Reuters News - Indian rupee resumes slide as fears grow for slowing economy

1 of 2. A shopkeeper writes currency exchange rates on a board inside a currency exchange shop in Kolkata August 29, 2013.

Credit: Reuters/Rupak De Chowdhuri

By Subhadip Sircar and Rafael Nam

MUMBAI | Fri Aug 30, 2013 1:55am EDT

(Reuters) - The rupee slid back towards a record low on Friday, with investors braced for a statement on the state of economy from Prime Minister Manmohan Singh and the release of data that was expected to show India in the grip of a protracted slowdown.

Weak economic growth, a record high current account deficit and concerns about the government's finances are proving a toxic mix for the rupee, which hit a record low of 68.85 on Wednesday after falling around 20 percent since May.

The Reserve Bank of India had prompted the rupee's largest single-day rally since January 1998 on Thursday by saying it would provide dollars directly to state oil companies to pay for imports, but the recovery proved short-lived.

By late morning, the partially convertible rupee was trading at 67.36 per dollar, down from Thursday's close of 66.55. Having tumbled 10.4 percent against the dollar so far this month, the rupee was set to record its largest monthly depreciation ever, according to Thomson Reuters data.

The fall has been so fast that is now firmly in territory that is uncharted, leaving analysts unsure how far it can go.

Gross domestic product data, due to be released after the markets close, is expected to show the economy grew 4.7 percent in the April-June quarter, marking a third consecutive quarter of sub-5 percent growth.

India suffered decade-low growth of 5 percent in the fiscal year that ended in March, and many analysts surveyed by Reuters during the past week expect this year to be worse.

"The lack of affirmative action by the government on improving the investment cycle in rest of the year risks reviving a downward spiral, which might pave the way for slip below 4 percent mark, as a worst case scenario," said Radhika Rao, an economist at DBS in Singapore, in an email to clients.

With a national election due by May, Singh's minority government is under fire from all quarters to come up with meaningful reforms, including a possible increase in diesel prices, that would lower the subsidy burden.

While the government gropes for game-changing policies to revive investment, while containing its fiscal deficit and reducing the current account gap, the central bank has led the defense of the currency.

A radical plan is being considered by the central bank, a source familiar with the RBI's thinking told Reuters, to cut gold imports, the second biggest item after oil on the import bill, a source familiar with the RBI's thinking told Reuters.

The proposal, which has met with skepticism in some quarters, would see commercial banks buy gold from ordinary citizens and sell to precious metal refiners.

Another suggestion came from Trade Minister Anand Sharma, who on Thursday said the RBI could monetize its gold reserves in order to reduce imports, while adding that it was up to the central bank to decide.

The RBI's main defense of the rupee has rested on draining cash from domestic money markets and raising short-term interest rates, but that has made it more costly for struggling corporates to raise money, putting another brake on growth.

RBI Governor Duvvuri Subbarao, whose tenure ends next week, said on Thursday that those actions were necessary to stabilize markets, and urged the government to find longer-term solutions to the country's current account deficit.

Although global factors such as the potential end to U.S. stimulus and most recently tensions overSyria have contributed to the rupee's falls, Subbarao said domestic factors were at the root cause, an assessment shared by most analysts.

On Thursday, India's lower house of parliament approved a land acquisition act, that is meant to help investment in industry and infrastructure, while protecting farmers interests by letting them get up to four times the market rate for their land. Critics say the new law will hardly help revive the floundering economy.

Bloomberg News - Spain Recession Eases as Exports Pave Way for Recovery

Spain’s recession eased in the second quarter as domestic demand stabilized and exports surged, supporting the government’s forecast that the fourth-largest economy in the euro area will recover this year.

Exports rose 6 percent after a 3.8 percent decline in the previous quarter, while household spending contracted 0.1 percent from the three months through March, when it shrank 0.5 percent, the Madrid-based National Statistics Institute said today. Gross domestic product fell 0.1 percent in the second quarter, the office said, confirming a July 30 estimate. The economy contracted 1.6 percent from a year earlier.

Prime Minister Mariano Rajoy is relying on exports and tourism to rekindle growth as tax increases, spending cuts and an unemployment rate of more than 26 percent undermine domestic spending. The 17-nation euro region, which includes Spain’s main trading partners, emerged from its longest-ever recession in the second quarter.

“Data seem encouraging but this could change any time,” Maria Yolanda Fernandez Jurado, associate professor in the Faculty of Economic and Business Sciences at Madrid’s Universidad Pontificia Comillas, said in a telephone interview. “Small and medium enterprises are still in a difficult situation and job creation is mostly temporary or part-time.”

Tourist Visits

Inflation (SPCPEUYY), calculated using a harmonized European Union method, slowed to 1.6 percent in August from 1.9 percent in July, INE said in a separate release. That’s in line with the 1.6 percent median of 12 estimates in a Bloomberg survey.

During the first seven month of the year, the number of tourist visits grew 3.9 percent from the same period in 2012, reaching 34 million. That’s more than the figure attained in July 2007,Spain’s best year for tourism since at least 2000.

