Dawn of a year of trading dangerously

From Reuters
Out with the old year, in with the new and for investors uncertainty is likely to be the only certainty once more.
The euro zone debt crisis is far from resolved, turmoil in the Arab world has shifted to Syria and Iran has threatened to stop the flow of oil from the Gulf if sanctions are imposed due to its nuclear ambitions.
2011 was a dire year for equities outside the United States with world stocks poised to drop by around eight percent and emerging markets faring far worse.
Crude oil has been among the best performers with a roughly 10 percent increase and gold has matched it as a loss of confidence in the euro zone accelerated a flight to bullion.
So where next? The answer to that question depends on whether you believe policymakers in Europe, Asia and America will muddle through or whether a new cataclysm is imminent.
While the global economy remains shaky, central banks will maintain ultra-low interest rates, a potential fillip for stocks as bond yields languish in countries viewed as safe havens.
Globally, inflation should subside though the path of oil prices is hard to discern given the tumult in the Middle East and Gulf.
Signs of a modest U.S. revival and China's ability to gently massage down economic growth in order to prevent inflation taking off will be key for the markets but the euro zone remains the great imponderable. Italy alone faces frightening debt refinancing hurdles in the first four months of the year.
Having proved remarkably resilient all year, the euro is ending the year on a downslope, breaking below key support levels to its lowest point in 2011. An Italian bond auction on Thursday saw yields edge down but only slightly.
"Given the scale of its funding requirements, there are still big concerns about Italy's ability to get through 2012," said Nicholas Spiro of Spiro Sovereign Strategy. "Next quarter is going to be all about Italy."
Next week sees the release of purchasing managers' indices for January and December inflation figures, a first new year gauge of the euro zone's economic malaise. In terms of debt supply, France and Germany, but not Italy, come to the market.
While there are plenty of pessimists predicting the euro zone cannot survive in its current form after its leaders failed to construct a "bazooka" big enough to scare the markets off, others believe there is potentially enough in train to take the sting out of a debt crisis now well into its third year.
The combination of the European Central Bank's provision of unlimited three-year liquidity for banks, steps towards deeper euro zone fiscal integration, the prospect of the IMF getting more crisis-fighting funds and an agreement to bring forward the currency bloc's permanent rescue fund to mid-2012 may point to some relief ahead without the need for "shock and awe" measures.
William de Vijlder, chief investment officer at BNP Paribas Investment Partners, believes the incremental progress made by the euro zone is too easily dismissed.
"The liquidity which has been put in the system via the first 3 year LTRO ... in combination with an overweight of low yielding low risk assets and safe havens create a huge pent-up demand for risky assets," he said. "The big question is when this will be unleashed. 2012 is about spotting this catalyst."
Dan Morris, Global Strategist at JP Morgan Asset Management, is essentially in the same camp.
"As long as Greece advances enough with its reform program for the IMF and EU to continue supporting it, as long as the ECB aids the banking system, and as long as Italy and Spain persevere with their own fiscal adjustment programmes, confidence should slowly return," he said.
"Those looking for another summit and a definitive resolution that 'solves' the crisis will probably be disappointed."
On the other hand, European funding of the International Monetary Fund is not yet agreed, the permanent European Stability Mechanism may not get enough firepower in investors' eyes, and ECB money may be hoarded by banks facing demands to raise capital levels rather than lent to business or invested in bonds. Possibly most crucially, the lack of a European growth strategy could condemn countries like Greece and Italy to a downward spiral of recession that prevents them cutting debt.
Plenty of experts maintain that only much more aggressive buying of government bonds by the ECB - something it is highly reluctant to do - can buy the euro zone enough time to reform.
Ratings agency Standard & Poor's is expected to downgrade any number of euro zone sovereigns in January and maybe as soon as next week, putting a big question mark over the 'AAA' rating of the bloc's existing bailout fund. However, given that threat was delivered three weeks ago, it may already be priced in.
If catastrophe is averted, equities could be the best long-term bet not least because investments in traditional safe havens will almost certainly lose money - inflation-adjusted yields on U.S., German and British government bonds are all negative.
The State Street Investor Confidence Index dipped slightly in December but showed glimmers of optimism in Europe.
"European investors are more optimistic than their North American and Asian peers for the second consecutive month," said State Street's Paul O'Connell. "It does not necessarily mean that prospects for the European region itself have improved, but it does suggest that European institutions are more willing to allocate to equities both inside and outside Europe than they were earlier in the year."
Philipp Baertschi, chairman of the investment committee at Swiss private bank Sarasin, also believes that for those in for the long haul equities could be cheap, barring a deep recession.
"Investors who believe that a long-lasting global depression is very unlikely and can tolerate fluctuations in returns should have a correspondingly high equity weighting in their long-term strategic asset allocation," he said.
In a world where sovereign debt either offers no return or has become highly risky, blue chip stocks or high-grade corporate debt, ideally of companies with hefty emerging market exposure, remain many money managers' investments of choice.
But given all the uncertainties - who could have predicted the Arab Spring this time last year or the devastation wreaked on Japan - picking the right moment to dive in will be hair-raising.
"A very nasty outcome, with a collapse of the euro zone triggering a steep global recession, perhaps exacerbated by structural problems in China, is not impossible," HSBC global equity strategists said in a note. "But, since equity valuations are inexpensive and investors already bearishly positioned, an upside surprise cannot be ruled out either."

Gold’s ‘death cross’ signals more losses coming

From Reuters
Gold’s 20-day moving average falling below its 200-day and its brief foray into a bear market suggest momentum has turned bearish and a further pullback could be on its way.
Bullion’s 20-day moving average dipped below its 200 DMA on Thursday, in what technical analysts termed a ‘death cross,’ as the short-term momentum has turned more negative than long-term trend.
That could show that the current downtrend is pervasive.
‘Any time there is a death cross, the market is telling us that the underlying strength has changed from bullish to bearish,’ said Adam Sarhan, chief executive of Sarhan Capital.
Sarhan compared gold’s technical charts in December to a slow-motion train wreck, with the metal having plunged below its long-term upward trendline for the first time in three years and its key 200 DMA.
‘When you start seeing a lot more bearish technical events occurring, more and more shorter-term traders are inclined to selling their positions,’ Sarhan said.
Bullion has ended the year up 10 per cent, but this was its smallest annual rise in three years and in the final three months of the year, it notched up its first quarterly loss since the third of 2008.
Spot gold rose as much as 2 per cent to above $1,580 an ounce on Friday, but a day earlier they briefly dropped more than 20 per cent from its record high of $1,920.30 set on September 6, flirting with the common definition of a bear market.
‘A negative crossover in moving averages can be seen as a selling signal,’ said Tim Riddell, head of ANZ Global Markets Research, Asia.
The last time a death cross clearly formed was in August 2008, following gold’s sharp rally toward $1,000 an ounce. The metal then tumbled to around $680 an ounce in October 2008, just two months after its 20 DMA plunged below its 200 DMA.
The S&P 500 index also formed a death cross in August but it managed to quickly recover losses. Other markets such as the euro headed for steeper decline after the bearish formation.
The metal enters the new year on an uncertain footing and appears to have lost its safe-haven status, moving in tandem with equities and other riskier assets.
‘We think gold could struggle into the first part of 2012 and potentially drop into the $1,300 to $1,450 region,’ said Mark Arbeter, chief technical strategist of S&P Capital IQ.
Selling accelerated in December as hedge funds scrambled for cash to meet client redemptions and European banks trimmed their gold holdings to raise capital.
The latest data shows that investor bailout continues. Managed money’s bullish futures position fell for a third consecutive week in the week to December 27, hitting its lowest level since early 2009, and open interest dropped to its weakest since April 2010, CFTC data showed on Friday.

