agree on taxes for the middle class and that Congress should take action before Christmas on a measure to extend the middle-class tax cut to next year. House Speaker John Boehner said he was optimistic a deal to head off the "fiscal cliff" could be reached. Forbes (28 Nov.), Reuters (28 Nov.)
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Reader Survey
Do you think Bank of Japan Governor Masaaki Shirakawa will succeed in overcoming persistent deflation by engineering mild inflation next year? (The existing target is 1%.)
No  63.07%
Not sure  20.40%
Yes  16.53%
Poll analysis:
Bank of Japan Governor Masaaki Shirakawa recently reaffirmed his position that the central bank will pursue monetary easing until the inflation target of 1% is achieved. Like many things in the world of investing, an established reality -- in this case, more than 20 years of deflation in Japan -- is not easily altered. This week's survey results reveal that about 63% of 593 respondents think Shirakawa will not succeed in overcoming Japan's ongoing deflation. To compound matters, Japan's current-account surplus has been shrinking. If it turns negative, the Bank of Japan might have even bigger problems to battle. -- Ron Rimkus, CFA, Content Director, CFA Institute
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Market Activity
Hope for "fiscal cliff" deal boosts Asian-Pacific markets
Most Asian-Pacific markets advanced Thursday after President Barack Obama and House Speaker John Boehner said they were confident the U.S. "fiscal cliff" could be avoided. Japan's Nikkei 225 and Hong Kong's Hang Seng Index each gained 1%. South Korea's Kospi rose 1.2%. Australia's S&P/ASX 200 moved up 0.7%. Taiwan's Taiex added 0.9%. India's Sensex was up 1.8% at mid-afternoon. China's Shanghai Composite bucked the trend falling 0.5%. MarketWatch (29 Nov.), The Economic Times (India) (26 Feb.)
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China's rebounding growth leads to copper shortage
China's recovery from seven quarters of declining growth is creating demand for copper that substantially exceeds supply and is driving up prices worldwide. On the London Metal Exchange, copper's price has risen 2.6% this year and could be 6.4% higher in Q2 2013, according to estimates by analysts and traders. Bloomberg (29 Nov.)
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Argentina gets more time to battle $1.3B bond payment
A U.S. federal appeals court ruled that Argentina doesn't have to pay $1.3 billion to foreign creditors holding its defaulted bonds while it fights a lower court decision. The earlier ruling ordered Argentina to make the payment next month. The appeals court will take up the case in February. BBC (28 Nov.)
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Low yield in Italian bond sale signals resilience
Italy provided an encouraging sign through a sale of six-month bills. The government sold €7.5 billion worth at the lowest yield on a comparable note in more than two years. "From a pricing perspective, Italy has overcome the eurozone crisis," said Nicholas Spiro, managing director of Spiro Sovereign Strategy. However, Spiro says Italy's troubles remain, with "an economy in deep recession." Bloomberg Businessweek (28 Nov.)
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Economics
Likelihood of ECB rate cut is uncertain
Among economists polled, it's a coin toss whether the European Central Bank will cut its main interest rate early in 2013, though few expect a cut next week. Meanwhile, a member of the ECB's Governing Council says a cut cannot be ruled out. Reuters (28 Nov.), MarketWatch (28 Nov.)
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France has buyer for troubled steel plant, minister says
French Industry Minister Arnaud Montebourg said the government has found an investor ready to spend more than $500 million to modernize ArcelorMittal's huge steelworks plant in Florange, in northeast France, and keep it in operation. He said the government will temporarily nationalize the plant if ArcelorMittal shuts it down. Reuters (28 Nov.), Bloomberg (28 Nov.)
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Retail sales in Japan decrease the most in 11 months
Japanese retail sales fell 1.2% last month compared with October 2011, the sharpest decline in 11 months, the trade ministry said. Worried about a slowing economy, the government says it is planning a second round of stimulus. Bloomberg (29 Nov.)
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South China Sea dispute drives U.S. involvement in Asia
Conflicting claims by China and its neighbors to large areas of the South China Sea largely account for a U.S. strategic shift to Asia, including a visit by President Barack Obama, according to The Economist. "Indeed, it is anxiety over China's new assertiveness as much as economic opportunity that is prompting America's deepening engagement in the region," the magazine notes. "Mr Obama's quick visit to Thailand, where he signed new military agreements, reflected this." The Economist (free content) (24 Nov.)
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Survey: Most advisers think "fiscal cliff" will be avoided
Nearly 80% of financial advisers polled by the Financial Services Institute expect a last-minute compromise from Congress to head off the "fiscal cliff." The deal probably would include limits to tax deductions and higher marginal tax rates for wealthy Americans, 72% of advisers said. Financial Advisor online (28 Nov.)
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Geopolitical/Regulatory
Volcker rule finalization is unlikely before next year
Regulators are not expected to meet a Dec. 31 deadline for issuing the final draft of the Volcker rule. Previous drafts have been several hundred pages long, and the rule requires approval by five agencies, including the Federal Reserve and the Federal Deposit Insurance Corp. CNBC (28 Nov.)
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Treasury official reportedly doesn't want SEC chairmanship
Mary Miller, a senior official at the U.S. Treasury Department, is not interested in leading the Securities and Exchange Commission, a source says. After SEC Chairman Mary Schapiro announced her resignation, President Barack Obama named Commissioner Elisse Walter as Schapiro's successor. However, Walter has told SEC officials that she does not plan to serve for long. The situation has prompted speculation about who might be tapped for the role. Reuters (28 Nov.), The New York Times (tiered subscription model)/DealBook blog (28 Nov.), The Wall Street Journal (tiered subscription model) (28 Nov.)
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U.S. regulator will meet ahead of Schapiro's departure
The U.S. Financial Stability Oversight Council is scheduled to meet Monday in a closed session. At a Nov. 13 meeting, the council drafted three proposals for how the Securities and Exchange Commission could overhaul money market mutual funds. The Treasury Department didn't release an agenda for Monday's meeting, which will come 11 days before council member Mary Schapiro steps down as SEC chairman. Bloomberg Businessweek (28 Nov.)
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Australia plans to phase in market-integrity rules
The Australian Securities and Investments Commission will introduce rules during the next 18 months designed to shore up market integrity, though critics say market players will find the measures costly. Among the rules are kill switches, stricter pricing and reporting standards for dark pools and tough regulations for high-frequency traders. The Trade News (U.K.) (tiered subscription model) (28 Nov.)
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Financial Products
FactorShares prepares 3 ETFs focused on mining
FactorShares is launching on NYSE Arca three exchange-traded funds that invest in mining companies. The PureFunds ISE Mining Service ETF, the PureFunds ISE Diamond/Gemstone ETF and the PureFunds ISE Junior Silver ETF each has an annual expense ratio of 0.69%. IndexUniverse.com (27 Nov.), Benzinga.com (28 Nov.), Barron's (free content)/Focus on Funds blog (27 Nov.)
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