NEW YORK/LONDON, May 2 The U.S. commercial paper market grew in the latest week, suggesting increased interest in lending to finance inventories and payrolls and appetite to fund short-term corporate debt, Federal Reserve data showed on Thursday. The size of the U.S. commercial paper market grew by $14.1 billion to $939.9 billion on a seasonally adjusted basis in the week ended May 2 from a seasonally adjusted $925.9 billion outstanding a week earlier. Meanwhile, the size of the market without seasonal adjustments grew by $3.9 billion in the latest week to $1.0213 trillion from $1.0174 trillion. Meanwhile, dollar-denominated three-month London Interbank Offered Rates (Libor) fixed at 0.46585 percent on Thursday, which was unchanged on the day. Three-month dollar Libor rates have remained virtually unchanged for over two weeks. Three-month euro Libor rates eased to 0.62286 percent on Thursday from 0.62929 percent Wednesday. Three-month euro Libor has been mostly falling steadily since touching a recent high of 1.56 percent in June of last year. In Europe, money markets stuck to expectations the European Central Bank will cut rates this year after the ECB on Thursday neither signaled further monetary easing nor eliminated the possibility of more stimulus. At a press conference in Spain, ECB President Mario Draghi painted an uncertain picture of the euro zone's economy, saying while it was likely to improve this year there were risks of a decline. He said more time was needed to see the impact of cheap three-year financing on the real economy and that any exit strategy remained premature. Euribor futures gave up gains after the comments, as traders took profit on previously held positions. But by late trade, they had come off their lows as some bought back into the dips. "Hopes for a signal from the ECB that further monetary support is in the cards were dashed today, with the central bank still awaiting the full impact of the measures already implemented and stressing once again the need for fiscal consolidation and structural reforms to foster sustainable growth," said Natascha Gewaltig, director of European economics for Action Economics in London. Data this week painted a bleak picture of the manufacturing sector in the euro zone, while double-digit unemployment fueled concerns that austerity in Europe was choking an already sluggish economy. Euribor interest rate futures fell as much as 3.5 ticks across the 2013 and 2014 strip after Draghi's comments, having traded as much as 2 ticks higher when the press conference started. Alessandro Giansanti, strategist at ING, said the June contract was pricing in a close to 50 percent chance of a 25-basis-point rate cut that month, which was little changed compared to before the press conference. One trader said the worsening economic situation in the euro zone had money markets players betting on more monetary easing from the ECB, be it via a cut in interest rates, in the deposit facility rate or by increasing the maturity on long-term refinancing operations. The ECB injected one trillion euros' worth of cheap three-year cash in December and February, providing highly indebted countries with some breathing space as the excess liquidity helped limit a rise in peripheral bond yields. "The reaction was fairly predictable in that people are happy to be long Euribor futures and as a result, because nothing happened today, the pull-back was bought quite quickly," said the trader. "Today's press conference probably didn't surprise us in that nothing happened in terms of changing the monetary stance, but they certainly didn't close any doors." Eonia forwards were suggesting that the overnight rate be at 0.29-0.24 percent by November compared to 0.34 percent currently. The trader said that suggested a 30 percent chance of a 25-basis-point rate cut by that time.