Santa rally may face test next week

From Reuters
Get ready. The last trading week of the year will be a test for stocks to prove whether they have the strength to carry a rally into next year.
The broad S&P 500 index broke through its 200-day moving average on Friday after turning positive for the year as a four-day rally lifted stocks following a spell of better-than-expected economic data. At Friday’s close, the S&P 500 was up 0.6 percent for the year.
But despite the recent economic data that suggest the U.S. economy is on the right track to recovery, Europe’s sovereign debt crisis is troubling investors and weighing on the market.
Many market participants are reluctant to believe in a “Santa Claus rally” this year, which refers to stocks’ seasonal tendency to gain in the final five trading days of the year and first two trading days of the new year.
Warnings from major credit rating agencies on a potential downgrade of several European nations have kept investors on edge. After Standard & Poor’s surprised financial markets back in August with a downgrade of the United States’ triple-A credit rating on a Friday evening, investors worry a similar move could come at any time - even between Christmas and New Year’s.
But the absence of European sovereign bond auctions for the next two weeks could lend support to stocks.
“The fact that there won’t be a (European) bond auction until the second week of January, that takes away some spotlight from Europe, at least for a little while,” TD Ameritrade chief derivatives strategist J.J. Kinahan said.
“Unless we get earth-shattering news, the S&P could go up to (the) 1,300 levels,” he said.
The S&P 500 closed on Friday at 1,265.33.
The correlation between U.S. stocks and European sovereign bond yields has been high, especially the link with Spanish, Italian and German bonds. A poor bond auction in any one of these countries could trigger an instant selloff in the U.S. stock market.
What happens next week is important as it sets a tone for the coming year.
“If Santa should fail to call, bears may come to Broad & Wall,” so goes the Wall Street adage, according to the Stock Trader’s Almanac.
Ari Wald, a technical strategist at Brown Brothers Harriman, said the key level on the S&P 500 to watch is 1,260, which is a resistance from the index’s downward sloping 200-day moving average and the downtrend connecting its October and December peaks.
“A breakout above this supply would argue for continued seasonal strength through the first quarter of 2012,” he said.
He also noted that 1,200 is support from the index’s downward sloping 100-day moving average and the uptrend connecting its October & November lows.
“A breach of this demand could stir additional technical selling to 1,130-1,150 intermediate-term support,” Wald said.
With many investors absent until the start of 2012, trading volume is expected to be light, creating more volatility.
Next week’s data includes the S&P 500 Case-Shiller House Price Index and consumer confidence data on Tuesday.
The Chicago Purchasing Managers Index and pending home sales data are due on Thursday. After a strong gain in November, the Chicago index is seen giving back a modest amount in December.

Euro creeps higher but vulnerable into 2012

From Reuters
The euro edged up versus the dollar on Friday with risk appetite underpinned by upbeat U.S. data but with the euro zone crisis unresolved, investors were likely to sell the single currency again in 2012.
A drop in U.S. weekly claims for jobless benefits to a 3-1/2-year low and improved U.S. consumer sentiment in December boosted stocks and kept the euro afloat, though traders said flows were light as year-end holidays approached.
The single currency was up around 0.2 percent for the day at $1.3079, holding above a recent 11-month low of $1.2945. It is however down around 2.1 percent on the year.
“The dollar is still seen as a funding currency when risk appetite improves and people will sell dollars on the back of that,” said Chris Walker, currency strategist at UBS.
“But we still see uncertainties in the euro zone outweighing and look for a move towards $1.25 in the next few months.”
Traders highlighted some stop-loss orders in the $1.3120 region, which if hit could push the euro higher in thin markets.
The Wall Street Journal reported the Federal Reserve could commit to keeping rates near zero right out to 2014, saying the U.S. central bank could announce the decision at its next policy meeting on Jan 24-25.
But with the threat of sovereign downgrades hanging over the bulk of the euro zone, sentiment towards the single currency remains bearish heading into the new year, with the liquid dollar likely to be supported.
Two independent European government sources told Reuters on Friday that Standard & Poor’s is not expected to release its verdict on debt ratings for 15 euro zone countries until January.
Doubts over whether this week’s huge European Central Bank tender of cheap loans will be effective in easing the strain for troubled euro zone economies are likely to keep peripheral sovereign bonds under pressure.
Italian paper in particular is expected to come under renewed strain as the country faces a major refinancing hurdle early in the new year.
Many market participants say heavy buying of Italian and Spanish debt by the ECB is required to ease concerns over the precarious finances of the two countries.
Departing ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the ECB was able to scale up its actions if needed and said quantitative easing could be an option.
“The lower-than-desired growth rates in broad money and credit and the downside risks to price stability will likely be the catalyst in driving the ECB to increase its bond buying programme early next year and will be presented as a way to counteract them,” said BNP Paribas in a note.
BNP recommended selling into any year-end rally for the euro and highlighted the $1.32-1.3250 area as tough resistance.
Morgan Stanley analysts expect the euro to be among the worst performing G10 currencies next year as the deteriorating economic outlook in Europe, continued ECB easing and liquidity measures, together with portfolio outflows, weigh on the currency.
A break below $1.2945 in the euro would open up a test of the 2011 trough at $1.2860, traders said. The euro was hovering near all-time lows against the Australian dollar on diverging economic fundamentals between Europe and Australia.
The single currency slipped to an all-time low around A$1.2841, for a loss of 1.8 percent on the week, and as the euro’s 25-day positive correlation with European stocks has weakened of late, analysts expected the euro to continue to lag the risk-sensitive Aussie should asset markets rally in 2012.
Against the safe-haven Swiss franc, the euro was steady at 1.2229 francs, not far from the cap of 1.20 introduced by the Swiss National Bank in September.
The dollar index was down 0.2 percent at 79.779, while the U.S. currency stayed supported at 78.00 against the yen. The United States is due to release personal spending, durable goods and new home sales data later in the day.

Fragile euro edges higher, helped by U.S. data

From Reuters
The euro edged up versus the dollar on Friday with risk appetite underpinned by better U.S. data, but investors were likely to sell the currency again in 2012 while the euro zone remained plagued by uncertainty surrounding its debt crisis.
A drop in U.S. weekly claims for jobless benefits to a 3-1/2-year low as well as an improvement in U.S. consumer sentiment in December boosted stocks and kept the euro afloat, though traders said flows were light as year-end holidays approached.
The single currency was up around 0.2 percent for the day at $1.3075, holding above a recent 11-month low of $1.2945. It is however down around 2.1 percent on the year.
“The dollar is still seen as a funding currency when risk appetite improves and people will sell dollars on the back of that,” said Chris Walker, currency strategist at UBS.
“But we still see uncertainties in the euro zone outweighing and look for a move towards $1.25 in the next few months,” he added.
Traders highlighted some stop-loss orders in the $1.3120 region, which if hit could push the euro higher in thin markets.
The Wall Street Journal carried a story late Thursday that the Federal Reserve could commit to keeping rates near zero right out to 2014. The report claimed the Fed could announce the decision at its next policy meeting on Jan 24-25.
But with the threat of sovereign downgrades throughout the euro zone hanging over the euro, sentiment towards the currency remains bearish heading into the new year, with the liquid dollar likely to be supported.
Doubts over whether this week’s European Central Bank tender of cheap loans will be effective in easing the strain for troubled euro zone economies are likely to keep peripheral bonds under pressure. Italian paper in particular is expected to come under renewed strain as large scale refinancing is needed in the early part of the new year.
Many market participants say heavy buying of Italian and Spanish debt by the European Central Bank is required to ease concerns over the precarious finances of the two countries.
Departing ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the ECB was able to scale up its actions if needed and said quantitative easing could be an option.
“The lower-than-desired growth rates in broad money and credit and the downside risks to price stability will likely be the catalyst in driving the ECB to increase its bond buying programme early next year and will be presented as a way to counter act them,” said BNP Paribas in a note.
BNP recommended selling into any year-end rally for the euro and highlighted the $1.32-1.3250 area as tough resistance.
A break below $1.2945 in the euro would open up a test of the 2011 trough at $1.2860, traders said. The euro was hovering near all-time lows against the Australian dollar on diverging economic fundamentals between Europe and Australia.
The single currency slipped to an all-time low around A$1.2841 , for a loss of 1.8 percent on the week
The New Zealand dollar dipped briefly on news of another earthquake near Christchurch but soon steadied at $0.7738 , up from $0.7724 late in New York on Thursday.
Against the safe-haven Swiss franc, the euro was steady at 1.2229 franc, not far from the cap of 1.20 franc introduced by the Swiss National Bank in September.
The dollar index was down 0.2 percent at 79.818, while it stayed supported at 78.02 against the yen.

