Europe is in focus as the U.S. comes back from its mid-week Fourth of July celebration. The Bank of England announced it will maintain its bank rate at 0.5% and increase the size of its asset purchase programme by £50 billion to £375 billion. Meantime, the European Central Bank cut its main interest rate to a historic low of 0.75 percent and cut its overnight deposit and lending rates by 0.25 percentage points each, to 0 percent and 1.5 percent, respectively.
Conversation Starter
Bank of England maintains Bank Rate at 0.5% and increases size of Asset Purchase Programme by £50 billion to £375 billion
05 July 2012
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £50 billion to a total of £375 billion.
UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters. The pace of expansion in most of the United Kingdom’s main export markets also appears to have slowed. Business indicators point to a continuation of that weakness in the near term, both at home and abroad. In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here. The correspondingly weaker outlook for UK output growth means that the margin of economic slack is likely to be greater and more persistent.
CPI inflation fell to 2.8% in May and is likely to edge down further in the near term. Commodity prices have fallen, which should help to moderate external price pressures. And pay growth remains subdued. Given the continuing drag from economic slack, that should ensure inflation continues to ease into the medium term.
At its meeting today, the Committee agreed that the Funding for Lending Scheme, which would be launched shortly, was a welcome initiative. It also noted recent and prospective actions to ease liquidity constraints within the banking system. Taken together with reduced pressure on household real incomes, on the back of lower commodity prices, and the continued stimulus from past monetary policy actions, that should sustain a gradual strengthening of output growth.
But against the background of continuing tight credit conditions and fiscal consolidation, the increased drag from the heightened tensions within the euro area meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £375 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.
The minutes of the meeting will be published at 9.30am on Wednesday 18 July.
See more on the BOE announcement here.
LIBOR Scandal News
Regulators on Libor Probe Said to Seek More Time
By Joshua Gallu – Bloomberg
Barclays Plc (BARC)’s settlement of about $451 million with U.S. and U.K. regulators last week offered the first glimpse of what banks may have to pay to resolve a global probe of interest-rate manipulation. The question now is who’s next.
http://jlne.ws/N0i4Dc
Diamond’s Exit Shows Libor Only What Each Bank Says It Is
Bloomberg
The resignation of Barclays Plc (BARC) Chief Executive Officer Robert Diamond for the firm’s role in rigging the London interbank offered rate underscores the disconnect between the market’s perception of bank borrowing costs and the benchmark for $360 trillion of global securities.
http://jlne.ws/N0i1Yi
King Succession Race for BOE Roiled as Libor Furor Rages
Bloomberg
Chancellor of the Exchequer George Osborne’s hunt for the next Bank of England governor got tougher as the Libor-rigging scandal cast a shadow over potential contenders for the job, including the top internal candidate.
http://jlne.ws/N0i2ex
BOE’s Tucker Requests Hearing at U.K. Libor Probe
Bloomberg
Bank of England Deputy Governor Paul Tucker asked for a hearing with lawmakers to give his version of events over a telephone call with former Barclays Plc (BARC)’s chief Robert Diamond as the Libor furor intensifies.
http://jlne.ws/N0i2eA
Barclays Scandal Bad News For Investor Confidence
D.M. Levine – Huffington Post
The ballooning interest rate manipulation scandal at Barclays, coupled with stock market instability, is likely to fuel fresh doubts about the integrity of the stock market, insiders said.
http://jlne.ws/Pc8BNy
Banks Ask N.Y. Judge to Throw Out Libor Antritust Suits
Bloomberg
More than a dozen banks including Citigroup Inc. and Bank of America Corp. asked a U.S. judge to dismiss a group of lawsuits in which they are accused of trying to manipulate the London interbank offered rate.
http://jlne.ws/N0i4Ds
Diamond Says Barclays Penalized for Being First Fined Over Libor
Bloomberg
Robert Diamond, who quit yesterday as chief executive officer of Barclays Plc (BARC), said a backlash that has led to the resignation of senior managers and erased $5 billion from the bank’s market value is a consequence of the lender being the first sanctioned for rigging interest rates.
