FOREX-Euro gets a lift from EU comments, but more losses seen - Reuters UK
* EU Commission comments lifts euro from lows
* Euro hits near 2-yr low vs dollar; dollar index at 20-mth high
* Focus on rising Spanish debt yields and risk of bailout (Recasts, adds quote)
By Anirban Nag
LONDON, May 30 (Reuters) - The euro bounced from near two-year lows against the dollar on Wednesday, after the European Commission called for sweeping reforms to restore investor confidence, but gains were likely to be fleeting on growing concerns about Spanish banks.
The European Commission said the euro zone should move towards a banking union and consider eurobonds and the direct recapitalisation of banks from its permanent bailout fund as it laid out year-long recommendations in a report.
The euro rose to as high as $1.24684 from a 23-month low of $1.24241 on trading platform EBS after the comments, but analysts said any bounce would only provide a fresh opportunity to sell the common currency.
"We will sell into this bounce as these proposals will take a long time and will entail changes to the treaty," said Geoffrey Yu, currency strategist at UBS.
Earlier the euro fell to its lowest since early July 2010, as real money and institutional investors stepped up sales of the currency. Their selling gathered pace as concerns grew about Spain's ailing banking sector and soaring borrowing costs, and after Italy was forced to pay dearly to sell debt.
The euro was seen highly vulnerable to further falls, with many analysts looking for a drop towards $1.20.
Concerns are growing that Spain may have to tap debt markets at a time when bond yields are near unsustainable levels. Market players fretted that it may be forced to seek an international bailout.
Adding to the euro's woes, Italian 10-year government bond yields topped 6 percent as sentiment on the indebted economy looked vulnerable to contagion from Spain's worsening problems.
"The euro is in an extremely vulnerable position and downside risks are very strong indeed ... The Spanish banking crisis has the potential to knock the stuffing out of the euro zone irrespective of the Greek election results," said Jane Foley, senior currency strategist at Rabobank.
"The issues for Spain are undoubtedly huge and most people are coming round to the idea that it will need to go outside of its borders for assistance. The longer it delays, the more the risk of a bank run."
More falls could see the euro test a reported options barrier at $1.2400. Below there it has little chart support until $1.2151, a low hit in late June 2010, and then the 2010 low of $1.1876.
The common currency also lost more than 1 percent against the safe-haven yen, taking it to a four-month low of 98.274 yen. It recovered to trade at 98.425 yen, still down 0.9 percent on the day.
DOLLAR BUOYANT
A government source told Reuters on Tuesday that Spain would likely recapitalise Bankia, which asked for 19 billion euros on Friday, by issuing new debt and possibly drawing cash from the bank restructuring fund and Treasury reserves.
The euro's weakness benefited the safe-haven dollar and yen, helping the dollar index, which measures its value against a basket of currencies, rise to a 20-month high of 82.749.
Technical analysts said a monthly close about the 100-month average in the dollar index around 81.82 may herald a shift in the longer-term trend of the dollar and reverse a multi-year drift lower.
The dollar also rose to a 15-month high against the Swiss franc at 0.9666 francs on EBS.
The higher-yielding Australian dollar fell 0.7 percent to $0.9777, slipping towards a six-month low at $0.9690, after weaker-than-expected retail sales data underscored the case for interest rate cuts. (Additional reporting by Jessica Mortimer; Editing by Andrew Roche)
Money Man Pulls Even With Black Guy In Latest Poll - The Onion (satire)
WASHINGTON—With the election less than six months away, a nationwide Gallup poll released Wednesday found that Money Man has now pulled even with Black Guy in the 2012 presidential race.
Citing Money Man's significant appeal among veterans—as well as his narrow lead in Florida, a crucial swing state that went to Black Guy in 2008—experts said Money Man is closing the gap on a race that, until quite recently, seemed to be firmly under Black Guy's control.
"I have to say, Money Man has really impressed me lately," said poll respondent Mike Hargett, who is among the 45 percent of independent voters planning to cast a ballot for Money Man in November. "I voted for Black Guy in the last election, but I’ve been fairly disappointed with the job he’s done. As much as I admire Black Guy and his historic achievement, it just seems like the time is right for someone new with fresh ideas to come in and shake things up a bit."
"Someone like Money Man," Hargett added.
