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German Business Confidence Increases for a Fifth Month
German business confidence increased for a fifth month in September amid signs the economic recovery is continuing in the euro area, the nation’s biggest trading partner.
The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 107.7 from a revised 107.6 in August. That compares with a median forecast of 108 in a Bloomberg News survey of 43 analysts.
Europe’s largest economy is benefiting from unemployment near a two-decade low and the end of the euro area’s longest-ever recession. Angela Merkel is poised for a third term as German chancellor after her Christian Democrats took the largest share of the vote in Sept. 22 elections on the strength of her economic record. She’s now in coalition talks as her traditional allies, the Free Democrats, were ousted from parliament.
“We are in growth territory, but not in runaway growth territory,” said Christian Schulz, senior economist at Berenberg Bank in London. “The debate in Germany is shifting to the center-left; we’re going to see more of a focus on fairness, perhaps higher taxes, a bit higher spending. In the short term a government investing more is good for growth.”
A measure of the current situation unexpectedly dropped to 111.4 in September from 112 the prior month. A gauge of expectations climbed to 104.2 from 103.3.
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Hungarian Central Bank Cuts Interest Rate Further To Record Low
Hungary's central bank on Tuesday reduced its main interest rate further to a new record low, extending the easing program that began more than a year ago, as economic activity remained subdued and inflation fell sharply. The decision was in line with economists' forecast.
The Monetary Council of the Magyar Nemzeti Bank slashed its two-week deposit rate by 20 basis points to 3.6 percent at today's meeting, following a similar cut at last month's meeting. The bank has lowered the rate every month since July 2012, after holding it steady for seven months in a row.
Last month, the central bank had reduced the pace of its ongoing easing cycle to guard the weakening currency against the potential risk of a sell-off.
Hungary's consumer price inflation eased more-than-expected to a near-record low of 1.3 percent in August from 1.8 percent in July, reflecting the government's recent measures to reduce the costs of energy and utilities. Inflation has been on a declining trend for nearly a year.
In the second quarter, the economy emerged from a year-long recession. Gross domestic product rose modestly by 0.5 percent, recovering from the first quarter's 0.9 percent annual fall. The recovery followed five quarters of successive contractions.
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Ireland Factory Gate Prices Fall For Second Month
Ireland's factory gate prices decreased for the second straight month in August, the Central Statistics Office said Tuesday.
Factory gate prices slipped 1.2 percent year-on-year, following a 0.2 percent drop in July. On a monthly basis, prices remained flat after rising 0.7 percent.
The price index for export sales decreased 0.2 percent from July, while the index for home sales increased 1.2 percent.
The yearly price index for mining and quarrying gained 4.5 percent, while the monthly index slipped 0.1 percent in August. At the same time, energy product prices were down 2.4 percent from last year and by 0.2 percent from July.
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Consumer climate in Germany stable at the start of autumn
Highs and lows for the consumer mood in Germany in September. While economic expectations and willingness to buy improved, income expectations dropped, albeit remaining at an extremely high level. Following a revised value of 7.0 points in September, the overall indicator is forecasting 7.1 points for October.
German consumers are expecting the economy to gain momentum again in the coming months. This is reflected in the increase in economic expectations, which are on a clear upward trend. Germans' desire to shop also appears to be unbroken. In fact, willingness to buy once again improved on the record value of the previous month. However, income expectations declined for the second consecutive time, but continue to be at an extremely high level.
Economic outlook brightens further
Following the slight fall in the previous month, consumers' economic outlook brightened again in September. The economic expectations indicator rose by 8.9 points and is currently at 10.7 points. The economic mood is therefore clearly on an upward course.
With this view, consumers are in agreement with experts' current predictions. In its latest forecast, the German Institute for Economic Research (DIW; Deutsche Institut für Wirtschaftsforschung) predicted that the German economy will follow a moderate upward trend, which is expected to accelerate in the coming year. Following rather weak growth of 0.4 percent this year, gross domestic product (GDP) in Germany is expected to increase by 1.7 percent in 2014. However, in order for this to occur, a quite significant improvement in the currently rather weak investment activity of companies is a prerequisite. These expectations are not unfounded given the economic recovery worldwide, including the eurozone. According to the Ifo Business Climate Index, companies agree with this assessment. The indicator value once again increased slightly in September.