http://jlne.ws/N0i2eK
Diamond Exit Raises Speculation of Investment-Bank Split
Bloomberg
The departure of Diamond may presage a reorganization of Barclays after regulators in the U.K. and the U.S. pointed to the need for change at the company. The interest rate debacle is intensifying political pressure in the U.K. to build higher walls between banks’ consumer lending and investment-banking divisions to protect savers and taxpayers.
http://jlne.ws/N0i4TJ
Labour’s Balls Denies That He Pressured Barclays on Libor
Bloomberg
U.K. opposition Labour Party Treasury spokesman Ed Balls rejected Conservatives’ suggestions that he steered Barclays Plc (BARC) toward Libor fixing in 2008.
http://jlne.ws/N0i4TM
Diamond Would Be Catch for Investment, Private Equity
Bloomberg
If Robert Diamond can’t recover in banking after resigning as Barclays Plc (BARC)’s chief executive officer amid the firm’s record regulatory fines, he would still be a sought-after prospect in another field: investment funds.
http://jlne.ws/N0i2v5
Barclays sees more disciplinary action for traders
Reuters via Yahoo! News
Barclays Plc said disciplinary action loomed for traders at the bank after an interest rate-rigging scandal that cost its boss his job, according to a document prepared for a parliamentary hearing this week.
http://jlne.ws/N0i4TX
Bank of England in the spotlight over ‘nod and wink’ to Libor rigging
The Bank of England was thrust back into the centre of the Libor scandal yesterday after it was accused of giving Barclays a “nod and a wink” to rig interest rates.
http://jlne.ws/KVv75O
[Video] Osborne, Lecocq, Bove, Magnus Own Words on Diamond
Bloomberg
U.K. Chancellor of the Exchequer George Osborne, Deutsche Bank Private Wealth Management Chief Investment Officer Kevin Lecocq, Rochdale Securities analyst Richard Bove and UBS AG senior economic adviser George Magnus discuss Robert Diamond’s resignation as Chief Executive Officer of Barclays Plc.
http://jlne.ws/N0i2vj
**CN: Thanks to John J. Lothian & Co. CIO and editor of JLN Options, Jeff Bergstrom, for compiling this special section which also appeared today in the John Lothian Newsletter.
Lead Stories
ECB cuts key rate to new low to help economy
Associated Press via Yahoo! News
The European Central Bank has cut its key interest rate by a quarter percentage point to a record low of 0.75 percent to boost a eurozone economy weighed down by the continent’s crisis over too much government debt.
http://jlne.ws/LqZuXZ
ECB Cuts Interest Rates To Record Low
International Business Times
The European Central Bank, in a widely anticipated move aimed at limiting the number of euro zone nations falling into recession, on Thursday cut its main interest rate to a historic low of 0.75 percent and cut its overnight deposit and lending rates by 0.25 percentage points each, to 0 percent and 1.5 percent, respectively.
http://jlne.ws/M7qLJE
Questions and answers on the European Central Bank
Associated Press via Yahoo! News
The European Central Bank is the monetary authority for the 17 countries that use the euro currency. Its policies influence the eurozone economy, the world’s second largest after the United States. The eurozone has 331 million people and annual output of €9.41 trillion, or $11.75 trillion.
http://jlne.ws/MLOpQe
Treasury lowers support for crisis loan program
Channel 8 San Diego
The Treasury Department is reducing its support for loans made during the 2008 financial crisis now that a key program is winding down.
http://jlne.ws/Pezv5X
IMF Dims U.S. Outlook, Warns Against Dramatic Spending Cuts
KERA North Texas
Like the Federal Reserve before them, the International Monetary Fund lowered its growth projections for the U.S. economy. The Los Angles Times says that in its annual report, the IMF calls the U.S. recovery “tepid” and warns U.S. lawmakers that hitting the brakes too hard on spending and tax cuts could threaten the weak recovery both at home and abroad.
