NEWS,03.01.2013

Obama signs fiscal cliff legislation

President Barack Obama has signed into law a contentious compromise bill hammered out in Congress that narrowly averted the US 'fiscal cliff of tax hikes and drastic, immediate cuts in spending, the White House said early on Thursday.  In a statement, the White House said that Obama late on Wednesday signed the "American Taxpayer Relief Act of 2012," raising taxes on households earning above $450 000 and delaying spending decisions for two months.  Officials said the US president, who is on vacation in Hawaii, signed the measure electronically by autopen.  The "fiscal cliff" crisis was finally averted on Tuesday as the House of Representatives, by a vote of 257 to 167, approved a stop-gap agreement passed one day earlier by the US Senate.  The measure dodged across-the-board tax hikes and automatic spending cuts that had threatened to unleash economic turmoil and perhaps drive America back into recession.  The hard-fought agreement, seen as a political victory for Obama, raised taxes on the very rich and delayed the threat of $109bn in automatic spending cuts for two months.  The respite will prove temporary, however: The Democratic administration and the Republican-controlled House of Representatives face several clashes in the coming months on spending cuts and raising the government debt ceiling.  Had the deal fallen apart, all Americans would have been hit by tax increases and spending cuts would have kicked in across government a combined $500bn shock that could have rocked the fragile recovery.  Relief was felt internationally and markets surged, although China's official news agency Xinhua warned: "People, or governments, can overspend for some time, but they simply cannot live on borrowed prosperity forever."

 

US CEOs pan fiscal cliff deal

 

US executives largely panned the congressional deal to steer America away from the "fiscal cliff," saying Washington wasted an opportunity to address the nation's long-term debt, but said they would continue to agitate for a better budget plan.While CEOs expressed relief that $600bn in tax hikes and spending cuts will not kick the fragile economy in the gut, their gratitude was salted with insults."I think this deal's a disaster," said Peter Huntsman, chief executive of chemical producer Huntsman Corp."We're just living in a fantasy land. We're borrowing more and more money. This did absolutely nothing to address the fundamental issue of the debt cliff."Former Wells Fargo CEO Dick Kovacevich said the agreement confirms that Washington and both parties are totally out of control."I think it's a joke," Kovacevich said of the deal. "It's stunning to me that after working on this for months and supposedly really getting to work in the last 30 days that this is what you come up with."Kovacevich and others said business leaders need to consider a different approach, one that either bypasses lawmakers or lays out a much more specific plan for deficit reduction.Corporate America had mounted a media blitz in the last two months, calling on Congress to both avert the potentially devastating fiscal cliff and replace it with a reasonable long-term plan to get the federal deficit under control. Dozens of CEOs joined a loose coalition known as the "Fix the Debt" campaign, travelled to Washington to talk directly with lawmakers, visited the White House, and made regular rounds on TV news programs.The executives scaled back their public posturing during the furious last-minute negotiations, which coincided with their holiday vacations, but some executives kept the phone lines to Washington open. They are not happy with what their efforts bought them.The final deal contained no meaningful spending cuts and adds trillions to the deficit, compared to the budget savings that would have occurred if the extreme measures of the cliff had kicked in.It also set up another cliff of sorts in two months. That's when the nation is expected to hit its borrowing limit, and when the across-the-board spending cuts known as "sequestration" are now scheduled kick in.Despite executives' distaste for the deal, they're not turning their backs on Washington and are holding out hope for a greater deficit reduction plan."We cannot give up now, that's not how a great nation acts," said Honeywell International Inc CEO David Cote, a driving force behind the Fix the Debt group. He said in a statement Wednesday that he's "encouraged" by comments made by both Democrats and Republicans saying that more work needs to be done.RegroupingSome in the business community are calling for a change in strategy due to the meager results of the fiscal cliff deal."It doesn't work talking to the politicians, obviously," former Wells CEO Kovacevich said. "What we've got to do is educate the American public that our country is going to hell."There are questions about how meaningful of a contribution Corporate America can make, especially if they do not deliver a unified voice on hard decisions such as industry-specific tax breaks.Republican Senator Bob Corker from Tennessee said on CNBC on Wednesday morning that the business community could play a great role by pushing for concrete entitlement changes.The business community appears reluctant to provide lawmakers with specific proposals.Jon Romano, a spokesman for the Fix the Debt campaign, said the group has set out principles for a long-term deal, but it doesn't want to prescribe what the policy should look like. "We're really looking to our elected leaders on both sides of Pennsylvania Avenue to come up with that solution to this issue," Romano said. Mark Kennedy, who heads George Washington University's Graduate School of Political Management and served in Congress from 2001 to 2007, said business leaders need to do more.He said executives should identify "sacred cows" that should no longer be protected, be more specific about how big a deficit reduction deal should be, and get specific about what they want included."It's more helpful to get parameters as to what should be done than to just say, do something," Kennedy said.

