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The short lived Czech and Slovak monetary union has been in the spotlight
again as the referendum vote on Scottish independence looms on Thursday. A
similar currency union allowing Scotland to keep the pound is one of the
targets of those backing independence.

Japanese shares fell for a second
day, after the Topix (TPX) index posted five days of gains, as
investors awaited a Federal Reserve policy decision.

Mitsui OSK Lines Ltd., Japan’s second-largest shipping
line, fell the most on the Nikkei 225 (NKY) Stock Average after a
measure of commodity freight rates slumped yesterday. Mitsui
Fudosan Co. paced a decline among real estate companies. JFE
Holdings Inc., Japan’s second-largest steelmaker, rose 0.6
percent on saying it will discontinue a feasibility study for a
steel project in Vietnam.

The Topix slid 0.5 percent to 1,304.96 at the close in
Tokyo, with more than two shares falling for each that rose,
after dropping 0.2 percent yesterday. The measure gained 1.6
percent last week, advancing every day. The Nikkei 225 sank 0.1
percent to 15,888.67 today.

“With the Nikkei 225 just short of the 16,000 mark,
investors are taking profits” before the Fed meeting, said
Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset
Management Co. “Japanese shares have risen quite far, so
investors that want to buy are in wait-and-see mode and those
that want to sell are taking profits.”

Officials at the US central bank are considering how much
progress toward their goals of full employment and stable
inflation would be needed to prompt the first interest-rate
increase since 2006. They will outline their outlook for the
economy in quarterly projections for growth, unemployment,
inflation and the benchmark federal funds rate.

Energy Rally

Futures on the Standard amp; Poor’s 500 Index slipped 0.1
percent. The underlying equity benchmark rose 0.8 percent
yesterday as rising oil prices spurred a rally in energy shares
and China’s central bank reportedly started providing about $81
billion in loans to its biggest banks.

China’s central bank joined its European counterpart in
boosting liquidity to address weakening growth, underscoring a
divergence in direction among the world’s biggest economies as
the US reduces stimulus. The People’s Bank of China is
injecting 500 billion yuan ($81 billion) into the nation’s
largest banks, according to a government official familiar with
the matter.

Shippers retreated in Japan after the Baltic Dry Index
slumped 2 percent yesterday, the most since July. Nippon Yusen
KK, the biggest, declined 1.6 percent to 300 yen. Mitsui OSK
dropped 3.5 percent to 359 yen, its largest decline since May 7.
Kawasaki Kisen Kaisha Ltd. lost 3.2 percent to 246 yen.

Financial Stocks

Financial shares also retreated. Mitsui Fudosan lost 2.2
percent to 3,288.5 yen. Mitsubishi UFJ Financial Group Inc.,
Japan’s No. 1 lender, lost 0.8 percent to 609.7 yen. Mizuho
Financial Group Inc. sank 1.2 percent to 199 yen.

JFE Holdings climbed 0.6 percent to 2,162 yen. The company
canceled a feasibility study for an integrated steel mill in
Vietnam after determining the project would not be profitable,
the Nikkei newspaper reported. Credit Suisse Group AG raised its
share price target on the stock to 3,100 yen from 2,600 yen
while maintaining its outperform rating.

The Topix rebounded 15 percent from an April 14 low amid
optimism about the global economy and speculation Japan’s $1.2
trillion Government Pension Investment Fund will buy more
domestic shares. The equity gauge traded at 1.3 times book value
today, compared with 2.7 for the Samp;P 500 yesterday, according to
data compiled by Bloomberg.

To contact the reporters on this story:
Anna Kitanaka in Tokyo at
akitanaka@bloomberg.net;
Yuko Takeo in Tokyo at
ytakeo2@bloomberg.net

To contact the editors responsible for this story:
Sarah McDonald at
smcdonald23@bloomberg.net
Tom Redmond

Chinese inflation eased to a four-month low of 2 percent in August with analysts saying the data could allow financial leaders to further ease monetary policy.

The Consumer Price Index (CPI), a main gauge of inflation, increased 2 percent year on year in August, compared with 2.3 percent in July.

Higher food prices were the main contributor to the CPI growth, Food prices in August rose 3 percent from a year ago, lifting the CPI by 1.01 percentage points, according to the National Bureau of Statistics.

