WORLD BUSINESS
NEWS REVIEW
GLOBAL WARMING
World needs clean energy revolution: UN chief
Rich and poor nations need a ‘clean energy revolution’ in order to cut greenhouse gas emissions responsible for global warming, UN chief Ban Ki-moon said on Wednesday.
‘We cannot achieve the (poverty-reduction) Millennium Development Goals without providing access to affordable modern energy,’ he said as he opened a day-long energy conference.
Noting that 1.6 billion people around the world lack access to electricity while two to three billion still rely on traditional energy sources such as firewood, peat or dung, the UN boss said access to energy must be expanded ‘in the cleanest, most efficient way possible.’
Ban spoke as he launched a report by his advisory group on energy and climate change that calls for ‘universal access to modern energy services’ by 2030 and stresses the need to cut energy intensity by 40 per cent also by 2030.
Energy intensity is measured by the quantity of energy per unit of economic activity or output. ‘The aim of providing universal access should be to create improved conditions for economic take-off, contribute to attaining (the development goals by the 2015 target) and enable the poorest of the poor to escape poverty,’ the report said.
It added that curbing global energy intensity would require developed and developing countries to strengthen their capacity to implement effective policies, market-based mechanisms, investment tools and regulations with respect to energy use.
‘We cannot achieve the (poverty-reduction) Millennium Development Goals without providing access to affordable modern energy,’ he said as he opened a day-long energy conference.
Noting that 1.6 billion people around the world lack access to electricity while two to three billion still rely on traditional energy sources such as firewood, peat or dung, the UN boss said access to energy must be expanded ‘in the cleanest, most efficient way possible.’
Ban spoke as he launched a report by his advisory group on energy and climate change that calls for ‘universal access to modern energy services’ by 2030 and stresses the need to cut energy intensity by 40 per cent also by 2030.
Energy intensity is measured by the quantity of energy per unit of economic activity or output. ‘The aim of providing universal access should be to create improved conditions for economic take-off, contribute to attaining (the development goals by the 2015 target) and enable the poorest of the poor to escape poverty,’ the report said.
It added that curbing global energy intensity would require developed and developing countries to strengthen their capacity to implement effective policies, market-based mechanisms, investment tools and regulations with respect to energy use.
WORLD FINANCIAL MARKETS
Financial markets under pressure after downgrade
World financial markets faced fresh pressure on Thursday and the euro traded near one-year dollar lows after Spain was hit with a rating downgrade amid a eurozone debt crisis that has snared Greece.
European stock markets staggered higher on Thursday, finding cautious support after sharp falls the previous day.
London gained 0.53 per cent, Frankfurt added 0.26 per cent and Paris clawed back 0.61 per cent. Madrid meanwhile soared 2.10 per cent and Athens bounced by almost five per cent in value.
And the European single currency stood at $1.3235, one day after striking a one-year low at $1.3115.
‘Worries about contagion effects from the Greek debt crisis persist as Standard & Poor’s downgraded the Spanish government’s credit rating,’ said NCB analyst Bernard McAlinden.
The crisis weighed more heavily in Asia, with Hong Kong falling 0.81 per cent and Sydney sliding 0.77 per cent, while Tokyo was shut for a public holiday.
Wall Street had rallied overnight as the US Federal Reserve looked unlikely to raise interest rates in the very near future, after keeping borrowing costs ultra-low on Wednesday.
European stock markets staggered higher on Thursday, finding cautious support after sharp falls the previous day.
London gained 0.53 per cent, Frankfurt added 0.26 per cent and Paris clawed back 0.61 per cent. Madrid meanwhile soared 2.10 per cent and Athens bounced by almost five per cent in value.
And the European single currency stood at $1.3235, one day after striking a one-year low at $1.3115.
‘Worries about contagion effects from the Greek debt crisis persist as Standard & Poor’s downgraded the Spanish government’s credit rating,’ said NCB analyst Bernard McAlinden.
The crisis weighed more heavily in Asia, with Hong Kong falling 0.81 per cent and Sydney sliding 0.77 per cent, while Tokyo was shut for a public holiday.
Wall Street had rallied overnight as the US Federal Reserve looked unlikely to raise interest rates in the very near future, after keeping borrowing costs ultra-low on Wednesday.
DEBT CRISIS
Europe debt crisis deepens after Spain downgrade
Europe's debt crisis deepened after Spain was slapped with a credit downgrade and pressure mounted for urgent approval of a giant bailout for Greece that could run to 120 billion euros.
The head of the IMF warned confidence in the entire 16-nation euro area was now at stake and Greek Prime Minister George Papandreou said the EU ‘must prevent a fire’ from engulfing the European and world economy.
But Germany, the pivotal player in any bailout as Europe's biggest economy, has said it will lend Greece the money it needs to avoid a crippling default only if Athens promises to make further budget cuts.
US president Barack Obama called German chancellor Angela Merkel on Wednesday, with both leaders stressing the need for ‘resolute action’ to tackle Greece's debt crisis, the white house said.
‘They discussed the importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties,’ it said.
IMF managing director Dominique Strauss-Kahn and European Central Bank president Jean-Claude Trichet travelled to Berlin on Wednesday to drum up support for an EU-IMF aid plan for Greece in which Germany would have to pay the lion's share.
‘It is perfectly clear that the negotiations with the Greek government, the European Commission and the IMF need to be accelerated,’ Merkel said after meeting with Strauss-Kahn.
‘We hope they can be wrapped up in the coming days and on the basis of this, Germany will make its decisions,’ she told reporters.
But there were signs of a hitch in the talks after Greek labour minister Andreas Loverdos said that Athens was resisting demands by the EU and the IMF to cut salary bonuses in the private sector.
‘We have been asked for a cut which we do not accept,’ Loverdos told reporters.
Financial markets reeled anew, following credit downgrades for both Greece and Portugal on Tuesday that heightened investor fears that the Greek debt drama is spreading to other weakened euro nations.
The European single currency plunged to its lowest level against the dollar in more than a year and was trading at 1.3206 in early Asian trade Thursday, while bond and stock markets across much of Europe were also sharply down.
