NEWS,23.05.2013

Eurozone slump eases in May

The downturn across eurozone businesses eased slightly this month, although a dearth of new orders means the bloc's economy is likely to contract again in the second quarter, business surveys showed on Thursday.

Markit's flash eurozone Services PMI, which surveys around 2 000 companies ranging from major banks to caterers, rose in May to 47.5, a three-month high, from 47.0 in April.

While that was a little better than economists polled expected, the PMI has now spent 16 straight months below the 50 mark that divides growth and contraction.

French companies continued to fare poorly this month, while activity in German firms effectively stagnated.

Overall, survey compiler Markit said the surveys pointed to a similar economic performance in the second quarter as the 0.3% contraction the eurozone logged in the January-March period.

"There are signs the rate of decline is easing, which does suggest we may be moving into a period of stabilisation, but it's taking a lot longer than most people anticipated," said Chris Williamson, chief economist at Markit.

"It's looking more like the end of the year (until) we're going to see the numbers start to show signs of stabilising."

The new orders services index fell to 45.3 from 46.2, meaning a big upturn in the PMI next month looks unlikely. 

Williamson said there were signs that the rate of decline eased this month in the "peripheral" eurozone countries outside Germany and France.

"But against that we've seen a worrying steep deterioration in service sector expectations for the year ahead."

Although business expectations for the year ahead hit an 11-month high in April, it plummeted in May to its lowest point since December.

The PMI for the manufacturing sector rose to 47.8 this month from 46.7 in April, while showing new orders and output declined at a slower pace, comfortably beating expectations of 47.0 predicted by economists.

Combining both the services and manufacturing reports, the composite PMI hit a three-month high of 47.7 in May, compared with April's 46.9, while showing continuing job losses.

Both the input and output prices index stayed below the 50 mark this month, indicating deflationary pressures.

"The European Central Bank doesn't have anything to worry about in relation to inflation," said Williamson. 

"More likely, it's going to find it difficult to get inflation up to the level it wants," he added, referring to the central bank's target of close to 2%.

