Monday, 24 June 2013

Fed fears and China credit crunch concerns send jitters through markets

FTSE 100 falls to just above 6000 from all-time highs last month, while Dow Jones index opens 200 points down in New York
Fears that the Federal Reserve is preparing to remove its stimulus from the US economy coupled with anxiety that China is being gripped by its own credit crunch have sent jitters through global stock and bond markets.
The rout hit yields on UK government bonds which hit their highest level since October 2011 in what analysts said was one of the most rapid moves ever witnessed on the market. Yields, which move inversely to price, on 10-year gilts have now risen a full percentage point to edge towards 2.6% in just two months, a rapid pace of change in the potential cost of government borrowing that could in turn increase the price at which companies and households borrow.
The FTSE 100, which last month was testing all-time highs, lost another 70 points to sit just above 6000 – a key level it only moved through at the start of 2013 – while the Dow Jones Industrial Average in the US suffered a 200-point loss in the first half hour of trading. Commodity prices, such as copper, were also lower.
Yields on US government bonds, known as Treasuries, also hit two-year highs as investors digested recent remarks by the Fed chairman, Ben Bernanke, that he might begin to slow down the central bank's $85bn (£55.1bn) monthly purchases of bonds which are being used to simulate the economy.
Governments in the eurozone, particularly the fragile economies of Spain and Italy, also faced their highest borrowing costs since May as yields rose.
Chinese stock markets dropped more than 5%, the biggest fall in three years to reach their lowest close in more than four years, after the People's Bank of China (PBoC) – the central bank – appeared to suggest it would not step in to prevent a rise in the rates at which banks borrow from each other.
Analysts at Nomura said that "investors remain concerned over tight liquidity conditions in the banking system" in China after the PBoC said it would "contain financial risks with more solid actions" and "fine-tune policy when necessary".
The rates which banks borrow from each other in China have jumped to close to 10% and to as much as 25% for some banks – from just 3% a month ago – raising concerns about the impact of lending by non-banks in China, known as shadow banks.
Traders on the floor of the New York Stock Exchange
Michael Hewson, senior market analyst at CMC Markets, said: "Fears of a continued cash squeeze in the Chinese banking system has seen European markets continue their soft tone on fears that a dislocation in the banking system will cause further downward revisions in forward expectations for growth over the coming months".
Hewson noted that the warning at the weekend by the Bank for International Settlements, the international central bank organisation, that more stimulus could actually harm fragile economies had also ratted markets. Stephen Cecchetti, head of the BIS monetary and economic department, warned on Sunday: "Unfortunately, central banks cannot do more without compounding the risks they have already created. Monetary stimulus alone cannot put economies on a path to robust, self-sustaining growth, because the roots of the problem preventing such growth are not monetary."
But a senior US central banker attempted to fight back against the market reaction saying that the Fed could not be broken in its resolve in easing back from monetary stimulus in the way that the UK had been forced out of the exchange rate mechanism in 1992 by speculative attacks by George Soros. "But I do believe that big money does organise itself somewhat like feral hogs. If they detect a weakness or a bad scent, they'll go after it," Richard Fisher, president of the Dallas Fed, told the Financial Times. The Fed had not even started to cut back its purchases of bonds, Fisher said. "I don't want to go from Wild Turkey to 'Cold Turkey' overnight," said Fisher.
John Higgins, chief markets economist at Capital Economics, said the potential removal for stimulus by the Fed was the main cause of the upheaval in bond markets but said, though, that a "bloodbath" should be averted. Even if US Treasury bond yields rose to 3.5% by the end of the year – from around 2.5% now – it would be low by historical standards, Higgins said.
In China, concerns about a rapid expansion in lending have dogged Beijing's economic management as consumers seek to maintain their living standards by borrowing cash from these local finance companies rather than main stream banks, although much of the lending can ultimately be traced back to the banking sector. Deutsche Bank has estimated that the among credit extended by non-banks could account for as much as 40% of Chinese GDP.
Capital Economics' China analyst, Mark Williams, said investors were factoring in lower growth as the credit squeeze takes effect while the Nomura analysts said the liquidity squeeze was the first real test for China's new leaders, in office for just three months.
"If the new leaders maintain their current approach, we believe it will add downside risk to growth in 2013 but in our opinion this would help reduce systemic financial risks, supporting long-term sustainable growth," the Nomura analysts said.
China's economy has already slowed in recent months: manufacturing contracted and property construction weakened in May, leading most analysts to say that hopes earlier this year of a bounce in growth have proved misplaced.
Article Source : http://www.guardian.co.uk
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UK alcohol and tobacco prices among highest in EU

