NEWS,11.01.2013

British manufacturing output slumps

British manufacturing output fell in November and industrial production was weaker than expected, official data showed on Friday, sparking renewed speculation that the economy shrank at the end of 2012.Manufacturing output contracted by 0.3% in November from activity in October and dived by 2.1% on a 12-month comparison, the Office for National Statistics (ONS) said in a statement. That was worse than market expectations for a monthly increase of 0.5% and an annual drop of 2.1%, according to analysts polled by Dow Jones Newswires. Manufacturing suffered a sharp downturn as construction industry output fell by 3.4% in November from activity in October - which was the biggest monthly decline for seven months - and tumbled 9.8% on an annual basis. "November's disappointing UK industrial production and construction figures provided yet more evidence that the economy probably contracted in the fourth quarter of last year," said Vicky Redwood, chief UK economist at British research group Capital Economics. The wider measure of industrial production - which includes also mining and quarrying, electricity, gas and water supply - rose by 0.3% in November from October, but fell 2.4% on an annual basis. The ONS said that the modest increase in industrial output was caused by the return to production of the North Sea's Buzzard Oil field, which was closed throughout September and October for maintenance. As a result, oil and gas extraction soared 11.3% in November compared with October. That was the biggest monthly gain since January 1968."Although overall production posted a 0.3% monthly rise, this just reflected a bounce-back in the energy sector," added Redwood. The ONS will publish its initial estimate for British gross domestic product (GDP) in the fourth quarter, or October-December period, on January 25.Britain, which has suffered two recessions since the 2008 financial crisis, will suffer a triple-dip recession should GDP contract in both the fourth quarter of last year and first quarter of 2013.

Japan unveils $226bn stimulus package

Japan's new government unveiled a massive $226.5bn stimulus plan on Friday in the latest bid to boost the world's number three economy, with plans to rebuild disaster-hit areas and beef up the military. Japanese investors welcomed the news, with the Nikkei index surging to a 22-month high and the yen tumbling, but analysts questioned its long-term effect and warned it could lead to more misery further down the line. Prime Minister Shinzo Abe, who came to power in a landslide election victory last month, followed through with one of his key pledges by outlining details of a big-spending plan designed create jobs and end deflation. "With the measures, we will achieve real GDP growth of two percent and 600 000 jobs will be created," he told a briefing. Japan's economy shrank by 0.6% in 2011, while last year's gross domestic product figures are yet to be released. "It is crucially important to break out of prolonged deflation and the high yen," he added. A hawkish Abe also repeated his call for Tokyo and the Bank of Japan to "join hands" on driving growth, comments that have stoked tension between the him and BoJ chief Masaaki Shirakawa over perceived threats to its independence and policy decisions. The new premier had pledged before the election that he would press the BoJ to carry out more aggressive monetary easing and warned that if it did not agree to a two percent inflation target he would change the law regarding its remit. While the total size of Friday's package came in at ¥20.2 trillion, Tokyo's direct spending on economic stimulus and pension financing amounts to about ¥13 trillion, with local governments and the private sector kicking in the rest, Abe said. Rebuilding disaster-struck areas, making more schools and hospitals earthquake resistant, and upgrading ageing infrastructure were among the planned measures. It will also see ¥180.5bn spent on missiles, fighter jets and helicopters to beef up the military as Tokyo is embroiled in an increasingly bitter territorial row with China over a group of uninhabited islands in the East China Sea.Friday's stimulus is the latest unveiled by successive governments who have tried to lift the economy from years of anaemic growth. Investors gave a big thumbs up, with the Nikkei surging 1.5% in the afternoon to levels not seen since before the March 2011 quake tsunami. The yen also tumbled to ¥89.35 against the dollar, its lowest since June 2010 and a far cry from the record high 75 it hit in late 2011, which hammered exporters. But the big spending plans have stoked fears over Japan's already tattered fiscal health, the worst among industrial countries with public debt standing at more than twice the size of the economy. "Huge spending of this size will, of course, have a one-time effect on boosting the economy. But if it fails to ignite a sustained recovery, Japan could fall into a vicious cycle of needing more stimulus spending," said Taro Saito, senior economist at NLI Research Institute. Saito also raised fears that some of the money would fall into a black hole of "wasteful spending". "If that is the case, it would only have a negative impact on Japan's fiscal health and a limited effect on boosting the economy," he said. Abe, however, insisted the package was not just a return to form for his Liberal Democratic Party (LDP), which has a history during its decades-long domination of what critics say is pork-barrelling, especially in the vote-rich countryside. "There is a suspicion that it is a kind of wasteful spending on white elephant projects that the LDP did in the past. That's wrong," Abe said on Friday. "Fiscal discipline is quite important. However, without a strong economy... we cannot improve our fiscal health."

