Investment Market News, Views Updates February 2012

Money News and Tips HomeLatest Investment Market Updates and Views - February 2012
General Market Overview

An Update on Europe - Ratings Downgrade
The European Financial Stability Fund (EFSF) has had its rating downgraded by Standard and Poor’s to AA+. The reason for the downgrade is following nine individual European country downgrades and the reduced creditworthiness of the EFSF guarantors.

France and Austria were both moved to AA+. Italy, Portugal, Spain and Cyprus were downgraded two notches, leaving only Germany, Finland, Luxembourg and the Netherlands as AAA rated.

IMF
The International Monetary Fund (IMF) has warned it needs more money for a funding shortfall in the Eurozone. As the UK is liable for 4.5% of the fund, the IMF is likely to ask for a further £17.5bn. It is understood that both the US and the UK are unhappy with the request and are resisting any further payment.

China’s Premier Wen Jiabao has announced his country’s intention to help with the Eurozone crisis by being more involved in the European Financial Stability Fund (EFSF), via the International Monetary Fund (IMF). China’s foreign exchange cash reserves currently stand at about $3.2trn and it is hoped that some of this money will be used to aid Europe.

ECB Emergency Funding
February will see the European Central Bank’s (ECB) emergency funding scheme asked for up to a further €1trn. The scheme was launched to provide liquidity for the banks in order to avert a further crisis with €230bn of bank bonds needing to be repaid in the first quarter of 2012.

In December the scheme supplied loans of €489bn with the majority of money going to Italy and Spain. France, Germany and the UK also took loans from the bank. The word is that the auction in February will offer unlimited loans at an interest rate of 1%.

Greek Debt Negotiations
According to Reuters, negotiations with Greece and private creditors have stalled with a maximum loss acceptable in the value of Greek bonds of 65% to 70%. Interest rate negotiations on new long term bonds issued as part of a debt swap have not yet been agreed.

The Greek bailout deal agreed last October called for a 50% ‘haircut’ for private bondholders. Other creditors, such as the European Central Bank has not agreed any haircut.

The next Greek bond to become due is €14.5bn on 20 March and a deal would avoid a default. Greece was plain in saying that if a deal could not be agreed and they defaulted, they would leave Europe.

European Summit
The UK Prime Minister David Cameron stuck his neck on the line during the recent European Summit, stating that France’s proposal to introduce a financial transaction tax was both “mad” and “extraordinary”. Mr Cameron said that introducing the levy in Europe would mean the loss of half a million jobs, when everyone was trying to boost employment and growth.

French President Nicolas Sarkozy announced France’s plans to introduce the financial transaction tax in August 2012, which is expected to raise €1bn per year. 0.1% tax will be charged on all transactions in French securities. Credit Default Swaps and speculative automated trading will also be included. Presidential elections in France are due in April 2012.

Financial transactions through London account for almost two thirds of all transactions. Mr Cameron categorically refused to apply this new tax unless a levy was applied globally, in order to protect the city of London.

Of the 27 EU member states on the UK and the Czech Republic refused to sign up to a fiscal treaty on budget discipline, which would allow the European Court of Justice (ECJ) to monitor compliance and impose fines.

UK Prime Minister David Cameron said he had legal concerns with the EU enforcing fiscal rules and that the UK government would act if it felt UK interests were threatened.

Common Taxes – France and Germany
France and Germany have issued a joint document stating their pledges to put forward concrete proposals for a common corporate tax base by the end of February this year. The common corporate tax base is France and Germany’s strategy for leaving the financial crisis behind and opening up the prospects for economic growth.

It is understood that the document will be one of the topics for discussion at the European Union (EU) summit meetings in Brussels on 30 January 2012 and 1st March 2012. Both countries are also expected to reaffirm their support for a financial transactions tax and urge Europe to push on with fiscal coordination.

Gender Pricing
European Commission clarified that the gender pricing ruling that comes into effect on the 21st December 2012 will not apply to occupational pension schemes and they can continue to pay pensions based on male and female gender.

EU Sanctions on Iran
The EU has imposed sanctions on Iran that ban all new oil contracts and freeze assets of Iran’s central bank in the EU. Currently the EU buys about 20% of Iran’s total oil exports.