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ECB's Coeure Says EFSF Can Be Used To Ease Tensions On Secondary Markets
Eurozone's rescue fund is big enough to ease temporary tensions on the secondary markets, European Central Bank Executive Board Member Benoit Coeure said in an interview to the Financial Times.
"It is big enough for the purpose for which it was created, which is to alleviate temporary tensions on secondary markets," he said while responding to a query.
The policy maker said the European Financial Stability Facility (EFSF) was allowed to undertake secondary market interventions almost a year ago but the "governments have not yet chosen to use that possibility."
Italy and France recently floated the idea of the bailout fund buying Eurozone sovereign bonds, especially debts of countries like Italy and Spain, which are facing very high borrowing costs. However, German Chancellor Angela Merkel denied that she had knowledge of any such discussions.
Coeure said euro area bond markets are under very severe strain at the moment, in particular, the market for Italian bonds and for Spanish bonds. " It is entirely an issue for governments to decide on, it's not really something the ECB can fix," he said.
"Current circumstances would probably warrant EFSF intervention in the secondary market - provided that this happens against the right background of political decisions and solutions to the underlying issues and strong conditionality," Coeure told FT.
"The EFSF is not big enough to finance permanently euro area countries. This is not the purpose it was created for, he told the newspaper.
Responding to another question on the possibility of an interest rate reduction, the policy maker said a rate cut was discussed at the previous governing council meeting and the next council may also discuss it. He noted that at present, there is no threat to medium term price stability.
Referring to the ECB's Long-Term Refinancing Operations (LTRO), the policymaker said a third LTRO is possible. "But it would probably be warranted only in the face of generalised liquidity challenges and it is probably not the best instrument in the case of localised difficulties for banks."
Coeure said fiscal union is a "necessity" and urged countries to take steps for fiscal union if they want to keep the euro and the benefits that the euro has brought to their economies.
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European Economics Preview: Germany's Ifo Business Confidence Data Due
Business confidence from Germany is the only major report due on Friday, headlining a light day for the European economic news.
EU Finance Ministers will meet in Luxembourg today at 3.00 am ET to discuss financial transaction tax. A press conference will take place at the end of the meeting.
Eurozone ministers meeting held on Thursday decided to release the remaining 1 billion euros of the first installment under the second bailout to Greece by the end of this month.
Switzerland's KOF institute is slated to release economic forecast at 3.00 am ET.
Half an hour later, Statistics Netherlands is scheduled to release consumer spending figures for April. It had declined 2.1 percent in March.
The Ifo business confidence is due at 4.00 am ET. The German business confidence index is seen easing to 105.6 in June from 106.9 in May. At the same time, the current conditions index is forecast to drop to 112 from 113.3 in the previous month.
In the meantime, Italy's consumer confidence survey results are due. Economists expect the consumer sentiment index to fall to 86 in June from 86.5 in May.
The leaders of Germany, France, Spain and Italy are set to hold a meeting in Rome later today. German Chancellor Angela Merkel is likely to resist calls from French President Francois Hollande and Italian Prime Minister Mario Monti for less stringent Eurozone fiscal policies.
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Eurozone's 'Big Four' Agree On Growth Plan
Eurozone's four biggest economies have agreed to boost economic growth up to one percent of the region's national output, in their latest effort to ensure the currency bloc's long-term sustainability.
The leaders of Germany, France, Spain and Italy vowed to set aside 130 billion euros for measures to support growth. However, they gave no indication of taking up common liabilities such as eurobonds. Italian Prime Minister Mario Monti, who hosted the mini-summit between him, German Chancellor Angela Merkel, Spanish Prime Minister Mariano Rajoy, French President Francois Hollande in Rome on Friday, suggested that Europe needs a better plan to restore market confidence.
The growth package has no new plans but the leaders said they expect more solid measures to be up for discussion at the EU summit next week.
The four leaders on Friday agreed to boost the capital of the European Investment Bank by 10 billion euros. Launching "project bonds" to co-finance public investment projects and redirecting unspent cash to European Commission's regional funds were also part of the package.
Meanwhile, on Sunday the German government won the approval of the Bundesrat, the upper house of parliament, for Germany's ratification of the EU fiscal compact and the European Stability Mechanism, Europe's permanent bailout fund.
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European Economics Preview: German GfK Consumer Confidence Data Due
Consumer sentiment from Germany and public sector finance from the U.K. are the major reports due on Tuesday.
At 2.00 am ET, Germany's GfK consumer confidence survey results are due. The forward-looking index is seen falling to 5.6 in July from 5.7 points in June.
In the meantime, Finland's unemployment and Swiss UBS consumption indicator reports are due.
