NEWS,06.12.2012

Obama tough on fiscal cliff

President Barack Obama and Republicans crept closer to negotiations on avoiding a recession-threatening package of automatic tax increases and spending cuts, but the White House reaffirmed it would not budge on demands for higher taxes on the wealthy.With a new AP-GFK poll showing clear support for Obama's position and dwindling backing for cutting government services to curb the climbing US budget deficit, the president and House of Representatives Speaker John Boehner spoke by telephone on Wednesday for the first time in days about a way to avoid the so-called fiscal cliff which would occur on 1 January.The telephone contact, disclosed by a Boehner spokesperson, raises the possibility that negotiations could soon resume on heading off what some economists warn could be a serious blow to an economy still recovering from the Great Recession.So far, Republican leaders have said they would only agree to higher tax revenues by closing loopholes or reducing tax breaks, not by raising rates as demanded by Obama. The opposition has struggled, however, to remain united and find its footing in talks with a president emboldened by his November election victory and unified congressional Democrats.While insisting that tax rates go up on the top 2% of American earners, Obama, too, has called for government spending cuts but by less than the Republicans want.Obama, addressing business leaders on Wednesday, said the White House and Republicans could reach an agreement "in about a week" if the Republicans drop their opposition to raising taxes on families making more than $250 000 a year."If we can get the leadership on the Republican side to take that framework, to acknowledge that reality, than the numbers actually aren't that far apart," Obama said.Administration officials are hardening their warnings that Obama is willing to risk going over the cliff. Treasury Secretary Timothy Geithner said on Wednesday that the Obama administration is "absolutely" ready for that risky step.Geithner said in an interview on CNBC the administration thinks budget deficits are so large that they can't be closed without boosting tax rates on the wealthiest 2% of Americans. He also said that the administration would reject a budget plan that didn't include an increase in the federal borrowing limit, which is expected to expire early next year. However, Geithner said he still thinks progress is being made in the budget negotiations and that the outlines of an agreement are becoming clearer."They look inevitable," he said.Speaking to business chieftains Wednesday, Obama warned Republicans not to inject the threat of a government default into negotiations over the fiscal cliff as a way of extracting concessions on spending cuts. "It's not a game I will play," he said, recalling the brinkmanship of last year in which a budget standoff pushed the Treasury to the edge of a first-ever default and led to a downgrade of the US credit rating.While saying he is willing to accept some reductions in government programs such as Medicare, the highly popular federal health insurance programmes for older Americans, he flatly rejects Republican contentions that they can raise about $800bn in additional government revenue over a decade by closing loopholes and narrowing tax deductions on the wealthy, rather than raising income tax rates. The opposition argues increasing rates from 35% to 39.6% as Obama wants would impose a particularly harmful impact on the economy and job creation at a time when the country is still struggling to recover fully from the deepest recession in decades.The White House has ridiculed the Republican plan as "magic beans and fairy dust."

 

US jobless claims fall

The number of Americans filing new claims for unemployment benefits fell for a third straight week last week, dropping back to their pre-superstorm Sandy range.Initial claims for state unemployment benefits dropped 25 000 to a seasonally adjusted 370 000 in the week ended Dec. 1, the Labor Department said on Thursday.Last week's drop brought them back to their pre-storm's 360 000-370 000 range, which economists said suggested there had been no marked weakening in the labor market. They had forecast claims falling to 380 0000."We could reasonably assume there is no underlying deterioration or acceleration in the labor market before the storm," said Pierre Ellis, senior global economist at Decision Economics Inc. in New York."We should still have a relative poor payroll reading tomorrow, but we should have some confidence that payrolls would bounce back in December."The four-week moving average for new claims, a better measure of labor market trends, rose 2 250 to 408 000, reflecting the impact of the late October storm. That was the highest level since October last year.Last week's claims data has no bearing on Friday's employment report. Economists estimate the monster storm, which slammed into the densely populated East Coast, could subtract between 25 000 and 75 000 jobs from November's nonfarm payrolls.The closely watched report is expected to show payrolls increased only 93 000 last month after advancing 171 000 job in October, according to survey of economists. The unemployment rate is seen holding steady at 7.9%.A Labor Department official said there was nothing unusual in the state-level data, but noted claims tend to post their largest percentage increase in the last week of November, catching up from the Thanksgiving holiday.In addition, seasonal layoffs in sectors like construction, start picking up this time of the year. This will make claims a less useful gauge of labor market conditions in the weeks ahead.A separate report from consultants Challenger, Gray & Christmas showed planned layoffs at US firms rose nearly 20% in November to their highest level in six months.The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid dropped 100 000 to 3.21 million in the week ended Nov. 24.

