Markets heading into the holiday with the fiscal cliff question yet unanswered. House Speaker John Boehner (R-Ohio) failed to bring the fiscl cliff fallback measure to a vote, killing his “Plan B.” Boehner adjourned the House until after Christmas, and Senate Majority Leader Harry Reid (D-Nev.) declared that the Senate will recess Friday until two days after the holiday.

Boehner said during a press conference Friday that he isn’t walking away from talks with President Barack Obama. He said that the House has passed bills to avert tax hikes and replace spending cuts and called on the Senate to act on them. Without an agreement, a mix of higher taxes and government spending cuts would automatically take effect on Jan. 1, 2013, threatening to drag the economy back into recession.

Despite the unsettled business with the nation’s economy, data indicated the U.S. economy showed surprising signs of resilience in November. Consumer spending rose 0.6 percent when adjusted for inflation, while new factory orders for capital goods outside the defense and aerospace sectors – a proxy for business spending plans – jumped 2.7 percent.

Meantime, Morgan Stanley, the sixth-largest U.S. bank by assets, plans to purchase a stake in Eris Exchange LLC and become a liquidity provider for the interest-rate swaps futures market. The move positioned Morgan Stanley for when the traditional OTC rates-swap market undergoes significant structural, economic and regulatory changes. The Commodity Futures Trading Commission (CFTC)  has adopted final rules regulating certain types of swaps to be cleared through certified organizations under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

It’s become known that Hurricane Sandy caused up to $20 billion in insured losses and $50 billion in economic losses. Meantime, the financial industry braces for the presidential election and asks just how pending regulation may be impacted.

The U.S. Treasury Department and Federal Reserve this week rejected calls to quit using Libor in their bailout programs. Meantime, some eyed Greece as being among the world’s most improved economies.

Press Release

Release Date: October 24, 2012
For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months.  Growth in employment has been slow, and the unemployment rate remains elevated.  Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed.  The housing sector has shown some further signs of improvement, albeit from a depressed level.  Inflation recently picked up somewhat, reflecting higher energy prices.  Longer-term inflation expectations have remained stable.

Sixteen of the nation’s largest financial services firms drew attention after they warned President Obama and Congress that interest rates could soar if an agreement is not reached to stop the series of automatic tax hikes and spending cuts known as the “fiscal cliff.” Meantime, market participants pondered what each presidential candidate could mean for the U.S. economy and monetary system.

Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.
July 17, 2012

Chairman Johnson, Ranking Member Shelby, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. I will begin with a discussion of current economic conditions and the outlook before turning to monetary policy.

The Economic Outlook
The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year. After rising at an annual rate of 2-1/2 percent in the second half of 2011, real gross domestic product (GDP) increased at a 2 percent pace in the first quarter of 2012, and available indicators point to a still-smaller gain in the second quarter.

Conditions in the labor market improved during the latter part of 2011 and early this year, with the unemployment rate falling about a percentage point over that period. However, after running at nearly 200,000 per month during the fourth and first quarters, the average increase in payroll employment shrank to 75,000 per month during the second quarter. Issues related to seasonal adjustment and the unusually warm weather this past winter can account for a part, but only a part, of this loss of momentum in job creation. At the same time, the jobless rate has recently leveled out at just over 8 percent.

An already sluggish global recovery shows signs of further weakness, mainly because of continuing financial problems in Europe and slower-than-expected growth in emerging economies, the IMF said in a regular update to its World Economic Outlook (WEO).

Two other IMF reports were also released July 16. The update to the Global Financial Stability Report (GFSR) said that risks to financial stability increased in the second quarter of 2012 because of the continued slow global recovery and fears about the quality of bank assets in Europe. An update to the IMF’s Fiscal Monitor said that fiscal adjustment in both advanced and emerging economies is proceeding as expected.

The latest World Economic Outlook projects that the global economy will grow 3.5 percent this year, down 0.1 percentage points from the April forecast, and 3.9 percent in 2012, 0.2 percentage points lower.

Risks to recovery

“More worrisome than these revisions to the baseline forecast is the increase in downside risks,” said Olivier Blanchard, the IMF chief economist and director of the IMF’s Research Department, which prepares the WEO.

The IMF emphasized that the relatively minor setback to the global outlook under its baseline projections is based on three important assumptions:

• that there will be enough policy action for financial conditions in the so-called euro area periphery, which includes Greece and Spain, to ease gradually through 2013;

• that U.S. fiscal policy does not tighten sharply in 2013; and

• that steps by some major emerging markets to stimulate growth gain traction.

The IMF said the most immediate risk to the global recovery is that delayed or insufficient policy action will further escalate the euro area crisis. “Simply put, the euro periphery countries have to succeed,” said Blanchard. The report cited agreements at the June 28 eurozone summit as a step in the right direction. It said the summit actions should help break the “adverse links between sovereigns and banks and create a banking union.” But the recent deterioration in sovereign debt markets demonstrates that timely implementation of these measures, together with further progress on banking and fiscal unions, must be a priority.

The WEO update also cited the possibility that growth in the United States would stall because of excessive fiscal tightening caused by political gridlock. “In the extreme, if policymakers fail to reach consensus on extending some temporary tax cuts and reversing deep automatic spending cuts,” the U.S. economy could face a steep decline of more than 4 percent of GDP in its fiscal deficit in 2013. That so-called fiscal cliff would cause a severe decline in U.S. growth, with “significant spillovers to the rest of the world.” Moreover, if the United States does not act promptly to raise its federal debt ceiling, there will be increased risk of financial market disruption and loss in consumer and business confidence.

