RTC Director

Obama Applauds European Economic Efforts

President Barack Obama is welcoming statements by Europe's major economic powers that they will work toward a plan for growth and an integrated banking system.  The president spoke Tuesday, at the end of the annual Group of 20 economic summit in the Mexican resort of Los Cabos.

President Obama says the leaders of Europe's G20 countries answered the concerns of world markets about their willingness to do what is required to hold the euro currency zone together.

“Over the last two days, European leaders here in [Los] Cabos have made it clear that they understand the stakes, and they pledged to take the actions needed to address this crisis and restore confidence, stability and growth," said President Obama.

The president returns to Washington with an indication from the European leaders that they will make a coordinated effort to promote economic growth, something Mr. Obama and several other leaders have been urging.

Growth and job creation are mentioned very early in the G20 leaders' statement at the end of the summit.

“I welcome the important steps that they have already taken to promote growth, financial stability and fiscal responsibility," said Obama.

The statement of unity was intended to reassure world markets, which appear worried about Greece's effort to form a coalition government and a bank bailout for Spain.  

German Chancellor Angela Merkel has been under increasing pressure to endorse the job creation approach and retreat somewhat from the budget cuts she has been advocating for European nations burdened by vast debt.

President Obama's re-election could depend, in part, on the outcome of the eurozone situation.  The state of the economy will be one of the main issues in this year's campaign, and the administration says the euro crisis is one of the factors holding back America's economic recovery.

The president stressed to the European leaders in Los Cabos that the eurozone crisis is affecting the U.S. economy, as well as those in other parts of the world.

Under pressure from Mr. Obama and other leaders, Europe's G20 members also agreed to move toward a more integrated banking system,  including a common regulatory system and insurance for depositors.  They did not say how long it would take.

U.S. Undersecretary of the Treasury Lael Brainard told reporters Monday that Europe is making progress toward a resolution, but she advised being patient.

“Some of the medium-term reforms that they are talking about involve a really very significant step forward on integration," said Brainard. "And so these are moves that are going to require political reforms, as well as financial reforms, and so, you know, they will take some time.”

In addition to talking with European leaders on Tuesday, President Obama met with Chinese President Hu Jintao.  Before the meeting, Mr. Obama said job creation and the situation in Syria would be among the items discussed.

China has pledged to contribute $43 billion to the International Monetary Fund's emergency bailout fund.  Fellow emerging economies India, Brazil and Russia have promised $10 billion each, bringing the fund's total to $456 billion.

Mr. Obama also met Tuesday with Turkish Prime Minister Recep Tayyip Erdogan.  The White House says they discussed moving Syria toward a peaceful political transition that leads to democracy, among other issues.

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by RTC Director

Possible G-20 Summit Breakthrough on Debt Crisis

Leaders from the Group of 20 nations, known as the G-20, have completed the first of two days of economic meetings at their summit in the Mexican resort area, Los Cabos, at the tip of the Baja Peninsula.

Non-governmental organizations have expressed concern that the leaders are too caught up in the debt problems of several European nations to have much discussion of issues that are vital to the poorer nations of the world.  

But analysts keeping a close eye on the proceedings say this summit could produce results that will benefit not just Europe, but the world.    There have been few protests near the summit site, partly because most of the coastal area remains heavily guarded and off limits to anyone not authorized to be here.    But some accredited observers from non-governmental organizations who are here say they feel the world leaders have abandoned their pledges to the world's poorest citizens.

Jyotsna Mohan is one of them. “They don't hear us, they don't listen to us," she said.    Mohan works in New Delhi with the Voluntary Action Network India,  a group that serves as an advocate for poor communities and also  promotes government reform. She says she is perturbed by her country's prime minister coming here to talk about Europe's crisis.

“I would be more happy if our prime minister would speak about our problems instead of being concerned about the eurozone crisis. Okay, we are going to be affected, but he forgets that we have 40 percent of our people living below the poverty line," she said.    But economists and political analysts from a wide range of countries say G20 leaders are right to address the European debt situation as their chief priority.   Krystel Monpetit, analyzes compliance by world leaders with their summit commitments  for the Toronto-based G20 Research Group. She says the world economy will stall unless the European crisis is resolved.