http://jlne.ws/NaS60K
Risks of deflation rising again: James Saft
Reuters via Yahoo! Finance
The Federal Reserve can and will fight the threat of falling prices.
http://jlne.ws/MXhwzt
Stimulating Housing Demand “Will Ultimately Cure? The Economy Says Analyst
Yahoo! Finance: The Daily Ticker
By Bernice Napach When the housing market collapsed four years ago, many economists and federal regulators blamed excessive leverage on Main Street and Wall Street for the crisis.
http://jlne.ws/Ouuhlf
Fitch: Continued Low U.S. GDP Growth May Result in Negative Credit Actions for Corporates
Business Wire via Yahoo! Finance
Link to Fitch Ratings’ Report: Alternative Scenarios for the U.S. Economic Recovery
http://jlne.ws/RkAW1w
Events
Bond China Congress
September 4-5, 2012, Shanghai, China
http://jlne.ws/KXsmS0
CTA Expo Chicago
September 13, 2012
http://jlne.ws/LmhfFu
Economic News
Hopeful signs emerge for struggling jobs market
Reuters via Yahoo! News
WASHINGTON – U.S. private employers stepped up hiring in June and the number of Americans filing new claims for jobless benefits last week fell by the most in two months, hopeful signs for the struggling labor market. Employers outside government added 176,000 new workers to their payrolls last month, the ADP National Employment Report showed on Thursday.
Home Sales Show Bernanke’s Low Rates Gaining Traction: Economy
Bloomberg
For Mike and Kathryn Fry, the time was right to take advantage of the Federal Reserve’s low interest rates to buy a home.
Exchanges, Clearing Houses & MTFs
LIFFE Gives Notice to Terminate Clearing Relationship Agreement With LCH.Clearnet Ltd
Business Wire via Yahoo! Finance
http://jlne.ws/N1auIu
NYSE Euronext Raised $17.1 Billion in Global IPO Proceeds in First Half of 2012
Business Wire via Yahoo! Finance
In the first half of 2012, NYSE Euronext raised $17.1 billion in total global proceeds from Initial Public Offerings on 66 IPOs.
http://jlne.ws/MXpgBw
Firms & Banks
Banks Pad Profits as U.S. Prolongs Refinancing Boom: Mortgages
Bloomberg
The biggest U.S. mortgage lenders, whose first-quarter earnings were buoyed by gains on home-loan refinancings, are raking in more profits as record-low interest rates and government efforts prolong the boom.
http://jlne.ws/LRrD8K
Report: Countrywide won influence with discounts
Associated Press via Yahoo! News
The former Countrywide Financial Corp., whose subprime loans helped start the nation’s foreclosure crisis, made hundreds of discount loans to buy influence with members of Congress, congressional staff, top government officials and executives of troubled mortgage giant Fannie Mae, according to a House report.
http://jlne.ws/N0i1Y9
Barclays CEO Diamond quits in rate-fixing scandal
News On 6 Tulsa
Barclays Chief Executive Bob Diamond resigned Tuesday, the biggest scalp in a financial markets scandal that has ripped through the bank’s senior management.
http://jlne.ws/NDmaOK
Big US banks submit living wills to regulators
Long Island Business News
Nine of the largest U.S. banks have submitted plans offering roadmaps for how the government could break up and sell off their assets if they are in danger of failing.
http://jlne.ws/RkmXsi
Ex-JPMorgan CIO Trader Olson Joins Citigroup Credit Unit
Bloomberg
David Olson, the former head of credit trading for JPMorgan Chase & Co.’s chief investment office in North America, joined Citigroup Inc. ’s bond-trading unit, according to people familiar with the matter.
