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China shares end at fresh 1-1/2-mth high
Shanghai skyline
SHANGHAI, Nov 3 (Reuters) - China stocks ended up 0.2 percent on Thursday, the highest level since late September, as sentiment was underpinned by ample liquidity in the financial system and assurances the government would be flexible with macro-economic policy.
The Shanghai Composite Index ended at 2,508.1 points, after rising 1.4 percent on Wednesday. Turnover < .TVALa.SS> rose to a four-month high at 136 billion yuan ($21.4 billion).
The People's Bank of China (PBOC) conducted a net injection of 96 billion yuan into the banking system through its regular open market operations this week, with the benchmark 7-day repo rate falling on ample liquidity. (Reporting by Chen Yixin and Jacqueline Wong)
ECB surprises with rate cut, sees " mild recession"
(Adds Draghi quotes)
By Paul Carrel
FRANKFURT, Nov 3 (Reuters) - The European Central Bank cut interest rates by a quarter point to 1.25 percent in a surprise move on Thursday and President Mario Draghi said the euro zone could subside into a " mild recession" in the latter part of 2011.
The Italian has walked into a maelstrom in his first week at the ECB's helm, with euro zone leaders contemplating a future without Greece and economic policy paralysis in his home country threatening to pitch Rome into the storm.
But he offered no commitment to scale up the central bank's bond-buying programme to support the likes of Italy and Spain.
" What we are observing now is ... slow growth heading towards a mild recession by year-end," Draghi told a news conference.
" A significant downward revision to forecasts and projections for average real GDP growth in 2012 (are) very likely," he added.
The rate cut gave a modest boost to stock markets. The FTSEurofirst 300 index of top European shares was up 1.3 percent at 1400 GMT.
The decision to cut rates came despite inflation in the 17-country euro zone staying at 3.0 percent for a second month running in October, well above the ECB's target of just below 2 percent.
Draghi said the ECB expected inflation to subside below 2 percent next year.
" What a starter. It is obvious that the ECB has caught the crisis virus and is trying everything it can to prevent a full-fledged recession," ING economist Carsten Brzeski said.
European leaders said earlier they were prepared for Greece to leave the euro zone to preserve their 12-year-old single currency if Athens does not decide quickly to implement a bailout programme, putting the likes of Italy and Spain, and even France, firmly in the markets' sights.
Draghi will join the leaders in Cannes, France, after his debut news conference as ECB chief.
Europe's ultimatum to Greece, after Prime Minister George Papandreou's decision to call a referendum on a bailout plan, has deepened the crisis and raised pressure on the ECB, which many analysts see as the only institution with the firepower to bring calm.
NO SHIFT ON BOND BUYING
Draghi gave no hint that the ECB's bond-buy programme, a controversial tool that has led to the resignation of two German policymakers, would be accelerated despite the chaos in Greece threatening to engulf the much larger economies of Italy and Spain.
" Our securities market programme has three characteristics: it is temporary it is limited it is justified in restoring the functioning of monetary transmission channels," he said.
Draghi succeeded France's Jean-Claude Trichet as ECB chief on Tuesday -- a day that saw the ECB buy Spanish and Italian bonds but barely manage to cap a rise in yields on the debt of the euro zone's third largest economy.
He must balance an eagerness to curry favour with the German contingent at the ECB against growing financial market pressure to intervene on a bigger scale to lower the borrowing costs of Italy and Spain.
The premiums investors have to pay to hold Italian and French 10-year government debt over benchmark German Bunds rose to their highest in the euro on Thursday with signs growing that the Greek government may fall.
Trichet had signalled previously that the ECB was keen to withdraw from the bond-buying policy once the euro zone's EFSF rescue fund gained new powers to intervene on bond markets.
Draghi said the ECB was " closely monitoring" developments in Greece. (Additional reporting by Eva Kuehnen Editing by Mike Peacock and Chris Pizzey)
Regulators working round-the-clock on MF--Schapiro
WASHINGTON, Nov 3 (Reuters) - U.S. regulators have worked around-the-clock for the past week as they sort through the collapse of futures brokerage MF Global Holdings Ltd securities regulator Mary Schapiro said on Thursday.
" We have struggled with the issues with respect to MF Global, and our teams have worked really hand-in-hand as we sort through the issues there on a virtually 24-hours-a-day basis for the last week," Schapiro, chairman of the U.S. Securities and Exchange Commission, said during a financial fraud conference held by the Financial Industry Regulatory Authority.
The SEC and FINRA are among MF Global's regulators.