“This is where you see the ripple of how this global economy is intertwined and the huge ripple that the European crisis is having on the rest of the world," she said.    She says the European Union's trade partners, like India, will have little growth until the debt problem is resolved and she thinks that, unlike other recent meetings, this one will produce something. “There could finally be a breakthrough, a significant measure that actually brings the European Union on the right pathway," she said.    She says direct recapitalizing of private European banks is likely to be one of the measures approved at this G20 summit.   Such ideas have support from the international business leaders who met nearby at the B20 conference. Former governor of the Bank of Mexico Guillermo Ortiz, who has led a group focused on financial sector reform, stressed the need for more widespread access to credit. “In the world there are around two-and-a-half billion people who have no access to financial services," he said.    The group Ortiz leads recommends using new technologies to allow more people to open bank accounts, better education of the public on financial matters, and expansion of loans to medium and small businesses.    Researcher Krystel Monpetit says helping small businesses succeed benefits a nation's economy.

“Entrepreneurship is the real engine of growth and this person, this individual will start a company and create 20 new jobs or 40 new jobs and if you don't give him the right tools to do it, then we all lose out in the end," she said.    G20 leaders will reveal their plan for Europe's debt crisis and announce decisions on other issues when they wrap up their summit Tuesday and say farewell to the beachfront hotels of Los Cabos.

by RTC Director

Rupert Murdoch's News Limited in $2bn CMH takeover bid

Rupert Murdoch's News Limited has made a $2bn (£1.3bn) takeover bid for James Packer's Consolidated Media Holdings (CMH).

The move is being seen as an attempt by Mr Murdoch to further strengthen his position in Australia's media sector.

A successful bid will give News Limited a 50% stake in Australia's dominant pay TV business, Foxtel and 100% control of Fox Sports.

CMH shares rose more than 10% after the takeover bid.

Mr Packer said in a statement that he welcomed the proposal and "looks forward to Consolidated Media and News working together to address the detailed terms and conditions".

Win-win situation?

Mr Packer and Mr Murdoch share a long history of media ownership in Australia.

Both inherited their media interests from their fathers but have taken completely different paths in the past few years.

Mr Murdoch has expanded his media operations not only in the domestic Australian market, but also in overseas territories such as the US and UK.

On the other hand, Mr Parker has been seeking to reduce his interests in the media sector and has concentrated on expanding his casino business instead.

Analysts said that the takeover was a win-win situation for both the parties.

They said that while the deal helps Mr Murdoch gain control of one of the most dominant pay TV networks, it gives Mr Packer deeper pockets to fund his expansion plans.

"It frees up more cash and gives him a bit more flexibility," said Paul Xiradis, Managing Director of Ausbil Dexia.

BBC

by RTC Director

Japan's exports surge 10% in May easing slowdown fears

Japan's exports have risen the most in 17 months easing concerns about the impact of a global slowdown on the Japanese economy.

Exports rose 10% in May from a year earlier, boosted by a 38% jump in deliveries to the US.

Shipments to China, Japan's biggest trading partner, also rose for the first time in eight months.

Japan's export-dependent economy relies heavily on demand from markets such as the US, Europe and China for growth.

Meanwhile, imports also rose by a better-than-expected 9% during the month, which analysts said was a sign that domestic demand may also be picking up.

"The increase in imports is a sign that the Japanese economy is not doing so badly," said Hiroshi Miyazaki chief economist at Shinkin Asset Management.

US factor

Japan's export sector has been hurt by a slowing demand from some of its key markets in recent months.

Its shipments to China have been falling amid slowing growth in the world's second-largest economy.

At the same time, consumer demand in Europe has also been hurt by the ongoing debt crisis in some of the region's economies.

However, demand for Japanese goods from the US has been rising steadily. The jump in May deliveries to the US comes after shipments to the country rose by 43% in April and 24% the month before.

Analysts said that demand from the world's biggest economy was likely to remain strong in the near term and that it will benefit Japan's growth.

"For Japan, strength in the US economy could more than offset the slowdown in Europe and China," said Mr Miyazaki.

by RTC Director

Spanish borrowing costs jump at debt auction

Spanish borrowing costs on 12 and 18-month bonds jumped to 5.1% at its first debt auction since securing a 100bn euro ($126bn; £81bn) bank bailout.

Madrid raised the intended 3.04bn euros but the interest rate payable rose from 3% at a similar debt sale on 14 May.

The government has denied that a more detailed independent audit of bank debts is to be delayed.

The first audit, which will determine the size of bailout needed, is due to be published this week.

On 9 June, the eurozone agreed to provide up to 100bn euros in emergency loans to help bolster under-capitalised Spanish banks, which were hit hard by the collapse of the country's property market.

