U.S. Treasury chief Mnuchin says optimistic about U.S.-UK trade deal

© Reuters. U.S. Treasury Secretary Steven Mnuchin speaks at Chatham House in London © Reuters. U.S. Treasury Secretary Steven Mnuchin speaks at Chatham House in London

By Elizabeth Howcroft and William Schomberg

LONDON (Reuters) – U.S. Treasury Secretary Steven Mnuchin said that he was optimistic the United States and Britain, soon to be out of the European Union, would strike a trade deal this year and that he had discussed it with Britain’s finance minister on Saturday.

U.S. President Donald Trump is keen for progress on trade talks before November’s presidential election, while in Britain the prospect of a deal has been touted by Brexit supporters as a way to offset the impact of leaving the EU and to exert leverage over the bloc in trade talks between London and Brussels.

“I’m quite optimistic. I think the prime minister and the president have a very good relationship,” Mnuchin told an audience at the Chatham House think tank in London.

Mnuchin said he had a breakfast meeting with his British counterpart minister Sajid Javid on Saturday, having also spoken to him this week at the World Economic Forum in Davos.

“We’re focused on trying to get this done this year because we think it’s important to both of us,” he said.

After the United States recently concluded the initial phase of a trade agreement with China, deals with Britain and the European Union were now the priority, Mnuchin said.

While Mnuchin conceded that Britain may need to finalize some issues with the EU before it could discuss them with Washington, he didn’t see this leading to a delay.

“I think a lot of the issues can be dealt with simultaneously and again we look forward to continuing a great trade relationship, and, if anything, I think there will be significantly more trade between the U.S. and the UK,” he said.

Asked by a reporter if Britain’s plan to implement a digital services tax on U.S. technology giants such as Facebook (O:) and Google (O:) could hinder the trade negotiations, Mnuchin said that he discussed the issue on Saturday with Javid.

Washington is threatening to put tariffs on products from the EU’s member states if they follow through with a plan to introduce a new tax on U.S. tech giants.

“The U.S. feels very strongly that any tax that is designed specifically on digital companies is a discriminatory tax and is not appropriate,” Mnuchin said.

Britain has said it intends to implement the tax, while France has put off its plans to wait for broader negotiations within the Organization for Economic Cooperation and Development (OECD).

Mnuchin said he wanted to narrow the U.S. trade deficit with the EU but that differences between the bloc’s member states would complicate negotiations.

“When we talk about the EU, one of the challenges is some of these issues are really only a couple of countries, but I think, as you know, because of the EU we can’t negotiate these things on a bilateral basis,” he said.

“One of the challenges of dealing with the EU is even within the EU they have different views,” he added.

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ECB to launch review that will redefine its mission and tools

By Francesco Canepa

FRANKFURT (Reuters) – European Central Bank President Christine Lagarde is set to launch a broad review of its policy on Thursday that is likely to see her redefine the ECB’s main goal and how to achieve it.

The euro zone’s central bank has fallen short of its inflation target of just under 2% for years despite increasingly aggressive stimulus measures under Lagarde’s predecessor, Mario Draghi.

ECB rate-setters are not expected to make any policy change this week but simply stand by their pledge to keep buying bonds and, if needed, cut interest rates until price growth in the euro zone heads back to their goal.

Lagarde will, however, announce the start and scope of the ECB’s first strategic review since 2003, which will last for most of the year and span topics from the inflation target to digital money and the fight against climate change.

Investors will be looking for clues to whether the review will see Lagarde cement her predecessor’s legacy of monetary largesse, or if she will use it to acknowledge worries that years of easy credit have fueled financial bubbles.

“(Thursday’s) meeting will be important in assessing whether the aim of reconsidering the inflation target has retained the dovish motivation focus that Draghi had tried to give it,” said Greg Fuzesi, an economist at JP Morgan.

The ECB will announce its monetary policy decision at 1245 GMT and Lagarde will hold her second news conference as the central bank’s chief from 1330 GMT.

TARGET

Changing the ECB’s formulation of price stability — currently defined as an annual inflation rate below, but close to, 2% over the medium term — will be the focal point of the review.

The ECB could signal its commitment to boosting inflation by raising the goal to 2% and spelling out that it will take any undershooting just as seriously as an overshoot.

“Our inflation target must be symmetric. If the central target is seen as a ceiling, we have less a chance of meeting it,” ECB policymaker Francois Villeroy de Galhau said recently.

But policy hawks on the Governing Council, who have long called for the ECB’s money taps to be shut off, will not go down without a fight.

