March 7th, 2011 11:45:27 GMT

Germany FinMin: Geithner, Schaeuble To Meet In Berlin Tuesday

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BERLIN (MNI) – U.S. Treasury Secretary Timothy Geithner and German
Finance Minister Wolfgang Schaeuble will meet on Tuesday in Berlin, a
German finance ministry spokesman said Monday.

“The two ministers will talk about the state of the global economy
and the reforms of the international financial system,” spokesman Martin
Kreienbaum said at a regular government press conference here.

A press conference of Geithner and Schaeuble is scheduled for 1400
GMT tomorrow, he said.

–Berlin bureau: +49-30-22620580; email: twidder@marketnews.com

[TOPICS: M$X$$$,M$G$$$,MGU$$$,MGX$$$,M$$CR$]

March 7th, 2011 10:15:54 GMT

Cable extends rally

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Sources note hedge fund buying just below 1.6300. That helped get us back over 1.6300. Stops duly tripped through 1.6305 and we’ve been as high as 1.6336 so far.

As mentioned earlier, sell orders 1.6340/50 ahead of 1.6350 barrier option interest.  Guess further stops will be placed not far north of 1.6350, but haven’t got foggiest were.  We’re presently at 1.6328.

UPDATE:  That’s timely.  Not one, but two sources have just popped up and informed me buy stops just above 1.6350.  Sounds about right…..

March 7th, 2011 09:31:59 GMT

Euro zone sentix index rises to 17.1 in March

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From 16.7 in February,  pretty much in line with median forecast of 17.2.  Highest read since September 2007.

Meanwhile it didn’t much matter whether buy stops through 1.4010 or 1.4015, both levels having given out.  We’re presently at 1.4015 having been as high as 1.4020.

As mentioned earlier, sell orders noted at 1.4040/50 ahead of 1.4050 barrier option interest.

March 7th, 2011 09:15:55 GMT

Update:EU Rehn:Should Lower Lending Rates To Greece, Ireland

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–Adds Details of Commission’s Corporate Tax Harmonization Proposal

FRANKFURT (MNI) – The European Union should lower interest rates on
loans to Greece and Ireland and double Greece’s repayment period, in the
view of EU Monetary Affairs Commissioner Olli Rehn.

In an interview published Monday by the German business daily
Handelsblatt, Rehn reminded EU leaders that the markets are looking for
“a definitive answer to the debt crisis” to emerge from their summits
this month.

“If we disappoint market expectations, it could be costly for us,”
he warned. The turbulence on financial markets “is continuing. We are
not out of the woods yet.”

Rehn’s comments were accompanied Monday by a stark reminder:
Moody’s downgraded Greece’s sovereign debt to B1 from BA1, citing the
country’s difficulty in collecting tax revenue; the long, hard road it
faces in implementing its consolidation and reform package; and the risk
of a sovereign default.

“The government leaders must commit to strict budget consolidation
and growth-enhancing reforms, especially for labor markets,” Rehn said.
“They must also decide that all wobbly banks will be restructured and
recapitalized. In addition, they must strengthen the euro rescue
package.”

The new Irish government must stick to the savings and reform
program agreed with the Eurozone and the IMF — “without modification,”
Rehn insisted. “However, we must also ensure that Ireland can repay its
debt over time.”

“The Eurozone should lower the borrowing rates for Greece and
Ireland,” he argued. “In addition, the duration of loans for Greece
should be extended from three and a half years to seven.”

The commissioner reiterated his opposition to haircuts on debts of
the two countries, warning that this could force banks to write off
billions in loans and lead to “dramatic” losses for sovereign debt of
other Eurozone countries.

He urged the German parliament to rethink its opposition to
allowing the European Financial Stability Facility to buy back
government bonds, citing the “great risks” that several Eurozone
governments are facing and the eventual fallout for Germany.

Wage policies must be a central element of the Eurozone reform
package, Rehn said, proposing unit labor costs as key barometer for
competitiveness. He favored decentralized wage negotiations based on the
productivity of individual companies.

Rehn also noted growing determination to harmonize tax policy
throughout the Eurozone and said the Commission this month would propose
a yardstick for unified corporate taxes.

At the same time, he warned against forcing Dublin to hike
corporate taxes: “We must avoid all risks for the Irish economy.”

In a separate interview with the French business daily Les Echos,
EU Taxation Commissioner Algirdas Semata explained that the Commission
would propose a single corporate tax base for the EU and that business
activity be taxed at the level of existing rates in each member country.

