Japan's Abe takes a more favorable stance toward trade deal | Turkey presses Germany to back its campaign to join EU | Securities Markets Program bolsters ECB profit
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22 February 2013
CFA Institute: Financial NewsBrief
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Japan's Abe takes a more favorable stance toward trade deal
In an interview with The Asahi Shimbun, Japanese Prime Minister Shinzo Abe spoke more favorably about the possibility of Japan participating in talks for the Trans-Pacific Partnership free-trade arrangement than ever before. He said he wants to show his Asian neighbors that the U.S.-Japanese alliance is not failing. "It is extremely important to show the world that Japan-U.S. ties are back to what they used to be," Abe said. The Asahi Shimbun (Japan) (21 Feb.), The Washington Post (tiered subscription model) (21 Feb.), The Japan Times/Kyodo News (22 Feb.), New Straits Times (Malaysia) (21 Feb.)
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Turkey presses Germany to back its campaign to join EU
Turkey is ramping up efforts to persuade Germany to support its bid to become a member of the EU. Turkey was encouraged by a statement by European Energy Commissioner Guenther Oettinger, a German, that one day Germany and France will "have to crawl to Ankara on their knees to beg the Turks" to join the EU. France hosted talks in Paris this week aimed at smoothing Turkey's path to EU membership. Spiegel Online (Germany) (21 Feb.), The Journal of Turkish Weekly/Anadolu Agency (21 Feb.), Hurriyet (Turkey)/Anatolia News Agency (21 Feb.)
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Securities Markets Program bolsters ECB profit
The European Central Bank says 2012 profit reached €998 million, largely because of interest on bonds purchased as part of the Securities Markets Program, a relief initiative that predated the Outright Monetary Transactions unlimited bond-buying scheme. Bloomberg (21 Feb.), The Wall Street Journal (tiered subscription model) (21 Feb.)
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GM invests $7.3B to expand production in South Korea
During the next five years, General Motors' South Korean unit plans to spend $7.3 billion to expand manufacturing and design facilities. GM is building models to compete with Toyota Motor, which replaced GM as the world's top automaker last year. Bloomberg (22 Feb.)
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CAREERS at CFA Institute
Director, Curriculum Projects - All locations
Director, Global Investment Performance Standards
Director, Global Private Wealth Management
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Reader Survey
Since the onset of the financial crisis of 2008, central banks around the world have battled deleveraging with monetary policy. Do you feel that this new money will manifest itself in significant inflation? If so, when?
Yes, I see significant inflation arising within the next three years  39.13%
Yes, inflation is already here; it is just not captured well by conventional measures  21.81%
Yes, but it will take longer than three years to reveal any significant changes  19.61%
There is no risk of significant inflation at this time  13.78%
Yes, I see significant inflation arising within the next 12 months  5.67%
Poll analysis:
On 10 September 2008, the U.S. monetary base stood at $875.7 billion. In contrast, on 6 February 2013, it stood at $2.8201 trillion, a full 222% increase in just four and a half years. Of course, this increase has not manifested itself broadly in product prices. One of the great myths of finance is that monetary expansion affects all goods, services and assets equally. Commodities and many financial assets are up strongly, while many consumer products and house prices are down sharply. Moreover, constraints on lending and the financial incentives of low interest rates have thus far kept the money supply in check. For example, M2 is up only 34% since 2008. This sharp difference between the growth in the monetary base and M2 is at least partially explained by a sharp decline in the velocity of money, meaning that economic activity has slowed sharply and has -- thus far -- been offset in part by the Fed's aggressive monetary actions. But the poll results clearly reveal that investment professionals are apprehensive about how much longer this situation can continue. Only 14% of 1,270 respondents seem unconcerned about significant inflation. The other 86% are concerned, and for good reason. -- Ron Rimkus, Content Director, CFA Institute
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Market Activity
Asian-Pacific markets mixed, with Australia, Japan advancing
Asian-Pacific markets were mixed Friday with Australian and Japanese exchanges recovering from Thursday's declines. Australia's S&P/ASX 200 closed up 0.8%. Japan's Nikkei 225 rose 0.7%. South Korea's Kospi edged up 0.2%. Taiwan's Taiex inched up 0.1%. China's Shanghai Composite and Hong Kong's Hang Seng Index each lost 0.5%. India's Sensex was essentially flat. MarketWatch (22 Feb.), The Economic Times (India) (26 Feb.)
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MSCI plans index options and futures in Europe
MSCI says it will list derivatives based on popular indices on NYSE Liffe and Eurex Exchange. The platforms will have futures and options based on several MSCI benchmarks. Financial Times (tiered subscription model) (21 Feb.)