MF Global filed for bankruptcy protection on Monday, after risky trades on European debt triggered its collapse. Regulators are attempting to account for a roughly $600 million shortfall in customer funds. (Reporting by Sarah N. Lynch, editing by Gerald E. McCormick)
U.S. service sector growth slips in Oct-ISM survey
NEW YORK, Nov 3 (Reuters) - The pace of growth in the vast U.S. services sector slowed modestly in October to its lowest level in three months as new orders declined, according to an industry report released on Thursday.
The Institute for Supply Management said its services index eased to 52.9 last month from 53.0 the month before. The reading fell shy of economists' forecasts for 53.5, according to a Reuters survey, and was the lowest level since July.
A reading above 50 indicates expansion in the sector. A gauge of new orders fell to 52.4 from 56.5, but the employment component improved to its highest level since June at 53.3 from 48.7. (Reporting by Leah Schnurr Editing by James Dalgleish )
LICENSED TO KILL AGAIN: All About 'Skyfall,' The $230 Million James Bond Movie That Starts Shooting Today
Earlier today, the makers of James Bond held a press conference to announce details of the 23rd Bond film, which we now know will be called " Skyfall."
The details of said presser have been shared on the official James Bond
Twitter account —
@007, of course. Here's what we know:
—
Javier Bardem, who owned the Coen Brothers' " No Country For Old Men" as the menacing Anton Chigurh, will play the " Skyfall" villain. Great news.
—
Ben Whishaw,
Ralph Fiennes and
Albert Finney, all top-notch actors, will be fleshing out the cast.
— Series regulars
Dame Judi Dench and
Daniel Craig will be back, reprising their roles as M and James Bond, respectively.
— " Skyfall" has its own story, unrelated to the previous two Bond films (" Quantum of Solace" and " Casino Royale" ) — the relationship between Dench's M and Craig's Bond is more central to the action.
— Shooting begins today, with
Sam Mendes (" American Beauty" ) directing.
— And most importantly: new Bond girls include
Bérénice Marlohe as Severin and
Naomie Harris as a field agent named Eve.
UNREAL! Check Out The Public Letter That The Greek Finance Minister Sent Rebuking The Prime Minister
Greek finance minister Evangelos Venizelos
The Greek government has cracked up.
Behold the letter sent by Greek Fin Min Venizelos opposing Papandreou's referendum gambit.
Just imagine if Geithner rebuked Obama in this way.
--------------
Upon arrival to Athens from Cannes at 4.45 am, Deputy Prime Minister and Finance Minister of the Hellenic Republic, Evangelos Venizelos, made the following statement:
Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt. This acquis by the Greek people cannot depend on a referendum.
The country must feel safe and stable and that is the first requirement in order for it to be truly safe and stable. Greek banks are totally secure, as an integral part of the European banking system. This was apparent last night from the discussion in Cannes.
What is important is for the sixth tranche to be disbursed, without any distractions or delay, according to the decisions of Eurogroup of October 26, which came as a result of 10 hours of hard negotiations.
The next step is to activate, before the end of the year, the new support programme that provides Greece with an additional 130 billion euro and leads to a reduction of Greek sovereign debt of about 100 billion euro. The completion of these processes is a national project.
I traveled to Cannes right after being discharged from the hospital because I think that this was my national duty. Having an immediate picture of the situation in Europe and around the world, I have a duty to tell the Greek people the full and simple truth:
If we want to protect the country we must, under conditions of national unity and political seriousness and consensus, implement without any delay the decision of October 26. Now, as soon as possible.
However, what the Government and the parliamentary majority do alone is not enough towards this goal. What is being done and said on a European and international level concerns equally the opposition, especially New Democracy, the main opposition party, which has been conveyed the same strong messages from Cannes and the position of which, were it positive, would act as a guarantee for the country’s international credibility, whereas when it has been negative, it has damaged severely this credibility at a serious cost for Greek citizens.
Internal political balances and the future of individuals and political parties of this country is not what matters. What matters is to save and recover the country through the only doable process which is included in the decision of October 26».
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Russia's Shrinking Population Could Prevent It From Becoming A Superpower Again
Image: AP
Vladimir Putin is spinning a beguiling vision of Russia's future that could reshape global economic and military realities.
He imagines his country as the core of a mighty " Eurasian Union," a confederation of former Soviet states spanning two continents, from the Sea of Japan to the Baltic.
" We suggest creating a powerful supra-national union capable of becoming a pole in the modern world, and at the same time an effective bridge between Europe and the dynamic Asia-Pacific Region," Putin wrote in the Moscow daily Izvestia earlier this month.
