NEWS,18.01.2013

US consumer sentiment hits record low

US consumer sentiment unexpectedly deteriorated for a second straight month to its lowest in over a year in January, with many consumers citing the recent fiscal cliff debate in Washington, a survey released on Friday showed.The sharp drop in sentiment over the last two months coincides with rancorous federal budget negotiations that have led to higher taxes for many Americans.Just weeks after that deal, President Barack Obama and Republican lawmakers are expected to enter another tough round of negotiations over spending cuts, which could dent consumer confidence still further."The handling of the fiscal cliff talks and the realization that paychecks are going to be smaller due to the sunset of the payroll tax holiday are probably weighing on consumer attitudes at the moment," said Thomas Simons, a money  market economist at Jefferies & Co. in New York. "With the debt ceiling yet to be tackled and more political acrimony on the way, we suspect that confidence has room to deteriorate further."The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment came in at 71.3, down from 72.9 the month before. The index was at its lowest since December 2011. It was also below the median forecast of 75 among economists polled by Reuters."The most unique aspect of the early January data was that an all-time record number of consumers - 35% - negatively referred to the fiscal cliff negotiations," survey director Richard Curtin said in a statement. "Importantly, the debt ceiling debate is still upcoming and could further weaken confidence," he said.House Republicans signaled on Thursday they might support a short-term extension of U.S. borrowing authority when the government exhausts that capacity sometime between mid-February and early March. A failure by Congress to raise this debt ceiling could result in a market-rattling government default. US stocks remained little changed after the data. The S&P 500 hit a five-year high in the last session. But on Friday, a weak outlook from Intel offset encouraging data out of China and a fourth-quarter profit at Morgan Stanley So far there has been a disconnect between what consumers say and do. US retail sales increased a better-than-expected 0.5% in December. But given the recent weakening in sentiment investors will be watching for any signs that spending is starting to slip."The impact on consumers will be from the hike in the social security tax. That is undoubtedly going to hit discretionary spending. So this may be a signal of things to come," said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York.The consumer survey's barometer of current economic conditions fell to 84.8 from 87.0 and was below a forecast of 88.0. The gauge hit its lowest since July.The survey's gauge of consumer expectations also slipped, hitting its lowest since November 2011 at 62.7 from 63.8, and was below an expected 65.2.The survey's one-year inflation expectations rose to 3.4% from 3.2%, while the survey's five-to-10-year inflation outlook was at unchanged at 2.9%.

China's growth slows in 2012

China's economy grew at its slowest pace in 13 years in 2012, though a year-end spurt supported by infrastructure spending and a jump in trade signalled the foundation for the stable growth path Beijing says is vital for economic reform may be in sight.Evidence of a burgeoning recovery in exports, stronger than expected industrial output and retail sales, together with robust fixed asset investment, all indicated that Beijing's pro-growth policy mix has gained sufficient traction to underpin a revival without yet igniting inflationary risks.Year-on-year growth of 7.9% in the fourth quarter beat a consensus forecast of 7.8% in a Reuters poll and snapped a streak of seven consecutive quarters of slowdown.The performance was at the upper end of the 7%-8% rate economists reckon is needed to deliver on reforms essential to China's long-term development after three decades of red-hot, double-digit growth.Full year growth of 7.8% was also just ahead of the poll's 7.7% call and, although the weakest since 1999, comfortably ahead of the government's 7.5% target, which just months ago seemed to some economists to be in jeopardy."It's kind of like a golden spot - stronger growth, but not strong enough to trigger a lot more inflationary concern. That's perfect for equity markets." said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong."What everybody wants is growth that's strong enough to give us peace of mind that revenues will increase and there is no hard landing risk, but not excessive, not strong enough to trigger inflation. And this is what I think we are getting. I'm bullish on China still."Market reaction was generally upbeat, with Asian shares advancing and platinum and palladium following suit, while oil traders took the opportunity of data confirming the recovery to book profits after two sessions of steep rises.China's new leaders must stabilise the economy this year to keep employment high while avoiding a surge in housing prices and inflation that could undermine reforms needed to overhaul the country's export-oriented growth model.Without stability, incoming President Xi Jinping and Premier Li Keqiang, who are set to be confirmed in March, have no chance of delivering a slew of reforms they say are needed to tackle a host of financial, industrial and income imbalances that threaten China's future.China's statistics chief, admitting the country's wealth gap was "relatively large", released a recalculated indicator of economic inequality on Friday, the first time in several years that officialdom has addressed the sensitive issue head-on. China's Gini coefficient stood at 0.474 in 2012, down from 0.477 in 2011 and from a peak of 0.491 in 2008, Ma Jiantang, the head of the National Bureau of Statistics, told reporters at a press conference on 2012 economic performance. The index ranges from 0 to 1, with the 0.4 mark viewed by analysts as the point at which social dissatisfaction may come to a head. China's leaders say rebalancing the economy to consumption and away from the investment and export model followed for the last 30 years holds the key to tackling inequality, but detailed data on Friday underlined the scale of that task. While consumption made the biggest contribution to growth in 2012, with a 51.8% share, Q4 marked the third consecutive quarter of decline. The fall has been driven by the government's focus on using investment spending as the main expedient to underpin an economy still levered to external demand. Exports generate about a third of economic activity and sinking demand from foreign customers in struggling European Union and United States economies dragged on growth in 2012. Net exports made a negative 2.2% contribution, data showed. ith China's consumers still relatively poor - average annual urban disposable income was just 21,810 yuan ($3 500) in 2011 - it remains too hard for the government to rely on them to help compensate for any shortfall from the export sector. "There's just not enough money," said Liu Jiongda, 35, a manager at a Shanghai logistics company who earns just over 11,000 yuan ($1 500) per month, more than half of which goes straight into a mortgage on a property he bought in 2009. "If the government wants a so-called consumer culture, they have to cut the amount of tax I have to pay. That is simple. If I have more money then I'll be willing to spend more." Investment meanwhile, at 50.4%, has picked up as the new leadership has looked to underpin a recovery with spending on infrastructure a tried and tested method. Quarter-on-quarter growth of 2.0% was below the market's expectation of a 2.3% rise, which was taken as a sign that the recovery's momentum is not strong enough to worry the authorities into pre-emptive action to snuff out any whiff of inflation - China's long term policy pre-occupation. The People's Bank of China, which cut interest rates twice in mid-2012 and cut banks' reserve ratios (RRR) three times since late 2011, has since switched to short-term cash injections via open market operations to guide monetary policy, apparently wary of fanning price pressures or encouraging a property bubble."We need to keep vigilant against inflation," NBS chief Ma Jiantang told a news conference on Friday. The risk of policy tightening looms as growth gathers pace, leaving Beijing with a fine line to tread to ensure the recovery continues without reigniting speculative activity in the key area of real estate. Data released alongside GDP numbers on Friday showed home prices extending a slow rise in December, with an average rise of 0.3% month-on-month in 70 major Chinese cities, the fifth month in the last six to show an increase, despite government efforts to temper prices. Real estate investment, which accounted for 13.8% of China's gross domestic product in 2012, rose 16.2% last year from a year earlier and remains a key component of overall fixed asset investment - the cornerstone of Beijing's recovery strategy. Annual fixed asset investment (FAI) growth was 20.6% in 2012, versus the 20.7% forecast in the Reuters poll. "Typically FAI falls off at the end of the year - on average December FAI is 1 percentage point lower than November, but this time there was only a 0.1% edge off," said Ken Peng, an economist at BNP Paribas in Beijing, highlighting the strength of investment spending and the risk that it could be fuelling renewed speculation. Investment spending was the key near-term concern of Ren Xianfang, senior analyst at IHS Global Insight in Beijing. "We have to watch the investment numbers especially because China has started (to put) controls on local financing, so this could limit fund raising and investment by local governments," she said. "So far it's just talk, but if they implement measures like the sharp tightening in 2011 the impact on growth could be very substantial," Ren added, highlighting Beijing's policy dilemma. Other data released alongside GDP showed industrial output grew 10.3% in December from a year ago, versus expectations of 10.1%.Retail sales in December rose 15.2% on a year ago versus an estimated 14.9% in a Reuters poll.A fourth-quarter recovery had been heralded by an acceleration in industrial output in October and November and a jump in exports in December, although some analysts believe last month's sharp expansion in trade could be a blip.China's exports grew 14.1% last month compared with a year earlier, racing past market expectations of 4% and November's 2.9% pace. Ting Lu, chief China economist at Bank of America/Merrill Lynch in Hong Kong, was confident that the data would not change the near term policy stance. "Maintaining stable growth is the new leadership's key policy mandate in 2013," Lu wrote in a note to clients, adding that he expected a growth target of 7.5% to be adopted for 2013 and policy calibrated to delivering it."Pro-growth policies in 2012 will be extended into 2013, and big-bang stimulus will be avoided unless there is another global financial crisis. Within 2013, policy will likely be marginally tightened towards the second half of 2013 on concerns of rising inflation, rising home prices, investment overheating and financial system risks," Lu said.