Asian shares up as US data spur year-end bounce

From Reuters
Asian stocks rose more than 1 percent and U.S. index futures also gained on Friday, as signs of a strengthening economy in the United States encouraged a year-end bounce for riskier assets.
European shares were also expected to open higher, helped by a 0.5 percent rise in S&P 500 index futures that pointed to further gains when U.S. trading resumes.
Wall Street stocks had risen for a third straight day on Thursday, leaving the S&P 500 index virtually flat for the year, after data showed new claims for unemployment benefit dropped to their lowest in 3-1/2 years.
The euro crept higher, but remained subdued amid doubts over whether this week’s European Central Bank tender of cheap loans will be effective enough to ease the financial strain on troubled euro zone economies.
“The highlight is the continuation of good data on the U.S. economy. China also seems to have managed to orchestrate a soft landing...,” said Ben Le Brun, market analyst with OptionsXpress in Sydney. “The problem child is still Europe.”
MSCI’s broadest index of Asia Pacific shares outside Japan rose 1.2 percent, with Australian and Korean shares both rising more than 1 percent . Tokyo’s financial markets were closed for a holiday.
Spreadbetters called London’s FTSE to open up 0.6 percent, Frankfurt’s DAX up 0.9 percent, and Paris’ CAC-40 up 1 percent.
Asian share markets, both developed and emerging, have sharply underperformed U.S. stocks in 2011, with the MSCI Asia ex-Japan losing 17 percent, and the Nikkei share average down about 18 percent, while Australia’s benchmark has lost about 13 percent. The MSCI World index fared slightly better, losing only 10 percent this year.
Citigroup equity strategists said in a note that Asia had seen its worst December fund outflows in 20 years as investors continued to pull money out of global equity funds.
The euro crawled up to around $1.3067, from $1.3050 late in New York, in thin trade.
The ECB’s first ever tender of ultra-cheap three-year loans on Wednesday, which saw 523 banks gorge on a total of 489 billion euros, has failed to win the single currency much support.
But despite the long-running debt crisis, the euro is only down around 2.4 percent for the year, having found support from higher ECB interest rates in the first half of 2011 that pushed it to a year high near $1.50 in May.
“People are diversifying away from U.S. dollars and that’s what it comes down to,” said David Scutt, a trader at Arab Bank Australia in Sydney.
“Despite the fact the U.S. economy is strengthening, there are still expectations in the marketplace that the Fed has showed it’s very keen to print at the best of times, and that’s helping the likes of the euro.”
The U.S. Federal Reserve has kept interest rates near zero for more than three years and has signalled it will keep them there through at least mid-2013. It has also bought $2.3 trillion in long-term securities to push down borrowing costs.
The New Zealand dollar dipped briefly on news of another earthquake near Christchurch, but soon steadied as there were no reports of casualties or widespread damage, unlike the previous quake in February.
It was trading at $0.7745, up from $0.7724 late in New York.
The rosier picture painted by the U.S. data supported commodities, with copper, which is sensitive to expectations of industrial demand, rising 0.5 percent to $7,575 a tonne, on course for its first weekly gain in three weeks.
U.S. crude oil edged up slightly, drawing closer to $100 a barrel, while Brent crude was little changed just below $108.
Gold inched up 0.2 percent to around $1,609 an ounce.
The precious metal has shed more than $300 since racing to a record above $1,920 in September, an appreciation driven partly on fears that the Federal Reserve’s monetary easing steps would stoke inflation against which it has traditionally been seen as a hedge, but remains up around 13 percent on the year.

Japan set to enter dollar swap agreement with India

From Reuters
The Japan government is considering a dollar swap arrangement with India to provide emergency liquidity in case the European debt crisis reaches emerging economies, the Nikkei business newspaper reported on Sunday.
The agreement would set the total swap arrangement at $10 billion, or 780 billion yen, the Nikkei said.
Both countries are looking to sign off on the arrangement next Wednesday, when leaders meet at a bilateral summit, the paper said.
The currency swaps are expected to support the Indian rupee as it continues to weaken against the greenback and Europe’s sovereign debt crisis hits India’s exports.
The dollar-swap arrangement with India would follow a similar agreement with South Korea in October.

Bangladesh Bank speeds up financial inclusion, says governor Atiur Rahman

From The Daily Star
Bangladesh Bank (BB) Governor Atiur Rahman yesterday said the central bank has intensified financial inclusion movement to ensure sustainable development.
It increased credit flow to agriculture, small and medium enterprises and environment-friendly projects, he said.
“The central bank has taken various steps to help the government ensure sustainable development and equitable economic growth for poverty reduction,” the governor said while addressing the reunion of the finance alumni of Dhaka University Finance Department.
During global economic crisis, Bangladesh efficiently maintained macroeconomic balance, he said, adding that despite external and internal risks, sustainable agricultural growth and sensible expansion of service and manufacturing sectors helped Bangladesh achieve a 6.7 percent GDP growth in last fiscal year.
“The government is expecting a 7 percent growth in the current fiscal year. During the last three years, the country achieved 47 percent growth in export, and inflow of remittance also witnessed a 20 percent growth and forex reserve reached $9.35 billion,” said the BB governor.
He said the euro zone has been facing a new financial crisis. To avert its negative impacts, the BB will have to closely monitor the possible overall economic risks side by side, playing a proactive role to minimise those risks, he added.
“For achieving long-term sustainable growth, we’ve to diversify our export products and look for new markets,” he said.
“We’ve to discourage import of unproductive luxurious products and check unnecessary state and social expenditures,” he added.
Rahman said Bangladesh needs to continue its hunt for new labour markets, and steps must be taken to increase manpower exports to the existing markets. Internal demand for manpower must be increased through expanding social safety net for the hardcore poor, he added.
The governor said economic cooperation must be strengthened at regional and international level to face possible economic crisis.
Especial emphasis will be given on intensifying intra-regional trade and cooperation through using the regional network such as Asian Clearing Union and Saarc, Rahman added.

Celebrating the successes of small efforts

From The Daily Star
‘NO society can surely be flourishing and happy, of which by far the greater part of the numbers are poor and miserable’ - Adam Smith in The Wealth of Nations (1776). Sadly, poverty is still a scar on humanity’s face and a denial of every ‘basic human right’—health, education, housing, food, water and energy, and access to fairer banking and credit.
The idea of small, ‘collateral-free’ loans for poor—developed by Nobel Peace Prize-winning Bangladeshi economist Muhammad Yunus in 1976, followed by founding the Grameen Bank (village bank) in 1983 -- or microcredit as a tool to alleviate poverty has become a global phenomenon. After two decades, this movement has gained a centre-stage with Microcredit Summit Campaign planted in 1997, followed by its year-on-year strength. The Global Microcredit Summit 2011 marked the 15th year of this campaign.
As the editorial lens of this excitingly new journal defines, the purpose of a more ‘encompassing economics paradigm’ is to progress the productivity and sustainability of our next generation out of every community. From this perspective, bold entrepreneurial challenges emerge all over the world in which developed nations can gain a lot from going back to basic community-grounded lessons as Bangladesh has shown the way and is branded as the epicentre.
And, our attempt to develop a special ‘Action Research’ issue of this journal to match the aspirations of the fifteen years of the microcredit summit campaign would refresh readers with what Dr John Hatch of the Foundation for International Community Assistance (FINCA) emphasised at the US-based citizens lobby—RESULTS’ International Conference in 1994 calling for a microcredit summit to launch a vigorous campaign to reach the world’s poorest families:
“Behold the largest self-help undertaking in human history—bringing hope, dignity, and empowerment to tens of millions of the world’s poor and poorest families. Behold a movement with global outreach that has penetrated beyond city slums and market towns to even the most isolated villages. Behold an industry that embraces thousands of NGOs, credit unions, public and private banks, and an infrastructure of hundreds of thousands of community-based peer lending groups that are enabling many of the planet’s most disadvantaged households to generate the additional income and savings they need to keep their children alive, nourished, healthy, and able to attend school.”
Just a couple of days after the first microcredit summit held in Washington, DC, USA from February 2-4 in 1997, Prince Charles during his visit to Dhaka met the ‘real-world’ microbanker Prof Muhammad Yunus, who, he—as expressed in a Foreword to Banker To The Poor (1998) -- found remarkable, speaking the greatest good sense … “I have since done all I can to encourage a wider consideration and appreciation of micro-credit... It has a use, too, in the developed world—whether in remote rural Norway or run-down suburbs of British cities. It is remarkably cost-effective. It has a proven track record ... Best of all, it allows poor and disadvantaged people to take control of their own lives, make something of themselves and improve the lot of their own families.” His expression resonates what microcredit enthusiasts in Europe now advocate, it could just easily help the unemployed in Europe, where a sovereign debt crisis and eventual public spending cuts are currently compounding stubbornly high jobless figures. Even in normal circumstances, it could help those—with pitiful credit scores and the lack of collateral—who don’t stand a chance of getting loans from traditional lenders, pull themselves off welfare by staring their small businesses. In this context, European Commission’s new 10-year plan to boost economic growth and create jobs, known as ‘Europe 2020’, presents an opportunity to integrate microcredit into EU priorities. But existing regulatory obstacles to micro-finance institutions (MFIs) operations in Europe need to be lifted.
Recently, Microcredit champion Prof Yunus and European Commission President José Manuel Barroso had discussions on the prospect and promotion of microcredit in Europe to lift disadvantaged communities out of poverty, and the urgency of introducing appropriate laws and regulations. It is, however, a welcome development that a consortium of 20 law firms are now working for a major study on the regulatory obstacles to microcredit across the EU’s 27 member states. Maria Nowak, founder of ADIE International, the biggest MFI in Western Europe, is actively assisting in this move.
In the face of worsening global economic crisis the battle between the macroeconomics that disinvests in youth’s futures and sustainability, and the entrepreneurial economics that improves the net generation’s productivity, is accelerating. The lack of a pro-youth investment mindset virtually poses a challenge to transformative economics. It would seem probable that both developed and developing worlds now need to learn the transparent truth about the models that microcredit summit set out to empower worldwide knowledge exchanges around the first Microcredit Summit in 1997. In other words, all of our media now needs to value the leadership and working heroes and heroines of Bangladeshi microcredit now more than ever. As an innovative micro-up route to economic transformation, among other things, the success of micro initiatives represents aggressive use of market forces and sustainable business practice to achieve substantive social goals. Both BRAC and Grameen Bank are classic examples of such a model. Also, originated in 1999, Jamii Bora is a recent addition. In this spirit, perhaps, Queen Sofia of Spain and Prince Charles of the UK were inviting wider audience to understand how Bangladeshi microcredit worked as a transformative system from assumptions that ‘fatal conceit’ economics has spun over the last 40 years. As such, this journal forms a part of wider movement to transform economics.
This special issue aims at celebrating connectivity between ‘basic human rights’ areas of health, education, housing, food, water and energy, credit and banking. And we have attempted to illustrate, alongside BRAC and Grameen, a number of micro initiatives/projects like Jamii Bora of Kenya which originated during the first 15 years of Microcredit Summit Campaign, with focuses on—does this programme integrate with other micro-practice areas or millennium development goals beyond financial impacts of ending poverty, what makes the model of the project sustainable, and what collaboration help is needed next?
The Microcredit Summit Campaign has recently shown that while more than 205 million people worldwide received a microloan in 2010, this multi-year campaign focuses on outreach to the poorest clients. According to the report, over the last 13 years, the number of very poor families with a microloan has grown more than 18-fold from 7.6 million in 1997 to 137.5 million in 2010. The latest data comes from more than 3,600 institutions worldwide, with more than 94 percent of the information having been collected within the last 18 months.
The Campaign’s goal set for 2015 that 175 million of the world’s poorest families, especially the women of those families, would be receiving credit for self-employment and other financial and business services. With an average of five in a family, this would affect 875 million family members.
Figures released by the Microcredit Summit Campaign on January 28 this year shows that nearly two million Bangladeshi households involved in microfinance, including almost 10 million family members, rose above the $1.25 a day threshold between 1990 and 2008. Dhaka-based Economic Research Group (ERG) undertook the survey between February and August in 2009, covering more than 4,000 Bangladeshi households. This survey included a large number of clients from BRAC and Grameen Bank—the two Bangladeshi institutions known for their groundbreaking efforts to end rural poverty.
While successes of micro initiatives leading to improved lives out of microloans continue, overindebtedness from multiple loans, coercive collection practices, exorbitant interest rates and mission drift arising out of two MFIs (Compartamos in Mexico and SKS in India) hugely profiting from initial public offerings (IPOs), appear as grey areas and pose a challenge to the sector’s direction. It is good that the summit’s plenary and workshops sessions were well designed to address, debate, interact and redefine the way forward while reasserting integrity of the MFI sector—not to benefit out of poverty and lose sight of its development focus. Also, many action learnings described in this special issue via deliberations by resourceful practitioners of exciting initiatives devoted to ultra-poor in rural areas and in urban slums, institutions offering student loans and scholarships to tens of thousands of children from extremely poor and illiterate backgrounds, and initiatives linking microfinance with health and clean energy, and with agriculture and clean water, will hopefully reinforce the promise of MFI sector.
It is an optimism that the Global Microcredit Summit 2011 in Valladolid, Spain, attended by over 2,000 delegates representing micro initiatives from all over the globe—remarkably BRAC, Grameen and Jamii Bora—would joyfully celebrate successes and remain as a lively, interacting assembly of understanding, respect and commitment towards microcredit borrowers worldwide—the millions of women and men who have set their great expectations on this summit.
Finally, this special issue of the Journal of Social Business carries the announcement of launching a new think and action tank by Adam Smith and Yunus scholars on Social Business Entrepreneurship and New Economic Ideas, known as “Global Institute for New Economics”. The think and action tank would develop an assembly of ‘social consciousness’ entrepreneurs and practitioners, policymakers and economists committed to action research on social intervention issues.