But Putin's dream is hobbled by one big, inconvenient fact: Russia's population is shrinking dramatically.
By mid-century there may not be enough working-aged adults to man the country's factories or defend its borders.
The decline is most pronounced in those areas that should constitute the heartland of the future Eurasian Union: Siberia and the Russian far east, which abut the teeming economic powerhouses of China, South Korea and Japan.
It’s tough just to get by with a shrinking population, no less re-establish yourself as a global power — especially in a sprawling neighborhood like Russia’s.
The former Soviet Union built cities and planted industries along its 2,600-mile border with China. It used the arbitrary powers of an authoritarian state to ensure that its claims of eternal suzerainty over those far-flung territories were anchored by concentrations of ethnic-Russians.
But since the collapse of the USSR, the number of Russians inhabiting the eastern lands has plummeted by almost 20 percent. The young and best-qualified people have headed to Moscow in search of economic opportunity, and the exodus is accelerating.
Mother Russia appears in no condition to generate more warm bodies, even if the state was able to develop economic or other programs to entice Russians to return to Siberia.
Russian fertility rates have been falling for decades. They stood at 1.4 babies per woman in 2010, far below the 2.1 needed to naturally replenish the population. Death rates, particularly among males between the ages of 25 and 45, spiked in the post-Soviet period and still remain considerably higher than births.
As a result, Russia's population has been simultaneously contracting and aging. That’s a double-whammy that holds dire implications for Putin's hopes of returning Russia to the world's center stage as a great power.
Drowning in vodka
In 1991, Russia's population was nearly 150 million. According to the US Census Bureau's international data base it's currently just under 139 million. Projections show it plunging to 128 million in 2025, and to 109 million in 2050.
" Here in Russia we have a European birth rate, but an African death rate," said Yury Krupnov, director of the independent Institute of Demography, Migration and Regional Development in Moscow.
" A special feature in Russia is the super-death rate for working age males, which is five times higher than the comparable rate in Europe and has crippling implications for our economic development."
The astronomical mortality rate for young Russian men is due to a post-Soviet cocktail of bad news: deteriorating environmental conditions, collapsing health care, rising accidents due to decayed infrastructure and growing social violence.
But the single biggest cause, according to a 2009 article in The Lancet, a respected medical journal, is the post-Soviet explosion in alcoholism. Extreme even by traditionally hard-drinking Russian standards, alcohol abuse leads to an estimated 600,000 premature deaths each year.
Some warn of even more alarming consequences for the future from a population drowning in vodka. " If this tendency continues, Russia will die out," said Svetlana Bocherova, chair of Good Without Borders, a Moscow-based family advocacy group.
" By the 2020's the schools will be empty of children. By the next decade there won't be enough workers or soldiers. By 2050, we won't have enough people to call ourselves a country."
Cash for moms
In hopes of reversing these trends, Putin introduced a series of measures during his first two terms as president. These include huge cash bonuses — typically about $10,000, enough to buy a small flat in a provincial Russian town — for women who have more than two children, and generous resettlement programs for ethnic Russians who choose to be repatriated from former Soviet republics in the Baltics and central Asia.
Putin’s successor, Dmitry Medvedev, launched a tough anti-alcohol campaign reminiscent of former Soviet leader Mikhail Gorbachev's draconian attempts to wean his countrymen from the vodka bottle.
And there have been some successes in the past few years. Death rates have stabilized, birth rates rose markedly over the past decade, and male life expectancy has jumped from a low of 58 years in 2003 to 63 today.
" There are some positive changes, but they're not enough to overcome the negative trends," said Anatoly Vishnevsky, a demographer with the Higher School of Economics in Moscow. " In fact, the growth in birth rates is already falling off. We need more comprehensive solutions."
Eurasian ambitions
This may be where Putin's idea of a Eurasian Union comes in. The former Soviet Union drew heavily on labor and military reserves from its teeming, mainly-Muslim central Asian republics, where high birth rates are still driving rapid population growth. Even today, most construction and other unskilled work around prosperous Moscow is done by migrant workers from Tajikistan and other poverty-stricken but still largely Russian-speaking former Soviet republics.
Some analysts suggest that a formal confederation of states under Russian hegemony would allow the Kremlin to restore some Soviet-era economic synergies, including orderly transfers of labor — on a temporary basis — from populous central Asian republics to zones of Russian economic development.
That might avoid the painful political issue of formulating an immigration policy similar to those of the European Union or the US, in which large numbers of outside workers come, stay and often place themselves on a path to citizenship.
