Posts Tagged ‘Testimony’
It’s Tuesday: Will It Be 19 Out Of 19?
Tuesday, 21 May 2013 06:10
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Another event-free day in which the only major economic data point was the release of UK CPI, which joined the rest of the world in telegraphing price deflation, despite bubbles in the real estate and stock markets, printing 2.0% Y/Y on expectations of a 2.3% increase, the lowest since November 2009 and giving Mark Carney carte blanche to print as soon as he arrives on deck. In an amusing twist of European deja-vuness, last night Japan’s economy minister who made waves over the weekend when he said that the Yen has dropped low enough to where people’s lives may be getting complicated (i.e. (Read more…), inflation), refuted everything he said as having been lost in translation, and the result was a prompt move higher in the USDJPY, quickly filling the entire Sunday night gap. That said, and as has been made very clear in recent years, data is irrelevant, and the only thing that matters, at least so far in 2013, is whether it is Tuesday: the day that has seen 18 out of 18 consecutive rises in the DJIA so far in 2013, and whether there is a POMO scheduled. We are happy to answer yes to both, so sit back, and wait for the no-volume levitation to wash over ever. The US docket is empty except for Dudley and Bullard speaking, but more importantly, the fate of Jamie Dimon may be determined today when the vote on the Chairman/CEO title is due, while Tim Cook will testify in D.C. on the company’s tax strategy and overseas profits.

Perhaps the only chart that matters: the Dow with and without the impact of Tuesdays:

Key overnight highlights summarized in bulletin form courtesy of Bloomberg

  • Treasuries steady, 10Y yields holding near highest since March as markets wait for Bernanke testimony and Fed minutes tomorrow amid speculation on QE tapering. JPY resumes decline vs USD while EUR/USD falls.
  • Japan economy minister Amari, speaking to reporters in Tokyo, said he couldn’t say when correction from strong JPY will end, hopes exchange rate settles at level suited to Japan’s economic fundamentals
  • China’s trade surplus is one-tenth the official $61b reported so far this year after accounting for fake transactions used to disguise hot-money inflows, Bank of America Corp. says
  • Spain sold EU3.51b of bills vs. 3.5b target; 3M bills drew 0.331% vs 0.12% in April, 9M bills 0.789% vs 0.787%
  • U.K. inflation slowed more than economists forecast in April to a seven-month low and producer prices rose the least since 2009 as fuel costs fell
  • The Reserve Bank of Australia cut its benchmark interest rate to a record low this month to boost businesses weakened by AUD’s sustained strength, even  as households reacted to earlier reductions, according to the minutes of its May 7 meeting
  • New Zealand’s 2Y inflation expectations fell to an 11-year low in 2Q, according to the central bank’s survey of business expectations
  • Deutsche Bank AG was cut to neutral from overweight by JPMorgan, which said tighter regulation threatens capital levels
  • The Chinese government is considering a tax on ultra-luxury vehicles that cost more 1.7m yuan ($277,000), according to a report in Nanfang Daily, citing an unnamed official from a German luxury automaker
  • BofAML Corporate Master Index OAS narrows to 141bps, new tight for the year, from 142bp as $2.925b priced. Markit IG at 71bps from 70bps, YTD low 69bps. High Yield Master II OAS narrows to 434bps from 437bps; $1.85b priced yesterday. CDX High Yield falls to 106.99 from 107.13
  • Sovereign yields mostly higher. Asian stocks mixed, with Nikkei +0.1%, Shanghai Composite +0.2%. European stocks fall,  U.S. stock-index futures mostly lower. WTI crude, copper, gold fall

WHAT TO WATCH:

  • Economic Data: None scheduled
  • Central Banks
  • 11:30am: Fed’s Bullard speaks on monetary policy in Frankfurt
  • 1:00pm: Fed’s Dudley speaks in New York Supply
  • 11:00am: Fed to purchase $2.75b-$3.5b notes in 2020-2023 sector
  • 11:30am: U.S. to sell 4W bills

SocGen recaps the key macro highlights:

Flows should pick up across FX and rates today, but the advent of Fed chairman Bernanke’s speech tomorrow and the FOMC minutes probably stand in the way of participants taking on meaningful positions. The stabilisation late yesterday in metals (a sense of normality returning to silver prices after trading was halted four times) suggests recent losses may have been exaggerated. The resulting recovery in core bond yields bears close scrutiny as US 10y swaps approach 2.17%, the March high.