The figures come at a time of concern over Chinas economy as the effects of mini-stimulus measures this year to prop up slowing growth have waned and fears of a bust in the property sector intensify.

Augusts results were also lower than the median estimate of 2.2 percent in a survey of 15 economists by the Wall Street Journal. The government in March set a target of 3.5 percent for the year.

Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can weigh on growth.

Despite the August drop, analysts said the outlook is for higher inflation in the coming months as utility prices rise and depleted pig stocks push up pork prices and overall food costs.

Economist Hua Changchun and colleagues at Nomura said in a report that inflation is expected to remain moderate in September, leaving room for further policy easing.

It will then start to go up and keep rising to an average of 3 percent in 2015 on tight labor market conditions, the hog cycle and price liberalization in the utility sector, they added.

With consumer inflation at a relatively moderate level, Chinas producer price index (PPI)–a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI– dropped 1.2 percent year on year in August, marking a decline for 30 months in a row, according to the NBS.

The result compared with a decrease of 0.9 percent in July. The last PPI increase was in January 2012, when it rose 0.7 percent.

Some economists have expressed concern, saying the deflation risk is rising in China. We are not optimistic about the oversupply of industrial goods as overcapacity still weighs on industrial product prices, said Yu Qiumei, a senior NBS statistician.

But not all were as worried. This is not a major cause for concern since it appears that firms are mostly just passing on lower industrial input costs, as a result of falling commodity prices, rather than slashing their profit margins in response to weak demand, Julian Evans-Pritchard, China economist at Capital Economics, said of the PPI decline.

Two members of the Bank of Englands interest rate setting committee maintained a hawkish stance on interest rates this month and voted for a second time to raise rates.

The nine-strong monetary policy committee (MPC), which meets every month to set the central banks base rates, voted at their September gathering to maintain the lowest rates in British history at 0.5%, according to minutes of the gathering.

Martin Weale and Ian McCafferty, both external members of the committee, pushed for a hike to 0.75% in response to lower unemployment and a tightening labour market.

But the remaining seven, including the Bank of England governor Mark Carney, agreed that the failure of wages to rise above the rate of inflation meant there was little domestic pressure on prices over the next couple of years.

Analysts said recent data on pay and inflation showed the UK recovery remained fragile. Ben Brettell, senior economist at financial advisers Hargreaves Lansdown, said: In the absence of inflationary pressures, leaving rates on hold is a fairly straightforward decision, and it is no surprise that mpc members McCafferty and Weale remain alone in calling for an increase to 0.75%.

With CPI inflation at a five-year low, and set to remain significantly below target well into 2015, the first move wont come until after next years election.

Average annual pay rose by only 0.7% in the three months to July excluding bonuses while inflation in the same month stood at 1.6% – and fell further to 1.5% in August.

Chris Williamson, chief economist at the financial data provider Markit, said the majority of MPC members will want to see pay rising in real terms before deciding that higher interest rates are justified. While it seems possible that more will join the two MPC dissenters in coming months if wage growth picks up, it looks a long way to go before a majority on the MPC vote to raise interest rates, he said.

The minutes reported: For most members, there remained insufficient evidence of prospective inflationary pressures to justify an immediate increase in bank rate. These members put forward a number of arguments, on which they each placed different weights. There were more indications, from business surveys, from export indicators and from the housing market that growth was likely to ease a little; and the downside news in the euro area had increased the risks to the durability of the domestic expansion in the medium term.

Inflation was below the target and there were few signs of inflationary pressures: import prices were falling, and the depressing impact on prices of past increases in the exchange rate had yet fully to feed through.

More significantly, unit labour costs were currently growing at a rate well below that consistent with meeting the inflation target in the medium term, it said.

The committee also discussed risks to the global economy that could have an impact on the UKs recovery, but while the disputes in Ukraine and the Middle East were regarded as a threat to trade and growth, it noted that markets were unusually calm.

Geopolitical risks had also risen, with renewed tensions between Russia and Ukraine, and in the Middle East. The direct links between the affected regions and the United Kingdom were small and the measures imposed so far were unlikely to have any material direct effect on the outlook.