Bangladesh mobile operators’ infrastructure sharing at stake

From The Daily Star
A regulatory move is holding back Bangladesh’s mobile operators’ infrastructure sharing business with other service providers.
According to a decision of the regulator, the mobile companies will now have to share their network through a common network.
Also, the mobile operators will not be allowed to do such business in the areas where the common network—Nationwide Telecommunications Transmission Network (NTTN) -- has coverage.
Now two local companies—fiber@home and Summit Communication—have NTTN licences to provide services under the common network. But this network has a very limited reach.
Now if the mobile companies or other service providers want to rent their services, they will have to rent it at first to the two NTTN licensees, who will then rent those out to other service providers.
The move was taken unilaterally and will affect the business of the mobile operators, they said.
Zia Ahmed, chairman of Bangladesh Telecommunication Regulatory Commission (BTRC), said the commission is amending its previous regulations to this effect.
The BTRC move is aimed at encouraging local entrepreneurs, BTRC officials said.
The two NTTN licensees have been responsible for laying underground fibre optic cable across the country to lease out their cable to other service providers since 2008.
The NTTN operators could only develop their network in Dhaka, and fiber@home has developed some capacity outside Dhaka by taking rent of infrastructure from other mobile companies.
On the other hand, the mobile operators have already developed countrywide fibre optic infrastructure investing more than $400 million.
The mobile companies said, if the transmission infrastructure is used by a single company, their resources will be wasted.
The telecom operators also said, as the infrastructure will be rentable to the NTTN operators only, their huge capacity will remain unused. Internet cost of the end users will also go up, as the NTTN licensees will take rent of the line at first, and then rent it out to other service providers, they said.
Mahmud Hossain, chief corporate officer of Grameenphone, said the NTTN operators will take rent of the fibre optic cable from the mobile operators, and they will offer the service after making profit. It will increase the ultimate cost, he said.
Abu Saeed Khan, secretary general of Association of Mobile Telecom Operators Bangladesh, said the current regulatory action will inevitably increase the cost of bandwidth in Bangladesh which is grossly detrimental to the fundamental spirit of ‘Digital Bangladesh’ vision of the government.
The BTRC chairman said if the NTTN operators fail to provide the services, the mobile operators will be allowed to share their transmission network with other service providers.
Arif Al Islam, chief executive officer of Summit Communication, said it is not possible to develop the countrywide infrastructure overnight.
He said, when the third generation mobile technology will be launched in the country, a huge demand for bandwidth will be created, and a common infrastructure will be helpful then.
In the long run, the current regulation will be useful for all, he said.
An official of fiber@home said they are developing their network fast and will be able to provide all types of services required by their clients.
An internet service provider said they do not want to switch to the NTTN, as they fear this network will not be able to provide the services they need.
“We will need interfaces in several points which the NTTN will not be able to give us due to a lack of capacity,” said an official of the ISP, asking not to be named.
“They (the NTTN) have limited services outside Dhaka. Even if we enter their network, we will have to invest further in infrastructure development,” the official added.

United Airways to connect Muscat

From The Daily Star
Local private carrier United Airways (BD) will open flights to Muscat in January, targeting mainly Bangladeshi migrant workers in Oman.
The airline plans to start flying to the Arab state in the third week of the next month, it said in a statement yesterday.
“We have obtained permission from Muscat Civil Aviation Authority to operate on the route with our own Airbus-310 having 250 seats,” said Tasbirul Ahmed Choudhury, chairman and managing director of United Airways.
The nine-fleet carrier, which now operates on five international destinations, including Jeddah and Dubai, will fly on the Dhaka-Muscat route four days a week.
The airline inducted one A-310 in its fleet yesterday.
“The Gulf is the most important market for Bangladeshi airlines as one in two people who fly abroad goes to the six Gulf countries which employ more than 60 percent of the county’s over five million migrant workers,” Choudhury said.
United is one of the four local airlines that launched operations in 2007 to get a share of the pie of the migrant worker-dominated aviation market in Bangladesh.
“Bangladesh’s air traffic grew nearly 7 percent last year, making it one of the fastest-growing aviation markets in the region,” said the United Airways chief.
The airline, a listed company, also seeks to start flights to Riyadh and Dammam.
On the last trading day Thursday, United closed 1.67 percent higher at Tk 24.30 on Dhaka Stock Exchange.