‘The downgrade of Spanish government debt by S&P is another alarming sign that the effects of the Greek crisis are spreading,’ said European economist Ben May at research firm Capital Economics in London.
Standard & Poor's lowered Spain's long-term sovereign credit rating to ‘AA’ from ‘AA+’ and said the outlook was negative, meaning there could be a further downgrade.
Credit ratings are closely watched by financial market professionals as a guideline on whether or not to invest in stocks, bonds and currencies.
Spain, with an economy five times the size of Greece's, appealed to those investors.
‘I want to send a message of confidence to the population and of calm to the markets,’ Deputy Prime Minister Maria Teresa De La Vega said, insisting that Spain was cutting its debts.
The Greek crisis has snowballed in recent months and is seen by many as a sign of things to come for other highly-indebted economies in Europe.
The current crisis is now at a crunch point as Greece has said it needs emergency loans by May 19 to avoid defaulting on its debts.
Strauss-Kahn struck an ominous note, saying: ‘It is the confidence in the whole zone that is at stake.’
Herman Van Rompuy, the European Union's president, has convened an emergency summit of eurozone leaders for around May 10 on the debt crisis.
Two German lawmakers, who met with Strauss-Kahn and Trichet, said the size of the rescue loan package could be as high as 120 billion euros ($158 billion) over three years, although Merkel declined to give a precise figure.
The idea of aiding Greece is deeply unpopular in Germany, which is set to hold regional elections on May 9.
The Greek government also faces growing domestic discontent, with a wave of strikes by radio engineers and teachers erupting on Wednesday and a general strike planned for May 5.
The head of the IMF warned confidence in the entire 16-nation euro area was now at stake and Greek Prime Minister George Papandreou said the EU ‘must prevent a fire’ from engulfing the European and world economy.
But Germany, the pivotal player in any bailout as Europe's biggest economy, has said it will lend Greece the money it needs to avoid a crippling default only if Athens promises to make further budget cuts.
US president Barack Obama called German chancellor Angela Merkel on Wednesday, with both leaders stressing the need for ‘resolute action’ to tackle Greece's debt crisis, the white house said.
‘They discussed the importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties,’ it said.
IMF managing director Dominique Strauss-Kahn and European Central Bank president Jean-Claude Trichet travelled to Berlin on Wednesday to drum up support for an EU-IMF aid plan for Greece in which Germany would have to pay the lion's share.
‘It is perfectly clear that the negotiations with the Greek government, the European Commission and the IMF need to be accelerated,’ Merkel said after meeting with Strauss-Kahn.
‘We hope they can be wrapped up in the coming days and on the basis of this, Germany will make its decisions,’ she told reporters.
But there were signs of a hitch in the talks after Greek labour minister Andreas Loverdos said that Athens was resisting demands by the EU and the IMF to cut salary bonuses in the private sector.
‘We have been asked for a cut which we do not accept,’ Loverdos told reporters.
Financial markets reeled anew, following credit downgrades for both Greece and Portugal on Tuesday that heightened investor fears that the Greek debt drama is spreading to other weakened euro nations.
The European single currency plunged to its lowest level against the dollar in more than a year and was trading at 1.3206 in early Asian trade Thursday, while bond and stock markets across much of Europe were also sharply down.
‘The downgrade of Spanish government debt by S&P is another alarming sign that the effects of the Greek crisis are spreading,’ said European economist Ben May at research firm Capital Economics in London.
Standard & Poor's lowered Spain's long-term sovereign credit rating to ‘AA’ from ‘AA+’ and said the outlook was negative, meaning there could be a further downgrade.
Credit ratings are closely watched by financial market professionals as a guideline on whether or not to invest in stocks, bonds and currencies.
Spain, with an economy five times the size of Greece's, appealed to those investors.
‘I want to send a message of confidence to the population and of calm to the markets,’ Deputy Prime Minister Maria Teresa De La Vega said, insisting that Spain was cutting its debts.
The Greek crisis has snowballed in recent months and is seen by many as a sign of things to come for other highly-indebted economies in Europe.
The current crisis is now at a crunch point as Greece has said it needs emergency loans by May 19 to avoid defaulting on its debts.
Strauss-Kahn struck an ominous note, saying: ‘It is the confidence in the whole zone that is at stake.’
Herman Van Rompuy, the European Union's president, has convened an emergency summit of eurozone leaders for around May 10 on the debt crisis.
Two German lawmakers, who met with Strauss-Kahn and Trichet, said the size of the rescue loan package could be as high as 120 billion euros ($158 billion) over three years, although Merkel declined to give a precise figure.
The idea of aiding Greece is deeply unpopular in Germany, which is set to hold regional elections on May 9.
The Greek government also faces growing domestic discontent, with a wave of strikes by radio engineers and teachers erupting on Wednesday and a general strike planned for May 5.
FINANCE INDUSTRY OVERHAUL
US Senate breaks logjam on Wall Street overhaul
The US Senate unanimously agreed to take up the most sweeping finance industry overhaul since the great depression of the 1930s, US president Barack Obama's top legislative goal.
After months of closed-door talks, and three days of bitter partisan gridlock, lawmakers scheduled the start of what were expected to be two weeks of debate on the popular bill for 12:15pm (1615 GMT) on Thursday.
‘The American people have waited long enough for their leaders to get to work cleaning up Wall Street,’ said democratic Senate majority leader Harry Reid. ‘It is time to move this debate from the sidelines to the playing field.’
The move came after republicans abandoned their lockstep opposition to starting debate on the bill, amid signs US public anger at big banks blamed for the 2008 global economic meltdown will shape November mid-term elections.
The measure enjoys the support of nearly two-thirds of the US public, struggling with an economy that has yet to heal from the collapse, with stubbornly high US unemployment, a struggling housing sector and other woes.
The bill aims to ban big firms from tapping billions of dollars in government aid when their failure threatens the broader economy and create, for the first time, an agency to protect consumers from shady financial dealings.
It also looks to regulate trade in derivatives, complex financial instruments often used by firms to smooth out volatile commodity prices but blamed for warping the market and fanning speculative flames.
Obama cheered news of the breakthrough as he headed home from a two-day campaign-style trip to Midwestern states badly hit by the economic crisis.