" There is strong social resistance in Russia to allowing permanent immigrants from Asian countries," said Vishnevsky. " This is going to be problem No. 1 in Russian politics for a long time to come."
But Putin's scheme may not offer any solution for the growing problem of depopulation in Russia's own vast Asian lands. Analysts point out that efforts to entice ethnic Russians from former Soviet republics to settle in Siberia or the Russian far east have achieved meager results.
" Of course ethnic Russian immigrants prefer to come to Moscow, where the opportunities are, and not go to some backward place in the middle of Siberia which is being abandoned by its own inhabitants," said Nikolai Petrov, a regional expert with the Carnegie Center in Moscow.
In the long run, Russia's demographic dilemma may force Putin to drop Soviet revivalism, slash government controls and initiate genuine liberal market reforms, said Yevgeny Gontmakher, an economist with the Institute for Contemporary Development, a Moscow think tank linked to Medvedev.
" We don't require that every square kilometer of Russia be inhabited, but for solid strategic reasons we do need the Russia-China border to be populated" with Russians, he says. " If Russia wants to be a part of that economically dynamic region, the only way is to bite the bullet, open up and reform.
" It may be possible to reverse our dismal demographic trends, but it will require fundamental changes in the way our leaders think. We need to create economic opportunities, and drop all these grand plans based on state methods. It's a historic task facing our nation, and there isn't much time left to come to grips with it."
REMINDER: Here's Who Will Get Crushed If Italy Goes Bust
Italy is fast becoming the next Greece. The country has 120% debt-to-GDP ratio, and its debt now stands at $2.2 trillion.
While a disorderly Greek default looks increasingly likely and has been hurting global markets, the Italian economy is nearly seven times as big as Greece's, and it's fast looking like the next domino that could fall.
10-year government bond yields are at 6.14% now, up from the 52-week low of
3.6%. And there was the dreadful
PMI number showing
contraction in Italy's manufacturing sector. Under pressure prime minister Silvio Berlusconi is trying to usher in reforms but no one thinks he can turn the economy around.
Now MF Global Employees Are Ditching Work
In the aftermath of MF Global's filing for bankruptcy protection Monday,
many of the beleaguered broker-dealers' employees are no longer coming into the office, Reuters' Tara LaCapra reported.
From Reuters:
Because MF Global is banned from putting on new trades by major exchanges, much of its workforce has been idle since the firm filed for Chapter 11 bankruptcy protection on Monday.
A commodities trading adviser Reuters spoke with said he's received a bunch of " out of office" email responses from several of the firm's employees. He added that some employees are working from home because they don't see the point of coming into the office.
What's more is recruiters have seen a massive influx of resumes from MF Global employees scrambling to find employment at another firm.
ISM Services Comes In Below Expectations At 53.5
UPDATE:
A bit weak.
Analysts expected 53.5, but they came in at 52.9.
That's also down from 53.0 last month.
Nothing too gigantic here -- 52.9 still marks growth -- but still disappointg.
ORIGINAL POST: The last big economic datapoint of the day: ISM Non-Manufacturing for October.
Analysts expect a reading of 53.5, up slightly from 53.0 last month.
We'll have the full number when it's out at 10:00 AM ET.
Image: Jmsphotographie via Flickr
LIVE: Draghi's First ECB Presser — 25bps Rate Cut Was Unanimous, Mild Global Recession Ahead
It's Mario Draghi's first week at the helm of the
European Central Bank, and he's already making a splash.
The
ECB just decided to cut rates by 25 bps to 1.25%.
Investors are already cheering the decision, given the worsening economic conditions in the eurozone. They've been hoping the move could spur growth across the euro area.
We're hearing more about the reasoning behind this move and what's ahead during Draghi's first press conference at 9:30 AM EST. Watch that live
here and refresh below for the latest.
September Factory Orders Unexpectedly Climb 0.3%
Analysts expected orders to decline 0.2%.
South Korea Is Raising A $50 Billion Fund To Prepare For The Collapse Of North Korea
Image: ap
South Korea has started raising $50 billion to prepare for the collapse of North Korea, according to Bloomberg.
Despite 60 years of acrimony between the two nations — including a war and, more recently, little progress made in shutting down North Korea's nuclear capabilities — South Korea will create a fund to ease the process of incorporating North Korea's nearly lifeless economy.
The fund will be paid for with donations by individual Koreans and foreigners, as well as earmarked budget surpluses. A " unification tax" has also been considered, but Unification Minister Yu Woo Ik said there would be no extra tax levied on South Koreans.