Banks Officially No More Than Giant Babies: Seven And A Half Things To Know

Thing One: Are You Comfortable, Banks? Can We Get You Anything? When it comes to big banks, we're like overly doting parents: Four years after the financial crisis, we just can't stop babying them.Apparently, despite the personal guarantee of Warren Buffett that the banks are okey-dokey, they still need our assistance. Their profit margins are getting squeezed in several ways, writes Robin Sidel in the Wall Street Journal (as we'll observe when they report fourth-quarter earnings, starting with Wells Fargo today). For one thing, they have way too many deposits, on which they must pay interest. For another, they're having a hard time finding anybody they want to loan money, so they're not getting as much interest back. As a result, their net interest margins are too thin. Meanwhile, they also just can't seem to stop getting into trouble and paying hefty fines all of the time, which is also not great for business. Big lenders will take hits totaling about $20 billion in fines this quarter from their various settlements with the government, Sidel notes settlements that weren't too awfully onerous and that almost never involved any criminal charges being filed, mind you. Even as we speak, they're getting into more trouble: A couple of top UBS executives testifying before a UK parliamentary commission yesterday expressed shock and ignorance about rampant Libor fraud at their bank, for which it has paid $1.5 billion in fines. And Reuters reports that JPMorgan Chase will soon get a strongly worded letter from the U.S. government that it needs to do a better job of keeping an eye on the money going through its coffers, lest it run afoul of money-laundering laws, as HSBC, Standard Chartered and many other banks have before.Meanwhile, banks complained so much about the fragile state of housing that they won some key concessions in the new mortgage-lending rules announced yesterday by the Consumer Financial Protection Bureau, notes Peter Eavis in the New York Times. The rules may prevent some of the pre-crisis abuses in mortgage lending that helped lead to the housing collapse, but they will take effect over many years, and the CFPB offered possibly unnecessary protections to the banks against being sued by homeowners. In another sop to the banks, the recent government settlement with mortgage lenders over their shoddy foreclosure practices was based on a belief that actually reviewing cases of foreclosure abuse was just way too hard, and that it's better for everybody (except homeowners) just to let lenders handle things as they see fit, as Jessica Silver-Greenberg in the NYT reminds us (and EleazarDavid Melendez and Ben Hallman wrote earlier this week).All of this follows the most profound bank concession of all: the retreat earlier this week on tougher bank capital and liquidity standards by the Basel III regulators. Some commentators suggested this surrender was a good thing, otherwise these tender banks would be so fragile as to not be able to lend money any more. That's just completely wrong. The banks already aren't lending money, as Sidel's WSJ story today points out, either because they're being too finicky or because the economy is weak or because there's just not that much demand for loans, or all of the above. Distant-future capital and liquidity standards are not really a big part of the equation. Sure, business is bad, and we help industries when business is bad. But we shouldn't sacrifice the future safety of the financial system in the process. It's time to stop spoiling these banks.

Thing Two: More Stimulus For Japan: The government of new Japanese Prime Minister Shinzo Abe approved a $116 billion stimulus plan for that country this morning, the latest in a long series of measures aiming to jolt that moribund economy back to life. The move puts pressure on Japan's central bank to pitch in with its own monetary stimulus measures later this month, writes Reuters.

Thing Three: Dreamliner Nightmare Won't End: Another day, another set of mishaps on Boeing 787 Dreamliner airplanes. This time both incidents happened in Japan, one involving a fuel leak and another involving a cracked windshield. Both planes were operated by All Nippon Airways. Earlier this week, two separate Japan Airlines flights had trouble at Boston's Logan International Airport. The FAA is launching an investigation with a press conference in Washington later today.

Thing Four: Google's European Vexation: U.S. antitrust regulators may have given Google a pass, but European regulators aren't going to be such pushovers. The European Union's competition chief told the Financial Times that the search giant will have to "change the way it presents search results in Europe or face antitrust charges."

Thing Five: Fed To America: You're Welcome: Well, this should help with the deficit, a little: The Federal Reserve turned a record profit of $88.9 billion last year, the WSJ writes. That will go straight to the Treasury Department. Funny thing is, that profit came from the Treasury Department, in the form of interest payments on the mountain of Treasury bonds the Fed holds as a result of its stimulus programs.

Thing Six: Shell Game: A Shell oil rig that ran aground off the coast of Alaska last week might have been in motion only because Shell was trying to avoid paying taxes, according to a letter from Rep. Edward Markey (D-Mass.) to Shell's CEO. Shell denies the claim and says the rig was being moved for safety reasons. But a Shell spokesman last month told a local paper the timing of the rig's move was influenced by tax considerations, Reuters writes.

Thing Seven: Not-So-OK Computer: Some years back the RAND Corporation touted far and wide the benefits of switching health records from paper to electronic systems as a way of improving health-care efficiency and cutting costs, and the government spent tons of money to help speed up the process. Now, after a new study, RAND admits that it can see little benefit from the switchover, the New York Times writes. Awesome show, RAND. Great job!

