Reuters News - Fed officials clash on view of economy

 

By Ann Saphir

(Reuters) - The gap between the Federal Reserve's dovish core and its hawkish wing was on display on Thursday as a top Fed official said the economy is in better shape even as Fed Chairman Ben Bernanke focused on a source of weakness.

While growing "slower than we would like," the U.S. economy is expanding fast enough that it does not need further help from the central bank, Dallas Fed President Richard Fisher told Fox Business Network.

"We will not support further quantitative easing under these circumstances because there's a lot of money lying on the sidelines, lying fallow," he said, according to a transcript provided by the network. "We don't need any more monetary morphine."

Bernanke, by contrast, sounded more cautious, saying U.S. consumer spending is still too weak to ensure a healthy pace of economic growth. <ID:L1E8EM71N>

"Right now, in terms of debt and consumption, we're still way low relative to the pattern before the crisis," Bernanke told students in the second of two lectures at The George Washington University. "We lack a source of demand to keep the economy growing."

Fisher is in the minority at the Fed, which last week reiterated its expectation that it will need to keep short-term interest rates near zero through late 2014 to help a lackluster recovery.

But his vocal opposition to further easing points to the challenges Bernanke faces as he seeks consensus on future policy in the face of subpar growth and high unemployment. While Fisher does not have a policy vote this year, he participates in the Fed's regular policy-setting meetings.

In response to the deepest recession in generations, the Fed, under Bernanke's leadership, slashed short-term borrowing costs to zero and promised to leave them there until at least late 2014. The central bank has also sharply expanded its balance sheet through the purchase of some $2.3 trillion in Treasury bonds and mortgage-backed debt.

Although Bernanke has been highly visible this week, jumping between congressional testimonies and his lectures to students, he has not shed additional light on what investors are primarily concerned with - the prospect for further monetary easing.

Analysts now see a third round of bond purchases or quantitative easing as less likely given recent improvement in the economic backdrop, especially in the job market.

Still, Fed officials have made clear they still see the 8.3 percent unemployment rate as too high for comfort, and the risk of contagion from Europe's financial crisis, while smaller, has not completely abated.

The U.S. economy grew 3 percent in the fourth quarter of 2011 but that rate was seen slowing to just under 2 percent in the first three months of this year.

Among analysts and investors, however, expanding U.S. manufacturing and improving labor and housing markets in recent months have lifted hopes for recovery.

Traders have reacted by betting the Fed will start raising rates as soon as July 2013.

Fisher said he is not worried about inflation, which he expects to come down to around the Fed's 2 percent target.

"The real problem in our country is job creation and prosperity," he said. "And we need to get better fiscal policy to complement what we at the Fed have done, because it's not working as effectively as it should."

Separately, one of the Fed's most dovish policymakers offered an analysis of the central bank's verbal clues on the future path of interest rates, concluding they are effective at lowering borrowing costs. <ID: L1E8EM4N9>

Based on data going back to the mid-1990s, Charles Evans, president of the Chicago Fed, and three other economists, found that markets do indeed listen when the Fed speaks, according to the research, presented at a Brookings Institution conference on Thursday.

The paper from Evans lends support to the Fed's decision earlier this year to begin publishing policymakers' own forecasts for the path of rates, and to clearly state that the Federal Open Market Committee expects rates to remain near zero until at least late 2014.

"It seems possible for the FOMC to change longer term interest rates out of its control by promising to persistently lower the shorter term rates within its control," the paper says.

(Reporting by Ann Saphir and Pedro Nicolaci da Costa; Editing by Andrew Hay)

Reuters News - Three-way World Bank race seen as deadline looms

 

By Lesley Wroughton

(Reuters) - The United States faces an unprecedented challenge to its grip on the World Bank presidency, with emerging economies poised to nominate at least one candidate on Friday to set up the first contested bid for the top job at the global development lender.

Less than a day before the deadline to nominate, Washington has yet to announce its candidate. South Africa is set to confirm the candidacy of Nigerian Finance Minister Ngozi Okonjo-Iweala, a respected economist, diplomat and former World Bank managing director.

