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OECD Economic Survey of Iceland 2011
June 21, 2011--Summary
Iceland is resolving the economic problems left by the financial crisis. It is well advanced in implementing the comprehensive programme agreed with the IMF. The economy stopped contracting by late 2010 and a consumption and business investment-led recovery is projected to gather momentum, lifting economic growth to 3 per cent by 2012. Inflation is projected to remain low and the underlying current account surplus to be sustained.
Much has been done to restore the financial sector to health. The banking system was recapitalised by the end of 2009 and steps have recently been taken to accelerate private-sector debt restructuring. Reforms have been made to regulation and supervision to address shortcomings exposed by the financial crisis. The Central Bank of Iceland (CBI) and the Financial Supervisory Authority (FME) have signed a co-operation agreement to strengthen macro-prudential supervision, although policy implementation could be more effective if the FME were merged into the CBI, thereby expanding the CBI’s responsibilities to include prudential regulation and supervision. A strategy to relax capital controls was recently adopted, with a period of liberalization likely to span several years.
The monetary policy framework needs to be strengthened. Monetary policy alone has not been very effective either in countering the credit cycle or in delivering price stability. To improve performance, the CBI should adopt an inflation targeting regime that places greater weight on smoothing fluctuations in the exchange rate and is supported by fiscal policy and macro-prudential regulation. In the event that Iceland joins the EU, it should seek to adopt the euro as quickly as possible.
The government has begun to put the public finances on a sustainable path. The budget deficit is set to fall below 3% of GDP in 2011, and a small surplus is projected by 2013. The fiscal framework has been strengthened but the government should go further by adopting a medium-term budget balance fiscal rule consistent with a debt target.
view overview of OECD Economic Surveys
ICELAND
Source: OECD
Eurozone current account shows EUR 5.1bn deficit
June 20, 2011-- The eurozone's current account balance worsened in April to show a deficit of 5.1 billion euros ($7.3 billion), the European Central bank said Monday.
The ECB also revised the figure for the month of March in the 17-nation area to a deficit of 3.0 billion euros from an initial estimate of 4.7 billion euros.
The current account on the balance of payments, which includes imports and exports in both goods and services plus capital transfers, is a closely tracked indicator of a country's or area's ability to pay its way in the world.
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Source: EUbusiness
Italian stocks plunge after Moody's credit warning
June 20, 2011-The main Milan stock exchange index fell by more than two percent at the start of trading on Monday after Moody's warned it may cut Italy's credit rating in view of strains in the economy.
Banking stocks were among the worst affected, with shares in Intesa San Paolo dropping 2.42 percent to 1.775 euros and UniCredit plunging 2.36 percent to 1.487 euros following Moody's announcement on Friday.
Eurogroup head Jean-Claude Juncker also warned on Saturday that the euro crisis hitting Greece and others could affect Italy and Belgium, saying in an interview with a German daily: "We are playing with fire."
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Source: EUbusiness
New EDHEC-Risk Institute research highlights the dangers of accounting and sponsor risk for corporate pension plans
June 20, 2011--A new study entitled “The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans,” drawn from the AXA Investment Managers “Regulation and Institutional Investment” research chair at EDHEC-Risk Institute, surveys how pension funds and sponsors manage the main risks they face and how institutional constraints—accounting and prudential regulations, the organisation of the relationship between the pension fund and its sponsor, and social laws—influence the investment strategy of sponsors and pension funds.
The survey elicited 100 responses. The assets under management (AUM) of the pension funds with which the respondents are associated amount to more than €730 billion. Sponsoring companies have a total balance sheet size of more than €5.5 trillion.
Among the main results of the survey:
Sponsors of pension funds are concerned primarily about the economic risk of facing higher than expected pension costs—95% mention this risk. 93% of respondents mention accounting risk, the reported cost of pensions in the sponsors’ books as opposed to the true cost of providing pensions, and the balance sheet volatility it causes. Reputation risk comes third.
For pension funds (especially for traditional defined-benefit ones), the main risk is sponsor default and reduced pensions or curtailment. Respondents rank sponsor risk as the greatest risk in pension funds (77% mention this risk, usually with the greatest intensity).