Some of them favor creating a tolerance band around 2%, which would lower pressure on the ECB to act, while others would leave the target unchanged or even cut it.

Rate-setters will also debate the pros and cons of their tools, such as sub-zero rates and massive bond purchases, which have been credited with staving off the threat of deflation but at the cost of an unprecedented rise in house and bond prices.

The ECB regularly lauds those instruments, recently estimating that without them, the euro zone economy would have been 2.7 percentage points smaller at the end of 2018.

But minutes of the December meeting show growing discomfort about their side effects. That led to calls by some policymakers to give housing costs greater weight in inflation calculations and take into account households’ perceptions of price growth, which is generally higher than official figures.

POLICY ON HOLD

While these matters are addressed, the ECB is expected to leave its monetary policy on hold.

That would leave it buying 20 billion euros ($ 22.16 billion) worth of bonds every month and charging banks 0.5% on their idle cash for most of the year.

“While the ECB reviews its strategy, we see no change in policy settings,” economists at Morgan Stanley (NYSE:) wrote in a note.

Euro zone data has improved recently, leading economists to believe the export-focused economy has weathered the storms of the global trade war.

Furthermore, a trade deal between the United States and China, and the prospect of an orderly Brexit are lessening the two main risks the ECB had said were clouding the horizon.

But the outlook for euro zone growth and inflation remains lukewarm, meaning the ECB is likely to strike a cautious tone by reaffirming its warning about “downside risks” to the economy.

“It is likely too early to sound the all-clear, or change the risk assessment to ‘balanced’,” Societe General economist Anatoly Annenkov said.

($ 1 = 0.9025 euros)

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EU industry chief dismisses fears strict security rules could delay 5G

© Reuters. FILE PHOTO: A logo of the upcoming mobile standard 5G is pictured at the Hanover trade fair, in Hanover © Reuters. FILE PHOTO: A logo of the upcoming mobile standard 5G is pictured at the Hanover trade fair, in Hanover

By Michel Rose and Douglas Busvine

PARIS/MUNICH (Reuters) – European industrial policy chief Thierry Breton dismissed claims that relying on European companies to build a 5G network would delay its rollout, weighing in on an increasingly tense debate in Germany over the risk posed by China’s Huawei.

In a speech at the DLD conference in Munich on Sunday, Breton, a former French finance minister, warned policy-makers in Germany and elsewhere that the new 5G technology will require more stringent security rules than previous generations.

“Setting up strict security conditions will not create delays in the roll out of 5G in Europe,” Breton said, sticking to the line contained in prepared remarks obtained by Reuters in advance.

“Europe, including Germany of course, is on track. We are not, and won’t be, late in Europe on the deployment of 5G.”

The warning by Breton contrasts with comments by German Interior Minister Horst Seehofer who said earlier this week that if Chinese companies were excluded, the construction of the 5G network would be postponed for at least five to ten years.

German Chancellor Angela Merkel’s conservatives are divided over whether to support a proposal by their Social Democrat junior coalition partners that, if approved, would effectively shut out the Chinese technology giant from the network.

Merkel’s right-left government, like all of Europe, is under pressure from the United States to bar Huawei, whose gear Washington says contains “back doors” that would enable China to spy on other countries.

Breton, who heads the vast ‘Single Market’ portfolio in the new European Commission which includes industrial policy, has said Europe should preserve its “technological sovereignty” by ensuring it has domestic alternatives in strategic areas.

A so-called “toolbox” of security standards that EU member states should apply to their 5G networks would be ready this month, he added: “Everybody is welcome in Europe, but more and more we will issue clear rules – and everybody will have to fulfill all these rules.”

ECHOING MACRON

In his speech, he did not explicitly call for a ban on Huawei, saying: “Any company, European or not, will be welcome provided of course that they abide by our European rules. We will not build a European fortress.”

But the call to favor European providers such as Nokia (HE:) and Ericsson (ST:) and set up more stringent security rules will please opponents of the Chinese company.

The new impetus by the EU executive echoes calls by French President Emmanuel Macron and others to prevent Europe from relying on China and the U.S. for strategic infrastructure that could be used as geopolitical leverage in the future.

Germany’s Seehofer, who is originally from Bavaria, whose car industry is reliant on exports to China, has said he was against banning Chinese telecommunications equipment suppliers such as Huawei from helping build Germany’s 5G network.

“I can’t see how we can set up a 5G network in Germany in the short term without the participation of Huawei,” Seehofer told the Frankfurter Allgemeine Zeitung newspaper.

