January 19th, 2011 17:52:59 GMT

Equities lengthen losses

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Beware the risk-off trade. US equities are down 0.9%, their first decent pullback in what feels like months…

EUR/USD has pulled back to the 1.3475 area. We dipped to the 1.3470 area earlier today in NY amid reports of Asian central bank buying…Expect a few small stops to be seen below that level now.

The so-called safe-havens are in sudden demand…USD/CHF is slumping fast, down to 0.9545 from near 0.9580 a short while ago. USD/JPY is down to 81.90.

EUR/CHF is slumping as well. Keep in mind earlier reports of SNB bids at the 1.2850 level. We trade now at 1.2895.

7 Comments

January 19th, 2011 17:26:28 GMT

German Banking Regulators: Go easy on us…

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Reuters reports that German banking regulators are lobbying for European stress tests not to be overly stringent. The stress test results are said to be published in June, according tot he report…

Looks like the notion of “extend and pretend” is alive and well in Europe…

EUR/USD traded quietly in the middle of its NY range…

Asian central banks are rumored buyers on dips to 1.3470/75. The BIS was a rumored seller above 1.3525.

3 Comments

January 19th, 2011 17:21:49 GMT

USD/JPY dips to 81.95

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USD/JPY dipped as low as 81.95, the edge of the 81.90/95 area where Japan’s Kampo is a rumored USD/JPY buyer. The market has retraced 61.8% of the rally from the 80.92/83.66 rally.

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January 19th, 2011 16:50:27 GMT

Guess Hu’s not coming to dinner?

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The leaders of the US House and Senate, that’s who. They are skipping the state dinner for President Hu, presumably in protest…

Poor form, if you ask me…

To be fair, Hu is scheduled to travel to Capitol Hill tomorrow..

Could be a an orchestrated game with the White House, however. The ol’ good cop/bad cop routine…

“Better revalue the yuan or you never know what those crazy bastards up on the Hill will do,” Obama can say to Hu.

12 Comments

January 19th, 2011 16:45:17 GMT

EFSF Regling Welcomes Triple A Rating For Upcoming Bond Issue

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LONDON (MNI) – European Financial Stability Fund Chief Executive
Officer Klaus Regling has welcomed the triple A credit ratings for its
debut bond issue.

All three major ratings agencies gave the issue AAA.

Regling, EFSF CEO commented: “We are very pleased with the
confirmation of the top credit ratings from all three agencies which
underlines the solidity of the EFSF name. We expect investor interest to
be high as our debut issue provides a good opportunity for investors to
diversify into a new supranational and liquid asset”.

In September 2010 all three agencies assigned an initial triple A
rating to the EFSF as an issuer. The first EFSF issue, as part of the
financial support package agreed for Ireland, will be placed, subject to
market conditions, during the week of January 24. This syndicated
issue will be jointly lead managed by Citi, HSBC and Societe Generale.

–London Bureau; Tel: +442078627492; email: ukeditorial@marketnews.com

[TOPICS: MGX$$$,MFX$$$,MFXBO$,M$X$$$]

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January 19th, 2011 16:35:42 GMT

BBK’s Dombret: Eurobond Idea Should Be Viewed Very Critically

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FRANKFURT (MNI) – Eurobonds would not free the Eurozone from
capital market pressure and would set the wrong incentives over the
medium term, Bundesbank board member Andreas Dombret warned Wednesday.

In the short run, the momentum of the crisis must be arrested and
“countries must be given the necessary time to consolidate public
finances,” Dombret acknowledged in comments prepared for a lecture at
the Center for Financial Studies here.

Over the longer term, however, it is essential to ensure that each
country remains solely responsible for its own fiscal situation, he
stressed.

Eurobonds would weaken that responsibility and remove key
incentives for austerity, he warned. “Any introduction of a Eurobond
should thus be viewed very critically.”

At the same time, expectations that a common bond would free the
Eurozone from capital market pressure are not realistic, as doubts over
the sustainability of public finances in the euro area would be
reflected in the yield of a common bond, he argued.