The eurozone's fourth-biggest economy is struggling to finance its debt on commercial bond markets.

On Monday, the interest rate, or yield, on benchmark 10-year bonds traded on the secondary market hit a record high of 7.1%. Rates higher than 7% are widely seen as unsustainable.

Greece, Portugal and Ireland all had to seek international aid to pay their loans when their bond yields hit similar levels.

Spain is only paying these punishing interest rates on new loans from the markets. However, due to the country's worsening economic outlook and falling tax receipts, the government will be forced to raise more funds from the bond markets.

The BBC's economics editor Stephanie Flanders said investors should be less worried about the number on Spanish bond yields and concentrate on the underlying sentiment.

"The spike in yields isn't only telling us that their debt is now perceived to be more risky. It could also be telling us that a rising number of investors do not want to buy it at any price. That really is something worth losing sleep about," she said.

Madrid is due to sell up to 2bn euros in two, three and five-year bonds on Thursday.

Spanish bailout

This debt auction should coincide with the publication of the findings of the first audit into the size of bad debts incurred by Spanish banks.

Some lenders borrowed large amounts on the international markets to loan to home buyers and property developers.

The sharp downturn in Spain's property market means many borrowers are now unable to pay back their mortgages. That, in turn, means many lenders are neither able to collect the money they are owed nor pay back their own creditors.

It was reported earlier on Tuesday that the accounts were so complicated that the results of a second, more detailed audit of Spanish banks was to be delayed from July to September.

But the economy ministry has denied that the publication would be delayed.

It is hoped that the final bill for bailing out the banks will not exceed the 100bn euros already promised.

The money will come from two funds created to help eurozone members in financial distress - the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which comes into force in July.

BBC

by RTC Director

UK inflation rate drops to 2.8% in May, says ONS

The UK rate of inflation fell last month to a two-and-a-half year low owing to slowing fuel and food prices.

The Consumer Prices Index (CPI) measure fell to 2.8% in May from 3% in April, the Office for National Statistics (ONS) said.

The Retail Prices Index (RPI) measure fell to 3.1% from 3.5% in April.

Inflation has fallen from 5.2% last September due to the waning impact of the VAT rise in 2011 and falling energy, food and commodity prices.

The fall in inflation was unexpected, as the consensus among economists was that the rate would be unchanged in May. However, analysts said price rises were likely to slow further in the coming months.

"Expect further falls in inflation as energy bills rise less over the summer versus last year," said George Buckley at Deutsche Bank.

"The fall in CPI inflation to 2.8% in May increases the likelihood at the margin of more quantitative easing (QE)... We expect £50bn with a sizable risk of a 25 basis point rate cut to boot."

Philip Shaw at Investec agreed, saying: "The inflation measures have all come in below market expectations and another drop in the targeted measure helps the case for more quantitative easing."

The current level of QE, a mechanism to pump money into the economy to try and stimulate growth, stands at £325bn and was last increased by the Bank's Monetary Policy Committee in February.

The May inflation figures show that consumers are starting to benefit from a fall in recent months in the cost of crude oil.

Average diesel prices also decreased, dropping 4.4p to 143.3p between April and May, compared with a 0.7p rise last year to 141.5p.

The Bank of England has predicted that CPI inflation will remain above the 2% target rate "for the next year or so".

Last month, inflation moved to within 1% of the target, meaning Bank of England Governor Sir Mervyn King did not have to send an open letter of explanation to the Chancellor, George Osborne.

An open letter is triggered if the CPI rate remains above 3% or below 1% for three months in a row.

Upward pressure

A Treasury spokesman said: "Inflation is out of Open Letter territory for the second month in a row, which is good news and is providing some welcome relief for family budgets."

In further evidence that the weak economic climate is forcing retailers to cut prices to draw in customers, food and drink prices rose by just 0.3%, compared with a much steeper 1.3% rise last year.

The ONS said this was driven by declines in the price of fruit, particularly grapes, bananas, peaches and nectarines. The price of vegetables, mineral waters, soft drinks and juices also fell.

The most significant upward pressure on inflation, the ONS said, came from air and sea fares. But these were distorted by the timing of Easter in 2011 and 2012 and the subsequent difference in the timing of school holidays.

Air fares rose 1.4% in May, compared with an 11.1% drop last year, while sea fares rose 2.6%, compared with a 14.7% fall last year.

by RTC Director