German operators are all customers of Huawei, the leading telecoms equipment vendor with a global market share of 28%, and have said that banning it would add years of delays and billions of dollars in costs to launching 5G networks.

But these warnings were dismissed by Breton: “Let me say it loud and clear: contrary to what some would like to suggest, Europe is not lagging behind in 5G. Neither in 5G technology nor in its deployment.”

Huawei has denied allegations by the Trump administration.

China’s ambassador to Germany, Ken Wu, indicated last month that Beijing could retaliate if Huawei was excluded, pointing to the millions of cars that German automakers sell in his country.

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Room is limited for further RRR cuts in China: central bank official

BEIJING (Reuters) – China’s reserve requirement ratio (RRR) is at appropriate level and there is limited room for further cuts, a central bank official said on Thursday.

China will make timely adjustments to benchmark deposit rates, and should pay more attention to changes in real interest rates when discussing whether to cut interest rates, Sun Guofeng, head of monetary policy department of the People’s Bank of China told a news briefing in Beijing.

Real interest rates have been falling significantly and funding costs for small firms also declining, Sun added.

The PBOC has cut RRR eight times since early 2018, including one earlier this month, to help shore up the cooling economy. Analysts have forecast more this year.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Uruguay says Argentina will review 30% ‘tourism tax’ – media

© Reuters.  Uruguay says Argentina will review 30% 'tourism tax' - media © Reuters. Uruguay says Argentina will review 30% ‘tourism tax’ – media

By Maximilian Heath

BUENOS AIRES (Reuters) – Argentina’s Tourism Minister has committed to reviewing a 30% “tourism tax” applied when travelers from the country pay for goods and services abroad in U.S. dollars, Uruguayan President Tabare Vazquez told local news portal Infobae.

The new law, which has hit traditional Argentine Southern (NYSE:) hemisphere summer holiday destinations like its smaller neighbor Uruguay, applies to all such expenses incurred when using credit cards outside of the country.

Vazquez said in an interview published by Infobae late on Saturday that representatives of the Uruguayan Chamber of Tourism traveled to Argentina to talk with representatives of the Fernandez government.

“They got what they hoped to get: a commitment to some potential flexibility in the timing of the measure …and a commitment from the minister of tourism (Matías Lammens) to review the situation in 180 days. We will see what happens,” Vázquez told Infobae.

A spokesman for the Argentine Ministry of Tourism declined to comment.

Argentina is in the grip of a prolonged recession and annual inflation is running at more than 50%.

The credit card charge aims to help prop up the local peso and was introduced by the new government of Alberto Fernández as part of an “economic emergency” law passed by Congress in December.

The government is due to repay around $ 100 billion in maturing debt this year and is in negotiations with creditors about a restructuring.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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U.K. Brexit Bill Clears House of Commons After Year of Gridlock

© Reuters.  U.K. Brexit Bill Clears House of Commons After Year of Gridlock © Reuters. U.K. Brexit Bill Clears House of Commons After Year of Gridlock

(Bloomberg) — Prime Minister Boris Johnson’s Brexit legislation cleared its final hurdle in the House of Commons, putting an end to the parliamentary gridlock that cost his predecessor Theresa May her job.

Members of Parliament voted 330 to 231 in favor of the Withdrawal Agreement Bill, which now passes to the upper House of Lords. Johnson wants the measures passed into law before the end of the month so the U.K. can leave the European Union on Jan. 31 and he can deliver on his election campaign promise to “get Brexit done.”

“It is my sincere hope that their lordships will now give due regard to the clear majorities we have seen during the committee stage and establish their endorsement of this bill in a similar, timely, fashion,” Brexit Secretary Steve Barclay told lawmakers. “This bill will secure our departure from the European union with a deal that gives certainty to businesses, protects the rights of our citizens and ensures that we regain control of our money, our borders, our laws and our trade policy.”

The smooth passage of the bill illustrates the dramatic shift in the political landscape since May first tried to get her Brexit deal through Parliament a year ago. The U.K.’s split from the bloc this month is now virtually a formality, and attention is already turning toward negotiations on the future relationship. Johnson wants to broker a Canada-style trade deal by the end of 2020, something the EU Commission says is impossible.

After Johnson stormed to an 80-seat majority in the Dec. 12 election, he stripped out a series of concessions May had made to opposition lawmakers, including guarantees on workers’ rights and the environment, measures to protect child refugees, and giving Parliament a say over the next stage of negotiations.