Dombret reminded that excessive sovereign debt is not a problem
unique to Europe. The U.S. will have to deal with the consequences of
high debt built up before and during the crisis for some time, he said,
voicing unusually frank criticism of U.S. policy.

“The U.S. countered not only the threatening great recession after
the Lehman failure but also the slowdown in the upswing already under
way via powerful fiscal and monetary policy stimuli,” he said. “In
essence, the U.S. is trying to counter the symptoms of a debt crisis by
means of yet more debt.”

America’s “expansive strategy carries risks and might raise
difficult questions, for example with regard to the durability of the
dollar as the leading currency,” he said.

Returning to the Eurozone, Dombret reiterated that medium-term
inflation is expected to remain in line with price stability — close to
but below 2%.

“However, the risks — which currently remain largely balanced —
could well move to the upside,” he cautioned. “The Eurosystem is
monitoring these developments very attentively.”

Similar comments by ECB President Jean-Claude Trichet last week
spooked the markets. Since then, however, Governing Council members have
stressed that inflation concerns are still contained and that markets
may have overreacted to the new inflation rhetoric.

–Frankfurt bureau tel.: +49-69 720142. Email: jtreeck@marketnews.com

[TOPICS: MGX$$$,M$X$$$,M$G$$$,MFX$$$,M$$EC$,MFGBU$]

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January 19th, 2011 16:25:21 GMT

Update:Germany FinMin: No Plans For Restructuring Greece Debt

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–Adds More German Government Comments To Story Sent At 12:25 GMT

BERLIN (MNI) – The German finance ministry on Wednesday rejected
media reports saying that the German government is planning for a
restructuring of Greek debt.

“The finance ministry resolutely denies that the federal government
is planning or working on ways to restructure Greek debt,” ministry
spokesman Martin Kreienbaum said in a statement.

There are currently discussions underway for a sustainable strategy
to stabilise the Eurozone, as part of the action plan decided by EU
leaders in December, the spokesman said.

However, “plans for a restructuring of Greek government bonds are
clearly not part of these joint considerations,” he stressed.

Germany has always said that a possible participation of creditors
in rescue measures will only be part of a new crisis mechanism after
mid-2013, when the current rescue facility expires, Kreienbaum reminded.
“It will stay this way,” he promised.

Later Wednesday, Deputy Foreign Minister Werner Hoyer on told the
committee on European affairs of Germany’s lower house of parliament,
the Bundestag, that “in the view of the government the discussion about
stepping up the European Financial Stability Facility and making it more
flexible is misplaced.”

Thomas Steffen, who heads the European affairs department of the
German Finance Ministry, also told the committee that “it is clear that
we see today no need to increase the European Financial Stability
Facility, neither quantitatively nor qualitatively.”

“We see currently a calming on [bond] markets,” the ministry
official said.

In other remarks, Steffen said the ministry wants to see the next
EU bank stress test be tougher and include more banks than the tests
concluded last July.

–Berlin bureau: +49-30-22-62-05-80, email: twidder@marketnews.com

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

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January 19th, 2011 16:25:20 GMT

US House Expected To Pass Health Care Reform Bill Wednesday

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–House Set To Pass Health Care Repeal, But Senate To Block Repeal Bill
–House Majority Leader Says GOP Will Look For Other Ways To Kill Law
–Budget Group Fears That Dismantling Health Care Would Worsen Deficit

By John Shaw

WASHINGTON (MNI) – The House will vote Wednesday afternoon to
repeal the new health care law.

The House Republican health law repeal bill, which is expected to
be approved in a near party line vote, is widely seen as mostly symbolic
since Democratic leaders in the Senate have vowed not to bring the bill
up.

President Obama would certainly veto the bill if it arrived on his
desk.

After the vote Wednesday to repeal the health care law, the House
Thursday will consider a resolution that directs the House’s health
committees to draft a bill to replace the current law.