Obama sends message with new cabinet

A dearth of diversity in Barack Obama's top picks for his new cabinet is overshadowing signs of intent the US president is sending with his freshened team ahead of his second term.Obama takes the oath of office on Sunday ahead of four more years in the White House, a watershed moment that will see familiar faces, led by Hillary Clinton, depart and new blood ushered in to implement the president's political agenda.His personnel decisions, both at the cabinet level and in a rejigging of his White House inner circle, presage a fierce defence of Obama's political legacy at home and abroad in his second term.While posts in a president's cabinet are highly sought after, the centralisation of power in the White House often leaves the secretaries of top government departments chafing at a lack of clout.But several of Obama's top cabinet picks - like Chuck Hagel, John Kerry and Jack Lew, his nominees to run the departments of Defence, State and Treasury - clearly reflect the president's worldview and may wield significant influence.Some cabinet members who are staying on, like Health and Human Services Secretary Kathleen Sebelius - in charge of implementing Obama's top domestic achievement health care reform - will also play key roles.Senator Kerry and ex-senator Hagel, Vietnam veterans both, are sceptical of US military adventures abroad, and backed a fundamental project of Obama's presidency - getting troops home from Iraq and Afghanistan.They are also wary of embroiling the United States in another war over Iran's nuclear programme, though they will publicly back Obama's position that he is ready to use force as a last resort should diplomacy fail.Sebelius will be entrusted with ensuring that ObamaCare, which has yet to be fully implemented, is irrevocably embedded in the fabric of US life by the time the president hands over the keys to the White House in January 2017.Media buzz surrounding Obama's second cabinet has focused mainly on the fact that the first African American president, who won power thanks to a diverse racial and gender coalition, picked middle aged white men for top cabinet jobs.In fact, but for winning a majority of votes among women back in November, Obama might not be living in the White House at all.Aides dismiss the idea that Obama has fallen short of diversity goals, pointing out that his two Supreme Court picks have been women, one a Hispanic, and that he has many females in positions of power around him.Perhaps Obama's closest adviser is Valerie Jarrett, a mentor who followed his family from Chicago to the White House, and he was brought up by strong female role models in his mother and grandmother in the absence of his father.Eric Holder, the African American attorney general, is also staying on.Obama had been expected to name UN Ambassador Susan Rice, an African American, as secretary of state, but her chances of Senate confirmation evaporated amid Republican outrage over the aftermath of the raid on the US mission in Benghazi, Libya on 11 September."I think his record demonstrates the value he places on diversity," White House spokesperson Jay Carney said, adding that more diverse appointments could be expected with remaining open cabinet posts.Obama also addressed the issue during a press conference last week."I think until you've seen what my overall team looks like, it's premature to assume that somehow we're going backward. We're not going backward, we're going forward." Thomas Mann, a political scholar at the Brookings Institution in Washington said that once Obama's full cabinet is announced  with expected or announced openings in big departments like Interior, Energy and the Environmental Protection Agency - the picture could be more diverse.But Obama's new cabinet will differ from his first term, in dispensing with the "Team of Rivals" approach that included his former Democratic primary foe Clinton and Republican secretary of defence Robert Gates, who had served under George W Bush's administration.The selection of Clinton, which surprised senior aides, turned out to be a masterstroke, as the former first lady proved to be a political asset at the State Department, and Obama in effect removed a potential critic from the fray.Few insiders expect Kerry and Hagel, substantial figures in their own right, to be shrinking violets, but they are expected to keep any policy differences inside the Obama administration tent.Some Obama critics question whether the president, who tends to stick to aides who have been with him for years for his White House kitchen cabinet, will get enough outside advice.In one promotion from inside, Deputy National Security Adviser Denis McDonough is expected to succeed Lew for the crucial post of chief of staff.

Tight security plans for Obama swearing-in

Crowds may be smaller on Monday than when Barack Obama was first sworn into office in 2009, but security is as tight as ever, with experts warning a "lone wolf" would pose the greatest threat.Between 500 000 and 800 000 people are expected to pass through the National Mall, the immense greenway that leads up to the Capitol, compared to the 1.8 million spectators who came to applaud Obama four years ago.Thousands of police  the official figure has not been made public  will fan across the area, with several posted at every street corner.Airspace over Washington will be under tight surveillance, as will the Potomac River that runs along the city.Teams on horseback and with bomb-sniffing dogs will crisscross the city looking for potential explosive devices.More than 13 000 soldiers will attend the parade, behind a security cordon, to escort President Obama and to keep watch on the Capitol, the seat of Congress where he will be officially sworn into office.There will be cameras everywhere surveillance, media and tourist alike - a number of roads around the Mall will be closed to vehicles and spectators will be thoroughly searched, controlled and screened at each checkpoint.On the roofs of the main buildings in the area, snipers will stand watch."We're prepared for a variety of threats," said US Capitol Police spokesperson Shennell Antrobus.He expressed confidence in the force's "robust, multi-task security plan" that has been in the works for months.Michael Clancy, deputy assistant director of the FBI's counterterrorism division, said "the bigger threat, the thing that keeps you awake at night, are the lone offenders, regardless of their affiliation"."Those are the ones that scare me the most, folks that we don't have on our radar. It's the Timothy McVeighs of the world," Clancy added in an interview.He was referring to an American former soldier turned political extremist whose 1995 bomb attack on an Oklahoma City federal building killed 168."It would be crazy for anybody to try anything because of the law enforcement in the area, but those are concerns," said Stephen Somers, vice president of operations for AlliedBarton Security Services, one of the private security firms tapped to support the force."Any lone wolf is a tremendous threat that's why security is so tight," added Somers, whose staff will be dispatched to the World Bank and International Monetary Fund."Everybody needs to be on top of their game that day."Worried about any leaks, officials have kept a tight lid on details about the security precautions.At an undisclosed location in the suburbs of Washington, a command centre will monitor in real time any developments in and around the proceedings. On the big day, agents will monitor a collage of massive flat screens and cutting-edge surveillance, while staying in contact with teams on the ground. Each one of the 42 agencies involved in security - headed by the US Secret Service that provides protection for the president will have representatives at the headquarters, the convergence of 94 bases spread across the city.Secret Service spokesperson Brian Leary said the Multi Agency Communications Centre "really gives us the ability to monitor and co-ordinate security from a central location".Antrobus, of the US Capitol Police, said this partnership helps ensure that everyone can "enjoy the democratic process and this historic day".Officials are also keen on avoiding a repeat of the planning mishaps of 2009, when thousands of spectators were stuck in a massive freeway tunnel for hours in the freezing cold, and missed Obama's speech.Survivors of the ordeal dubbed it the Purple Tunnel of Doom.

