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Financial focus

-ECB policy makers face New Year challenges
-Shrinking UK services sector causes recession fear
-Cameron predicts difficult year for UK economy
-No further tax rises during French President’s 5-year term
-US fed officials debate when to end asset purchases
-Early cracks seen in US deficit reduction programme
-Banks receive a boost with less stringent rules from regulators
-Asian markets slip for the first time in 7 weeks
-European shares likely to move off 22-month highs
-Yen trading near 2½ year low
-Oil fluctuates after capping biggest weekly advance in 4 months
-Gold rebounds from worst run since 2004

News:
ECB President Mario Draghi and European policy makers are returning
to work with the turmoil that has ravaged the region’s bond markets at
bay. Even so, they face potential pitfalls arising from widening debt in
Spain, next month’s election in Italy and continuing austerity in Greece.
European finance ministers are also assembling a rescue package for
Cyprus, the crisis’s fifth bailout.

Britain’s services sector shrank for the first time in two years in
December, a survey showed on Friday, suggesting the broader
economy contracted in late 2012 and could be headed for its third
recession since the financial crisis.

Prime Minister David Cameron predicted a difficult year for the UK
economy that will require maintaining the current mix of low interest
rates and budget-deficit reduction.

France won’t introduce any further tax increases for the rest of President
Francois Hollande’s five-year term because companies and individuals
need “predictability” on their fiscal obligations, Budget Minister Jerome
Cahuzac said yesterday.

US Fed officials are debating when to end asset purchases aimed at
fuelling growth and reducing unemployment that held at 7.8% in
December, according to data last Friday. The US central bank said last month said it will keep its benchmark interest rate
near zero as long as joblessness is above 6.5% and inflation is seen to be no more than 2.5%.

Democrats and Republicans have started the New Year standoff over the US debt ceiling by airing their stark differences
over how to divide the burden for deficit reduction between new taxes and fresh spending cuts.

International banks received a New Year boost when regulators announced that the first ever global liquidity standards
would be less onerous than expected and not be fully enforced until 2019, four years later than expected. This is aimed
at preventing a repeat of the 2008 bank collapses.

Markets:
Last week, the benchmark S&P 500 index ended at a five-year high on Friday, lifted by reports showing employers kept
up a steady pace of hiring, and as the vast US services sector expanded at a brisk rate. For the week, the S&P gained
4.6%, the Nasdaq jumped 4.8% and the Dow rose 3.8%.

Overnight, Asian stocks fell, with the regional benchmark retreating after posting its longest streak of weekly gains since
March last year. The MSCI Asia Pacific Index is heading for its first decline in five days, having posted its seventh
weekly advance last week.

Today, European shares are likely to edge lower, with recent gains to 22-month highs prompting investors to book profits,
although banks could remain underpinned after global regulators eased new liquidity rules.

Currencies:
The yen traded near a 2½ year low as speculation grew that Japan’s Prime Minister Shinzo Abe will ramp up efforts to
spur growth, paring demand for refuge assets. Demand for the euro was limited before data that may show
unemployment in the Eurozone increased.

Energy:
Oil fluctuated in New York after capping the biggest weekly advance in almost four months amid signs of economic
growth in the US, the world’s largest crude-consuming nation. Futures swung between gains and losses after rising 2.5%
last week, the biggest increase since September.

Commodities:
Gold gained, rebounding from the worst run of weekly losses since 2004, as a drop to the cheapest in more than four
months lured buyers amid record low interest rates in the US. Silver, platinum and palladium also advanced.

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