Author:

Britain’s blue-chip ended lower for the ninth consecutive session on Thursday, marking its worst run since January 2003, after Germany reiterated its opposition to the use of euro bonds or monetary tools to help solve the eurozone’s debt crisis.

Following a meeting with the leaders of France and Italy, German chancellor, Angela Merkel, quashed market hopes that Europe’s paymaster would open the door to the launch of joint eurozone bonds or a quantitative easing programme by the European Central Bank.

“It was a completely wrong signal; anyone that was in for the short term closed their position,” Lee Curtis, a trader at City Index, said.

With Wall Street shut for Thanksgiving, trading volumes on the FTSE 100 were light at 88 percent of their 90-day
average, encouraging intra-day profit taking and causing sharp moves on the index, traders said.

The FTSE 100 closed 0.24 percent lower at 5,127.57 points, having risen to a day high of 5,184 in morning trade, boosted by better-than-expected macro data from Germany, before falling to a trough of 5,098 in the afternoon, when Merkel made her comments.

“People were just taking profits where they could, that’s all. From an eight-days trough, they were just seeing a bit of profit and they were taking,” Adam Saward, a trader at Penson Financial Services, said.

“No-one is looking to see any good news until the end of the year,” Saward noted, adding he expects the FTSE 100 to climb around 200 points to 5,300 in the remainder of the year, pointing a 10.2 percent annual fall.

Britain’s blue-chip gauge fell 7.5 percent in the last nine sessions, with banks and miners responsible for most of the recent losses as investors offloaded risky assets due to sovereign debt tensions in the eurozone and fears of a global economic slowdown.

However, the two sectors rebounded today, with banks up 1.2 percent and miners up 1.1 percent, led by Fresnillo and Royal Bank of Scotland, up 4.4 percent and 3.6 percent, respectively.

In a reminder of the dangers facing the financial sector, the European Banking Association warned lenders they needed to plan for a potentially disorderly break-up of the euro zone, or the exit of some countries as part of their contingency planning.

The eurozone crisis was also impacting the United Kingdom, which confirmed its economy grew just 0.5 percent in the third quarter of this year.

“The global slowdown is weighing on (British) exports while the ongoing debt crisis with the related financial strains is affecting consumer and business confidence as well as increasing bank funding costs,” UniCredit said in a note.

Weakness was mirrored by corporate results, with Europe’s number two electrical goods retailer Dixons recording a wider first-half loss, as cash-strapped shoppers cut back on purchases of discretionary goods.

Its shares closed 0.7 percent higher, having fallen sharply ahead of the results, which were ahead of expectations according to investment bank Espirito Santo.

Privately owned retailer Arcadia added to the gloom, posting a 38 percent fall in full-year profit.

Telecoms equipment giant Nokia Siemens Networks has said it will be shedding 17,000 staff globally in an attempt to bolster profitability in a stagnating network gear market.

The company plans to cut a quarter of its workforce by the end of 2013 in a restructuring that will allow it to focus in mobile broadband equipment.

Nokia Siemens CEO, Rajeev Suri, said the elimination would help the group cut annual operating costs by around $1.35bn by the end of 2013.

“As we look towards the prospect of an independent future, we need to take action now to improve our profitability and cash generation. These planned reductions are regrettable but necessary,” Suri said.

The South African rand dropped sharply against the USD and bonds depreciated as Moody’s Investor Services announced its intention to reduce its outlook on the country’s sovereign debt rating. The rating agency cited growth and deficit concerns as reasons for the decision.

Moody’s reduced the outlook from ‘stable’; South African debt is rated as BBB+ by Standard & Poor’s, one level below that of Moody’s.

The rand, which had appreciated substantially in recent weeks, immediately dropped 1.5 percent in value and is currently trading at around 8.00 to the USD. This was the biggest drop in a single day since the beginning of November.