NEWS,16.01.2013

Obama unveils $500m gun-control proposals

President Barack Obama on Wednesday launched the most sweeping effort to curb US gun violence in nearly two decades, announcing a $500m package that sets up a fight with Congress over bans on military-style assault weapons and high-capacity ammunition magazines just a month after a shooting in Connecticut killed 20 school children.Obama also signed 23 executive actions, which require no congressional approval. But the president, speaking at the White House, acknowledged the most sweeping, effective actions must be taken by lawmakers."To make a real and lasting difference, Congress must act," Obama said. "And Congress must act soon." He added, "I'll put everything that I've got into this."Obama was joined by children who wrote him letters about gun violence in the weeks following the Connecticut shooting. Families of the children killed in the shooting, as well as survivors, were also in the audience.The president appealed to the nation's conscience, but his announcement promises to set up a bitter fight with a powerful pro-gun lobby that has long warned supporters that Obama wanted to take away their guns.The US has the highest rate of gun ownership of any country in the world, and pro-gun groups see any move on gun restrictions as an offense against the right guaranteed by the Second Amendment of the US Constitution. Critics counter that the country's founding fathers never could have foreseen assault weapons more than two centuries ago, when guns were intended for the common, not individual, defence, guns were often stored in community areas and rifles fired one shot at a time."This is the land of the free and the home of the brave, and always will be," Obama said, acknowledging the right to possess and bear firearms. "But we've also long realised ... that with rights come responsibilities."Emotions have been high since the Connecticut shooting, which Obama has called the worst day of his presidency. He largely ignored the issue of gun violence during his first term but appears willing to stake his second term on it now. He'll have to contend with looming fiscal issues that have threatened to push whatever he proposes aside, at least for a while.Gun control advocates also worry that opposition from the powerful National Rifle Association (NRA) and its allies in Congress will be too great to overcome. The NRA released an online video on Wednesday that called Obama an "elitist hypocrite" for having armed Secret Service agents protect his daughters at school while not committing to installing armed guards in all schools. The NRA insists that the best way to prevent more mass shootings is to give more "good guys" guns.The White House called the NRA video "repugnant and cowardly”.The public appears receptive to stronger federal action on guns, with majorities of Americans favouring a nationwide ban on military-style rapid-fire weapons, according to a new AP -GfK poll. Three-quarters of Americans said they reacted to the Connecticut shooting with deep anger, while 54% said they felt deeply ashamed it could happen in the US.The poll also shows 51% said they believed laws limiting gun ownership infringe on the public's right to bear firearms.White House officials, seeking to avoid setting the president up for failure, have emphasised that no single measure - even an assault weapons ban - would solve the scourge of gun violence. But without such a ban, or other sweeping Congress-approved measures, it's unclear whether executive actions alone can make any noticeable difference.The president asked Congress to renew the ban on high-grade, military-style assault weapons that was first signed into law by then-president Bill Clinton in 1994, but expired in 2004. Obama also called for limiting ammunition magazines to 10 rounds or fewer, and he proposed a federal statute to stop purchases of guns by buyers who are acting for others.The president also called for a focus on universal background checks. About 40% of gun sales take place without background checks, including those by private sellers at gun shows or over the internet, according to the Brady Campaign to Prevent Gun Violence.The president's framework is based on recommendations from Vice President Joe Biden, who led a wide-ranging task force on gun violence. Beyond the gun control measures, Biden also gave Obama suggestions for improving mental health care and addressing violent images in video games, movies and television.States and cities have been moving against gun violence as well. New York Governor Andrew Cuomo on Tuesday signed into law the toughest gun control law in the US, and the first since the Connecticut shooting. The law includes a tougher assault-weapons ban and provisions to try to keep guns out of the hands of mentally ill people who make threats.The NRA criticised the bill, saying in a statement, "These gun control schemes have failed in the past and will have no impact on public safety and crime."In Washington, it's unclear how much political capital Obama will use in pressing for congressional action.The White House and Congress will soon be consumed by three looming fiscal deadlines, each of which is expected to be contentious. And the top Republican in the Senate, Mitch McConnell, has warned the White House that it will be at least three months before the chamber considers gun legislation.Congress, in any case, can move slowly. The chair of the Senate Judiciary Committee said on Wednesday he'll begin hearings in two weeks on gun safety proposals. Democratic Senator Patrick Leahy, a gun owner, said he envisions a series of hearings examining violence in popular media and how to keep guns safe, among other topics.Leahy's plan could take more time than Obama has urged.Obama's long list of executive orders includes the following:Ordering tougher penalties for people who lie on background checks and requiring federal agencies to make relevant data available to the federal background check system.Ending limits that make it more difficult for the government to research gun violence, such as gathering data on guns that fall into criminal hands.Requiring federal law enforcement to trace guns recovered in criminal investigations.Giving schools flexibility to use federal grant money to improve school safety, such as by hiring school resource officers.Giving communities grants to institute programs to keep guns away from people who shouldn't have them.

Republicans ready for debt-ceiling battle

Republican lawmakers are preparing to introduce legislation to direct the US Treasury to make interest payments on American bonds first and then prioritise other government outlays in case Congress does not raise the debt ceiling.Supporters of the idea see it as a politically palatable alternative to default, which could rattle markets as occurred in the summer of 2011. The likelihood of another market-unsettling event is challenging Republicans to find another idea as they use the debt ceiling as leverage to extract spending cuts from President Barack Obama.But critics, including some Republicans, say prioritising payments is largely unworkable and would not fool the markets.The Treasury hit the $16.4tn debt ceiling, or the legal amount it is allowed to borrow, on New Year's Eve and started moving funds around so that the government can continue paying its bills. But the department said it will run out of funds as early as mid-February. Among those advocating the approach is Republican Senator Pat Toomey of Pennsylvania, who is expected to reintroduce legislation next week to instruct the Treasury to make sure bond-holders, got paid first if Congress does not raise the debt ceiling by the deadline.In the House of Representatives, Arizona Republican David Schweikert introduced legislation that would force the Treasury to prioritize payments to bond-holders, Social Security recipients and military salaries."No one is talking about default except for the president," said Patrick Tiberi, a Republican Representative from Ohio who heads a tax-writing subcommittee."He doesn't need to default because he has enough revenue, money coming in from the taxes that you guys pay to pay bills," Tiberi told reporters on Tuesday."Ninety-nine percent of my constituents would say that sending out Social Security payments and keeping veteran hospitals open is a bigger priority than national parks," he said. But former advisers to Republican President George W Bush say the idea is unworkable for a number of reasons, including the fact that tax revenue does not come in at the same rate that payments are due."Prioritisation is impossible," said Tony Fratto, who was Deputy Press Secretary for Bush and a spokesperson on economic policy who fought through approximately seven debt limit increases with Congress. "Is the government really going to be in the position of withholding benefits, salaries, rent and contract payments, in order to pay off Treasury bond-holders? That would be a political catastrophe," Fratto said.Keith Hennessey, Bush's National Economic Council director, said prioritisation was a bad idea that could increase credit risk and said it would be irresponsible."Payment prioritisation doesn't stop payments, it just delays them. Then the aggrieved party sues the government, and probably wins, and it turns into a bloody mess," Hennessey, now an economist at Stanford, said in a blog post this week.Even when the government was operating under a budget surplus, as it did from 1998 through 2001 under President Bill Clinton, the Treasury still had to borrow or issue debt to make its regular payments because its income fluctuates month-to-month.The department is expected to run out of ways to stave off a default as early as mid-February, and Republican lawmakers say they will refuse to give the Obama administration the votes needed to raise the debt cap unless Democrats agree to spending cuts and changes to federal benefits programs.On 15 February, the government is expected to take in about $9bn in revenues and is required to pay bills amounting to $52bn, according to the think tank the Bipartisan Policy Centre, which analysed Treasury's cash flows. The Treasury Department has said ensuring that bond investors got paid before others would be a "default by another name."And in the past, Treasury officials have said the department lacks the formal legal authority to establish priorities to pay obligations, according to the non-partisan Congressional Research Service.

