NEWS,14.10.2012

Eyes peeled on US earnings

The central bank-induced highs of September have given way to concern about the depressed outlook for corporate earnings and the global economy.After the International Monetary Fund kicked off the week with a downgrade of its forecast for worldwide economic growth, US companies including Alcoa reminded investors that the headwinds facing Europe and China make corporate smooth sailing increasingly challenging.Indeed, Thomson Reuters data showed 11 negative outlooks for fourth-quarter results so far from Standard & Poor's 500 companies, while none are positive.Investors are anxiously awaiting results of Bank of America, Citigroup, Goldman Sachs and Morgan Stanley released in coming days after those of JPMorgan Chase and Wells Fargo failed to inspire on Friday."We need to see big banks doing well, and JPMorgan or Wells didn't give us the boost we were hoping for," Wayne Kaufman, chief market analyst at John Thomas Financial in New York, told Reuters. "Citigroup is the one we're looking for. If profits come in worse than expected there, that would make me more bearish about the economy in general."Among the slew of other US companies reporting this week are McDonald's, Microsoft, IBM, Intel and Johnson & Johnson.In the past five days, the Standard & Poor's 500 Index shed 2.2%, while the Dow Jones Industrial Average dropped 2.1%.There were some unexpected bright spots as reports showed that US jobless claims dropped to the lowest since 2008, while confidence among American consumers rose in October to the highest level in five years.Also, data showed that China's exports increased at the fastest pace in three months in September, fuelling hope the world's second-largest economy might be holding up better than expected after all.US data due in the coming days include retail sales, the consumer price index, industrial production, housing starts, and existing home sales.By and large, the appeal of the relative safe-haven of US Treasuries remained strong in the past week, bolstering demand for the US$66 billion of notes auctioned. The yield on 30-year bonds dropped 14 basis points last week, while the yield on 10-year debt yield declined nine basis points."The IMF brought everybody back to the global economic situation," Jim Vogel, head of agency-debt research at FTN Financial in Memphis, Tennessee, told Bloomberg. "We went through roughly six weeks where everything looked more attractive than Treasuries."On Thursday, the US is scheduled to auction US$7 billion in 30-year Treasury Inflation Protected Securities.In Europe, investors will eye a meeting of EU finance ministers.Euro zone officials are considering new ways to lower Greece's debts because delays to reforms by Athens and continued recession have put the target of a debt to GDP ratio of 120 % in 2020 out of reach, Reuters reported.Europe's Stoxx 600 Index declined 1.7% last week. The euro also suffered, weakening 0.7% against the greenback in the past five days, and losing 0.9% against the yen.The region's debt crisis remains a key concern for investors.BlackRock chief executive Laurence Fink said he was still bullish on US equities but warned that the stock market could lose 5 to 10% in a correction in the final months of the year amid uncertainty over the euro zone's current key problem-child, Spain."The next three to four months we are going to probably have greater uncertainty and the market may test itself one more time," Fink said.

Germany and Singapore to co-operate over tax evasion

Germany and Singapore have agreed to co-operate more closely to reduce tax evasion, the German Finance Ministry said, amid signs that German tax evaders are moving funds to Asia's prominent wealth management centre.Recent media reports have suggested said that wealthy German citizens were shifting funds to Singapore from Switzerland, which signed a tax deal with Germany earlier this year.The new agreement will come into effect once both countries have ratified it domestically and will allow the two states to obtain more information from each other.The ministry said in a statement on Sunday a 2004 tax agreement between Germany and Singapore would be amended to conform to the international standards for exchanging information laid out by the Organisation for Economic Co-operation and Development (OECD).The agreement will cover all kinds of taxes, not just capital and income tax as was previously the case. The exchange of information could apply to taxpayers not resident in Germany or Singapore and would not be hindered by banking secrecy rules, the ministry said.Switzerland and Germany hammered out a new deal in April to confront tax evasion, but the centre-left SPD opposition has said it will block the pact in the upper house of parliament, arguing it is too lenient on tax dodgers.One of the SPD's criticisms has been that the agreement would allow people to evade taxes by taking their money out of Switzerland before the deal takes effect.Norbert Walter-Borjans, finance minister of the German state of North Rhine-Westphalia and one of the most vociferous critics of the Swiss tax deal, welcomed the agreement with Singapore."Every effective agreement which prevents tax evasion helps to make the tax system fairer and state finances more stable," he said in a statement.