EU survey shows Denmark and Norway most expensive, with Macedonia cheapest – but Britain places well above average
Britain has some of the highest prices for alcohol and tobacco in the European Union and shoppers pay more than average for milk, cheese and eggs, according to official figures from the EU statistical office, Eurostat.
Booze prices in Britain are 43% above the EU average, while cigarettes cost 94% more and are the third highest in the EU, only just behind Ireland and Norway.
Inside the EU, Denmark has the highest overall price level but Eurostat, which surveyed an additional 10 non-EU members in Europe, found that Norway is worst for costs, while Macedonia is cheapest.
General food and non-alcoholic beverage prices in Britain are 4% above the EU average, and milk, cheese and eggs are 7% more. However bread prices are 11% below the average for Europe.
The average figures for the EU include prices in the newer members such as Romania and Bulgaria. Compared with the major western European countries, such as France and Germany, the UK's price level (apart from alcohol and tobacco) is favourable.
For example, average food prices in Italy are significantly higher than in Britain, while in France meat costs 23% more than in the UK, and in Germany 28% more.
Among the major economies, Spain is best value. In almost every category, its prices are about one-tenth lower than the EU average, and nearly a quarter below the price level in France. For example, meat in Spain costs one-third less than in France.
But other countries that went through a boom and bust following their entry into the euro still have very high price levels. In Cyprus, milk, cheese and eggs are 41% above the EU average, while in Greece, bread and milk are significantly pricier than average. In Ireland, despite a steep rise in unemployment and wage cuts, prices remain among the highest in Europe. The average Irish food price is 18% higher than the rest of the EU, and its alcohol prices are the highest in the EU barring Finland.
Norway remains the country where prices for almost everything are the highest in Europe and possibly the world. Average food prices are 86% higher than across the EU; milk, cheese and eggs are 114% more and alcohol is 188% higher.
In the former Yugoslav republic of Macedonia, home to Europe's lowest prices, alcohol is half the price of the UK, while food is 70% cheaper than Norway. Turkey has surprisingly high food prices despite having much lower average earnings than European countries. Average food prices in the country are 88% of the EU average, with milk, cheese and eggs 22% more.
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Article Source : http://www.guardian.co.uk

ENRC founders submit lower bid for their Kazakhstan mining company

Billionaires reduce offer already rejected by troubled company's independent directors as 'undervaluing' the business
The three billionaire founders of controversial Kazakh mining company Eurasian Natural Resources Corporation are poised to unveil a final but reduced £3bn bid before a deadline on Monday.
The oligarchs, Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev, made a tentative proposal in May worth around £3.3bn, which was rejected by ENRC's independent directors.
The offer involved a mixture of cash plus shares from the Kazakh government's stake in rival London-listed mining group Kazakhmys. Under the new proposal, the structure remains the same but the total price is lower following a fall in Kazakhmys shares since May. To complicate matters further, Kazakhmys itself holds a 26% stake in ENRC.
In a statement on Sunday the oligarchs said: "In response to the recent press speculation, the consortium confirms that it is in the advanced stages of preparation of a possible offer to be made for the entire issued and to be issued share capital of ENRC. It is a pre-condition that Kazakhmys delivers an irrevocable undertaking to accept the offer (subject to Kazakhmys shareholder approval) in respect of [its stake in ENRC."
Ferroalloys at an ENRC site in Kazakhstan. The company, troubled by corruption allegations, is the subject of a reduced bid by its founders.The consortium is offering 172.3p in cash plus 0.23 Kazakhmys shares. Based on Friday's price of 269.4p for Kazakhmys shares, it values each ENRC share at around 234.3p compared to its latest market price of 216.9p.
But the original proposal was worth 260p for every ENRC share, which ENRC's independent directors had already rejected as "materially undervaluing" the business.
However, there is little they can do if Kazakhmys decides to put its 26% shareholding behind the bidders, which it is reportedly minded to do. Between them, the oligarchs and the Kazakh government already own 53.9% so any deal with Kazakhmys would see the offer go unconditional.
The ENRC founders decided to take the company private amid investigations by the Serious Fraud Office over fraud, bribery and corruption allegations, boardroom rows and an acquisition spree which left it with around $5bn (£3.24bn) of debt.
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Article Source : http://www.guardian.co.uk