Germany to bring gold home

Germany's central bank is hauling home tens of thousands of gold bars currently stored in the US and France, in a high-security operation spread over eight years. All 374 tons of German gold held in Paris vaults will be moved back to the Bundesbank's vaults in Frankfurt by 2020, the bank said on Wednesday. A further 300 tons of gold stored in New York will also be brought back.In total, the shipments are worth $36bn at current market prices and represent about 19% of Germany's gold reserves - the world's second-largest after the United States.Once the shipment is complete, Frankfurt will hold half of Germany's 3 400 tons of reserve gold - currently worth about $183bn - with New York retaining 37% and London storing 13%.But don't expect the Bundesbank to reveal how it's going to keep the valuable cargo safe on its way back to Germany - especially after the stunning raid of a Berlin bank earlier this week in which burglars tunnelled 30m to reach the safety deposit room."For security reasons we can't discuss that, partly to protect the gold, partly to protect the staff that will be carrying out the transfer," said spokesperson Moritz August Raasch."But of course since we transport large sums of money around Germany every day, we've got a certain amount of experience with this."During the Cold War, Germany kept most of its gold abroad for fear it could fall into the hands of the Soviet Union if the country was invaded.Another reason was that it's easier to swap the reserves for foreign currency in London, Paris and New York, where gold is traded.Since France, like Germany, switched to the euro more than a decade ago, storing gold in Paris was no longer necessary, the Bundesbank said.The move follows criticism last year from Germany's independent Federal Auditors' Office, which concluded that the central bank failed to properly oversee its gold. The auditor suggested the central bank should carry out regular inspections of the gold held abroad.The auditors' report stunned Germany, where the Bundesbank routinely tops polls of the nation's most trusted institutions. The central bank was taken aback and maintained it didn't see the need for more scrutiny in overseeing the reserves, saying "there is no doubt about the integrity of the foreign storage sites."But several politicians jumped on the issue and called for some of the reserves to be repatriated.The Bundesbank isn't taking any chances should anything happen to the gold on its way back to Frankfurt.

Renewed talks on Iranian nuclear probe

Senior UN investigators opened a new round of talks on Wednesday with Iranian officials in Tehran in the hopes of restarting a probe into allegations that the Islamic Republic carried out atomic bomb trigger tests and other suspected weapons-related studies. The semi-official ISNA news agency reported that negotiations started at the headquarters of Iran's Atomic Energy Organisation. It gave no further details.The UN meetings are considered an important test of Iran's willingness to address Western concerns before the possible resumption of wider dialogue with the US and other world powers.Negotiations with the six nations - the US, Russia, China, Britain, France and Germany - fell apart more than six months ago and Iran has proposed getting them back on track, perhaps as soon as later this month.The US and others hope the talks will result in an agreement by the Islamic Republic to stop enriching uranium to a higher level that could be turned relatively quickly into the warhead-grade material.Iran denies such aspirations, insisting it is enriching only to make reactor fuel and to make isotopes for medical purposes.ISNA said EU Foreign Policy Chief Catherine Ashton has agreed restart the next round of world power talks with Iran on 28-29 January, but no decision has yet been made on the venue. The last round, held in Moscow in June, ended in stalemate.The official IRNA news agency, however, said the talks may not resume until early February.Before departing on Tuesday for Iran, UN team leader Herman Nackaerts said the International Atomic Energy Agency hoped to "finalise the structured approach" that would outline what the agency can and cannot do in its investigation.The UN nuclear watchdog wants to revisit Parchin, a military site southeast of Tehran, to probe allegations that Iran may have tested components needed to develop a nuclear weapon. Tehran has steadfastly denied any such activity.Iran says IAEA's suspicions are based on forged intelligence provided by the CIA, the Israeli Mossad, Britain's MI-6 and other intelligence agencies, and that Tehran has not been allowed to see the materials to respond to them.The IAEA also is trying to follow up other suspicions, including whether Iran did computer modelling of nuclear warhead core. The agency says it has intelligence information indicating Iran carried out preparatory work for a nuclear weapons test, and development of a nuclear payload for Iran's Shahab 3 intermediate range missile - a weapon that can reach Israel.Iranians say they have a bitter memory of allowing IAEA inspections and providing replies to a long list of queries over its nuclear program in the past decade. Now, Tehran says such queries should not be revived.Iran's Foreign Ministry spokesperson Ramin Mehmanparast said on Tuesday that Iran provided detailed explanations to IAEA questions on six outstanding issues in the past but instead of giving Iran a clean bill of health, the agency levelled new allegations on the basis of "alleged studies" provided by Iran's enemies.Iran uses that term to refer to allegations about Parchin and other claims that it says the IAEA levels only to keep the issue alive.Tehran has in the past allowed IAEA inspectors twice into Parchin, but now it says any new agency investigation must be governed by an agreement that lays out the scope of such a probe."Obligations of the other party must be clearly specified. If a claim is to be raised on a spot in Iran every day and [the UN agency] seeks to visit our military facilities under such a pretext... this issue will be unending," Mehmanparast said on Tuesday.President Mahmoud Ahmadinejad acknowledged on Wednesday that sanctions have slowed down Iran's growth and disrupted its foreign trade and said the country must move away from a dependence on oil revenues to overcome sanctions.Addressing parliament, Ahmadinejad said "structural changes" are needed in Iran's economy to overcome the sanctions.Iran is under toughed Western oil and banking sanctions over its refusal to halt uranium enrichment. The US and its allies fear Iran may ultimately be able to develop nuclear weapons, a charge Tehran denies.