The only notable highlight of a sparse data calendar today is the monthly UK inflation data. Consensus expects a slight drop to 2.6% in April vs 2.8% in March (SG forecast 2.5%) but that does not make GBP offered nor should it spur receiving interest in swaps. The MPC minutes of the May meeting will be published tomorrow and are likely to put GBP in a more positive light if, as we suspect, governor King (and Fisher) pulled his vote for an immediate £25bn increase in QE. Inflation is subsequently forecast to pick up May. With economic recovery in sight, this argues for no change in BoE policy in the foreseeable future. With a minority on the MPC favouring more QE, this will make it difficult for incoming governor Carney to deliver on the dovish premise which was baked into GBP and rates the minute he was appointed last year. This does give GBP a tiny chance of carrying over its quite impressive performance so far in Q2 to Q3, though the short-term prospects of a further erosion in real yields (see chart) argues against a strong bid. Having lost only 0.2% vs the EUR, sterling is up vs every other G10 currency since 1 April, including the USD. GBP trades closest to fair value in our G10 currency sample followed by JPY and CAD.

 

DB’s Jim Reid completes the overnight summary recap:

Markets are certainly calmer than the HK weather at the moment. Indeed it’s been a quiet 24 hours as we await “Fed Wednesday” when Bernanke will be delivering a testimony before the Joint Economic committee, and the latest FOMC meeting minutes will be published. In advance of that, we had the Chicago Fed’s Charles Evans speaking yesterday, and judging by the S&P500’s reaction, perhaps markets thought he sounded a little less dovish than usual. Indeed, the S&P500 was trading about 0.25% higher on the day at the midpoint of the US session, but gave up most of those gains as Evans’ speech hit the newswires to finish at -0.07%. Evans said that the US economy had improved substantially and that he expects to see “self-sustaining (US) growth” at “escape velocity” in 2014. Evans added however, that the Fed is missing on both inflation and employment targets and he wants to see further asset purchases until the job market improves. We get further Fedspeak today with speeches from the St Louis Fed’s Bullard and the NY Fed’s Dudley. Both are FOMC voters.

Despite public holidays in parts of continental Europe, there were some notable price moves worth highlighting from yesterday. In credit markets, the European subordinated financials credit index continued to gap tighter (-16bp) after the recent changes to financial CDS contracts proposed by ISDA. The index has firmed more than 40bp in the last four sessions, bringing the financials subordinated/senior multiple to 1.4x, its lowest level since 2010.

In commodities, silver and gold markets rallied an impressive 14% and 4.6% from the intraday lows, after silver was down by as much as 8.6% during the Asian session yesterday. Short covering and the earthquake in Chile were reportedly behind the intraday rally. A Bloomberg headline warning that Moody’s could downgrade the US’ credit rating this year probably helped as well, as did a 0.6% drop in the USD index. In equities, we noted the underperformance in Italian equities yesterday (MIB -0.6%) – perhaps after a poll published by the SWG (released on Friday) suggested that the Italian government’s approval rating had fallen from 43% at the start of the month to just 34% currently.

Elsewhere, the Yen remains in focus in overnight markets after further commentary from Japan’s Economy Minister. Mr Amari said that he is uncertain on when the correction from a strong Yen will end. This marks a surprise change in tone from his comments on Sunday when he was quoted as saying that the “correction of the strong Yen is largely complete” and that a further weakening in the yen would negatively impact people’s living costs. As it currently stands, USDJPY is up 0.2% in overnight trading, helping pare yesterday’s losses of 0.9%.