That said, further escalation had the potential to lead to disruption to energy markets and reductions in investor risk appetite and business confidence. Against that backdrop, the continued low level of volatility in a number of financial markets, particularly that for crude oil, remained remarkable.

As the Wizard of Oz celebrates its 75th anniversary with the release of a 3D
film, we examine if the original childs fairy tale is actually an allegory
of American monetary politics.

The Wonderful Wizard of Oz was penned by author Frank Baum in 1900, a
time in which the American economy was recovering from a prolonged period of recession
and deflation.

In 1964, American high school teacher, Henry Littlefield linked the characters
and plot of the childs tale to the monetary politics of the time. For
Littlefield, Oz represented a vibrant and ironic portrait
of the US on the eve of the 20th century. His claims have been fiercely
disputed by many every since, including the authors great-grandson, but the
tale of Dorothy and her journey on the yellow brick road is still used as a
teaching aid for American school children. Heres what lays behind the
claims and counter-claims.

By CentralBankNews.info
Last week in global monetary policy the central banks of Chile and Peru continued their easing cycles while the Philippines ratcheted up rates further as geopolitical tensions, including the possible independence of Scotland, dominated sentiment in financial markets.
Amid the growing prospects of armed intervention by an international coalition in Syria and Iraq, there was uplifting news from the euro area where finance ministers last Friday showed their willingness to support the European Central Bank’s (ECB) plea for fiscal stimulus and structural reforms to help stimulate demand now that its rates are at rock bottom and asset purchases over the coming months will help enlarge its balance sheet.
Through the first 37 weeks of this year, the 90 central banks followed by Central Bank News have cut their policy rates 48 times, or 14.2 percent of all policy decisions, up from 12 percent at the end of the first half and 12 percent at the end of the first quarter.
Meanwhile, rates have been raised 36 times, or 10.6 percent of all policy decisions, up from 9.3 percent at the end of June and 8.7 percent at the end of March.

It has only been a week-and-a-half since the Scottish independence debate exploded into life – or at least into our consciousness. Saturation media coverage since the first intimations of a Yes vote has focused attention on the possible break-up of the only contemporary example of a successful European monetary union. A remarkable aspect of the outpouring of commentary, analysis and debate has been the monolithic view of the British: in love letters, begging letters, poems, songs, threats and promises it has been almost impossible to find anyone willing to say a happy goodbye to Scotland. Foreign commentary, including plenty emanating from this island, has found it hard to resist the temptation to stick one on the English.

Parallels with Canada have been obvious. A process that culminated in a narrow decision by Quebec to stay within the Federation had its own long-lasting economic consequences, not least in the orderly evacuation of Montreal by Canada’s financial industry. The banks’ move to Toronto was not reversed, or even really slowed down, when it became apparent that Quebec would stay part of Canada. Once that decision had been taken, things went (relatively) quiet; there was no political earthquake but key businesses found that not worrying about Quebec nationalism is a very congenial state of affairs. It’s impossible to quantify, but some economists think that investment in Scotland has already been damaged.

Just about everybody has joined the debate; politicians across the spectrum have displayed a rare degree of unity, one usually only seen during war time. There isn’t really a hard left or right in British politics any more, just centre-left to centre-right. Uniquely, that soggy middle is of one unionist voice.

While the make whole decision
can be dealt with by clearer drafting, there is no way for
investors to address the ruling on cramdown, said Gary Kaplan,
a New York-based bankruptcy partner at Fried Frank. The
concern for a secured lender is that other than having a higher
rate to begin with, there really isnt an easy drafting or
structural way around this risk.

Impact

The ruling could tarnish the
USs image as a creditor friendly market.

Security for lenders has
allowed distressed companies to restructure their debt without
the expense or burden of bankruptcy. This decision could
reverse this trend by chilling lenders willingness to lend to
a troubled company, said Bane.

The ruling could also mean
secured creditors in future cases receive less than unsecured
lenders. The US bankruptcy code requires unsecured lenders to
be paid the claim in cash or other forms, which can and often
does include stock. Being able to receive stock while secured
creditors have new notes with very low interest rates could
leave unsecured creditors better off.

If the ruling is upheld,
secured creditors may see their leverage in the bankruptcy
process dwindle, sparking them to look for earlier compromises.
For their part, debtors could potentially use the decision as a
way to secure cheaper financing.