NEWS,15.01.2013

Global economy enjoys sweeter sentiment

Global investors have entered 2013 in buoyant but not yet exuberant mood‚ according to the BofA Merrill Lynch Fund Manager Survey for January.The new year sees asset allocators assigning more funds to equities than at any time since February 2011‚ while their confidence in the world’s economic outlook has reached its most positive level since April 2010.Investors’ appetite for risk in their portfolios is now at its highest in nine years‚ while an increasing number judge equities as undervalued – particularly in Europe. Moreover‚ investors have reduced cash holdings to 3.8% from 4.2% in December.This marks the most positive reading of this measure of willingness to hold riskier investment assets since April 2011‚ though it has not reached levels that would represent a contrarian sell signal.Participants’ perception of the US fiscal crisis as the biggest “tail risk” for asset markets has calmed (down nearly 20% points in two months)‚ though it remains their largest concern. Views of China remain very positive‚ with a net 63% still anticipating a stronger economy this year‚ but one in seven sees a Chinese hard landing as their number one risk.Investors’ bullishness reflects a growing confidence in economic recovery. A net 59% now expect the global economy to strengthen this year‚ compared to a net 40% a month ago. This marks the panel’s most positive outlook since April 2010. An increasing proportion of respondents expect inflation to pick up as well.“Following the resolution of the US fiscal cliff‚ sentiment has surged. Half of investors now tell us that they would sell government bonds to buy higher-beta stocks‚ which is consistent with increasing growth and inflation expectations‚ and with our call for a ‘Great Rotation’ to start in 2013‚” said Michael Hartnett‚ chief investment strategist at BofA Merrill Lynch Global Research. “While the survey reveals pockets of exuberance‚ undemanding valuations in Europe should underpin equities unless earnings growth fails to materialize‚” added John Bilton‚ European investment strategist.49% of respondents now expect government bonds to be sold to fund purchases of higher beta equities and sustain the “risk on” rally. Last month‚ in contrast‚ only 37% saw the instrument as the likeliest source while 28% expected this to be reduction of cash balances (now 22%) and 19% expected defensive equities (now 15%).In this environment‚ the perception of Italy as a substantial “tail risk” for Europe has declined sharply. Only 17% of the panel now views the country as the biggest threat to the European story‚ compared to 26% in December. Assessments of the threats from France and Spain have worsened from last month‚ however‚ up to 34% and 29%‚ respectively.The panel has shifted its stance on financial stocks strongly‚ moving to its first net overweight in global bank names since February 2007 following a 15% move versus last month. Nevertheless‚ banks are still perceived as the global equity market’s most undervalued sector. The existing overweight in insurance has also been extended‚ particularly in Europe‚ and now stands its highest level since January 2007.In contrast‚ appetite for telecoms stocks has fallen to a net 25% underweight. This marks the sector’s lowest weighting from asset allocators since December 2005. While still in positive territory‚ pharmaceuticals have declined to a net 11% overweight. Their fall from a net 24% last month is January’s largest sectoral move.The perception that consumer staples companies are the most overvalued has also accelerated month-on-month.The new Japanese government’s policies continue to improve the country’s outlook. Its growth composite indicator now stands at a striking reading of 96.Against this background‚ global fund managers are turning more positive. A net 3% are now overweight Japanese equities‚ a sharp reversal of last month’s net 20% underweight. The proportion of investors viewing Japan as the most undervalued market increased this month as well‚ while a growing number see it as having the most favourable outlook for corporate profits.

US could lose gold-chip rating

The United States could lose its top credit rating from a leading agency for the second time if there is a delay in raising the country's debt ceiling, Fitch Ratings warned Tuesday.Congress has to increase the country's debt limit, which effectively rules how much debt the US can have, by March 1 or face a potential default.There are fears that the debate will descend into the sort of squabbling and political brinkmanship that marked the last effort to raise the ceiling in the summer of 2011. The US Treasury Department warned then that it had nearly reached a point where it would be unable "to meet our commitments securely".Standard & Poor's was so concerned by the dysfunctional nature of the 2011 debate that it stripped the US of its triple A rating for the first time in the country's history. Like Fitch, Moody's has a negative view on the US outlook."The pressure on the US rating, if anything, is increasing," said David Riley, managing director of Fitch Ratings' global sovereigns division. "We thought the 2011 crisis was a one-off event ... if we have a repeat we will place the US rating under review."Fitch already has a negative outlook on the US as the country's debt burden has risen to around 100% of its gross domestic product, and has said it will make a decision on the rating this year, regardless of how the debt ceiling discussions pan out. The US government reached its statutory debt limit of nearly $16.4 trillion at the end of 2012 but has engineered extraordinary measures that should see it through February.Riley's comments come just two weeks after US lawmakers agreed a budget deal with the White House that avoided the so-called fiscal cliff of automatic tax increases and spending cuts that many economists thought could plunge the US economy, the world's largest, back into recession. Relief that a deal was cobbled together, albeit at the final hour, is one of the reasons why sentiment in the financial markets has been buoyant in the first trading days of the new year. Many stock indexes around the world are trading at multi-year highs."The fiscal cliff bullet was dodged .... (but it's) a short-term patch," said Riley.Riley warned that the different arms of the US government still have a number of issues to address. As well as increasing the debt ceiling, they have to agree to spending cuts that were delayed as part of the fiscal cliff agreement and back measures to avoid a government shutdown, potentially in March.Though short-term fixes are more likely than not, Riley said the US political environment is not as good as it should be for a country holding the gold-chip AAA rating. The past few years, Riley said, have been marked by "self-inflicted crises" between deadlines.The major reason behind the lack of swift action in the US is that the Democrats control the White House and the Senate, while the Republicans have a solid majority in the House of Representatives. Both sides have differing visions of the role of the state in society and often varying political objectives.Despite his cautious tone on the rating, Riley said the US has a number of huge advantages and that getting the country's public finances into shape will not require the same level of austerity that many countries in Europe have had to enact over the past few years, partly because the US economy is growing at a steady rate.Other factors that support the US's AAA rating are the country's economic dynamism, lower financial sector risks, the rule of law as well as the global benchmark status of the country's bonds and the dollar, Fitch says.However it says these "fundamental credit strengths are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt".

US debt ceiling hike critical

Federal Reserve Chairperson Ben Bernanke on Monday urged US lawmakers to lift the country's borrowing limit to avoid a potentially disastrous debt default, warning that the economy was still at risk from political gridlock over the deficit. Likening Congress to a family arguing that it can improve its credit rating by deciding not to pay its credit card bill, Bernanke said that raising the legal borrowing limit was not the same as authorising new government spending. "It's very, very important that Congress takes the necessary action to raise the debt ceiling to avoid a situation where our government doesn't pay its bills," he told an event sponsored by the University of Michigan. The US Treasury says the country bumped into its borrowing limit on December 31, and it is now employing special measures to enable the government to meet its financial obligations. US leaders did agree at the beginning of January to extend tax cuts for all American families earning less than $450 000 a year to avoid a portion of a "fiscal cliff" of policies that Bernanke had warned would likely tip the economy into recession. But lawmakers must still navigate the debt limit as well as thrash out a deal over drastic automatic spending cuts that were postponed until March 1."We're not out of the woods because we are approaching a number of other fiscal critical watersheds coming up," Bernanke warned on Monday.The Fed last month opted to keep buying $85bn worth of Treasury bonds and mortgage-backed securities a month until it saw a significant improvement in the labor market outlook, in an aggressive bid to push down borrowing costs and spur hiring.It has held interest rates at nearly zero since December 2008 and has said it will keep them at this ultra-low level until unemployment reaches 6.5%, provided that inflation does not look likely to breach a threshold of 2.5%. US unemployment in December remained at a lofty 7.8%.The president of the San Francisco Federal Reserve Bank, John Williams, said earlier on Monday that he expected the central bank's bond buying would be needed "well into the second half of 2013." Minutes from the Fed's December 11-12 policy meeting released earlier this month showed several policy makers favored ending the bond purchases well before the end of this year, while a few officials thought the purchases would be warranted until the end of 2013.A third policy-maker who spoke on Monday, Dennis Lockhart, president of the Atlanta Federal Reserve Bank, stressed that the open-ended, or meeting-to-meeting nature, of the Fed's commitment to buy assets did not mean the policy would continue indefinitely. "'Open ended' does not mean 'without bound.' The program is not 'QE Infinity,'" he told the Rotary Club of Atlanta.