Bigger fights loom after fiscal deal

 

President Barack Obama and congressional Republicans looked ahead on Wednesday toward the next round of even bigger budget fights after reaching a hard-fought fiscal cliff deal that narrowly averted potentially devastating tax hikes and spending cuts.The agreement, approved late on Tuesday by the Republican-led House of Representatives after a bitter political struggle, was a victory for Obama, who had won re-election on a promise to address budget woes in part by raising taxes on the wealthiest Americans.But it set up political showdowns over the next two months on spending cuts and on raising the nation's limit on borrowing. Republicans, angry the deal did little to curb the federal deficit, promised to use the debt ceiling debate to win deep spending cuts next time."Our opportunity here is on the debt ceiling," Republican Senator Pat Toomey of Pennsylvania said on MSNBC, adding Republicans would have the political leverage against Obama in that debate. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."Republicans, who acknowledged they had lost the fiscal cliff fight by agreeing to raise taxes on the wealthy without gaining much in return, vowed the next deal would have to include significant cuts in government benefit programs like Medicare and Medicaid health care for retirees and the poor that were the biggest drivers of federal debt."This is going to be much uglier to me than the tax issue ... this is going to be about entitlement reform," Republican Senator Bob Corker of Tennessee said on CNBC."This is the debate that's going to be far more serious. Hopefully, now that we have this other piece behind us - hopefully - we'll deal in a real way with the kinds of things our nation needs to face," he said.Obama urged "a little less drama" when the Congress and White House next address thorny fiscal issues like the government's rapidly mounting $16 trillion debt load.The fiscal cliff showdown had worried businesses and financial markets, and US stocks soared at the opening after lawmakers agreed to the deal.The Dow Jones industrial average surged 262.45 points, or 2.00%, at 13 366.59. The Standard & Poor's 500 Index was up 29.79 points, or 2.09%, at 1 455.98. The Nasdaq Composite Index was up 77.45 points, or 2.57%, at 3 096.97. The crisis ended when dozens of Republicans in the House of Representatives buckled and backed a bill passed by the Democratic-controlled Senate that hiked taxes on households earning more than $450 000 annually. Spending cuts of $109bn in military and domestic programs were delayed only for two months.Economists had warned the fiscal cliff of across-the-board tax hikes and spending cuts would have punched a $600bn hole in the economy this year and threatened to send the country back into recession.Reluctant republicans House Republicans had mounted a late effort to add hundreds of billions of dollars in spending cuts to the package and spark a confrontation with the Senate, but it failed.In the end, they reluctantly approved the Senate bill by a bipartisan vote of 257 to 167 and sent it on to Obama to sign into law. "We are ensuring that taxes aren't increased on 99% of our fellow Americans," said Republican Representative David Dreier of California.The vote underlined the precarious position of House Speaker John Boehner, who will ask his Republicans to re-elect him as speaker on Thursday when a new Congress is sworn in. Boehner backed the bill but most House Republicans, including his top lieutenants, voted against it. The speaker had sought to negotiate a "grand bargain" with Obama to overhaul the US tax code and rein in health and retirement programs that will balloon in coming decades as the population ages. But Boehner could not unite his members behind an alternative to Obama's tax measures.Income tax rates will now rise on individuals earning more than $400 000 and families earning more than $450 000 per year, and the amount of deductions they can take to lower their tax bill will be limited. Low temporary rates that have been in place for the past decade will be made permanent for less-affluent taxpayers, along with a range of targeted tax breaks put in place to fight the 2009 economic downturn. However, workers will see up to $2 000 more taken out of their paychecks annually with the expiration of a temporary payroll tax cut. The non-partisan Congressional Budget Office said the bill will increase budget deficits by nearly $4 trillion over the coming 10 years, compared to the budget savings that would occur if the extreme measures of the cliff were to kick in. But the measure will actually save $650bn during that time period when measured against the tax and spending policies that were in effect on Monday, according to the Committee for a Responsible Federal Budget, an independent group that has pushed for more aggressive deficit savings.

