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Midweek financial focus

• Obama looks to make government work for “the many”
• Draghi will only buy Spanish bonds in an emergency
• UK inflation stuck at highest level since May
• US posts $3bn budget surplus for January
• Dow close to all-time high
• Nikkei drops overnight on profit taking
• European stocks expected to open little changed
• G7 finance minister fail to reassure about currency wars
• Sterling falls on likely BoE growth forecasts
• US crude trading higher and OPEC estimates increasing demand
• Platinum’s premium to gold widens to 17-month high
• Brazilian sugar mills turn to biofuel production

News:
US President Barack Obama challenged a divided Congress on
Tuesday to raise the minimum wage and make government work for
“the many” in a State of the Union speech focused on economic
fairness for the middle class as the Democrat takes a more assertive
tack in his second term.

The ECB will only step into the Spanish bond market and use its bondbuying
scheme if it was having “major problems” trying to carry out
monetary policy, Mario Draghi said yesterday. Rate-setters would not
use the outright monetary transactions bond-buying programme
unless Spain had already been bailed out by the European Stability
Mechanism aid fund, he said.

Britain’s inflation rate unexpectedly held steady at 2.7% for the fourth
consecutive month in January but there was little respite for
consumers, as it remained at its highest level since May, official data
showed yesterday.

The US budget posted a surprise surplus in January for the first time
in five years, as the Treasury likely benefited from a windfall when
payroll tax cuts expired. The budget registered a $3 billion surplus; the
first time there had been a surplus in January since 2008, Treasury Department data showed yesterday.

Markets:
The Dow Jones industrial average index is close to hitting an all-time high, after edging up 0.34% to close at 14,018.70
last night. The key New York index is approaching the 14,164.53 mark that it reached in October 2007. Yet equities
across the pond could swing either way today, depending on how investors react to President Barack Obama’s State of
the Union address, which was made overnight.

Overnight, Japan’s Nikkei share average dropped by 1% as investors took profits on exporters as the yen jerked higher.
The Nikkei lost 1% to 11,251.41, moving further away from a 33-month high of 11,498.42 hit a week earlier.
Today, European stocks are expected to open little changed, pausing after solid gains in the previous session, with the
market’s direction likely to be determined by corporate results due out from heavyweights including oil major Total.

Currencies:
Finance minister of the G7 nations yesterday failed in their attempt to reassure investors that a currency war would not
be allowed to escalate, after a joint-statement failed to convince analysts and prompted sharp fluctuations in the foreign
exchange markets.

The pound fell for a second day yesterday versus the euro on speculation the Bank of England will cut its growth
forecasts in its quarterly Inflation Report tomorrow, underlining the case for keeping interest rates at a record low.

Energy:
West Texas Intermediate traded near the highest level in more than a week after a second day of gains. US crude
stockpiles declined for the first time this year, according to the American Petroleum Institute.
OPEC raised forecasts for the amount of crude it will need to supply this year because of stronger fuel demand in
emerging economies. Global oil demand will increase by 0.9%, to 89.7 million barrels a day, OPEC said. That’s an
increase of 80,000 barrels a day from last month’s report. China accounts for 400,000 barrels a day of this year’s growth.

Commodities:
Platinum advanced for a second day, widening its premium to gold, on concern supply will tighten after Zimbabwe seized
land from the country’s biggest miner of the metal. Palladium climbed to the highest level since September 2011.
Brazilian ethanol prices trading above raw sugar futures for the first time in almost two years are spurring speculation that
millers will favor making the biofuel over the sweetener in the season starting in April.

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