 

ECB cuts euro-zone growth for 2013

The euro weakened against the US dollar and the yen after European Central Bank President Mario Draghi said the euro-zone was expected to stay in recession next year, reversing an earlier forecast for a recovery in economic growth.The downgrade to the outlook for gross domestic product came as the ECB left its benchmark interest rate at a record low 0.75%.Draghi said that there had been wide discussion on interest rates within the ECB, which taken together with the weaker growth track has stoked speculation the central bank may cut rates next year.The euro fell 0.9% to $1.2954 and dropped 1% to 106.64 yen after the statement."By the second part of the next year, we should see the beginning of a recovery" in Europe, as the global economy picks up pace, Draghi said.The ECB forecasts the region's economy will shrink 0.5% this year, worse that the 0.4% contraction it forecast three months ago. The economy would shrink 0.3% in 2013, compared to an earlier forecast of 0.5% growth.The ECB lowered its forecast for inflation in 2013 to 1.6% from 1.9% and said inflation would be even weaker in 2014 at 1.4%. Separately, the Bank of England kept its key interest rate at a record low 0.5% while maintaining its quantitative easing programme.Euro-zone GDP shrank 0.1% in the third quarter, the European Union confirmed, following a 0.2% contraction in the second quarter."The underlying reason for euro weakness is still there, and the ECB's warnings of continued weakness over the next year could be the catalyst for a continued euro drop," Neal Gilbert, market strategist at GFT. The ECB's first monetary policy decision in 2013 "could include another cut in interest rates."Equity markets were broadly stronger across Europe, though sentiment was driven by optimism the US Congress will find a way to avert the fiscal cliff which could plunge the US economy back into recession next year.Germany's DAX 30 rallied 1.1% to 7,534.54, the highest since January 2008, as figures showed factory orders in Europe's biggest economy jumped 3.9%, seasonally adjusted, in October. The Economy Ministry revised the previous month's decline to 2.4% from 3.3%.France's CAC 40 rose 0.3%. The Stoxx Europe 600 Index rose 0.7% to its highest close since May last year.Cracks are showing within Republican ranks over hiking taxes for the wealthiest Americans, a move that House Speaker and senior Republican John Boehner has refused to budge on in negotiations with President Barack Obama.Some 80 members of the US Congress, including Republicans and Democrats, have signed a letter calling for an exploration of "all options" in to end a deadlock between Obama and Boehner, Bloomberg reported, citing a spokeswoman for Representative Mike Simpson of Idaho, a republican who has signed the letter.US stocks were little changed. The Dow Jones Industrial Average fell 0.15 and the Standard & Poor's 500 Index was up 0.025. The Nasdaq Composite rose 0.3%.

ECB depicts bleak 2013

The euro zone economy is likely to shrink next year as it has in 2012, the European Central Bank predicted on Thursday, sharply downgrading its outlook after holding interest rates at a record low 0.75%.The bank's new staff projections put gross domestic product in a range of falling by 0.9% to growing by just 0.3% next year, suggesting contraction is far more likely than not. ECB President Mario Draghi said downside risks prevailed.In September, the ECB's staff had pencilled in a significantly higher range of -0.4% to +1.4% for the euro area economy."Economic weakness in the euro zone is expected to extend into next year," Draghi told a news conference after the central bank's monthly policy meeting."Later in 2013, economic activity should gradually recover as global demand strengthens and our accommodative monetary policy stance and significantly improved financial market confidence work their way through the economy."The Governing Council's decision to leave its main interest rate unchanged matched economists' expectations, which also showed opinion was split down the middle over the chances of a cut early next year."The Governing Council continues to see downside risk to the economic outlook for the euro area," Draghi said. "These are mainly related to uncertainties about the resolution of sovereign debt and governance issues in the euro area."A political impasse over the United States' fiscal policy, which could presage steep tax hikes and budget cuts if a deal is not reached, could also dampen sentiment for longer, he said.The level of uncertainty was reflected in the ECB's first attempt to forecast 2014, for which it pencilled in growth of between 0.2% and 2.2%. The midpoint forecast for 2012 was pushed slightly lower to -0.5%.Draghi said rates were not lowered because of high indirect taxes and increasing energy prices in some euro zone countries."There was a wide discussion ... but the consensus was to leave the rates unchanged," he said, a hint that opinions differed about what course to take.He also said the policymakers discussed setting a negative rate on the ECB's deposit facility in an attempt to encourage banks not to hoard cash at the ECB but lend it into the real economy instead.German Bund futures rose in response to that and the euro came under pressure.The ECB will also continue to supply eurozone banks with all the liquidity they ask for in the central bank's refinancing operations at least until July 2013, Draghi said.While financial markets have calmed since the European Union and the International Monetary Fund put in place further steps to help Greece, and the ECB promised to do what it takes to preserve the euro, the bloc's economy has sunk into recession from which it shows few signs of emerging soon.An inflation forecast of 1.1% to 2.1% next year compared with the ECB's target of close to but below two percent there would appear to be plenty of room to cut rates further.But recent policymakers' comments have suggested the ECB is unlikely to do so in the near future and the central bank is wary of taking any action that could see the bloc's governments soft-pedal on budget consolidation efforts.Also, market interest rates vary greatly across the 17-country bloc and the ECB is focused on fixing what it calls the 'transmission mechanism' for passing on its rates to all corners of the euro area before contemplating lowering official borrowing costs.The most obvious mechanism for doing that would be the ECB's yet to be used new bond-buying scheme, which could drive down government borrowing costs.The ECB has not yet bought any sovereign debt under its new programme dubbed Outright Monetary Transactions (OMT) because Spain, which is seen as most likely to become the first country to make use of the new support measure, has not yet fulfilled the precondition of asking for help from the euro zone's rescue fund.Pressure for the ECB to intervene is building.Spain auctioned fewer bonds than it hoped to on Wednesday as investors fret over the timing of an expected aid request by the government.