* 4-week US bill auction garners lowest rate since early April * Markets pricing small probability of ECB rate cut in June * Such bets likely to accumulate in coming days By Chris Reese and Marius Zaharia NEW YORK/LONDON, May 30 The U.S. Treasury sold four-week bills at the lowest interest rate in nearly two months on Wednesday, as investors worried over the implications of Europe's debt crisis continued to buy shorter-dated U.S. debt as a safe-haven. The Treasury sold the $30 billion of four-week bills at a high rate of 0.06 percent, the lowest since a similar auction of the bills on April 3 brought a high rate of 0.055 percent. Still, Wednesday's auction rate trumped the four-week auctions in December and January, when a series of sales brought a high rate of zero. Separately, a Treasury sale of $25 billion of one-year bills on Wednesday brought a high rate of 0.185 percent, unchanged from the two previous weekly auctions. Three-month dollar-denominated London Interbank Offered Rates (Libor) fixed on Wednesday at 0.46685 percent, unchanged from Tuesday. Three-month dollar Libor has held relatively steady since mid-April, after falling from a recent high near 0.58 percent in early January. Meanwhile, bets that the ECB will cut interest rates next week have reappeared in money markets, as Spanish and Italian debt yields approach levels that caused the central bank to introduce unprecedented easing measures last year. The threat that Greece could eventually leave the euro and worries over Spain's banking sector have prompted investors to sell Spanish and Italian debt, bringing the two countries' borrowing costs closer to levels deemed as unsustainable. The sheer size of their debt markets and their deep-rooted connections with other financial systems in the euro zone are reasons for investors to speculate that a policy response is being contemplated. The European Central Bank is seen as the most likely institution to take such measures to cool market jitters because it can act faster than politicians. It has done it before in the past by injecting around 1 trillion euros of cheap loans into financial system in December and February. Euro zone economic data this month has also been poor, supporting expectations that the ECB may soon resume monetary easing, possibly by cutting its key refinancing rate by 25 basis points from a record low of 1 percent. "Data ... have been softer, and then you have the Greece issue continuing to be unresolved and the Spanish issue continuing to be unresolved," said Elaine Lin, a rate strategist at Morgan Stanley, whose economists predict a rate cut. She said the euro overnight Eonia rate forward market was only pricing an over 10 percent probability of a rate cut in June and the chances were higher by another 10-20 percentage points for the July meeting. However, she expected markets to factor in a higher probability in the next few days. A key rate cut, if also accompanied by a cut in the 25 basis points deposit facility rate, could trigger a 5-10 bps fall in the near-term forward Eonia rates toward the 20 bps level seen now in September-October Eonia forward rates, Lin said. The lowest point on the 2012 Eonia curve is December, at 16 basis points, implying an 80 percent probability that the deposit rate would be slashed in half, according to BNP Paribas rate strategist Matteo Regesta. A Reuters poll of economists showed the ECB was likely to resist pressure to cut interest rates in June, but also pointed to a growing probability that it will reduce them later this year. Speculation about ECB monetary easing has also fueled a rally in Euribor futures , implying bets for lower fixings of benchmark euro zone interbank three-month Euribor rates later this year. The December Euribor future has gained back most of its losses made since Greece's inconclusive election on May 6, that sparked fears the country may be exiting the bloc. The fall earlier this month also coincided with unwinding bets that the ECB would have cut rates in May.
* Central bank wants level playing field for Islamic banks* To amend capital requirements for Islamic branches, subsidiaries* Will develop Islamic interbank money market, placement facility* To adopt IFSB standards on capital adequacy, supervisory reviewBy Bernardo VizcainoApril 30 Pakistan's central bank will phase in new rules on capital adequacy for Islamic banking and intends to develop a sharia-compliant interbank money market later this year. The initiatives are part of an ambitious five-year plan by the regulator to promote Islamic finance through an array of proposed legislative changes, product incentives and instructions to market participants. They are designed to ensure a level playing field for Islamic banks in the majority-Muslim nation, Saleem Ullah, director of the central bank's Islamic banking department, said in a conference call hosted by Thomson Reuters. The plans call for lowering minimum capital requirements (MCR) for Islamic subsidiaries, while increasing them for Islamic branches operated by conventional banks, said Ullah.
Current capital requirements are the same for full-fledged Islamic banks and Islamic subsidiaries, while conventional banks can set up Islamic branches with only nominal capital allocations."A road map will be developed in the next six months, that would set out gradual changes in MCR for Islamic banking branches over a five-year period."The move could encourage conversion of Islamic branches into Islamic subsidiaries. But it would still give conventional lenders the option to operate Islamic branches - a format that has been limited by regulators in Oman and banned outright in Qatar. Last month, Pakistan's central bank issued new rules for the operation of Islamic banking windows, which allow conventional lenders to offer Islamic financial services provided client money is segregated from the rest of the bank. As of December, Pakistan had five full-fledged Islamic banks and 14 others offering Islamic finance services; they held a 9.6 percent share of total banking assets in the country, according to the latest official data. That compares with around 25 percent in the Gulf Arab region.