Opposition Members of Parliament tried — and failed — to reinsert some of those measures during debates in the House of Commons. Opposition amendments are more likely to pass in the House of Lords, the unelected chamber where the government doesn’t have a majority, but the Commons can strip them out again. In such circumstances, the Lords traditionally bows to the will of the elected chamber.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Top 5 Things to Watch on Monday, Jan. 6

© Reuters.  © Reuters.

Investing.com – Fears over the prospect of a conflict in the Middle East are roiling markets, with Brent crude jumping to $ 70 and safe haven gold hitting its highest level in seven years. Global stocks are in the red and in the Euro Zone data has showed that business activity remained close to stagnation at the end of last year. Here’s what you need to know in financial markets on Monday, Jan. 6.

  1. Trump, Iran trade threats

Fears over the fallout from the U.S. killing of a leading Iranian military commander intensified on Monday after Iran said it would no longer abide by the 2015 nuclear deal, meaning it will no longer limit the amount of enriched uranium it holds.

Iran had already vowed to retaliate for the death of Qassem Soleimani who was killed in a U.S. air strike last week. U.S. President Donald Trump has warned of a “major retaliation” if Tehran hits back, deepening a crisis that has heightened fears of a major conflict in the Middle East.

  1. Oil prices continue climb

Oil prices rose again Monday, building on Friday’s more than 3% surge amid fears of a disruption to energy supplies.

climbed above $ 70 a barrel to its highest level since last September — when Saudi Arabia’s Abqaiq oil processing facility was attacked. The global benchmark was last at $ 69.56 at 5:35 AM ET (10:35 GMT), up 96 cents, or 1.4%, from Friday’s settlement.

was at $ 63.77 a barrel, up 72 cents, or 1.1%, after touching $ 64.72 earlier, the highest since April.

  1. Safe havens in demand

prices rose to seven year highs, jumping to $ 1,582 per ounce, the most since since April 2013, while the yen and other safe-haven currencies were also in demand.

The hit a three-month high of 107.77 versus the U.S. dollar overnight and was last at 108.00. The was close to the four-month high of 1.0824 it reached against the euro on Friday.

The greenback was lower against a currency basket, with the sliding 0.2% to 96.28.

Sovereign bonds benefited from the safety bid with yields on Treasuries down at 1.78% having fallen 10 basis points on Friday.

“Iran is almost certainly to respond in some scale, scope and magnitude,” said Lee Hardman, currency analyst at MUFG.

Therefore “market participants are likely to remain nervous until there is more clarity over how geopolitical tensions between the U.S. and Iran will proceed,” Hardman said, noting that geopolitical tensions could hurt global economic growth, especially if the price of oil increases.

  1. U.S. stocks set to open sharply lower

U.S. stock markets are set to open sharply lower on Monday, extending losses from Friday. By 5:35 AM ET (10:35 GMT), were down 171 points or 0.6%. were down 0.6% while were off 0.7%.

Geopolitical tensions along with data showing a larger than expected contraction in the U.S. manufacturing sector in December saw Wall Street’s major indexes pull back from record highs on Friday.

European markets were broadly lower, while Japan’s fell 2% overnight.

The calendar for U.S. economic data and earnings is very light, with just the Purchasing Managers’ Index (PMI) due at 9:45 AM ET.

  1. Euro Zone business activity near stagnation

Euro zone business activity remained close to stagnation in December, a survey showed on Monday, as an upturn in services activity only partially offset a continued decline in the bloc’s manufacturing sector.

IHS Markit’s final euro zone composite PMI edged up to in December from November’s 50.6.

In the U.K., a similar survey showed that the services PMI picked up slightly to hit at the end of the year, indicating that activity flatlined, but businesses reported that optimism rose to its highest level in 15 months.

The report boosted the against the (admittedly) softer U.S. dollar.

–Reuters contributed to this report

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China’s RRR still relatively high by global standards, can be adjusted further: PBOC official

China's RRR still relatively high by global standards, can be adjusted further: PBOC official China’s RRR still relatively high by global standards, can be adjusted further: PBOC official

SHANGHAI/BEIJING (Reuters) – The proportion of money that Chinese banks must set aside as reserves is still relatively high by global standards, and can be adjusted in future to help provide long-term, stable liquidity to the economy, a senior central banker said.

China on Wednesday announced it will cut the reserve requirement ratio (RRR) from Jan. 6 to spur more lending and lower financing costs. It has cut the ratio eight times since early 2018 as it looks to avert a sharper economic slowdown, but growth has still cooled to a near 30-year low.