The resolution does not specify when the replacement bill should be
ready or what it’s precise provisions should be, but it says it should
reduce insurance premiums, expand coverage, rewrite medical malpractice
laws and increase competition,

Voting to repeal the health care law was an integral part of the
House Republican campaign agenda in the 2010 mid-term elections, so GOP
leaders have wanted to hold the vote early in the year.

At a briefing Tuesday, House Majority Leader Eric Cantor said the
new health care law is an “unsustainable and open-ended entitlement.”

Cantor said that if the House repeal bill falters in the Senate,
House Republicans will “do everything we can to delay and de-fund the
provisions so that we can get some discussions going on how we can
replace it, and come together on the agreement that we can’t accept the
status quo.”

Budget experts who have studied the new health law have said that
it will be difficult to dismantle it through the annual spending process
since many of the law’s central provisions are not subject to the
appropriations process.

The Concord Coalition, a budget watchdog group, urged policymakers
to deal with the health care law carefully. It said efforts to repeal
unpopular provisions and retain popular ones could worsen the budget
deficit.

The House debate on repealing the health law has included
considerable discussion of the fiscal consequences of such a repeal.

Democrats have cited a report by the Congressional Budget Office
that repealing the law would worsen the deficit by $230 billion over a
decade.

House Speaker John Boehner has dismissed this report, but without
citing any contrary evidence.

House Budget Committee Chairman Paul Ryan said Tuesday that the new
health care law “if left in place, will accelerate our country’s path
toward bankruptcy. This new law is a fiscal house of cards.”

President Obama has said that he is “willing and eager” to work
with lawmakers from both parties to improve the law. But he added: “We
can’t go backward. ”

** Market News International Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

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January 19th, 2011 16:25:17 GMT

Fitch Rates EFSF E27bn Guaranteed Debt Issuance Programme AAA

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LONDON (MNI) – Fitch Ratings has rated the EFSF’s E27bn bond
issuance programme but warns that a downgrade of any major guarantor of
the issue could result in a downgrade of the notes.

A full text of the note follows:

“Fitch Ratings has assigned the European Financial Stability
Facility’s (EFSF) EUR27bn guaranteed debt issuance programme a ‘AAA’
rating. All notes to be issued under the programme are expected to be
assigned a rating of ‘AAA’. In the event of a downgrade of a major ‘AAA’
guarantor and in the absence of additional credit enhancement, notes
issued and rated ‘AAA’ under the programme may subsequently be
downgraded.

“The ‘AAA’ rating of the notes is based on the credit enhancement
provided by the ‘over-guarantee’ mechanism and cash reserves in place.
The notes are irrevocably and unconditionally guaranteed by euro area
member states (EAMS) – except for Greece (‘BB+’/Negative) and Ireland
(‘BBB+’/Stable) which have ‘stepped out’ as guarantors – according to
their respective share of ECB paid-in capital and may be drawn on a
pro-rata basis by up to 120% in the event of a shortfall in amounts
necessary to honour principal and coupon payments. The ‘over-guarantee’
mechanism allows ‘AAA’ EAMS to provide credit support in an amount
greater than their share of due amounts and thus partially mitigates the
risk of non-payment by other guarantors with a weaker sovereign credit
rating. The cash reserves are sized to ensure that any potential
shortfall of ‘AAA’ guarantor coverage of EFSF debt payments due in the
event of a borrower default will be sufficient to meet all payments.

“A general cash reserve equal to the net present value of the
interest margin on the loan (net of the loan-specific cash reserve) from
the date of advance to its scheduled maturity date (as well as a 50bps
service fee) will be deducted from the cash amount disbursed to the EFSF
borrower. The general cash reserve is further supplemented by a
loan-specific cash buffer to ensure that the share of guarantees from
‘AAA’-rated EAMS and cash reserves provide full coverage of EFSF debt
instruments.