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Economics
Obama and Republicans break silence and restart budget talks
The White House and Republican leaders in Congress have restarted talks on how to avert across-the-board U.S. spending cuts set to take effect March 1. President Barack Obama spoke with Senate Minority Leader Mitch McConnell of Kentucky and House Speaker John Boehner of Ohio. White House spokesman Jay Carney said the conversations were "good" but didn't give any details. Reuters (21 Feb.)
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Survey: Shoppers will spend less because of payroll-tax hike
Because of the payroll-tax increase Jan. 1, 45.7% of American consumers plan to reduce retail spending, according to a survey by the National Retail Federation. Wal-Mart Stores said in its earnings report that many shoppers are delaying purchases until they receive their tax refunds. However, according to the survey, only 30% of respondents plan to spend their tax refunds. Most will save the money or use it pay down debt. 24/7 Wall St. (21 Feb.), The Hill/On the Money blog (21 Feb.)
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First-time jobless claims climb by 20,000
U.S. initial unemployment claims increased by 20,000 last week, reaching a seasonally adjusted 362,000. The total is consistent with a slow recovery in the job market, the Labor Department says. The four-week rolling average, viewed as a better indicator of labor-market conditions, has fallen 7.5% since mid-November. Employers added an average of 200,000 workers in each of November, December and January. USA Today/The Associated Press (21 Feb.), Medill Reports (Northwestern University) (21 Feb.)
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Germany posts first budget surplus since 2007
Germany had a 0.2% budget surplus in 2012, the first annual surplus in five years, the Federal Statistical Office says. The country experienced a 0.8% deficit in 2011. Germany has achieved an annual surplus only three times since reunification. Market News International (22 Feb.)
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Ultra-wealthy want more info from advisers, survey finds
A survey by SEI Private Wealth Management of investors with an average of $11.8 million in financial assets found that 57% think they aren't getting enough information from financial advisers to assess risk. "The results show that many investors feel isolated when making financial decisions," Managing Director Michael Farrell said. AdvisorOne (21 Feb.)
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Geopolitical/Regulatory
EU reportedly adds Swiss franc-denominated swaps to Libor inquiry
The European Commission's investigation into manipulation of the London Interbank Offered Rate has expanded into Swiss franc-denominated swaps, in addition to an examination of euro and yen interbank rates, sources say. The commission's progress is slower than that of U.S. and U.K. regulators because it settles with all parties at once, instead of making deals with individual banks. Reuters (22 Feb.), Financial Times (tiered subscription model) (21 Feb.)
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Gensler questions sustainability of benchmark rates
Gary Gensler, chairman of the Commodity Futures Trading Commission, says he doubts the long-term viability of benchmarks such as the London Interbank Offered Rate. Gensler, calling Libor and other benchmarks unstable and their underlying markets permanently disrupted, says "anchoring to real transactions is essential to have confidence in these benchmarks." Bloomberg Businessweek (21 Feb.)
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EBA plans to develop scorecard of asset liquidity
The European Banking Authority says it will rank financial assets according to liquidity as regulators begin to implement Basel III rules. The rankings are intended to help banks meet the liquidity-coverage ratio. Bloomberg (21 Feb.)
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CFTC and SEC expect no major disruption from sequester
The Securities and Exchange Commission and the Commodity Futures Trading Commission expect mostly business as usual if the budget sequester goes into effect March 1. "We would definitely have to cut back expenditures in technology. ... We're doing everything to husband our resources to avoid a furlough," CFTC Chairman Gary Gensler said. Similarly, an SEC spokesman says there likely would be no reduction in workforce. Reuters (22 Feb.)
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FSOC is asked to step back from money-fund rules
As the Financial Stability Oversight Council pressures the Securities and Exchange Commission to adopt rules for money market funds, a group of former SEC chairmen, commissioners and senior staff is asking the FSOC to take a step back. In a letter, the former officials ask the FSOC to "respect the jurisdiction, independence, subject-matter expertise and regulatory processes" of the SEC. Reuters (21 Feb.)
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Financial Products
Trading begins for 2 low-volatility ETFs by SSgA
State Street Global Advisors has launched two exchange-traded funds investing in low-volatility stocks. The SPDR Russell 1000 Low Volatility ETF tracks the Russell 1000 Low Volatility Index, made up of 92 large-cap stocks. The SPDR Russell 2000 Low Volatility ETF is linked to the Russell 2000 Low Volatility Index, which comprises 170 small-cap stocks. ETFguide (21 Feb.), ETF Trends (21 Feb.), IndexUniverse.com (21 Feb.)
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Ethics
Undeclared property prompts Russian lawmaker to resign
Vladimir Pekhtin, until recently head of the ethics committee of the lower house of Russia's parliament, has given up his legislative seat after opposition bloggers published documents showing he owns property in Miami and Ormond Beach, Fla., that wasn't mentioned in his official asset disclosure. He is a close associate of President Vladimir Putin and a co-founder of the ruling United Russia party. The Moscow Times (20 Feb.), The New York Times (tiered subscription model) (20 Feb.)
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