Bernanke: No Fed stimulus pullback yet

The Federal Reserve's monetary stimulus is helping the US economy recover but the central bank needs to see further signs of traction before taking its foot off the gas pedal, Fed Chairperson Ben Bernanke said on Wednesday.
A decision to scale back the $85bn in bonds the Fed is buying each month could come at one of the central bank's "next few meetings" if the economy looked set to maintain momentum, Bernanke told Congress.
But minutes from the Fed's most recent meeting released on Wednesday showed the bar was still relatively high.
"Many participants indicated that continued (job market) progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases," according to minutes from the April 30-May 1 meeting.
In testimony that showed little immediate desire to retreat from the Fed's third and latest round of bond buying, Bernanke emphasized the high costs of both unemployment and inflation, which respectively continue to run above and below the Fed's targets.
"Monetary policy is providing significant benefits," he told the congressional Joint Economic Committee, citing strong consumer spending on autos and housing, as well as increases in household wealth.
"Monetary policy has also helped offset incipient deflationary pressures and kept inflation from falling even further below the (Fed's) 2% longer-run objective."
Still, financial markets focused on the possibility that Fed purchases will be scaled back later this year. The S&P 500 closed 0.8% lower, the dollar hit a near three-year peak against a broad basket of currencies, and the bond market sold off sharply. Yields on 10-year Treasury notes jumped back above 2% to their highest levels since mid-March.
The central bank is currently buying $45bn in Treasury bonds and $40bn in mortgage-backed debt each month to keep borrowing costs low and encourage investment, hiring and economic growth. It is the third round of asset purchases, or quantitative easing, since the Fed drove interest rates to near zero in late 2008.
"I believe the Fed, while feeling more confident in the economy bottoming, is not yet comfortable with ending QE and the US economic crutch it offers," said Douglas Borthwick, managing director of Chapdelaine Foreign Exchange in New York.
Missing the target
Bernanke noted that the main inflation gauge the Fed monitors rose just 1% in the 12 months through March, just half the central bank's 2% target.
Part of the reason, he said, was a decline in energy prices. But there were also indications of more broad-based disinflation, Bernanke said.
He said the Fed was prepared either to increase or reduce the pace of its bond buys depending on economic conditions, as the central bank stated on May 1 after its last policy meeting.
"If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases," he said.
"If we do that it would not mean that we are automatically aiming toward a complete wind down. Rather, we would be looking beyond that to see how the economy evolves and we could either raise or lower our pace of purchases going forward."
US economic growth rose to a 2.5% annual rate in the first quarter following an anemic end to 2012. The unemployment rate has fallen to 7.5% from a peak of 10%, but remains, as Bernanke put it, "well above its longer-run normal level."
Recent economic data have been mixed. Job growth, retail sales and housing have all shown some vigor, but factory output has been contracting.
Bernanke said some headwinds facing the economy, including the debt crisis in Europe, have been dissipating. But he said a sharp tightening of the US government's budget had become too big of a drag on growth for the central bank to offset fully.
Bernanke told the committee the Fed was aware of the risk that keeping monetary policy too easy for too long could fuel asset price bubbles. However, he said the central bank believed major asset prices were justified by the economy's fundamentals.
Further, he warned of the risks to pulling back on stimulus too early.
"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further," Bernanke said.
He also suggested the Fed could refrain from selling off some of the mortgage-backed securities it has acquired when the time finally came to tighten monetary policy. "I personally believe that we could exit without selling any MBS," he said.
Too soon to taper
In separate remarks, New York Fed President William Dudley stressed that uncertain economic conditions meant it was too early to determine whether to taper the Fed's bond purchases.
"I think three or four months from now you'll have a much better sense of 'Is the economy healthy enough to overcome the fiscal drag or not?'" Dudley said in a Bloomberg TV interview that took place on Tuesday but aired on Wednesday.
Dudley added that it would be possible to dial down the program by the fall "if the economy does better and if the labor market continues to improve."
The minutes of the last Fed meeting said a number of officials expressed a willingness to taper bond purchases as early as the upcoming meeting on June 18-19 if there were signs of "sufficiently strong and sustained growth." But views differed both on how to gauge progress and on how likely it was that that threshold would be met.
Asked whether the Fed would curtail the pace of its bond purchases by the September 2 Labour Day holiday, Bernanke said simply: "I don't know."

US shares recover, but dollar extends losses

US stocks and bonds were little changed on Thursday, with equities rebounding from what traders considered an excessive drop on Wednesday, though concerns remained over the pace of global economic growth.
The midday strength in US equities bucked a worldwide trend of weakness. European shares ended down 2 percent while Japan plummeted 7.2 percent on weak data from China and Europe.
US shares opened sharply lower, extending a sharp decline on Wednesday that came after Federal Reserve chief Ben Bernanke broached the possibility of reducing stimulus if economic conditions improve.
While Fed officials stressed that no action was likely for months, investors are anxious about the timing to any change in monetary policy, which is widely credited with fueling massive gains in stocks and high-yield corporate bonds this year.
"The commentary was very benign and wasn't anything unexpected, the sell-off came because we were looking for an excuse to correct after the big moves this year," said Eric Green, senior portfolio manager at Penn Capital Management in Philadelphia.
The Dow Jones industrial average was up 2.64 points, or 0.02 percent, at 15,309.81. The Standard & Poor's 500 Index was down 4.45 points, or 0.27 percent, at 1,650.90. The Nasdaq Composite Index was down 4.24 points, or 0.12 percent, at 3,459.06.
Thursday's equity rebound continued a recent trend of investors using any market decline as a buying opportunity. A rally in Hewlett-Packard Co, which jumped 14 percent to $24.18 a day after raising its profit outlook, helped limit losses and keep the Dow in mildly positive territory.