Sunday, 23 June 2013

George Osborne to offset further spending cuts with capital investment

Mersey Gateway and HS2 projects will be announced this week as Vince Cable is last cabinet minister to settle with chancellor
Gorge Osborne agreed the final details of spending cuts worth £11.5bn for 2015-16 on Sunday, ahead of an announcement this week that will also see the Treasury unveiling a multi-billion, six-year infrastructure investment programme.
Vince Cable, the business secretary, was the last cabinet minister involved in the spending review to settle, although defence, education, local government, health and international aid also kept negotiations with the Treasury going until very recently.
At one stage Osborne said that ministers who refused to cut their budgets for would be summoned before the "star chamber" for a grilling on why they could not find savings. In the event the "star chamber" was never convened for this purpose, although Treasury sources insisted that the threat of a summons did help to concentrate minds.
Osborne will announce details of the 2015-16 spending review cuts in a statement to the Commons on Wednesday.
In a move which suggests that the chancellor wants to prevent Labour being seen as the party most committed to capital spending, the Treasury will this week combine the spending review with the announcement of a series of infrastructure investment projects running from 2015-16 to 2020-21.
Given that the total sum allocated in the budget for capital spending in 2015-16 alone is £50bn, the headline sums involved could be huge.Danny Alexander, the chief secretary to the Treasury, will announce the details in the Commons on Thursday.
Details of the first tranche of work on the HS2 high-speed railway are expected to be madeThe infrastructure investment programme will be funded from within the Treasury's long-term spending envelope and it will include spending on road, rail and high-speed internet. The projects are expected to include upgrading the A14, a new Mersey Gateway bridge in the north-west and the first tranche of work on the HS2 high-speed railway.
Alexander agreed the final details of the spending review with his Lib Dem colleague Cable on Sunday morning. At around the same time, Osborne and his Labour opposite number, Ed Balls, were both raising the prospect of further spending cuts after 2015-16 in interviews on the Andrew Marr show.
Osborne told the programme that on Saturday he reached a settlement with the Ministry of Defence that would protect frontline service personnel but lead to the loss of civilian jobs. Several hundred posts are expected to go, with the rest of the estimated £1.5bn savings achieved through cuts to civilian allowances, efficiency measures and contracts with suppliers being renegotiated.
"There will not be a reduction in our military capability," Osborne said. "We're not going to reduce the number of soldiers, sailors, airmen, and in fact we're actually going to be able to spend some money on things like cyber [security], which is the new frontier in defence."
The Labour party has already announced that it will accept the coalition's overall day-to-day spending plans for 2015-16, although it reserves the right to change how current spending is allocated, and to increase capital spending. But yesterday Balls went further, saying he expected to make cuts beyond 2015-16.
"Do I think after 2015-16, the next Labour government will be making very difficult decisions which will involve some cuts? Yes," the shadow chancellor said.
Some in Labour are strongly opposed to this. In a letter in today's Guardian, Peter Hain, the former cabinet minister, Neal Lawson, chair of the pressure group Compass, and other signatories say that continuing austerity measures beyond the next election would be "politically and economically disastrous".
Balls has already announced that Labour would cut winter fuel payments for wealthy pensioners after the general election, saving £100m a year. The government is committed to keeping winter fuel payments for all pensioners until 2015 and until now, senior Conservatives have said very little about whether or not they would renew that pledge.
But Osborne suggested that a rethink was now under way, stressing that benefits for pensioners had to be "sustainable".
"On pensioner benefits, including the winter fuel allowance, we made a very clear promise about this parliament, and we believe in keeping our promises to the British people," Osborne said.
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Article Source : http://www.guardian.co.uk