‘I am very pleased that the United States Senate has decided to proceed to the financial regulatory bill by unanimous consent,’ Obama told reporters aboard Air Force One.
‘It is the right thing to do.’
The president declined to comment on the grilling faced by Goldman Sachs executives on Capitol Hill on Tuesday, citing the current investigation into the firm by the Securities and Exchange Commission.
But he spoke about some of the more exotic instruments pieced together by the finance industry, after bundles of bad loans traded on the markets were partly blamed for triggering the financial crisis.
After months of closed-door talks, and three days of bitter partisan gridlock, lawmakers scheduled the start of what were expected to be two weeks of debate on the popular bill for 12:15pm (1615 GMT) on Thursday.
‘The American people have waited long enough for their leaders to get to work cleaning up Wall Street,’ said democratic Senate majority leader Harry Reid. ‘It is time to move this debate from the sidelines to the playing field.’
The move came after republicans abandoned their lockstep opposition to starting debate on the bill, amid signs US public anger at big banks blamed for the 2008 global economic meltdown will shape November mid-term elections.
The measure enjoys the support of nearly two-thirds of the US public, struggling with an economy that has yet to heal from the collapse, with stubbornly high US unemployment, a struggling housing sector and other woes.
The bill aims to ban big firms from tapping billions of dollars in government aid when their failure threatens the broader economy and create, for the first time, an agency to protect consumers from shady financial dealings.
It also looks to regulate trade in derivatives, complex financial instruments often used by firms to smooth out volatile commodity prices but blamed for warping the market and fanning speculative flames.
Obama cheered news of the breakthrough as he headed home from a two-day campaign-style trip to Midwestern states badly hit by the economic crisis.
‘I am very pleased that the United States Senate has decided to proceed to the financial regulatory bill by unanimous consent,’ Obama told reporters aboard Air Force One.
‘It is the right thing to do.’
The president declined to comment on the grilling faced by Goldman Sachs executives on Capitol Hill on Tuesday, citing the current investigation into the firm by the Securities and Exchange Commission.
But he spoke about some of the more exotic instruments pieced together by the finance industry, after bundles of bad loans traded on the markets were partly blamed for triggering the financial crisis.
ASIAN ECONOMY
IMF warns Asian economies of overheating risks
The International Monetary Fund warned Thursday that Asian economies were at risk of overheating as strong capital inflows fan inflationary pressures and raise the risk of damaging bubbles.
The IMF urged regional leaders to return to ‘more normal’ monetary policies after the global financial crisis, and increase the flexibility of their exchange rates to counter speculative funds flowing into their economies.
‘For China, like in other economies in the region, the risk is to ensure that the boom we see in asset flows does not, like in the past, lead to a cycle of boom and bust,’ Anoop Singh, director of the IMF's Asia-Pacific department, told a news conference.
In its latest report on the regional outlook, the IMF said brighter economic growth prospects and widening interest rate differentials with developed economies ‘are likely to attract more capital to the region’.
‘This could lead to overheating in some economies and increase their vulnerability to credit and asset price booms with the risk of subsequent abrupt reversals,’ the report said.
The IMF raised its growth forecasts for Asia to 7.1 per cent for both 2010 and 2011, higher than its prediction last week when it estimated regional economies would expand an average 6.9 per cent this year and 7 per cent next.
But the fund warned export-driven Asia remained vulnerable to a slower-than-expected recovery in the West, and urged governments to reduce their reliance on overseas shipments and boost domestic consumption.
‘It will be important to implement reforms that boost the productivity and the competitiveness of the services sector,’ IMF senior economist Olaf Unteroberdoerster told reporters.
The IMF said Asian policymakers need to safeguard against the build-up of imbalances in asset and housing markets caused by ‘excess liquidity’, and one way to do this was to adopt more flexible exchange rates.
‘Letting the exchange rate appreciate can forestall short-term inflows,’ the fund said, without specifically referring to China.
‘Without more currency appreciation, the pressure to sterilize the impact on money supply will continue.’
But stronger currencies alone were not going to rebalance the economies in China and other countries in the region, said Singh.
Governments needed to reduce household ‘precautionary savings’ and very high corporate savings in China and elsewhere.
‘It's very important that this package of measures is not viewed as based on one policy, which is the exchange rate,’ Singh said.
The IMF said last week a stronger yuan was ‘essential’ for both the Chinese and world economies, heaping more pressure on Beijing to revalue the currency, which has been effectively pegged at 6.8 to the dollar since mid-2008.
Critics say the policy has given Chinese manufacturers an unfair advantage by making their exports cheaper.
The IMF urged regional leaders to return to ‘more normal’ monetary policies after the global financial crisis, and increase the flexibility of their exchange rates to counter speculative funds flowing into their economies.
‘For China, like in other economies in the region, the risk is to ensure that the boom we see in asset flows does not, like in the past, lead to a cycle of boom and bust,’ Anoop Singh, director of the IMF's Asia-Pacific department, told a news conference.
In its latest report on the regional outlook, the IMF said brighter economic growth prospects and widening interest rate differentials with developed economies ‘are likely to attract more capital to the region’.
‘This could lead to overheating in some economies and increase their vulnerability to credit and asset price booms with the risk of subsequent abrupt reversals,’ the report said.
The IMF raised its growth forecasts for Asia to 7.1 per cent for both 2010 and 2011, higher than its prediction last week when it estimated regional economies would expand an average 6.9 per cent this year and 7 per cent next.
But the fund warned export-driven Asia remained vulnerable to a slower-than-expected recovery in the West, and urged governments to reduce their reliance on overseas shipments and boost domestic consumption.
‘It will be important to implement reforms that boost the productivity and the competitiveness of the services sector,’ IMF senior economist Olaf Unteroberdoerster told reporters.
The IMF said Asian policymakers need to safeguard against the build-up of imbalances in asset and housing markets caused by ‘excess liquidity’, and one way to do this was to adopt more flexible exchange rates.
‘Letting the exchange rate appreciate can forestall short-term inflows,’ the fund said, without specifically referring to China.
‘Without more currency appreciation, the pressure to sterilize the impact on money supply will continue.’
But stronger currencies alone were not going to rebalance the economies in China and other countries in the region, said Singh.