Banks are already moving to segregate their Islamic units: Karachi-based MCB Bank will set up a wholly owned Islamic banking subsidiary after dropping plans last week to take a stake in Islamic lender Burj Bank. Others look set to convert to full-fledged Islamic banks, including Summit Bank and Faysal Bank. MONEY MARKETS
The regulator is also finalising details on an Islamic liquidity framework, consisting of an Islamic interbank money market (IIMM) and a facility run by the central bank, to be available in the next three to six months, said Ullah."This would largely address the short-term liquidity management issue of Islamic banking institutions."Under the framework, banks would be required to settle their short-term liquidity needs through the IIMM, while surplus funds would be absorbed by a mudaraba-based placement facility set up by the central bank, Ullah said. Mudaraba is a form of investment partnership that is common in Islamic finance. The central bank's facility would be remunerated based on the performance of a portfolio of assets managed by the central bank, which would act as the investment manager or mudarib. The central bank plans to start the facility with an asset base consisting of sukuk and other sharia-compliant investments of between 200 billion and 300 billion rupees ($2.0-3.0 billion), Ullah added. The central bank will also adopt as many as three standards from the Malaysia-based Islamic Financial Services Board (IFSB), a major industry body, including those on capital adequacy and the supervisory review process, said Ullah."The capital adequacy standard could be in place for the financial year 2015, and it would give more space for Islamic banks to manage their capital. This would give a big boost for the Islamic finance industry."The regulator has already adopted three IFSB standards in full on risk management, corporate governance and sharia governance, as well as parts of others in areas such as market transparency.
LONDON Nov 2 British newspapers reported the following business stories on Sunday. Reuters has not independently verified these media reports and does not vouch for their accuracy. The Sunday TelegraphTESCO EXPLORES SALE OF STAKE IN BANK Grocer Tesco is in the early stages of examining a potential float of Tesco bank, which could raise between 500 million and 1 billion pounds ($800 million-1.6 billion). TONIC WATER MAKER FEVER-TREE TO LIST IN LONDON Fever-Tree, a maker of upmarket tonic water, will unveil plans to list on London's junior AIM market this week, selling as much as half of its equity to raise up to 75 million pounds ($125 million) for private equity backers LDC.
U.S. HEDGE FUND TAKES SHORT POSITION IN MARKS & SPENCER Lone Pine Capital, a U.S. hedge fund, has built a 1.6 percent short position in Marks & Spencer in recent weeks, betting against the retailer as it prepares to unveil another fall in clothing sales in its half-year results this week.
UNITED BISCUITS ATTRACTS COMPETING BIDS United Biscuits, the maker of McVitie's owned by private equity firms Blackstone and PAI Partners, has received detailed bids from U.S. group Kellogg Co, Turkish biscuit company Ulker Biskuvi Sanayi and Britain's Burton's Biscuits.
TNT'S UK BOSS LEAVES AFTER POOR TRADING Alistair Cochrane, the head of TNT's UK division, left his position on Friday, according to a memo to staff. Owner Dutch logistics TNT Express had issued a warned on the group's profits last week. The Sunday Times FORMER TESCO CEO LEAHY SAYS WORSE COULD BE OVER FOR GROCER Terry Leahy, the former boss of retailer Tesco who now chairs discount chain B&M, said Britain's big supermarkets "may have seen the worst", as wage growth returns and the price of oil falls. Tesco could surprise the industry with the speed of its recovery under chief executive Dave Lewis, Leahy said on a conference call for investors (1 US dollar = 0.6252 British pound)