However, 84% of pension funds do not manage sponsor risk. The primary reason in Europe for not managing sponsor risk is the presence of pension fund insurance (46% of respondents). In “other reasons”, 15% of respondents argue that the pension fund’s sponsor is a government or quasi-government entity, and 4% of respondents have purchased protection from sponsor insolvency.
view EDHEC-Risk Publication: The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans
Source: EDHEC-Risk Institute
FESE European Equity Market Report - May 2011 Figures
June 20, 2011--FESE has published the ‘European Equity Market Report’ which gathers data from all the market segments operated by FESE members (including Regulated Markets and Multilateral Trading Facilities) as well as from the major MTFs operated by investment firms in the European market. The FESE Statistics Methodology used in the Report has been agreed by all the trading venues involved, both RM and MTFs.
view report
Source: FESE
Netherlands to ease rules on pension provider / financial product link
June 17, 2011--Dutch social affairs minister Henk Kamp has said he intends to allow pension providers to link their financial products to their affiliated, mandatory industry-wide pension funds.
In a letter to parliament, he announced a bill that would allow providers to indicate this connection to institutional players, but would maintain the ban on mentioning the link to consumers.
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Source: IP&E
Europe Factors-Shares Set to Fall Again on Debt Woes
June 17, 2011--European stock index futures pointed to losses on Friday, with the region's benchmark indexes set to record a seventh straight weekly loss, on mounting concerns that Greece might not be able to avoid a debt default.
By 0617 GMT, futures for Euro STOXX 50 STXEc1, for Germany's DAX FDXc1 and for France's CAC FCEc1 were down 0.4-0.6 percent. Greek Prime Minister George Papandreou, facing public unrest and a split in his party that could push the country closer to default, delayed announcement of a new cabinet late on Thursday in what looked like a signal he was struggling to find the right person for the key financial minister position.
Source: Reuters
Agricultural derivatives segment at Eurex hits important milestone
Threshold of 100,000 traded contracts passed in mid June
June 17, 2011--The international derivatives exchange Eurex today announced that the number of traded agricultural derivatives exceeded 100,000 contracts since their launch in July 2009. Volume has been increasing steadily, partly due to the volatile weather conditions in 2011 and 2010.
Year-to-date, the average daily volume (ADV) is above 300 contracts, or around 38,000 contracts in total. In June 2011, the ADV stands at almost 400 contracts. In 2010, the ADV was around 200 contracts.
Eurex offers six agricultural futures based on butter, European processing potatoes, hogs, London potatoes, piglets and skimmed milk powder. All futures are based on established reference prices from the respective spot markets and are settled in cash.
Eurex’s agricultural contracts are aimed at a broad group of users, including farmers and agricultural cooperatives, trading and slaughter companies and the processing industry. For them, on-exchange traded agricultural derivatives increase the price transparency while the central clearing of these contracts at Eurex Clearing mitigates the counterparty risks which are existent in OTC markets.
Source: Eurex
Decade of soaring food prices forecast
June 17, 2011--The world should prepare for a decade of high food prices, two leading organisations warned on Friday as they raised their expectations for prices on the back of sluggish production growth.
“Agricultural commodity prices in real terms are likely to remain on a higher plateau during the next decade compared to the previous decade,” the UN Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development said in their annual agricultural outlook.
The agencies predicted that cereal prices, adjusted for inflation, would be as much as 20 per cent higher on average over the next 10 years compared with the previous decade, while meat prices would be up to 30 per cent higher
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Source: FT.com
Capital requirement fears ease for UK banks
June 17, 2011--London’s banks recovered their poise in afternoon trade on Friday as worries about new international capital requirements eased as risk appetite improved on hopes a Greek rescue deal was moving closer.
Reports in the Financial Times said international regulators would meet in Switzerland next week to discuss plans for a tiered regime of additional capital requirements for about 30 of the world’s biggest banks. The group was said to include HSBC, Royal Bank of Scotland and Barclays. All of them fell for much of the day, as sentiment suffered at the hands of the Greek debt crisis. But as sentiment improved, the sector picked up some support. Barclays rose 0.9 per cent to 256.2p having lost almost 1 per cent earlier in the day. RBS recovered from similar losses to tick 0.1 per cent higher overall to 40.3p. Lloyds Banking Group dallied under the flatline, down 0.1 per cent at 47.9p, as did HSBC, 0.4 per cent softer at 605.6p.
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Source: FT.com
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