Governments needed to reduce household ‘precautionary savings’ and very high corporate savings in China and elsewhere.
‘It's very important that this package of measures is not viewed as based on one policy, which is the exchange rate,’ Singh said.
The IMF said last week a stronger yuan was ‘essential’ for both the Chinese and world economies, heaping more pressure on Beijing to revalue the currency, which has been effectively pegged at 6.8 to the dollar since mid-2008.
Critics say the policy has given Chinese manufacturers an unfair advantage by making their exports cheaper.
GREEK CRISIS
World leaders urge Greek cuts as deal nears
World leaders demanded tough new measures by Greece to control its debt mountain as officials reported that talks on a 120 billion euro ($160 billion) bailout deal were nearly complete.
Amid lingering fears that the debt crisis could spread, US president Barack Obama, German chancellor Angela Merkel and the European Union called for resolute action by Greece to control spending.
New signs that Germany is now supporting the bailout helped international share markets and the euro currency stabilize after several days of losses caused by the demotion of Greek debt to ‘junk’ status and the downgrading of Portugal and Spain's credit rating.
Greek stocks jumped by 5.78 per cent in early trading and the interest rate it pays for new debt fell back below 10 per cent after rising above 11 per cent on Wednesday.
Greece faces a May 19 default deadline to secure new funds.
But after resisting for many weeks a rescue which is unpopular among Germans, Merkel has now signaled support for Greece but demanded greater efforts to cut a public deficit which the EU has estimated at 13.6 per cent of gross domestic product.
Merkel and Obama ‘discussed the importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties,’ the White House said after telephone talks between the two leaders late Wednesday.
EU commissioner for economic and monetary affairs Olli Rehn said that marathon talks with Greece were nearly complete. But he insisted that Greece had to take effective action.
Amid lingering fears that the debt crisis could spread, US president Barack Obama, German chancellor Angela Merkel and the European Union called for resolute action by Greece to control spending.
New signs that Germany is now supporting the bailout helped international share markets and the euro currency stabilize after several days of losses caused by the demotion of Greek debt to ‘junk’ status and the downgrading of Portugal and Spain's credit rating.
Greek stocks jumped by 5.78 per cent in early trading and the interest rate it pays for new debt fell back below 10 per cent after rising above 11 per cent on Wednesday.
Greece faces a May 19 default deadline to secure new funds.
But after resisting for many weeks a rescue which is unpopular among Germans, Merkel has now signaled support for Greece but demanded greater efforts to cut a public deficit which the EU has estimated at 13.6 per cent of gross domestic product.
Merkel and Obama ‘discussed the importance of resolute action by Greece and timely support from the IMF and Europe to address Greece's economic difficulties,’ the White House said after telephone talks between the two leaders late Wednesday.
EU commissioner for economic and monetary affairs Olli Rehn said that marathon talks with Greece were nearly complete. But he insisted that Greece had to take effective action.
SCI-TECH
HP to buy Palm in bet on smart phone arena
Hewlett-Packard Co announced a $1.2 billion deal to buy Palm Inc, betting it can resuscitate the struggling smart phone maker to compete with the likes of Apple Inc and RIM.
Analysts say 2010's third-largest US tech acquisition grants Palm's devices global production and distribution reach while launching the world's top PC maker into a tech arena experiencing blistering growth.
The news on Wednesday surprised many on Wall Street, since much of the long-running takeover speculation surrounding Palm had shifted in recent weeks to focus on potential Asian bidders, such as China's Lenovo.
An early pioneer in handheld devices, Palm once dominated the market but has since been surpassed by Apple's iPhone and Research in Motion's BlackBerry. Palm put out a new mobile operating system, the well-reviewed webOS, last year but even that has been overshadowed by Google Inc's Android software.
In a sign of Palm's struggles, the money-losing company headed by Jon Rubinstein, an ex-Apple executive famous for developing the iPod, slashed revenue expectations for the current quarter. It said slow product sales have led to low order volumes from carriers.
Analysts say 2010's third-largest US tech acquisition grants Palm's devices global production and distribution reach while launching the world's top PC maker into a tech arena experiencing blistering growth.
The news on Wednesday surprised many on Wall Street, since much of the long-running takeover speculation surrounding Palm had shifted in recent weeks to focus on potential Asian bidders, such as China's Lenovo.
An early pioneer in handheld devices, Palm once dominated the market but has since been surpassed by Apple's iPhone and Research in Motion's BlackBerry. Palm put out a new mobile operating system, the well-reviewed webOS, last year but even that has been overshadowed by Google Inc's Android software.
In a sign of Palm's struggles, the money-losing company headed by Jon Rubinstein, an ex-Apple executive famous for developing the iPod, slashed revenue expectations for the current quarter. It said slow product sales have led to low order volumes from carriers.
IMPACT
Oil prices extend losses
Oil prices extended losses in Asian trade Wednesday as the US dollar strengthened after Greece’s debt rating was downgraded, analysts said.
Fears about the impact of the downgrade on the group of countries using the euro currency, collectively known as the eurozone, have shaken financial markets worldwide.
New York’s main contract, light sweet crude for June, dipped 37 cents to $82.07 in afternoon trade.
Brent North Sea crude for June was down 53 cents to $85.25 per barrel.
‘The thing that’s weighing on oil prices is mainly the currency movements, as the US dollar has been higher,’ Ben Westmore, a minerals and energy economist with the National Australia Bank, told AFP.
Greece faces a May 19 deadline to repay nine billion euros ($12 billion) in maturing debt. The downgrade by credit ratings agency Standard & Poor’s effectively shuts down its access to private capital.
The euro hovered near one-year lows against the dollar in Asian trade Wednesday as investors fled from the single currency with the risk of a Greek default looming.
Fears about the impact of the downgrade on the group of countries using the euro currency, collectively known as the eurozone, have shaken financial markets worldwide.
New York’s main contract, light sweet crude for June, dipped 37 cents to $82.07 in afternoon trade.
Brent North Sea crude for June was down 53 cents to $85.25 per barrel.
‘The thing that’s weighing on oil prices is mainly the currency movements, as the US dollar has been higher,’ Ben Westmore, a minerals and energy economist with the National Australia Bank, told AFP.