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Still, overseas markets were sharply lower, driving investors to safe-haven currencies. At the session peak, the yen rose more than 2 percent against the dollar and the euro, which both lost 1 percent against the Swiss franc , also seen as a safe haven.
Chinese factory activity shrank for the first time in seven months, adding to concerns that the world's second-biggest economy had stalled. European factory sentiment dropped, suggested that the euro zone's economy was likely to contract again in the second quarter.
Japanese shares were hit hardest in overnight action, with the Nikkei losing 7.3 percent, its biggest one-day fall in two years. European shares ended 2.1 percent lower and MSCI's world equity index lost 1.3 percent.
"Even though we were overdue for a correction, the Chinese data certainly didn't help things. If it proves to be part of a trend, that's very concerning for the global economy," said Green, who helps oversee $7 billion in funds.
US light crude oil, which is closely tied to the pace of economic growth, fell 0.5 percent. The U.S. dollar index fell 0.8 percent.
The Euro STOXX 50 Volatility Index, Europe's widely used measure of investor risk aversion, surged nearly 15 percent to a three-week high. The CBOE Volatility Index rose 3 percent.
Concern the Fed will wind down its stimulus initially took its toll on bonds, but investors' sales of equities caused money to flow into safer government debt, leaving yields on US Treasuries and German Bunds down from their highs. The benchmark 10-year U.S. Treasury note was down 2/32 in price, the yield at 2.0281 percent.
Investors expect the bond market will adjust to changing Fed policy, and that suggests higher yields in the coming months.
Demand for riskier euro zone debt softened, although bonds remained underpinned by expectations the European Central Bank may yet ease monetary policy further. That would contrast with any tightening by the Fed but follow a massive stimulus package launched by the Bank of Japan.

Apple has enjoyed Irish tax holiday since 80s

Apple has operated almost tax-free in Ireland since 1980, welcomed by a government keen to bring jobs to what was then one of Europe's poorest countries, former company executives and Irish officials have said.
Chief Executive Tim Cook faced criticism from a Senate subcommittee in Washington over the iPad and iPhone maker's tax practices, which had been shrouded from full view behind secretive tax-exempt Irish-based corporate entities.
Apple, one of Ireland's top multinational employers, denied avoiding billions of dollars in US taxes and said its arrangements helped fund research jobs in the United States.
The committee revealed that Apple's Irish companies, some of which are not tax resident in any jurisdiction, allowed the group to pay no tax on much of its overseas earnings in recent years.
Senator Carl Levin, chairman of the subcommittee, said Apple had sought "the Holy Grail of tax avoidance".
A former company executive and Irish officials the almost tax-free status dates all the way back to Apple's arrival in County Cork 32 years ago.
Apple must have seemed attractive to Ireland and to Cork. Amid a generally moribund Irish economy, Cork had been hard hit by the closure of its shipyards and a Ford car plant, and in 1986 nearly one in four were out of work in the city.
In the early days, Apple's staff sat down to meals together. Now the company employs 4,000 in Ireland and is the country's biggest multinational employer.
"There were tax concessions for us to go there," said Del Yocam, who was Vice President of manufacturing at Apple in the early 1980s.