Still, Money Man’s current one-point lead over Black Guy is within the Gallup poll’s margin of error, and Washington insiders have pointed to several encouraging signs for Black Guy, who maintains strong ratings on foreign policy and a double-digit lead in favorability among middle-class voters—two areas in which Money Man typically hasn’t polled very well.
Further highlighting the closeness of the race, the poll revealed there are a significant number of undecided voters still weighing the merits of a Money Man presidency vs. a Black Guy presidency.
"It's a tough choice, because both Money Man and Black Guy have strong qualities," said 47-year-old voter Albert Dorin, adding that he may not make up his mind until he sees Money Man and Black Guy next to each other on a stage, debating. "I like Money Man’s views on the economy and on money. However, you have to hand it to Black Guy for finally tracking down and killing bin Laden. And I like his wife, Black Lady, too."
"I like her more than Money Man’s wife, Blonde Lady," Dorin added.
Despite Money Man's rise in the polls, surveys have found that a majority of Republican voters would have preferred to see Food Man from New Jersey on the ballot, had he chosen to run, and that there also would have been strong support for The Woman, especially among the conservative base.
"Food Man from New Jersey or The Woman would have been more in line with my sensibilities, but there's still a good chance Money Man will pick one of the two as his running mate," Ohio voter Margaret Yaster told reporters. "Besides, for me, pretty much any Republican would be better than Black Guy. Even Pizza Black Guy."
"Not Ron Paul, though," Yaster continued. "That guy's out of his goddamn mind."
Forex Flash: USD/CAD could revisit parity level once risk aversion eases – Scotiabank - NASDAQ
FXstreet.com (Barcelona) - The cross is extending its impressive upside on Thursday, sparked in late April when it was trading around 0.9810, eyeing the key level at 1.0300 as risk aversion is propelling the greenback to new highs.
In the opinion of C.Sutton, Chief Currency Strategist at Scotiabank, shrinking risk appetite, Chinese recent comments ruling out further stimulus to its economy and a mixed bag of results in the US fundamentals as of late, constitute quite a burden for the CAD.
The expert assesses that bursts of risk aversion could drive USD/CAD to 1.07 in the actual context of uncertainty aggravated by the euro zone crisis; but she goes on saying that "…however once risk aversion passes we would expect the relative fundamentals of the Canadian backdrop to shine through bringing USD/CAD back to parity…"
The next big event for the Loonie will be the BoC monetary policy meeting, due next week. Market participants expect the central bank to leave the cash rate intact at 1.0%.
Forex: USD/CHF up on solid greenback, KOF - FXStreet.com
RBS shareholders will never recover money they lost - Daily Telegraph
A share restructuring plan, which was approved at today's annual investor meeting will see the bank swap 10 of its existing shares for one new share. As a result of the scheme, which will take effect from June 6, the bank's share price will increase 10-times, pushing the share price to about 200p - the first time RBS shares will have traded at that price since September 2008.
RBS avoided the shareholder protest votes that have hit other major British businesses during the so-called "shareholder spring". However, with UKFI, which manages the state's 82pc holding in the bank, voting in favour of all the bank's resolution a protest vote was never considered likely.
Sir Philip told shareholders that despite chief executive, Stephen Hester, coming under pressure to give up his bonus the "great majority" of institutional investors had been in favour of awarding him the all-share payment worth nearly £1m.
Investment: Put the money where the mission is - ThirdSector
Investment illlustration
Ethical investment has grown enormously in recent years and is now central to many charities' policies - but some large ones believe it will damage their financial returns. David Ainsworth examines the state of play
Just over 20 years ago, the Bishop of Oxford launched a court case against the Church Commissioners, the investment arm of the Church of England, saying that he felt a charity had a duty not only to maximise financial returns when investing, but also to take ethical considerations into account.
The bishop won his case and, consequently, the Charity Commission rewrote its guidance to make it clear that a charity could exclude from its portfolio any companies to which it had moral objections.
The Church Commissioners, which manages more than £5bn, took the bishop's views to heart and now has one of the strictest policies of that sort anywhere in the UK. It excludes companies that sell tobacco, alcohol, pornography and weapons.
Since that case, ethical investment has evolved considerably. Charities and other investors have moved on from simply excluding those companies they dislike, known as 'negative screening'. When investing in companies, many now take into account the quality of their environmental, social and governance policies, or seek out companies that align with their mission.
