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Financial Focus

Chancellor George Osborne has suggested that Greece may have to
crash out of the euro for German voters to be convinced of the need to
save the single currency.

CYPRUS is keeping its options open on whether to apply for a European
Union bailout to help recapitalise its second-largest bank but has yet to
make any application, its government said yesterday. Russia was yesterday
put in the frame as the source of a possible bilateral bailout for the country.

MANUFACTURING output fell in April, official data showed yesterday,
indicating another disappointing quarter for the UK economy. The sector’s
output dropped 0.7% on the month, according to the Office for National
Statistics (ONS), taking output down 0.3% on the year.

RAISING the stakes in Europe’s debt crisis, Austria’s finance minister said
Italy may need a financial rescue because of its high borrowing costs,
drawing a sharp denial yesterday from the Italian prime minister.

Japan has come under renewed pressure to tackle its huge public debt with
the International Monetary Fund calling on the government to triple the
national consumption tax to at least 15%. “Japan must tackle its deeprooted
fiscal problems,” David Lipton, first deputy managing director of the
IMF, said in Tokyo on yesterday.

MARKETS:
ASIAN EQUITIES put in a mixed performance after a strong session in US and Europe, with the mood generally subdued amid
uncertainty about the future of the Eurozone ahead of Greek elections this weekend. Asia’s performance followed a rebound by
most global equity markets from sharp losses on Monday, but sentiment remained cautious as optimism over Spain’s bank
rescue was short lived.

IN OVERNIGHT TRADING, a burst of profit-taking in German Bunds – and a similar retreat in gilt and Treasury prices –
encouraged some market participants to hope the drive for havens was abating and signalled a shift back into selected risk
assets. However, sharply rising Eurozone “peripheral” sovereign bond yields highlighted the market’s nervousness that Madrid’s
€100bn bank rescue may not be sufficient to address the bloc’s chronic debt crisis.

RISK APPETITE has been curbed by a lack of details in a loan agreement to help Spain’s banks recapitalise, and concerns that
the scheme could further aggravate Madrid’s fast-rising public debts and force it to seek bailouts similar to those for Greece,
Ireland and Portugal. Spain’s 10-year bond yield yesterday rose to 6.86%, surpassing peaks seen in November last year to
mark its highest since the 1999 launch of the euro.

CURRENCIES:
HONG KONG should review its US dollar peg and consider linking its currency to the renminbi, according to Joseph Yam,
former head of the Hong Kong Monetary Authority. Ending the US dollar peg after nearly three decades would be hugely
symbolic as a sign of China’s increasing economic dominance in Asia.

ENERGY:
OIL fell for the fourth time in five days in New York amid speculation that OPEC will keep production quotas unchanged even
after a slide in prices.

COMMODITIES:
AUSTRALIA, the world’s second- biggest wheat exporter, lowered its production forecast as dry weather delayed plantings,
deepening global supply cuts caused by drought from Russia to the U.S. Output may reach 24.1 million metric tons in 2012-
2013, 6.2% below the 25.7 million tons estimated in March, the Australian Bureau of Agricultural and Resource Economics and
Sciences said today.

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