Jeana notes

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Paris Air Show: Europe, when will you reach the stars?


-Maria Sheahan is a Reuters senior correspondent in Frankfurt.- So far, Europe has left it up to the United States, Russia and China to send people into space. But almost 50 years after Russia’s Yuri Gagarin made his first orbit around the earth, it’s about time that Europe finally enter the playing field, some say. “Europe cannot stay out of manned (space) flight forever,” EADS unit Astrium Space Transportation’s CEO Alain Charmeau said at the Paris Air Show. Europe has its own space agency, ESA; it has its own module on the International Space Station; and it has sent its astronauts into space as passengers on the spacecraft of others. Launching its own manned spaceflight mission “is not a budgetary issue, it is a matter of political willingness,” Charmeau said. His company, which makes space launchers that carry satellites or other items into space and could make a lunar lander, would be one of many that would benefit from the additional business. Even outside the sphere of government-funded space programs, Charmeau said he expects to see more people going up into space, as paying tourists. “I am really a supporter of space tourism,” Charmeau said. Astrium is building its own space plane for that market, but Charmeau cautioned that space tourism projects would have to wait until the financial crisis ends and investments are more readily available again. And Virgin Galactic has been eyeing space tourism as a major future market for a while as well. So the call is clear: Europe, send your rocket men to space already!

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GLOBAL MARKETS-World stocks dip on China worries, France warning


* China growth data, French rating threat weigh* Government bonds, dollar riseLONDON/NEW YORK, Oct 18 (Reuters) - World stocks dipped on Tuesday and government bonds rose as slower-than-expected Chinese growth and a credit warning on France added to a cautious outlook for investors.The warning compounded investor jitters already unsettled this week by comments from Germany’s finance minister, who said he saw no imminent definitive solution on the euro zone debt crisis.The MSCI world equity index was down 0.8 percent, although the world index is still up more than 11 percent after hitting a 15-month low earlier this month.U.S. stocks opened little changed, with investors eyeing earnings from Apple later in the day. European stocks dipped 0.2 percent while emerging stocks lost 2.3 percent.”Growth concerns in China along with renewed euro debt concerns are bringing some hesitation into” the market, said Andre Bakhos, director of market analytics at Lek Securities in New York.China’s annual gross domestic product growth eased to 9.1 percent in July-September, slightly below forecasts of 9.2 percent, indicating the world’s second-largest economy expanded at its slowest pace since the second quarter of 2009.Moody’s cautioned it may slap a negative outlook on France’s Aaa credit rating in the next three months if costs from helping to bail out banks and other euro zone members stretch its budget too thin.Optimism over a key European Union summit on Oct. 23 waned after German Finance Minister Wolfgang Schaeuble said on Monday that even though European governments would adopt a five-point platform to address the crisis, a definitive solution would not be reached at the summit.U.S. Treasuries edged higher, pushing benchmark yields to their lowest in two weeks.Benchmark 10-year Treasury prices rose 5/32 in price to yield 2.14 percent, from 2.18 percent late on Monday. Yields fell as low as 2.08 percent, their lowest since Oct 7.The French/German 10-year government bond yield spread widened to a euro era record of 101 basis points. French debt also underperformed its triple-A rated peer the Netherlands.Brent crude oil prices were lower, while the dollar gained 0.4 percent against a basket of major currencies. The euro fell 0.3 percent to $1.3701.Shares of Apple were down 0.5 percent at $417.80. Earlier in the day, International Business Machines Corp’s quarterly results failed to impress investors used to a robust showing from the technology bellwether. That added to worries over lackluster corporate information technology spending. IBM shares fell 4.7 percent to $177.88.

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Singapore university seeks to break hold of credit-rating goliaths