The $50 billion dollar tab is the estimated minimum amount needed to ease a peaceful transition within the next twenty years.
MF Global's CFO Was One Of The Youngest C-Level Execs On Wall Street
We were surprised to learn that Henri Steenkamp, the CFO of broker-dealer MF Global, which filed for bankruptcy protection earlier this week, is only 35 years-old.
His age made him one of the youngest executives in a C-Level position on Wall Street. The young executive has a long list of accomplishments under his belt.
He worked for eight years at
PricewaterhouseCoopers, the auditor for MF Global. Then he joined MF Global (then Man Financial) in 2006 as vice president of external reporting. He was quickly promoted to chief accounting officer.
Earlier this year, he was
appointed to the role of chief financial officer.
" Henri's achievements during his five years at MF Global - including his role in helping to build our global finance and reporting operations - make him exceptionally qualified to lead this function," Corzine said in a company statement. " I am confident that all of our stakeholders will benefit from his financial acumen and sound understanding of MF Global."
In his role as CFO of MF Global, he was tasked with overseeing " global financial control and reporting functions," his bio on the brokerage firm's site said.
He was also well compensated at the firm.
According to a company
8-K filing with the SEC, he earned a base salary of $500,000 a year and was eligible to receive a " discretionary cash bonus" between $700,000 to $1 million as well as an annual equity award in the range of $400,000 to $600,000.
According to
Kevin Roose at the New York Times, Steenkamp was featured on " 40 Under 40" by trade magazine Treasury & Risk.
Steenkamp is a chartered accountant and holds an honors degree in finance, according to his bio.
Here's Where New Chinese Loans Are Going
Image: AP Images
Wary of systemic risks to the Chinese economy, Beijing began forcing restrictions on home ownership and loans especially to developers. This was to prevent the property market from overheating.
However, the unexpected consequence of Beijing's actions was tighter credit for small and medium sized business owners, who were forced to turn to China's shadowy $3 trillion - $4 trillion underground banking system. In the city of Wenzhou, business owners fled or committed suicide when they defaulted on their underground loans. To combat this vicious cycle, the government began boosting lending in Wenzhou.
More recently, Chinese premiere Wen Jiabao has called for increased lending to small and medium enterprises (SMEs). A new report from Citigroup analysts Ting Lu and Xiajoia Zhi gives us a breakdown of just who has been getting money from Chinese banks.
First a look at property sector loans:
- Banks gave out 992.3 billion yuan of new property loans for the nine months ending in September, accounting for 17.5% of total new loans. The share declined from 19% in the first half of the year.
- Growth of property loans dropped to 14.6% year-over-year (YoY) at the end of September, from 16.9% YoY at the end of June, and 21.3% YoY at the end of March. The slowdown in property loans, was sharper than the slowdown in overall loans.
- Outstanding developer loans were 3.15 trillion yuan at the end of September, up 0.6% YoY, but much lower than the 5.1% YoY growth at the end of June.
- Mortgage loans totaled a little over 7 trillion yuan and were up 17.2% at the YoY at the end of September.
- Social housing loans were 280.8 billion yuan at the end of September, up 69.4% from September 2010.
- Loans to new developers fell to 12 billion yuan in the third quarter, from 42 billion yuan in the previous quarter.
- New social housing loans eased to 24.2 billion yuan in Q3, from 25.7 billion yuan in the previous quarter.
Now here's a look at changes in loans to small and medium business enterprises:
- SME loan growth was 17.5% YoY at the end of September, higher than overall loan growth of 15.9%. Loans to SMEs for the nine months ending September 2011, were 2.26 trillion yuan, or 68.4% of new loans to enterprises
- Loans to small enterprises was 24.3%, or 13.9 percentage points higher than loans to big enterprises.
Going forward, the Citigroup analysts expect new monthly loans to rise above 500 billion yuan, without breaching Beijing's target of 7 - 7.5 trillion yuan in annual new loans. It's unclear how much good this will do as credit demand typically wanes towards the end of the year.
Loans to social housing projects and the SME sector are expected to stay strong, but the analysts also expect a recovery in loans to the railway industry. Funding to new developers will however continue to be limited.
ECB cuts interest rates at Draghi's first meeting
FRANKFURT, Nov 3 (Reuters) - - The European Central Bank cut interest rates by a quarter point to 1.25 percent in a surprise move on Thursday, acting boldly to support the ailing euro zone economy at President Mario Draghi's first policy meeting in charge.