Weak productivity hammers UK economy

 

Low productivity may have been a bigger factor behind Britain's slow economic recovery than previously thought, with potentially stark implications for monetary policy, Bank of England research suggested on Thursday.Previous research had suggested one-off demand shocks were the main reason for Britain's weak economic recovery from the financial crisis, but the research - co-authored by BoE policymaker Martin Weale - suggested this conclusion was due to flawed statistical techniques.If the findings are right, they may raise the barrier to the BoE restarting bond purchases  which offer a one-off stimulus to demand but do not tackle underlying issues - and put a greater onus on government and BoE policymakers to tackle Britain's poor productivity.Weak productivity is a well-known problem for the British economy, and official data released earlier on Thursday showed that on one measure it fell to its lowest level since 2005.However, existing research referred to in the paper by Weale and two other BoE economists suggested that "temporary demand shocks" - such as headwinds from the euro zone or government austerity - were the main reasons for slow British growth.Britain's economy shrank by around 7% in the 2008/9 recession, and its recovery since then has been amongst the slowest of the six economies looked at in the study, which include the United States, Canada, Germany, France and Italy.Earlier work had failed to properly account for the links between these economies, and doing so correctly led to new conclusions about Britain, the study said."The previous conclusions are now clearly overturned. Both permanent labour productivity and temporary demand shocks now contribute roughly equal amounts to recent (2010 and 2011) weak output growth in the UK," it said."Given this stark difference in results and policy implications, future applied work should therefore not ignore these issues and there might be some merit in a re-examination of past ... research," the study added.Productivity puzzleIf weak productivity, rather than low demand and a lack of confidence, is behind much of sluggish British economic performance, this would help explain why inflation has often been above target and higher than the BoE forecast.An unexpected jump in inflation in October was one reason why the BoE decided in November to halt bond purchases once they had reached the £375bn total agreed in July, and most economists do not expect it to restart this stimulus programme .However, the cause of Britain's weak productivity - and whether it is permanent, or a temporary consequence of the financial crisis - is still largely a mystery.Part of the reason may be the effect of the financial crisis on Britain's once highly profitable financial services sector, as well as a longer-term decline in highly productive North Sea oil and gas extraction.Some BoE officials also blame a lack of bank credit stopping firms from moving into more profitable niches, and this is one reason why the BoE launched its so-called Funding for Lending Scheme in August, which offers banks cheap finance.But other officials, such as former BoE policymaker Adam Posen, have played down the idea that the financial crisis permanently damaged the productive capacity of British workers, and that this would be enough of a reason to hold back stimulus.

