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Monday financial focus

Monday Headlines:
• Obama fails to stop budget cuts
• Italy may need another election
• Swiss get tough on executive pay
• China to relax capital controls
• Greece’s creditors demand more public sector layoffs
• Eurozone GDP probably fell in Q4 2012
• Chinese equities sell-off drags Asian markets down
• European and US markets expected to open lower
• Yen rallies as Eurozone debt crisis resurfaces
• Libya halts crude output during fighting
• Gold slides over 5 months on strong US data

President Barack Obama yesterday made a frenzied round of calls to
congressional leaders, but could not broker a deal to dial back budget
cuts that went into effect on Friday. The US is faced with $85bn of
automatic spending cuts, half of which are to the country’s giant
defence budget, which Obama was forced to officially sign into action
on 1 March and will be fully carried out by 30 September.

Italy may need to hold another election this year after last week’s vote
ended in a four-way split. The electorate revolted against Germaninspired
austerity measures, handing the comedian Beppe Grillo more
than 25% of the vote with its anti-spending cut message and a call for
a referendum on euro membership.

Switzerland yesterday voted for a tough new stance on executive pay,
including a right for shareholders to veto rewards and the threat of jail
time for boards that do not comply. A large majority of Swiss citizens
supported plans to introduce a mandatory say on pay for investors and
a ban on financial sweeteners for new and departing executives.

China is set to use swelling offshore holdings of its tightly-managed
currency worth around ¥1tn (£70.5bn) to justify a landmark shift in
tactics to relax capital controls. The shift means the People’s Bank of
China will abandon a time-table approach to liberalising capital
controls, favouring instead a series of reforms tied to soaring foreign demand for yuan to give more freedom to invest
offshore currency deposits on the mainland.

International auditors reviewing Greece’s bailout are demanding Greece makes more public sector layoffs before they will
agree further lending. Greece’s creditors (the EU, the ECB and the IMF) yesterday held a two-hour meeting with
Greece’s finance minister at the beginning of a week of discussions.

Eurozone’s GDP probably fell 0.6% in the fourth quarter from the previous three-month period, according to the median
estimate of economists surveyed by Bloomberg News before the data due out on Wednesday.

Markets:
Overnight, a sell-off in Chinese equities dragged Asian shares down sharply, as worries about Beijing tightening its grip
on the property sector compounded weak sentiment already dampened by a patchy global growth outlook. Japan’s
Nikkei bucked the trend, closing up after real estate firms and financials advanced on expectation of aggressive easing
from the new leadership team at the central bank.

Today, European markets are seen falling, with analysts predicting falls of around 0.4% across the major indices. A
similar drop in US stock futures points to a weak Wall Street start later in the day.

Currencies:
The yen strengthened against all of its 16 major peers as signs Europe’s debt crisis is deepening boosted demand for
haven assets. Japan’s currency rose versus the euro as Asian stocks extended a global rout before data this week
forecast to show Europe’s economy contracted.

Energy:
Libya halted some oil production and natural gas shipments because of clashes between rival militias, although the oilproduction
facilities near Zawara weren’t damaged. A spokesman for the Government said that troops secured the area
and stopped the fighting, adding he didn’t know when output would resume.

Commodities:
Improving economic data out of the US is taking the bottom out of the gold market, analysts said over the weekend. After
closing at $1,772.25 on the last trading day of August, the price of gold fell 2.9% during October, 0.3% during November,
2.3% during December, 0.7% in January, and 5.1% in February to rest at $1,576.18 at close on 1 March. Such a string of
five successive monthly declines has not been seen since 1997, said Saxo Bank’s Oli Hansen. “The combination of a
rising dollar and strong US economic data has been something that gold has not been able to respond to so far,” he said.

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