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"It was a big concession."
In fact, the deal was about as good as a company can get.
"We had a tax holiday for the first 10 years in Ireland. We paid no taxes to the Irish government," one former finance executive, who asked not to be named, said.
Apple wasn't an exception, although it was among the last to enjoy such favourable treatment.
From 1956 to 1980, Ireland attracted foreign companies by offering a zero rate of tax, according to the Irish government's website. Eligible companies arriving in 1980 were given holidays until 1990.
"Any multinational attracted into Ireland that was focusing on the export market paid zero percent corporation tax," said Barry O'Leary, CEO of IDA Ireland, which is charged with attracting investment into Ireland.
Apple said it pays all the tax due in every country where it operates. It declined to comment on the tax treatment it received in the 1980s.
As part of Ireland's accession to the European Economic Community, precursor to the European Union, in 1973, it was forced to stop offering tax holidays to exporters.
From 1981, companies arriving in Ireland had to pay tax, albeit at a low 10 percent rate, providing they qualified for manufacturing status.
Economic coup
Apple's investment was a major coup for Ireland. At the time, the country was struggling with high and rising unemployment, double-digit inflation and a brain drain of the young and educated through emigration.
"We were the first technology company to establish a manufacturing operation in Ireland," recalled John Sculley, Apple's CEO from 1983 to 1993.
He said government subsidies had also played a role in deciding to set up a base in Ireland.
Ireland also offered low wage rates - a big attraction when it came to hiring hundreds of people for the relatively low-skilled work of assembling electronic equipment.
Apple told the subcommittee it could not answer questions about why it chose Ireland as a base since it had lost the paperwork from the period.
The operation in Cork built the company's Apple II computer and would later build disc drives, 'Mac' computers and others. These would be sold in Europe, the Middle East, Africa and Asia.
But having a tax holiday in Ireland would not, in itself, have allowed Apple to operate tax free in these markets.
Equipment assembly is not the kind of activity that economists or tax authorities usually credit with generating a large share of a technology company's profits.
More value has been associated with generating the intellectual property behind the technology - which Apple did in the United States - and with the selling of goods, which was to be done on the ground in France, Britain and India.
But none of these countries offered the tax advantages Ireland did. The key to minimising Apple's tax bill was maximising the amount of profit that could be ascribed to Apple's Irish operations.
Holiday over
In 1990, Apple's tax holiday came to an end, and in that year, the Irish operation's tax rate hit 4 percent, accounts from the period show.
At the same time, Apple's Irish manufacturing activities came under question as the company looked to cut costs by outsourcing.
In 1992, the company announced plans to cut hundreds of jobs after deciding to shift some work to Singapore, which at this time was attracting increasing investment by offering tax holidays.
"They nearly left Ireland altogether," O'Leary said.
By this stage, the European Community had banned tax holidays of the kind given to Apple, so the company and Dublin negotiated an arrangement which had a similar outcome but fell within European rules.

Cautious calm returns to Wall Street

Wall Street has been had mixed trading today, paring sharp early losses after disappointing data from China and a slump in Japanese stocks outweighed better-than-expected reports on US jobs and housing.
In China, the preliminary reading for a Purchasing Managers' Index of manufacturing was 49.6 in May, according to HSBC and Markit Economics data. In Japan, the Topix plunged 6.9%.
Yesterday's comments by US Federal Reserve Chairman Ben Bernanke suggested the central bank might ease back its bond-buying programme as soon as at its next meeting, while also stressing the risk of withdrawing stimulus measures too soon.
Fed officials today sought to soothe investors' concerns. James Bullard, president of the St Louis Fed, said he did not think the bank's policy committee was "that close" to tapering bond purchases and when it did start to pull back it would be slowly.
"The market is struggling with conflicting language from Fed officials as to the timing of potential tapering of asset purchases, slowing growth in China and after Japan's decline in equities," Ryan Larson, the Chicago-based head of US equity trading at RBC Global Asset Management, told Bloomberg News.
In late afternoon trading in New York, the Dow Jones Industrial Average gained 0.18%, while the Standard & Poor's 500 Index fell 0.22% and the Nasdaq Composite Index edged up 0.04%.
US economic data released today were better than anticipated, though failed to brighten the mood. Initial claims for state unemployment benefits fell 23,000 to a seasonally adjusted 340,000 last week, according to Labor Department data.

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New single family home sales increased 2.3% in April to a 454,000-unit pace, while the median sales price for a new home rose 14.9% from a year ago to a record US$271,600.
"All the eggs are in housing and the consumers' baskets this quarter. Outside that, there is going to be little support to growth," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
Bucking the trend today, shares of Hewlett-Packard jumped, last up 14.7%, after the computer maker lifted its 2013 earnings outlook.
"She [Chief Executive Officer Meg Whitman] clearly has the company focused on profit and cash flow and that's coming through in the earnings," Shannon Cross, an analyst at Cross Research in Millburn, New Jersey, who rates the stock a hold, told Bloomberg. "It shows they're able to drive margin at businesses that are under significant revenue pressure."
Europe's benchmark Stoxx 600 Index shed 2.1%. Yesterday European shares had closed higher, ending the session before Bernanke suggested the US central bank could taper its bond-buying as soon as next month.
The UK's FTSE 100, France's CAC 40 and Germany's DAX each also closed with declines of 2.1%.

