WASHINGTON (MNI) - The following are top events and news reported Friday morning ET by MNI in the global financial system:
* Officials in the European Commission are discussing legislation to place limits on the exposure banks have toward sovereign bonds in an attempt to prevent lenders in the euro area from purchasing too much debt from any one country, a senior official with knowledge of the talks has told MNI. According to the source, a legislative proposal would likely be made during the course of the next Commission as a way of putting in place further rules designed at avoiding another sovereign debt crisis that saw large economies such as Spain and Italy send far-reaching jitters through financial markets. "There is an extensive discussion on the floor on what to do with the risk-free nature of government bonds," said the official, who spoke with MNI on the condition of anonymity. "The alternative to introducing risk weight and make government bonds no longer risk free is to introduce an exposure limit ... Somehow that would avoid challenging the fact that we still consider government bonds safer than any other asset, while allowing to introduce more limitation to counterparty risk ... by avoiding excessive exposure to any sovereign particular." [7:40 ET]
* China's Premier Li Keqiang warned Friday that China still faces big economic downward pressure and vowed policy fine tuning if necessary. In remarks made during his visit to Inner Mongolia and published on the government website, Li also said that the overall economy remains stable, but it is still facing "relatively big" downward pressure and the government should not underestimate the concerns in the economic performance. Li said development is top priority and called for firm implementation of policies to "stabilize growth, promote reforms, adjust structure and improve livelihood." Li also pledged to fine tune policies "timely and appropriately" and to ensure moderate money and credit growth, in a bid to ease the tight fund conditions in the real economy, especially easing financing difficulties for small and medium-sized enterprises. 7:15 ET]
* Sveriges Riksbank Governor Stefan Ingves has said that Sweden's annualized inflation rate has probably hit bottom and by the end of next year will return to the central bank's target of around 2%. In an interview on the margins of a speaking engagement in Frankfurt earlier this week, Ingves declined to fuel speculation that the Riksbank would cut rates at its next monetary policy meeting on July 2, as most observers expect, though he also did not rule anything out. Ingves said assessments suggesting inflation had probably bottomed out were "pretty much in line with our own analysis, and that's also because we think that growth is picking up, and that means that eventually inflation will come back and things will normalize." Indeed, "towards the end of next year and after that we'll get back to our 2% target." [6:55 ET]
* The European Central Bank Governing Council appears to be leaning increasingly towards negative interest rates should it decide to lower borrowing cost at its June meeting. "Personally, I see a lot of attraction in keeping a certain width of the corridor. Certainly if you do keep that corridor it is a more powerful instrument than if you were to narrow it," ECB Governing Council member Ardo Hansson told MNI in an exclusive interview this week. "Negative interest rates are not completely uncharted territory as some of the smaller countries have done this," he added. The comments follow remarks by Governing Council member Jens Weidmann, who in an interview with German daily Sueddeutsche earlier this week said that "the current debate focuses not so much on the main refinancing rate of 0.25%, but on the interest rate on the deposit facility which is already at zero." The head of the German Bundesbank suggested that the move may revitalize the interbank market, spur credit provision and weaken the euro. [7:54 ET]
* European Central Bank Governing Council member Ardo Hansson has signalled a preference for negative interest rates on the Bank's deposit facility should the Eurotower decide to ease borrowing costs further to address inflation concerns in the currency area. Speaking exclusively with MNI as the Governing Council gathered for its mid-month meeting in Frankfurt this week, Hansson, however, would not pre-commit to easing measures in June and raised questions over the effectiveness of non-standard measures aimed at kick-starting credit to the real economy. [5:20 ET]
* U.S. new home sales, to be reported at 10:00 ET, are expected to rise to a 425,000 annual rate in April after slipping further to 384,000 in March. Sales are down sharply from a year earlier, while supply has surged and may see further gains if single-family housing starts return to a steady upward path. Like existing homes, the median sales price for new homes continues to rise as sales of higher price homes have increased. Affordability issues and still tight mortgage lending appear to be the key drivers of the recent drop in sales. [7:35 ET]
* European Central Bank Governing Council member Christian Noyer said Friday that European banks must be "vigilant" in ensuring that they conform to US rules when dealing in dollars. "European banks must be vigilant on this subject," Noyer, who heads the Bank of France, told a press conference in Paris. "All dollar transactions must conform to American rules." BNP Paribas, France's largest bank, is reportedly facing fines of more than $5 billion for violating US sanctions against Iran, Sudan and other countries. Noyer said that in BNP's actions, no European or French rules appeared to have been broken. [5:14 ET]
* European Central Bank Executive Board member Sabine Lautenschlaeger said Friday that financial markets still regard Eurozone banks with a lack of confidence about their balance sheets. Speaking at a financial conference in Madrid, Lautenschlaeger, according to a text provided by the ECB, said that the comprehensive assessment should go a long way toward addressing the problem. "At the current juncture, banks in the euro area continue to suffer from general distrust concerning the quality of their assets," she affirmed. "Many market participants believe that bank balance sheets may still carry substantial hidden losses, and the resulting uncertainty is directly reflected in - among other things - refinancing costs and stock market valuations. Even small deteriorations in a bank's performance can sometimes suffice to provoke speculation and negative market reactions." [3:45 ET]
* San Francisco Federal Reserve Bank President John Williams said late Thursday the central bank is considering ways to normalize its monetary policy as the economy continues to improve and moves closer towards reaching the banks goals of price stability and maximum employment. "As the outlook continues to improve, the Fed is taking the first steps towards normalization," Williams said a speech prepared for delivery to the Association of Trade and Forfaiting in San Francisco. "The process will be gradual; it is not set in stone; and the Fed will respond flexibly to economic developments," he said. "But barring any major shocks, monetary policy is finally on the road to normal. And simply put, that's good news." [Repeated 7:16 ET]
* The U.S. trade ambassador's office has no comment on the Bloomberg report late Thursday that the World Trade Organization has ruled in favor of the U.S. complaint challenging China duties on auto imports from the U.S. However, the USTR has set a news conference for 10:00 ET Friday concerning the WTO and China with Rep. Sandy Levin, whose constituents include Detroit automakers. [18:03 ET Thursday]
--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com