Which way Monday?

Nearly $US185 billion ($215 billion) is locked up in the world's biggest corporate debt market but hopes are improving that the backlog will be cleared by the middle of next year despite ongoing effects of the global liquidity crunch.

A slowdown in the world economy, with Europe bearing the brunt of international adjustment is the most likely result of a big correction in the US balance of payments deficit, according to Tommaso Padoa-Schioppa, Italy’s finance minister, and the chairman of the international monetary and financial committee of the International Monetary Fund.

A panel seeking to restructure Canada’s frozen asset-backed commercial paper market is struggling to persuade more than a dozen Canadian and foreign banks to provide billions of dollars in back-up funding for the securities.

The No. 1 reason its customers have been defaulting on mortgage loans is because their income was cut. That accounted for almost 60 percent of Countrywide Financial Corp.'s loan defaults in the first 10 months of this year.

UK house prices, as measure by Rightmove, plummeted 3.2 percent during December. The reading was the worst since record keeping began in 2002, as higher mortgage rates and tighter lending standards constrict the housing market.

Swiss industrial production figures for Q3 proved to be better than expected against forecasts for a 2.2 percent drop and upward revisions to last quarter's index. Furthermore, the annual rate of IP growth jumped 10.7 percent - the sharpest gain since Q1 2000 - highlighting how export growth to the Euro-zone has helped support expansion in the Swiss economy

December flash estimates for Euro-zone PMI reflect broad slowing throughout the economy. Indeed, manufacturing PMI slipped to 52.5 from 52.8, while services PMI eased to 53.2 from 54.1. Meanwhile, the composite index also took a hit, falling to a two year low of 53.3 from 54.1.

Global food prices were under further pressure on Monday as benchmark prices for cereals at much higher levels came into operation, making it almost inevitable that a second wave of food price inflation will hit the world’s leading economies.

Copper dropped $135, or 2.1 percent, to $6,410 a ton as declining equities in the U.S., Asia and Europe revived speculation that slower economic growth may crimp demand for metals.

The dollar rose to the highest levels in more than a month against the euro and yen as accelerating inflation reduced speculation that the Federal Reserve will lower borrowing costs next year.

Moody's Investors Service put FGIC Corp. and XL Capital Assurance Inc. on notice that they may have their Aaa credit ratings lowered and said MBIA Inc. still needs to prove it deserves its top ranking as part of a review of the world's top bond insurers.

Merrill Lynch & Co., the securities firm that reported a record $2.24 billion third-quarter loss, told fixed-income managers to cut 2007 bonuses by an average of 40 percent.

Representatives of five of Wall Street's dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks over take-out Chinese food led to the perfect formula for a U.S. housing collapse.

Russia began nuclear fuel shipments to Iran, putting the Persian Gulf country within eight months of starting electricity production at its first reactor.

Australia's Centro Properties Group, which manages U.S. malls with tenants from TJ Maxx to Wal-Mart, warned it is having trouble refinancing A$1.3 billion ($1.1 billion) in debt and may have to restructure because of fallout from the U.S. subprime crisis.

Weak sales at malls and shopping centers over the weekend led the head of America's Research Group, a consumer marketing firm, to lower his holiday sales growth forecast to 1.8 percent from 2 percent.

Ingersoll-Rand agreed early Monday to buy Trane Inc.for a combination of cash and stock valued at about $10.1B, including fees and the assumption of $150M of debt.

Lehman Brothers (LEH) faces potential litigation by municipal councils in Australia, due to a local subsidiary's sales of high-risk collateralized debt obligations (CDOs), according to a report by the Financial Times.

OPEC may increase output quotas when it meets Feb. 1 because stronger demand is expected during the winter season, Algerian Oil Minister Chakib Khelil said.

Asian markets were down sharply Monday. The Nikkei dropped -1.71%. The Hang Seng plunged -3.51%. China's Shanghai Composite index fell -2.62%. Financial stocks were among the hardest hit, after recent data showed U.S. inflation was higher than expected, reducing the likelihood the Fed will move to further cut interest rates in the near future.
European stocks fell on concern the combination of faster inflation and losses related to the collapse of U.S. subprime mortgages will sap economic growth. National benchmarks fell in all 18 western European markets except Portugal. France's CAC 40 dropped 1.2 percent, while Germany's DAX lost 1.3 percent. The U.K.'s FTSE 100 slipped 1.4 percent. The Stoxx 50 decreased 1.2 percent and the Euro Stoxx 50, a measure for the euro region, retreated 1.3 percent.