NEWS,27. AND 28.02.2013

News of the Day From Across the Globe

1 Premier ousted: Slovenia's Parliament ousted Prime Minister Janez Jansa and his conservative government Wednesday, designating a financial expert from the opposition to try to form a new administration. The moves come amid corruption allegations against Jansa and growing public anger over the struggling economy and austerity measures that have seen living standards fall and unemployment rise. The 55-33 no-confidence vote named Alenka Bratusek as prime minister-designate. Bratusek, 42, would be the first woman to lead Slovenia's government since its secession from Yugoslavia in 1991.

2 Iraq warning: Iraqi Prime Minister Nouri al-Maliki warned Wednesday that a victory for rebels in the Syrian civil war would create a new extremist haven and destabilize the wider Middle East, sparking sectarian wars in his own country and in Lebanon. The prime minister's remarks reflect fears by many Shiite Muslims in Iraq and elsewhere that Sunni Muslims would come to dominate Syria should President Bashar Assad be toppled. 

3 Corruption case: Vassilis Papageorgopoulos, the former mayor of Greece's second city, Thessaloniki, and two of his top aides were sentenced to life in jail Wednesday after being found guilty of embezzling almost $23.5 million in state funds. It's a rare conviction in a country where political corruption has contributed to Greece's dysfunction and economic decline.

4 Swiss shooting: A longtime employee opened fire at a wood-processing company in central Switzerland on Wednesday, leaving three people dead, including the assailant, in the country's second multiple-fatality shooting in two months, police said. Seven other people were wounded, six of them seriously, in the shooting at the premises of the company Kronospan, in the small town of Menznau. The incident occurred as the Swiss Parliament prepares to consider tightening some aspects of the country's famously lax gun legislation.

5 Shark attack: About 150 friends and family of 46-year-old Adam Strange wrote messages to him in the sand and stepped into the water Thursday at a New Zealand beach to say goodbye after he was killed Wednesday by a large shark. Strange, an award-winning television and short film director, was swimming near popular Muriwai Beach Wednesday when he was attacked by a shark that may have been 14 feet long. The fatal attack is one of only about a dozen in New Zealand in the past 180 years.

6 Lethal fire: A fire broke out at an illegal six-story plastics market in the Indian city of Kolkata on Wednesday, killing at least 19 people, police said. The blaze was likely caused by a short circuit, police said.

7 Lion gangster: Authorities have removed four lions and two bears from the Bucharest estate of a notorious Romanian gangster. Ian Balint, who reportedly used the animals to threaten his victims, was arrested Feb. 22 with dozens of others on charges of attempted murder, kidnapping, blackmail and possessing illegal weapons. Environmental authorities tranquilized the animals Wednesday and transported them to a zoo.

8 Tallest hotel: The JW Marriott's Marquis Dubai formally opened this week after gaining the title of tallest hotel from Guinness World Records. At 1,099 feet, the 72-story hotel towers over the skylines of most cities.

 

US economy shows strength

 

Even with automatic spending cuts looming, the outlook for the US economy brightened a bit Tuesday after reports showed that Americans are more confident and are buying more new homes.Home prices are also rising steadily, and banks are lending more. Such improvements suggest that the economy is resilient enough to withstand the deep government cuts that will kick in Friday.That's especially encouraging because uncertainty over the federal budget could persist for months."The stars are lining up for stronger private sector growth this year," said Craig Alexander, chief economist at TD Bank.Sales of new homes jumped nearly 16% in January to their highest level in 4 years, adding momentum to the housing recovery. Consumer confidence rose in February after three months of declines. And home prices increased in December from the same month in 2011 by the largest amount in more than six years.The upbeat economic news contributed to a rally on Wall Street. The Dow Jones industrial average jumped more than 100 points.Consumers still face numerous burdens. Among them is a sharp increase in gas prices. The national average for a gallon, $3.78 ($1 a litre), has surged 44 cents in a month.And Social Security taxes rose 2 percentage points beginning January 1. This year, the increase will cost a typical household that earns $50 000 about $1 000. Income taxes for the highest-earning Americans also rose.Both factors could reduce overall spending.On Friday, about $85 billion in automatic spending cuts are to kick in, and there's little sign that the White House and Congress will reach a budget deal to avoid them. The cuts will cause furloughs and temporary layoffs of government workers and contractors and sharply reduce spending on defense and domestic programs.For about 2 million long-term unemployed, benefits now averaging $300 a week could shrink by about $30. Payments that subsidize clean energy, school construction and state and local public works projects could be cut. Low-income Americans seeking heating or housing aid might face longer waits.Overall, the tax increases and spending cuts could shave up to 1.2 percentage points from growth this year, economists estimate. Alexander estimates that without the spending cuts or tax increases, the economy would expand more than 3 percent this year. Instead, he predicts growth of only 2%.But growth should accelerate later this year as the effects of the government cutbacks ease, he and other economists say. And several reports on Tuesday suggest that the economy's underlying health is improving despite the prospect of lower government spending and further budget stalemates:

