U.S. default is averted as Congress suspends debt limit | Spanish regulator permits short selling again | Derivatives sales violated rules, U.K. study finds
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01 February 2013
CFA Institute: Financial NewsBrief
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U.S. default is averted as Congress suspends debt limit
Legislation to suspend the U.S. debt limit for three months is on its way to the White House for President Barack Obama's signature. Congress gave final approval when the Senate voted 64-34 in favor of a bill passed by the House. The Obama administration had warned that without congressional action, the government would run out of money to pay its bills sometime in early March. The Washington Post (tiered subscription model) (31 Jan.), The Hill/Floor Action blog (31 Jan.), Business Insider (31 Jan.)
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Spanish regulator permits short selling again
The market regulator in Spain says it has ended a short-selling ban, which had been in place since July. The ban aimed to protect stocks and bonds from speculators, who were forcing prices down during the sovereign-debt crisis. Reuters (31 Jan.)
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Derivatives sales violated rules, U.K. study finds
The U.K. Financial Services Authority found through a pilot study that 90% of 173 interest-rate hedging products were sold without regulatory compliance. Among the violations: Clients were not told about exit costs; there were mismatches of amounts and durations with underlying loans; and sellers, including Barclays, HSBC Holdings, Lloyds Banking Group and Royal Bank of Scotland, never got an assurance that customers understood the risk involved. As a result, the FSA is ramping up enforcement. International Financing Review (free content) (31 Jan.), The New York Times (tiered subscription model)/DealBook blog (31 Jan.), Bloomberg (31 Jan.), The Wall Street Journal (tiered subscription model)/Dow Jones Newswires (31 Jan.)
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DOJ sues to block $20B merger of major beer-makers
The Justice Department filed an antitrust lawsuit to block Anheuser-Busch InBev from acquiring the remaining half of Mexican beer-maker Grupo Modelo for $20.1 billion. The U.S. government said the combination would illegally restrict competition. The lawsuit calls into question one of 2012's biggest merger deals and a related deal involving the world's biggest wine company, Constellation Brands. Reuters (31 Jan.), Bloomberg (31 Jan.), St. Louis Post-Dispatch (31 Jan.)
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Reader Survey
Are the fiscal- and monetary-policy initiatives being undertaken by Japan's new government likely to lead the country out of the deflationary and slow-growth environment that has persisted for the past two decades?
No  62.56%
Yes  37.44%
Poll analysis:
"Abenomics" (????????) and the new economic policies of Japanese Prime Minister Shinz? Abe, which feature fiscal and monetary expansion with an explicit 2% inflation target, are hailed by many to be the key to how Japan can show the rest of the world how to get out of prolonged deflationary economic stagnation. Nobel laureate Paul Krugman, known for his support of Keynesian economics, is in the front line of the cheering squad, whereas many others doubt that these policies will change the situation that has persisted for the past two decades. As for readers of the global edition of the CFA Institute Financial NewsBrief, a majority of the 782 respondents (62%) do not believe that Abenomics can change Japan's economic stagnation; only 38% sided with Krugman. The readers of the Asia Pacific NewsBrief appear slightly more optimistic, with 41% siding with Krugman. -- Samuel Lum, CFA, Director, Private Wealth & Capital Markets, CFA Institute, and Alex Flatscher, CFA, Director, Code & Standards, CFA Institute
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Market Activity
Most Asian-Pacific markets advance in choppy trading
Most Asian-Pacific markets rose Friday but conflicting data on China's manufacturing sector brought some uncertainty to the financial markets. Japan's Nikkei 225 gained 0.5%. Australia's S&P/ASX 200 rose 0.9%. China's Shanghai Composite increased 1.4%. South Korea's Kospi declined 0.2%. Hong Kong's Hang Seng Index closed almost unchanged. India's Sensex was down 0.6% at midafternoon. The Economic Times (India) (26 Feb.), The Wall Street Journal (tiered subscription model) (01 Feb.)
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Economics
Percentage of Americans delaying retirement increases
About 62% of Americans 45 to 60 years old plan to delay retirement, according to a Conference Board report. That's a dramatic increase from 42% two years ago. Last year, workers aged 60 and older accounted for 29.4% of the U.S. civilian labor force. The Wall Street Journal (tiered subscription model) (31 Jan.)