Thing Seven And One Half: A Day In The Life: As a public service, to provide you a yardstick against which to measure your own life, Uproxx has unearthed an old AP story with a chronological list of all of the things Hunter S. Thompson ingested in a typical day. (Hint: Cocaine is well-represented.) It's a miracle he survived to that afternoon, much less the age of 67.

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Shell Kulluk Rig May Have Been Moved To Avoid Paying Millions Of Dollars In Taxes: Lawmaker

Shell may have moved an oil rig that ran aground off Alaska last week partly to avoid millions of dollars in taxes, U.S. Rep. Ed Markey said, raising even more questions about the oil company's decision on the timing of the move. The letter from the top Democrat on the House of Representatives Natural Resources Committee adds to the already-intense political scrutiny of Royal Dutch Shell's ambitious and troubled Arctic drilling foray last year. Shell's 30-year-old Kulluk drillship ran aground on New Year's Eve in what were described as "near hurricane" conditions while it was being towed south for the winter. In a letter to Shell's top U.S. executive, Marvin Odum, Markey said the decision to move the rig "may have been driven, in part, by a desire to avoid...tax liability on the rig. "In late December, a Shell spokesman told a local newspaper, the Dutch Harbor Fisherman, that it was "fair to say the current tax structure related to vessels of this type influenced the timing of our departure." But Shell said in response to Markey on Thursday that its decision was guided by safety, not taxes. Markey, an outspoken critic of the oil and gas industry, said his office received information about Shell and taxes from Alaska's revenue department. Shell could have been exposed to a state tax if the rig had remained in the state until January 1, as Alaska law says an annual tax of 2 percent can be assessed on drilling equipment on that date, Markey said in the letter sent on Wednesday.The company spent $292 million on upgrades on the rig since purchasing it in 2005, so the liability could have been about $6 million, he wrote. In total, Shell has spent $4.5 billion since 2005 to develop the Arctic's vast oil reserves. Jim Greeley, Anchorage-based petroleum property assessor for the Alaska Department of Revenue, explained that the tax applies to property used for exploration, production or transportation of oil or natural gas. He could not say whether the Kulluk would have been taxed or whether Shell's actions avoided a tax. The issue was complicated by the fact that Shell's drilling was in federal waters. "There's no tax precedent for that," at least in recent times, Greeley said, adding that department officials were researching the tax practices from two decades ago when there was a flurry of drilling offshore Alaska.The decision would have to be made by the time the state publishes its tax rolls on March 1.Shell's Arctic work has been closely watched by many in the industry and especially by ConocoPhillips ahead of its planned Alaska offshore drilling program slated for 2014.According to the U.S. government, the Beaufort and Chukchi seas hold an estimated 23 billion barrels of recoverable oil  equivalent to a tenth of Saudi Arabia's reserves. A Shell spokeswoman said the plan for the Kulluk this winter was always to move it in December. "While we are aware of the tax environment wherever we operate, the driver for operational decisions is governed by safety." She said an approved tow plan for the rig included weather considerations. Winter transit in northern waters is not unusual for rigs. Just this month, a rig owned by contractor Seadrill was due to arrive in Norway to start work for Statoil, while another was headed to Canada for Exxon Mobil Corp. The Kulluk accident is only Shell's latest problem in Alaska. Its 2012 Arctic drilling season was plagued by delays due to lingering ice and problems getting a mandatory oil spill containment vessel certified by the Coast Guard. Also, the U.S. Environmental Protection Agency said late on Thursday it issued notices of violation for air pollution in 2012 for the Noble Corp-owned Discoverer, Shell's other Arctic rig, and for the Kulluk. The EPA also terminated a temporary, more lenient permit granted to Shell in September for the Discoverer and said Shell's application for a less strict air permit was still under review. The U.S. Department of the Interior said this week it would review Shell's Arctic oil drilling program to assess the challenges it faced and to guide future Arctic permitting. Markey's committee does not have the power to stop drilling. His investigation would focus on why the rig was being towed along the coast down to Washington state in such severe weather and on Shell's safety policies, an aide to Markey said. Any permitting changes or delays resulting from the Interior Department review could threaten Shell's 2013 drilling plans, as the company has a limited drilling window during the summer. The Kulluk, before heading south, had previously been at a private facility in Unalaska/Dutch Harbor operated by Kirkland, Washington-based Offshore Systems Inc, which serves fishing and other vessels in Alaska. Harbormaster Jim Days said it was there for at least a month after completing its Beaufort Sea drilling. The environmental impact of the Kulluk accident is so far limited. The incident response team has located all four survival ships and one rescue ship that were dislodged from the drillship when it ran aground. The survival ships all had 68-gallon-capacity fuel tanks and two had been breached. None of the 155,000 gallons of fuel and other oil products aboard the Kulluk itself had leaked.