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Financial Focus

GERMAN leader Angela Merkel suffered a crushing defeat in local
elections yesterday, after voters voiced their opposition to the Greek bailout
at a time of austerity at home. In a shock blow to Merkel’s efforts to keep
the Eurozone intact, the Social Democrats (SDP) received 38.8% of votes
in North Rhine-Westphalia and the Greens 12.2%, enough to form an anti-
Merkel, anti-austerity coalition.

GREEK politicians failed again last night to form a new government,
increasing the likelihood of fresh elections next month. President Karolos
Papoulias hosted a meeting of the three largest parties’ leaders but could
not build a deal between pro-bailout PASOK and New Democracy, and
anti-bailout Syriza.

GLOBAL BANK bond issuance has fallen to its lowest in seven years,
underscoring the impact the Eurozone crisis and tougher regulatory
environment are having on the way banks operate.

SPAIN’S banks will put aside at least €10bn (£8bn) to absorb new losses
on a legacy of toxic real estate loans, three of the country’s largest lenders
have said. Santander, CaixaBank and Bankia, which is set to be
nationalised, all said yesterday that they would make provisions worth
billions in response to tougher requirements unveiled by Spain’s
government on Friday.

MARKETS:
RISK APPETITE was in retreat for much of the global trading session, on Friday, as JPMorgan’s surprise $2bn trading loss
joined economic growth worries and Eurozone angst in an unpalatable mix for wary investors. After a lower opening, the S&P
500 pared almost all its losses before an extra lift was provided by news that US consumer sentiment in early May hit its highest
level in more than four years. Still, Wall Street’s benchmark resumed declines to end the session 0.3% lower.

ASIAN SHARES inched up after China took further steps to shore up its slowing economy by cutting banks’ reserve
requirements, which outweighed concerns about Greece’s possible exit from the Eurozone. China introduced more easing
measures over the weekend by cutting banks’ reserve requirement ratio by 50 basis points to support the cooling economy. The
policy move, which came after a string of disappointing economic data for April, will take effect on May 18.

CURRENCIES:
THE BRITISH pound has become currency traders’ favorite refuge from the resurgent European debt crisis, threatening efforts
by U.K. Prime Minister David Cameron to lift the economy out of its second recession in three years. Sterling has climbed 3.4%
this year, the most among 10 developed-market peers. Strategists have boosted their year-end forecasts for the pound against
the euro by 3.6% in 2012.

ENERGY:
CRUDE PRICES should fall because global supply is outweighing demand, according to Saudi Arabia’s oil minister, Ali al-
Naimi. “We want a lower price than where it is now,” al-Naimi said in Adelaide today. “We need to get the price to a level of
around $100” a barrel for London’s Brent crude, he said. Saudi Arabia is the world’s biggest oil exporter.

COMMODITIES:
SPECULATORS cut bets on a rally in commodities by the most since November as Greece’s struggle to form a new
government and weaker-than-expected industrial output in China erased this year’s gains in raw materials. The Standard &
Poor’s GSCI Spot Index of 24 raw materials dropped 6.5% in eight sessions, the longest slide since December 2008.

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