Low prices cut into RMG export growth: analysts

From The Daily Star
A drastic reduction in prices of cotton, yarn and fabrics has slowed down export growth, analysts and exporters said.
As the prices of raw materials are low, the products have become cheaper and the buyers now pay less for their garment purchase, they said.
According to Export Promotion Bureau (EPB) statistics, overall exports grew by only 2.4 percent in November this year compared to the same month in the previous year. The growth was 15.44 percent in October and 2.29 percent in September.
But the fiscal 2011-12 started with a high hope -- 28.7 percent growth in export in July, the first month of the year, and 32.4 percent in August.
“We’re getting a lot of orders. The buyers now want to place orders for the next six months at a time to cash in on the present market price,” said Mahmud Hasan Khan, managing director of Rising Group that has both apparel and spinning business.
The prices of raw materials such as cotton, yarn and fabrics have come down by 50-60 percent now from that of January this year, he said.
The price of widely consumed 30-count yarn has come down to $3.2 a kg now from $5.5 in January.
“As the prices of raw materials went down significantly, growth in export in terms of value also slowed down,” said Khan.
Exports of knitwear and woven, which account for the country’s two-third of $22.93 billion export earnings per year, lag behind the strategic export target for July-November this fiscal year.
Bangladesh’s knitwear export was $3.99 billion during July-November of 2011-12, down by $105 million than the target for the same period. Similarly, woven export was less by $66 million than the target.
Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD), said this year’s export growth in terms of value would show a downtrend due to a sharp fall in the prices of raw materials.
“Depressed raw material market this year compared to last year could be a reason for a slowdown in export growth,” said Rahman. He said the prices of cotton and yarn were 60 percent up last year than their present value.
Still he sees challenges for Bangladesh’s exports due to the global economic situation.
“The current Euro debt crisis is likely to have adverse implications for Bangladesh’s exports in general, and exports of apparels in particular, in the EU. The first sign of this is already there,” said Rahman.
The CPD boss, however, forecasts a double digit growth at the end of this fiscal year.
The analysis found 10 major export sectors that earned $22.18 billion or about 97 percent of Bangladesh’s $22.93 billion worth of exports in fiscal 2010-11 are combinedly lagging behind the target so far this fiscal year.
The major export drivers are knitwear, woven, jute and jute goods, home textiles, frozen foods, agriculture products, engineering products, footwear, leather and specialised textiles.
The strategic target for these sectors for July-November period of the current fiscal year was set at $9.52 billion, but they combinedly earned less than $9.25 billion.
Jute and jute goods export was less than nearly 20 percent of the target, home textiles 21 percent and specialised textiles nearly 18 percent.

As euro steadies, fund managers hedge bearish bets

From Reuters
The European debt crisis roiled markets all year, producing the most volatile trading since the 2008-2009 meltdown. That is, except in one market -- the euro.
Fund managers that bet on a volatile, wild year of losses in the euro are paring back positions against the single currency going into 2012 after its surprising resilience to Europe's sovereign debt crisis damaged their portfolios.
Many still expect market turmoil arising from Europe's debt situation and have kept options strategies that will benefit from volatility. But they have put on trades that will pay off as well if the euro zone recovers from the crisis.
While Europe's debt drama kept markets on edge for most of the year, the euro is only down 2.6 percent against the dollar in 2011.
That is not as bad as headlines from the crisis might have suggested. This slashed returns for investors who paid premiums for strategies aimed at capitalizing on a sharp fall.
"Our mistake this year, especially in the first half, was looking a lot at headlines in the euro zone and trying to read the politicians' complete nonsense," said Harald Hild, portfolio manager at FX fund of funds Quaesta Capital in Zurich, Switzerland.
Hild runs the FX Volatility fund under the Quaesta group, with assets under management of about $3 billion.
"For most of the year, we were in a risk-off mode and we were paying high premiums for downside strikes in the euro and nothing really happened. So we started to look at it from a different perspective."
Investors generally pay for downside strikes, or lower exchange rates, when they believe the currency is going down.
Hild said the fund still expects the euro to go lower in 2012, but he'd rather hedge this view using calendar spreads, which involve entering a long and short position on volatility -- a measure of a currency's moves in either direction -- but with different tenors.
This strategy essentially plays on expectations of where volatility is headed over, say, a one-year period. If an investor expects euro/dollar volatility in the short term, but sees subdued price movement in 12 months, then he goes long one-month volatility and sells one-year volatility.
So far, Quaesta's volatility program has recovered, albeit slowly. The volatility fund was up 2.2 percent in November and 1.9 percent firmer so far this year in a performance that Hild describes as "disappointing".
WRONG-FOOTED
What appears to have wrong-footed investors betting against the euro in 2011 was that European banks sold assets abroad to bring funds back home to cushion against troubles in the European financial sector. This repatriation process provided unexpected support to the euro.
Particularly in October, currency managers were caught on the wrong side of the trade as stocks and commodities rallied and the euro gained 3.5 percent.
The Parker FX index, which tracks currency managers, was down 1.3 percent in October alone and 3.11 percent lower this year until the end of that month.
Despite a slew of negative headlines this year, ranging from wrangling within the euro zone to the latest warnings of downgrades from ratings agencies, the euro has held up relatively well.
The euro had a far more dismal year in 2010 when it dropped 6.6 percent and in 2008 when it posted losses of 4.2 percent.
Implied volatility on euro/dollar, or a broad measure of uncertainty in the options markets, has also remained subdued in recent sessions relative to the VIX index .VIX, the stock market's fear gauge, and gold's implied volatility .GVZ. There is anxiety in the currency options market about Europe's debt situation, but the tension has come down a lot.
Volatility, however, could ramp up again in 2012, with six European Union summits next year, two more than normal, on top of a host of extra Eurogroup events and meetings of finance ministers as they try to hammer out a comprehensive solution to the crisis. These events, for the most part, have been a major source of uncertainty for financial markets this year and that's unlikely to change in 2012.
SMALLER POSITIONS
London-based hedge fund GLC Ltd, with assets under management of about $1 billion, believes much of the mayhem in Europe has already been discounted and markets are not well-positioned for positive news.
As a hedge against the market's volatility, the fund has been running smaller positions than normal.
Even though GLC has been disenchanted with the way European leaders have handled the crisis, it believes the euro will survive and the situation in Europe's debt markets will improve, though in a volatile manner.
"Europe's policymakers, however, have left it too late to avert recession and much of the rest of the world is also suffering from an economic slowdown," said GLC in its latest note to clients and investors.
MARKET TURMOIL
FX Concepts, one of the largest currency hedge funds with assets under management of $4.3 billion, is still long volatility, calling for a U.S. recession and a breakup of the euro zone. But as a hedge to the firm's bleak view of the economy, "we have introduced models that have actually a positive tail," said Ron DiRusso, managing director of FX Concepts' Volatility Fund.
Positive tails suggest an upbeat outcome arising from either a resolution of Europe's debt crisis, or a more brisk pace of the U.S. economic recovery.
"So even in periods where mood is risk-on, or if the carry trade comes back, we have parts of the program that would make money in that environment," DiRusso said.
In several interviews with Reuters, FX Concepts chairman and chief investment officer John Taylor had painted a gloomy scenario for the global economy -- one in which the S&P 500 would precipitously drop to below 1,000 points and the euro would slide to parity against the dollar.
However, there were several months in the year, particularly October, when volatility declined and most risk markets and currencies such as the euro, Australian dollar, and emerging markets recovered.
FX Concepts' Volatility Program was down -0.88 percent so far this month and 5.85 percent weaker this year. The firm's Global Currency Program was down more than 19 percent as of December 22.
Bottomline, most fund managers are taking an "either-or" approach -- either the euro zone breaks up or everything is fine and well. And as the year winds down, more and more managers are looking at the latter scenario.
"Europe is not finished. We're not talking about Zimbabwe here. The euro is not a currency that will suddenly become worthless," said Simon Smollett, senior currency options strategist, at Credit Agricole in London.

Helping euro states vital for Germany, says Merkel

Reuters, BERLIN, June 11: Helping indebted European countries get back on their feet is vital to Germany's economic health, Chancellor Angela Merkel said on Saturday in a message aimed at the general public.

The comments come a day after Germany's parliament approved a non-binding resolution supporting extra emergency loans to fellow euro zone member Greece, but only on the condition that bondholders be made to share the bailout burden.

Asked in a weekly podcast if the euro zone debt crisis could threaten Germany's economic recovery, Merkel said: "If we don't take action in a positive way, that could happen, but it is exactly what we want to prevent."

"Therefore we should not simply allow the uncontrolled bankruptcy of a state -- instead we must see how we can increase the competitiveness of countries in difficulty and give them the chance to work off the debt," she added.

European Union leaders are due to finalize a new rescue package for Greece at a Brussels summit on June 23-24, which officials say will total 120 billion euros and ensure the country is funded through 2014.

German Finance Minister Wolfgang Schaeuble urged parliament on Friday to back additional aid for Greece but said private creditor participation in a new package was "unavoidable" and that he favored a bond swap that would push out Greek debt maturities by seven years.

In her podcast, Merkel said troubled members of the currency union must enact reforms, but warned that allowing one to go insolvent could trigger disastrous consequences for Germany.

"We should not do anything that would endanger the global recovery and put Germany back in danger," Merkel said, adding that the bankruptcy of investment bank Lehman Brothers had triggered a major recession in 2009.

"Such an event had not happened for decades and absolutely must be prevented," she said. The recession in Germany was its worst since World War II.

Iran says Saudi crude increase will not change market

Reuters, TEHRAN, June 11: An increase in crude output by Saudi Arabia will not change market conditions as demand is for lighter oil than it provides, Iran's OPEC governor was on Saturday quoted as saying, reiterating Tehran's stance that there is no need to boost production.