NEWS,04.01.2013

US jobs ease on fiscal cliff angst

The pace of hiring by US employers eased slightly in December, pointing to a lackluster pace of economic growth that was unable to make further inroads in the country's still high unemployment rate.Payrolls outside the farming sector grew 155 000 last month, the labour department said on Friday. That was in line with analysts' expectations and slightly below the level for November.Gains in employment were distributed broadly throughout the economy, from manufacturing and construction to health care.That should reinforce expectations that the economy will grow about 2% this year, unlikely to quickly bring down the unemployment rate or make the US Federal Reserve rethink its easy-money policies, which have been propping up the recovery."It's not a booming economy, but it is growing," Jim O'Sullivan, an economist at High Frequency Economics in Valhalla, New York, said before the data was released.The jobless rate held steady at 7.8% in December, down nearly a percentage point from a year earlier but still well above the average rate over the last 60 years of about 6%. The labour department raised its estimate for the unemployment rate in November by a tenth of a point to 7.8%, citing a slight change in the labour market's seasonal swings.Most economists expect the US economy will be held back by tax hikes this year as well as by weak spending by households and businesses, which are still trying to reduce their debt burdens.Friday's data nonetheless gave signals of growing momentum in the labour market's recovery from the 2007/9 recession. Many economists had expected December's payroll gains to be padded by one-time factors like the recovery from a mammoth storm that hit the East Coast in late October.The government had said last month the storm had no substantial impact on the November data, and many economists expected the government to recant by revising downward in Friday's report its estimate for payroll gains in November. Instead, the government revised its estimate for November payrolls upward by 15 000. "There is some evidence that underlying jobs growth has improved," Paul Dales, an economist at Capital Economics in London, said before the report was released. Austerity's biteDespite the signs of some momentum in hiring, a wave of government spending cuts due to begin around March loom over the economy. Many economic forecasts assume the cuts which would hit the military, education and other areas will ultimately be pushed into next year as part of a deal sought by lawmakers to reduce gradually the government's debt burden.Initially, the cuts were planned to have begun this month as part of a $600bn austerity package that also included tax hikes. Hiring in December may have been slowed by uncertainty over the timing of the austerity, economists say. Congress this week passed legislation to avoid most of the tax hikes and postpone the spending cuts.Even with the last-minute deal to avoid much of the fiscal cliff, most workers will see their take-home pay reduced this month as a two-year cut in payroll taxes expires. That leaves the Fed's efforts to lower borrowing costs as the main program for stimulating the economy.The Fed has kept interest rates near zero since 2008, and in September promised open-ended bond purchases to support lending further. On Thursday, however, minutes from the Fed's December policy review pointed to rising concerns over how the asset purchases will affect financial markets.Analysts ahead of the report expected some of the strength in job creation in December would be due to the Fed's policies."Despite the end-of-year angst over the fiscal cliff, financial conditions remained supportive of job growth in December," economists at Nomura said in a note to clients earlier in the week.

Aid for Sandy victims falls short

US lawmakers finally approved emergency disaster aid for victims of Hurricane Sandy on Friday, but only after a delay that sparked East Coast Republican outrage against their own party leadership Lawmakers voted 354-67 to provide the Federal Emergency Management Agency with $9.7bn to pay the flood insurance claims of thousands of victims of the killer October storm that devastated coastal communities.The bill now goes to the US Senate, where it could pass as early as Friday before the two chambers go into recess, but the sum falls short of what was originally promised and bitter debate is likely top continue.The Senate had approved a comprehensive $60.4bn Sandy aid package last week, but House Speaker John Boehner, stung by fractious negotiations over the deal to avert the fiscal cliff crisis, refused to bring it to the floor."It's been 70 days and many have been living in misery and heartache," Republican congressman Rodney Frelinghuysen of New Jersey told the House, describing the vote as "the first step of what we need to do to rebuild lives."Democrats again attacked the Republican leadership for what congressman Rob Andrews of New Jersey called the "inexcusable and unjust" delay in getting a bill to the House floor.And, while Boehner has pledged to bring the remaining $51bn in aid to a vote on January 15 as a two-part package, Andrews said it would be "meaningless" unless the Senate turned around and quickly approved the aid.Boehner had scrambled to tamp down fury over the delay on aid to victims of the storm, which killed 120 people and destroyed tens of thousands of homes and businesses in New York, New Jersey and neighbouring northeastern states.President Barack Obama, instrumental in cobbling together the $60bn package, joined New Jersey's outspoken Republican Governor Chris Christie in leading the charge against Boehner's delay.Christie offered a blistering critique of his own party's congressional leadership, calling Boehner's delay "absolutely disgraceful."Fuming Republican congressman Peter King of New York also tore into his own leadership, saying the delay was "a knife in the back of New Yorkers and New Jerseyans."The outrage quickly gained the national spotlight, and Boehner wasted little time announcing the two-part vote."This is not a handout, this is not something we're looking for as a favor," King told the House. "What we're asking for is to be treated the same as victims (from) other natural disaster victims have been treated."Some Republicans including Senator Marco Rubio from Florida, a hurricane-prone state which has received billions in federal disaster aid, voted against the Sandy bill in the Senate, claiming it was stuffed with "pork" funding for projects or elements unrelated to Sandy relief.Darrell Issa, the powerful Republican chairman of the House Oversight Committee, continued in that vein Friday, saying "we need to get the pork out" and pointing to funding in the Senate bill that went to programs in Alaska, more than 3 000 miles (4 800 kilometers) from the Sandy disaster zone.He said he was hopeful the re-written legislation due for a vote January 15 would be a "clean bill" focused exclusively on Sandy relief."I believe today we are buying a little bit of time, but for the people on the Eastern Seaboard who are suffering, time is running out," he said.FEMA has announced it will soon run out of flood insurance funding without the $9.7bn increase.

Signs of hope for eurozone

Tentative signs the eurozone may have passed the worst of its downturn emerged in December but business surveys also suggested Britain's economy tipped back into contraction in the final months of 2012.Friday's purchasing managers indexes, which measure the activity of thousands of companies worldwide, brought mixed news from Europe.Activity in Britain's dominant services sector fell for the first time in two years and at a faster pace than predicted by any analyst polled by Reuters, while the speed of decline among French, Italian and Spanish firms slowed.Data from the United States due later on Friday are expected to show continued but modest jobs growth and a steady expansion of its services sector.With Chinese growth showing evidence of revival, that leaves Europe as the world's economic slowcoach going into 2013.In particular, economists were surprised by news the UK services PMI slipped to 48.9 in December from 50.2 last month, sagging below the 50 mark that divides from contraction for the first time in two years."The PMIs point to an economy that is contracting modestly," said Rob Wood, chief UK economist at Berenberg Bank. "The broader picture is that for some time the economy has been bouncing around the bottom ... and I think this is likely to stay with us for the next couple of quarters."Survey compiler Markit said the figures suggest Britain's economy shrank 0.2% in the final quarter of 2012, a slightly bigger drop than most other private-sector forecasts.The eurozone composite PMI hit its highest levels since last March, rising to 47.2 in December from 46.5 in November, although it remained rooted below the 50 mark for an 11th month."I think (the eurozone PMIs) are showing a decisive bottoming-out of activity," said James Nixon, chief European economist at Societe Generale."Now, the actual levels of the surveys are still consistent with GDP declining, but at least things aren't getting worse any faster."  Worst over?The decline eased among the services firms that make up the bulk of the eurozone's economy, ranging from banks to restaurants, but manufacturers endured an awful end to 2012.Survey compiler Markit warned that Friday's figures would probably fail to prevent the eurozone's recession deepening in the fourth quarter of last year, thanks to dismal figures in October and November."The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013," said Chris Williamson, chief economist at Markit.As with last year, the eurozone economy's fate hinges on the resolution of the sovereign debt crisis, which still smoulders despite the creation of financial firewalls by the European Central Bank and European Union.German Finance Minister Wolfgang Schaeuble said last week he thought the worst had passed for the debt crisis, although similar sentiments have been expressed by various European policymakers and politicians since mid-2010.Friday's European data followed news that China's services sector saw its slowest rate of expansion in nearly a year and a half in December, although the HSBC services PMI still pointed to a modest revival in economic growth.And economists expect the US ISM non-manufacturing survey, another PMI, to fall slightly to 54.2 in December from November's 54.7. While showing slowing growth, that would still signal a far brighter economic outlook for the US compared with its European peers.Analysts also predict the US economy added around 150 000 non-farm jobs in December, compared with 146 000 the previous month.