The yield on 13.5 percent government bonds, which are due in 2015, also increased 11 basis points and now stands at 6.5 percent. The yield on the $2bn worth of South African government bonds due in 2020 also increased by 1.86 percent (23 basis points). Higher interest rates on government bonds reflect the increased risk investors associate with them.

Moody’s decision to reduce its outlook on South Africa’s A3 rating on local currency and long-term currency debt is the result of fears that the country’s annual growth rate will be lower than initially estimated and that the country’s government will be unable to meet its commitment to cutting budget deficits, as a result of popular pressure.

On October 25, Pravin Gordhan, who is South Africa’s finance minister, announced that the budget deficit for the year ending March 31 would, in all likelihood, be 5.5 percent of the country’s GDP, compared to 4.6 percent of the previous year.

Gordhan is in a particularly difficult position, on the one hand he is attempting to keep the budget deficit as low as possible, but on the other he is facing enormous pressure from a range of groups that includes trade unions and the ANC youth league, to increase social spending and job creation.

A currency strategist based at Standard Bank Group Ltd, in Johannesburg, Nomvuyo Guma, said in a telephone interview with Bloomberg, “Lowering the outlook is generally a precursor to a credit downgrade, which would certainly be a risk to inflows into the bond market, You’ve already seen the reaction in the markets.”

The South African Government strongly disagrees with Moody’s decision and expressed ‘disappointment’, in an email statement issued by the National Treasury. The statement claimed that the two main reasons behind Moody’s decision were the global economic situation and that the country’s public revenue would increase the moment growth prospects improved.

A fixed-income analyst attached to Afrifocus Securities, Michael Grobler, speaking in Cape Town, said that the South African market’s “direction is influenced by the weakening of Italian bond yields.” He described the outlook cut by Moody’s as “a setback for the current bond rally.”

To what extent Moody’s decision would become a self-fulfilling prophecy, only time will tell. There is little doubt that a general aversion to developing country debt played a major role in the rating agency’s decision.

Stocks in early trading in Asia slumped on Wednesday after a downward revision of US economic growth in the third quarter and rising yields on Spanish bonds.

The US economy grew at a two percent annual rate, 0.5 percent less than its initial estimate, the Commerce Department said. Meanwhile, higher borrowing costs in Spain triggered renewed worries about the eurozone’s continuing debt crisis.

Despite a new Spanish government coming to power this week, investors still remain doubtful about whether the country will be able to get its budget in order. Investors particularly fear that Spain could become the next eurozone country to require financial support from its neighbours.

Spain’s 10-year bond stands at 6.58 percent just 0.42 percent shy of the 7 percent that forced Greece to ask for relief from its lenders.

For several months, measures to reduce aid to the Palestinian Authority have been on the minds of many lawmakers in the United States. In August, the measures were actually implemented, effectively cutting off roughly $200m in aid to the PA. In addition, measures were also put in place to freeze the distribution of a further $200m. While the attempt had been dismissed as political posturing on the part of a number of lawmakers under the guise of balancing the US budget, there was a general feeling that enough opposition to any cuts existed in Congress and the measure would be defeated; unfortunately, that was not the case.

Prior to the freeze, Palestinian Monetary Authority Governor Jihad al-Wazir commented on what the action would mean for the financial stability of the PA. “It would have a major impact on the economic situation in the West Bank, if the you lose $500m [in US aid] from financial support for development in the West Bank… really, the risk of a PA collapse is very real under the financial strain, without US assistance, without donor assistance in general.”

There has been speculation that the underlying reason for the measure was the intention of PA president Mahmoud Abbas to ask the United Nations to recognise Palestine as a state, sometime in September. The cut off of the funds came before the end of the governmental fiscal year, which was on 30th September and would also affect the potential for any funds to be disbursed during the upcoming fiscal year.

The response to the measure was swift, with a statement issued by the PA’s spokesperson, Ghassan Khatib. “It is another kind of collective punishment which is going to harm the needs of the public without making any positive contribution,” stated Khatib. “It is ironic to be punished for going to the United Nations”.

