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Broadgate: Market News 31/1

31 January 2012

After the end of the EU summit a meeting with EU and ECB officials, Yesterday night, 25 of the 27 EU nations signed up to the fiscal compact, the Czech prime minister joined the UK in staying outside the deal. The Greek prime minister said that debt restructuring negotiations with the Institute of International Finance, which represents private creditors, are attached to concurrent talks with the troika — inspectors from the European Commission, IMF and ECB about a new economic program that are expected to produce a second bailout package, estimated at €130. The aim is to avoid the participation of the official lenders for public sectors Also on Monday night that European banks were gearing up to ask the ECB’s emergency funding scheme for up to twice as much in funds as the central bank supplied in its debut €489bn auction last month.

Equity markets fell across Europe, with France’s CAC and Spain’s IBEX both down 1.6pc. The worries over Portugal continued to mount even as German Chancellor Angela Merkel backed away from demands for a European austerity commissioner to take control of the Greek budget, averting an explosive clash with Athens. The recent problems highlight that ratings agencies are not serving their initial purpose of making information cheaply available, so that markets would have more participants and thus become more liquid. Though the EU has pushed through reforms twice, While the rating agencies do not face the same inherent financial conflict of interest rating sovereign debt as they do rating corporate debt, palpable political pressure clearly now plays a role driving decision-making. The agencies can’t go too slowly, but they are also under pressure not to downgrade at all.

In United States Falling joblessness and rising incomes have made Americans more optimistic, which may spur demand and help stabilize prices. The unemployment rate fell to an almost low to 8.5 percent, Labor Department said that Personal incomes climbed 0.5 percent last month; The Treasury reduced its net borrowing estimate for January through March by $97 billion from a projection of $541 billion. U.S. Treasury officials also see net borrowing of $200 billion in the second quarter. The estimates set the stage for the Treasury’s quarterly refunding announcement on February 1st. The Standard & Poor’s 500 Index fell 0.3 percent to 1,313.02 at the close of trading in New York as Greece sparred with European officials over the terms of a rescue package. The yield on the benchmark 10-year Treasury note fell to 1.85 percent from 1.89 percent. The Treasury Department has said it expects no need for another increase in the debt limit until after the November election, though it’s impossible to say for certain because tax revenue can vary widely with the strength of the economy.

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