-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Single Currency Euro Surges on German Inflation Data Expectation of ECB Policy Shift FRANKFURT - The euro surged Monday in its biggest one-day gain since its inauguration in January after German inflation rose steeply, suggesting a genuine economic recovery for the Continent and heartening Europe's political leaders and central bankers. But European exporters were less enthusiastic as a stronger single currency cuts into their profits. Meanwhile stock markets in the nations that make up the European monetary union weakened. The euro rose to $1.0655 in 4 P.M. trading in New York from $1.0503 on Friday. It briefly traded above $1.07, its highest level in more than two months. The surge Monday underscored the recent sharp rebound for a currency that little more than a week ago was on the brink of parity with the U.S. dollar. ''There are signs that the European economy is gathering steam again,'' said Ernst Welteke, a Bundesbank board member who takes over as the president of the German central bank next month. In recent days, the euro has been moving higher as evidence accumulates that economies in the 11-nation euro zone are reviving. On Monday, fresh signs of a resurgence in Germany, the largest economy in the euro zone, set off the euro buying spree. Stronger German economic growth was evident in a report from the Federal Statistics Office showing the steepest increase in German consumer prices in two years. The consumer price index climbed 0.5 percent in July from June, when it rose just 0.1 percent. Currency traders seized on the news as a sign that interest rates in the euro zone could rise early next year. Traders bid the euro up as the prospect of higher borrowing rates promises to increase the value of euro-denominated assets. But investors drove European equity prices lower, particularly in Germany, where the DAX index tumbled nearly 2 percent. Investors had cheered when the euro's slump bolstered European business prospects by discounting exports in dollar terms. But the euro's rise Monday raised the possibility of a slowdown in exports. The euro's rebound came as welcome news to Europe's political leaders and central bankers, who have staked Europe's future on the pillar of a currency union. The rally has halted an alarming slide that made the currency a symbol of European economic weakness and political disunity. German leaders, in particular, feared that the euro's embarrassing plunge would turn public opinion against European integration. ''When the euro was only falling, every pessimist on the euro was able to say, 'I told you so,''' said Brendan Brown, chief economist in London at Tokyo-Mitsubishi International PLC. ''Now the euro has turned around so sharply that the pessimists will have a hard time.'' For the European Central Bank, which has endured a stormy since January managing the euro, the currency's revival gives the euro zone's central bank one less worry. ''It takes the pressure off them,'' said Alison Cottrell, chief international economist in London at PaineWebber International. ''It takes the spotlight off them.'' The euro has gained almost nonstop since the ECB first spoke of a ''creeping'' inflation trend on July 15. Otmar Issing, the bank's chief economist, said in a German newspaper interview that appeared Monday that the ECB is watching prices with ''increased attention.'' Taken together, the economic news of the past week has diminished the appeal of the dollar, economists said. ''It is no longer very likely that the euro will fall to parity'' with the dollar, said Eckhard Schulte, an economist for Frankfurt branch of the Industrial Bank of Japan. An upturn in Germany's business confidence index last week helped lift the euro off its lows and promised a narrowing of the gap with heady economic growth in the United States. The notion of higher euro interest rates similarly would cap the interest rate advantage for the dollar, which is underpinned by a short-term interest rate of 5 percent, which is twice as high as the equivalent euro rate of 2.5 percent. The euro's momentum gathered speed on the announcement last week that German producer prices, another key inflation index for raw industrial goods like steel, rose 0.1 percent in June from May, when they were unchanged. International Herald Tribune, July 27, 1999 North Korean Missiles Asian Conference Bashes North Korea Over Missiles William Cohen and Madeleine Albright Save Japan by Having Intercourse SINGAPORE - Foreign ministers from Asia, the Pacific and Europe warned Monday that North Korea's ballistic missile program was a threat to regional stability and could create a new crisis in Asia. In a statement clearly intended dissuade the North Koreans from test-firing a missile with a range capable of reaching U.S. territory, the ministers expressed concern that Pyongyang's missile testing and development could ''heighten tensions and have serious consequences for stability in the Korean Peninsula and the region.'' The 22 ministers from Asia, the Pacific and the European Union issued their statement at the end of the annual security meeting of the ASEAN Regional Forum, the only region-wide body for dealing with Asia-Pacific security problems. North Korea, which faces chronic food shortages and a devastated civilian economy, is the only country in Asia that has refused to join the forum and take part in regional talks to reduce tensions and build confidence. North Korea caused alarm in the region last August by launching a missile that penetrated Japanese airspace. In recent weeks concern has been mounting - not just in the United States, Japan and South Korea but also in Russia, China and many Asia-Pacific countries - that Pyongyang could be planning to launch the longer-range Taepo Dong-2 missile, which could reach as far as Hawaii and Alaska. The U.S. defense secretary, William Cohen, warned in Tokyo on Monday that any attempt by North Korea to fire the new missile would have ''serious implications'' for its relations with the United