Judges
reasoning

The judge in this case
followed US Supreme Court precedent relating to a different
bankruptcy chapter.

Its 2004 Till v SCS Credit
Corp ruling cemented a federal court decision that created
a formula to calculate how much a debtor must pay a secured
creditor in a Chapter 13 bankruptcy. Chapter 13 is limited to
individuals with regular income and under certain debt
limitations. It is not an option for most business.

The formula was set at par
plus between one and three percent, to account for risk
adjustment to be determined by the judge.

In the MPM Silicones case, the
judge chose to use treasury to better reflect long-term
borrowing rate, but it further decreased creditors
repayment.

Will it
stand?

Until the MPM Silicones case,
it was unclear whether this decision would apply to Chapter
11.

Given that Judge Drain is
well respected, has previous experience in financing and issued
a very reasoned decision, there is a possibility of other
judges following it, said Kaplan.

Judge Drain is still
considering whether the creditors can change their votes to
return to a previous cash offer. If they can, it should
minimise the rulings impact.

The Till ruling
included a footnote explaining that the formula was used in
this situation because no efficient market was available to
base the rate off of. The secured creditors argued that as a
large company MPM Silicones would be able to obtain a
competitive borrowing rate, which an individual in Chapter 13
could not. Therefore, an efficient market existed to base the restructured
interest rate on.

This will be an important
point if the case reaches appeal.

Further
reading

Federal judge: lessons from US bankruptcy

More detail on UK pre-packs needed

Bankruptcy – how remote is your note?

While the make whole decision
can be dealt with by clearer drafting, there is no way for
investors to address the ruling on cramdown, said Gary Kaplan,
a New York-based bankruptcy partner at Fried Frank. The
concern for a secured lender is that other than having a higher
rate to begin with, there really isnt an easy drafting or
structural way around this risk.

Impact

The ruling could tarnish the
USs image as a creditor friendly market.

Security for lenders has
allowed distressed companies to restructure their debt without
the expense or burden of bankruptcy. This decision could
reverse this trend by chilling lenders willingness to lend to
a troubled company, said Bane.

The ruling could also mean
secured creditors in future cases receive less than unsecured
lenders. The US bankruptcy code requires unsecured lenders to
be paid the claim in cash or other forms, which can and often
does include stock. Being able to receive stock while secured
creditors have new notes with very low interest rates could
leave unsecured creditors better off.

If the ruling is upheld,
secured creditors may see their leverage in the bankruptcy
process dwindle, sparking them to look for earlier compromises.
For their part, debtors could potentially use the decision as a
way to secure cheaper financing.

Judges
reasoning

The judge in this case
followed US Supreme Court precedent relating to a different
bankruptcy chapter.

Its 2004 Till v SCS Credit
Corp ruling cemented a federal court decision that created
a formula to calculate how much a debtor must pay a secured
creditor in a Chapter 13 bankruptcy. Chapter 13 is limited to
individuals with regular income and under certain debt
limitations. It is not an option for most business.

The formula was set at par
plus between one and three percent, to account for risk
adjustment to be determined by the judge.

In the MPM Silicones case, the
judge chose to use treasury to better reflect long-term
borrowing rate, but it further decreased creditors
repayment.

Will it
stand?

Until the MPM Silicones case,
it was unclear whether this decision would apply to Chapter
11.

Given that Judge Drain is
well respected, has previous experience in financing and issued
a very reasoned decision, there is a possibility of other
judges following it, said Kaplan.

Judge Drain is still
considering whether the creditors can change their votes to
return to a previous cash offer. If they can, it should
minimise the rulings impact.

The Till ruling
included a footnote explaining that the formula was used in
this situation because no efficient market was available to
base the rate off of. The secured creditors argued that as a
large company MPM Silicones would be able to obtain a
competitive borrowing rate, which an individual in Chapter 13
could not. Therefore, an efficient market existed to base the restructured
interest rate on.

This will be an important
point if the case reaches appeal.

Further
reading

Federal judge: lessons from US bankruptcy

More detail on UK pre-packs needed

Bankruptcy – how remote is your note?