While the measure did not have the backing of many members of Congress, the process to overcome the freeze took time. Attempts by President Obama to work with Congress to lift the freeze were partially successful on November 7, when a decision was made to release $200m that had been set-aside as security funds for the Palestinian Authority. Still to be settled is the additional support, which is earmarked as economic funds and is still considered frozen at the present time.

Whether the remaining funds will be released is still a matter for debate. Regardless of the outcome, there is no doubt that the freezing of the aid has done nothing to enhance the image of the United States among other world powers. Approval of unilateral recognition of the PA by the UN also triggered a reduction in financial support by the US to UNESCO, owing to a 1994 law that prohibits the country from providing funds to any United Nations organisation that supports a unilateral recognition of statehood in Palestine. Depending on how lawmakers in the US move to deal with the new circumstances, the potential for economic collapse remains a real possibility in the PA, along with further damage to the international reputation of the United States.

While there has been a degree of strain in relations between Syria and Turkey for decades, recent events have created additional stress on an already tenuous relationship. Thanks to Turkish support of a change in the current regime leading Syria, a great deal of unrest has been added to the situation. While, at one point, there was talk of reworking some of the border restrictions between the two nations, that has fallen out of favour as some Syrians see Turkey’s move as being not just opposition to actions taken by the Syrian government over the last year, but actually the beginning of a plot to overthrow the country’s government and even the possibility of military intervention.  

Syria has taken issue with Turkey’s status as a safe haven for Syrian insurgents. Those in Turkey who support the sanctions see them as necessary to send a clear message that Turkey does agree with what is happening in Syria and think changes should be made. For those in Syria who support the current regime, this is seen as interference by Turkey in the country’s internal politics.

Turkish officials have been pushing for sanctions against Syria for some time, beginning in March this year. When the United Nations balked at the idea of sanctions in early October, Turkish Prime Minister, Recep Tayyip Erdogan, made it quite clear that whatever the UN decided to do, Turkey would move forward. “Naturally the veto … cannot prevent sanctions,” Erdogan commented, adding, “We will of necessity implement a package of sanctions.”

While there are now indications that the intervention of the Arab League may lead to concessions by Syrian officials that will ultimately bring closure to the current crop of issues that have led to the bloodshed and the attention of Turkey and other nations on the internal affairs of the country, there is no doubt that the relationship between Syria and Turkey has been severely damaged. Differences of opinion on water rights, and other issues interchangeably described as either human rights issues or imperialist designs, are putting great strain on the countries’ relations.

Whilst in recent years the two countries had seemed to reach a position that enabled them to carve out a working relationship, the chances are that the events of the last several months will take some time to resolve. How this will affect the balance of power in the Middle East over the coming years and what the action of Turkey means in terms of the nation’s strengthening ties to the West, remains to be seen.

The Republican and Democratic leaders of a 12-member congressional “super committee” are set to declare defeat in a joint statement to be released after three months of talks failed to bridge deep divides over taxes and spending.

After a year of bruising budget battles, it is another sign that U.S. lawmakers are too entrenched to compromise on the tax increases and benefit cuts that budget experts say are needed to set the country’s finances on a stable path.

The panel’s failure will cement notions of a dysfunctional Washington among voters and investors already disenchanted with the brinkmanship that brought the country to the edge of a first-ever debt default in August.
Lawmakers likely will not return to the problem until 2013 at the earliest as they shift their attention to the 2012 presidential and congressional elections.

Budget skirmishes will continue over the coming months.

Democrats will try to extend short-term economic stimulus measures, such as enhanced unemployment benefits and a payroll tax cut, that they had hoped to roll in to any super committee deal. Analysts say the economy could slide back toward recession if they expire as planned at the end of the year.

Republicans will scramble to shield the military from $600bn in automatic spending cuts that are triggered, beginning in 2013, in the absence of a deal.

Asian stocks and US stock futures fell as news of the collapse weighed on markets. Market expectations for a deal were low, and investors have viewed the United States as a relative safe haven from the debt crisis in the euro zone.