Some have used their powers as shareholders to lobby companies for change, while others have stepped outside the mainstream stockmarket to invest only in organisations that actively work for social good - a process known as 'social investment' or 'programme-related investment'.
However, the level of interest in ethical investment varies widely from charity to charity, says Richard Jenkins, policy officer at the Association of Charitable Foundations, who recently compiled a guide called The Governance and Financial Management of Endowed Charitable Foundations.
"We spoke to a lot of charities about this when we compiled the guide," he says. "We found an enormously diverse range of responses. Some charities weren't doing it at all. Others were extremely involved."
A survey in 2009 of 164 Charity Finance Group members by the group and Eiris, a not-for-profit organisation that conducts research into ethical investment, found that 60 per cent of organisations that invested more than £1m had some sort of ethical investment policy. Of those, a quarter went further that just negative screening.
Victoria Heath, head of business development at Eiris, says she believes the focus on ethical investment has increased in the three years since that survey was published. But some large charities still deliberately do not adopt the policy, she says, because they fear it will limit returns.
"For me, it's a no-brainer that you should invest in line with your mission because, if you don't, you're probably investing in someone whose actions run directly contrary to that mission," she says. "But some very big charities are not doing that. They say clearly on their websites that they invest to maximise return."
Heath says one common reason given by those that do not have ethical investment policies is that trustees still believe they have a legal duty to maximise returns, and that it is unlawful to exclude investments on moral grounds. Others believe that ethical investment will damage their returns.
Others, she says, shy away because the process of developing an ethical investment policy is seen as time-consuming and difficult. "But it's not illegal, and it won't negatively affect your returns," she says. "It's possible to develop a policy relatively simply."
Jenkins says that evidence gathered while compiling his guide suggested that ethical investment is moving up foundations' agendas. One reason for this, he says, is the publication of guidance that makes it clear that charities can invest ethically, notably the Charity Commission's investment guidance CC14, published last year. He says this gives charities "a really pragmatic and permissive power to invest in ways that are relevant to their beneficiaries".
The UN Principles for Responsible Investment, launched in 2006, have also highlighted the issue to all investors. "I think the financial crash also made a difference," says Jenkins. "I'm sure it's made people think about whether their money is really doing what they want."
Above and beyond that, he says, there is an increasing move among foundations towards 'whole-balance-sheet investing'. "Foundations are thinking about how they can use every penny at their disposal to achieve their objectives," he says. "But there's always a delicate balance between the extra good you can do with your investments and the good you can do with the extra investment return."
Helen Wildsmith, head of ethical and responsible investment at the fund manager CCLA, says that the move towards ethical investing appears to be one-way traffic. "I've never heard of anyone abandoning their ethical investment policy once they've got one," she says. "It only moves in one direction."
Wildsmith says all money managed in CCLA funds is subject to some form of ethical screening. "We have two policies," she says. "One of those excludes tobacco and weapons banned by international treaty; the other has much more extensive screening. The first excludes about 3 per cent of the market, the second about 10 per cent.
"But what we're also finding is that charities aren't interested in exclusions only. Our clients have told us they want us to be engaged investors, and to use their shares to vote on issues such as human rights and child labour. And if engagement doesn't work, they've told us to divest."
In one high-profile case, charities sold their shares in protest about poor conduct by the mining company Vedanta. A coalition of church investors, including CCLA, the Central Finance Board of the Methodist Church, the Joseph Rowntree Charitable Trust and the Church Commissioners, put pressure on the company over its plans to mine a sacred mountain in India, and eventually sold their shares in protest.
Edward Mason, secretary to the Church of England ethical investment advisory group, who took part in the divestment process, says that getting involved in ethical investment can look complicated at first, but "you shouldn't throw your hands in the air and do nothing".
He says: "There are plenty of organisations that can help. The guidance is very good. You can ask your fund manager what they can do for you. Managers respond to their clients. If enough clients ask them for something, they'll do it.
"The evidence isn't entirely clear that there's an active investment benefit, but it's pretty clear that there's no detriment. And it's a good investment process to take into account issues that could affect the stock in the long term."
