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August 10, 2005

Bank of England issues inflation warning

Link: Bank of England issues inflation warning

by brian_turner

The Bank of England’s quarterly inflation report warns that economic growth will remain subdued in the short term. The major risk to economic growth is a slowdown in consumer spending, but growth is expected to be stronger in two years time. Terrorist attacks are reported to have had little effect on the overall growth of the UK economy.

The Bank warned that inflation could exceed its target of 2%. It plans to reduce its 2005 growth forecast from 2.5% to approximately 2%. Growth of more than 3% is forecast for 2007, which could rule out further rate cuts.

The official UK government projection is for growth of 3% in each of the next three years.

On Thursday, the Bank reduced interest rates from 4.75% to 4.5%. Economists are divided over whether a further reduction will be forthcoming.

Alan Castle, of Lehman Brothers said the report was “more hawkish” than expected, but said “we are sticking with our call for another rate cut in November on the assumption that near-term growth once again disappoints the Bank’s estimates”.

Most analysts had expected rates to fall to approximately 4% by the end of the year, but it is now thought there will be just one more 0.25% rate cut.

The Bank said that while the housing market seemed to have cooled of its own accord, rising oil prices were causing concern.

Although inflation is expected to exceed 2% in two years time if market forecasts of interest rates are realised, the Bank expects the rate to eventually dip as oil prices fall in the future.

August 5, 2005

Study considers euro as next reserve currency

Link: Study considers euro as next reserve currency

by brian_turner

A study published earlier this week by the National Bureau of Economic Research said that the euro could replace the US dollar as the dominant reserve currency globally within the next twenty years, possibly as soon as the year 2020.

The paper was written by Jeffrey Frankel of Harvard University and Menzie Chinn of the University of Wisconsin at Madison. The authors claim that recent troubles seen by the euro would not stand in the way o this switch if the dollar continues to weaken.

The study names two circumstances which would be necessary for the changeover. First, the eurozone will need to expand to the point where its gross domestic product exceeds that of the United States and it overtakes London as an international financial center.

Also, US economic policies would have to undermine confidence in the dollar by creating inflation and depreciation of the dollar.

Some or all of the 13 European Union members, including the UK, that do not now belong to the European Economic and Monetary Union would likely have to join the euro to spur its ascendancy over the dollar, and the dollar would have to continue to depreciate.

Frankel and Howard studied several decades of shifts in reserve holdings to come to their conclusions.

August 3, 2005

Ethical investment tops £10 billion

Link: Ethical investment tops £10 billion

by brian_turner

A study by Co-operative Financial Services (CFS) showed an 18% increase in ethical investment to £10.6bn during 2004, representing the first time that the amount of money put into ethical savings and investments has exceeded £10bn.

A total of £5.5bn was placed into socially responsible funds and £5.1bn was deposited in ethical banks and credit unions.

David Anderson, the chief executive of CSF said: “This a major milestone for the UK’s socially responsible investments sector and underlines how UK consumers are increasingly thinking about how they can have influence as ethical investors”.

According to Paul Monaghan, the head of sustainability at CFS, ethical products are increasing in popularity. Investment in ethical investment funds increased by 30% compared with last year. Mr Monaghan attributed this to increased confidence in the products, as some funds have been in existence for as long as 10 years, enabling consumers to study their track record.

Mr Monaghan said the companies that ethical funds invest in include BT, which makes efforts to reduce climate change in the UK, and pharmaceutical companies that try to ensure equal access to their products.

According to the CFS study, the overall ethical consumer market in the UK - including banking and “Fair Trade” products - was valued at £25bn in 2003.

July 25, 2005

Revalued Chinese currency gains strength

Link: Revalued Chinese currency gains strength

by brian_turner

China’s yuan gained against the US dollar in its second session of trading since currency limits were relaxed last week.

On Monday, the yuan ended trading at 8.1097 against the dollar, up from 8.11 on Friday.

China revalued the yuan following pressure to let it appreciate – it had been pegged at 8.28 per US dollar. The US and European Union said that this undervalued the yuan and made Chinese goods unrealistically cheap. The yuan is now allowed to float within a narrow 0.15% band either side of a level set by a basket of currencies.