The French statistical office Insee is scheduled to release consumer confidence survey results at 2.45 am ET. The confidence index is forecast to drop slightly to 89 in June from 90 in May.
Sweden's producer prices and Dutch final GDP reports are due at 3.30 am ET. Swedish producer price inflation is seen at 0.6 percent, compared to a flat rate in April.
Italy's statistical office Istat is set to publish retail sales for April. Retail sales are expected to fall 0.6 percent month-on-month, following a 0.2 percent drop in March.
The Office for National Statistics is slated to issue U.K. public finance figures at 4.30 am ET. Public sector net borrowing for May is seen at GBP 14 billion.
In the meantime, Spain's short-term debt auction results are due. The government plans to issue 3-month and 6-month T-bills to raise between EUR 2 billion and EUR 3 billion.
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New Zealand Trade Deficit NZ$301 Million In May
New Zealand posted a seasonally adjusted merchandise trade surplus of NZ$301 million in May, Statistics New Zealand said on Thursday, representing 6.8 percent of exports.
The headline figure topped forecasts for a surplus of NZ$300 million following the downwardly revised NZ$335 million surplus in March (originally called NZ$355 million).
It also follows surpluses of $906 million in May 2009, $770 million in May 2010 and $550 million in May 2011.
Exports were down 4.4 percent on year to NZ$4.42 billion, beating expectations for NZ$4.06 billion after coming in at a downwardly revised NZ$3.87 billion in the previous month.
By category, exports of meat and edible offal, logs, wood, and wood articles, and dairy products all declined in May 2012, as they did in April 2012. The trends for those commodities, which reflect how values change over time, have been falling for at least six months.
"New Zealand's top three export commodity groups were all down in May 2012, which is consistent with their recent trends," industry and labor statistics manager Neil Kelly said in a release accompanying the data. "Those falls in commodity values meant the trade surplus was lower than in the previous three May months."
Imports added an annual 1.1 percent to NZ$4.11 billion versus forecasts for NZ$3.80 billion after showing NZ$3.53 billion a month earlier.
Imports of capital and consumption goods increased, while imports of intermediate goods were down.
Year to date, the trade deficit is NZ$805 million (1.7 percent of exports), shy of forecasts for a shortfall of NZ$790 million after coming in at a downwardly revised NZ$557 million in April.
Upon the release of the data, the New Zealand dollar edged down against major rivals, trading near 0.7903 against the U.S. dollar, 62.84 versus the yen, 1.2738 against the Australian dollar and 1.5820 versus the euro.
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China to Allow Exchanging Yuan in Shenzhen Financial Zone
Chinese authorities have allowed exchanging yuan in Shenzhen financial zone, in a new step towards full capital account convertibility. China has been doing its work steadily to internationalize use of Yuan and promote it as global currency, especially among neighbors and strategic partners. International financial centers are also growing Yuan offshore markets while Chinese authorities steadily develops and deepen its financial markets to eventually take it to the global scale.
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EU Leaders Agree To Recapitalize Banks Directly Through Rescue Fund
The European leaders meeting in Brussels for a two-day summit have agreed to make use of Eurozone's bailout funds to recapitalize the region's banks directly once an effective single supervisory mechanism is established, relieving the governments of the burden of bailing out troubled lenders.
The European Commission will present proposals for a single supervisory mechanism soon. "We ask the Council to consider these Proposals as a matter of urgency by the end of 2012," the leaders said in a statement on Friday.
"We affirm that it is imperative to break the vicious circle between banks and sovereigns," the statement read.
The leaders also discussed ways to reduce the high borrowing costs faced by Spain and Italy. European Council President Herman Van Rompuy said the permanent bailout fund, the European Stability Mechanism, or ESM, will not gain a senior creditor status when it takes over the loans granted to Spain for its ailing banks from the European Financial Stability Facility, or EFSF.
The summit urged rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for the recapitalisation of its banking sector. The financial assistance will be provided by the EFSF and once the ESM becomes available, it will then be transferred to the permanent fund.
The decision to recapitalize banks directly through rescue funds emerged after strong words from leaders, particularly Italian Prime Minister Mario Monti along with Spanish PM Mariano Rajoy, who advocated more steps to reduce their countries' borrowing costs.
French President Francois Hollande threw his weight behind Spain and Italy, while German Chancellor Angela Merkel finally gave in to the pressure after her fierce resistance to direct bank aid at the start of the summit.
The leaders vowed to use the rescue funds "in a flexible and efficient manner" to ensure the financial stability of the euro area.
They welcomed the European Central Bank's decision to serve as an agent to the European Financial Stability Facility and later to the European Stability Mechanism, when it comes into force, in conducting market operations.