At a meeting in Vienna this week, OPEC failed to agree on an increase in production, which consuming countries wanted and which leading exporter Saudi Arabia pushed for, because other producers, including Iran, said they feared prices could tumble.

Saudi Arabia will raise output to 10 million barrels per day in July from 8.8 million bpd in May, Saudi newspaper al-Hayat reported on Friday, as Riyadh proceeds outside official OPEC policy.

Mohammad Ali Khatibi told the Iran newspaper that the three countries that supported an output increase -- Saudi Arabia, Kuwait and the United Arab Emirates -- had done so under U.S. pressure.

"There is currently absolutely no shortage in the market, and consequently there is no need to raise production," he said. "Raising supply in the absence of demand would amount to an interference in the market flow."

"These three countries can only raise the production of heavy and sour oils, while the market will only absorb increased production if it is of light category as there is no demand for heavy oil in the market.

"The absorption of heavy oil as feedstock by refining establishments would require a change in the refining mode and investment which is costly and time consuming and something which they won't do. They (the market) are awaiting the return of Libya's crude of (the) light category," Khatibi said.

Iran, which holds the rotating presidency of OPEC, has suggested holding an emergency meeting before the group is due to meet again in Vienna in December.

Fed prepares for last spurt of easy money flood

Reuters, NEW YORK, June 11: The flood of Federal Reserve money that has supported Wall Street and the rest of the U.S. economy for 2-1/2 years will shrink to a trickle with the conclusion of the Fed's bond purchases announced on Friday.

The Fed said it will buy $50 billion of Treasuries, the final series of government bond purchases that marks the last phase of the $600 billion program it launched in November 2010 to prevent another recession.

As a result, once the purchases are concluded on June 30, the financial sector will receive only a fraction of the roughly $100 billion a month in easy money it has been getting from the Fed.

The conclusion of the Fed's bond-buying program, known as "Quantitative Easing 2," does not mean the stimulus will come to a complete stop. The Fed will reinvest maturing securities, mainly mortgage-related debt, which analysts predict will run at $12 billion to $16 billion per month.

"From a psychological standpoint, it is important for the market to still feel the constant presence of the Fed," said Ralph Axel, interest rate strategist at Bank of America Merrill Lynch in New York.

This gradual approach to unwind policy support is likely needed given investor anxiety over a slowing U.S. economy and the festering public fiscal problem in Europe.

While still a lot of money, it is a huge step down from stimulus levels at the height of the buying campaign, dubbed by markets as QE2 because it was the second round of Fed asset-buying in the wake of the 2008 financial crisis.

A key aim of QE2 was to hold down long-term interest rates to stimulate investment in capital equipment and risky assets. It came almost eight months after the Fed's first round of bond purchases, primarily in mortgage-related securities.

The initial bout of quantitative easing, worth $1.73 trillion, began in December 2008 and ended in March 2010. It was created to stabilize the housing sector, which was the epicenter of the financial turmoil and has yet to show signs of recovery.

The Treasury bond component of the first round of purchases totaled $300 billion, from March to October 2009.

The Fed's buying assets has been controversial from the start. Critics say it is tantamount to printing money, and it has been credited with fueling a stock market rally but blamed for a surge in oil and food prices.

The end of QE2 has been well-flagged. The Fed said at the outset it would run until the end of June 2011.

Still, investors expect stocks, bonds, gold and the euro to fall after it ends, according to a Reuters poll of 64 analysts and fund managers last month.

HOUSING WOES

Come July, the Fed will rely on cash generated from its $1 trillion holding of mortgage-related securities to anchor Treasury yields and support the economy.

Proceeds from Fed's maturing mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) will fluctuate monthly depending on house sales and mortgage refinancings.

Recent evidence suggested the real estate conditions are deteriorating again with single-home home prices dropping below their 2009 low in March. The double-dip in housing will likely be compounded by an abrupt slowdown in job growth in May.

This grim development portends that a housing recovery is farther than previously thought and would take longer for people to sell their homes and to pay off their mortgages. This means mortgage securities will not be prepaid quickly.

"We are still at least two to three years away from seeing signs of even a baby upturn in home prices," said Anthony Karydakis, senior economist at Commerzbank in New York.

Going back to the 1950s, housing starts have typically returned to their pre-recession levels in 1-1/2 to 2 years after they hit bottom. But the current housing market is showing "atypical" behavior since its euphoric highs earlier this decade, Karydakis said.

Housing starts are stagnant after 1-1/2 years into the current economic recovery and more than a year since the initial bout of bond purchases. They had enjoyed a brief revival due to a federal first-time homebuyer credit program.

"Housing starts have stabilized at very low levels, but there have been no signs of a recovery," Karydakis said.

In April, housing starts fell 10.6 percent to an annualized rate of 523,000 units.

Troubling signs point to more losses

Reuters, NEW YORK, June 11: Don't be surprised if Wall Street racks up a seventh consecutive week of losses as the likelihood of more poor economic data and other disconcerting signals outweigh any thoughts that stocks are cheap.

After closing at its highest level in nearly three years on April 29, the S&P 500 (.SPX) has tumbled nearly 7 percent on the back of a barrage of soft economic data, sparking the debate over whether the economy is headed for a double-dip, or has merely hit a soft patch in its recovery.

The benchmark S&P 500 recorded its sixth straight weekly decline on Friday and volume has picked up, as it typically does, on down days. Another week of selling will mark the longest stretch of weekly losses for the index since 2001.

Red flags, including ugliness in the junk bond market, options activity and the ease with which support levels have been broken suggest more selling ahead.

"You have to be realistic. You've got to have some sort of correction to go into this marketplace just for the healthiness of the market," said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.

As stocks have declined, both investment-grade and high-yield risk premiums in the bond market have slumped as investors sought safe-haven assets.

That's troublesome since the stock market often moves in sympathy with the junk bond market because rising borrowing costs crimp corporate profits.

The CDX HY16 North America index for high-yield bonds, which conversely falls as risk appetite decreases, closed below par for the first time this year on Wednesday. The CDX IG16 North American investment grade index, which investors use to hedge against bond losses, hit its highest level since November 30, according to Tradeweb.

In another signal of skittishness about the market's footing, Ally Financial, an auto and mortgage lender majority owned by the U.S. government, delayed a $6 billion IPO due to bad market conditions, two sources familiar with the situation told Reuters.

DATA BLITZ AND QUADRUPLE WITCH

Stocks have also been easily passing through technical support levels, with the S&P 500 most recently taking out the April 18th low of 1,294.70, leaving analysts to eye the 1,250 level as the next area of support.

And the daily volume put/call ratio for equity options on the Chicago Board Options Exchange (CBOE) hit an 18-month high on Wednesday, indicating that investors are significantly bearish on the stock market.

On top of all that, data expected for next week, including the Producer Price Index, the Consumer Price Index, May retail sales, manufacturing surveys for New York and Philadelphia as well as the index of leading indicators of economic activity are forecast to mostly show a struggling economy.

"It is a busy economic week, so we expect the market to both anticipate economic data and to react to the releases --

I don't necessarily see anything good coming out of the economic releases next week," said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

Several of these indicators set off the first alarm bells about the economy's health when they came out a month ago.

By the end of the week, investors will also grapple with quadruple witching, when the options for stock-index futures, single-stock futures, equity options and stock-index options for June expire.

"This trade will lead to increased volume and the possibility of big moves in the market. Expiration also has the potential for increased volatility, especially intraday volatility next week," said TD Ameritrade chief derivatives strategist Joe Kinahan.

NOT ALL SIGNS POINT DOWN

But even with the heavy losses suffered recently, the CBOE Volatility index (.VIX) has remained relatively unchanged, indicating market participants have yet to push the panic button.

"During this entire correction, the VIX hasn't budged much," said Jason Goepfert, president of sentimenTrader.com, in a report. "That could be a sign of complacency among traders, but historically a stock market correction without a spike in the VIX has been a better 'buy' signal than 'sell' signal."

However, a turnaround in stocks could be stoked by any sign of progress in Washington on the debt ceiling and budget debates, an overhang on stocks that has frustrated market participants.

"The biggest thing on the horizon right now is the inability of the U.S. Congress to come to some sort of conclusion over a budget," Draughn said.

"Once that happens, that kinds of frees Bernanke's hands to where if he needs to do monetary intervention, he can. But he essentially is handcuffed at this point, due to the fact that the Treasury is happy to restrict the amount of bonds being issued for bumping up to the debt limit."

FDIC member may get top bank regulator job

Reuters, WASHINGTON, June 11: The Obama administration might nominate Federal Deposit Insurance Corp member Thomas Curry to oversee the largest banks as the next comptroller of the currency, according to a person informed about the deliberations.

Curry is a former Massachusetts state banking regulator and is a member of the FDIC board, a position that he has held since January 2004.