According to US diplomatic sources, the reform of the yuan was a victory for US Treasury Secretary John Snow and his style of “quiet diplomacy”.

Analysts are more cautious, saying that the revaluation is too little to have a significant impact on trade flows between China and more developed economies, and is unlikely to reduce the US trade deficit.

According to analysts at Capital Economics, the currency reform may be based on political reasons rather than economic.

In a note to investors, the company said: “By changing the peg well in advance of President Hu Jintao’s visit to Washington in September, Beijing may be able to avoid giving the impression of bowing too obviously to US pressure, while still doing the bare minimum necessary to defuse trade tensions.”

Chinese officials say that China’s economy is too fragile to absorb rapid currency-related shocks.

Europe and the US welcomed the revaluation and there are hopes that further exchange rate flexibility will follow.

July 23, 2005

Islamic banking focuses on London

Link: Islamic banking focuses on London

by brian_turner

According to the Royal Institution of Chartered Surveyors, London is becoming a major hub for Islamic banking and investment that conforms to Islamic law, or Sharia.

In a report published Thursday, RICS said that 90 percent of Islamic investors favored London for the location of Sharia funds due to factors such as its political environment, legal and institutional framework, human capital, and expertise.

Islamic banking and finance is growing quickly, worth $500 billion worldwide now and expected to grow by 12 to 15 percent over the next ten years.

Real estate is an especially fast-growing part of this movement, with investment from the Middle East in European real estate at £827 million in 2001, an advance of 225 percent over 2000.

Commercial and industrial properties are the most popular types of real estate investment for Sharia funds. But care must be taken in selecting properties, centering on what kinds of businesses rent them.

Sharia law prohibits the renting of properties to entities that engage in certain businesses relating to not only pornography and alcohol consumption, but also those that have to do with tobacco, pork, gambling, arms, or the cinema.

One of the most popular investments is in properties that deal with care and leisure activities for the elderly, which are compatible with Sharia law.

July 21, 2005

China revalues yuan

Link: China revalues yuan

by brian_turner

China has revalued its currency, the yuan, in a move welcomed by the US, which has been a long-term critic of the country’s exchange-rate policy.

The reform is considered an initial step towards the liberalisation of China’s tightly controlled currency.

The yuan will no longer be linked at a fixed rate to the US dollar, but will be allowed to trade in a tight range of 0.3% against a basket of foreign currencies. It will also appreciate against the dollar, which should help address concerns that the cheap yuan has supported Chinese exports to the detriment of manufacturers in both the US and UK.

The revaluation was welcomed by US Treasury Secretary John Snow, who said “reform of China’s currency regime is important for China and the international financial system”.

China’s currency had been pegged at 8.28 against the dollar, but the revaluation strengthens it by 2.1%, to 8.11 to the dollar.

The International Monetary Fund (IMF) has said that it is ready to “work with the authorities on the continuing evolution for the exchange rate system”. Following the announcement, the euro was placed under pressure by the Japanese yen, which rallied sharply across the board - including against the US dollar.

The dollar dropped against several Asian currencies following the Chinese announcement, declining from 112.50 yen to 110.38 yen, its lowest level since 30 June.

Malaysia has also stopped its currency’s link with the dollar. The Malaysian ringgit had been pegged at 3.8 to the dollar since September 1998.

July 19, 2005

UK has record finance exports

Link: UK has record finance exports

by brian_turner

The value of UK financial services exports, including investment banking and insurance broking, reached a record $19bn in 2004, according to a study by research company International Financial Services London.

The company said that global stock market recovery resulted in improved sales in the City of London and exports grew by 9%. Insurance produced the highest overseas earnings, with exports totalling £6.3bn.

According to the study, the UK achieved a surplus in financial services trade with every major EU economy and also with the US and Japan. Net exports of financial services increased from £17.48bn to £19.03bn in 2003 and were 40% higher than in 2000.

Investment banks and fund managers benefited from recovery in European and US stock markets and trade continued to increase in specialist financial instruments such as hedge funds.

Banking-related exports increased from £2.8bn to £3.7bn and income from securities dealing rose to £3.6bn.