Following is the text of the ECB's statement issued after the meeting:
Based on its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by 25 basis points. While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%. At the same time, the underlying pace of monetary expansion continues to be moderate.
After today's decision, inflation should remain in line with price stability over the policy-relevant horizon. Owing to their unfavourable effects on financing conditions and confidence, the ongoing tensions in financial markets are likely to dampen the pace of economic growth in the euro area in the second half of this year and beyond.
The economic outlook continues to be subject to particularly high uncertainty and intensified downside risks. Some of these risks have been materialising, which makes a significant downward revision to forecasts and projections for average real GDP growth in 2012 very likely. In such an environment, price, cost and wage pressures in the euro area should also moderate today's decision takes this into account.
Overall, it remains essential for monetary policy to maintain price stability over the medium term, thereby ensuring a firm anchoring of inflation expectations in the euro area in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. Such anchoring is a prerequisite for monetary policy to make its contribution towards supporting economic growth and job creation in the euro area.
The provision of liquidity and the allotment modes for refinancing operations will continue to ensure that euro area banks are not constrained on the liquidity side. All the non-standard monetary policy measures taken during the period of acute financial market tensions are, by construction, temporary in nature.
Let me now explain our assessment in greater detail,
starting with the economic analysis. Real GDP growth in the euro
area, which slowed in the second quarter of 2011 to 0.2% quarter
on quarter, is expected to be very moderate in the second half
of this year. There are signs that previously identified
downside risks have been materialising, as reflected in
unfavourable evidence from survey data. Looking forward, a
number of factors seem to be dampening the underlying growth
momentum in the euro area, including a moderation in the pace of
global demand and unfavourable effects on overall financing
conditions and on confidence resulting from ongoing tensions in
a number of euro area sovereign debt markets. At the same time,
we continue to expect euro area economic activity to benefit
from continued positive economic growth in the emerging market
economies, as well as from the low short-term interest rates and
the various measures taken to support the functioning of the
financial sector.
In the Governing Council's assessment, the downside risks to the economic outlook for the euro area are confirmed in an environment of particularly high uncertainty. Downside risks notably relate to a further intensification of the tensions in some segments of the financial markets in the euro area and at the global level, as well as to the potential for these pressures to further spill over into the euro area real economy. They also relate to the impact of the still high energy prices, protectionist pressures and the possibility of a disorderly correction of global imbalances.
With regard to price developments, euro area annual HICP inflation was 3.0% in October according to Eurostat's flash estimate, unchanged from September. Inflation rates have been at elevated levels since the end of last year, mainly driven by higher energy and other commodity prices. Looking ahead, they are likely to stay above 2% for some months to come, before falling below 2% in the course of 2012. Inflation rates are expected to remain in line with price stability over the policy-relevant horizon. This pattern reflects the expectation that, in an environment of weaker euro area and global growth, price, cost and wage pressures in the euro area should also moderate.
The Governing Council continues to view the risks to the medium-term outlook for price developments as broadly balanced, taking also into account today's decision. On the upside, the main risks relate to the possibility of increases in indirect taxes and administered prices, owing to the need for fiscal consolidation in the coming years. In the current environment, however, inflationary pressure should abate. The main downside risks relate to the impact of weaker than expected growth in the euro area and globally. In fact, if sustained, sluggish economic growth has the potential to reduce medium-term inflationary pressure in the euro area.
Turning to the monetary analysis, the annual growth rate of M3 increased to 3.1% in September 2011, up from 2.7% in August. The annual growth rate of loans to the private sector, adjusted for loan sales and securitisation, was 2.7% in September, unchanged from August. As in August, inflows into M3 also reflect the heightened tensions in some financial markets. In particular, inflows into money market fund shares/units, as well as into repurchase agreements conducted through central counterparties, appear to have significantly affected monetary developments in September. The annual growth rate of M1 increased to 2.0% in September, from 1.7% in August.
On the counterpart side, the annual growth rate of loans to non-financial corporations and to households in September, adjusted for loan sales and securitisation, remained broadly unchanged compared with August, at 2.2% and 2.6% respectively. These figures do not signal that the heightened financial market tensions have affected the supply of credit up to September. However, as such effects can manifest themselves with lags, close scrutiny of credit developments is warranted in the period ahead. Taking the appropriate medium-term perspective and looking through short-term volatility, underlying broad money and loan growth have stabilised over recent months. Overall, the underlying pace of monetary expansion thus remains moderate.