See the IMF’s reports here:

Global Financial Stability Report
GFSR Market Update

Fiscal Monitor Update:
Nurturing Credibility While Managing Risks to Growth

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.

Portfolio Margining for Eris Exchange and CME and CBOT Interest Rate Futures to Begin on Monday May 7, 2012
REVISION #2 – April 27: the effective date of this program is May 7.
On Monday May 7, 2012, CME Clearing will begin offering portfolio margining of CME Eurodollar, CBOT Treasury Notes and Bond futures together with Eris Exchange Interest Rate Swap futures. The program will be available for both customer and house accounts on that date.
The program will allow accounts with offsetting positions in Eurodollars, Treasury Notes and Bond futures and Eris Exchange contracts to obtain risk offsets and, hence, lower performance bond (initial margin) requirements. Actual risk offsets vary by portfolio, but can reach as high as 95% for highly correlated positions.
To take advantage of the program, clearing firms will use special firm numbers for interest rate futures trades to be margined together with Eris Exchange contracts, in exactly the same manner as is used for the Eris Exchange contracts themselves. You can execute directly with the special firm number, do an allocation on trade date, or do a transfer at any time, and such allocations or transfers will be exempt from fees.

IntercontinentalExchange and Cetip Enter Agreement to Develop Brazilian Debt Trading Platform
IntercontinentalExchange, a leading operator of global regulated futures exchanges, clearing houses and over-the-counter (OTC) markets, today announced the completion of an agreement with Cetip, S.A. to develop and deliver a new fixed income trading platform to be offered by Cetip for Brazilian corporate and government bonds.
http://jlne.ws/I7fzMf

Spanish economic crisis deepens
By Victor Mallet in Madrid – Financial Times
Spain’s unemployment rate rose to almost one in four, according to data released on Friday, amid a deepening economic crisis marked by another sovereign credit downgrade from Standard & Poor’s.
http://jlne.ws/I7fAzD

Moody’s is set to stick it to Wall St.
Crain’s New York Business
The banking market is anything but stable, research shows, giving Moody’s plenty of reason to lower the boom.
http://jlne.ws/I7fzvt

Financial regulators take aim at repo trading activities
By Brooke Masters and David Oakley in London – Financial Times
Opaque securities lending and repurchase markets are potential threats to stability and can exacerbate cyclical downturns, global regulators warned on Thursday. The Financial Stability Board, in their first report on the sector, said the markets pose a particular risk when collateral is poorly managed and subject to repeated reuse.
http://jlne.ws/I7fAzF

Ireland warns of risk to planned bond sale
By Jamie Smyth in Dublin and David Oakley in London – Financial Times
Dublin has warned that a plan to re-enter international bond markets this summer could be disrupted if the Irish electorate rejects Europe’s fiscal treaty in a referendum next month.
http://jlne.ws/I7fAQ3

Barclays slumps to loss before shareholder showdown
AFP via Yahoo! News
Barclays sank into the red in the first quarter on massive exceptional charges, it said on Thursday as it prepared to face a shareholder backlash over high executive pay.
http://jlne.ws/I7fDLH

Another UBS Banker Leaves in London
Wall Street Journal Blogs
In the latest spin of the revolving door on Wall Street and the City of London, Roland Phillips is leaving UBS, where he has been head of European consumer and retail investment banking, for Centerview Partners.
http://jlne.ws/I7fE2l

BlackRock Said Hiring UBS’s Cook for Capital Markets Team
Bloomberg
Edward Cook, the banker who ran European equity syndication at UBS AG (UBSN) , is joining BlackRock Inc. (BLK) , the largest money manager , to work at its new capital markets team in London, said three people with knowledge of the matter.
http://jlne.ws/I7fFmT

All indicators in NACM’s economic report for March 2012 break into expansion territory for first time in more than a year

Columbia, Maryland: March 30, 2012—The Credit Managers’ Index (CMI) for March is trending in a positive direction and is yet more reinforcement for the notion that the economy is doing better and that the recovery may be real. The combined index is now at the highest level seen in well over a year, even if the 56.2 reading is lackluster compared to the boom years of the last decade that featured index numbers well into the mid-60s and occasionally in the 70s.

The good news this month stems from an improvement in unfavorable factors, while favorable factors held their own. Sales, dollar collections and amount of credit extended all dipped a little, but stayed above 60. In fact, all favorable factors remained above 60. The more significant shifts took place in unfavorable factors. For the first time in more than a year, all unfavorable factors were over 50 and the combined total was a solid 52. The biggest jumps took place in the more sensitive indicators—accounts placed for collection moved from 50.9 to 52 and disputes moved from 49.7 to 50.9. Disputes have not been out of the 40s since July of last year and even that was only for one month. Dollar amount of customer deductions went from 48.5 to 51.1, which is only the third time it has been above 50 in the last year. Overall, the index of unfavorable factors reached the highest level in over a year. In the last four months, the numbers have been rising from the contractionary levels set last year. In November the index broke 50 by the barest of margins. Since then, the index has crept up in increments—50.4 in December, 50.3 in January, 51.1 in February and 52 in March.