Europe needs to tackle tax avoidance

European governments should coordinate their efforts to root out tax avoidance costing them around €1 trillion every year, the European Union's executive body said on Thursday.The European Commission said member states need to share information better, introduce an EU-wide tax identification number and devise common criteria for blacklisting tax havens.The proposals were part of an action plan detailed by EU taxation policy commissioner Algirdas Semeta on Thursday to deal with inventive and increasingly common tactics used by big companies and others to reduce their tax bills."Tax competition must not open the door to fraudulent or abusive tax practices," Semeta said. A new framework would result in profits being taxed in the state where the "actual economic activity takes place".The Commission intends to present its action plan to EU finance ministers next year but is not aiming to persuade member states to pass binding legislation.The impetus to deal with the problem has grown as several European countries try to increase tax revenues and cut spending to rein in heavy debts.A number of high-profile examples have hit headlines in recent months, including one involving coffee chain Starbucks .A recent examination of Starbucks' accounts showed that the company had reported 13 years of losses at its UK unit, even as it told investors the operation was profitable and among the best performing of its overseas markets.The chain's UK unit paid no corporation tax on its income in the last three years for which figures were available.Starbucks said on Thursday it could pay up to $32.18m more in tax as it announced plans to change its accounting practices, surrendering to criticism from lawmakers, campaigners and the media.Examination of Amazon's accounts showed how the world's biggest online retailer had minimised corporate taxes by setting up in Luxembourg, and channelling sales through its units there.In effect, Amazon used inter-company payments to form a tax shield for the group, behind which it has accumulated $2bn to help finance its expansion. Amazon declined to answer questions about its tax affairs.BusinessEurope, the lobby group that represents companies, said it supported the Commission's initiative, but also called for a simplification of the tax system across European Union.Semeta suggested part of the blame lay on tax regimes "artificially designed to steal tax bases or encourage aggressive tax planning".He rounded on non-EU state Switzerland as one country whose policies encourage aggressive tax avoidance."I can openly say that we consider that several tax regimes in Switzerland, according to our estimations, do not meet criteria of the code of conduct on business taxation," he said.

Prada shrugs off slowdown concerns

Italian fashion house Prada SpA beat forecasts with a 30% rise in third-quarter net profit, shrugging off concerns about a slowdown in demand for luxury goods.The Hong Kong-listed company, popular for its coloured Miu Miu dresses and leather handbags and shoes, has outperformed its sector so far, helped by its retail expansion in new markets."The group has continued to grow at a rate that has exceeded our expectations but great care has still been paid to cost control and working capital management," Patrizio Bertelli, chief executive, said in a statement.The company, led by trend-setting designer Miuccia Prada and her husband Bertelli, posted a net profit of €122.1m in the third quarter, boosted by wealthy spenders from Asia and other emerging markets.That compares with an average forecast from analysts SmartEstimate of €110m and with €93.6m a year earlier.Wealthy tourists from Asia and Russia have shielded the fashion house from a sluggish growth in Italy, being felt by domestic peers such as Tod's.Milan-based Prada also says it still has plenty of room for growth because it has a limited presence in fast-growing markets including Asia, compared with rivals such as LVMH and Salvatore Ferragamo.Prada shares have soared 80% so far this year, outperforming the benchmark Hang Seng Index which is up 21% over the same period.Global sales of luxury goods are expected to grow 5% this year, stripping out currency effects, from 13% last year, according to a report by Bain and Italy's luxury goods trade body Altagamma.

Brazil launches port investment program

Brazil's government launched a $26bn port investment program on Thursday to reduce the high costs and notorious delays in shipping goods in and out of the major commodities exporter.The plan to modernize port infrastructure announced by President Dilma Rousseff seeks to increase investment in Brazil's ports through partnership with private companies.The bidding process that will open next year will favor tenders that offer the lowest tariffs for handling the greatest volume of cargo, moving away from a prior model of granting concessions to the highest bidder."Our objective is the greatest movement of cargo possible at the lowest possible cost," Rousseff said."We want to increase the efficiency of Brazilian ports with this partnership, which will make our exports more competitive and increase production," she said. "We want an explosion of investment through this partnership with the private sector."The bulk of the investment would be made between 2014 and 2017, Ports Minister Leonidas Cristino said.The ports slated for modernization include Santos, which is Latin America's largest port by value of goods moved, Rio de Janeiro, Paranagua, Porto Alegre, Espiritu Santo, Itaqui, Pecem and Suape. Rousseff said Brazil's ports handle 95% of Brazil's foreign trade. The country is the world's top exporter of coffee sugar and citrus and a major grains exporter. It is also one of the world's biggest exporters of iron ore used to make steel.