Starbucks pays corporation tax in UK for first time in five years

Starbucks says customers 'should not have to wait for us to become profitable' before corporation tax is paid
Starbucks, one of the companies exhorted by the prime minister to "wake up and smell the coffee" over tax, has handed over £5m to HM Revenue and Customs – its first payment in five years.
But the cash has only gone some way towards assuaging critics, one of whom complained that companies should not be able to "pick and choose" how much tax they wanted to pay.
The coffee shop chain said on Sunday it had made the contribution to please its customers and would be paying a second £5m instalment in the last half of the year despite claiming the business overall continued to make a financial loss in Britain.
"Six months ago, we felt that our customers should not have to wait for us to become profitable before we started paying UK corporation tax," the company explained in a written statement.
"We listened to our customers in December and so decided to forgo certain deductions which would make us liable to pay £10m in corporation tax this year and a further £10m in 2014. We have now paid £5m and will pay the remaining £5m later this year," Starbucks added.
Starbucks has paid £5m corporation tax this year with a further £5m to come. It says it will pay another £10m in 2014  The move follows a barrage of criticism, including a comment from David Cameron at the World Economic Forum in Davos in January when he attacked low tax payers using the coffee reference – though not specifically naming Starbucks, Google or Amazon .
A spokeswoman for Starbucks declined to say how many customers it had lost following the high profile row which started with demonstrations outside some of the outlets by the campaign group, UK Uncut and ended with scorching criticism from parliament's public accounts committee.
Margaret Hodge, MP and chair of the PAC, said on Sunday she welcomed the first payment by Starbucks but added: "Companies should not be able to pick and choose how much tax they pay. We need a system which ensures that everybody pays a fair share of tax on the profits they gain from the economic activity they undertake."
The initial row followed revelations that Starbucks had paid £8.6m in corporation tax in its 15 years of trading in Britain, and nothing in the last three years despite overall sales of £3bn.
Amazon, which had book and CD sales in Britain of £3.35bn in 2011, only reported a "tax expense" of £1.8m while Google's British business paid £6m to the Treasury in 2011 on UK sales of £395m.
During a period of austerity, the issue has turned into a major political storm with the prime minister making tax avoidance one of the key issues at last week's G8 summit of leading economies at Lough Erne, Northern Ireland.
Campaigners claimed that various licensing and supply agreements with Dutch and Swiss arms of the Starbucks empire were being used to allow it to switch profits from Britain to other countries.
UK shops are able to buy their coffee from Switzerland at a 20% premium and yet the foreign business is charged corporation tax there of 12% compared with Britain's level of 25%.
Kris Engskov, managing director of Starbucks UK, responded last December by promising to pay £20m within two years.
Accounts filed by Starbucks UK with Companies House this week will show the British side of the business still not formally profitable. Starbucks is expected to close up to 30 of its shops around the country this year. A similar number were shut last year amid tough competition from Costa and other brands.
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Thursday, 30 May 2013