Tourism and structural reforms will help the country’s real-estate market recover, Colin Dyer, chief executive officer of Chicago-based property broker Jones Lang LaSalle Inc. (JLL) told Spanish newspaper El Pais in an interview published Aug. 11.

Unemployment declined in the second quarter after two years of uninterrupted increases and Deputy Trade Minister Jaime Garcia-Legaz Ponce predicted last week that exports will surge to a record level in 2013 as the country’s competitiveness has improved. Joblessness is still the highest in the euro region after Greece.

There are signs that the “worst is over” in Spain, Marco Gadola, CEO of Swiss dental-implant manufacturer Straumann Holding AG (STMN), said last week.

Still, Spanish banks’ bad loans jumped to a record 11.6 percent of total lending in June, according to Bank of Spain data. They may peak amid continued weak economic activity at 16 percent in the second half of next year, Antonio Garcia Pascual, Barclays Plc’s chief economist for southern Europe, said last week.

By Angeline Benoit 

BBC News - Syria fears keep oil price high as markets slide

The possibility of military action against Syria has continued to shake up markets.

While the price of oil surged higher on Wednesday, share markets have fallen.

The price of gold has also climbed, as risk-averse investors look for safe-havens, while shares in airlines dropped on the looming threat of higher fuel costs.

Brent crude oil hit a six-month high above $117 a barrel, and has risen by 4% this week.

US crude oil touched its highest price since May 2011, rising to $110.17 a barrel.

International Airlines Group, the owner of British Airways, saw its share price fall around 5%, while Easyjet's share price also fell, by 4%.

European share markets all fell on Wednesday morning. The UK's FTSE 100 was down 0.4% while Germany's Dax dropped 1.0% and the Cac40 in Paris fell 0.2%.

Asian stock markets fell on Wednesday, with Japan's Nikkei 225 index, Hong Kong's Hang Seng and Australia's ASX 200 all seeing losses of more than 1%.

Syria itself is not a major oil producer, but analysts said that the prospect of further instability in the Middle East was worrying investors.

Nick McGregor, oil analyst at Redmayne Bentley Stockbrokers, said: "Until it is clear how the politics is going to play out, the markets won't have any certainty."

He added that fears about international military involvement in Syria sparking trouble in the Middle East would affect pricing across all oil markets.

"Every move closer to Western military action in the Middle East is going to have a big impact on the oil market's nerves, and if military action does happen there will be a significant risk premium built into the oil price."

Mr McGregor said that markets would remain shaky, and added, "we are in for a period of higher volatility certainly, and more likely than not higher prices".

Investors buying into gold, regarded as a haven investment in times of uncertainty, pushed the price of the precious metal to a three-month high.

Spot gold hit its highest price since May early on Wednesday, at $1,433.3 an ounce.

On the foreign exchange markets, currencies traditionally viewed as riskier continued to fall.

Ilya Spivak, currency strategist at DailyFX, said: "Turmoil in Syria continues to offer a worrisome backdrop to price action."

Turkey, Syria's neighbour, has also seen its currency, the lira, touch record lows against the dollar. Turkey's main stock index fell 1.5%, following Tuesday's 4.7% slide.

In a bond auction on Wednesday, Italy raised 8.5bn euros ($11.3bn; £7.3bn) but the interest rate it paid increased. It has been suggested that Italy has suffered from fears about Syria, with investors still cautious about risk.

BBC News - US Treasury to reach debt ceiling in mid-October

The US government will reach its debt limit by mid-October unless Congress acts quickly, Treasury Secretary Jack Lew has warned.

 

 

Mr Lew has warned that failure to act soon could result in significant disruptions to US economy

The debt ceiling was last raised in January. The government can no longer borrow if it is reached.
Mr Lew said that in such a case it will be unable to meet obligations such as pensions, military salaries and Medicare payments.

The country's borrowing limit is currently capped at $16.7tn (£10.7tn).
"Extraordinary measures are projected to be exhausted in the middle of October," Mr Lew said in a letter to House Speaker John Boehner and other lawmakers.

"At that point, the US will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day," he said.
The cash balance at that time is forecast to be about $50bn, which Mr Lew said, would be "insufficient to cover net expenditures for an extended period".

He said: "Operating the government with no borrowing authority, and with only the cash on had on a given day, would place the United States in an unacceptable position."

 'Undermine financial markets'
 

There have been tense debates between the White House and congressional Republicans over the government's debt ceiling, spending cuts, and other fiscal matters.

In August 2011, the Republicans and the Democrats took a hard line while debating raising the borrowing limits.

They only reached a compromise on the day the government's ability to borrow money was due to run out.
The delay in reaching a deal at that time led ratings agency Standard & Poor's to downgrade the US for the first time ever, which sparked volatility in the financial markets.

The compromise also included a series of automatic budget cuts known as the "sequester" which came into affect earlier this year.

However, in his letter Mr Lew argued that raising the debt limit does not increase government but "simply allows Treasury to pay for expenditures [the] Congress has previously approved".