The distribution of a firm’s activity across the EU would be
determined for one third each according to turnover, capital and assets,
and staff and salaries, he said. “These factors are closely linked to
profits; they are clear and easy to calculate.”

“The great majority of firms are favorable to our proposition,
especially since it should help attract more foreign investment to
Europe,” Semeta said, adding that if there were no full accord among all
27 EU states, a smaller group could initially proceed with the
harmonization of the tax base.

[TOPICS: M$X$$$,M$G$$$,MGX$$$,M$$CR$,MFX$$$]

March 7th, 2011 09:15:54 GMT

Germany Bank Economists See 2011 German GDP +3.0%, 2011 +2.3%

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BERLIN (MNI) – The economic panel of the German Banking Association
(BDB) on Monday projected robust German GDP growth of 3.0% this year and
2.3% in 2012.

“The upswing in Germany has gained in breadth and thus in
stability,” the chief economists of the top private banks in the country
said in their joint forecasting report.

In addition to the driver of exports, domestic demand is also now
contributing significantly to economic growth, the chief economists
observed. Exports are forecast to grow 8.1% this year and 6.4% next
year.

Equipment investment is projected to pick up by 9.2% in 2011 and by
5.2% in 2012. Construction investment is seen at +2.0% both this year
and next.

Private consumption growth is forecast by the bank economists at
2.0% in 2011 and 1.7% in 2012, boosted by the ongoing decline in
unemployment and above-average wage rises.

Economic developments in the Eurozone will remain bifurcated for
the time being, the report noted. It pointed to “very strong growth in
the core countries of the Eurozone, especially in Germany,” while the
economies of the peripheral countries are still burdened by problems in
housing markets.

Still, the continued recovery of the global economy as well as
strong growth in the Eurozone’s core countries will also help the
peripherals, the banks economists argued. “Growth differentials in the
currency union should recede, albeit slowly” in 2012, they predicted.

The bank economists expect the Eurozone to grow on average by 2.0%
both this year and next. Eurozone harmonized HICP inflation is seen at
2.2% in 2011 and 2.1% in 2012 — above the ECB’s definition for price
stability in both years.

The risk for the inflation forecasts continues to be on the upside,
“mainly because business surveys have shown that firms are passing on
the major part of higher production costs to consumers,” the bank
economists said.

The ECB will likely begin to raise interest rates in the second
quarter, and “two to three steps of 25 basis points each seem plausible
until the end of the year,” they said.

However, the sovereign debt crisis in the Eurozone will likely not
be exacerbated by these interest rate hikes, the economists argued. “The
core of the problem is less the general interest rate level…than the
high risk premia” for the fiscally ailing member countries, they said.

Markets are currently focusing on efforts by EU leaders to craft a
package of solutions to the debt crisis in time for their summit in
Brussels at the end of March, the economists noted. However, they
cautioned against inflated expectations.

“It would be an illusion to believe that the sovereign debt crisis
could be solved with one big coup,” they said. “Rather, it is realistic
that the sovereign debt crisis can only be defused gradually over a long
period.”

The bank economists advocated allowing the European Financial
Stability Facility (EFSF) to buy bonds of highly indebted Eurozone
member states in the secondary markets. An alternative, they said, would
be to give the EFSF the right to make loans to indebted countries to buy
back their own bonds.

“However, the EFSF must not exert any pressure, because this could
possibly be seen as a de facto default” of the concerned countries, the
economists warned.

Turning to currency markets, the bank economists forecast the euro
at $1.40 at the end of both 2011 and 2012. “On average, the economic
panel projects a slight upward tendency of the euro in 2011 and a
sideways movement in the following year,” they said.

The expected tightening of monetary policy in the Eurozone will
support the euro against the dollar for the time being because an
interest rate hike in the U.S. will likely only occur next year, the
economists argued.

Later in the year, however, “the pick up of the U.S. economy should
give the dollar some tailwind,” they reckoned.

Still, while the euro-negative sovereign debt crisis will likely
remain in the focus of market participants over the coming weeks, the
fiscal policy problems of the U.S. could move more to the forefront in
the course of the year, the bank economists said.

–Berlin bureau: +49-30-22620580; email: twidder@marketnews.com

[TOPICS: MT$$$$,M$X$$$,M$G$$$,M$$FX$,MFX$$$,M$$CR$,M$$EC$]

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