Greece faces a May 19 deadline to repay nine billion euros ($12 billion) in maturing debt. The downgrade by credit ratings agency Standard & Poor’s effectively shuts down its access to private capital.
The euro hovered near one-year lows against the dollar in Asian trade Wednesday as investors fled from the single currency with the risk of a Greek default looming.
GREEK CRISIS
DEVELOPING STORY
Greek downgrade sends shockwaves through Asia
Stocks plunged and the euro hovered at one-year lows against the dollar in Asia Wednesday after the downgrade of Greek and Portuguese debt by a major ratings agency sent shockwaves through markets.
Asian bourses followed Europe and Wall Street in a sell-off as Greece scrambled to secure desperately needed emergency loans to avoid a debt default after ratings agency Standard & Poor’s condemned it to ‘junk’ status.
‘It was always just going to be a matter of time before Greece got further downgrades,’ Koon Goh, senior economist at ANZ Bank in Wellington told Dow Jones Newswires. ‘But the aggressive move by S&P took the market by surprise’.
While the euro regained some ground in Asia after being hammered overnight, it remained stricken by growing fears of eurozone contagion after Portugal also saw its rating slashed by the agency, although it remained at investment grade.
‘The spotlight will also start to turn more on other highly indebted countries in the eurozone, and investors will increasingly demand higher risk premiums for government debt,’ Goh said.
Hong Kong slumped 1.26 per cent by the break and Singapore was down 1.41 per cent.
Tokyo dived 2.57 per cent, or 287.87 points, to close at 10,924.79, with exporters hit by the yen’s relative strength against the ailing euro.
Sydney lost 1.17 per cent, or 57.2 points, to 4,822.8.
In New York Tuesday, the euro fell below $1.32 for the first time since April 28 last year, after Greece’s debt rating downgrade reflected the increasingly high risk of it defaulting as its borrowing costs soared.
The euro recovered to $1.3202 in Tokyo afternoon trade from $1.3172 in New York late Tuesday, after plunging to $1.3162 at one point.
Greece is scrambling to meet a May 19 deadline to pay back nine billion euros ($12 billion) in debts as its borrowing costs soar.
With the clock ticking, EU president Herman Van Rompuy said in Tokyo that a summit of the leaders of Greece’s 15 eurozone partners would be held ‘around’ May 10 to agree on 30 billion euros of rescue loans for Greece.
‘Heads of state and governments will decide to activate the financing of the joint programme under negotiations now between the European commission, the ECB and the IMF and the Greek government.
‘There is no question about restructuring of the debt.’
His comments came after Greece slammed Europe for dragging its feet over an aid package and lashed out at the downgrade, which means investors such as pension funds will no longer be allowed to buy the eurozone nation’s bonds.
The move ‘does not correspond with the real data,’ it said.
Aside from Greece, investors also awaited the outcome from the US central bank’s two-day policy-setting Federal Open Market Committee meeting for its assessment for recovery in the world’s largest economy.
In Shanghai, shares fell 0.37 per cent, amid continued uncertainty over Beijing’s plans to cool the searing property market after record price rises in March.
‘The heavy losses in US stocks are making the already weak domestic sentiment even worse,’ Guosen Securities analyst Wang Junqing said.
Gold opened higher at $1,165.30-$1,166.30 an ounce in Hong Kong, up from Tuesday’s close of $1,154.50-$1,155.50.
Asian bourses followed Europe and Wall Street in a sell-off as Greece scrambled to secure desperately needed emergency loans to avoid a debt default after ratings agency Standard & Poor’s condemned it to ‘junk’ status.
‘It was always just going to be a matter of time before Greece got further downgrades,’ Koon Goh, senior economist at ANZ Bank in Wellington told Dow Jones Newswires. ‘But the aggressive move by S&P took the market by surprise’.
While the euro regained some ground in Asia after being hammered overnight, it remained stricken by growing fears of eurozone contagion after Portugal also saw its rating slashed by the agency, although it remained at investment grade.
‘The spotlight will also start to turn more on other highly indebted countries in the eurozone, and investors will increasingly demand higher risk premiums for government debt,’ Goh said.
Hong Kong slumped 1.26 per cent by the break and Singapore was down 1.41 per cent.
Tokyo dived 2.57 per cent, or 287.87 points, to close at 10,924.79, with exporters hit by the yen’s relative strength against the ailing euro.
Sydney lost 1.17 per cent, or 57.2 points, to 4,822.8.
In New York Tuesday, the euro fell below $1.32 for the first time since April 28 last year, after Greece’s debt rating downgrade reflected the increasingly high risk of it defaulting as its borrowing costs soared.
The euro recovered to $1.3202 in Tokyo afternoon trade from $1.3172 in New York late Tuesday, after plunging to $1.3162 at one point.
Greece is scrambling to meet a May 19 deadline to pay back nine billion euros ($12 billion) in debts as its borrowing costs soar.
With the clock ticking, EU president Herman Van Rompuy said in Tokyo that a summit of the leaders of Greece’s 15 eurozone partners would be held ‘around’ May 10 to agree on 30 billion euros of rescue loans for Greece.
‘Heads of state and governments will decide to activate the financing of the joint programme under negotiations now between the European commission, the ECB and the IMF and the Greek government.
‘There is no question about restructuring of the debt.’
His comments came after Greece slammed Europe for dragging its feet over an aid package and lashed out at the downgrade, which means investors such as pension funds will no longer be allowed to buy the eurozone nation’s bonds.
The move ‘does not correspond with the real data,’ it said.
Aside from Greece, investors also awaited the outcome from the US central bank’s two-day policy-setting Federal Open Market Committee meeting for its assessment for recovery in the world’s largest economy.
In Shanghai, shares fell 0.37 per cent, amid continued uncertainty over Beijing’s plans to cool the searing property market after record price rises in March.
‘The heavy losses in US stocks are making the already weak domestic sentiment even worse,’ Guosen Securities analyst Wang Junqing said.
Gold opened higher at $1,165.30-$1,166.30 an ounce in Hong Kong, up from Tuesday’s close of $1,154.50-$1,155.50.