The Office of the Comptroller of the Currency regulates the nation's largest banks and the top job at the agency has been vacant since August when John Dugan left the post.

John Walsh is the acting head of the agency.

A spokesman for Curry said he declined to comment. The White House also declined to comment.

The New York Times first reported late Thursday that Curry is under consideration for the OCC opening.

Curry joined the FDIC in 2004 after serving as the Massachusetts Commissioner of Banks for several years.

The OCC oversees national banks such as Bank of America, Wells Fargo and Citigroup.

Some members of Congress and consumer groups criticized the agency for not being a tough enough regulator in the lead-up to the 2007-2009 financial crisis.

Several important U.S. financial regulatory jobs need to be filled, including the top job at the FDIC and the head of the new Consumer Financial Protection Bureau.

FDIC Chairman Sheila Bair is leaving the job on July 8 and the administration is expected to nominate Martin Gruenberg, the number two official at the agency, to replace her.

The new consumer bureau opens its doors on July 21 and Democrats are pushing the administration to nominate Harvard law professor Elizabeth Warren for the job.

Warren is leading the effort to set up the agency as an adviser to the president and the Treasury Department.

The Obama administration is considering nominating former banker Raj Date as head of the bureau, a source familiar with the decision-making said on Wednesday.

Date, a former banker and advocate for the new agency, is a senior official at the bureau.

Nominees for any of the banking regulatory posts will likely have a difficult time being confirmed.

This year, nominees for the Federal Reserve Board and the Federal Housing Finance Agency have already taken themselves out of the running because of opposition from Republicans.

Last month, 44 Republicans said they would block any nominee to be director of the new bureau unless legislation is enacted changing how it is structured, a move Democrats say is intended to weaken the watchdog.

Goldman joins disclosure fight over Lehman claims

Reuters, NEW YORK, June 11: Goldman Sachs Group Inc (GS.N) and other banks fighting for control of Lehman Brothers Holdings Inc's (LEHMQ.PK) bankruptcy have joined efforts to avoid sharing information about claims against the failed investment bank.

In court papers filed Friday in U.S. Bankruptcy Court in Manhattan, units of Goldman, Morgan Stanley (MS.N), Deutsche Bank AG (DBKGn.DE) and others said a proposal by a group of Lehman bondholders would go "far beyond" bankruptcy rules.

The banks are part of a group proposing a plan to divvy up about $60 billion in the Lehman estate to pay back creditors of the company, which filed the biggest bankruptcy in U.S. history in September 2008. The bondholders, an ad hoc group led by hedge fund Paulson & Co, have filed a competing plan that would yield lower returns for the banks.

The bondholders in April were ordered by Judge James Peck, who oversees the bankruptcy, to disclose key points about their roughly $20 billion in claims, including the price paid for those claims. An analysis by the Wall Street Journal found that Paulson's fund, which bought its Lehman debt at a steep discount, could make profits of $350 million to $726 million from the bankruptcy.

The bondholders said all parties should be required to meet the same disclosure requirements, a position supported by Lehman. The group in May proposed a uniform standard for anyone trying to influence Lehman's payback plan.

But creditors were quick to object, saying insolvency rules require broader disclosure from committees than individual creditors.

Among the more than 15 parties who have opposed the disclosures are Bank of America Corp (BAC.N), Barclays Plc (BARC.L) and the Royal Bank of Canada (RY.TO).

The latest objections may prove central to the dispute because the Goldman group is a direct competitor to the bondholders in efforts to control Lehman's restructuring.

The group has argued that it is loosely affiliated and that its members have separate attorneys, barring it from committee status under disclosure rules.

But if disclosure rules do not encompass the banks, other parts of the bankruptcy code should, the bondholders argue. For example, a statutory provision allowing judges broad power to issue orders should be liberally interpreted to give Peck the power to demand disclosures, they say.

The Goldman group said "burdensome" disclosure is unnecessary and would discourage creditors from seeking a say in Lehman's reorganization.

"Even if some minimal benefit could be articulated, it would be completely outweighed by the chilling effect," the banks said in Friday's filing.

Other members of the group to sign on to the objection include Credit Agricole CIB, Credit Suisse International and the Royal Bank of Scotland PLC. Investment funds including Angelo Gordon & Co LP and Serengeti Asset Management LP filed court papers Friday supporting the banks' objection.

A Goldman representative declined to comment Friday.

Attorneys for Morgan Stanley and Deutsche Bank were not immediately available. A lawyer for Credit Suisse declined to comment, as did a spokesman for the bondholders.

The matter is set for hearing before Judge Peck on June 15.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

Fed expanding capital tests for banks

Reuters, WASHINGTON/CHARLOTTE, North Carolina, June 11: The Federal Reserve will subject more banks to annual stress tests to determine whether they have enough capital and can raise their dividends.

On Friday, the Fed said it is proposing that banks with $50 billion or more in assets be subjected to the capital testing regime, bringing the number of banks that would face annual tests, if they were conducted today, to 35 from a prior level of 19.

Among the banks that would now fall under the testing regime, based on Fed data through March 31, are Northern Trust Corp, M&T Bank Corp, Discover Financial Services and Comerica Inc.

The tests seek to determine how a large bank whose failure could hurt the economy and markets would weather a financial shock or an economic downturn.

"Institutions would be expected to have credible plans to have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions," the Fed said in a release.

Bank stocks, already under pressure, finished the day down 0.4 percent on Friday after being down by about 2 percent earlier in the day, as measured by the KBW Bank Index of large-cap financials. Some of the biggest decliners were regional bank stocks that are now going to face annual tests.

The test has real consequences for banks and their investors.

Following the end of the latest review in March, banks such as JPMorgan Chase & Co and Wells Fargo & Co were able to announce plans to boost their dividends, while Bank of America Corp was not.

"It's an incremental negative that makes it easier to be negative and sell any financial stocks right now," Michael James, a senior trader at regional investment bank Wedbush Morgan in Los Angeles, said in reference to the Fed proposal. "The financial stocks have been a big weight and an underperformer all year, so the path of least resistance in the financials continues to be lower, and this won't help that."

Frederick Cannon, bank analyst at Keefe, Bruyette & Woods, wrote in a note to clients that the Fed proposal should not have a big impact on the banks that will now be subject to the capital tests.

He said these banks have been expecting their capital to come under greater scrutiny from regulators and the impact of the tests "should be limited and may only cause small delays of capital deployment if planned for the near term."

The biggest challenge facing the new banks on the capital test list is they have different business models than the largest institutions and will have fewer ways to raise capital if the Fed says they need to do so, some analysts said.

"These banks don't have investment banking or capital markets for growth to fall back on," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc. "A lot of these guys have big real estate and commercial real estate exposures. This is going to make loan growth very difficult, not be a catalyst for it."

Determining exactly how the Fed capital tests will impact individual banks can be hard to gauge because the agency does not release specifics about how the tests are conducted or the results, said Christopher Whalen, senior vice president and managing director at research firm Institutional Risk Analytics.

"They have been completely opaque and there is no way of benchmarking or verifying what anyone is doing," he said.

During the 2007-2009 financial crisis, the government was forced to extend substantial support to banks such as Citigroup Inc, and the tests are one of several measures taken by regulators to help prevent the United States from having to make future bailouts.

The new Dodd-Frank law requires a set of stress tests for banks, some performed by banks and others directly by regulators, to ensure they can survive a steep downturn in financial markets.

The Fed said the expanded capital tests are intended to complement the stress tests required by Dodd-Frank.

The amount of information banks would have to provide the Fed for the capital tests would depend on the size and complexity of the institution, the Fed said.

The rule is expected to be finalized later this year and the new round of reviews is planned for early 2012.

The proposal will be out for comment through August 5.

Fed expanding capital tests for banks

Reuters, WASHINGTON/CHARLOTTE, North Carolina, June 11: The Federal Reserve will subject more banks to annual stress tests to determine whether they have enough capital and can raise their dividends.

On Friday, the Fed said it is proposing that banks with $50 billion or more in assets be subjected to the capital testing regime, bringing the number of banks that would face annual tests, if they were conducted today, to 35 from a prior level of 19.

Among the banks that would now fall under the testing regime, based on Fed data through March 31, are Northern Trust Corp, M&T Bank Corp, Discover Financial Services and Comerica Inc.

The tests seek to determine how a large bank whose failure could hurt the economy and markets would weather a financial shock or an economic downturn.

"Institutions would be expected to have credible plans to have sufficient capital so that they can continue to lend to households and businesses, even under adverse conditions," the Fed said in a release.

Bank stocks, already under pressure, finished the day down 0.4 percent on Friday after being down by about 2 percent earlier in the day, as measured by the KBW Bank Index of large-cap financials. Some of the biggest decliners were regional bank stocks that are now going to face annual tests.

The test has real consequences for banks and their investors.

Following the end of the latest review in March, banks such as JPMorgan Chase & Co and Wells Fargo & Co were able to announce plans to boost their dividends, while Bank of America Corp was not.