Elsewhere in Asia, equities are trading lower overnight led by losses on the Hang Seng (-0.4%) and KOSPI (-0.23%). S&P500 futures are 0.1% weaker as we type. In a reminder of some of the geopolitical risks facing markets this year, the NY Times wrote that the civil war in Syria is in danger of escalating as Syrian government forces, backed by fighters from the Lebanese militant group Hezbollah, unleashed airstrikes against rebels in parts of the strategic region of Qusayr,  close to the Lebanese border. Israel, which earlier this month launched air strikes near Damascus, is said to be concerned at the growing strategic cooperation between Iran, Hezbollah and the Syrian regime (Financial Times). A potential widening of the conflict beyond Syria’s borders is something worth keeping an eye on.

With the relatively light data docket today, the focus will probably be on the Fedspeak. Bullard will be speaking at 4:30pm today London time in Frankfurt on the topic of “Monetary Policy in a Low-Rate Environment” while Dudley will be speaking at 6pm London time on the “Lessons at the Zero Bound”. The BoJ’s two-day policy meeting begins today. In the UK, inflation and retail sales data are scheduled. On the corporate reporting front, Vodafone, Burberry and Marks & Spencer will be announcing earnings.

    



 
Apple Meets The “Fairness Doctrine”, Is Set To Pay A Whole Lot More In Taxes
Monday, 20 May 2013 19:23
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Last September, when we exposed the heretofore unknown entity actively managing Apple’s $100 billion+ in offshore held cash (and thus untaxed in the US), we made the following “bold” prediction: “with the topic of finding effective tax loopholes which are perfectly legal, yet which apparently are unfair, serving as the basis of the entire presidential race to date, what Apple can be absolutely certain of is that once the farce culminating on November 6 is over, the government’s eye will finally turn to minimizing “externalities” among such companies which have been able to pass through corporate tax savings to end consumers by abiding within the legal system that countless other muppet congressmen, senators and presidents have developed over the ages. Because while AAPL may have built the iPhone, very soon it will be only fair that it share (Read more…) profits acquired over the years, and thus its cash balance…with the general public.” Or in other words, in September we predicted the Apple “tax witchhunt” would take place shortly after Obama won his reelection. Today, it has officially begun.

For those confused, Congress has just announced it is shocked, SHOCKED to learn it has over the past several decades passed legislation making tax shelter loopholes – such as those used by AAPL, GOOG and every other multinational company – perfectly legal, and which will now be turned against those very companies in a kangaroo court of law, seeking nothing more or less than to extract all those pounds of flesh that the government so generously let slip between its fingers for so many years. Which is expected: when the entire world is broke, the government has no choice but to call in every favor accumulated over the years, because all is fair in, well, the fairness doctrine and in a world about to unleash global trade, and tax, war.

Of course, we have covered the background of this topic extensively in the past knowing quite well what direction the wealth redistributor-in-chief was heading. From Apple And Taxes:

As we have shown in the past, perhaps the one thing Tim Cook’s company has loathed more than anything in the past, is to pay taxes, which is why it has some of the most convoluted legal tax shelters imaginable. Indeed, in the current quarter, according to the company’s cash flow statement, a tiny $2.4 billion was paid in cash taxes. Putting this number in perspective, the company had an operating profit of $12.4 billion.

 

 

Or, cumulatively, since December 2008, AAPL has generated a grand total of $149 billion in operating profit, while paying just $21 billion in total taxes.

 

Which brings us to today. From Bloomberg:

Apple Inc. (AAPL) has created a web of offshore entities to avoid paying billions of dollars in U.S. taxes, including three foreign subsidiaries the company says have no home country for tax purposes, congressional investigators say.

 

The world’s most valuable technology company has $102 billion in offshore accounts and shifted billions in profits out of the U.S. into affiliates based in Ireland where it negotiated a tax rate of less than 2 percent, according to a report by the Senate Permanent Subcommittee on Investigations.