EU calls emergency summit as Greece crisis deepens
Greece’s debt hit near-pariah status Wednesday as fears of a default jolted markets and global finance leaders sought to press key governments to join a rescue operation.
The European Union called a crisis summit as the mounting debt emergency threatened to suck in Portugal and other high-deficit nations. Discontent grew in Greece with new strikes erupting and protesters blocking tourists on one cruise ship.
Greece acted to stop speculators operating on the Athens stock exchange as the interest rate it has to pay to borrow money hit 11.1 per cent, only trailing Pakistan and Venezuela in the world’s highest interest payers.
Government efforts to meet a May 19 deadline to repay nine billion euros ($12b) took a critical new blow when the Standard and Poor’s ratings agency downgraded its debt to junk status on Tuesday.
Authorities responded by declaring a two-month ban on short-selling — the sale of securities or commodity futures not actually owned by a seller who hopes to buy them back later at a lower price. Such speculation usually intensifies during a financial crisis.
Standard and poor’s also slashed Portugal’s rating and markets around the world took fright at the new threat to the tentative recovery from recession.
The Tokyo stock market fell 2.57 per cent and the main European markets were down about 2.0 per cent on Wednesday. Europe and New York shares had already suffered Tuesday.
With the euro falling to a 12-month low of less than $1.32, EU president Herman Van Rompuy said leaders from the 16 nations using the single currency would meet in Brussels around May 10 to try to agree a massive rescue operation.
Speaking at an EU-Japan summit in Tokyo, Van Rompuy said there was ‘no question’ of Greece defaulting and insisted that talks were advancing to enable Greece to tap up to 45 billion euros in loans from the EU and the International Monetary Fund.
A Greek government source said that Athen was ‘negotiating’ the precise amount the IMF could lend; following reports the global lender could boost its contribution by 10 billion euros.
European leaders face difficult talks and Greek finance minister George Papaconstantinou accused Europe of dragging its feet over the aid. He warned that the May 19 deadline was ‘crucial.’
IMF and World Bank chiefs Dominique Strauss-Kahn and Robert Zoellick and European Central Bank president Jean-Claude Trichet were among financial leaders in Berlin on Wednesday seeking to convince the German government to give firm support to the bailout.
They were to meet German Chancellor Angela Merkel later Wednesday.
Germany would be the biggest contributor to any EU fund, but helping a country which has let its public deficit hit 13.6 per cent of gross domestic product, according to EU figures, is hugely unpopular in Germany, which will hold key regional elections on May 9.
Greece would probably never repay any of the loans that Germany makes, top German economist Hans-Werner Sinn, head of the IFO institute and a government advisor, said in comments which fuelled the controversy.
The European Union called a crisis summit as the mounting debt emergency threatened to suck in Portugal and other high-deficit nations. Discontent grew in Greece with new strikes erupting and protesters blocking tourists on one cruise ship.
Greece acted to stop speculators operating on the Athens stock exchange as the interest rate it has to pay to borrow money hit 11.1 per cent, only trailing Pakistan and Venezuela in the world’s highest interest payers.
Government efforts to meet a May 19 deadline to repay nine billion euros ($12b) took a critical new blow when the Standard and Poor’s ratings agency downgraded its debt to junk status on Tuesday.
Authorities responded by declaring a two-month ban on short-selling — the sale of securities or commodity futures not actually owned by a seller who hopes to buy them back later at a lower price. Such speculation usually intensifies during a financial crisis.
Standard and poor’s also slashed Portugal’s rating and markets around the world took fright at the new threat to the tentative recovery from recession.
The Tokyo stock market fell 2.57 per cent and the main European markets were down about 2.0 per cent on Wednesday. Europe and New York shares had already suffered Tuesday.
With the euro falling to a 12-month low of less than $1.32, EU president Herman Van Rompuy said leaders from the 16 nations using the single currency would meet in Brussels around May 10 to try to agree a massive rescue operation.
Speaking at an EU-Japan summit in Tokyo, Van Rompuy said there was ‘no question’ of Greece defaulting and insisted that talks were advancing to enable Greece to tap up to 45 billion euros in loans from the EU and the International Monetary Fund.
A Greek government source said that Athen was ‘negotiating’ the precise amount the IMF could lend; following reports the global lender could boost its contribution by 10 billion euros.
European leaders face difficult talks and Greek finance minister George Papaconstantinou accused Europe of dragging its feet over the aid. He warned that the May 19 deadline was ‘crucial.’
IMF and World Bank chiefs Dominique Strauss-Kahn and Robert Zoellick and European Central Bank president Jean-Claude Trichet were among financial leaders in Berlin on Wednesday seeking to convince the German government to give firm support to the bailout.
They were to meet German Chancellor Angela Merkel later Wednesday.
Germany would be the biggest contributor to any EU fund, but helping a country which has let its public deficit hit 13.6 per cent of gross domestic product, according to EU figures, is hugely unpopular in Germany, which will hold key regional elections on May 9.
Greece would probably never repay any of the loans that Germany makes, top German economist Hans-Werner Sinn, head of the IFO institute and a government advisor, said in comments which fuelled the controversy.
BANK-REFORM
Republicans float bank-reform plan
Senate Republicans on Tuesday floated their first counterproposal to rewrite financial regulations after blocking a more sweeping Democratic plan for a second straight day.
With the two parties locked in a stalemate on the Senate floor, the Republican proposal, obtained by Reuters, could propel the two sides toward common ground on the most ambitious rewrite of Wall Street rules since the Great Depression.
‘The GOP bill is not conceptually that far from what the Democrats want ... We continue to believe that we will get a moderate financial reform bill as both sides have an incentive to reach a deal,’ said policy analyst Jaret Seiberg at investment firm Concept Capital.
As Goldman Sachs executives sweated through tough questioning by a Senate panel, Democrats calculated that Republican resistance to the bill would crumble amid election-year pressures and widespread anger at Wall Street.
But they again fell short of the 60 votes needed to begin debate on the bill, which would deal with the problem of ‘too big to fail’ financial firms, ban banks from some lucrative trading practices and subject banks to tougher oversight.
As on Monday, no Republicans sided with Democrats in the 57-41 vote. Key moderate Republicans said they had seen no developments to change their minds over the past 24 hours, and felt no pressure from voters to switch their position.