 

Poland to pump €15.5bn into shale gas

Poland will invest 50bn zlotys (€15.5bn) in the exploration of shale gas by 2020, Finance Minister Mikolaj Budzanowski said on Saturday.Investment over the next two years will total 5bn zlotys (€1.2bn), which includes a €409m shale gas deal agreed in July by five Polish energy and mining groups, Budzanowski told the press."With the Russian gas accord terminating at the end of 2022, we must be well prepared to noticeably boost the exploitation of our own gas fields three years earlier," he said, adding that state money as well as private investment would be involved.Poland which has a population of 38 million has extractable shale gas deposits estimated at 1 920 billion cubic metres, according to an official report published in March.The National Geological Institute (PIG) said Poland's shale gas deposits are the third largest in Europe after those of Norway and the Netherlands.Its extraction could make the country independent of Russian imports.Poland burns 14 billion cubic metres of gas a year, two-thirds of which come from Russia.The government expects extraction to begin in 2014.The gas is extracted from rock through hydraulic fracturing or fracking, the drilling of underground shale rock formations by injecting chemicals and water to release the trapped natural gas.Opponents say it causes pollution of the ground water but energy groups say it provides access to considerable gas reserves and drives down the price.

 

Finance leaders back shielding growth

World finance leaders on Saturday endorsed a checklist of policy reforms aimed at pressuring Europe and the United States to tackle debt troubles that threaten to choke off global growth.To hold each others’ feet to the fire, the nations - meeting under the aegis of the International Monetary Fund - agreed to review progress in six months.Their 10-page agenda, however, largely summarised previously planned steps, such as deploying a new European Central Bank bond-buying programme and avoiding the US “fiscal cliff” of spending cuts and tax hikes set to take hold early next year.The checklist and checkup were an acknowledgement of frustration within the IMF and among many emerging market economies over a sluggish and piecemeal policy response to the major risks facing the world economy.IMF chief Christine Lagarde said nations had narrowed their differences over how to implement policy, seeking to downplay disagreements between the Fund and Germany over how quickly debt-laden countries such as Greece should cut budgets.“There was no objection to the recommendation that we gave to the membership, which was A-C-T,” Lagarde said, spelling out the word letter by letter.“We might not always agree on everything, but I think there is a general consensus that collective action is going to produce results,” she told reporters.  In a communique released after two days of talks, IMF members warned that global economic growth was decelerating and that substantial uncertainties and risks remained.But the IMF’s governing panel, representing the 188 member countries, praised steps that had already been taken, particularly in Europe, to make the world financial system safer, even if they had not yet gone far enough.“Members all agreed that we are in a better position today than we were six months ago,” said Singapore Deputy Prime Minister Tharman Shanmugaratnam, the chairperson of the committee.Spain’s economy minister, Luis de Guindos, said he felt the mood toward his country lifting too. Spain is under pressure to seek a bailout as it struggles to cope with high government debt and the cost of recapitalising its banks. “The atmosphere, from International Monetary Fund policymakers or from the private sector, is much more positive than it was before the summer,” de Guindos said.Euro zone sources said they expected Spain to seek financial aid from the euro zone in November.Still, finance leaders leave Tokyo with little concrete evidence that fresh progress was being made in the world’s debt trouble spots, hamstrung by political considerations.US presidential elections and a once-a-decade leadership change in China are just weeks away. The euro area has to navigate decisions through several national governments, which Russian Finance Minister Anton Siluanov likened to manoeuvring a supertanker with 17 captains at the helm.“If you decide to turn it in one direction, it happens very slowly,” he said.Emerging strainsReports from the IMF this week downgraded global economic growth forecasts for the second time since April and warned of the need for action in advanced economies to treat a debt hangover that stems in part from earlier efforts to quell the global financial crisis.To replenish its crisis-fighting war chest, the IMF has taken in $461bn in contributions from member countries, with Algeria and Brunei the newest members of the donor group, Lagarde said. The United States is among the notable absences from the list of contributors.Frustration over what many nations see as plodding progress in Europe and in Washington spilled into public view during the meetings.“Asia alone can’t carry the global economy,” said Australian Treasurer Wayne Swan. “It is time for the other players to get off the benches and start to pull their weight on global economic growth again.”Emerging markets, which have been caught in the downdraft created by weak economies in Europe and the United States, were disappointed that the IMF missed its target for enacting voting reforms that would make China the third most influential country within the lending institution. Lagarde said there were “one or two countries” that had not finalised the reforms, which were agreed in 2010, a thinly veiled reference to the United States. The Obama administration does not want to seek congressional approval for more IMF funding before the November presidential election.European leaders argued this week they had taken big strides toward building a stronger fiscal and banking union, and they earned at least some recognition from the rest of the world.“This broad framework offers a more promising strategy for addressing the crisis,” US Treasury Secretary Timothy Geithner said. “However, what is important is how it will be applied.”German Finance Minister Wolfgang Schaeuble pointed out that euro zone decision-making does take time given the number of national governments involved.“If we are not fast enough for markets, sorry, but markets have to wait,” he said.