Business Briefs

September 17th, 2014

Financial Peace University is designed to teach people how to get out of debt, stay out of debt and build wealth. FPU is a 13-week program that empowers and teaches how to make the right money decisions to achieve financial goals. The course includes practical lessons on eliminating debt, building wealth, giving like never before, and more.

Come to a free class tomorrow from 6-8 pm at Main Street Congregational Church, 145 Main St., Amesbury. Classes are open to the community. For information or to sign up for the class, contact the church office at 978 388-0982. Class size will be limited.

Provident Bank earns highest rating from Bauerfinancial Inc.

The Provident Bank has once again earned the highest 5-Star Rating for positive performance from BauerFinancial, Inc., the nation’s bank rating firm. The quarterly ratings were announced on Sept. 8 and are based on June 30 financial data.

BauerFinancial provides third-party, unbiased, independent bank and credit union star-ratings to help consumers select financial institutions with confidence. Using quarterly financial reports filed with federal regulators, it thoroughly analyzes and compares all US bank and credit union current and historical performance data. Upon completion of the analysis, a star-rating is assigned based on a scale of zero to five stars, with five stars being the strongest. 

Established in 1828, The Provident Bank is an independent, mutually-owned, full-service community bank with a focus in commercial lending and business services.  

Greta’s Great Grains celebrates 20th anniversary

Greta Reineke announces the 20th anniversary of Greta’s Great Grains of 24 Pleasant St. in Newburyport on Oct. 14. Reineke is the owner of Greta’s Great Grains, a bakery and pastry shop that has become a staple for Newburyport residents and visitors alike for the hand-crafted artisan breads, Austrian baked goods, desserts and cookies.

When asked the secret to her long-term success, Reineke replied, “I love to meet and talk with customers. When they smell my breads, they buy them, and when they taste them, they keep coming back. No tricks, just good wholesome food.”

Greta’s Great Grains was recently voted 2014 Best Bakery, with best-selling goods like raspberry tortes, Anadama bread, honey oat and Kassler loaves.

People workshop offered at NECC

Northern Essex Community College’s Center for Corporate amp; Community Education is offering a new, one-day workshop titled “Dealing with Difficult People” on Wednesday, Sept. 24, from 9 am to 3 pm at NECC Riverwalk, 360 Merrimack St., Lawrence. The workshop will review different personalities employees may encounter in the work environment including the bully, the people-pleaser, the gossip, the saboteur, and the know-it-all. This brown bag workshop will be taught by Lisa Fabbri, customer service consultant, Customer Connections. The cost is $95 with a $20 materials fee. For more information write to noncredit@necc.mass.edu or call 978-659-1200.

Workshop for sign language in the workplace

An eight-week American Sign Language course designed to help employees communicate effectively with deaf or hard of hearing customers/co-workers will be offered through Northern Essex Community College’s Center for Corporate amp; Community Education beginning Sept. 24 at NECC’s Haverhill campus. 100 Elliott St. Larry Stephen, associate professor of deaf studies/ASL at NECC will teach the course which will be held Wednesday nights from 6 to 8 pm from Sept. 24 through Nov. 12. The cost is $195 with a $15 materials fee. For more information call 978-659-1200.

BNI Port City Referral Group meeting at Michael’s Harborside

BNI Port City Referral Group of Newburyport has announced their new waterfront weekly meeting location at Michael’s Harborside, One Tournament Wharf, Newbuyrport. It will meet from 7 to 8:30 am Business Network International, BNI, a professional fun networking organization, is looking for local business owners from Newburyport, Newbury, Amesbury, Salisbury, Rowley, West Newbury, Southern Rockingham County, Northern Essex County who are the best of the best of their profession to pass referrals to. BNI allows only one member per profession, per chapter.

Mechanica takes back Saucony account

Mechanica of Newburyport has announced that it has been named agency of record by Saucony, the running footwear and apparel company based in Boston. Mechanica will be responsible for all US-based communications activities for Saucony, including advertising, branding, events, digital and design. Saucony and Mechanica are rekindling a previous relationship as the two companies were partners several years ago on branding and advertising.

Ted Nelson, CEO at Mechanica, said that the “incredibly trust-based and creatively expansive partnership” Mechanica and Saucony enjoyed during their first partnership will carry forward to the new engagement.”

¢¢¢

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