“The general and loan-specific cash reserves are subject to
investment guidelines that limit counterparty and credit risk. The
bond-specific cash credit enhancement will be invested in “high quality
liquid debt instruments”. Fitch has reviewed the investment guidelines
and judges that they are consistent with the ‘AAA’ rating of the notes.

“Notes issued under the EUR27bn programme will allow the EFSF to
lend up to EUR17.7bn to Ireland under the joint EU-IMF economic
programme recently agreed with the Irish authorities.

“The primary source of credit and rating transition risk on notes
issued under the programme is if one or more of the largest ‘AAA’
guarantors were to fail to honour its guarantee commitments or be
downgraded. In the unlikely event of a downgrade, the ‘AAA’ guarantees
plus cash coverage on notes previously issued under the programme could
drop below the level consistent with their ‘AAA’ rating in the absence
of additional credit enhancement.

–London Bureau; Tel: +442078627492; email: ukeditorial@marketnews.com

[TOPICS: MGX$$$,MFX$$$,MFXBO$,M$X$$$,MR$$$$]

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January 19th, 2011 16:15:55 GMT

Fitch: Euro Area Sovereign Profiles To Stay Under Pressure

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LONDON (MNI) – Euro area sovereign profiles will remain under
pressure due to fragile confidence over the sustainability of public
finances, Fitch Ratings said in a report published Tuesday and it warned
of more states seeking EU and IMF support.

Fitch issued the following statement on its global credit outlook
report:

Fitch Ratings says in a new global credit outlook report that while
an economic recovery is occurring, it remains fragile with possible
pitfalls. In this environment, Fitch expects macro factors to continue
to dominate credit markets. However, although macro risks remain,
Fitch’s rating outlooks are continuing to stabilise across most sectors.

“The overall continuing stabilisation of outlooks reflects a
combination of improved credit profiles and rating downgrade action,
followed by rating stabilisation at lower levels in many cases,” says
Monica Insoll, Managing Director in Fitch’s Credit Market Research
group.

Outlooks on insurance ratings, which have had the most negative
bias since Q408, have stabilised rapidly over recent quarters as asset
risk is increasingly captured within the current rating levels.
Corporate and financial institutions rating outlooks are also largely
returning to more normal levels of stability.

However, a small number of market segments remain challenged. In
structured finance, the rating outlook for US residential
mortgage-backed securities is negative due to the continued falls in
house prices, the large inventory and lengthening loan resolution
timelines. Fitch expects the magnitude and severity of negative rating
actions in 2011 to decline substantially, compared with prior years’
levels.

Developed market sovereigns, notably peripheral euro area member
states (EAMS), are struggling with large fiscal financing needs against
the backdrop of fragile and volatile funding markets. Many subnationals,
in both Europe and the US, share these problems. The rating outlook for
these issuers is negative in certain segments.

“The global recovery remains dependent on continued emerging market
dynamism and accommodative policy support, especially from central
banks,” says David Riley, Group Managing Director in Fitch’s Sovereign
team.

In the US, there has been determined positive action to boost
growth, notably through the extension of tax relief and a second round
of quantitative easing (QE2), to which the financial markets have
responded enthusiastically. However, there is a risk that QE2 could
undermine confidence in the US dollar and raise inflation expectations.
Also, together with exceptionally low interest rates, QE2 may result in
yield-seeking capital and financial flows undermining economic and
financial stability in stronger-growing emerging markets.

In the euro area, support measures have been substantial, although
at times hampered by inconsistent communication from the region’s
policymakers. Confidence in the sustainability of public finances and
bank liquidity and asset quality will remain fragile and sovereign
credit profiles will continue to be under pressure. It is likely that
there will be further episodes of extreme market volatility and a risk
that more EAMS will be forced to seek financial support from the EU and
IMF. Fitch believes the euro zone will “muddle through” rather than
break up in the wake of systemic sovereign debt defaults or become a
fully fledged fiscal union.”

–London Bureau; Tel: +442078627492; email:
ukeditorial@marketnews.com

[TOPICS: MGX$$$,MFX$$$,MFXBO$,M$X$$$]

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