However, it is unclear whether Brazil will be able to move forward with plans to nominate former Colombian finance minister Jose Antonio Ocampo. Brazil could not nominate Ocampo without Colombia's support, which now looks unlikely.

While Ocampo had agreed to stand and Brazil was willing to nominate him, Colombian Finance Minister Juan Carlos Echeverry said on Thursday that Colombia was instead focusing on a bid for the presidency of the International Labor Organization.

He said that effort had a greater chance of success than going for the World Bank job, because Colombia already held the top post at the Inter-American Development Bank.

"The Colombian government has to concentrate exclusively on a candidate that has possibilities of success," he said.

Unspoken is the likelihood that whoever the United States puts forward will get the job.

U.S. CANDIDATE A MYSTERY

Although the World Bank board would like to reach a consensus agreement, Washington retains the largest single voting share and could expect the support of European nations and Japan, the bank's second-largest voting member.

The United States has held the presidency since the bank's inception after World War Two, and a European has always headed its sister organization, the International Monetary Fund.

While the Obama administration has said it would nominate someone to replace Robert Zoellick when he steps down in June, its choice remains shrouded in mystery.

Nancy Birdsall, president of the Centre for Global Development in Washington, said the delay in naming a U.S. candidate had opened the door for others.

"For the first time there is a competition, or there is at least the initial perception of a serious competition. And, the only way to get open, merit-based and transparent is when there is competition," she said.

The rise of emerging economies such as China, India and Brazil has put pressure on the United States and Europe to throw open the selection process for both the bank and the IMF.

Last year, all of the bank's 187 member countries agreed on a transparent, merit-based process to select a president.

Sources familiar with the Obama administration's thinking have said the White House short-list included Susan Rice, the U.S. ambassador to the United Nations, PepsiCo's Indian-born CEO Indra Nooyi, U.S. Senator John Kerry, and Lawrence Summers, a former economic adviser to President Barack Obama.

Another name that has surfaced in recent days is Laura Tyson, a professor at the University of California, Berkeley, and an expert on international trade and competitiveness.

While the State Department has ruled out Secretary of State Hillary Clinton taking the job, she remains a viable candidate in the eyes of some observers.

FRIDAY DEADLINE

So far, the only candidate officially nominated is U.S. development economist Jeffrey Sachs, who acknowledges he does not have Obama's support. His candidacy is backed by smaller developing countries, such as Bhutan, East Timor, Haiti, Kenya, Guatemala and Chile.

The deadline for nominations is 6 p.m. Washington time (2200 GMT). The World Bank board of member countries will then shortlist the names of three candidates and finalize its choice by the time of IMF and World Bank semi-annual meetings on April 21.

The new head of the poverty-fighting institution would be taking over as the euro zone debt crisis slows the global economic recovery, undercutting demand in emerging and developing markets.

The person will have to decide how best to deploy resources in a budget-cutting environment in which large bank shareholders such as the United States are demanding results-based development, more transparency and greater efforts to tackle corruption.

Birdsall said the nomination of a credible candidate such as Okonjo-Iweala "upped the ante for the U.S. to have a really strong candidate."

"It is a sign that we're living in a world where the geopolitical landscape is shifting and the U.S. can't do things by itself," she said.

(Editing by Timothy Ahmann and John Mair) 

Reuters News - Japan posts trade surplus on U.S. exports, corp mood improves

By Rie Ishiguro and Tetsushi Kajimoto

(Reuters) - Japan's first trade surplus in five months and a revival of confidence among manufacturers has added to evidence the economy was growing again as the yen weakens and external demand picks up, reducing the need for further monetary policy easing.

Exports to the United States in February rose at their fastest annual pace in more than a year, with auto exports jumping by more than a quarter, supporting the government's view the economy is picking up after contracting in late 2011.

"Japan's economy should be able to recover as overseas economies stabilize and as we rebuild from the earthquake. Export competitiveness is improving, so this takes some pressure off the central bank," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Still, we're likely to see trade deficits in the future as we have to import more energy due to the declining use of nuclear power."

The February trade surplus of 32.9 billion yen ($393 million) was a sharp turnaround from a record deficit of 1.476 trillion yen in January, and wrong-footed analysts who had been looking for a deficit of 120 billion yen.

