WEDNESDAY, JANUARY 18, 2012 – 08:15
WASHINGTON (MNI) – Top events and news reported Wednesday in the global financial system. Republished from “Market News International”
The World Bank slashed its outlook for the global economy this year as a result of renewed financial market turmoil, warning that a Lehman-style crisis and much sharper downturn could follow if more high-income countries face problems financing their deficits. In a gloomy assessment of world conditions, the Washington-based institution said the global economy is now expected to grow by 2.5% this year and 3.1% in 2013 versus its June forecasts of 3.6% for both years. “The global economy has entered a dangerous phase. Concerns over high-income fiscal sustainability have led to contagion, which is slowing world growth,” it said in its latest Global Economic Prospects report.The bank warned that both advanced and developing countries no longer have the fiscal and monetary ammunition to withstand a 2008-style slump. [Repeated 07:12 ET]

* Fears that Portugal could be the next Eurozone member to restructure its debt drove up yields on the country’s sovereign bonds Wednesday as the cost of insuring them rose to a record high. Credit default swap contracts on Portugal climbed 62 basis points to 1,240, signalling a 64 percent probability of default within the next five years, according to the financial information firm Markit. Yields on Portugal’s 2-year notes climbed 9 basis points to 15.24%, while its 10-year bond yields rose 5 basis points to 14.30%. Analysts said the continuing deterioration this week has stemmed from worries that a disorderly Greek default could leave Portugal exposed as the next most vulnerable EMU country. [07:26 ET]

* Goldman Sachs Wednesday reported net revenues of $28.81 billion and net earnings of $4.44 billion for the year ended December 31, 2011. Diluted earnings per common share were $4.51 compared with $13.18 for the year ended December 31, 2010. Fourth quarter net revenues were $6.05 billion and net earnings were $1.01 billion. Diluted earnings per common share were $1.84 compared with $3.79 for the fourth quarter of 2010 and a diluted loss per common share of $0.84 for the third quarter of 2011. “This past year was dominated by global macro-economic concerns which significantly affected our clients’ risk tolerance and willingness to transact,” said Lloyd Blankfein, Goldman CEO. [07:54 ET]

* U.S. mortgage applications increased 23.1% from one week earlier (last weeks results included an adjustment for New Years Day), according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 13, 2012. The Refinance Index increased 26.4% from the previous week to its highest level since August 8, 2011. The seasonally adjusted Purchase Index increased 10.3% from one week earlier to its highest level since December 12, 2011. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.06% from 4.11%. [07:00 ET]

* For the week ending January 14, 2012, weekly retail sales rose by 0.1%, according to International Council of Shopping Centers (ICSC) and Goldman Sachs Weekly Chain Store Sales Index. In addition to the weekly increase, retail sales on a year-over-year basis bounced back and rose by 3.0%. [07:45 ET]

* The outlook for slowing oil demand growth has capped the upside for price prospects, while supply risks are providing a floor, the International Energy Agency explained Wednesday in its monthly Oil Market Report. These two “inherently destabilizing” factors have lent stability to the market, the IEA said. “But if it derives from the ‘rock’ of potential economic slump on the one hand and the ‘hard place’ of possible geopolitical turmoil on the other, that is scarcely a source of comfort.” As a result of the “significantly lower starting point” for this year, the IEA revised down its projection for average full-year demand by 200 kb/d to 90.0 million b/d, affecting mainly the first half. Demand is now seen rising by 1.1 mb/d this year instead of 1.3 mb/d. Weaker demand growth should reduce the reliance on OPEC supply and/or inventories this year, the IEA reasoned, trimming its projected OPEC/stocks call by 200 kb/d to 30.0 mb/d, down 500 kb/d from last year’s average. [04:00 ET]

* The German government has cut its GDP growth forecast for this year to 0.7% from the 1.0% figure projected in October, Economics Minister Philipp Roesler said Wednesday, presenting the government’s new annual economic report. In a first forecast for 2013, the government projects GDP growth to accelerate again to 1.6%. Due to a difficult foreign economic environment, the German economy will experience “a temporary growth bump” over the coming months, Roesler said. “In the course of 2012, the economy will gradually pick up again,” he predicted. [05:39 ET]

* UK claimant count unemployment rose only slightly in December suggesting the labour market has not deteriorated as badly as most economists expected, figures released by National Statistics Wednesday. The claimant count rose 1,200 between November and December, less than the median for a 9,000 rise. There was also a downward revision to November which now shows just a 200 increase in contrast to the increase of 3,000 published previsouly. Most headlines will highlight the fact that the ‘official’ ILO measure of unemployment was up 118,000 in Sep-Nov 2011 compared with the previous three month period, hitting its highest level since 1994. [04:30 ET]

* UK Prime Minister David Cameron told parliament that a change in the way young people are classified as unemployment is, in part, to blame for the rise in youth unemployment. Cameron said the classification change, under which young people on various work schemes are now counted as unemployed, was justified but has driven up jobless levels. He also took encouragement from a rise in private sector employment. “There is a fundamental difference between the way this government measures youth unemployment and the way the last government did,” Cameron said. [07:39 ET]

* As regulators continue to implement Dodd-Frank reforms while the financial industry continues its attempts to water down the efforts, the Volcker rule, one of the major regulatory reforms, is no exception. A House Financial Services subcommittee on capital markets will hold a hearing Wednesday on the rule, and will hear arguments for loosening, if not repealing, the proposal issued in November that imposes key restrictions on certain banking activities, given testimonies prepared for delivery by financial industry executives and officials which were released Tuesday. [07:16 ET]

* Chinese house prices fell for a third month on a sequential basis in December, providing fresh evidence that the property market is cooling nationwide on the back of government tightening. Nationwide, prices rose 1.6% in December on the year, down from November’s 2.3% increase and +2.9% in October, according to a weighted average of prices in the 35 largest cities calculated by Market News International. But prices dropped 0.29% m/m last month, a slightly steeper drop than November’s -0.26% and October’s 0.14% fall. Prices were flat m/m in July, August and September. [Repeated 07:2 ET]

* European Commission President Jose Manuel Barroso Wednesday told EU governments that more action to boost economic growth was essential to ending the Eurozone’s sovereign debt crisis. “More and more, our partners and international investors are asking the following question: what is Europe’s medium and long-term prospect for growth? It is clear that we will not overcome this crisis without a credible response to the question of growth,” Barroso said in Strasbourg. [07:01 ET]

* Construction activity in the Eurozone recovered somewhat in November, retracing a third of the slide since July, as an upturn in building offset a further decline in civil engineering, Eurostat said Wednesday. The 0.8% monthly gain left activity 0.2% higher on the year but only 2.5% above the nearly 15-year low during the cold December of 2010. October-November results were down 2.0% from the 3Q average. Building activity recovered 0.4% in November to stand 0.5% higher on the year. [05:00 ET]

–Editor: Brai Odion-Esene, [email protected]

** Market News International Washington Bureau: 202-371-2121 **