He warned that a delay in raising the limit "would cause irreparable harm to the American economy".
He explained that if investors become unwilling to loan to the United States, the country could face an immediate cash shortfall.

''Such a scenario could undermine financial markets and result in significant disruptions to the economy,'' he said.

SKY News - Pump Sales Slump Amid Summer Price Hike

A surge in pump prices led to last month's petrol and diesel sales crashing to winter levels, according to a motoring group's analysis of Government figures.

The AA said drivers bought nearly 1.48 billion litres of petrol in July 2013 - an 8% fall on the June 2013 figure.
This was only 45 million litres more than the record low in February this year and just 11 million litres more than the January 2013 total.
July 2013 sales of diesel were down 5% on June's, dropping  to just over 2.21 billion litres. These figures include commercial usage.
The AA added that in June 2013, when the average cost of petrol levelled at 134.6p a litre after surging to 140.0p in the spring, stable lower prices lifted petrol sales to a level last seen in November 2011.
But last month, a sudden 5p-a-litre rise in wholesale costs raised the average pump price from a low of 133.7p on the last day of June to 135.8p by the middle of July and 137.2p by the end of the month.
It finally started to level off at 137.6p in the first week of August.
Tax income from duty on petrol and diesel sales fell £142m in July compared to June and £35m compared to July 2012, the AA said.
Its president Edmund King added: "It's staggering that when brilliant weather sent consumers into the shops and gave the UK's retail sector a strong boost, the complete opposite happened at the pumps.

Motorists have complained of rising fuel prices this year

"Not only are petrol sales shadowing the record lows of this winter, but are lower than last July which included a week of Olympics football, opening ceremony and initial events."
He went on: "It seems that, as each penny increase registers on fuel forecourt price boards, drivers automatically cut back - even if they're in the mood to spend elsewhere."
Meanwhile, a survey of more than 13,500 motorists by What Car? has ranked car dealerships by the service they give owners.
Jaguar, Lexus and Honda topped the list while Fiat, Alfa Romeo and Chevrolet were at the bottom.
Popular makes such as BMW and Audi were in the middle of the 27 marques ranked.
Whatcar.com editor Nigel Donnelly told Sky News: "People have a perception that main dealer pricing can be on the steep side but what we are finding is that dealers now appreciate that retaining that next sale is making sure people have a good experience.
"If you use independent dealers you really want to be make sure they are using quality parts, correct oils and a proper breakdown of what has been done to the car.
"For most people, if it looks like the garage can't look after itself it probably can't look after your car."

BBC News - Brazil central bank commits $60bn to prop up currency

Brazil's central bank has announced a $60bn plan to prop up the value of the national currency.

It comes as the Brazilian real nears a five-year low against the US dollar.

The real and other emerging market currencies have fallen steadily over the last three months on speculation of higher US interest rates.

The central bank said it would spend $500m a day on Mondays to Thursdays and $1bn on Fridays buying reais in the currency markets.

The Monday-to-Thursday interventions will target currency swap markets - financial derivatives used by companies and investors to hedge their currency exposure - while on Fridays, the central bank will buy the national currency directly in return for US dollars.

The interventions will run up until December.

"This shows the firm determination of monetary authorities to keep the exchange rate from slipping further," said Andre Perfeito, chief economist at Gradual Investments in Sao Paulo.

It is the first time the central bank has pre-announced daily interventions in this way since 2002 - a time when markets were speculating over a possible Brazilian debt default, following the financial collapse of neighbouring Argentina and with the imminent election of President Luiz Inacio Lula da Silva.

Inflation fears

The weaker currency is raising the cost of imports, which in turn increases the cost of living for Brazilians and raises concern that inflation could get out of control.

It could also put pressure on any Brazilians who have taken on large debts, particularly if the debts are denominated in foreign currency.

Brazil and India have been at the brunt of the recent change in market sentiment, with the real down 16% against the dollar since May.

Both countries benefited from inflows of foreign money over recent years as investors and speculators have been able to borrow cheaply in the dollar.

That process now appears to be unwinding, as the long-term cost of borrowing rises on speculation that the US Federal Reserve is preparing to curtail its monetary stimulus programme, perhaps as soon as next month.

Another victim of the loss of market confidence in emerging markets has been Indonesia, whose currency, the rupiah, has fallen to a four-year low.

Indonesia's finance minister has announced measures to return the country to a trade surplus, including the lifting of restrictions on mineral exports and the imposition of taxes on imports of luxury cars and branded products.

Inflation dilemma

Concerns over Brazil have been heightened by inflation rising well above 6% in recent months, and doubts about the central bank's willingness and ability to contain it.

The country suffered from hyperinflation in the 1980s and 1990s, although price rises have remained in single digits ever since.

The central bank faces a difficult dilemma. The weak currency and rising inflation would normally be tackled by higher interest rates.

However, the country's economy has ground to a halt as Chinese demand for the country's mineral exports has weakened.

The authorities' room for manoeuvre has also been limited by recent street protests.

