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Monday financial focus

Monday Headlines:
• UK loses Aaa rating but Osborne sticks with austerity
• UK service sector stuck in a slump
• New leader pledges bailout deal for Cyprus
• Fed officials reassure investors over stimulus
• Abe close to central bank appointments
• China’s manufacturing expansion slows
• Markets await exit polls from Italian election
• Nikkei soars to 53-month high on banking choice
• Pound’s value cut by two thirds over 30 years
• Tax breaks encourages North Sea investment
• Russia and Kazakhstan expands gold reserves

News:
UK Chancellor of the Exchequer George Osborne said he would not
bow to opposition calls to change economic policy after the decision
by Moody’s Investors Service to strip the UK of its triple A status.
Moody’s said sluggish economic growth and austerity will continue to
affect the government’s finances into the second half of the decade,
but Osborne said that the government should “stick to its course” to
reduce Britain’s debt.

The UK service industry continued to produce well below what it
considered normal output in February, according to a survey out this
morning. A margin of 27% of business and professional services firms
told the CBI the volume of their business was below normal, while a
margin of 20% of consumer services firms said the same.

The new leader of Cyprus, conservative Nicos Anastasiades,
yesterday promised to finalise a bailout package for the Eurozone
Island after winning the presidential run-off election.

Federal Reserve officials late on Friday highlighted the merits of the
US bond-buying programme, reassuring investors that stimulus is not
about to be removed and helping Wall Street post solid gains.

Japanese Prime Minister Shinzo Abe is likely to nominate Asian
Development Bank President Haruhiko Kuroda as Bank of Japan governor, according to a government official with
knowledge of the discussions. Abe is also likely to tap Kikuo Iwata, an academic who has urged a ramping up in Japan’s
monetary base to end deflation, and Hiroshi Nakaso, a senior BOJ official, as deputy governors. The yen fell and
Japanese stocks rose on reports of the plans.

China’s manufacturing is expanding at the slowest pace in four months, a private survey showed, underscoring the
headwinds faced by policy makers in the world’s second-biggest economy. Today’s report may damp optimism that an
economic rebound is gaining traction following a seven-quarter slowdown and the weakest annual expansion in 13 years.

Markets:
Markets are awaiting the outcome a fiercely fought Italian election that could foster more financial instability if the polls
bring an unstable government. Polling stations open for a second and final day today and exit polls will be published soon
after they close at 2pm UK time. The official results are expected by early tomorrow.

Overnight, the Nikkei average soared to a 53-month high with exporters leading gains on a weaker yen, after sources
said Japan was likely to nominate Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive
monetary easing, as its next central bank governor.

Today, European stocks are seen nudging higher at the open, cheered by signs that the US and Japan will continue with
ultra easing monetary policy for some time yet, but uncertainty surrounding the Italian elections was expected to keep the
lid on market gains.

Currencies:
Sterling has lost two thirds of its value since 1982, a study revealed this morning. Steady inflation over the past thirty
years has seen the average price of a pint of beer more than treble, from £0.73 to £3.18, gold more than quadruple in
price, and the average house price go up five times, the analysis from Lloyds Private Banking showed.

Energy:
Investment in the UK oil and gas sector will hit a record high this year, as a ramp up in drilling activity looks set to boost
the UK economy. According to a report by trade body Oil & Gas UK out this morning, investment in the sector is forecast
to rise to at least £13bn this year, as recent improvements in the tax regime have made oil and gas reserves
commercially viable for development.

Commodities:
Russia and Kazakhstan expanded gold reserves for a fourth straight month in January, while Azerbaijan acquired bullion
for the first time in more than a decade as central banks sought to diversify their assets.

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