Tough times for world's top brokers

The world's top brokers face a fight to hold onto hundreds of millions of dollars of revenue this year when US legislation throws open the vast swaps trading market to stock exchanges.Brokers like ICAP and BGC Partners make around a third of their revenue from the $640 trillion industry for trading swaps - financial instruments used by companies to cover their exposure to changes in interest rates, foreign exchange rates and credit ratings.Exchanges like CME Group, NYSE Euronext and the IntercontinentalExchange, meanwhile, dominate the much smaller market for futures, which give similar protection, but are more standardised and so tend not to offer exact cover.However, new US swap rules enshrined in the Dodd-Frank Act, due to be finalised in the coming weeks and take effect in the middle of this year, could drive business to the exchanges and away from the brokers, and reshape the industry globally due to the size of US markets and the power of their regulators. "It is going to be tough for the brokers. The exchanges are huge with deep pockets and they are not the types of companies you'd want invading your space," said Simmy Grewal, a senior analyst at research house Aite Group.Swaps trading involves brokers matching buyers and sellers in murky over-the-counter (OTC) markets. It has historically been less tightly regulated than futures trading on exchanges.US regulators want to drive swaps trading onto electronic platforms, like those run by exchanges, to make it more transparent and easier to regulate, and to protect the global financial system from problems that arose after the collapse of US bank Lehman Brothers, one of the largest swaps traders.These changes will effectively see brokers and exchanges starting to compete directly for swaps business later in 2013, with exchanges eager to grab a chunk of a huge market. According to the Bank for International Settlements, the swaps industry was worth $639 trillion at the end of June 2012, compared with $25 trillion for futures trading.The world's top five brokers - GFI, Tradition  and Tullett Prebon as well as ICAP and BGC made a combined $2.7bn, or 35%, of their revenues in their last full financial years from interest rate swaps, the most common type. The exchanges have hinted half the swaps market could be up for grabs under Dodd-Frank, which, if true, could see hundreds of millions of dollars in revenues moving to them from brokers.Regulatory swap The US Commodity Futures Trading Commission (CFTC) wants two new categories of regulated markets called Swap Execution Facilities (SEFs) and Designated Contract Markets (DCMs).Brokers are likely to trade swaps through SEFs, while the exchanges are set to offer swap-like futures as DCMs.Analysts are reluctant to estimate the extent of likely broker losses at this stage but early research suggests the reforms will have a significant impact.Three-quarters of respondents to a Berenberg Bank survey in July predicted the reforms would cut OTC trading levels by up to 30% while one in eight saw regulation reducing swaps trading by between 31% and 50%.In a note published in November, Morgan Stanley analysts flagged potential risks to the world's largest swap broker, ICAP, which in its last financial year made £681m ($1.1 bn), or about two fifths of its revenue, from interest rate swaps."The greater certainty in the futures model ... will favour futures over swaps, leading to cannibalisation of the swaps market," they predicted.$8bn question The exchanges received a boost in October when the CFTC said any company trading more than $8bn of swaps in a year must register with it as a "swap dealer", a designation which increases capital and collateral requirements.That could encourage some swaps traders to switch to futures to avoid the hassle of registering with the CFTC. Top banks, which trade billions of dollars of swaps each day, will smash the $8bn limit and some 65 of the top swaps traders, like Goldman Sachs, Morgan Stanley and JP Morgan Chase registered as dealers on Wednesday.However the CME, the world's largest futures exchange, said it saw a definite shift to futures contracts over swaps in the weeks following the CFTC announcement. Exchanges are also doing everything they can to encourage the shift. ICE, the leading energy futures market, in October transformed its energy swaps to futures, allowing clients to continue hedging their energy exposure without adding to their swaps total. Since the CFTC's October announcement, shares in ICAP have fallen 7.5%, while Tullett's have shed 13%.But the brokers are fighting back. ICAP, Tradition and Tullett have all launched swap broking platforms in a bid to retain business. ICAP's i-Swap and Tradition's Trad-X reported strong demand late last year as clients switched to the new regulated swap systems. Analysts say these efforts should help to stem the flow of business to exchanges, though brokers concede they face a fight.

US jobless claims rise

 

The number of Americans filing new claims for unemployment benefits rose last week, but the data continues to be too distorted by the holidays to offer a clear read of labour market conditions.Initial claims for state unemployment benefits increased 10 000 to a seasonally adjusted 372 000, the labour department said on Thursday. The prior week's figure was revised to show 12 000 more applications than previously reported.Claims data reported for the week ended December 22 had been artificially depressed by the holidays, which resulted in data for 19 states being estimated.A labour department official said claims data for nine states, including California and Virginia, had been estimated last week because of the Christmas and New Year holidays. This suggests the numbers are subject to revisions next week.The four-week moving average for new claims, a better measure of labour market trends, rose 250 to 360 000. The claims data has no bearing on December's employment report, scheduled for release on Friday.Employers are expected to have added 150 000 jobs to their payrolls last month, little changed from 146 000 in November, according to a Reuters survey of economists.Job gains in the first 11 months of last year averaged about 151 000 per month, not enough to significantly lower unemployment. Employers' hesitancy to ramp up hiring had been blamed on the so-called fiscal cliff, a combination of sharp government spending cuts and higher taxes.Although Congress this week approved a deal to avoid the fiscal cliff, the budget problems are far from resolved. That could continue to cast a shadow of uncertainty and hurt job growth.The claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid increased 44 000 to 3.25 million in the week ended December 22.