Government to end tax scheme as part of energy company crackdown

Government announce plans as chancellor accuses gas and electricity distributors of trying to game the tax system
Fresh attempts to crack down on alleged abuse by energy companies were underway last night with the UK government announcing plans to end a £900m "windfall" tax scheme, and a further inquiry into BP over possible fuel price fixing in Spain.
In the middle of a series of existing investigations into alleged petrol and gas price manipulation by regulators, the chancellor, George Osborne accused gas and electricity distributors of trying to game the tax system.
"It is completely unacceptable that utility companies think they can claim for huge amounts of money, that business customers have already covered the cost for. By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers."
The Exchequer claims that energy distributors have only recently started to try to claim "windfall" capital allowances for costs dating back decades. The draft legislation, introduced yesterday, will form part of the current Finance Bill but will be acted on by the tax authorities with immediate effect.
George Osborne believes, 'It is completely unacceptable that utility companies think they can claim for huge amounts of money'
It is only a matter of weeks since some of the big six companies such as RWE npower admitted to a House of Commons select committee that they had paid almost no tax and yet made huge profits from recent earnings. The energy companies claim that this is because they are investing billions of pounds on new power plants which can be legitimately "written off" against capital allowances.
But Osborne's move also coincided with Spanish competition authorities announcing they were investigating BP and two local firms, Repsol and Cepsa, for possible collusion in the raising of local fuel prices.
The local regulator, CNE, said it had been keeping a watch on the oil sector since witnessing a significant rise in power prices. The initial inquiry does not imply wrongdoing at this stage but if found guilty, BP and others could be fined 10% of total sales, CNE, explained. BP said it could not comment but is committed to helping the authorities with any inquiries.
The British oil company is already in the middle of a wider price manipulation investigation being undertaken by the European Commission through a series of dawn raids only two weeks ago.
The offices of two rival groups, Shell and Statoil of Norway, plus a price reporting agency, Platts, were also targeted by staff working for the competition authorities in Brussels.
The pressure on oil, gas and electricity companies has partly mounted over recent years as they have continued to make increasing profits through higher prices at a time when customers are being hit by recession.
But there is also increasing concern that the energy markets are not regulated toughly enough and are open to the kind of Libor- interest rate abuses for which the large banks have been fined hundreds of millions of pounds.
The gas and electricity market in Britain is dominated by big six companies such as Centrica, the owner of British Gas, SSE and Scottish Power many of which have been fined by the regulator, Ofgem, for mis-selling or other breaches of their license agreements.
Not all of the big six own the kind of distribution companies that have being tried to take advantage of the tax loophole being closed by the government. The Treasury declined to say which of them had been trying to claim extra allowances and some industry experts said they had been encouraged to do so by some of the big four accounting firms.
But the government was recently embarrassed when it was highlighted that the former head of RWE npower, Volker Beckers, since January was working as a non-executive director for HM Revenue and Customs.
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Article source : http://www.guardian.co.uk

Jaguar Land Rover reports record profits for 2012

Big sales increase to China sees revenue also hit all-time high

A near-50% increase in sales to China helped Jaguar Land Roverproduce record profits of £1.7bn last year, the Midlands-based, Indian-owned carmaker revealed on Wednesday.
There was even 20% sales growth in austerity-hit Britain, helped by the launch of new luxury Range Rover and Jaguar models, that drove up revenues to £15.8bn – another record.
"The positive result for the financial year demonstrates that we have strong demand for our great, solid product portfolio all around the world," said chief executive Ralf Speth. "During this period, Jaguar Land Rover unveiled major new products: the all-new all aluminium Range Rover and the Jaguar Sportbrake, the AWD XF and AWD XJ, and the stunning F-Type."
The strong results – also aided by lower raw material costs and a depreciation of the pound against some key currencies – was a boost to its parent group, Tata Motors, at a difficult time for the wider business. Tata recorded a 37% slump in net income to 39.45bn rupees (£466m) in the last quarter of the company's financial year to 31 March.
Jaguar Land Rover reported record profits of £1.7bn last year.
Jaguar Land Rover sold more than 77,000 vehicles in China – up 48% – over the 12-month period, with 72,000 staying in Britain, while 80,000 (up 18%) went to Europe, making the group one of Britain's largest exporters by value.
The company has now started to build a manufacturing plant in the east of China in combination with local carmaker, Chery Automobile, to serve what is already Jaguar Land Rover's biggest single market and avoid a 25% import tax. JLR is also looking at building a factory in Saudi Arabia.
The Warwickshire-based business, bought for £1.5bn in 2008, now accounts for more than three quarters of Tata Motors' group revenues at a time when the parent has been hit in its domestic market, India, by high interest rates and slowing economic growth.
"We see the external environment and overall economic scenario very, very challenging and [it] will remain stressed," said C Ramakrishnan, Tata Motors' chief financial officer, adding that this would have an impact on demand for its products.
But the mood in Warwickshire is upbeat. Speth said: "Jaguar Land Rover invested significantly in the product creation process, in our advanced manufacturing sites and created more than 3,000 jobs. This commitment is set to continue with a sustained programme of investment which will see us spend in the region of £2.75bn on new product, people and infrastructure in the year to March 2014."
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Article source : http://www.guardian.co.uk