The Star Online: Business
The Star Online: Business |
- Little apparent progress in U.S. "fiscal cliff" talks
- US fiscal cliff fight may knock out December rally
- Moody's downgrades euro zone rescue funds, keeps negative outlook
| Little apparent progress in U.S. "fiscal cliff" talks Posted: 30 Nov 2012 11:21 PM PST HATFIELD, Pennsylvania: With barely a month left before the "fiscal cliff," Republicans and Democrats remained far apart on Friday in talks to avoid the across-the-board tax hikes and spending cuts that threaten to throw the country back into recession. While President Barack Obama visited a Pennsylvania toy factory to muster public support for tax hikes on the rich, portraying Republicans as scrooges at Christmas time, his primary adversary in negotiations, Republican House Speaker John Boehner, continued to describe the situation as a stalemate. The argument will resume on Sunday when Boehner, along with Obama's Treasury secretary, Timothy Geithner, and others, take to weekly political talk shows and pick up further steam next week with a possible confrontation in the House of Representatives between Democrats and Republicans over the timing of a vote on tax hikes. Lawmakers are nervously eyeing the markets as the deadline approaches, with gyrations likely to intensify pressure to bring the drama to a close. The markets, in turn watching the politicians, fell as Boehner spoke, but recovered afterward. It was a repeat of the pattern earlier in the week when the speaker offered a similarly gloomy assessment. The latest round of high-stakes gamesmanship focuses on whether to extend the temporary tax cuts that originated under former President George W. Bush beyond their December 31 expiration date for all taxpayers, as Republicans want, or just for those with incomes under $250,000, as Obama and his fellow Democrats want. After five days of increasingly confrontational exchanges, the work week drew to a close with an announcement by Democrats of a long-shot effort next week to force an early tax-hike vote in the Republican-controlled U.S. House to break the deadlock. MEDICARE, SOCIAL SECURITY House Minority Leader Nancy Pelosi said she would undertake the rarely successful effort unless Boehner agreed by Tuesday to bring a bill to the floor allowing taxes on the wealthy to rise, something Boehner is highly unlikely to do until he is ready. "The clock is ticking," Pelosi said at a news conference. "The year is ending. It's really important with tax legislation for it to happen now. We're calling upon the Republican leadership in the House to bring this legislation to the floor next week." While Boehner offered no immediate response to Pelosi's threat, Cathy McMorris Rodgers of Washington state, recently elected by Republicans to be the fourth-ranking party leader in the House, told Fox News in an interview not to expect any tax vote next week. Amid the competing statements from the two sides, there were some actual, albeit modest, signs of potential movement. Senate Minority Leader Mitch McConnell threw Republican proposals into the mix for reform of Medicare, the government health insurance program for seniors, which has exploded in cost in recent years and is a major contributor to the country's soaring deficit. McConnell of Kentucky told the Wall Street Journal in an interview that Republicans would agree to more revenue - although not higher tax rates - if Democrats agreed to such changes as raising the eligibility age for Medicare and slowing cost-of-living increases in the Social Security retirement program. Rodgers, in her Fox News interview, declined to completely rule out a much-discussed potential compromise in which Republicans would accept some increase in tax rates on the rich, but not to the level desired by Obama. 'A LUMP OF COAL' More House Republicans - although still just a handful -expressed flexibility beyond that of their party leaders about considering an increase in tax rates for the wealthy, as long as they are accompanied by significant spending cuts. Most House Republicans refuse to back higher rates, preferring to raise revenue through tax reform. Obama, speaking in Pennsylvania, said he was encouraged by the shifting views of some Republicans, and urged House approval of a bill that has already cleared the Democratic-controlled Senate that would lock in the middle-class tax cuts and raise the rates for the rich. "If we can get a few House Republicans on board, we can pass the bill. ... I'm ready to sign it," Obama said. But neither he nor the other principals in the debate budged from their basic positions. Instead, Obama turned up the pressure on Friday, hitting the road to drum up support for his drive to raise taxes on the wealthy and warning Americans that Republicans were offering them "a lump of coal" for Christmas. In a visit to the Pennsylvania toy factory, Obama portrayed congressional Republicans as scrooges who risked sending the country over the fiscal cliff rather than strike a deal to avert the tax increases and spending cuts that begin in January unless Congress intervenes. "We already all agree, we say, on making sure middle-class taxes don't go up. So let's get that done. Let's go ahead and take the fear out for the vast majority of American families so they don't have to worry," Obama said at the Rodon Group factory, which makes K'NEX building toy systems as well as Tinkertoys and consumer products. In Washington, Boehner said Obama's plan to raise taxes on the rich was the wrong approach. "There is a stalemate. Let's not kid ourselves," the Ohio Republican said. "Right now we are almost nowhere." |