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U.K. moves to block bankers' bonus cap
A plan to cap bankers' bonuses will be tested in Europe's top court after the U.K. government challenged the measure, claiming it would increase financial risks rather than reduce them.
EU policymakers are hoping to limit bonuses for any banker earning more than 500,000 euros a year. The maximum payout would be equal to annual salary or twice salary if a majority of shareholders approve.
The cap will apply globally to banks based in the EU, and to international banks operating within Europe. It could affect more than 35,000 bankers around the world, the vast majority of them in London.
The European Commission believes the cap -- introduced as part of a broader package of rules aimed at making the financial system more stable -- will reduce short-term risk taking.
But the U.K. is concerned that it will prompt banks to offer their high-flyers bigger fixed salaries to compensate for the cap, undermining initiatives already undertaken to link banker pay more closely to long-term success.
"These latest EU rules on bonuses, rushed through without any assessment of their impact, will undermine all of this by pushing bankers' fixed pay up rather than down, which will make banks themselves riskier rather than safer," said a U.K. Treasury spokesperson.
The U.K.'s challenge will claim that the proposal lacks proper legal grounding, fails to protect personal data, extends the power of the European Banking Authority beyond its technical brief, and should not be applied outside Europe.
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How to Avert the Next European Economic Crisis
The European Union’s economic crisis exposed grave flaws in the design of its single-currency system. A new report from the International Monetary Fund examines the biggest of these defects and recommends fundamental reform: The EU, says the IMF, needs to take a step toward fiscal union.
It’s not what most European policy makers want to hear. But it’s advice they should follow.
The IMF’s report shows just how vulnerable the EU was, fiscally speaking, in 2008 and afterward. In the U.S. -- which is technically a republic, but can also be viewed as a kind of economic federation -- shocks at the state and local level can be cushioned by private and public financial flows. Ownership of assets is dispersed, which spreads the pain, and distressed companies and households have a variety of lenders to choose from. Large-scale government help is crucial as well: Unemployment insurance, for instance, puts money into hard-hit areas and meets the cost with federal taxes and borrowing.
In the U.S., Canada and Germany, these offsets can ease about 80 percent of the shock to local output. In the euro area, the same channels are only half as effective. Markets aren’t as well integrated, and when panic spread five years ago, credit flows within the union contracted sharply just as they were most needed. Unemployment insurance and other ways to spread risk were almost non-existent. All this was a formula for catastrophe -- a catastrophe that parts of the EU continue to endure.
The EU, in its characteristically halting fashion, has begun building some of these needed props. For instance, plans are under way for a form of banking union, which (done right) would pool resources to support or resolve troubled banks. By severing the link between banking stress and national solvency, a union would help to keep governments creditworthy and avoid an abrupt contraction of credit in future crises.
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The annual growth rate of the broad monetary aggregate M3 stood at 2.3% in August 2013, compared with 2.2% in July 2013.1 The three-month average of the annual growth rates of M3 in the period from June 2013 to August 2013 decreased to 2.3%, from 2.5% in the period from May 2013 to July 2013. Twelve-month percentage changes;
M3 components
Regarding the main components of M3, the annual growth rate of M1 decreased to 6.8% in August 2013, from 7.1% in July. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) increased to 0.4% in August, from 0.2% in the previous month. The annual growth rate of marketable instruments (M3-M2) was less negative at -16.3% in August, from -17.7% in July. mong the deposits included in M3, the annual growth rate of deposits placed by households decreased to 3.8% in August, from4.0% in the previous month, while the annual growth rate of deposits placed by non-financial corporations decreased to 5.7% in August, from 5.9% in the previous month. Finally, the annual growth rate of deposits placed by non-monetary financial intermediaries (excluding insurance corporations and pension funds) decreased to 4.5% in August, from 5.3% in the previous month.