• The Standard & Poor's/Case-Shiller 20-city home price index rose 6.8% in December from a year earlier. That was the biggest year-over-year increase since July 2006. Rising home prices tend to make homeowners feel wealthier and encourage more spending. They also cause more people to buy before prices rise further. And banks are more likely to provide mortgages if they foresee higher home prices.

• Consumer confidence rose after three months of declines, according to the Conference Board, a business research group. Confidence had plunged in January after higher taxes cut most Americans' take-home pay. The rebound, though, suggests that some consumers have begun to adjust to smaller paychecks. The consumer confidence index rose to 69.6 in February from 58.4 in January. That's higher than last year's average of 67.1.

• Bank lending rose 1.7% in the October-December quarter, the Federal Deposit Insurance said. It was the sixth rise in seven quarters. Banks made more commercial and industrial loans to businesses and auto loans to consumers. More lending means the Federal Reserve's policy of keeping interest rates at record lows will benefit more people. Chairman Ben Bernanke reiterated to Congress on Tuesday that the Fed's efforts are helping the economy and signaled that they will continue.

• Sales of new homes rose to a seasonally adjusted annual rate of 437 000, the Commerce Department said. That's the highest level since July 2008. The gain will likely encourage more construction. Higher sales are keeping the supply of new homes low, even as builders have tried to keep up. At the current sales pace, it would take only 4.1 months to exhaust the supply of new homes for sale. That's the lowest such figure in nearly eight years.

"Builders are not putting up homes fast enough to meet underlying demand," said Patrick Newport, an economist at IHS Global Insight.New homes have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90 000 in tax revenue, according to data from the National Association of Homebuilders.Construction hiring has picked up in recent months. The industry has gained 98,000 jobs since September, its best stretch since the spring of 2006 - before the housing bubble burst.

Will Italian Politics Be a Threat for International Financial Stability?