Gemma Woodward, an investment manager at the fund management company Newton, says that taking account of environmental, social and governance issues - known as ESG for short - is simply good financial management, as well as having an ethical benefit. "Our belief is that ESG factors affect share price and you need to understand them," she says. "We think looking at ESG is integral to good investment processes, particularly over the long term."
Woodward says another reason to have an ethical investment framework is the wishes of supporters. "There's a clear indication that supporters feel charities should have ethical investment policies," she says.
"Once you've developed a policy, test it. Find out where your concerns are. Make sure it's really doing what you want it to. It can be quite a lot of work to set up, but it's not that hard to run."
- Read our interview with the head of Panahpur, James Perry
- See our article on the new guidance for charities on social investment
- Check out our case study about the Esmee Fairbairn Foundation's investment strategy
MONEY MARKETS-Speculation of ECB interest rate cuts returns - Reuters UK
* Markets pricing small probability of ECB rate cut in June
* Such bets likely to accumulate in coming days
* As in May, markets could set themselves up for letdown
By Marius Zaharia
LONDON, May 30 (Reuters) - Bets that the ECB will cut interest rates next week are again appearing in money markets, as Spanish and Italian debt yields are approaching levels that made the central bank introduce unprecedented easing measures last year.
The threat that Greece could eventually leave the euro and worries over Spain's banking sector have prompted investors to sell Spanish and Italian debt, bringing the two countries' borrowing costs closer to levels deemed as unsustainable.
The sheer size of their debt markets and their deep-rooted connections with other financial systems in the euro zone are reasons for investors to speculate that a policy response is in the works.
The European Central Bank is, as usual, seen as the most likely institution to take measures to cool market nerves because it can act faster than politicians. It has done it before in the past by injecting around 1 trillion euros of cheap loans into financial system in December and February.
Euro zone economic data this month has also been poor, supporting bets that the ECB may soon resume monetary easing, possibly by cutting its key refinancing rate by 25 basis points from a record low of 1 percent.
"Data ... have been softer, and then you have the Greece issue continuing to be unresolved and the Spanish issue continuing to be unresolved," said Elaine Lin, a rate strategist at Morgan Stanley, whose economists predict a rate cut.
She said the euro overnight Eonia rate forward market was only pricing an over 10 percent probability of a rate cut in June and the chances were higher by another 10-20 percentage points for the July meeting. However, she expected markets to factor in a higher probability in the next few days.
A key rate cut, if also accompanied by a cut in the 25 basis points deposit facility rate, could trigger a 5-10 bps fall in the near-term forward Eonia rates towards the 20 bps level seen now in September-October Eonia forward rates, Lin said.
The lowest point on the 2012 Eonia curve is December, at 16 basis points, which implies an 80 percent probability that the deposit rate would be slashed in half, according to BNP Paribas rate strategist Matteo Regesta.
A Reuters poll of economists showed the ECB was likely to resist pressure to cut interest rates in June, but also pointed to a growing probability that it will reduce them later this year.
Speculation about ECB monetary easing has also been fuelling a rally in Euribor futures , implying bets for lower fixings of benchmark euro zone interbank three-month Euribor rates later this year.
The December Euribor future has gained back most of its losses made since Greece's inconclusive election on May 6, which sparked fears the country may be on its way out of the bloc. The fall earlier this month also coincided with unwinding bets that the ECB would have cut rates in May.
The contract was last 3.5 ticks higher on the day at 99.46. That was one tick lower than the pre-election close on May 4, but some 15 ticks higher from the lows hit in mid-May.
The move higher in Euribor futures, which has been faster than the move lower seen in the very low Eonia forward rates, has led to tighter Euribor/Eonia spreads, which are widely used as a gauge of money market stress.
That is counter to what is happening in banking credit default swap markets - where investors can insure against banking defaults. The Markit iTraxx index of European senior financials CDS remains close to its highest level this year at around 300 bps.
BNP Paribas' Regesta warned that Euribor futures could fall again as they have done after the ECB's May meeting and this would trigger a widening of the Euribor/Eonia spreads consistent with the levels of stress felt in money markets.
"You have a decoupling between those spreads and the banks CDS now, but those spreads remain exposed to significant paying interest in coming weeks ... unless there is another policy response from the ECB at its meeting next week," Regesta said.
China drowning in money: what it means for the rest - On Line Opinion
Global financial markets are keenly interested in China's short-term economic direction and policy choices. American policy should look farther. If China chooses to try to stimulate its economy in the second half of the year, even if successful, it will only exacerbate a more pressing long-term challenge.