Merkel challenger remarks spark outrage

Chancellor candidate Peer Steinbrueck was widely criticised on Sunday, even by his own centre-left Social Democrats (SPD), for saying German leaders were underpaid. Steinbrueck has struggled to gain ground against Chancellor Angela Merkel ahead of next September's election, in part due to lingering criticism over him earning €1.25m as an after-dinner speaker in the past three years.The remarks from the former finance minister about what he called the inadequate compensation for the chancellor drew speedy rebukes across the country's political spectrum, including from the last SPD chancellor Gerhard Schroeder."A German chancellor does not earn enough based on the performance that is required of her or him compared with the jobs of others who have far less responsibility and far more pay," Steinbrueck, 65, was quoted on Sunday by the Frankfurter Allgemeine Sonntagszeitung newspaper saying."Nearly every savings bank director in North Rhine-Westphalia earns more than the chancellor does," Steinbrueck said of his home state.Merkel's pay is set to rise by €930 per month to €17 106 in 2013 along with pay rises for her ministers and members of parliament, increases that have been criticised by some for sending the wrong signal in an era of austerity."Some of the debates kicked up by the 'guardians of public virtue' are grotesque and are harmful for anyone considering getting involved in politics," Steinbrueck said.The SPD trails Merkel's conservatives by 10 points in opinion polls, but, with its Greens allies, it does have a chance of winning power in September because of the prolonged weakness of Merkel's Free Democrat (FDP) coalition partners. Steinbrueck, whose blunt talk makes him popular among some voters despite him never winning a major election and him being defeated as state premier in North Rhine-Westphalia in 2005, said there were times in his career when he was not as well off and admitted he was now a "wealthy Social Democrat". Schroeder, chancellor from 1998 to 2005, has endorsed Steinbrueck to lead his party against Merkel but distanced himself from Steinbrueck's views on pay."In my view politicians in Germany are adequately compensated," Schroeder told Bild am Sonntag newspaper. "I was certainly always able to live off the pay. And anyone who doesn't feel it's enough pay can always look for another job."Other SPD leaders indirectly criticised Steinbrueck. Dieter Wiefelspuetz, a top SPD member of parliament, said politicians were misguided if they compared their wages to private industry."To serve as chancellor is a fascinating job and the pay is definitely not shabby," he said.Steinbrueck was once seen as the centre left's best hope of winning back the chancellorship. He was popular as the no-nonsense finance minister and the SPD hoped he would siphon centrist voters away from the conservatives.But the controversy over his earning €1.25m for 89 speeches will not go away and his campaign has been marred by setbacks and awkward comments.Analysts say he is also struggling to win over female voters, many of whom are put off by his combative style. "Merkel is popular due to a 'woman's bonus' that she gets," Steinbrueck told the paper.

Italy upbeat at end of 2012

Italy is ending 2012 on an upbeat note, with renewed financial market confidence and optimism among analysts that the worst of the financial crisis is over, despite expectations of political uncertainty in the run-up to a general election in February.The Treasury's borrowing rates were slightly higher at short, medium and long-term debt auctions last week, but were well below levels seen at the end of 2011, when Prime Minister Mario Monti took over from Silvio Berlusconi as Italy teetered on the brink amid the eurozone debt crisis.In late November 2011, the country was paying a 7.56% rate for its benchmark ten-year bonds, sparking widespread concerns it might have to ask for a bailout.On Friday, that rate stood at 4.48%.As 2012 draws to a close, "even if public debt has breached the two trillion euros mark, Italy's ability to finance itself is no longer in doubt," said Enrico Marro in Italy's Il Sole 24 Ore financial daily."For 2013, optimism reigns," he concluded.The turnaround is principally the result of two factors: the European Central Bank's promise to buy sovereign debt issued by eurozone member states without limit if necessary if they meet certain strict conditions, and Monti's decisive reforms which have restored Italy's credibility internationally. Experts have forecast a couple of months of volatility on the markets in the lead up to the February 24 and 25 elections, but the worst appears to be over. Italian bank Intesa Sanpaolo said "the fever should drop off in 2013 compared with 2012."The bond spread a key measure of the difference between Italian and German 10-year bond yields has also dropped sharply over the year, dipping below 300 basis points in early December from double that figure at its peak. While European leaders congratulated Monti on restoring calm to the markets, Berlusconi's announcement at the start of December that he is running again for prime minister sparked panic and the spread began to inch up again.The media magnate has dismissed the spread measure as "a trick and an invention" used to bring down his government. Investors will be watching closely in the coming weeks to see if Berlusconi's large-scale media campaign for re-election wins him potential votes from Italians tired of Monti's austerity packages and record unemployment levels.Renewed confidence in financial markets contrasts sharply with official forecasts for economic growth over the coming year, as Italy struggles to pull itself out of a recession.Despite Monti's "Grow Italy" plan, the economy is not expected to return to growth before the end of 2012 or the beginning of 2014."Business and household sentiment does not appear to have benefited from the easing market tension," Intensa Sanpaolo said.The government has forecast a 0.2% contraction of the country's gross domestic product in 2013 an outlook considered overly optimistic by Italy's business association Confindustria, which expects GDP to shrink by 1.1% next year.One figure is on the rise however: the number of people on Twitter following Monti, who is drumming up support for a reform-led electoral campaign. Monti, who resigned last week after Berlusconi's People of Freedom party pulled support from the government, has said he is keen to lead the country again after the elections a message welcomed by the markets, European leaders and Italy's Catholic Church alike.

 

IMF, EU push for softer deficit cuts

The International Monetary Fund and European Commission officials have encouraged France and its eurozone partners not to fixate on deficit reduction targets if it would exacerbate the bloc's debt crisis.The head of an IMF mission in France, Edward Gardner, urged officials in Paris last week to consider their 2013 budget targets "in a broader European context."The IMF and the EU Commission expect the French public deficit to amount to 3.5% of gross domestic product (GDP) next year.They do not believe France can reach its 3.0% goal, the eurozone limit, without additional measures that could aggravate an already tenuous economic situation."The credibility of the medium term orientation policy" was more important than a specific deficit target, Gardner told reporters.Loosening the criteria would "be more effective, more credible in a coordinated fashion" across the 17-nation eurozone, he suggested.In Portugal the public deficit fell at the end of the third quarter to 5.6% of GDP from 6.7% at the same point a year earlier, while neighbouring Spain has promised to slash its deficit to 3.0% by 2014 from a blowout shortfall equal to 9.4% of output last year. Germany expects its budget to be in balance this year, two years ahead of schedule, but IMF head Christine Lagarde has suggested that Berlin ease up a bit in its drive for healthy finances. "Germany ... and others ... can allow themselves to go a little more slowly than others in the push to straighten out their public finances," Lagarde told the German weekly Die Zeit in comments published last week.Her call echoed other European voices that are now arguing for greater emphasis on growth rather than austerity measures."The IMF is beginning to understand that the French situation has become dangerous," economist Marc Touati at the ACDefi consulting group said. Unemployment is climbing and the economy is still struggling, he pointed out.The IMF was "trying to prepare public opinion" for missed government targets, Touati suggested."This is not really a new position," Frederique Cerisier at the French bank BNP Paribas said of Lagarde's recent remarks. She acknowledged however that some international institutions were "placing added emphasis" on the need to cut deficits more gradually.On Tuesday, the EU's 'fiscal compact,' a hard-won step towards tighter economic coordination agreed as part of efforts to tame the debilitating debt crisis, takes effect.Finalised in March, 25 of the 27 EU member states accepted a 'balanced budget rule' in the compact to ensure that governments would no longer run the massive budget deficits which drove the debt crisis and nearly sank the euro.But as the European debt crisis drags on and economies flounder, the idea of allowing governments more time to straighten out their finances has gained ground.European Economic Affairs Commissioner Ollie Rehn said last week that France needed more reforms rather than more austerity."Once you have a credible medium-term budget strategy, backed up by reforms, you can have a slower adjustment," he told French daily Le Monde.If a 3.0% French deficit remains a valid reference, "what needs to be taken into account above all is the structural budget adjustment effort which France is making with remarkable intensity," the EU official said.French officials nevertheless seem determined to stick by their targets. They insist that the public deficit will be brought down to 3.0% of GDP next year from 4.5% in 2012, based on a 2013 growth estimate of 0.8% that economists consider overly optimistic.Friday's third-quarter growth figures gave them little comfort: official statistics revised growth over that period down from 0.2% to 0.1%.French Finance Minister Pierre Moscovici wrote in the German business daily Handelsblatt that France had a duty to reverse years of budget deficits."In the past 30 years, France has not been able to pass a balanced budget. State debt rose to an unacceptable €1.7 trillion in 2011. It is our duty to reverse this," Moscovici said. On Friday he reaffirmed the goverment's 2013 growth target.Cerisier at BNP Paribas warned that France, which is nowbenefitting from exceptionally low borrowing rates, must be careful how it communicates to markets, if it wants to maintain its credibility.But, she added: "The fact that we can begin to discuss all that is proof that countries have become more credible with respect to their economic targets."