Mr. Grillo and the Five Star movement is part of a trend across the developed world, as electorates become disenchanted with established parties and vote for a protest party. From Occupy Wall Street to the Tea Party to the EU's Pirate Party, an increasing number of transatlantic voters tire of the options presented by established two party systems. This may be driven by the failure of governing parties to adapt to societal tensions raised by the current economic crisis. In that light, the strong protest vote in Italy should not be seen as an outlier.Despite the current uncertainty in the composition of the next government, Italy remains an important ally for the United States, and a key strategic partner in all future discussions about Europe and transatlantic relations. For this reasons America should follow carefully what happens in Italy. The demand for renewal and change that is the real message of recent elections is something too important to be considered just a local case. Understanding the political process of how Italian governments are formed is therefore key.On February 25th the results of the political elections in Italy stunned all commentators by presenting a country apparently deeply divided and a parliament that seems not to allow any reasonably stable coalition for leading the country.The polls gave a limited majority to the leftwing coalition (29.5% in the lower house) leading on Silvio Berlusconi's rightwing coalition (29.1%). But the surprise was the significant result of the "Five Stars movement" of Mr Beppe Grillo (25.5%) and the relatively low result achieved by current Prime Minister Mario Monti (10.5%).The new electoral law (approved late in 2012, just few months ahead of the elections), allows the left to gain a solid majority in the lower house (with 55% of the legislature, although they led the right-wing coalition by only 0.4% of the vote), but in the upper house, there is an apparent stalemate, as the left elected 123 senators, the right 117, Five Stars 54 and Monti 18. A coalition government must include two of the first three parties mentioned, as a government requires a majority in both houses.The problem is that, at the moment, there is not much appetite for an agreement. The left-wing coalition does not seem interested in a deal with Berlusconi and the Five Stars leader, Mr Beppe Grillo, suggested that he would not make any deal with anyone at all. It now appears that Mr Bersani would like to open a bridge to Mr Grillo rather than trying a grand coalition with Mr Berlusconi. It is unclear if he will succeed, but in any case it will be hard to imagine that Italy will have a strong government in this situation.As the new parliament assumes office on March 15th, there is time for negotiations and compromise. But in the meantime, talks need to be held also in order to designate the new leadership of the lower house and Senate and its constituent committees and to elect the new president of the Republic, as the incumbent's mandate is expiring in May.Who will govern Italy in the meantime? Currently, there is still a caretaker government in office, which is the existing cabinet of Prime Minister Monti. It is nevertheless expected that after the new parliament is fully operational, the president of the republic, Mr Giorgio Napolitano, will try to facilitate the forming of a government and is likely to give a mandate to a designate Prime Minister. As Bersani's leftwing coalition has the majority in the lower house, unless the coalition otherwise indicates, Bersani remains the likely next Prime Minister. But with no agreements for a majority, he will be rather unlikely to succeed.The Italian system is a parliamentary democracy, and the new government, that formally takes office at the moment the ministers are sworn in, needs to win a vote of confidence from both houses of the parliament immediately after taking office. In the past, the tradition has been that, if the designated Prime Minister, after having made his consultations, realizes that there is no support for his government, he will indicate so to the President and resign his post. That meant that the previous government remained as caretaker until a new Prime Minister was selected and then formed the government, or, if no solution was available, the president of the republic called for new elections and dissolved the government.Currently, Monti stays in office as Prime Minister until an alternative is selected, and the need for stability would suggest that until a solution is found the best is for him to stay. However, things are so uncertain, no one can predict when or if a new government would be formed.

Wall Street gains despite IMF warning

Wall Street advanced, with gains tempered by expectations that Congress will not act to stop automatic federal spending cuts that are widely expected to put the brakes on the pace of expansion in the world's largest economy.The International Monetary Fund warned it will downgrade its economic forecast for the US if US$85 billion of schedule federal spending cuts take effect on March 1.If all cuts go ahead, the IMF would lower its current estimate for a 2% expansion for US gross domestic product this year by at least 0.5%, IMF spokesman William Murray told reporters at a news briefing. Global growth also would be hit.In afternoon trading in New York, the Dow Jones Industrial Average rose 0.14%, the Standard & Poor's 500 Index gained 0.18%, while the Nasdaq Composite Index climbed 0.37%.Expectations of a slowdown in the pace of growth buoyed US Treasuries.Commerce Department data released today showed GDP expanded at an annual rate of 0.1% in the final three months of 2012, compared with a previously estimated 0.1% contraction. That was below the 0.5% growth forecast by economists polled by Reuters."It's pretty well baked into the cake that no action is likely to be taken on the sequestration tomorrow," Thomas Simons, a government debt economist in New York at Jefferies Group, one of 21 primary dealers that trade with the Fed, told Bloomberg. "GDP was weaker than expected. It's nice to see the negative sign go away, but it's still pretty weak."The negative sentiment was offset by the latest news on the labour market. Applications for jobless benefits surprisingly dropped 22,000 last week to 344,000. Economists polled by Reuters had expected first-time applications to fall to 360,000.Shares of JC Penney sank, last down 14%, after the company reported a net loss of US$552 million in the quarter ended February 2, compared with US$87 million a year earlier.In Europe, the Stoxx 600 Index finished the day with a 1% gain from the previous close. The index has advanced for the ninth straight month and is up 3.7% so far this year, according to Bloomberg.Good news on Europe's largest economy helped as German unemployment posted a surprise drop February.Benchmark stock indexes rose in Frankfurt and Paris, both advancing 0.6%, while the UK's FTSE 100 added 0.6%.The political impasse in Italy remains a concern for all of Europe. In Berlin, Italian President Giorgio Napolitano said the formation of a new government would take time and that it's important to keep in mind that the Monti government remains in office for now.

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.