BBC News - Eurozone growth hits 26-month high, says PMI survey

Eurozone business activity grew at its fastest pace for 26 months in August, according to a closely-watched survey.

Stronger German exports helped eurozone activity to expand in August

The Markit composite purchasing managers' index - which includes manufacturing and services - rose to 51.7 points, from 50.5 in July.

A number higher than 50 indicates growth.

The news boosted European stock markets, which rose in early trading, despite falls in Asia amid fears the US may scale back its stimulus programme.

Markit said the PMI for the services sector, which accounts for the bulk of economic activity, rose to 51 in August to a 24-month high, from 49.8 in July.

The manufacturing sector PMI hit a 26-month high of 51.3 points, up from 50.3 in July.

However, a breakdown of the figures showed that while Germany continued to expand thanks to stronger export activity, France contracted, falling to 47.9 in August from 49.1 in July.

"So far, the third quarter is shaping up to be the best since the spring of 2011," said Chris Williamson, Markit's chief economist.

"The upturn is being led by Germany," he said. "A big question mark still hangs over France's ability to return to sustained growth."

And he cautioned that rising unemployment indicated there were continuing problems. "The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook," Mr Williamson said.

Worries

Stock markets reacted positively to the news, which followed recent data showing that the eurozone bloc had emerged from recession.

The main markets in London, Frankfurt and Paris were up about 1%, shrugging off concerns about the US stimulus programme that had unnerved Asian investors.

On Wednesday, the minutes of the July meeting of the US central bank, the Federal Reserve, showed that officials were "broadly comfortable" with plans to scale back the $85bn (£54bn) a month bond-buying programme.

While the minutes did not reveal any clues about when the measure may be tapered, analysts said that they did reinforce the view that the tapering will happen.

"Most analysts still expect tapering to start in September, or at the bare minimum a September announcement and implementation through October and November,'" said Stan Shamu, a market strategist at IG Markets in Melbourne.

Reuters News - Cat out of bag, ECB and Germany play down talk of third Greek bailout

1 of 3. A tourist takes pictures in front of the Parthenon temple at the Acropolis hill in Athens August 19, 2013.

Credit: Reuters/John Kolesidis

By Lefteris Papadimas and George Georgiopoulos

ATHENS | Wed Aug 21, 2013 10:37am EDT

(Reuters) - The European Central Bank joinedGermany on Wednesday in playing down talk of a third bailout package for Greece, but reaffirmed the euro zone would help the country trim debt as long as it stuck to its latest aid program.

Speaking in Athens a day after German Finance Minister Wolfgang Schaeuble bluntly predicted Greece would need a new bailout, ECB executive board member Joerg Asmussen said he had not discussed the issue at talks with senior Greek officials.

He referred instead to the euro zone's pledge last year to support Greece until it can tap markets again, provided it sticks to its current bailout obligations and posts a budget surplus before interest payments.

"This is a decision taken in November last year, it is public knowledge, and there's nothing new and there's nothing to add," he said. "If we look at how things unfold, we will know not before spring next year if the country has reached a primary surplus on an annual basis."

In Berlin, German officials sought to distance themselves from Schaeuble's comments, which broke a pre-election taboo by describing a new rescue as inevitable.

Greece has already been bailed out twice since 2010 with 240 billion euros worth of agreements coordinated by the ECB, European Union and International Monetary Fund.

It had been expected to seek some form of additional debt relief sooner or later to bring its massive debt down to a manageable level, but the openness of Schaeuble's statement that there would need to be a third bailout for Athens came as a surprise.

Germany's finance ministry said the euro zone would take a fresh look at Greece's aid program in mid-2014 and that Berlin was not aware of any discussions on how to structure a new rescue package.

"We have reached the middle of the current program. It is August 2013, we will certainly have to look in mid-2014 at where we are, what the conditions are and whether the program has been fulfilled," said spokesman Martin Kotthaus.

Schaeuble's boss, Chancellor Angela Merkel, in her first comments on Greece since his comments, stuck to her line that it was too early to discuss another package, or to speculate how large it could be.

"I can't say today what kind of sums might be necessary," she told broadcaster Sat.1. "Only in the middle of next year will we be able to say."

A Greek finance ministry official speaking to Reuters on condition of anonymity said any further help for Greece would aim to cover its funding shortfall in 2014-2016 and would be much smaller than the previous aid packages, given the country's limited funding needs for the period.

The International Monetary Fund has put Greece's uncovered funding needs for 2014-2015 at 10.9 billion euros.

At least part of that stems from national European central banks refusing to roll over some Greek bonds they hold, as well as a potential shortfalls in tax and privatization revenues and Greece being unlikely to fully return to bond markets next year.

Such estimates are revised frequently and are highly sensitive to budget and economic growth projections, which Greece's lenders are expected to update in the fall.

GREEK "DEBT COLONY"

Schaeuble's comments were immediately seized on by Greece's anti-bailout opposition, who fear that any new aid will be accompanied with yet another round of painful austerity.

"Schaeuble threatens with new help," leftist newspaper Efimerida ton Syntakton deadpanned on its front page, next to a stern-looking image of Schaeuble with tightly pursed lips.