http://jlne.ws/N0i9Xz
JPMorgan’s $10 Billion Subsidy
BusinessWeek
In late June, Jamie Dimon told a Senate committee that no taxpayer money was “impacted by this spring’s trading losses at JPMorgan Chase . Dimon, the bank’s CEO, meant that no one at the Treasury Department had to write a check to save the bank.
http://jlne.ws/OuB7az
Goldman Sachs loses appeal of $20.6 million Bayou award
Reuters via Yahoo! News
NEW YORK – Goldman Sachs Group Inc lost an appeal on Tuesday against a $20.6 million arbitration award won by creditors of bankrupt hedge fund Bayou Group. Goldman had argued the arbitration panel disregarded the law in handing Bayou investors a win, an argument rejected by the 2nd U.S. Circuit Court of Appeals.
http://jlne.ws/N0i71Z
Deutsche Bank Would Use Bridge Bank in Case of Failure
Dow Jones
Deutsche Bank AG would sell some U.S. assets and transfer systemically important assets and liabilities to a German government-owned bridge bank if it were to fail, under the terms of a “living will” contingency plan it submitted to U.S. regulators.
http://jlne.ws/N0i9XG
Regulators
Fed Officials Signal Tighter Rules on Bank-Sponsored Money Funds
Bloomberg
Federal Reserve officials spoke out twice in the past month to send a signal to money-market funds resisting tighter U.S. regulation. The message: New rules are coming, one way or another.
http://jlne.ws/N0YXJt
Fed’s Williams Tries To Ease Inflation Concerns
FOX Business
The Federal Reserve will one day use its new power to increase the interest rate paid on the $1.5 trillion in reserves sitting in banks’ balance sheets to keep them from leading to higher inflation, said John Williams, the president of the San Francisco Federal Reserve Bank, on Monday.
http://jlne.ws/MLMkUr
Is someone ghost-writing for CFTC’s O’Malia? John Kemp
Reuters via Yahoo! Finance
Commissioner Scott O’Malia has emerged as the most consistent and formidable opponent of Chairman Gary Gensler’s rule-writing efforts at the U.S. Commodity Futures Trading Commission.
http://jlne.ws/NZGCKK
Global News
BRICs Share Of World Economy Up Four Times In 10 Years
Forbes
BRIC markets now 20 percent of global GDP.
http://jlne.ws/M8lF1i
Canada Monetary Reserves Fall $2.481 Billion in June from May
FOX Business
Canada’s official international reserves fell $2.481 billion in June, the federal Finance Department reported.
http://jlne.ws/LRlSb5
China Beige Book Shows Pickup Unseen in Official Data
Bloomberg
China’s official statistics may be lagging behind independent data that show a pickup in the world’s second-biggest economy last quarter, according to a new private survey modeled on the U.S. Federal Reserve’s Beige Book.
http://jlne.ws/MLLJCn
Brazil Said to Plan Further Half-Point Rate Reductions
Bloomberg
Brazil plans to maintain the pace of interest rate reductions at half-point intervals as the economy recovers more slowly than expected and Europe’s debt crisis remains a concern, a government official familiar with the bank’s deliberations said.
http://jlne.ws/L2BUPI
Irish to sell debt for 1st time in nearly 2 years
Channel 8 San Diego
Bailed-out Ireland is to auction debt this week for the first time in nearly two years, treasury officials said Tuesday, in a test they hope will ease the nation’s return to normal borrowing next year.
http://jlne.ws/Rkoq1P
Brazil Economists Lower 2012 GDP, Inflation Outlook
Nasdaq
Brazil Economists Lower 2012 GDP, Inflation Outlook
http://jlne.ws/NaNyHb
Italy deficit to be worse than expected 2% this year: Monti
AFP via Yahoo! News
Italy’s public deficit will be 2.0 percent of gross domestic product this year, Prime Minister Mario Monti said on Wednesday, considerably worse than the previous estimate of 1.3 percent.
http://jlne.ws/NDrUYJ