The overall size of monetary financial institutions' balance sheets remained broadly unchanged over the past few months. The soundness of bank balance sheets will be a key factor in reducing potential negative feedback loop effects related to tensions in financial markets, thereby facilitating an appropriate provision of credit to the economy over time. We therefore welcome the agreement of the European Council to proceed with the increase in the capital position of banks to 9% of core Tier 1 by the end of June 2012. We also fully support the call to national supervisors to ensure that banks' recapitalisation plans do not lead to excessive deleveraging.
To sum up, based on its regular economic and monetary analyses, the Governing Council decided to reduce the key ECB interest rates by 25 basis points. While inflation has remained elevated and is likely to stay above 2% for some months to come, inflation rates are expected to decline further in the course of 2012 to below 2%. A cross-check with the information from our monetary analysis confirms that the underlying pace of monetary expansion continues to be moderate. After today's decision, inflation should remain in line with price stability over the policy-relevant horizon.
Gold rises after ECB rate cut, firm euro
Gold Bars
* ECB cuts rates by a quarter point
* Euro rises vs dollar (Updates prices, comment after ECB decisions)
By Susan Thomas
LONDON, Nov 3 (Reuters) - Gold rose on Thursday in volatile markets that were lifted by a surprise interest rate cut by the European Central Bank, but a worsening euro zone debt crisis kept gains in check.
Gold has been rangebound in the past week or so, with the threat of a potentially disastrous Greek default burnishing gold's safe-haven appeal while fears of a liquidity crunch in case of a default have kept gains in check.
A surprise interest rate cut from the ECB boosted gold, stocks and the euro.
But the rate cut effect was likely to be short lived, Ole Hansen, senior manager at Saxo Bank, said, " because it's happened on the back of an increasingly murky situation in Europe where we are receiving Greek news every five minutes" .
Speculation that Greek Prime Minister George Papandreou would resign is widespread, a move that would mean a new government and a reversal of plans for a plebiscite that could lead to a disorderly default by Greece on its bonds.
The threat of a Greek default and exit from the euro hung over a meeting of G20 leaders after France and Germany made it clear that Athens must decide urgently whether it wants to stay in the 12-year-old currency bloc.
Spot gold was up 1.2 percent at $1,758.7 at 1326 GMT, off an intraday high of $1,763.90, from $1,737.70 late on Wednesday. U.S. gold < GCcv1> was up 1.8 percent at $1,760.20.
" Gold has started to revert back into its role as a safe-haven play and this (rate cut) is not changing that," Hansen said. " Also it's indicating that we're going to see lower rates for longer in the future and that is obviously the main supporting factor for gold."
Gold in euros rose to an intra-day high of 1,281.16 euros.
" I think in the way gold has been behaving over the past couple of weeks it seems that people prefer to buy euro/gold which makes sense because of all the problems there," Standard Bank analyst Walter de Wet said.
BUYERS SCARCE
Asian physical buying has slowed due to high prices and the euro zone uncertainty.
Gold traders in India, the world's biggest consumer of bullion, slowed purchases after the peak festivals of Dhanteras and Diwali last week, though wedding season demand may pick up in coming weeks.
" The price volatility noted during the actual festival, last week, kept demand at the consumer level under pressure," RBS said in a note.
" Local sales of 22-carat jewellery were sluggish and buyers were seen purchasing lighter pieces than historically."
Spot silver was 1.2 percent higher at $34.68.
Holdings of the iShares Silver Trust , the world's largest silver-backed exchange-traded fund, edged down 4.07 tonnes from a day earlier to 9,776.14 tonnes by Nov. 2.
Platinum was up 2.5 percent at $1,635.99 from $1,596.25 and paladium was up 3.1 percent at $667 from $646.88. (Additonal reporting by Amanda Cooper and Rujun Shen Editing by William Hardy)
IS QE3 a GIVEN ? ??
Greece threw the markets into turmoil as George Papandreou, Greece's Prime Minister, called for a referendum on the second bail-out package that was barely agreed upon by the EU. The call angered his blindsided European counterparts and put in doubt the solvency of Greece and unity of the Euro Zone. At the same time, it also increases the odds that the Fed will lay the groundwork for another round of Quantitative easing or QE3D.
One of the reasons the markets are trying to come back after this latest shocker is they are convinced that the Fed will have no choice to try to work some magic. While Papandreou won backing for the referendum, he may have lost the support of the EU and surrounding uncertainty that this vote will put more pressure the Fed to try to stabilize the global market place.