"They admit they failed and now they want to save us again," the newspaper said.

Panos Skourletis, spokesman for the Syriza opposition party, said: "Contrary to recent talks about an eventual debt writedown, we are going down the same old road, the same recipe, which inflates debt and turns Greece into a debt colony."

Syriza shocked established parties in the last two elections by riding a wave of public anger at austerity to become the country's second largest party.

Greek officials have suggested any funding shortfall could be covered with a combination of new rescue loans, or debt support measures like extending maturities, cutting interest rates on loans, as already envisaged under a euro zone decision on Greece last year. One official suggested bilateral loans Athens got under its first bailout could also be rolled over.

European Union Monetary Affairs Commissioner Olli Rehn was cited on Wednesday as saying that while new rescue loans in a third bailout were possible, they were not the only option to help Greece and pointed to the option of extending maturities.

The aid program Schaeuble is expecting will be at least partly financed via the EU budget, German newspaper Sueddeutsche Zeitung cited unnamed sources as saying.

Greece's international lenders - the EU, ECB, and IMF, known as the troika - are due to return to Athens in the autumn to reexamine whether Greece's debt is on sustainable footing and whether the government needs to find further savings to meet its 2015-2016 budget targets.

Progress on reform in the recession-stricken country has been patchy. Tax revenues continue to lag targets and the Greek economy has struggled to show signs of recovery after shrinking by about a quarter from its peak six years ago, mainly as a result of austerity policies imposed under two bailouts.

(Additional reporting by Harry Papachristou, Editing by Deepa Babington/Jeremy Gaunt)

BBC News - Anonymous £350m fund stuck in legal limbo

 

£350m is nowhere near enough to pay off the UK's national debt

 

An anonymous donation to the country made 85 years ago and now worth £350m is stuck in legal limbo because of a stipulation made by the donor.

The National Fund was created in 1928 to be held in trust until the UK was close to paying off all its debts.
The fund was to be used to pay off the "entire national debt" - but that currently stands at £1.2tn, more than 3,000 times the £350m in the fund.

Barclays, which manages the fund, wants permission to give the money away.
The fund is now one of the UK's largest charities by net assets, and Barclays has been trying for four years to get permission to make it available as charitable grants or hand it to the Treasury.
Any change relating to how the money could be used would have to be approved by a court.
'Number of options'
"We've been working ever since we became the trustee to change the original objects, which say the funds can be used only to pay off the entire national debt," a Barclays spokesman said.
"We are working with the Charity Commission and the attorney general's office to look at how best to take the fund forward."

A spokesman for the attorney general's office said: "We are looking at a number of options for the future of the fund, consistent with its object of extinguishing or reducing the national debt."
According to the Financial Times, the National Fund has grown 700-fold - from £500,000 when it was created to its current level.

The anonymous donor stipulated trustees could use part of the fund to pay debts if national circumstances merited it but neither the Second World War nor financial crises had prompted a payout to date, the newspaper reported.

This week the government used a £520,000 donation to "pay down the national debt".
Former nurse Joan Edwards left the money to "whichever government is in office" to use "as they may think fit", and the Conservatives and Liberal Democrats initially divided it between the parties.

But after criticism of that decision, Prime Minister David Cameron said it would go to the Treasury to "meet the spirit" of what Miss Edwards had intended.
 

 

Joan Edwards left £520,000 to the government to use "as they may think fit"

BBC News - EU 'plans single telecoms regulator'

 

Difficult call: the EU may want a single telecoms regulator

The European Commission is thought to be considering a plan for a single telecoms regulator to cover all 28 member states.

The new regulator could take over some of the responsibilities of national watchdogs, like Ofcom in the UK.
The Commission told the BBC that the proposal was "not a finished document", so it could not confirm the details.
But a leak to the Financial Times appears to show that such plans have been under consideration.
The document, produced by the Directorate General for Competition, says "a true pan-EU regulator would be the most effective solution to remove national divergences".
It suggests that any new regulator would take over some powers from national bodies.
"Advancing further towards a true single market would require gradually moving away from the present status quo of 28 national regulators," it says.
In a statement, the Commission said the newspaper article "apparently refers to an earlier draft".
It said the plans would only become clear when adopted as a final proposal on 10 September.
Roaming The EU Commission is already working on proposals to create a single telecoms market in Europe.

Neelie Kroes, the EU telecoms commissioner, is in charge of drafting them.

Under the plans, European telecoms companies would get access to all 28 member states.
They would be required to offer EU-wide mobile packages and would no longer be allowed to levy roaming charges.
The industry has been heavily opposed to this idea, which would lose them billions of pounds in revenues.
The UK regulator Ofcom said it could not comment on the proposals, as it had not seen them.
However, a spokesman told the BBC: "Neelie Kroes has already made it clear that there is no need for a single telecoms regulator."
But the Commission is playing down any apparent differences between the Directorate General for Competition and Ms Kroes.
It said that Ms Kroes had been drafting the proposals "in close co-operation" with other departments.
Regulation Analysts say they are not surprised by the idea of a single telecoms regulator for the EU.
"It is a logical step. It does make sense," said Dario Talmesio, principal analyst from Informa Telecoms and Media.
But the idea leaves many questions.
In particular, it is unclear how any such regulator might allocate the use of the spectrum in any individual country.
Up to now, spectrums have been seen as national assets, which governments like to control.
"To British citizens, it would be like a single regulator deciding how to use North Sea oil reserves," said Mr Talmesio.