But failure could remind investors of the risks posed by gridlock in Washington.

“As is the case with policymakers in Europe, US politicians need to be doing more than investors expect, not less,” said Michael Gapen, senior US economist with Barclays Capital.

President Barack Obama kept his distance from the talks, choosing instead to emphasise a job creation package that was blocked by Republicans in Congress. Aides believe Obama will be able to use the super committee’s failure to paint Republicans as obstructionist as he seeks re-election.

Congressional leaders set up the super committee during a bitter budget fight last summer that hammered consumer confidence and prompted a first-ever downgrade of the United States’ AAA credit rating by Standard & Poor’s.

Aiming for the big deal
Blessed with extraordinary powers, the committee was supposed to forge the sort of deficit-reducing deal that had eluded Obama and House Speaker John Boehner, the top Republican in Congress, over the summer.

The panel was tasked with finding at least $1.2trn in budget savings over 10 years, enough to demonstrate that Washington could tame a debt load that last week hit $15trn – equal to the size of the US economy.

The threat of the automatic cuts, falling equally on military and domestic programs, was supposed to ensure that a deal would be reached.

Committee members met for dinners and several even took bike rides together in an effort to build the trust that would enable them to make decisions that could anger powerful industries and interest groups before the 2012 elections.

They had a clear blueprint for agreement. Other budget-cutting panels, including one set up by Obama, had concluded that lawmakers need to wring out the loophole-laden tax code and rein in health benefits that are set to balloon over coming decades as the population ages.

In the end, Republicans were unwilling to sign off on tax increases while Democrats balked at a dramatic benefits overhaul.

Lawmakers were doubtless mindful of the political fallout from the deals that led to the budget surpluses of the late 1990s. A 1990 deal that raised taxes and cut spending prompted a conservative rebellion within the Republican Party that weakened then-President George H.W. Bush and contributed to his defeat two years later.

A similar 1993 deal, forged without Republican cooperation, led to a landmark defeat for congressional Democrats the following year that handed control of Congress to Republicans.

For the first time since 2009, unemployment in Germany is on the increase. While the increase was minimal, the upward shift was enough to raise concerns about what will happen in the coming months. With internal factors within Germany’s economy, as well as issues that have to do with what is happening in the Eurozone, there is some validity to the fears that what was a slight increase may be the beginning of a new trend.

One of the reasons for the unemployment increase in Germany has to do with changes in the manufacturing segment of the economy. Simply put, there is not much hiring going on, while some jobs have been eliminated, due to plant closures, shift cutbacks or temporary layoffs caused by falling demand for the goods produced. The losses were sufficient to create fears among German investors, who are already somewhat wary of making many changes in their portfolios, owing to the precarious financial status of some of the other nations within the EU. Coupled with concerns that there may also be cutbacks within the banking industry, employment has taken quite a beating.

There are those who are advising caution when it comes to interpreting how the current shift in employment figures will impact the German economy as a whole. Alexander Koch, an economist at Munich-based UniCredit SpA felt that it is too early to place too much emphasis on what may be nothing more than a temporary and short-lived phenomenon. “The latest monthly rise in the adjusted figure should not mark the end of the impressive upswing on the German labour market,” said Koch. “Despite the recent strong deterioration in the global economic environment, corporate employment plans do not signal an imminent turnaround.”

Lothar Hessler, of HSBC Trinkaus & Burkhardt AG (TUB) in Duesseldorf, also felt that taking the increase in stride would be wise. “It’s too early to call this a trend change in the labour market, but it shows that growth forces are weakening”, Hessler said in a recent interview. “The dynamism of the economic upswing is lessening more than thought.”

Some of the decrease has to do with international corporations planning to shut down German operations and move them to other parts of the world. Whirlpool Inc, for instance, plans to move approximately 5,000 jobs to facilities in Poland. Other companies, like Adidas and AMD also have plans to curtail operations, not only in Germany, but also other locations as well. Even the steel industry is expected to review operations in the months ahead, possibly resulting in employee reductions that will help to keep the current trend going.