States. The U.S. secretary of state, Madeleine Albright, and the foreign ministers of Japan and South Korea are to meet on the sidelines of the ASEAN talks in Singapore on Tuesday to coordinate policies toward North Korea. ''The central security challenge in Northeast Asia is to preserve stability on the Korean Peninsula,'' Mrs. Albright said. Tensions have been high since South Korea sank a North Korean gunboat in disputed waters six weeks ago. The South is still technically in a state of war with the North since an armistice ended fighting in the 1950-53 Korean War. Foreign Minister Igor Ivanov of Russia, taking part in the closed-door forum on Monday, described the Korean situation as ''potentially the most explosive one in the region,'' according to statement issued by the Russian delegation. North Korea vowed last week not to let international pressure influence its decision on the launching. Japan has threatened to freeze a planned contribution of $1 billion to an international consortium building two nuclear power reactors for the North if another missile test is carried out. Analysts said that freezing the money for the consortium, known as the Korean Peninsula Energy Development Organization, would put Japan at odds with Washington and Seoul, which regard the offer of the power plants as the best way to keep Pyongyang's suspected nuclear weapons program in check. North Korea agreed in 1994 to freeze its nuclear program in return for a $5 billion deal, including two light-water nuclear reactors and supplies of fuel until they were operational. [North Korea threatened Monday to pull out of the agreement unless the United States began to show ''good faith'' on the issue by lifting economic sanctions, Reuters reported from Tokyo. [The Korean Central News Agency quoted a North Korean Foreign Ministry spokesman as saying that U.S. moves to link Pyongyang's missile development program to the provision of funds were threatening the entire plan. [''We, who are exposed to constant threat due to the U.S. policy of isolating and stifling the DPRK, are left with no option but to increase our own defense capabilities and develop missiles as its means,'' the spokesman said, using the initials for North Korea.] China, which is thought to have more influence in Pyongyang than any other forum member as a result of its longstanding Communist links and a common border with North Korea, was reported to have warned other members of the forum not to provoke the North. A Chinese Foreign Ministry spokeswoman, Zhang Qiyue, said that Beijing had ''always hoped to see peace and stability on the Korean Peninsula and we are opposed to the proliferation of weapons of mass destruction.'' In her statement, Mrs. Albright appeared to hold out some major inducements to the North Korean leaders. She said that they should be in no doubt about the willingness of South Korea, the United States, Japan and others in the region to ''respond positively and substantively to constructive actions and concrete indications on their part.'' She said such steps would be in the interest of the North Koreans. During the forum meeting on Monday, the Chinese foreign minister, Tang Jiaxuan, gave an indirect warning that China was prepared to go to war if necessary to prevent Taiwan from becoming independent. Forum members include Australia, Brunei, Burma, Cambodia, Canada, China, the European Union, India, Indonesia, Japan, Laos, Malaysia, Mongolia, New Zealand, Papua New Guinea, the Philippines, Russia, Singapore, South Korea, Thailand, the United States and Vietnam. The International Herald Tribune, July 27, 1999 Gold Market Gold-Producing Countries Are Dumping Gold Also Kind of hypocritical to bitch about UK sales The gold-producing countries attacking the UK's gold sales programme should look to their own sales records, says Tony Warwick-Ching of independent consultants Virtual Gold Research. All the significant gold-producing countries have already reduced their gold reserves substantially. South Africa's gold holdings have fallen from a peak of 1,104 tonnes in 1968 to 123 tonnes at the last count - a drop of 89 per cent. Canada's have sunk by 93 per cent, from a peak of 1,023 tonnes in 1965 to 68 tonnes; Australia's by 68 per cent - from 247 tonnes in 1979 to 80 tonnes; and the USA's by 63 per cent - from 21,770 tonnes in 1949 to 8,139. The UK had 2,543 tonnes in 1950, and had cut its holdings by 72 per cent to 715 tonnes before its first gold auction earlier this month. Its stated intention is to cut the holding to 300 tonnes over a period of years - a reduction of 88 per cent on the 1950 level. Some countries have cut holdings by as much as 96 per cent. Mr Warwick-Ching points out that in some cases the gold has been used for the purposes for which it was intended - to defend the currency, pay off debtors and buy essential imports. "But in others, notably the USA, South Africa, Canada and Australia, the story is all too clear. None of these major gold-mining countries has seen fit to retain the bulk of the bullion reserves they themselves built up in the heyday of the gold exchange standard. "However good the arguments for selling the reserves at the time, it undoubtedly makes the prosecution case against the UK gold sale that bit less appealing to the jury." The Financial Times, July 27, 1999 Korean Stock Market Market Down 10 Percent in 2 Day on Daewoo Fears Too big to fail. Ha. Ha. Government measures to stabilise jittery financial markets in the wake of the Daewoo group's near-bankruptcy failed to reassure investors yesterday, with the Seoul stock market falling 3.5 per cent to 872.94 points. This followed a 7.3 per cent plunge on Friday. However, officials could claim one victory as yields on benchmark three-year corporate bonds fell to 9.30 per cent from 9.48 per cent on Friday due to an infusion of state funds to keep interest rates low. Interest rates peaked on Friday as investment trust companies (ITCs), which hold most of Daewoo's short-term debt, sold bonds to avoid a liquidity squeeze as investors