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Friday financial focus

  • Asian stocks fall as treasury warns of US impasse impact
  • UK businesses urge PM to make good on tax cuts
  • Draghi warns governments not to relax deficit cuts
  • UK house building grows at fastest pace for a decade
  • Carney advises UK firms to invest during recovery
  • Solvency II measures delayed
  • Research shows a repeat of the Asian crisis is not on the cards
  • Gold swings above $1,300 as investors assess US debt
  • Dollar falls to 8-month low on government shutdown
  • WTI crude falls for fourth day this week as US shutdown threatens demand.
  • Ajax buoyed by increase in profits.
  • America’s warning of global chaos if it defaults on debt

Asian stocks fall as treasury warns of US impasse impactAsian stocks fell overnight, with the regional index heading for its first weekly loss in more than a month, as concern grew that the US political impasse could lead to the government defaulting on its debt.The MSCI Asia Pacific Index lost 0.3% at 12:46 pm in Tokyo as all 10 industry groups on the gauge fell. President Barack Obama canceled plans to attend two economic summits in Asia next week as the fiscal standoff with congressional Republicans kept the US government partially shuttered for a third day. The Asia-Pacific gauge is set for a 1.2% drop this week as the failure of US lawmakers to avert a government shutdown fueled concern they won’t be able to agree on raising the nation’s $16.7 trillion debt limit later this month. The Treasury Department warned that a federal default could lead to a recession as bad as the 2008 financial crisis or worse.UK businesses urge PM to make good on tax cutsDavid Cameron must make good on his defence of the free market by cutting taxes and boosting investment in the economy, business groups warned yesterday. The Prime Minister used the final day of the Conservative party conference in Manchester to deliver a rhetoricheavy speech in defence of free markets, attempting to define the next election as a battle between his party’s commitment to tax cuts and Labour’s willingness to intervene in the market. But the Institute of Directors said Cameron would only gain credibility when he started reducing the size of the state. “Businesses will be looking for him to match the sentiment with action,” said Simon Walker, the organisation’s director general. “If tax cuts aren’t dirty, let’s have a few more of them. If profit isn’t elitist, let’s allow businesses to keep a little more of it.”Draghi warns governments not to relax deficit cutsEurozone governments must not relax their efforts to cut deficits just because of hints of an economic recovery, Mario Draghi warned this week. It came as ratings agency Standard and Poor’s said it fears complacency among Eurozone politicians. The President of the European Central Bank (ECB) said the recovery is gathering pace in part because governments have begun to get their borrowing under control and have pushed ahead with economic reforms. “Eurozone countries should not unravel their efforts to reduce deficits and put high government debt ratios on a downward path,” he said. “The draft budgetary plans that countries will now deliver for the first time under the two-pack regulations need to provide for sufficiently far-reaching measures to achieve the fiscal targets for 2014.” Draghi’s warning came as credit ratings agency Standard and Poor’s said high levels of debt are still a problem, despite recent efforts to cut deficits.UK house building grows at fastest pace for a decade. The rapid upswing in the UK’s construction sector continued in September, with purchasing managers pointing to continued strong growth last month. According to figures released yesterday by Markit and the Chartered Institute of Purchasing and Supply, residential construction grew at its fastest pace for nearly a full decade in September. The last time house building moved at such a fast pace was way back in November 2003. The headline figure for the construction purchasing managers’ index (PMI) was 58.9, with anything over 50 indicating an expansion.Carney advises UK firms to invest during recoveryBritain’s recovery should prompt firms to invest, boosting hiring and increasing wages, Bank of England governor Mark Carney said yesterday. He reaffirmed his pledge not to consider raising interest rates until unemployment falls to 7% or inflation creeps up again. But his upbeat message on business investment could strengthen market expectations that this rate hike will come sooner than the mid-2016 the BOE has as its central forecast.Solvency II measures delayedEuropean insurance rules that have already cost British businesses at least £3bn have been delayed yet again, Brussels officials said on Wednesday, amid speculation they will never be implemented. The Solvency II measures, which substantially increase insurers’ capital requirements, will now not come into force until at least 1 January 2016. “There is still no guarantee that the deadline will be met,” said Colin Scagell of law firm Mayer Brown.Research shows a repeat of the Asian crisis is not on the cardsTwo new reports released midweek suggest that despite a squeeze on emerging markets over the summer, talk of a crisis in developing economies is overblown. The Asian Development Bank’s most recent outlook report, released yesterday, cut its growth forecast for Asian countries in 2013 to 6%, down from 6.6% in April’s estimate. However, the report also adds: “Fears of a repeat of the 1997 Asian financial crisis are unwarranted. The region is now in a stronger position to weather the storm.” India’s projected growth rate this year was cut considerably by the bank, down from six per cent expected previously to 4.7% now. Growth predictions were only hiked for a handful of countries: Azerbaijan, the Philippines and Bangladesh were some of the few nations in which prospects appear rosier than they did in spring. Similarly, a report from Legal & General’s emerging market strategist Brian Coulton, issued yesterday, suggests that the economies, which suffered during 1990s crises, now have far more robust defences against shocks.