Job market grows despite fiscal crisis

 

Private-sector employers added more new jobs than expected last month even as a possible budget crisis loomed, helping the job market end 2012 on a high note, a report by a payrolls processor showed on Thursday.The ADP National Employment Report showed the private sector added 215 000 jobs last month, comfortably above economists' expectation of a 133 000 gain. The report is jointly developed with Moody's Analytics.The increase came even as companies worried the economy might fall off the fiscal cliff at year end, which would have meant higher taxes and, some predicted, suppressed hiring."All the labour market data has held up very, very well so (there is) no sign of the fiscal cliff impact on the job market," Mark Zandi, chief economist at Moody's Analytics, told CNBC televisionA last-minute deal to avoid going over the fiscal cliff was struck on New Year's day."The underlying economy has momentum and the employment data confirms that," said John Brady, managing director at R.J. O'Brien & Associates in Chicago."The hope and prayer of the market is that our political leaders don't screw it up."A revival in new construction jobs was also a hopeful sign, Zandi said, though the gains were likely boosted by rebuilding efforts after Superstorm Sandy hit the east coast in October.November's private payrolls tally was also revised upward to show a gain of 148 000 from the previously reported 118 000.The Bureau of Labour Statistics' more comprehensive payrolls report due on Friday is expected to show the economy added 150 000 jobs last month after adding 146 000 in November.

Vatican suspends bank card payments

 

The Bank of Italy has suspended all bank card payments in the Vatican including for tickets to its famous museum until further notice because of a failure to fully implement anti money laundering legislation, Italian media reported on Thursday.The payments have been suspended since January 1 after the Bank of Italy ordered Deutsche Bank Italia, which handles bank card payments on Vatican territory, to deactivate its terminals because of a lack of authorisation for the transactions.The Vatican museum, which was visited by five million tourists last year who paid a total of €91.3m ($120m), will now be asking for payments in cash, La Repubblica daily reported.The reports quoted Italian central bank sources saying the Vatican does not respect international anti money laundering norms and an Italian-registered bank such as Deutsche Bank Italia can therefore not operate on its territory.The suspension also includes payments at the Vatican pharmacy, the post office and a few shops that operate in the world's tiniest state.Vatican spokesman Federico Lombardi said contacts were underway with other operators and the suspension of bank card payments should be "short-lived", Corriere della Sera reported.Pope Benedict XVI has vowed greater transparency in Vatican finances and the operations of its bank, the Institute for Works of Religion (IOR), which has been infiltrated by organised crime in the past.Moneyval, a group of experts from the Council of Europe, said last year that the Vatican had made huge strides in adapting its legislation to new rules but that a lot of work remained to be done.

Worldwide IT spend to rise in 2013

Worldwide IT spending was expected to rise 4.2% in 2013 to $3.7 trillion, a pick-up from 1.2% growth forecast for last year as the gloom hanging over businesses and consumers starts to lift, industry research firm Gartner said.Much of the uncertainty surrounding prospects for an upturn in global economic growth is nearing resolution, managing vice president Richard Gordon said. "As it does, we look for accelerated spending growth in 2013 compared to 2012."Spending on devices like PCs, tablets, mobile phones and printers was forecast to reach $666bn, up 6.3%.The rise was below the 7.9% Gartner previously forecast, partly due to increased price competition from android devices in the tablet market.Worldwide enterprise software spending would rise 6.4% to $296bn, Gartner said on Thursday, driven by the security, storage management and customer relationship management sectors.Telecom services, which continue to be the largest IT market, would be flat over the next few years as higher revenue from mobile data services was offset by declines in fixed and mobile voice services markets, Gartner said.