-Fitch: Fiscal Cliff Won’t Necessarily Translate Into US Downgrade

WASHINGTON (MNI) – The following are top events and news reported
Thursday in the global financial system by MNI:

* The sharp decline in initial claims for U.S. state
unemployment benefits in the latest week may largely be attributable to
a technicality rather than an improvement in the labor markets, and
likely will prove temporary, a U.S. Labor Department official told MNI.
Benefits plummeted unexpectedly by 30,000 claims to 339,000 in the
October 6 week, however a Labor analyst told MNI following Thursday’s
data release that one state did not do the usual recertification process
that is associated with the first week of a new quarter and usually
results in a large increase in unadjusted claims. This one state, which
the analyst would not identify — other than that is was a “large” state
— reported a decrease in claims which accounted for a “decent chunk” of
the overall decline in adjusted claims. [10:44 and 08:30 ET]

* Should Congress decide to let massive automatic spending cuts
and tax increases go into effect at the beginning of 2013, it would not
necessarily translate into immediate rating downgrades of U.S. banks, a
Fitch ratings analyst said Thursday. Asked by MNI during a conference
call whether the fiscal cliff would trigger an immediate downgrade of
U.S. banks, analyst Joo-Yung Lee said, “We don’t believe so.” She said
the rating agency would first have to assess what such a fiscal shock
“does to the economic environment and how meaningful the impact is on
asset quality.” [12:29 ET]

* German Chancellor Angela Merkel said Thursday her government
will refrain from further fiscal tightening in order to avoid dampening
domestic demand. The decision should help fellow Eurozone states via
stronger German imports, Merkel said. “Now it is our duty to do
something for the recovery of the European economy,” the chancellor
said, noting that her government was planning tax cuts to maintain
domestic demand. [08:48 ET]

* The U.S. international trade gap widened in August to $44.2
billion from a revised $42.5 billion gap in July, with the key factor
being a jump in energy products imports, data released by the Commerce
Department Thursday morning showed. The goods gap widened to $59.3
billion from $57.8 billion in the previous month, due entirely to a
petroleum gap that widened to $23.5 billion from the $21.0 billion gap
in July. Excluding petroleum, the goods gap would have been $35.3
billion, smaller than the $36.3 billion gap in the previous month.
[08:30 ET]

* Federal Reserve Board Gov. Jeremy Stein said Thursday the
Fed’s large scale asset purchases are playing a key role in helping the
central bank do a better job of communicating the future direction of
monetary policy, in particular making its forward guidance more
effective. “In terms of making forward guidance more effective … I
think there is a supportive signaling value in addition to the direct
benefits of LSAPs,” Stein said following a speech at the Brookings
Institution. [12:34 ET]

* In his prepared remarks, Stein touted the benefits of the
central bank’s large scale asset purchases, citing a “substantial”
pass-through to the bond markets, and the fact that it bolsters the
credibility of the Fed’s forward guidance. In his first public speech
since his confirmation — and clearly aimed at establishing his monetary
policy bonafides — Stein acknowledged the concerns some have regarding
the Fed’s unconventional policy tools, but assured the risks remain
manageable. “It is just a fact of life that we are likely to be in a
low-rate environment for a considerable period of time, in light of the
economic outlook,” he said. [10:00 ET]

* Philadelphia Federal Reserve Bank President Charles Plosser
Thursday said the FOMC may tighten monetary policy — that he opposes —
sooner than the Committee stated after its last meeting. This time
Plosser went beyond his criticisms to suggest the FOMC will reconsider
its outlook for exceptionally low rates at least through mid-2015.
Plosser said his assessment is “that the appropriate monetary policy is
likely to become tighter more quickly than the Committee anticipated in
its latest statement.” [12:30 ET]

* EU lawmakers plan to table a motion to reject the appointment
of Luxembourg’s central bank governor Yves Mersch for a position on the
European Central Bank’s Executive Board. Even if the committee vote
succeeds, which is not clear at this stage, and is confirmed by the
Parliament’s plenary, it will have no direct impact on Mersch’s ability
to take up the job, but would cast a shadow on the appointment. [12:33
ET]

* At a very minimum, the Thursday night debate between Vice
President Joe Biden and the Republican vice presidential nominee,
Congressman Paul Ryan, will provide an interesting study in contrasts.
What is less clear is if the vice presidential debate in Danville,
Kentucky, will also be a pivot point in the national election. Biden and
Ryan will debate for 90 minutes beginning at 9 p.m. EDT. [11:42 ET]

* EU Council President Herman Van Rompuy on Thursday publicly
acknowledged that he planned to raise with EU leaders the prospect of a
shared budget for the Eurozone and of reform contracts with governments,
ideas which emerged in leaked documents earlier this week. Van Rompuy
stressed that the idea of a shared “fiscal capacity” for the Eurozone
would be to perform specific functions within the currency bloc and
should not be confused with discussions on the EU’s multi-year budget.
[11:17 ET]

* U.S. import prices rose 1.1% in September, rising for the
first time in four months on a monthly basis, the Bureau of Labor
Statistics reported Thursday. The 1.1% rise was led by an increase in
fuel prices which rose by 4.4%, although nonfuel prices increased as
well. Within the fuel price rise, petroleum import prices increased
4.6%. Excluding food and fuels, import prices increased 0.1% in
September compared to a 0.2% drop in August. [08:30 ET]

* U.S. commercial crude oil inventories (ex-SPR) increased by
1.7 million barrels from the previous week to 366.4 million barrels, the
Energy Information Administration said. Total motor gasoline inventories
decreased by 0.5 million barrels last week and are near the lower limit
of the average range. Distillate fuel inventories decreased by 3.2
million barrels last week. [11:00 ET]

* Working gas in storage was 3,725 Bcf as of Friday, October 5,
2012, according to EIA estimates. This represents a net increase of 72
Bcf from the previous week. Stocks were 236 Bcf higher than last year at
this time and 269 Bcf above the 5-year average of 3,456 Bcf. [10:30 ET]

–Editor: Brai Odion-Esene; besene@mni-news.com

** MNI Washington Bureau: 202-371-2121 **

–email: besene@mni-news.com

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