According to the OECD, international issues are playing as much, if not more, of a role in the unanticipated rise in German unemployment figures. The outcome of efforts throughout the European Union to shore up failing economies in Greece and other nations will probably exert more influence on what happens to the German economy.

On October 31, Libya gained a new interim president that has proven to be a surprise for those watching the elections. Dr. Abel Rahim al-Keeb, a 61-year old professional with a background in education, electronics and politics was named as interim prime minister by the National Transitional Council.

Born to parents living in Sabratha, al-Keeb left Libya in 1976 while maintaining ties with the country’s opposition, even providing financial support whenever possible. While abroad, al-Keeb earned a PhD, entering the world of education at the University of Alabama in the United States in 1985. In addition to joining the university as an assistant professor of electrical engineering, al-Keeb also began to produce papers for a number of academic and electrical engineering publications. By the time he was elevated to the status of professor, al-Keeb had also served as a guest lecturer at a number of colleges and universities in the United States, as well as Libya, the UAE and other nations. The opportunity to work with the Division of Electrical, Electronics and Computer Engineering at the American University of Sharjah in the UAE led to al-Keeb leaving his tenured position with the University of Alabama in 1999, remaining with the division through 2001. Since then, he has also worked with the Petroleum Institute in the UAE, relinquishing that position to become the representative for Tripoli in the National Transitional Council in Libya during the summer of 2011.

Al-Keeb’s goals for Libya were expressed in statements made after his election by the National Transitional Council. Citing the need to pull the nation together, including working with the militias that developed in many of the cities and towns around the country over time, “This transition period has its own challenges. One thing we will be doing is working very closely with the NTC and listening to the Libyan people,” al-Keeb stated in a press interview in October. “We salute and remember the revolutionaries who we will never forget. We will not forget their families. I say to them that the NTC did not and will not forget them and also the coming government will do the same.”

That al-Keeb moved into the position of interim prime minister, with a plan, was evident from a statement made by NTC member, Abdul Majid Saif Al-Nasr, who told news agency Al Jazeera that “El-Keeb presented his plan for the next eight months to the NTC, which includes working to restore order and stability, rebuilding cities destroyed by Qaddafi, rehabilitating the rebels and starting to collect their weapons”.

Dr. Abdalla Alnajjar, President of the Arab Science and Technology Foundation, issued a statement shortly after the announcement of the NTC, expressing the sentiments of many supporters in Libya and the Middle East. “On this auspicious occasion, that coincides closely with Eid al-Adha, Dr. Abdalla Alnajjar, President of the Arab Science and Technology Foundation presents his congratulations to his Excellency Dr. Abdel Rahim Al Keeb, Libyan Prime Minister, wishing to him success in his national duty and to put sustainable development plan for new Libya Republic.”

Newly elected president of Kyrgyzstan, Almazbek Atambayev, has made it clear that there is no desire to renew the lease on the US military base located in Bishnek when it expires in 2014. While past leaders, including Kermanbek S. Bakiyev, also balked at continuing to allow an American base to operate in the country, negotiations were successful to keep it open during his time in office. Whether or not the position of the new president will change between now and the end of the current lease remains to be seen.

It is also no secret that Russian Premiere, Vladimir Putin, is not comfortable having a US base in Kyrgyzstan and there are indications that some of the reasons behind President Atamayev’s resistance to renewing the lease are due to those same concerns. They include the possibility or retaliation by US enemies that could result in harm to the country’s citizens living near the base.

There is also speculation that the decision not to renew the lease has to do with an emerging trend of closer relations with Russia. Many within the government today view Russia as the most logical choice when it comes to a partner for both commerce and national security. In addition, there are no indications that a Russian military base located in the country is in any danger of being closed soon.