‘I think people trust me to make the right decision,’ said Republican Senator Olympia Snowe.
Another vote is expected on Wednesday as Democrats try to cast Republicans as allies of a greedy Wall Street, perhaps the only address more unpopular with the public than Capitol Hill.
Lawmakers from both parties are eager to tighten oversight of the financial industry before the November congressional elections. Many expect a bill will eventually pass.
President Barack Obama and his fellow Democrats want tighter rules to prevent a repeat of the 2008-2009 financial crises, which punished the economy with a deep recession.
‘I’m not going to let this effort fall victim to industry lobbyists,’ Obama told a town hall-style meeting in Iowa.
The 1,558-page Senate bill would set up a new ‘orderly liquidation’ process for dismantling large firms in distress and create a new financial consumer protection watchdog.
It would impose regulations on the over-the-counter derivatives markets, curb risky trading by banks, force hedge funds to register with the government and crack down on debt securitization. Republicans see a need for reform, but say the Democrats’ bill reaches too far.
The House of Representatives approved a bill in December that embraced many reform proposals made in mid-2009 by Obama. Anything the Senate produces would have to be merged with the House bill. Analysts have said that could happen by mid-year.
With the two parties locked in a stalemate on the Senate floor, the Republican proposal, obtained by Reuters, could propel the two sides toward common ground on the most ambitious rewrite of Wall Street rules since the Great Depression.
‘The GOP bill is not conceptually that far from what the Democrats want ... We continue to believe that we will get a moderate financial reform bill as both sides have an incentive to reach a deal,’ said policy analyst Jaret Seiberg at investment firm Concept Capital.
As Goldman Sachs executives sweated through tough questioning by a Senate panel, Democrats calculated that Republican resistance to the bill would crumble amid election-year pressures and widespread anger at Wall Street.
But they again fell short of the 60 votes needed to begin debate on the bill, which would deal with the problem of ‘too big to fail’ financial firms, ban banks from some lucrative trading practices and subject banks to tougher oversight.
As on Monday, no Republicans sided with Democrats in the 57-41 vote. Key moderate Republicans said they had seen no developments to change their minds over the past 24 hours, and felt no pressure from voters to switch their position.
‘I think people trust me to make the right decision,’ said Republican Senator Olympia Snowe.
Another vote is expected on Wednesday as Democrats try to cast Republicans as allies of a greedy Wall Street, perhaps the only address more unpopular with the public than Capitol Hill.
Lawmakers from both parties are eager to tighten oversight of the financial industry before the November congressional elections. Many expect a bill will eventually pass.
President Barack Obama and his fellow Democrats want tighter rules to prevent a repeat of the 2008-2009 financial crises, which punished the economy with a deep recession.
‘I’m not going to let this effort fall victim to industry lobbyists,’ Obama told a town hall-style meeting in Iowa.
The 1,558-page Senate bill would set up a new ‘orderly liquidation’ process for dismantling large firms in distress and create a new financial consumer protection watchdog.
It would impose regulations on the over-the-counter derivatives markets, curb risky trading by banks, force hedge funds to register with the government and crack down on debt securitization. Republicans see a need for reform, but say the Democrats’ bill reaches too far.
The House of Representatives approved a bill in December that embraced many reform proposals made in mid-2009 by Obama. Anything the Senate produces would have to be merged with the House bill. Analysts have said that could happen by mid-year.
FINANCIAL MELTDOWN
Goldman grilled in US Senate
Goldman Sachs has denied reaping vast profits from the collapse of the US housing market as its top executive and a star trader faced hostile questions in Congress over the 2008 financial meltdown.
In angry exchanges on Tuesday before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the US economy.
Democratic Senator Carl Levin, the panel’s chairman, assailed Goldman as representative of Wall Street’s ‘unbridled greed,’ drawing them into a raging political battle over financial reform.
Republicans on Tuesday thwarted Democratic efforts to start formal debate on sweeping legislation to rein in Wall Street excesses for the second time in two days.
Against this caustic backdrop, Goldman executives battled to salvage the firm’s reputation, rejecting charges — recently filed by a US watchdog — that they sold clients a complex financial product devised by someone who bet against it.
Levin demanded to know why Goldman had been ‘trying to sell’ what was described as a bad deal to investors, fuming that ‘as we speak, lobbyists fill the halls of Congress hoping to weaken or kill reforms that would end these abuses.’
Capping more than nine hours of grilling, Goldman chief executive Lloyd Blankfein vigorously denied misleading clients about products his staff described as ‘crap’ in emails released by the committee.
But, he admitted, the products were ‘maybe something that should not be permitted,’ because of their complexity, risk and potential for damaging the firm’s reputation,
‘Our clients’ trust is not only important to us, it’s essential to us,’ he said. ‘If our clients believe that we don’t deserve their trust, we cannot survive,’ he said.
But Blankfein defended the firm’s ‘short’ positions on the housing investments — betting they would fail — as necessary to offset the company’s exposure to other slumping assets in the sector.
The company, he said, ‘didn’t have a massive short (position) against the housing market and we certainly did not bet against our clients,’ he said.
Blankfein also said that, ‘while profitable overall,’ Goldman lost about 1.2 billion dollars from investments tied to the residential housing market.
In angry exchanges on Tuesday before a Senate investigative committee, the storied Wall Street firm was accused of fuelling a crisis that forced thousands of Americans from their homes and continues to ravage the US economy.
Democratic Senator Carl Levin, the panel’s chairman, assailed Goldman as representative of Wall Street’s ‘unbridled greed,’ drawing them into a raging political battle over financial reform.
Republicans on Tuesday thwarted Democratic efforts to start formal debate on sweeping legislation to rein in Wall Street excesses for the second time in two days.
Against this caustic backdrop, Goldman executives battled to salvage the firm’s reputation, rejecting charges — recently filed by a US watchdog — that they sold clients a complex financial product devised by someone who bet against it.
Levin demanded to know why Goldman had been ‘trying to sell’ what was described as a bad deal to investors, fuming that ‘as we speak, lobbyists fill the halls of Congress hoping to weaken or kill reforms that would end these abuses.’