Shipbroking was the most rapidly expanding contributor to exports, with foreign sales rising by more than 40% to a record £551m.

According to Jeremy Penn, chief executive of the Baltic Exchange, British companies benefited from the strong increase in freight prices. Approximately 50% of global freight tanker business is negotiated in London.

The United States remains the largest export market for UK financial services.

The UK’s surplus with the US remained above £5bn in 2003 and its surplus with the EU totalled £4.8bn, reflecting its position as Europe’s financial capital.

June 24, 2005

Property for pensions will benefit savers: Datamonitor

Link: Property for pensions will benefit savers: Datamonitor

by brian_turner

Research group, Datamonitor, claims that the wealth of the richest members of society will increase by £2b, if government plans to simplify pension rules are implemented.

The rules, which are expected to be introduced in April 2006, will allow people to include buy-to-let investment property in their pension fund, meaning that many investors will be able to claim pension tax relief.

According to Datamonitor, the new rules will mean that the top-bracket 40% income tax payers would benefit from tax relief totalling £2bn a year.

Although the planned pension reforms will affect the whole market, Datamonitor believes that the option to claim tax relief on a buy-to-let property would prove particularly attractive to the rich. It estimates that the majority of people taking advantage of the pension reforms will be earning more than £75,000 a year, because of the high costs involved in setting up the self-invested personal pension necessary to be able to claim tax relief on buy-to-let property.

Oliver Guirdham, author of the Datamonitor report, said “The government has underestimated the impact that the changes will make”.

Julian Crooks, an independent financial adviser with the Sheffield-based Financial Planning Service, said that the buy-to-let tax relief was a “retrograde step.” He said “The money would be better spent encouraging people on average incomes to save more for their retirement”.

June 8, 2005

Market value makes Google largest media company

Link: Market value makes Google largest media company

by brian_turner

Google, the Internet search company, has become the world’s largest media company based on stock market value, after only 10 months of trading as a public company.

The company’s shares achieved record levels on the New York markets on Tuesday, valuing it at $80bn (£44bn) and placing it ahead of rival Time Warner, which is valued at $78bn.

The valuation was achieved even though Google’s annual sales total only $3.2bn, compared to Time Warner’s $42bn sales figure.

While some analysts believe that Google’s shares are now overpriced, echoing the high valuations seen during the internet boom of the late 1990s, others maintain that the high stock value reflects the company’s future earning potential and think that shares could increase even further.

Google gains most of its revenues from the sale of advertising on its main search engine page.

June 2, 2005

Euro falls on negative polls

Link: Euro falls on negative polls

by brian_turner

The euro fell to $1.2158 after the Netherlands voted against the European Union constitution, its lowest level since September.

The second “No” vote in a week – France voted against the constitution earlier in the week - has raised concern that economic reform and integration across Europe will slow.

Despite these concerns, the European Central Bank voted to leave rates unchanged. They have stood at 2% for two full years.

The zone’s set rate has been criticised as being too high for weaker economies but not high enough to control inflation in strong economies.

Some analysts attribute the euro’s low rate to recent interest rate increases in the US, rather that the votes against the constitution.

Dutch central bank chief executive, Nout Wellink, has dismissed claims that European Monetary Union could disintegrate as a result of the vote. He believes that the decline in the euro will benefit exporters in the eurozone.

According to analysts, dislike of the euro, the slow European economy and concerns about immigration and the creation of a European super-state, caused 62% of Dutch voters to reject the constitution.

Analysts also said that the vote could make it difficult for the EU to expand further into Eastern Europe.

May 24, 2005

Google to join S&P 500?

Link: Google to join S&P 500?

by brian_turner

Speculation that Google will be added to the Standard & Poor’s 500 index, caused the company’s shares to jump to $255.45 - the shares have gained a total of 11% over the past week.

Inclusion in the S&P 500 increases the value of stocks because many investors are only allowed to put money into companies that are listed in the larger indexes.

To be included in the S&P 500 a company must have a market capitalisation of over $4bn, with at least 50% of its shares available to be traded. Share trading must also be liquid - easy for investors to buy and sell.