* Run on not-for-profit basisBy Rachel ArmstrongSINGAPORE, Oct 14 (Reuters) - In a small lab, tucked away in the depths of a Singapore university campus, a team of researchers and their computers calculate the credit ratings of about 50,000 companies.Relying just on public data and stock price movements for their analysis, the project’s founder, professor Jin-Chuan Duan, is confident their system can provide a more reliable guide to a company’s credit risks than the commercial rating agencies.A confident claim, but a growing number of the system’s 800 users are banks and fund managers, utilizing it to help guide their own internal credit risk systems.”It offers a very transparent and objective approach to estimating the credit rating of companies,” said Benjamin Wong, a senior risk analyst at a UK bank.”I’m not sure a single bank could do what they’ve done in terms of collecting the data, assembling the research capabilities, and having the technology to do the calculations on such a large volume of companies.”BORN OUT OF FRUSTRATIONThe idea was born in March 2009, out of frustration at the debate surrounding credit rating agencies in the wake of the financial crisis.”It occurred to me that just criticizing the rating industry and going about the conventional way of regulatory reform is never going to go anywhere, so I was asking myself is there something more constructive I could do?,” said Duan, the director of the National University of Singapore’s Risk Management Institute.An evangelist for revolutionising the way credit rating agencies operate, Duan believes the private sector model, where agencies are paid by the issuers to rate their products, is flawed.”Credit ratings should be viewed as a public good and part of infrastructure,” he said.”The natural way to achieve this is for a knowledge enterprise to do it.”So that’s what Duan did, allocating S$7 million ($5.5 million), part of a grant provided to his institute by Singapore’s central bank, to fund a free-to-use credit rating service for four years.He and his team of around 30 researchers built the system using data from Reuters and Bloomberg terminals on companies listed across Asia, Europe and America.They designed models to calculate the probability of a company reneging on its debts, shaped by analysis of previous corporate defaults.NO MORE AAAsRather than issuing the well known alphabetic ratings like AAA, the system produces a numerical probability instead. For example it estimates that the recently rescued Franco-Belgian lender Dexia SA has a 3.4 percent probability of defaulting in the next two years — low but still five times the European financial sector’s average probability of 0.7 percent.The big-three credit rating agencies — Moody’s , Standard & Poor’s and Fitch Ratings — have defended their lettering system as a useful shorthand understood across the finance industry.But Duan is among the many critics who believe debt should be assigned a more precise credit rating.”In the political polling sphere during election time we tell people the points and margin of error in a poll and TV viewers don’t have a problem understanding, so it should be possible in the financial sphere,” he said.COMPETITIONIt’s not the first time someone has tried to give the big three agencies and several local players a run for their money. Following the financial crisis, Wall Street analyst Meredith Whitney, entrepreneur Jules Kroll and research firm Morningstar Inc are among those who have ventured into the ratings space.What distinguishes the university’s offering is it’s not out to make money and welcomes outside contributions that will improve its model.”As we are not for profit, we are happy to invite people to participate with us in a Wikipedia-type spirit of development,” said Duan, adding that they don’t register intellectual property rights for the project, nor do they take corporate donations.It’s this approach that is one of the big winners with the industry. With banks under more pressure than ever from the regulators to provide a thorough explanation of their approach to risk management, they need a credit rating system with a public methodology they can test for themselves.”They (the institute) are transparent in their methodology and in disclosing the performance of their ratings,” said Wong at the UK bank.”For the credit rating agencies, a rating decision is made based on a committee approach, so it can be quite subjective.”That’s not to say the system’s not got its limitations — it can only rate publicly listed companies and lacks the access to issuers that the big rating agencies have.But Duan believes their system, based as it is on quantitative analysis of previous defaults, will provide a scientific benchmark for banks and regulators to test other credit rating systems against.Asked what the commercial players have made of their offering, he says they have initially been rather defensive but come round once they realise they are not facing financial competitors.”Once we’ve made it clear we’re here to create scientific competition, we’re not here to create business competition they start to feel a bit more comfortable with it,” said Duan.

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UPDATE 1-Europe highlights urgency for new U.S. swaps rules


* Delay stokes anxiety about vulnerability to Europe* Investors embrace clearing in boon for CME, LCH, ICE* CFTC inundated with thousands of industry lettersBy Jonathan Spicer and Ann SaphirCHICAGO, Oct 12 (Reuters) - Europe’s debt problems are increasing anxiety about the vulnerability of global markets as too many new U.S. derivatives rules intended to prevent a repeat of the 2008 crisis have yet to be defined.Investors have responded in recent months by embracing the clearing of swaps, essentially beating regulators to the punch, to protect themselves in volatile markets.Clearing allows investors to avoid the credit risk of trading with banks that appear newly vulnerable amid Europe’s debt crisis. In 2008-2009 banks’ worries about the health of their trading partners resulted in a widespread freezing of credit, which nearly sank the global economy.Executives at a futures industry conference here urged regulators to speedily adopt rules for trading and clearing in the over-the-counter swaps market. The longer we wait, they said, the more dangerous it becomes.”If we were the five senior staff on the Titanic, I’d like to think we wouldn’t be standing back, looking at the safety boats and thinking about whether we can design them better,” CME Group Inc chief executive Craig Donohue said at the Futures Industry Association.”We’d be thinking about how to get people on the boats and get them to safety, and maybe we can improve on that in the future,” he said.It has been three years since a U.S. financial crisis sent the global economy into a tailspin, and more than a year since lawmakers passed a bill designed to prevent a new crisis from taking down the financial system in similar fashion. Regulators are scrambling to finish writing the rules.Now, with Europe’s debt crisis showing some of the same signs as the United States’ meltdown, investors have rushed into clearing credit and interest rate swaps, a boon in volatile markets for companies like CME and Europe’s LCH.Clearnet.The Commodity Futures Trading Commission, which must make final about 50 new rules under the Dodd-Frank law, has struggled to keep up with the rule-making process, having finished only about a dozen of the rules.Several key rules, including capital and margin requirements, will be pushed into the first quarter of 2012, putting the agency well behind a July 2011 deadline Congress had set.Regulators have benefited from public meetings that provided input for the rules-writing, said CFTC Chairman Gary Gensler. “But the American public needs us to move forward and get the job done and finish these rules,” he told reporters.”The crisis emanating from Europe reminds us that the public is still unprotected.“‘FISH OR CUT BAIT’Investor appetite for CME’s cleared swaps soared last month, with trading in credit default and interest rate swaps rising to $42 billion in September, from less than $1 billion about a month earlier.CME’s futures business has also benefited, as swaps users seek safer alternatives to their bilateral dealings with banks. Asset managers are increasingly shifting their trades to CME, doubling their use of CME’s short-term interest rate futures in the past year for instance. Trading in currency futures rose to records in September as investors sought safety through clearing.”The trend is there,” said Jeffrey Sprecher, chief executive of IntercontinentalExchange Inc , which began clearing CDS in early 2009 and saw an 11 percent jump in credit-related revenues from the second to the third quarter of this year.”It’s obviously a very complicated global environment right now for global exchange risk, and you are seeing a migration towards futures more than the OTC market.”Despite delays by the CFTC and other agencies in defining the Dodd-Frank rules, the expectation that they will eventually come into force has allowed investors to begin clearing products they never had before.In a global market of some $480 trillion in clearable interest rate swaps, an estimated $180 trillion has yet to be cleared.Yet some, including Donohue and Sprecher, cautioned in interviews that it was important the CFTC takes the time to sift through the thousands of comment letters and get the rules right. “I think it’s well intentioned,” Sprecher said.There is also the real threat of lawsuits from the industry once the rules — from limits on excessive speculation to real-time reporting of trades to end-user exemptions — are formally adopted.”You don’t have to read too closely between the lines to see that people are laying the groundwork for legal challenges,” said former CFTC chief economist James Overdahl, who is now vice president at consulting firm Nera.But based on interviews with several traders and industry executives, the euro zone crisis is giving a new urgency to the need to define how exactly regulators want to safeguard the market.”Let’s fish or cut bait,” said Chris Hehmeyer, chief executive of Chicago-based proprietary trading firm HTG Capital Partners. “It’s time for them to go ahead and get the definitions out there so that we can get on with it.”