European mobile operators already feel aggrieved by the weight of regulation coming out of Brussels.
Equivalent markets in North America, Latin America and Asia are much less tightly regulated, leaving operators like Verizon, AT&T and China Mobile with much greater profitability.
"The tone of regulation has driven European operators to a point where they feel they can't defend themselves," said Shaun Collins, of the telecoms consultancy CCS Insight.
Some fear they are now vulnerable to companies with deeper pockets.
One example is the recent take-over bid launched by Mexico's America Movil for the Dutch operator KPN.
But since February, some in the industry feel that the mood in Brussels has been more conciliatory, with more consideration for telecoms operators.
Until now, the EU has appeared to be more on the side of consumers, with its campaign to cut bills.

Bloomberg News - India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee

By Jeanette Rodrigues & Ye Xie

India Fighting Worst Crisis Since ’91 Limits Capital Flows

Dhiraj Singh/Bloomberg

The rupee’s decline is a reminder of the crisis in the 1990s when the widening deficits in the budget and current account pushed the currency down 37 percent between 1991 and 1992.

India increased efforts to stem the rupee’s plunge and stop capital outflows that are pushing the economy toward its biggest crisis in more than two decades.

The Reserve Bank of India, whose Governor Duvvuri Subbarao steps down next month, cut the amount local companies can invest overseas without seeking approval to 100 percent of their net worth, from 400 percent, according to a statement late yesterday. Residents can remit $75,000 a year versus the previous $200,000 limit. Rupee forwards rose for the first time this week.

Policy makers’ moves since July to tighten cash supply, restrict currency derivatives and curb gold imports have failed to arrest the rupee’s slump to record lows as they struggle to attract capital to fund a record current account deficit. The rupee has weakened 28 percent in the past two years, the biggest tumble since the government pledged gold reserves in exchange for loans from the International Monetary Fund in 1991.

“I don’t think this fixes India’s problem, at best it restricts about $5 billion of flows annually, which doesn’t make a dent,” Bhanu Baweja, the global head of emerging market cross asset strategy at UBS AG, said in a phone interview from Londonyesterday. “The minute you restrict outflows, people will start legitimately speaking in terms of capital controls, although these are only on locals and not on foreign investors.”

Cash Reserves

Central bankers also exempted lenders from cash reserve rules for certain foreign-currency deposits yesterday. Banks accepting non-rupee deposits after Aug. 24 from Indians living abroad need no longer keep 4 percent in cash and invest 23 percent in government-approved securities, the RBI said.

Nomura Holdings Inc. estimated that private remittances and outward direct investment abroad totaled $15.9 billion in the year ended March 31, citing central bank data.

“Indian companies’ outward foreign direct investment has been growing in recent years for various reasons such as pursuing growth markets, technology, natural resources, and these could be adversely hit,” Sonal Varma, an economist at Nomura in Mumbai, wrote in a report yesterday. “While the authorities aim to reduce foreign-exchange volatility, we fear that they may end up sending a panic signal.”

One-month offshore non-deliverable rupee forwards, which investors use to hedge or speculate on the currency, rose 0.2 percent 61.83 per dollar today. NDFs touched a record low of 62.53 on Aug. 6. The contracts, settled in dollars, are agreements to buy or sell assets at a set price and date.

Rupee Falls

In the spot market, the rupee fell 0.4 percent to 61.4437 per dollar before the announcement. It has lost 11 percent this year, the second most among 12 Asian currencies. The rupee touched an all-time low of 61.8050 on Aug. 6. Financial markets in India are closed today for the Independence Day holiday.

SGX CNX Nifty Index futures for August delivery fell 0.5 percent to 5,722 at 5:47 p.m. in Singapore. The Bank of New York Mellon India ADR Index for Indian stocks traded overseas rose 0.2 percent yesterday to 1011.77, paring its decline this year to 3.3 percent. India’s benchmark Sensex index is down 0.3 percent this year.

The rupee’s plunge accelerated since May as foreign investors pulled money from Indian bonds and stocks on concern the U.S. will pare stimulus. International investors cut their holdings of Indian bonds by $10 billion since a peak in May to $28 billion, the lowest since January 2012, according to central bank data.

Steadying the rupee is the top priority for policy, the monetary authority said on July 29.

Capital Controls

The imposition of capital controls is one facet of the “impossible trinity trilemma” that Subbarao says the central bank is facing. The economic theory argues that it isn’t possible to have free movement of capital, a fixed exchange rate and an independent monetary policy simultaneously.