"It's an incremental negative that makes it easier to be negative and sell any financial stocks right now," Michael James, a senior trader at regional investment bank Wedbush Morgan in Los Angeles, said in reference to the Fed proposal. "The financial stocks have been a big weight and an underperformer all year, so the path of least resistance in the financials continues to be lower, and this won't help that."

Frederick Cannon, bank analyst at Keefe, Bruyette & Woods, wrote in a note to clients that the Fed proposal should not have a big impact on the banks that will now be subject to the capital tests.

He said these banks have been expecting their capital to come under greater scrutiny from regulators and the impact of the tests "should be limited and may only cause small delays of capital deployment if planned for the near term."

The biggest challenge facing the new banks on the capital test list is they have different business models than the largest institutions and will have fewer ways to raise capital if the Fed says they need to do so, some analysts said.

"These banks don't have investment banking or capital markets for growth to fall back on," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc. "A lot of these guys have big real estate and commercial real estate exposures. This is going to make loan growth very difficult, not be a catalyst for it."

Determining exactly how the Fed capital tests will impact individual banks can be hard to gauge because the agency does not release specifics about how the tests are conducted or the results, said Christopher Whalen, senior vice president and managing director at research firm Institutional Risk Analytics.

"They have been completely opaque and there is no way of benchmarking or verifying what anyone is doing," he said.

During the 2007-2009 financial crisis, the government was forced to extend substantial support to banks such as Citigroup Inc, and the tests are one of several measures taken by regulators to help prevent the United States from having to make future bailouts.

The new Dodd-Frank law requires a set of stress tests for banks, some performed by banks and others directly by regulators, to ensure they can survive a steep downturn in financial markets.

The Fed said the expanded capital tests are intended to complement the stress tests required by Dodd-Frank.

The amount of information banks would have to provide the Fed for the capital tests would depend on the size and complexity of the institution, the Fed said.

The rule is expected to be finalized later this year and the new round of reviews is planned for early 2012.

The proposal will be out for comment through August 5.

Canada's TMX undeterred as hostile bid looms

Reuters, NEW YORK/TORONTO, June 11: The heads of TMX Group Inc (X.TO) and the London Stock Exchange Group Plc (LSE.L) said on Friday it is full steam ahead for LSE's friendly takeover of the Canadian market operator even though a hostile bid for TMX could come "any day now."

The expected $3.7 billion counteroffer from the Maple Group consortium of Canadian banks and pension funds will throw a new hurdle in the path of the LSE's offer to buy the Toronto Stock Exchange parent for about $3.5 billion.

But TMX Chief Executive Tom Kloet said Maple has yet to put forth a "genuine offer." The CEOs of the two exchanges said they were on a "roadshow" to boost the credentials of the LSE deal ahead of the June 30 shareholder vote.

LSE's planned takeover must pass muster with the Canadian government, which will decide if it meets the terms of the Investment Canada Act, which says foreign takeovers must carry a "net benefit" to Canada.

"We think we're in quite good shape now," Kloet told a global exchanges conference hosted by Sandler O'Neill in New York on Friday.

He said the company is "in active dialogue" with the government over the deal, which was announced in February. "We remain confident that we're on track for that approval."

Kloet and LSE Chief Executive Xavier Rolet said their bid was different from other transatlantic exchange tie-ups in that it focused on growth and building new businesses, while other combinations have focused on cost and revenue savings.

With less than three weeks before shareholders vote, Maple Group's circular, its formal pitch, is expected soon.

That will provide additional details on the structure of Maple's $48 a share offer. A source with knowledge of the deal said the circular will not give specifics on the valuations for Alpha Group, Canada's biggest alternative trading system, and for the CDS clearinghouse.

Both entities are controlled by Canada's big banks and could be put under TMX's umbrella if the Maple deal wins regulatory and shareholder approval.

The Maple bid, once official, will face antitrust scrutiny because of the Alpha and CDS proposals give the new entity a big share of the Canadian market.

Rolet said on Friday the Maple bid was subject to "a competition review that at best looks highly problematic."

More financial institutions are set to join the Maple bid, although none have yet signed on, and time is running short for Maple to persuade TMX shareholders that its "all-Canadian" option is better for the country's capital markets.

"There's a lot of emotion in that (Maple) deal, I'm not really sure why or where it comes from," Rolet told Reuters on the sidelines, calling the emotional component surprising.

Responding to what he called mischaracterizations, Kloet said TMX and LSE did not accelerate the shareholder vote date, noting June 14 was the original target. He added the date could be changed if the pair agreed, but that wasn't his intention.

Shares of TMX were down 37 Canadian cents at C$43.93 on the Toronto Stock Exchange on Friday afternoon.

Lagarde in lead for IMF, South Africa's Manuel opts out

Reuters, PARIS, June 11: South Africa's Trevor Manuel ruled himself out of the race for the IMF's top job on Friday, making French finance minister Christine Lagarde an even firmer favorite, although the threat of a judicial inquiry remains.

Emerging market powers like Russia, India and China say they want an end to Europe's grip on the top job at the international lender, calling time on a pact that puts the IMF in European hands while the World Bank is run by an American.

Yet the only realistic rival to Lagarde as the window for nominations draws to a close on Friday is Mexican Central Bank chief Agustin Carstens, whose policy views are seen as too conservative by many of his emerging market peers.

Lagarde is backed by the European Union and a handful of smaller countries from Georgia to Mauritius. Paris is hopeful that Washington and Beijing will also stand behind her.

Brazil, Latin America's biggest economy, is leaning toward supporting Lagarde but has not yet made up its mind, officials said.

Manuel, a respected former South African finance minister, opted not to stand but said it would be "most unfortunate if we end up with a European who is bound by the EU."

"It is important to understand that decisions take place in the context of world politics. Against that backdrop, I have decided not to avail myself," Manuel told a news conference.

The United States and Europe hold 48 percent of votes at the International Monetary Fund compared with just 12 percent for emerging nations.

Manuel, who handled Africa's biggest economy deftly for a decade, had been seen as a strong developing-world candidate. Many had thought he would win more support than Carstens, despite the Mexican's impressive academic profile.

In New Delhi to drum up support for his candidacy, Carstens said Mexico and India agreed emerging market countries needed greater representation at the IMF. He also said emerging nations needed to have flexibility on capital controls.

Brazil was split between the two candidates and was waiting to see how much support they had from other emerging economies before declaring its support for either, the finance ministry's point person on the issue said on Friday.

But three other government officials, speaking off the record, said Brazil was leaning toward Lagarde although the support of other Latin American countries, including Colombia, for Carstens' candidacy has complicated Brazil's decision.

LEGAL INQUIRY STILL LOOMS

One potential pitfall for Lagarde is a legal investigation into her role in a 2008 arbitration payout.

A top French court on Friday put off until July 8 its decision on whether to open a formal inquiry into allegations brought by opposition left-wing deputies that she abused her authority in approving a 285 million-euro payout to a businessman friend of President Nicolas Sarkozy.

A French finance ministry official said the legal process was proceeding normally and Lagarde earlier told reporters that she was confident about the outcome.

"No, I am not concerned at all about this particular inquiry, and I reaffirm as I did when I put my candidacy and threw my hat in the ring, that there is absolutely no grounds to that inquiry," she told reporters.

Lagarde has recently flown to Brazil, India and China and carries on her tour to Saudi Arabia and Egypt this weekend.

Lagarde, an adept negotiator with hands-on experience of the euro zone's debt crisis, met African officials in Lisbon.

The African Union, whose representatives Lagarde met on Friday, has said it wants to see a non-European in the job but emerging market powers have failed to coalesce behind one candidate to challenge Europe's hold on the job.

"Lagarde is still the favorite," said Jacques Reland of the Global Policy Institute. "The BRICS are still quite divided."

The Fund -- shaken up by the shock departure of Frenchman Dominique Strauss-Kahn last month over charges that he tried to rape a New York hotel maid -- will name its new managing director by June 30.

A Reuters report that Secretary of State Hillary Clinton has been in talks about leaving her job next year to head the World Bank suggested it was even more likely Lagarde will get the IMF job by reaffirming the transatlantic hold over the two institutions.

Clinton on Friday said she was not in discussions over the top job at the World Bank and that she was not pursuing the post. "I have had no discussions with anyone, I have evidenced no interest to anyone and I am not pursuing that position," Clinton told reporters while on a visit to Lusaka, Zambia.

Four of the IMF's 10 managing directors since 1946 have been French. Lagarde, 55, would be the first woman in the job.

A medal-winning former synchronized swimmer and high-flying corporate lawyer, she has played a key role in Europe's battle to recover from economic crisis and is France's Group of 20 negotiator on economic issues as it holds the G20 presidency.

Carstens has an economics PhD from the University of Chicago, a haven for proponents of deregulation and laissez-faire economics.