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Political uncertainty in Italy deepens over Berlusconi threats
Center-right deputies supporting Silvio Berlusconi renewed threats to resign if their leader is expelled from parliament and the left demanded an end to their "blackmail", deepening uncertainty in Italy's fragile ruling coalition.
Italy has been close to crisis since Berlusconi, a partner in the coalition government, was sentenced to four years in prison, commuted to a year under house arrest or in community service, for tax fraud. It included a ban on holding public office that is under appeal.
Late on Wednesday, Berlusconi's allies made their latest pledge to bring down the government, saying they would resign if a special Senate committee meeting on October 4 voted to strip Berlusconi of his seat.
How serious the threat is difficult to assess following a series of contradictory signals from Berlusconi's allies in parliament, who are divided between a faction of hardliners and more conciliatory doves.
On Thursday, Transport Minister Maurizio Lupi said there was no joint commitment to stand down by the center-right and any decision to resign would be up to individual deputies.
"The resignation of the parliamentarians is a decision which will depend on the conscience of each individual," he told RAI state radio.
However, the center-left Democratic Party (PD) said the threats risked undermining the government as it grapples with problems such as its strained public finances to the fate of Italian companies including Telecom Italia and national carrier Alitalia.
"Unfortunately, this back and forth with threats weakens an equilibrium which is already very delicate," Luigi Zanda, Senate floor leader of the PD, told the daily Corriere della Sera newspaper.
PD leader Guglielmo Epifani accused the center-right of "blackmail" but said the party would not change its approach and would vote to strip Berlusconi of his seat.
Berlusconi's political fate has been in the balance since last month when Italy's highest court confirmed the tax fraud conviction, which is likely to trigger his expulsion from parliament under a procedure going through the Senate committee.
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Eurozone Leading Index Points To Stable Recovery: Conference Board
A leading indicator of the performance of the euro area economy increased for the third successive month in August, in a sign that the outlook for the region is brightening, preliminary data from a survey conducted by the Conference Board showed Thursday.
The leading economic index advanced 0.9 percent month-on-month to 108.9 in August, after growing 0.8 percent and 0.6 percent respectively in July and June.
Meanwhile, the coincidence economic index, which is a measure of the current situation, stayed unchanged at 101 in August, after dropping modestly by 0.1 percent in July.
During the six months ended August, the leading index recorded a 1.9 percent increase, while the coincident index stayed unchanged, data showed.
"Improvements in business and consumer sentiment were the major drivers, while continued financial stability in the Euro Area is also helping to sustain the recovery," Bert Colijn of Conference Board said.
"However, economic growth is likely to remain slow in the coming months due to low investment, high unemployment, and uncertainty about growth in export markets."
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EUR/USD steady on Fed speculation, U.S. budget concerns
The euro was steady against the U.S. dollar on Friday, as lack of clarity over the future of the Federal Reserve's stimulus program coupled with sustained U.S. budget concerns dented market sentiment.
EUR/USD hit 1.3502 during late Asian trade, the session high; the pair subsequently consolidated at 1.3496, up 0.06%.
The pair was likely to find support at 1.3338, the low of September 18 and resistance at 1.3544, the high of September 23.
Markets were jittery as a recent string of U.S. economic reports underlined concerns over the outlook for the nation's economic recovery.
On Thursday, official data showed that the U.S. economy expanded by 2.5% in the second quarter, confounding expectations for a 2.6% expansion.
Last week, the Fed said it wanted to see more evidence of a sustained economic recovery before it reduced stimulus.
Separately, U.S. budget concerns persisted after Republican leaders in the U.S. House of Representatives refused on Thursday to give in to President Barack Obama's demand for straightforward bills to run the government beyond September 30 and to increase borrowing authority to avoid a default.
The euro also came under pressure after European Central Bank Executive Board member Benoit Coeure said the bank has room to cut interest rates further if needed but does not target a specific level for money market rates.
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