This challenge in part takes the form of too much money. While attention is focused on when the People's Republic of China (PRC) might catch the U.S. in terms of GDP, it has already passed the U.S. on some measures of its monetary base. Such high liquidity typically precedes periods of stagnation or even outright economic contraction. It is one of the surer reasons for anticipating that China's true economic growth might slow sharply, a possibility that has clear implications for American policy.
Moreover, excess Chinese liquidity has already had an impact in the U.S. The two economies are linked by Beijing's chosen balance-of-payments rules, which tie the yuan to the dollar and compel the PRC to hold excess reserves in American bonds. The U.S. has its own money supply management challenges, and communication between the two countries' monetary authorities will be valuable.
Not for All the Money in China
There are many different ways to measure the supply of money. There are also pronounced differences in national monetary systems, which cause natural differences among economies. For a large economy, the PRC is immature financially, so that more capital stays within the banking system. This is a well-recognized long-term problem.
One manifestation of the problem is a comparatively high ratio of broad money M2 (currency in circulation plus demand and time deposits) to GDP. China is well above the global average on this measure, while a somewhat similar economy in Brazil is well below. Nearly all of the countries that have higher M2/GDP ratios than China are in Europe, which, in light of recent developments, is not reassuring.
More importantly, the ratio for the PRC is not only high but has been rising steadily. Since the financial crisis, a number of countries have rising liquidity, including the U.S. However, those countries with both high and clearly rising liquidity (Spain, for example) are a small and unhealthy bunch. This is not good company for China to be keeping.
The U.S. is only one point of comparison, but it is an instructive one. In 1998, China's M2was 70 percent smaller than America's. In 2011, it was 40 percent larger. While Chinese GDP expanded greatly in that period, it was still only half of American GDP at the end of last year. Yet the PRC had $3.8 trillion more in broad money supply sloshing around.
Measurements of leveraging show roughly similar problems. China's dependence on bank loans for financing intensified with the lending explosion in 2009. In 1998, loan volume was 102 percent of GDP. By 2008, it had only inched higher to 106 percent of GDP. Just three years later, though, it had jumped to 123 percent of GDP. More comprehensive measures of credit show still higher figures and steeper climbs.
What Happens Next?
There is plenty of discussion at present about short-term weakness in the Chinese economy and whether additional stimulus is the right response. The longer term is clear: On its present policy path, the effective stimulus Beijing can apply through monetary policy will continue to decline.
At the high levels of liquidity that have now been reached, further leveraging has and will continue to become increasingly ineffective. More and more money must be employed to get the same results. Barring a major policy misstep, there is no true crisis imminent. However, a crisis must loom as a possibility at some point.
This leaves Beijing with unpleasant choices. More monetary stimulus will have only a limited impact now at the cost of digging deeper into a hole that China must eventually climb out of. Whether or not further short-term stimulus is chosen, the PRC must eventually de-leverage to some extent. This will exert downward pressure on growth for some time. After years where growth has been inflated by a flood of new money, this signifies instability, and the Communist Party does not like instability.
How liquidity is drained, however, could matter a great deal. Broad money should at least stabilize relative to GDP, and total credit should slow relative to GDP. It would be greatly preferable if, at the same time, bank lending were to become less important. This could occur with financial reform. The PRC should have more commercialized banks that are more circumspect about lending under the wrong conditions. It should have more financial options so that banking is less important relative to bonds, stocks, futures, and other financial outlets.
Financial reform is not only painful; it takes time. Interest rate liberalization, de-control of financial markets (with attendant risk), and partial privatization in banking cannot be done overnight. Beijing has a bit of time, since there is no impending crisis, but genuine reform should start as soon as possible. If it begins quickly, the payoff from reform can more than offset the discomfort from the inevitable deleveraging. The PRC's financial system can shift from a source of instability to a source of efficiency.
American Involvement
Like it or not, the U.S. is already involved in the Chinese liquidity problem. Some portion of excess Chinese liquidity inevitably spills into the U.S.-and more than anywhere else, because the yuan is tied to the dollar. Most famously, this was part of the feedback loop that contributed to the recent financial crisis. It has continued since, with Chinese money entering the U.S. in various ways.