The EU vested on the Eurogroup the responsibility of implementing the decisions made at the summit by July 9, 2012.
Earlier during the summit, the leaders approved a 120 billion-euro package to promote growth in the debt-stricken Eurozone as well as across the broader 27-nation European Union.
The growth package includes a 10 billion euro capital boost for the European Investment Bank. It also redirects 60 billion euros of unused structural funds to help small enterprises and create youth employment in most needy countries.
The package also calls for launching EU project bonds worth 4.5 billion euros for infrastructure improvements focusing on energy, transport and broadband. The growth plan approved also includes tax-policy pledges and more focused use of EU funding.
Earlier this week, the EU unveiled a report containing proposals for securing the stability of the Union, which recommends enforcing tighter fiscal integration with budget controls across the Eurozone and establishing a European banking union.
The proposed measures enhance the existing power the European Union has over the fiscal policies of the member-states. Critics, however, have raised concerns the report does not contain any suggestion to address the current debt problems faced by eurozone members.
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European Economics Preview: ECB, BoE Decisions In Focus
The European Central Bank and the Bank of England are widely expected to announce monetary stimulus later today. While the ECB is seen resorting to interest rate cuts, the BoE is widely expected to sanction another GBP 50 billion asset purchases.
At 3.30 am ET, Statistics Netherlands is slated to release consumer prices for June. Annual inflation was 2.5 percent in May.
The Spanish government plans to raise between EUR 2 billion and EUR 3 billion from the auction of 3-year, 4-year and 10-year bond auction. The results are due at 4.30 am ET.
In the meantime, French long-term debt auction results are due. The maximum target for the issue is EUR 8 billion.
The Federal Ministry of Economy and Technology is scheduled to release Germany's factory orders at 6.00 am ET. Economists forecast orders to remain flat in May after falling 1.9 percent in April.
The Bank of England is likely to come up with an additional stimulus of GBP 50 billion. At the end of two-day rate setting meeting, the Monetary Policy Committee is expected to lift the size of asset purchase programme to GBP 375 billion.
Also, the nine-member MPC is seen leaving the key interest rate unchanged at a historic low of 0.50 percent. The announcement is due at 7.00 am ET.
The European Central Bank is set to announce its decision at 7.45 am ET. ECB President Mario Draghi is likely to reduce the main refinancing rate by 25 basis points to 0.75 percent.
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European Economics Preview: German Industrial Production Due
Industrial production data from Germany and producer price figures from the U.K. are the major reports slated for release on Friday, an otherwise light day for the European economic news after a hectic day of stimulus announcements from three major central banks on Thursday.
Swedish unemployment data for June is expected at 2 am ET. At 2.45 am ET, French foreign trade data is due. Economists expect the trade balance to post a deficit of EUR 5.5 billion in May.
Industrial production figures from Spain, Hungary and Romania are scheduled for release at 3 am ET. At 3.15 am ET, Swiss consumer price data is due. Swedish budget figures are expected at 3.30 am ET.
Norwegian statistical office is expected to publish industrial production data for the month of May at 4 am ET.
At 4.30 am ET, the Office for National Statistics is scheduled to release the British producer price data for the month of June. Output price inflation is expected to ease to 2.4 percent in June from 2.8 percent in May.
German industrial production is due at 6 am ET. Output is forecast to grow 0.2 percent month-on-month in May. However, production on a yearly basis is expected to continue the downward trend, falling 1.2 percent.
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European Economics Preview: Germany's Final Inflation Data Due
Final consumer price inflation from Germany is the only major statistical report due on Wednesday, headlining a light day for the European economic news.
At 2.00 am ET, Germany's Destatis is set to release final consumer price figures for June. According to flash estimate, EU harmonized inflation in Germany slowed to 2 percent from 2.2 percent in May.
At 2.45 am ET, the French current account figures are due. The current account deficit is seen narrowing to EUR 3.5 billion in May from EUR 4.2 billion in April.
The Czech statistical office is slated to release consumer prices for June at 3.00 am ET. Annual inflation is forecast to rise slightly to 3.3 percent from 3.2 percent in May. On a monthly basis, consumer prices are expected to remain flat.
In the meantime, Czech unemployment data is due. The rate is seen falling to 8.1 percent in June from 8.2 percent in May.
Also, Hungary's consumer price figures are due at 3.00 am ET. Annual inflation is forecast to increase to 5.4 percent in June from 5.3 percent in May.
Germany plans to raise as much as EUR 5 billion from 10-year Federal bond auction. The result of the issue is due at 5.30 am ET.
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