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Home > Blogs > QFINANCE Editor > A week in the world of business and finance (November 21 – 11, 2011)

A week in the world of business and finance (November 21 – 11, 2011)

Each week QFINANCE will endeavor to bring you some of the biggest news stories from the past five days in finance and business, as well as some of the most fascinating websites and links that have crossed our path. We hope you'll enjoy reading, we hope you'll have a great weekend and we hope that you'll come back each Friday to brush up on your finance and business knowledge.

Monday November 21

The euro crisis saga goes on this week with many investors now worried that the euro might itself fall apart. The bond markets could bring the probability of a split up to 25% according to Citi analysts as it seems that the “euro zone infection” is moving fast towards the very core of the continent.  The level of damage on the bond market is at its highest and the biggest fear is that it might be broken beyond repair which would be absolutely fatal for euro.  Both France and Austria reached their records in spreads over 10-year German Bunds for the euro era and in Paris’s case top 200 basis points, a level Italy was at only four months ago. Rated A by Standard & Poor’s, France Telecom’s 10-year bond climbed 55 basis points to 3.97 per cent in the last week as France is “getting dragged into the periphery,” according to Mark Dowding, bond fund manager at BlueBay.

http://www.ft.com/cms/s/0/3843f938-1203-11e1-9d4d-00144feabdc0.html#axzz1eJrwDhgG

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Tuesday November 22

With a government debt that has risen to 82% of its output and a currency that is considerably weakened, Hungary is asking for financial assistance from both the International Monetary Fund and, ironically, the European Union. As government bond yields are climbing significantly, the forint- Hungary’s currency - fell to a record low against the euro last week. The country was warned by two ratings agencies that its frail growth outlook and weak policy track could lead the country to lose its investment-grade credit rating.  Last week Hungary’s Economy Ministry said it had opened discussions with the IMF and the EU about a new agreement that “instead of austerity measures, will aid Hungary’s economic growth.”Although Hungary was the first EU member to acquire an IMF-led bailout in 2008, Prime Minister Viktor Orban had ended the previous deal saying he wanted more freedom to pursue “unorthodox” policies to help fight Hungary’s unhealthy debt level.  It seems that desperate times call for desperate measures…

http://www.bbc.co.uk/news/business-15820340

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Wednesday November 23

One of the worrying traits of the global economy is that the repercussions of the European crisis can expand indefinitely, contaminating countries as far as China. In Bejing, exports are down, foreign exchange reserves are losing their value, and a few economists are even predicting the first Chinese trade deficit in two decades. As China sends one-fifth of its exports to the EU, growth expectations for the coming year have been lowered and the slowdown is hitting every sector “from toys to flat-screens,” according to Bert Hofman, the World Bank’s chief economist for the region. Due, in large part, to concerns over the eurozone crisis, the regional report, published by the World Bank this week, lowered China’s growth forecast to 9.1% this year and 8.4% for 2012. As well as reducing the amount of foreign capital flowing into China, the European crisis has affected China’s foreign exchange reserves: with the depreciation of the euro against the dollar, the country has lost $87.9 billion in value. http://www.washingtonpost.com/world/asia_pacific/europes-debt-crisis-takes-toll-in-china/2011/11/23/gIQAGh1ToN_story.html

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Thursday November 24

After a terrible bund issue on Wednesday, there are increasing worries about Berlin being sucked into the euro panic storm. It was the worst auction ever since bond sales were made public six years ago, and several analyst said it is the worst they have seen in a life time. The auction raised as little as two-thirds of the amount targeted and the euro was hit hard, suffering one of its biggest one-day falls against the dollar this year. The contagion is moving further north as UK gilt yields fell lower than the equivalent German Bund for the first time since 2009 and borrowing costs dropped below Germany’s. The 10-year Bund yield was trading up 33 basis points at 2.23 per cent on Thursday morning while the UK 10-year yield was up only 6 basis. In Brussels, the European Commission President, José Manuel Barroso, insisted it would be “difficult or impossible” to sustain the euro without tighter economic integration. Barroso’s proposals and the introduction of a joint “Eurobond” to replace national debt insurance were not very welcomed by Germany’s Premiere, Angela Merkel, who described the plan as “extraordinarily inappropriate.”

http://www.ft.com/cms/s/0/78994200-15c2-11e1-8db8-00144feabdc0.html#axzz1ej2cHgCs

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Friday November 25

Once again, it’s a terrible end of the week in Europe as Hungary lost its investment-grade rating at Moody’s Investor Services after 15 years, and Italy is forced to pay record interest rates in a €10bn auction of treasury bills. The Italian interest rate of the new debts to be repaid in six month was 6.504% compared with only 3.535% in the October 26 sale. While London, Paris and Frankfurt’s benchmark indexes were all down by about 0.5% on the day, the FTSE MIB in Milan dropped 1% following the auction, to 1.9%. Demand for bonds has been high according to the Bank of Italy and the rate for two-year borrowing rose from 4.628% last time, to 7.814%.  Italy has planned to sell another €8bn at yet another auction next Tuesday.

As for Hungary, the country will have to redouble its efforts and hope for aid from the IMF, fund managers from Budapest told Bloomberg. According to them, the Central Bank should raise rates to ease the financing risks after the country’s credit grade was cut to junk this morning.

http://www.bloomberg.com/news/2011-11-24/hungary-s-credit-rating-cut-to-junk-by-moody-s-after-last-minute-imf-plea.html

http://www.bbc.co.uk/news/business-15888752

Come back next Friday for another report on the world of business and finance.



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