To contain the currency decline, the RBI raised two interest rates July 15 and restricted bank’s access to cash through its daily repurchase auctions.

India also boosted import duties on gold and silver on Aug. 13 and banned the import of gold in the form of coins and medallions to reduce the trade deficit. In a briefing in New Delhi yesterday, Economic Affairs Secretary Arvind Mayaram said imported gold must be stored in government-mandated warehouses.

So far, the efforts have fallen short as capital outflows make it more difficult for India to bridge the gap in the current account, the broadest measure of trade.

The deficit widened to an unprecedented 4.8 percent of gross domestic product in the year ended March 31. The government aims to narrow the gap to 3.7 percent of GDP, or $70 billion, this year, Indian Finance Minister Palaniappan Chidambaram told parliament in New Delhi yesterday.

New Banker

Raghuram Rajan, the University of Chicago economist credited with predicting the 2008 financial crisis, will take charge of the Reserve Bank next month after Subbarao’s term ends Sept. 4. There’s no “magic wand” to fix India’s problems, he said on the day of his appointment Aug. 6., while adding the RBI and the government will deal with the challenges.

The measures “are unlikely to have a meaningful impact on the currency,” Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, said in a phone interview. “For a long-term impact we need to increase the attractiveness of India as an investment destination.”

1990s Crisis

The rupee’s decline is a reminder of the crisis in the 1990s when the widening deficits in the budget and current account pushed the currency down 37 percent between 1991 and 1992. The government secured an emergency loan of $2.2 billion the IMF by pledging 67 tons of India’sgold reserves as collateral. Growth slowed to 2.1 percent in 1991, from 5.6 percent the previous year.

Assistance from the IMF led then finance minister and now prime minister, Manmohan Singh, to open India’s economy to foreign investment. Since then, economic growth has accelerated, with GDP expanding more than 9 percent in each of the three years through March 2008 compared with 3.7 percent between 1950 to 1973.

The country is in a better position to counter a crisis, with $277 billion foreign reserves, enough to cover more than six months of imports, according to data compiled by Bloomberg. That compares with less than two months of import coverage in 1991, according to a RBI report in August 2012.

Growth Slowdown

At the same time, the economy is posting its slowest growth since 2003, expanding 5 percent in the year ended March 2013. Last month, the RBI cut its growth forecast for the year through March 2014 to 5.5 percent form 5.7 percent.

The slowdown won’t last long as the government removes hurdles for stalled projects, eases foreign ownership rules and starts work on new ports and rail lines, the prime minister said in a speech in New Delhi today. Singh is seeking to repair the image of his government and the ruling Congress party before elections due by May.

India’s currency defense will raise borrowing costs for the government and companies, slowing economic growth further, according to Michael Shaoul, chairman of New York-based Marketfield Asset Management LLC.

“It is historically very difficult to defend a currency when you have large current account deficit,” Shaoul, who helps manage $13 billion in assets, said in a phone interview from New Yorkyesterday. “These measures are not really helpful as they are going to do damages to the local economy. The real danger is that foreigners start to withdraw more capital and you start a vicious cycle.”

BBC News - Mexico opens oil sector to private sector investment

Mexico plans to open up its state run oil industry to private investment.

 

Oil revenues make up a third of Mexico's national budget

A source of national pride, Mexico's oil industry has been protected from private involvement for 75 years.
President Enrique Pena Nieto has proposed reforms that will encourage foreign and domestic investment in the industry.

Mexico's oil industry is dominated by the state oil firm Pemex, but it needs investment and expertise to develop new oil and gas fields.

Currently, private companies can be awarded service contracts within the oil industry.
Under the President's plan that would go much further, allowing private companies to share the risks and profits of developing new fields.

If the reforms go through, analysts say the liberalisation of the oil sector could double foreign investment in Mexico, giving the economy the biggest boost since the country joined North American Free Trade Agreement (NAFTA) twenty years ago.

Political opposition

Mexico's political leaders stressed that the reforms do not constitute privatisation, because no oil concessions will be sold off.

However, even that is a step too far for Mexico's leftist political parties, who oppose the reforms.
BBC Correspondent in Mexico, Will Grant said: "The reform won't be simple to get through congress.
"The government faces a complicated task in negotiating with all sides, including the powerful unions.
"Yet, there is a growing sense among ordinary Mexicans that Pemex is no longer fit for purpose, is an aging and out-dated institution and that root and branch reform is probably needed," he said.

Foreign investors
 
A large share of Pemex's profits support government spending which has hampered the company's ability to fund new projects.

The government has warned that Mexico faces becoming a net oil importer as early as 2018, if major new oil projects cannot be developed.

Foreign oil companies, including BP and Exxon Mobil, are waiting to see the details of the reforms to see exactly what investments will be allowed.

According to figures from OPEC, Mexico is the world's 10th-biggest producer of crude. Production has fallen by 25% since hitting a peak of 3.4m barrels per day in 2004.
Despite being a top exporter to the United States, Mexico still has to import nearly half of its gasoline, because of a lack of refining capacity.