| US fiscal cliff fight may knock out December rally Posted: 30 Nov 2012 11:19 PM PST NEW YORK: In normal times, next week's slew of U.S. economic data could be a springboard for a December rally in the stock market. December is historically a strong month for markets. The S&P 500 has risen 16 times in the past 20 years during the month. But the market hasn't been operating under normal circumstances since November 7 when a day after the U.S. election, investors' focus shifted squarely to the looming "fiscal cliff." Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession. A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday. But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted. The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff. "We have a week with a lot of economic data, and obviously most of the economic data is going to reflect the effects of Sandy, and that might be a little bit negative for the market next week, but most of that is already expected - the main focus remains the fiscal cliff," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. Concerns about the cliff sent the S&P 500 <.spx> into a two-week decline after the elections, dropping as much as 5.3 percent, only to rally back nearly 4 percent as the initial tone of talks offered hope that a compromise could be reached and investors snapped up stocks that were viewed as undervalued. On Wednesday, the S&P 500 gained more than 20 points from its intraday low after House Speaker John Boehner said he was optimistic that a budget deal to avoid big spending cuts and tax hikes could be worked out. The next day, more pessimistic comments from Boehner, an Ohio Republican, briefly wiped out the day's gains in stocks. On Friday, the sharp divide between the Democrats and the Republicans on taxes and spending was evident in comments from President Barack Obama, who favors raising taxes on the wealthy, and Boehner, the top Republican in Congress, who said Obama's plan was the wrong approach and declared that the talks had reached a stalemate. "It's unusual to end up with one variable in this industry, it's unusual to have a single bullet that is the causal factor effect, and you are sitting here for the next maybe two weeks or more, on that kind of condition," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago. "And that is what is grabbing the markets." BE CONTRARY AND MAKE MERRY But investor attitudes and seasonality could also help spur a rally for the final month of the year. The most recent survey by the American Association of Individual Investors reflected investor caution about the cliff. Although bullish sentiment rose above 40 percent for the first time since August 23, bearish sentiment remained above its historical average of 30.5 percent for the 14th straight week. December is a critical month for retailers such as Target Corp With consumer spending making up roughly 70 percent of the U.S. economy, a solid showing for retailers during the holiday season could help fuel any gains. Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, believes the recent drop after the election could be a market bottom, with sentiment leaving stocks poised for a December rally. "The concerns on the fiscal cliff - as valid as they might be - could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative," said Detrick. "From that contrarian point of view with the historically bullish time frame of December, we once again could be setting ourselves up for a pretty nice end-of-year rally, based on lowered expectations." SOME FEEL THE BIG CHILL Others view the fiscal cliff as such an unusual event that any historical comparisons should be thrown out the window, with a rally unlikely because of a lack of confidence in Washington to reach an agreement and the economic hit caused by Sandy. "History doesn't matter. You're dealing with an extraordinary set of circumstances that could very well end up in the U.S. economy going into a recession," said Phil Orlando, chief equity market strategist at Federated Investors in New York. "And the likelihood of that is exclusively in the hands of our elected officials in Washington. They could absolutely drag us into a completely voluntary recession." |
| Moody's downgrades euro zone rescue funds, keeps negative outlook Posted: 30 Nov 2012 11:15 PM PST BRUSSELS: Credit ratings agency Moody's cut its rating for the euro zone rescue funds ESM and EFSF to Aa1 from Aaa following its downgrade of France earlier in November, the agency said on Friday. It said the downgrade of the ESM and the EFSF, which were created to stabilise the euro zone by providing financial assistance to euro area member states in difficulty, was prompted by the high correlation in credit risk among the rescue funds and their largest financial supporters. Moody's stripped France of its prized triple-A badge this month, cutting the sovereign credit rating on Europe's No. 2 economy by one notch to Aa1 from Aaa. It cited an uncertain fiscal outlook and deteriorating economy. "Moody's view that there is a high correlation in credit risk among the entities' supporters is consistent with the evolution to date of the euro area debt crisis and the close institutional, economic and financial linkages among the major euro area sovereigns," Moody's said. The agency said it kept a negative outlook for the new credit rating. The EFSF and ESM said in a statement late on Friday that they took note of Moody's decision but did not agree with it. "We disagree with the rating agency's approach which does not sufficiently acknowledge ESM's exceptionally strong institutional framework, political commitment and capital structure," said Klaus Regling, managing director of the ESM and chief executive of EFSF. Moody's had announced it would review the Aaa rating of the two funds after the downgrade of France. The euro pared most gains versus the U.S. dollar in late Friday trade after Moody's downgrade. - Reuters |
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