Among the possible ways that the relationship may deepen is the trade agreement between Kyrgyzstan, Belarus, Kazakhstan and other post Soviet Union states. The agreement provides for improved opportunities to engage in trade with the other nations, while also removing some of the current travel and trade restrictions that are in place. The agreement would also provide lower prices on certain types of imported goods and services, reduce the level of import tariffs and other fees associated with buying products produced in other countries participating in the agreement, and even make the task of obtaining travel permits and work visas much easier between the member nations. Former acting Prime Minister, Omurbek Babanov, supported negotiating such an agreement, but also noted that, “Kyrgyzstan has to put forward its own conditions when joining that union, taking into account the interests of our citizens working at the Dordoi and Kara-Suu markets.” Upon adoption of the agreement being announced in mid-October, Russian Premier, Vladimir V Putin, noted that, “we discussed [a free-trade agreement], made some corrections and adopted its final text”. The terms of the agreement now go to the parliaments of each nation involved for final approval and may go into effect as early as next year.

Since the plans of the United States government included beginning to hand over security operations to countries within the region, rather than maintain a presence, the potential ramifications of adopting the trade agreement are somewhat unclear. Depending on the final structure of the deal’s terms, the issue could have relatively little impact on trade between Kyrgyzstan and the US. What is certain is that as the base is closed, money currently introduced into the local economy by US military personnel will disappear and not be replaced, unless government officials can develop some new use for the retired base that offsets at least some of the lost income.

Northern Rock, the nationalised British bank, has become on Thursday the first bailed out lender in the UK to be sold back to the private sector, according to the treasury.

The British government has given the go-ahead for the £747m loss-making deal with Richard Branson’s Virgin Money almost four years after Northern Rock’s near collapse.

The deal, which leaves taxpayers with a loss of an estimated £400m, is considered unprofitable and suggests the UK has given up on turning a profit on the bank shares it holds.

As part of the contract Virgin Money agreed to make no further compulsory redundancies for at least three years, the government statement said.

Royal Dutch Shell has allegedly withdrawn from oil development talks with the Kurdistan regional government in an attempt to protect its southern Iraq investments, according to the Financial Times.

The FT speculates that Shell pulled out of talks in the hope of saving a possible $17bn natural gas deal which the Iraqi government cleared on Tuesday. It is alleged that the central government In Baghdad is looking to enforce a de facto ban on companies operational in Kurdistan, the FT said.

“Baghdad’s real power lies in denying future contracts and Shell still had something else on the table. They had not signed the southern gas field deal,” one unidentified source told the FT.

Growth in Europe almost came to a halt in the 3Q11 with a weak 0.2 percent increase, the same pace as in 2Q11, according to data released by Eurostat late on Tuesday.

GDP growth was driven by Germany, Europe’s largest economy, which rose 0.5 percent in the third quarter due to stronger company and consumer spending, the Federal Statistics office said late on Tuesday. Year-on-year the country’s GDP increased by 2.5 percent.

Europe’s second biggest economy, France, expanded 0.4 percent during the same quarter.

Both Spain and Belgium came to a standstill while Portugal and the Netherlands contracted by 0.4 and 0.3 percent respectively.

Overall the 27-nation eurozone grew 0.6 percent at an annualised rate in the 3Q11, Eurostat said. Approximations for Italy, Greece and Ireland are still to follow.

UBS on Tuesday confirmed Swiss-national Sergio Ermotti as permanent CEO with immediate effect.

The appointment comes just two months after Ermotti was named interim CEO when Oswald Grübel stepped down in September following an alleged $2.3bn rogue trading incident at the bank.

The group announced that chairman Kaspar Villiger will stand aside a year earlier than planned at the annual shareholders’ meeting in May 2012. Former Bundesbank president Axel Weber will take over the role.

The move by UBS comes just two days before a key meeting in New York where the group is expected to tell investors it plans to decrease its investment banking and focus more on asset management.

Speaking of the forthcoming meeting, Ermotti said: “The strategy will be centred on our leading wealth management businesses and our position as the strongest universal bank in Switzerland. A focused, less complex and less capital-intensive investment bank and our asset management business are also key elements for growing our wealth management franchise.”