Bloomberg News - Euro Area’s Recession Seen Over as Champagne Kept on Ice

 

David Ramos/Bloomberg

Pedestrians walk past old residential buildings in Bilbao, Spain. The nation’s economy shrank just 0.1 percent in the second quarter from the prior three months and unemployment fell from the highest levels in the country’s democratic history.

The euro-area economy probably edged back to growth last quarter for the first time since 2011, ending the longest recession since the single currency union started 14 years ago.
Gross domestic product in the 17-nation region expanded 0.2 percent in the three months through June after shrinking for the previous six quarters, according to the median of 41 forecasts in a Bloomberg News survey. The European Union’s statistics office in Luxembourg will release the data on Aug. 14. Germany probably grew about 0.75 percent, according to a government estimate, exceeding the 0.6 percent economists predict.


A year of relative calm on financial markets, budget cuts from Spain to Italy and accelerating growth in the U.S., the world’s biggest economy, have helped the euro area start to recover. While the overall outlook has improved, the recession has left the region with a youth unemployment rate of 24 percent, and parts of southern Europe remain mired in a slump.
“The external environment is really getting better, led by signs that U.S. demand is picking up,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The second quarter should mark the end of the recession in the euro area, but the recovery will be excruciatingly slow. We’re not getting the champagne out yet.”
The euro slipped 0.3 percent to $1.3299 as of 9:22 a.m. London time. The Stoxx Europe 600 Index declined 0.2 percent after advancing 0.6 percent last week to a 10-week high.

Slowing Contractions

European Central Bank President Mario Draghi has described progress as “tentative.” Against that backdrop, the ECB has cut interest rates to their lowest-ever level and Draghi has pledged they’ll stay there or lower for an “extended period.”
Spain’s economy shrank just 0.1 percent in the second quarter from the prior three months. Still, the country’s youth unemployment is 56 percent. In Italy, where Prime Minister Enrico Letta is easing last year’s budget austerity, GDP fell a less-than-forecast 0.2 percent.
Economic confidence in the euro area increased for a third month in July. Manufacturing expanded for the first time in two years, according to a purchasing-managers survey by London-based Markit Economics.
Adecco SA (ADEN), the world’s largest provider of temporary workers, reported increased profit for the second-quarter, and the Glattbrugg, Switzerland-based company said it sees more positive signs for business as Europe’s labor markets stabilize.

German Growth

As the pain in Europe’s periphery has eased, German growth has strengthened. The Economy Ministry said on Aug. 9 that the region’s biggest economy expanded “markedly” in the second quarter, driven by private consumption and industrial production.
Chancellor Angela Merkel will seek a third term as German leader on Sept. 22 on the strength of shielding her country from the worst effects of the euro area’s debt crisis. The Federal Statistics Office will release second-quarter GDP data before the euro-area number on Aug. 14.
Financial markets have largely avoided the volatility that marked previous years even as a change in Italy’s government stalled, Portugal’s coalition faltered, and Cyprus required a messy bailout. Draghi has cited the ECB’s unlimited bond-buying pledge, announced last year and so far untapped, as a reason for calmer markets. Yields on Spanish and Italian sovereign bonds have fallen in the past 12 months.
“It all looks a bit better than we thought,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “Our central case is a very modest recovery, and we’re still not overly bullish for the second half of the year.”

Lending Decline

One area of stress remains corporate access to credit. Lending to companies and households across the region fell the most on record in June. A review of banks’ balance sheets to be conducted by the ECB has probably been delayed until the first quarter of 2014 as the central bank says it can’t start preparing until EU lawmakers vote on the legislation, which won’t be before September.
The review is part of a plan to strengthen the region’s financial system by building a banking union comprising ECB oversight, a single resolution mechanism for winding up failing lenders, and common rules for deposit guarantees.
In the meantime, economic performance remains patchy. An unexpected 1.4 percent drop in French industrial production in June underlined the government’s struggle to revive growth in the region’s second largest economy. France is also due to release data for second-quarter GDP on Aug. 14.

‘Constrained’

“The upside for domestic demand in the euro zone is likely to remain constrained,” said Howard Archer, chief European economist at IHS Global Insight in London, citing “restrictive fiscal policy,” and “elevated” unemployment.
The euro area’s path out of recession will also be determined by conditions in major export markets such as the U.K., the U.S. and China. There, indications are improving.
In China, July industrial output rose more than expected after a larger-than-forecast rebound in exports eased concern that a credit squeeze in the world’s second-biggest economy would curb growth. The U.S. economy grew at a 1.7 percent annualized rate from April through June after a 1.1 percent pace in the first quarter.
For the whole of 2013, the ECB forecasts a contraction for the euro-area economy of 0.6 percent, before an expansion of 1.1 percent in 2014.
“There’s still some fiscal adjustment going on and that’s weighing on consumption, as well as banks in the south not being in a position to support the economy,” said Laurence Boone, chief European economist at Bank of America Merrill Lynch in London. “The consensus is for slight growth and we wouldn’t expect anything much more buoyant than that.”
 By Jeff Black