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Financial Focus

US LEGISLATORS moved towards a deal with the White House last night in a bid to tackle America’s $14.3 trillion debt pile. The plan would include around $2.4 trillion of cuts over the next decade, but no tax rises. An initial $900bn of deficit reductions would be followed by a second round of $1.5 trillion to be decided from a nominated panel of lawmakers. Key to the plan is a three-stage process for raising the debt ceiling, allowing the government to take the limit off its debt this week to meet its obligations.

A CHINESE manufacturing index (the PMI) was higher than economists estimated in July, signaling that the world’s second-biggest economy is withstanding increased interest rates and tightened credit. The data may ease concerns that Premier Wen Jiabao’s campaign to tame consumer and property prices will trigger a deeper slowdown that limits the nation’s contribution to global growth.

SOUTH KOREA’S inflation accelerated to a four month high in July and exports grew at a quicker pace, putting pressure on the central bank to raise interest rates. Exports expanded 27.3% last month, rebounding from a 20 month low and beating forecasts for a 17.1% gain, a report showed. The Bank of Korea’s board will meet on August the 11th to discuss whether to raise borrowing costs after reports last month showed that economic growth slowed in the second quarter on weaker exports.

MARKETS:

EUROPEAN shares are expected to bounce back today, mirroring strong gains in Asia, with investor’s appetite for riskier assets seen rising after the news that there will not be a U.S. default. On the MSCI’s Asia Pacific Index about six shares rose for every one that declined, helping the gauge to rebound from a 1.6% weekly loss. Japan’s Nikkei 225 Stock Average increased 1.9%, South Korea’s Kospi index jumped 1.8%, and Australia’s S&P/ASX 200 index climbed 1.9%.

CURRENCIES:

THE DOLLAR rallied from near record lows against the Swiss franc and yen after U.S. President Barak Obama said that congressional leaders had agreed on measures to raise the nation’s debt limit and avoid a default. The yen weakened against all of its major counterparts as gains in stocks reduced demand for lower-yielding haven currencies.

ENERGY:

OIL advanced from a two week low in New York on the back of the news that an agreement has been made to raise the U.S. debt ceiling. Futures surged as much as 0.7%, and Brent oil for September settlement climbed 1.2%. Crude for September delivery rose as much as $1.59. Prices gained 0.3% last month, and are 19% higher than this time last year.

COMMODITIES:

WHEAT futures advanced for the first time in three days after Barack Obama announced that lawmakers have reached an agreement to raise the federal debt limit. December delivery wheat gained as much as 1.1%. Corn for December delivery advanced as much as 0.9% a bushel, and November delivery soybeans rose as much as 0.8%.

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