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China's $6.5B investment in U.S. sets record
Chinese companies' direct investment in the U.S. reached a record $6.5 billion last year, a 17% increase compared with 2011, according to Rhodium Group. The investment level will grow as China moves closer to having the world's biggest economy, analyst Thilo Hanemann said. The Washington Post (tiered subscription model) (31 Jan.)
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Initial unemployment claims edge up in U.S.
First-time jobless claims in the U.S. rose 38,000, to 368,000 in the week that ended Jan. 26, the Labor Department said. Economists anticipated 345,000 initial claims. The four-week rolling average viewed by many economists as giving a more accurate picture of labor market conditions rose only 250. Google/Agence France-Presse (31 Jan.)
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Survey: 86% of young investors ready to fire parents' adviser
Advisory firms need to start hiring young financial advisers to attract and keep the business of Generation X and Y investors, who will have accumulated $28 trillion of personal wealth by 2018, up from $2 trillion in 2011, said Tom Nally, president of TD Ameritrade Institutional. A recent survey showed that, if given the chance, 86% of young investors would fire their parents' financial adviser, he said. Financial-Planning.com (31 Jan.), Financial Advisor online (31 Jan.)
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Mixed data indicate industrial recovery in China
Two indexes tracking industrial activity in China give different indications of how quickly the sector recovered in January. The official purchasing managers' index points to a slower-than-expected rebound in factory output. A private survey by HSBC Holdings suggests manufacturing growth accelerated to a two-year high. Reuters (01 Feb.), Market News International (01 Feb.)
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January new car registration fell 15% in France
New car registration in France totaled 124,952 last month, 15% below the figure for January 2012, according to auto industry group CCFA. For all of 2012, registration dropped almost 14%, to 1.9 million, the fewest in 15 years. Market News International (01 Feb.)
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Geopolitical/Regulatory
EU official emphasizes importance of global Basel III adoption
Michel Barnier, the EU's internal-market commissioner, has reiterated a need for the U.S. and other nations to adopt Basel III rules. The U.S. delayed Basel II and did not pass it into law until years after Europe had introduced it. As it stands, 11 of the Group of 20 countries have introduced Basel III. Reuters (31 Jan.)
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Proponents of swaps and futures lock horns at CFTC hearing
Chicago commodity traders clashed with Wall Street bankers at a Commodity Futures Trading Commission hearing that discussed whether swaps rules disproportionately favor one group over the other. CFTC Chairman Gary Gensler downplayed the dispute. "Approximately eight-ninths of the derivatives marketplace [is] swaps and until recently was unregulated," he said. "Now we bring regulation to both sides; is it not just natural there might be some realignment?" Reuters (31 Jan.), Financial Times (tiered subscription model) (31 Jan.)
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FTC chairman is expected to step down
U.S. Federal Trade Commission Chairman Jon Leibowitz is set to announce his resignation. His departure raises the potential for partisan deadlock until President Barack Obama can get a nominee confirmed by the Senate. With Leibowitz gone, the five-member FTC would have two Democrats and two Republicans. The Washington Post (tiered subscription model) (31 Jan.)
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U.K. regulators examine possible Barclays loan to Qatar
The U.K.'s Financial Services Authority and Serious Fraud Office are investigating the possibility that Barclays loaned money to Qatar Holding in 2008 so the latter could buy the bank's stock, giving Barclays a much-needed capital infusion. Such an action, especially without disclosure, could be a serious regulatory breach. Financial Times (tiered subscription model) (31 Jan.), Reuters (31 Jan.)
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Financial Products
WisdomTree debuts actively managed corporate-bond ETF
WisdomTree Investments has launched on Nasdaq an exchange-traded fund investing in a mix of developed- and emerging-market corporate bonds. The WisdomTree Global Corporate Bond ETF buys debt ranging from investment grade to high yield. The ETF hedges foreign-currency exposure against exchange-rate risk. Barron's (free content)/Focus on Funds blog (31 Jan.), Benzinga.com (31 Jan.), IndexUniverse.com (31 Jan.)
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Ethics
Peregrine's Wasendorf receives 50-year prison sentence
U.S. District Judge Linda Reade has sentenced Russell Wasendorf Sr., founder and former CEO of Peregrine Financial Group, to 50 years in prison for stealing hundreds of millions of dollars from clients. The sentence is the maximum allowed by law. Wasendorf was also ordered to pay $215.5 million in restitution. Reuters (31 Jan.), The Des Moines Register (Iowa) (tiered subscription model)/Finance & Insurance blog (31 Jan.), Financial Times (tiered subscription model) (31 Jan.)
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