 

The offshore entities of the Cupertino, California-based company have paid little or no tax in recent years, the probe found.

 

One Apple affiliate — Apple Operations International — generated net income of $30 billion between 2009 and 2012, and declined to declare a tax residence, filed no corporate tax return and payed no income taxes to any nation, the report said. AOI is Apple’s principal offshore holding company.

 

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Democratic Senator Carl Levin of Michigan, the chairman of the panel, said at a news conference. “Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere.

Of course, in AAPL’s defense, what it has done is not illegal at all, and is in perfect compliance with both US and international laws. But that would mean Congress would have to read the laws it has passed over the ages: something which everyone knows never happens. One also knows that Congress is unparalleled when it comes to the hypocrisy of accusing others for following the rules it itself has enacted.

In prepared testimony to Congress posted on its website today, Apple defended its practices, saying it paid $6 billion in U.S. taxes last year and is one of the largest taxpayers in the country.

 

Apple’s cash is largely held in U.S. banks in U.S. dollar-denominated assets, segregated into a portion that can be used for domestic operations and a portion that can be used only for international investments, the company said. The company doesn’t use foreign subsidiaries or gimmicks to avoid U.S. taxes, said the testimony.

 

The company also said the Irish subsidiaries, which are cost-sharing arrangements, have helped to fund Apple’s research and development activities and taken on risks, leading to bigger profits and higher-paying jobs in the U.S.

None of this matters, however, in the abovementioned kangaroo court, in which…

Lawmakers in both parties are seeking a bipartisan agreement on how to tax income that U.S.-based corporations earn outside the country. Democrats and Republicans on the panel say Apple’s tax maneuverings, while not illegal, will help frame the debate about how to make the corporate tax system more fair.

 

Senator John McCain of Arizona, the panel’s top Republican, said he and Levin are seeking to craft a bipartisan proposal that would end some of the tax benefits, although the timing of an agreement isn’t clear. He said both parties in Congress should seek to address the matter, even if it isn’t in the context of a broad rewrite of the tax code.

 

“When you see egregious behavior like this, why wait?” McCain said.

And there it is again: “all in the name of fairness.”

What is left unsaid is that Apple is merely the first Guniea pig in what is sure to be a long trail of wealth “redistribution” of evil companies (to benefit the Federal and State governments) who have used every legal loophole affored to them by the US tax code, in order to pad the government’s soaring spending habits, and to assist in making it even bigger.

Sadly, for AAPL, and for many others like it, this means that the excess profits they generate are now known, in financial parliance, as “negative externalities” and Fair Uncle Sam is coming for his fair share.

Sadder for AAPL, and all those like it, it means that the company is now truly a utility in the eyes of the government, and one can stick a fork in any hopes that the growth company created by Steve Jobs ever has a chance of coming back.

    



 
Bernanke’s Testimony to Congress and FOMC Minutes Preview
Monday, 20 May 2013 10:47
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Orginally posted http://www.tothetick.com/bernankes-testimony-to-congress-and-fomc-minutes-preview

THE IMPORTANCE OF BERNANKE’S TESTIMONY

Fed chairman Ben Bernanke’s testimony to Congress will be important in setting the tone for the markets (particularly the dollar, equities and US treasuries), as traders hunt for clues on when the Fed is likely to ease its rate of asset purchases. (Read more…)

The greenback surged last week, with the dollar index reaching a three-year high, on the back of traders’ expectations that improving US economic data will lead the Fed to begin tapering its programme of quantitative easing, possibly as early as the middle of this year.

Minutes from the FOMC’s latest policy meeting in May will follow Bernanke’s testimony. However, it is likely that Bernanke’s testimony may take the edge off this release, in terms of market impact.

FOMC POLICYMAKER UNCERTAINTY

Bernanke’s testimony is crucial, given the mixed messages from Fed officials in recent weeks. For example, Charles Plosser has suggested decelerating the rate of asset purchases, also suggesting that the Fed shortens the duration of the bonds it currently holds.

