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Financial Focus

Standard & Poor’s cut its outlook on the US credit rating to negative, from stable, citing a lack of decisive action to rein in its growing budget deficit. Moody’s added to the day’s problems by downgrading Ireland’s rating to ‘junk’, prompting markets to slump and commentators to question the power of credit ratings agencies, particularly given the part they played in the recent global financial crash.

GLOBAL inflation is set to rise to 3.8% in 2011 from 3.4% last year and could hamper growth for the world economy, research by Lloyds Bank Corporate Markets claimed yesterday. The World Economic Quarterly report forecasts a moderate expansion for G10 economies to grow 2.3% this year, and 2% in 2012. It also predicts a steady and strong performance from Emerging 10 (E10) countries, growing by 7.1% this year and 6.9% next year.

EMERGING markets could experience a private equity boom over the next two years, as investors turn to developing economies for better returns, a global survey from Emerging Markets Private Equity Association (EMPEA) has found. The investors surveyed in the US, Europe and Asia, expect to hold between 16% and 20% of their global private equity portfolios in emerging markets by 2013, an increase from the 11% to 15% currently being held. The survey also found that Brazil has overtaken China as the most attractive market for investors this year.

MARKETS:

ALARM over deteriorating public finances in the US, Greece and other peripheral Eurozone nations hit markets yesterday, pushing the FTSE down to its lowest close in four weeks. The UK index, which pushed through the 6,000 points barrier before the news, has rebounded 4.9% since reaching its 2011 low on March 16th as investors bet global economic growth will underpin earnings, offsetting higher European and Asian interest rates, the March 11th earthquake in Japan and increasing oil prices. FINANCIAL bookmakers expect the main European stock indexes to pause on Tuesday following the previous session’s sharp sell-off.

ASIAN markets followed the lead of their western counterparts, with MSCI’s index of Asia-Pacific stocks moving further away from a near three-year high hit last week. It was down 1.2% in early trade.

CURRENCIES:

The yen strengthened against all its major counterparts on concern Europe’s debt crisis is worsening and after the US credit forecast moved from stable to negative. The yen typically strengthens in times of political, financial and economic turmoil, as Japan’s trade surplus means the nation doesn’t have to rely on overseas lenders.

ENERGY:

COSTLY oil could place a major strain on consumer countries with fragile economies, OPEC ministers have said. Brent crude rose above $127 earlier this month, but has fallen back to $121, partly on OPEC’s comments on demand. The Executive Director of the International Energy Agency reiterated that oil prices at the current level could trigger a recession similar to the one begun in 2008.

COMMODITIES:

All six industrial metals traded on the London Metal Exchange finished in the red yesterday, with lead for delivery in three months tumbling 3.9%. Copper, the sector bellwether, dropped 1.6%, its lowest level in a month.

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