“From an international perspective, China’s current required reserve ratio (RRR) is still relatively high and has relatively big room to adjust,” Ruan Jianhong, head of the Statistics and Analysis Department at the People’s Bank of China (PBOC), said in an article.

The article was first published in the December edition of China Bond, and released via the magazine’s official Wechat account late on Thursday.

Along with other monetary policy tools, RRR adjustments “can provide long-term, stable liquidity to the real economy,” she said.

The 50 basis point cut announced on New Year’s Day released around 800 billion yuan ($ 114.91 billion) in funds. It brought the ratio for big banks down to 12.5%, compared with 17% at the start of 2018.

RRRs for China’s commercial banks range between 7.5%-13%. Most deposits in the United States are subject to RRR of 0%or 3%, while the European Central Bank imposes RRRs of 0%-1%, according to the article.

While rolling out a series of growth boosting measures in the last two years, China’s policymakers have pledged they will not embark on massive stimulus schemes like those launched in past downturns, which left a mountain of debt that is still weighing on the financial system.

Echoing that cautious tone, Ruan said that the RRR adjustments don’t represent changes in China’s monetary policy stance, and are aimed at reducing the cost of funding and improving overall liquidity, as the size of China’s monetary base shrank in 2019.

“In recent years, PBOC has been reducing RRRs successively. But this doesn’t mean PBOC is shifting toward a looser monetary policy. Rather, the moves are aimed at supplementing liquidity to the overall economy in an efficient, low-cost manner,” according to the article.

To improve liquidity, RRR adjustments are a more appropriate option than expanding PBOC’s balance sheet, because PBOC, with about $ 5.42 trillion of assets at the end of 2018, is already the world’s biggest central bank by assets, she said.

Further expanding its balance sheet would hurt credibility of China’s monetary policies, the article said.

(This story corrects reference to “she said” in paragraphs 5 and 11.)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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Italy’s FITD fund ready to stump up 700 million euros in Pop Bari rescue

MILAN (Reuters) – A depositor protection fund financed by Italian banks is ready to cover half of a potential capital increase of 1.4 billion euros ($ 1.6 billion) to help rescue ailing lender Banca Popolare di Bari.

In a statement on Monday, the FITD fund said it would stump up as much as 700 million euros to help the bank plug its capital shortfall, adding it had approved an immediate cash injection of 310 million euros.

Popolare di Bari, the biggest lender in the poorer south of the country, was placed under special administration earlier this month after racking up losses fueled by mounting bad loans.

Italy’s coalition government passed emergency measures worth up to 900 million euros after Popolare di Bari management said it urgently needed 1 billion euros, approving a cash injection into state-owned Banca del Mezzogiorno-Mediocredito Centrale.

Earlier this month Regional Affairs Minister Francesco Boccia said the FITD contribution was necessary to comply with European Union rules on state aid to struggling private firms.

FITD, which recently financed a rescue package for Genoa-based bank Carige (MI:), will help Mediocredito in the restructuring of Popolare di Bari.

“The interbank fund assures the special commissioners (at the bank) of its support for the strategic and management measures needed,” FITD said.

Popolare di Bari’s rescue is the latest episode in a string of banking crises that have hit Italy since 2015 and cost the state and other Italian banks some 23 billion euros.

Like other regional banks it never recovered from Italy’s worst post-war recession, which bankrupted thousands of businesses, saddling banks with a mountain of unpaid loans.

Popolare di Bari’s problem debts stand at 23% of total lending this year, up from 13% in 2011.

(For a chart on banking rescue in Italy, click https://fingfx.thomsonreuters.com/gfx/editorcharts/ITALY-BANKS-RESCUES/0H001QXR0B0X/eikon.png)

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Poland’s president appoints new central bank policymaker

WARSAW (Reuters) – Poland’s President Andrzej Duda on Friday appointed his former adviser Cezary Kochalski to the country’s Monetary Policy Council (MPC) to replace one of the few remaining hawks on the panel that has held rates steady since 2015.

Kochalski joins the MPC at a time of unprecedented stability in monetary policy as rate setters adopt a wait-and-see stance in the face of inflationary pressures at home and an economic slowdown in the euro zone.

Kochalski, a professor at the Poznan University of Economics and Business with experience at Poland’s financial supervision authority, replaces Jerzy Osiatynski, one of the few panel members who has said rates may have to rise.

Osiatynski’s term came to an end on Dec. 20.

Poland’s benchmark interest rate has been at a record low of 1.5% since 2015, and central bank governor Adam Glapinski has repeatedly said that rates are likely to remain on hold until his term ends in 2022.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

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