Some FOMC members, like John Williams, are in favour of tapering asset purchases by the end of this year. On the other hand, Eric Rosengren has argued that now is not the time for the Fed to taper its asset purchases.

And this week, Richard Fisher came out in favour of slowing purchases of mortgage securities, saying the housing sector no longer needs the Fed’s support.

Sebastien Galy, an analyst at Societe Generale, says “the Fed is slowly moving out of the ultra-dovish camp, as the Bernanke clan reassesses the risks for the Fed balance sheet and the economy of ultra-easy conditions for so long.”

It appears as though the Fed is eager to push the debate into the public domain. Simon Smith, an economist at FxPro says that “[the Fed] is keen not to scare markets when the [tapering] does eventually happen, hence the propensity to talk openly about it.”

WHAT CAN WE EXPECT?

What is definitely known is that the Fed is intent on tapering asset purchases. When is less clear – it is generally accepted that it could be anytime from the middle of this year, all the way out to 2015 (assuming that the tone of economic data improves – especially unemployment and inflation).

However, it is worth noting that “the current debate over tapering QE does not stem from a satisfaction with state of the labour market or concern over inflation risks but a desire to limit the perceived financial stability costs of QE,” according to Divyang Shah, a strategist at IFR Markets.

Recent US economic data has softened, but is still encouraging. Retail sales notably beat expectations, rising by 0.1% in March. Consumer confidence has improved; the University of Michigan consumer sentiment index advanced to 83.7 in May, from 76.4 in aPRIL, as the mighty US consumer shakes off the impact of fiscal sequestration.

But challenges on the supply-side of the economy remain, as shown by both the Philly Fed and Empire State manufacturing surveys, which both fell below 0; industrial production also shrank by 0.5% in April. And the employment situation is mixed, with weekly jobless claims inching higher last week, after improving over the preceding weeks.

Nevertheless, Mansoor Mohi-uddin, an FX strategist at UBS, believes that there is still positive underlying growth momentum, pointing to the Philly Fed survey’s inventories sub-index, which rose from -26.3 to 0.7. And although housing starts fell by 16.5% in April, the forward-looking measure of building permits jumped by 14.3% month-on-month.

But Mohi-uddin believes that “it is still too early to expect the Fed to [taper asset purchases] in the summer.” This line of reasoning is underscored by the benign inflation outlook in the US. Core inflation – as measured by Private Consumption Expenditure, which is the Fed’s preferred gauge of inflation – has eased to 1.1% on an annualised basis.

A recent article in the Wall Street Journal by Jon Hilsenrath, a prominent Fed watcher, suggested that FOMC members are not alarmed by the deflation risks, and are satisfied that inflation expectations are stable. Traders consider the benign outlook as supportive of continued monetary stimulus. FxPro’s Smith reasons that “it seems unlikely that the Fed will step back from its commitment to buy $85 billion of securities per month in the near-term, with the economy still mixed and inflation pressures easing.”

Whether or not Bernanke will choose to communicate his personal views on when asset purchases will be tapered remains to be seen. Some speculate that any change to the Fed’s asset purchases will only come when Bernanke holds a press conference after the policy meeting, which would give him an opportunity to fully explain the FOMC’s rationale.

These press conferences are usually held in March, June, September and December, when the Fed also updates its economic forecasts. Mohi-uddin thinks that “June seems too early, while September and December seem more likely for the Fed to start reducing its pace of easing if the US economy re-accelerates.”

But staying focused on Bernanke’s testimony on Wednesday, Kathleen Brooks, research Director at Forex.com, says that there are two key questions that traders want answers to: “How will he explain the uptick in initial jobless claims last week? How will he react to the drop in core inflation to a two-year low at 1.7% for April? His answers to these potential questions from Congress could determine the medium-term outlook for the buck.”

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