We already know that Fed officials have been dropping hints that a QE 3 was a strong possibility. The Fed is freaked out by the weak housing market and the high employment rate and the uncertainty coming out of Washington. With a discountenance healthcare bill and regulatory uncertainty, the Fed may try to decide to target these areas and with a twist. By that I don't mean the " Twist" when the Fed bought the long end of the yield curve and sold the short end to drive down long term rates to encourage long term investment. That was so last Fed meeting. No, a twist by focusing on what they think is the real weak spots in the economy.
One thing they may try is to set a GDP target. In other words they won't just say that rates will stay low until at least 2013 or for an extended period. But will tell people that rates will stay at zero until the GDP hits " x" percentage. Whether that target will be 5%or 7% would be up to debate but the Fed may try or at least debate something like that to send a message to long term US investors that the Fed has your back.
The other thing the Fed may try is an employment target. Employment of course is part of the Fed's dual mandate and they may try to send a signal that rates will stay at zero as long as the unemployment rate stays below " x" percentage. Obviously this could be a dangerous game as it may conflict with their other mandate which is price stability or inflation.
The other real strong possibility is that the Fed may just buy massive amounts of Mortgage Backed Securities (MBS) in an effort to spur lending in the beleaguered housing industry. The Wall Street Journal reported a while ago that Federal Reserve officials were starting to, " build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly" . The Fed did that in 2008 and 209 and the purchases at that point helped stabilize somewhat the plunging housing market. The Fed may target housing in this most likely scenario.
http://www.pfgbest.com
* Mixed flows: Indonesian inflows, Malaysian outflows
* Singapore banks retreat after weak results
By Viparat Jantraprap BANGKOK, Nov 3 (Reuters) - Southeast Asian stock markets pulled lower on Thursday, led by financials and resource shares, as investors booked quick profits in the face of deteriorating euro zone debt problems. The falls came in light volume, reflecting uncertainty after Greece's prime minister announced a referendum on the euro zone's planned bail-out for the country. Foreign flows remained mixed and brokers in the region expected the volatility to continue in the near term.
Singapore's Straits Times Index < .FTSTI> and Jakarta's Composite Index < .JKSE> , which staged a strong rebound on Wednesday, turned lower, ending down 0.9 percent and 1.5 percent respectively. Stocks in Thailand < .SETI> , Malaysia < .KLSE> and the Philippines < .PSI> fell to their lowest in more than a week, finishing down 0.9 percent, 0.6 percent and 1.2 percent respectively. Thailand has big local problems, on top of the global worries.
" Concerns about Europe and Greece remained the same. Locally, there's only one story here -- the whole flooding. So it's very difficult for people to take aggressive buy positions in this market," said Bangkok-based Andrew Yates, head of international equity sales at broker Asia Plus Securities. Like other markets in the region, Bangkok saw strong foreign inflows last week due to a combination of short-covering and a rebuilding of exposure to emerging markets when it seemed that a solution to the euro zone's debt problems was getting closer. Foreign investors had bought Thai shares worth $512 million in seven straight sessions to Tuesday.
The Thai market enjoyed $1 billion in inflows in October after $542 million in outflows in September during a sell-off across the region. Indonesia reported $86 million in inflows on Thursday after outflows over three sessions, while the Philippines reported $14.6 million in inflows, similar to Wednesday, Thomson Reuters data showed. Malaysia posted 85 million ringgit ($27 million) in outflows, erasing 80 million ringgit in inflows on Wednesday, stock exchange data showed.
In Singapore, United Overseas Bank Ltd
and Oversea-Chinese Banking Corporation Ltd
were among the losers, sliding 2.6 percent and 1.2 percent respectively, after weaker-than-expected quarterly earnings. Resource-related shares tracked oil prices lower. Among those actively traded, Thai petrochemical firm PTT Global Chemical Pcl
lost 2.1 percent and Indonesia's PT Energi Mega Persada Tbk
dropped 3.1 percent.
By 1009 GMT, MSCI's Southeast Asia index < .MISU00000GUS> was down 1.4 percent while MSCI's broadest index of Asia Pacific shares outside Japan < .MIAPJ0000PUS> was 1.5 percent lower.
US stocks finished sharply higher, after two days of steep declines. While the Fed trimmed its economic growth outlook to between 1.6% and 1.7% for 2011, it also reiterated that it has " the tools to do more" and is " prepared to take further action" to sustain the economic recovery.
ADP reported a jump in private-sector payrolls in October and revised its previous month higher. ADP's new September figure showed an increase of 116,000 jobs, up from the earlier report of 91,000.
Separately, a jobs report from outplacement consulting firm Challenger, Gray & Christmas showed planned layoffs dropped 63% to 42,759 in October from the prior month.