Providing comfort to the export-reliant corporate sector, the yen slumped to an 11-month low against the dollar in the wake of a surprise easing by the Bank of Japan last month.

EXPORTS DOWN, IMPORTS UP

Exports to the United States surged 11.9 percent in February from a year earlier, the biggest rise since Dec 2010, powered by a 26.9 percent rise in auto exports.

Still, total exports fell 2.7 percent from a year earlier, but that was much smaller than economists' median forecast of a 6.4 percent decline and the 9.2 percent drop in January.

Exports to Asia fell, although the pace of decline slowed as shipments to Thailand rebounded after the disruption caused by last year's flooding.

Imports rose 9.2 percent in February from a year earlier, against a forecast for an 8.4 percent increase, boosted by high energy prices and strong demand for fuel to make up for idled nuclear power plants.

Last year, Japan logged its first annual trade deficit in 31 years in the aftermath of the March earthquake that broke supply chains and sent fuel imports surging.

"U.S. auto demand was firm but auto exports to Europe continued to slump," said a financeministry official. "The outlook is still unclear. We want to closely watch the U.S. economy's performance and exchange rate moves."

The dollar fell about 0.4 percent to an intraday low near 83.14 yen after the surprise surplus but later pared some losses.

SENTIMENT IMPROVES

Separately, the Reuters Tankan's manufacturers' sentiment index rose 13 points to plus 2, the biggest monthly gain since June 2009, and was seen holding at that level in three months.

The index, derived by subtracting the percentage of pessimistic responses from optimistic ones, suggested the next Bank of Japan quarterly tankan survey, due on April 2, could also show a marked improvement.

"The possibility of additional BOJ easing has declined from an economic perspective," said Taro Saito, senior economist at NLI Research Institute.

"But there is still a chance of it happening depending on political pressure and the outlook for U.S. monetary policy."

The BOJ last month expanded its asset buying scheme by 10 trillion yen and set a 1 percent inflation goal. It stood pat this month, overruling a lone proposal for more stimulus and disappointing some in markets.

BBC News - Budget 2012: 'Super-connected cities' and video games tax credits

Chancellor George Osborne has announced which cities will benefit from a £100m pot of Treasury cash aimed at making them "super-connected".

New tax breaks for the games industry were announced in the Budget

These are London, Edinburgh, Belfast, Cardiff, Birmingham, Bradford, Bristol, Leeds, Manchester and Newcastle.

He also announced a further £50m to improve net access in 10 unnamed "smaller cities".

Mr Osborne said that he wanted the UK to become "Europe's technology centre".

The super-connected cities were first announced in Mr Osborne's autumn statement when he pledged £100m to create 100Mbps (megabit per second) citywide networks in 10 urban areas.

By 2015 it is hoped the investments in cities will provide ultrafast broadband coverage to 1.7 million households and high-speed wireless broadband for three million residents.

Motorway reception

The chancellor also announced plans to extend mobile coverage to 60,000 rural homes and along at least 10 key roads by 2015, including the A2 and A29 in Northern Ireland, the A57, A143, A169, A352, A360 and A591 in England, the A82(T) in Scotland and the A470(T) in Wales, subject to planning permission.

Funding would come out of the £150m investment announced in the Autumn Statement.

The government will also consider whether direct intervention is required to improve mobile coverage for rail passengers.

Seb Lahtinen, co-founder of broadband news site ThinkBroadband, said the move was "part of a drive to ensure that not only is the UK the best in Europe in terms of broadband speeds, but can compete on an international stage against countries like South Korea".

"The announcement by the chancellor is a recognition of the fact that broadband technology underpins the economy as a whole, and in particular the digital content industries in this country," he added.

Others felt that money would be better spent in improving rural broadband.

"Whilst funding earmarked for ultra-fast broadband in 10 UK cities is both ambitious and heartening, and will undoubtedly benefit technology companies looking to develop and expand in the UK, the primary concern should be the provision of a quality service to rural areas before pursuing the title of fastest broadband in the world," said Julia Stent, director of telecoms at price comparison site Uswitch.