Capping more than nine hours of grilling, Goldman chief executive Lloyd Blankfein vigorously denied misleading clients about products his staff described as ‘crap’ in emails released by the committee.
But, he admitted, the products were ‘maybe something that should not be permitted,’ because of their complexity, risk and potential for damaging the firm’s reputation,
‘Our clients’ trust is not only important to us, it’s essential to us,’ he said. ‘If our clients believe that we don’t deserve their trust, we cannot survive,’ he said.
But Blankfein defended the firm’s ‘short’ positions on the housing investments — betting they would fail — as necessary to offset the company’s exposure to other slumping assets in the sector.
The company, he said, ‘didn’t have a massive short (position) against the housing market and we certainly did not bet against our clients,’ he said.
Blankfein also said that, ‘while profitable overall,’ Goldman lost about 1.2 billion dollars from investments tied to the residential housing market.
GLOBAL MONETARY REFORM
France, China to work together on global monetary reform
France and China said Wednesday they would work together to consider an overhaul of the global monetary system, at the start of a state visit by French president Nicolas Sarkozy.
‘We are going to prepare the French presidency of the G20 well in advance by thinking about a new multipolar monetary order,’ Sarkozy said in a joint appearance before the media with Chinese president Hu Jintao after their talks.
‘We are going to think and work together.’
France has helped lead efforts by the G20 grouping to reform world finance and is due to preside over it from November.
For his part, Hu was quoted by state television as saying the two sides ‘should hold close consultations and strengthen political coordination on the reform of the international monetary system’.
‘We are going to prepare the French presidency of the G20 well in advance by thinking about a new multipolar monetary order,’ Sarkozy said in a joint appearance before the media with Chinese president Hu Jintao after their talks.
‘We are going to think and work together.’
France has helped lead efforts by the G20 grouping to reform world finance and is due to preside over it from November.
For his part, Hu was quoted by state television as saying the two sides ‘should hold close consultations and strengthen political coordination on the reform of the international monetary system’.
GREEK CRISIS
DEVELOPING NEWS
IMF mulls giving extra 10b euros to Greece
The International Monetary Fund is considering raising its financial aid to debt-stricken Greece by 10 billion euros (13 billion dollars), the Financial Times reported Wednesday.
The IMF has already offered Athens 15 billion euros as part of a rescue package with eurozone nations, which currently totals 45 billion euros.
But it was now looking at increasing the amount it would give to 25 billion euros, said the paper, citing unnamed senior bankers and officials in Washington and Athens.
The IMF has already offered Athens 15 billion euros as part of a rescue package with eurozone nations, which currently totals 45 billion euros.
But it was now looking at increasing the amount it would give to 25 billion euros, said the paper, citing unnamed senior bankers and officials in Washington and Athens.
Greece will never pay us back: German economist
Debt-stricken Greece is unlikely ever to be in a position to pay back loans from Germany currently under consideration to help end its crisis, an influential German economist said Wednesday.
The warning came as a new poll showed nearly two-thirds of Germans were opposed to helping Greece, with a majority believing that membership of the EU brought more disadvantages than advantages.
Asked on MDR radio if Berlin would ever get its money back, Hans-Werner Sinn, head of the Ifo institute and one of the top economic advisors to the government, said: ‘To tell you the truth, no.’
Greece ‘will not be in a position to carry out the necessary budgetary rigour’ and will eventually have ‘to ask for Germany to waive the debt,’ he said.
The warning came as a new poll showed nearly two-thirds of Germans were opposed to helping Greece, with a majority believing that membership of the EU brought more disadvantages than advantages.
Asked on MDR radio if Berlin would ever get its money back, Hans-Werner Sinn, head of the Ifo institute and one of the top economic advisors to the government, said: ‘To tell you the truth, no.’
Greece ‘will not be in a position to carry out the necessary budgetary rigour’ and will eventually have ‘to ask for Germany to waive the debt,’ he said.
SCI-TECH
LG eyes World Cup TV boost
World No 2 TV maker LG Electronics warned that profits at its struggling mobile division would be slow to recover, but it expects this summer’s soccer World Cup to drive TV sales and push up next quarter’s earnings.
LG, also the world’s No 3 handset maker, has seen its mobile phone business suffer this year, trailing Nokia and Samsung Electronics Co Ltd. It competes with Sony Corp and Panasonic Corp in flat-screen TVs.
Chief financial officer David Jung told analysts that turning LG’s mobile business around was ‘top priority’ and it planned to introduce competitive models from this quarter, though it would take ‘a bit more time’ to really improve profitability.
‘Its appliance and TV businesses are performing strongly and LG’s mobile phone margin has likely hit a bottom,’ said Kim Ji-san, an analyst at Kiwoom Securities.
LG’s TV division swung to a profit in the first quarter and accounted for nearly 40 per cent of the group total, while earnings from handset sales tumbled to around a tenth of year-ago levels and accounted for less than 1 per cent of total profit.
‘Overall demand for home appliances is strong and we expect solid results to continue toward the end of this year... and our TV business may also perform better than the market expects,’ Jung said.
The long-term outlook for LG hinges largely on when and how strongly its handset division regains lost momentum.
LG, also the world’s No 3 handset maker, has seen its mobile phone business suffer this year, trailing Nokia and Samsung Electronics Co Ltd. It competes with Sony Corp and Panasonic Corp in flat-screen TVs.
Chief financial officer David Jung told analysts that turning LG’s mobile business around was ‘top priority’ and it planned to introduce competitive models from this quarter, though it would take ‘a bit more time’ to really improve profitability.
‘Its appliance and TV businesses are performing strongly and LG’s mobile phone margin has likely hit a bottom,’ said Kim Ji-san, an analyst at Kiwoom Securities.
LG’s TV division swung to a profit in the first quarter and accounted for nearly 40 per cent of the group total, while earnings from handset sales tumbled to around a tenth of year-ago levels and accounted for less than 1 per cent of total profit.
‘Overall demand for home appliances is strong and we expect solid results to continue toward the end of this year... and our TV business may also perform better than the market expects,’ Jung said.
The long-term outlook for LG hinges largely on when and how strongly its handset division regains lost momentum.
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