But, as it was before the financial crisis, Chinese liquidity overflow into the U.S. remains only part of the loop. Though American money supply is now smaller, the U.S. economy is still much bigger, and the dollar is the world's reserve currency. Extra American liquidity, whether due to low interest rates in the middle of the last decade or quantitative easing more recently, spills over onto the rest of the globe.
When it finally becomes willing to deal with its own monetary problems, Beijing will therefore cast a nervous eye to the Federal Reserve. To a lesser extent, the Fed should do the same with regard to the People's Bank. The U.S. should:
- Continue and enhance information exchange with China on monetary policy. Countries make their own monetary choices, but transparent and timely communication helps make for better policy.
- Plan for notable economic change in the PRC in the medium term. Beijing could adopt financial reform and become much more efficient, or it might refuse and see true growth slow considerably.
- Intensify bilateral and Asian regional trade and investment liberalization, such as the Trans-Pacific Partnership, to help protect friends and allies against a possible Chinese slump.
Tightening the Taps Together?
China and the U.S. face the same long-term challenge to unwind money growth. The two challenges are connected, though the PRC's is clearly more daunting. China must act or lose monetary policy as a tool, and American policymakers should be aware of the stakes.
Money Advice Group secures £10million from PNC - bdaily.co.uk
Money Advice Group, one of the UK’s leading financial solutions companies, is embarking on a comprehensive growth strategy after securing an asset based lending facility worth £10 million, with PNC Business Credit.
In conjunction with, Dow Schofield Watts, Money Advice Group negotiated the credit facility to enable continued growth through a combination of working capital funding and finance for acquisitions.
Boasting a solid 10-year heritage, Money Advice Group currently holds approximately 8% market share of the fee charging financial solutions industry, with a turnover of £15million. Handling £250million of consumer debt, the financial solutions company has 28,000 clients that it hopes to grow by a third, with the help of the cash reserve from PNC.
Money Advice Group’s expansion plans have been stimulated by increased attention from the Office of Fair Trading (OFT), resulting in a compliance review in 2011, which saw a significant number of debt management companies either voluntarily exit the market or be forced to close due to lack of compliance. No longer open to flexible and often lax regulations, the debt management industry is now governed by the OFT’s more stringent ‘Debt Management Guidance’ published in March 2012 – and the enforcement of such has led to an industry trend of consolidation. This has created significant opportunities within the industry for larger players, with the potential to gain more market share by assisting those smaller players who wish to exit completely or sell their book of customers, in light of the cost associations of becoming compliant.
Money Advice Group’s proactive stance has allowed it to anticipate this shift in the debt management industry, and prior to its partnership with PNC, had self-funded an exercise in acquiring a small player exiting the market. The success of such a venture was the catalyst for its ambitious plans for growth and prompted the discussions with PNC to facilitate an acquisitions strategy.
The agreement with PNC is part of Money Advice Group’s overall expansion plans, which will see it take on an additional 3,500 feet² of office space within its existing premises, and boost its workforce with several new appointments within the management and client services teams. Money Advice Group has already recruited 60 members of staff in order to facilitate expansion, bringing the company workforce to 285.
Simon Brown, Managing Director, Money Advice Group commented: “With the introduction of more stringent compliance guidelines than our industry has ever witnessed, we spotted an opportunity in the market. We are extremely proud of our compliant culture but the costs associated with becoming compliant are too excessive for some of the smaller players, so what we find is they want to exit altogether or just sell on some of their books or assets. We trialed this approach last year with the successful acquisition of a smaller company, and it was from this we saw a clear direction for Money Advice Group.
“Our decision to work with PNC stemmed from its reputation in this arena, and its innovative approach to facilities based on loan to value rations against specific assets. This offered a more substantial funding line, enabling us to take advantage of the opportunities in the industry – specifically acquiring both medium-sized and large competitors, and to expand into new markets.
“We have ambitious plans for expansion and growth, and the partnership with PNC has assisted us in realising these plans. We look forward to continuing the working relationship with PNC Business Credit.”
Mark Shackleton, PNC Business Credit said: “Money Advice Group has the infrastructure, industry knowledge and experience to facilitate steady growth through acquisition. There is a clear strategy to grow the business and we are pleased to be adding Money Advice Group to our growing portfolio of clients”.
ENDS
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