Google has a market value of approximately $71bn and 64% of shares in the market.

Apple shares also increased, by 5.9%, following a Wall Street Journal report that the company is involved in negotiations to use Intel chips in its computers, instead of IBM chips. This would allow Apple to produce cheaper, more competitive products.

Some analysts have expressed scepticism about the report, due to the difficulties involved in changing chip suppliers.

May 19, 2005

London Stock Exchanges records increased profit

Link: London Stock Exchanges records increased profit

by brian_turner

The London Stock Exchange (LSE), recorded a profit of £89.1m for the year ending 31 March, a significant increase compared with £88.8m the previous year.

Clara Furse, the LSE’s chief executive, said that the performance reflected “improvement in each of our core business areas” - new issue activity, electronic trading volumes and the number of professional terminals taking exchange data, had all increased.

Operating profit, before exceptional items, declined by 1% to £82m; including exceptional items, it was 10% lower at £73.2m. The LSE’s listings businesses on the main and junior markets, both remained strong, although the division recorded a 9% fall in turnover, due to a reduction in the fees it can charge following a watchdog investigation.

Since the failure of a takeover bid by Deutsche Boerse, the German Exchange, in March, the LSE has been in discussions with rival exchange Euronext about a potential takeover. The Competition Commission is reviewing the situation regarding potential bids for LSE, and the result is expected to be published in September.

May 17, 2005

World economy on downturn?

Link: World economy on downturn?

by brian_turner

A Merrill Lynch survey of fund managers has shown that investors are becoming increasingly pessimistic about the global economy and are anticipating weaker growth. Less than 25% of the 339 managers questioned in the survey expected growth to increase. Merrill Lynch said it was the most negative result since 2001.

The poll showed that attitudes had changed significantly over the last two months, with 56% of the fund managers surveyed now expecting global growth to weaken over the next 12 months. Most of the fund managers surveyed expected corporate profits to deteriorate slightly and inflation to increase. The euro was considered the most likely currency to depreciate over the coming year.

Merrill Lynch’s survey for the previous month, identified a division between investors in the US and Europe, who were cautious about the future, and investors in Asia, who were more optimistic. The latest survey showed a fundamental change, with Asian investors becoming more negative.

April 6, 2005

Pension protection moves to bonds

Link: Pension protection moves to bonds

by brian_turner

The Pension Protection Fund comes into force today, which aims to protect pension funds.

The scheme is a form of insurance protection, that every pension scheme will have to pay into. In the event that the pension scheme is unable to make agreed pension payments, the PPF will try and take over.

The scheme aims to protect 100% of retired people’s pensions, and as much as 90% of the funds being paid into by existing workers.

As reported by the BBC, the scheme has immediate consequences, not least in that its implementation could see workers of already collapsed companies protected - such as at Allders.

Reuters also reports of notable changes in the investment market’s approach to pensions after high profile pension fund failures, with fund managers returning to buy into bonds and commodities as opposed to equities.

December 15, 2004

Judge rules for Google, against Geico

Link: Judge rules for Google, against Geico

by brian_turner

GEICO’s main legal challenge against Google’s allowance of AdWords terms being triggered by trademark names, has been initially dismissed by U.S. District Judge Leonie Brinkema.

According to US Rejects Key Part of GEICO Case Against Google:

Brinkema said the case would proceed, but on the narrower question of whether Google should be barred from displaying advertisements for other insurers that contain the word “GEICO.”

Google says it already has a policy to exclude such ads. An attorney for Google told Brinkema the policy was “not perfect” but that was insufficient ground for finding against Google.

An attorney for GEICO told reporters outside court that Brinkema had given both sides part of what they wanted.

Brinkema adjourned the case for several weeks while she writes an opinion and encouraged both sides to continue settlement talks.

September 29, 2004

Google shares top trading

Link: Google shares top trading

by brian_turner

Well, if you risked buying stock in the Google IPO, you’d be laughing if you sold today:

According to Reuters, reported here:

Google’s stock touched $127.40 before finishing the Nasdaq session up $8.60, or almost 7.3 percent, to $126.86 — a gain of almost 50 percent from the company’s mid-August initial public offering price of $85.

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