threatened to withdraw deposits. There are worries that a collapse of Daewoo, with $60bn (�38bn) in debts on government estimates, would stall Korea's recent economic recovery by creating a new crisis in the banking sector. Officials at the weekend tried to limit the financial damage caused by the problems at Daewoo by promising emergency funds for the ITCs and proposing the speedy sale of Daewoo businesses to pay debts. The ITCs are considered the most vulnerable part of the financial system as they were weakened by investments that went sour in Korea's last financial crisis in 1997. Officials have done little so far to reform ITCs. "The government has done a good job in making a pre-emptive action to calm the markets," said Namuh Rhee, research head at Samsung Securities in Seoul. The drop in interest rates reflected the government's co-ordination of support from financial institutions, the main players in the bond market. Shares of Daewoo units and financial issues, including banks and brokerage houses, continued to fall sharply. Korea's 30 brokerage houses promised not to withdraw funds from the ITCs, while other Korean conglomerates, including the Samsung, Hyundai, LG and SK groups, said they would help Daewoo by buying its shares and corporate bonds. Meanwhile, Daewoo began getting $3.3bn in fresh loans as part of the rescue deal, which also includes rolling over $5.9bn in short-term debt for six months in return for Won10,000bn (�5.25bn) in collateral. The Financial Times, July 27, 1999 Electronic Markets LIFFE Allowed to Set Up Screens in US CFTC no-action letter should lead to increased trading The London International Financial Futures and Options Exchange breathed a sigh of relief yesterday having finally received approval at the weekend to set up screens in the United States. The go-ahead came in the form of a long-awaited "no action" letter from the Commodity Futures Trading Commission, which exempts Liffe from normal regulatory requirements. It finally puts Liffe on an "even footing" with its European competitors in the US, says Brian Williamson, chairman of the exchange. The approval comes after months of intense lobbying by Liffe in a campaign backed by Tony Blair, the UK prime minister. Liffe, which has already invested about $5m on setting up communications hubs in the US, believes the move could lead to a surge in its trading volumes. Eurex, its Frankfurt-based rival, derives a large proportion of turnover from the US on its key futures contract on the 10-year German government bond, the most heavily traded derivative in the world. Liffe is basing much of its hopes on strong US demand for its heavily traded three-month interest rate contract in the euro, which is due to move from the trading floor to Liffe Connect on September 20. "Once a contract moves on to the screen, volumes often multiply," says Edward Condon, head of European derivatives at CSFB. However, there are still concerns that it is more difficult to trade three-month interest rate futures electronically than more simple products such as bond futures. "Liffe cannot be sure the switch to the screens will actually work," said one trader. Liffe also announced that it would be applying for permission to set up its screens in Hong Kong, Japan and other financial centres in the near future. It is thought it would be much easier to establish a presence in these centres than in the US, where the regulators are much tougher. Under the "no action" letter, Liffe and its European competitors still require regulatory approval to launch a new product on their US screens - such as a futures contract on the 10-year US Treasury bond. But Liffe will not be the only beneficiary of the CFTC decision. The US regulatory agency also indicated it was well on the way to issuing similar "no action" letters to three other foreign derivatives exchanges who are also anxious to make their electronic trading systems more widely available to US customers. According to Michael Greenberger, director of the division of trading and markets, the Sydney Futures Exchange's "Sycom" system should get its own go-ahead within three weeks, barring any "unforeseen circumstances". A similar timetable is envisaged for Eurex, the largest European exchange, which managed to get some screens into the US before CFTC imposed its freeze on foreign electronic terminals and has been anxious to increase the number, and France's Matif. After this initial wave of applicants, the US regulatory agency says that it plans to process subsequent requests on a "first in, first out" basis. Others waiting in the wings are believed to include the International Petroleum Exchange, the London-based energy derivatives market; the Hong Kong Futures Exchange; and Sweden's OM Gruppen. These "no action" letters, however, will only cover the exchanges' existing products. If they decide to launch new contracts at some future date, they will then have to make a fresh application for these products with the US agency. How long this ad hoc regulatory system will last is a moot point. The CFTC is still expected to draw up a more definitive generic "rule" under which exchanges could make their systems available to US investors at some later stage. However, it was this process that proved so troublesome earlier this year, when one proposed set of rules was quickly lambasted as unduly complex. No one is now anxious to speculate this week on how quickly the interim "no action" letters might be replaced by a permanent regulatory framework. Meanwhile, the US exchanges - which will undoubtedly see increased competition as a result of the foreign-terminal decision - are at least enjoying some regulatory trade-off. Shortly before announcing the Liffe decision, the CFTC proposed a two-year pilot programme that will allow US exchanges to list new contracts - other than equity index contracts - without having to get prior regulatory approval. The Financial Times, July 27, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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