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UPDATE 1-Senior Republican presses Obama on China yuan bill


WASHINGTON Oct 11 (Reuters) - President Barack Obama must clarify his position on a bill before Congress aimed at forcing China to revalue the yuan, a top Republican said on Tuesday.House of Representatives Majority Leader Eric Cantor said it was “critical” that the White House make clear its view of the bill, which the Senate was expected to pass later in the day.”What I would like to see is where the administration is. Clearly they’ve got concerns as well,” Cantor, the number two in the Republican-controlled House, told reporters.Last week, House Speaker John Boehner warned that the legislation was “dangerous” and could start a trade war.Passage of the bill would create a dilemma for Obama, whose re-election prospects next year could hinge on whether voters believe he is doing enough to create American jobs.If he signed the bill, there could be a powerful backlash from China; if he vetoed it, he could pay a political price — particularly in battleground industrial states like Ohio and Michigan.The Democratically-led Senate is expected to pass the bill by a wide bipartisan margin, putting pressure on House leaders to take up the popular bill or accept blame for its demise.Cantor’s comments appeared intended to make sure the White House shares responsibility for the fate of the bill.”I think all of us are very concerned about the competitiveness of our manufacturers in this country and the unfair practices by China and others,” Cantor said.Many economists say China holds down the value of its yuan currency to give its exporters an edge in global markets.”UNDERVALUED” YUANSome U.S. lawmakers contend the yuan is undervalued by as much as 25 percent to 40 percent, making it hard for American products to compete on price with Chinese-made goods.A key provision of the bill would require the Commerce Department to consider whether undervalued currencies act as an effective export subsidy that justify the United States applying countervailing duties in response.Obama, who has preferred dialogue with China to punitive measures, last week said China was “gaming” the international trade system.But he has not taken a formal position on the bill and cautioned that it must be compatible with World Trade Organization rules. Obama has not said how the legislation might run afoul of World Trade Organization rules.Senator Rob Portman, an Ohio Republican, told Reuters he intended to vote for the currency legislation, even though he preferred the Obama administration lead a multilateral effort to pressure China to revalue the yuan.”I have some concerns about the legislation, which I’ve expressed … But I think it’s time to send a strong message,” said Portman, a former top U.S. trade official whose home state is the same as Boehner’s.”This is an opportunity to raise the visibility of the issue and to encourage the administration to address it more vigorously,” Portman said.

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Mexico’s Coke FEMSA closes Tampico purchase


MEXICO CITY Oct 11 (Reuters) - Coca-Cola FEMSA, the largest bottler in Latin America, said it completed its acquisition of smaller rival Tampico on Tuesday.Coke FEMSA, which announced it planned to buy family-owned Tampico at the end of June, said the value of the deal was 9.3 billion pesos ($702 million) as it had announced in June.Tampico’s results will start to be included in Coke FEMSA’s statements this month, Coke FEMSA said in a statement.The bottler, a joint venture between The Coca-Cola Co and Mexico’s FEMSA , has been on a buying spree lately.Last month Coke FEMSA said it would buy another family-owned bottler, Grupo CIMSA, and expects to complete that deal before the end of the year.