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Financial Focus

US president Barack Obama hopes lawmakers can reach a last-minute deal today to avert a government shutdown after a third round of talks last night failed to secure agreement of the federal budget. Without an agreement, government services would be stopped as federal jobs are suspended. National parks would close, some people due tax returns wouldn’t receive refunds, government permits would be unavailable, and passport applications would go unprocessed.

FRESH worries about the viability of the euro surfaced yesterday, as the ECB became the first major central bank to lift interest rates, raising the base rate to 1.25%. The Institute of Directors said that a euro break-up is “probably the number one macroeconomic risk to the world economy at present”, adding that bailouts will be in vain if peripheral economies cannot improve their competitiveness quickly enough to avoid defaulting and exiting the euro.

JAPAN was hit by another serious earthquake yesterday, causing a tsunami warning to be issued and shocking stock markets. The 7.4 magnitude aftershock hit the same devastated coastal area as the 11th March quake. Stocks slumped in London and Europe as news of the quake reached markets, but the retreat seemed to be overblown, as reports showed little further damage to the region.

MARKETS:

THE FTSE 100 and European markets were absorbing the long-expected bailout of Portugal and the ECB rtate-rise, when panic set in on the news that Japan had been hit by another earthquake. This sent the indexes into the red during the final hour of trading, even though the moves turned out to be unnecessary.

HONG KONG and mainland Chinese stocks edged up to fresh 2011 highs overnight, with institutional investors expected to keep increasing their exposure to good-value stocks and commodities. The Nikkei rose sharply after no further damage was reported at the crippled nuclear plant following the aftershock in northeast Japan.

EUROPEAN shares are expected to bounce back today, with investors returning to the riskier assets abandoned during the aftershock panic yesterday. A sharp rise in metals prices on expectations of increasing demand for raw materials due to a global economic recovery is expected to help resource-related equities.

CURRENCIES:

THE EURO showed resilience and touched a 15-month high against the dollar and an 11-month high against the yen, bouncing back after dipping yesterday following the widely expected rate rise by the ECB.

ENERGY:

US and Brent crude futures climbed to their highest in 2½ years overnight as supply worries stemming from attacks on Libyan oil fields and unrest in the Middle East offset demand concerns spurred by a major aftershock in Japan.

COMMODITIES:

GOLD rose to a record high on Friday, leading gains across the commodity complex, with corn hovering near a record ahead of a key USDA report, and with copper on track for a 4% rise this week. Commodity gains were driven largely by a weaker dollar and optimism that the global economic recovery would raise demand prospects even as supply constraints push up prices, stoking inflation.

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