Gold swings above $1,300 as investors assess US debtGold fluctuated above $1,300 an ounce overnight, heading for a weekly loss, as investors weighed the prospect of slower US economic growth as a partial government shutdown entered a fourth day and lawmakers wrangled over the debt limit.Bullion declined to an eight-week low of $1,277.15 on Wednesday before rebounding as investors assessed the government closure and its impact on the outlook for monetary stimulus from the US Federal Reserve. Prices pared losses yesterday after the Treasury said a default caused by Congress failing to raise the debt limit could have dire consequences, and a report showed US services grew at a slower pace than forecast.Dollar falls to 8-month low on government shutdownThe dollar slid to the weakest level in eight months versus the euro as the US government’s partial shutdown added to concern economic growth will slow and prompt the Federal Reserve to delay reducing monetary stimulus. “The shutdown is keeping investors wary of exposure to the dollar and dollar assets,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “The shutdown itself is negative for the economy and the dollar, but it also raises serious doubts about lawmakers’ ability to come to an agreement before we get a drawn-out battle on the debt ceiling.”WTI crude falls for fourth day this week as US shutdown threatens demandWest Texas Intermediate fell for the fourth time in five days on Friday, trimming the first weekly gain in a month, amid speculation that a protracted US government shutdown will slow economic growth and sap fuel demand.Football Finance FocusAjax buoyed by increase in profitsDutch Eredivisie champion Ajax Amsterdam has announced an increase in year-on-year profits of almost €10 million, attributing this success to the sale of leading players. The Dutch giant’s financial figures for the year ending June 30, 2013 outlined a profit of €18.2 million versus last year’s figure of €8.5 million. Ajax generated €24 million from the transfers of Jan Verthongen to Tottenham Hotspur, Gregory van der Wiel to Paris Saint-Germain and Vurnon Anita to Newcastle United. The sales allowed the club’s income to rise by €1.1 million to €105.6 million. Ajax said that UEFA Champions League participation, allied to this summer’s sales of the likes of Christian Eriksen and Toby Alderweireld, should allow it post a larger profit for the 2013-14 year. “The figures make clear that Ajax is a financially healthy club,” said finance director Jeroen Slop. “That’s a good sign, especially when you realise that the Netherlands currently is in a financial crisis.” However, Ajax has stated its intention to challenge the Netherlands’ new ‘crisis tax’. The tax means employers are bound to remit a 16% crisis levy, if and to the extent that an employee’s salary for 2012 exceeded €150,000. Ajax said this measure has cost the club approximately €3 million in 2012. “Football clubs are disproportionately affected because of our capital on the field,” added Slop. “We’re going to take the decision of the new crisis tax through the courts.”Friday FocusAmerica’s warning of global chaos if it defaults on debtBy James Waterson, City A.M. October 4, 2013The world faces an even worse recession than the ongoing financial crisis if the US congress fails to lift the country’s debt limit, top officials warned yesterday. The US Treasury said yesterday if the current impasse over government spending is not resolved within a fortnight then it will have a “catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth”.IMF chief Christine Lagarde echoed the warning, saying it is now “mission critical” that the US agrees a new debt ceiling at the earliest possible opportunities.The US government has been partially shutdown since Tuesday after congress failed to agree a new Budget and the US government is set to run out of money on 17 October unless a solution is found.Republicans in the House of Representatives are demanding concessions from President Obama and his fellow Democrats on public healthcare spending and other spending restraints before agreeing to lift the debt ceiling.However, government officials warned that they are playing a dangerous game with potentially catastrophic side effects.“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse,” Treasury officials said.US markets had shrugged off the first two days of the shutdown but yesterday’s interventions finally shook them into action, resulting in falls on key stock market indices, with the Dow Jones down 0.9 per cent and the Nasdaq down over one per cent. “As reckless as a government shutdown is, as many people as are being hurt by a government shutdown, an economic shutdown that results from default would be dramatically worse,” the President said after the meeting.Hundreds of thousands of government employees have been left without pay, leaving key public services unavailable as market-moving data has gone unpublished and national parks have been closed.Today’s US non-farm employment figures – considered a key measure of the economy’s health – will not be released as planned due to the shutdown. Meanwhile, Mario Draghi, head of the European Central Bank, said the crisis is a risk “not only for the US, but also the world economy”.Dallas Fed chairman Richard Fisher warned that a US default would be like the Great Depression: “If the US government defaults on its debt later this month, the unthinkable will have become real and the “full faith and credit” of the United States will be a mirage rather than accepted fact.”

 

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