 

France's 75% tax on rich struck down

France's top constitutional body on Saturday struck down a 75% upper income tax rate, dealing a major blow to Socialist President Francois Hollande, who had made it his centrepiece tax measure.The government vowed to push ahead with the tax rate, which would apply to incomes over a million euros a year, and propose a new measure that would conform with the constitution.The tax rate had angered business leaders and prompted some wealthy French citizens to seek tax exile abroad, including actor Gerard Depardieu who recently took up residency in Belgium. The Constitutional Council said in its ruling that the temporary two-year tax rate, due to take effect next year, was unconstitutional because unlike other forms of income tax it applied to individuals instead of whole households. As a result, the council said, the tax rate "failed to recognise equality before public burdens".Though largely symbolic it would have applied to only about 1 500 individuals the Socialists said the tax rate was aimed at making the ultra-rich contribute more to tackling France's budget deficit.The move was welcomed by the French Football League (LFP) which had expressed concern at the impact on top footballers such as Paris Saint Germain's Swedish star striker Zlatan Ibrahomovic. LFP chairperson Frederic Thiriez said if the measure had reached the statute book there could have been an "exodus of the best players" in the French league.The 75% tax rate was a flagship promise of the election campaign that saw Hollande defeat right-winger Nicolas Sarkozy in May. Prime Minister Jean-Marc Ayrault said the ruling was a "symbolic but not severe censure" and pledged to ensure the measure was adopted." The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council. It will be presented in the framework of the next Finance Act," he said in a statement. "We want to maintain" the measure "because it symbolises the need for the effort to be more fairly shared," he added.The Constitutional Council also rejected new methods for calculating a separate wealth tax, striking down a provision that would have increased the amount of taxable revenues and capital gains. Other new measures in the budget were approved, however, including an increase in some upper tax rates to 45% and the addition of capital gains to taxable income. Finance Minister Pierre Moscovici said the ruling "does not compromise" budget efforts and said the council had approved "the essential" of the government's economic policies.But government critics hailed the ruling as proof the Socialists are pursuing unfair tax policies. "While the whole world watched us in dismay, Francois Hollande deceived the French into believing that 'taxing the rich' would be enough to solve our country's problems," said the head of the right-wing opposition UMP, Jean-Francois Cope."In reality, discouraging entrepreneurs and punishing the most wealthy until they leave our country inevitably puts the tax burden on the middle class. This moral error was sanctioned today. "France is struggling to plug a €37bn hole in its public finances to meet its target of reducing the budget deficit to the EU ceiling of 3% in 2013.The 2013 budget included €12.5bn in spending cuts and €20bn in new taxes on individuals and businesses. Critics have said the new tax measures will stifle economic growth, with the French economy already expected to contract by 0.2% in the final quarter of this year. The 2013 budget is based on a government forecast of 0.8% economic growth next year a figure many economists consider too optimistic. Hollande has seen his popularity plummet in recent months as the economy stagnates and unemployment mounts.

US lawmakers seek last-gasp fiscal deal

After weeks of failed haggling, the fiscal cliffhanger is at hand as US lawmakers convene Sunday in a bid to strike a year-end deal that avoids huge tax hikes and possibly spending cuts set to kick in January 1.With the clock ticking ever closer to the New Year's time bomb, the suddenly alarmed Senate and House were holding special sessions 36 hours before the year-end deadline for a plan that would keep America from tumbling off the so-called fiscal cliff. The stakes in the game of holiday-interrupting brinkmanship are enormous. Economists agree the $500bn in fiscal pain due to hit when the new year starts would stifle the US economic recovery and send the country back into recession, spelling bad news for the global economy as well. Aides to both sides' leaders in the Democrat-controlled Senate worked feverishly behind closed doors Saturday to fashion a deal palatable to Democrats as well as to Republicans, who control the House of Representatives. The Senate convenes Sunday at 1:00 pm (18:00 GMT) while the House goes into session an hour later, with no votes expected before 23:30 GMT. Both chambers would have little time to debate and then pass a deal that has eluded the White House and Congress for weeks. President Barack Obama, who called congressional leaders to the White House on Friday, will address the crisis once more when he gives an interview on NBC's Sunday morning talk show "Meet the Press. "Amid the tense negotiations, Obama pressed lawmakers to clinch a deal, even if they must reach a compromise that lacks the significant deficit-reduction measures both sides had sought. If lawmakers fail, "every American's paycheck will get a lot smaller," the president warned. "Congress can prevent it from happening, if they act now. "Obama, sensing a mandate from his re-election last month, wants to raise taxes on the rich. Republicans want only to close tax loopholes to raise revenue and demand significant spending cuts in return, notably to federal benefit programs like Social Security. But if nothing is done by the deadline, all taxpayers will see an increase. Following the White House talks, the Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell are heading efforts to craft a deal. But any agreement would also have to pass the House, where there is doubt that an Obama-backed deal would win favor with restive conservatives in the Republican caucus. While each side must for the sake of appearances be seen to be seeking a deal, one way out is to go over the cliff, then fix the problem in the first days of next year. Under that scenario, Republicans who are philosophically opposed to raising taxes could vote to lower the newly raised rates on almost all Americans without formally hiking taxes. Lawmakers, while ruing the inability to work out a multi-trillion-dollar grand bargain in time, have said a pared down version dealing mainly with taxes was within reach. Citing unnamed people briefed on the talks, The Washington Post said one version under consideration would protect nearly 30 million taxpayers from paying the higher, alternative minimum tax rate for the first time and maintain unemployment benefits for two million people.The plan also would halt a steep cut in Medicare reimbursements for doctors and preserve popular tax breaks for both businesses and individuals, such as those for research and college tuition, the report said.But the two sides were still at odds over where to set the limits of wealthy - at $250 000 or $400 000 of annual income and over taxes on inherited estates. Nor has there been agreement on spending cuts so sought after by Republicans, who say excessive government spending is the main driver of US debt. Obama warned that if an agreement was not reached in time, he would ask the Senate to hold an up-or-down vote on a basic package that protects the middle class from a tax hike, extends unemployment insurance, and "lays the groundwork for future... deficit reduction. "In a weekly Republican address, Senator Roy Blunt expressed some optimism, saying that "going over the fiscal cliff is avoidable. "But he criticised Democrats for focusing mainly on taxes while setting aside government spending, arguing that such inaction "shouldn't be an option."