"Although there are still broadband blackspots and speed issues in some urban areas of the UK, we worry that the major towns and cities will speed ahead of the rest of the country in the premature quest to become fastest in the world."

Reuters News - Global regulators to tighten up bank disclosures

(Reuters) - Global regulators called on banks to give investors more precise and relevant information about risks from next year or face mandatory rules.

 

"The importance to market confidence of useful disclosure by financial institutions of their risk exposures and risk management practices has been underscored in recent years," the Financial Stability Board said in a statement.

The FSB, a regulatory task force for the world's 20 leading economies (G20), set out steps it will take to improve disclosure practices for implementation from year-end 2012 annual reports.

The FSB will set up a working group comprising investors, firms and auditors to develop principles for better disclosure to be used in annual reports for 2012 and onwards.

"Should the follow-up actions by the private sector not result in sufficient progress in this area, the appropriate international standard-setting bodies will be asked to take forward work to consider principles," the FSB said.

Financial institutions already face regulatory and accounting requirements to make disclosures about risks such as those from currency movements and commodity markets but investors feel inundated with information of varying importance.

A roundtable of 80 senior officials from across the world in December hosted by the FSB revealed shortcomings which affect their purchase of bonds and shares in a financial firm.

Asset managers, investors and regulators said many firms provide only minimal risk disclosures or "obscure important information in voluminous disclosures that are not relevant or prioritized", the FSB said.

"Disclosures should better differentiate market risk components, for example interest rate, foreign currency and commodity risk as separate disclosure categories, and firms should avoid voluminous or boilerplate disclosures presented as a compliance exercise," the task force added.

The International Accounting Standards Board (IASB), which authorizes accounting rules used in over 100 countries, is set to make tackling "disclosure overload" a priority for its work program over the next year or two.

(Reporting by Huw Jones; Editing by Helen Massy-Beresford)

BBC News - US exempts Japan and EU nations from Iran oil sanctions

The US government will not impose sanctions on Japan and 10 European Union nations that have reduced their oil imports from Iran.

Iran earns more than half of its government revenue from selling oil

Ordered by Congress in December, the sanctions aim to punish countries that continue to buy oil from Iran.

China, India and South Korea, major buyers of Iranian oil, were not exempt.

Iran faces international pressure to address concerns over its nuclear enrichment programme.

Secretary of State Hillary Clinton, who announced the exemptions in a statement, said Japan and the EU nations had taken actions that were "not easy".

"They had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil which many had been reliant on for their energy needs."

The European countries that have been exempt are France, Germany, Belgium, Greece, Italy, Czech Republic, the Netherlands, Poland, Spain and the UK.

Under a US law that came into effect in 31 December, countries have until 28 June to show they have significantly reduced the amount of crude oil they purchase from Iran or face being cut off from the US financial system.

CNN News Business360 - Investors who bet Greece would default collect $2.5 billion

 

London (CNN) – Investors holding insurance to protect against Greece defaulting on its debts will collect just over $2.5 billion after an auction of the country’s bonds found their value to be 21.5 cents in the euro.

The payout gives relief to those who have long bet the country will be unable to pay its bills. Greece has avoided that outcome for months as it continued to be buffered by loans from the eurozone’s bailout fund and the International Monetary Fund.

A default, triggering payment of the insurance - or credit default swaps - was finally called after the country forced its creditors to take massive cuts in the value of their investments as part of a debt swap.

That so-called “credit event” was therefore tripped by a restructuring of the country’s debt, rather than straight non-payment.

The price was reached after an auction in which the country’s bonds - including new ones held by investors who participated in the debt restructuring - were traded by banks to find a price.

Those holding the credit default swaps will now be paid out 78.5 cents on the euro to close out the contracts.

Market participants said the auction went largely as expected, despite quirks created by the country’s debt restructuring.

One observer said the auction was essentially a “washing up” of the restructuring. One takeaway, he added, was that the “political furore” around credit default swaps - once held up by politicians as a highly destabilizing influence in the financial markets - had died down.

Posted by: 
CNN Digital Business Producer, Irene Chapple