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Markets News Tuesday: Wall Street Journal says Obama shelves plans to raise $200 billion in new taxes on multinationals; UK inflation dips to 5-year low
By Finfacts Team
Oct 13, 2009 - 11:29:09 AM
President Obama jokes with Sam Palmisano, CEO, IBM in the White House, Jan 28, 2009. David Cote, CEO, Honeywell is on right of picture.
The Wall Street Journal says the Obama administration has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses.
A contingent of Silicon Valley chief executives, for example, traveled to Washington in late September to speak out against the proposal to change how the federal government taxes overseas profits. They came away from meetings with key congressmen relieved.
Obama aides say the administration has set the idea aside for now, but may return to it as part of a broader tax overhaul sometime next year. The White House had billed the proposed change as an overdue fix to the tax code and potentially a key revenue-raiser.
Stable gas and electricity bills bring down UK CPI
UK CPI annual inflation - - the government’s target measure - - was 1.1% in September, down from 1.6% cent in August and a 5-year low, today’s consumer price indices from the Office for National Statistics show.
By far the largest downward pressure affecting the change in the CPI annual rate came from housing and household services. This was principally due to average gas and electricity bills, which were unchanged between August and September this year but rose a year ago when some of the major suppliers increased their tariffs.
Goodbody chief economist Dermot O'Leary comments: Economic View; UK recovery still has legs - -"According to the latest pieces of data released overnight, the recovery in the UK economy has some life in it yet. Firstly, although we are entering easier comparatives given the collapse spending at the end of last year, UK consumer spending continues to hold well. In recent results from UK retailers, it has been stated that confidence is returning to the UK consumer, and this is backed up by both the data from the BRC and comments from the industry overnight. In September, the value of sales rose by 4.9% yoy (+2.2% yoy in August), while sales in stores open at least a year experienced a 2.8% increase in sales (-0.1% yoy in August).
The other indicator released overnight was the RICS survey, where the headline index continued its ascent. In September, the index climbed to +22 (from +10 in August), its highest level since April 2007. Within this there are a few points to make. Firstly, the regional split between the South and North continues to be evident in the figures, with the index for the South-East increasing to +52, whereas the North only rose to +3. Secondly, the recent increase in prices is mainly stemming from lack of supply of properties rather than an increase in demand. This is highlighted by the fact that the new buyer enquiries index actually fell for the third consecutive month in September, while we have seen mortgage approvals stall recently after bouncing significantly from the trough earlier in the year. Nevertheless, rising house prices will certainly help with easing some of the stresses in the banking system and will also cushion the blow from the negative wealth effect that UK home-owners have had to endure over the past two years."
Goodbody's Marina Houghton comments: UK commercial property yields harden further to 7.2% - - "Further evidence of improving trends in the UK commercial property market emerged yesterday afternoon, with the publication of CBRE’s quarterly UK Prime Rent and Yield Monitor for Q3 2009. The pace of decline in rents has eased, falling 1.4% qoq (versus a 4.4% drop qoq in Q2 2009 and a 12.3% decline yoy), whilst prime yields are now “falling quite sharply” with reductions across all the sub-sectors. Overall average yields now stand at 7.2% (versus 7.6% in Q2 and 7.8% in Q1), due to a limited availability of stock, alongside renewed investor demand, which saw transactions rise 28% qoq to £5.7bn in Q3 (up from £4.4bn in Q2). Approximately 60% of transactions in the quarter were accounted for by foreign investors, and were mainly concentrated in the Central London area. Nevertheless, the signs are positive across all the sub-sectors and reflect increasing market confidence in the commercial property market.
As we have previously indicated, the Irish commercial property market has historically lagged the UK market by some six to nine months, so we would see these initial signs of recovery as a positive. However, we continue to see downward pressure in the coming months on office rents in particular, due to the quantum of office space due to complete before the year end, which will add additional pressure on vacancy rates in the short to medium term. According to the latest bi-monthly report from the agent, New City Centre offices are now down to €430 per sqm (down 36% from the peak), whilst the overall vacancy rate for Dublin now stands at nearly 21% (although Dublin 2/4 is at a much lower 14%).
In terms of our forecasts for the banks, we currently have a 65% decline in values from peak to trough pencilled in overall for the Irish market (comprised of a 60% decline in investment, a 75% fall in commercial development and an 80% drop in residential development). These forecasts incorporate a 30% decline in rents for the market as a whole (including both new lettings and existing leases across all segments). We would expect to see further rental declines come through at the quoted headline level, which would bring rental levels in the market in general down in the range of 30% from the peak."
Davy analyst Robert Gardiner comments: RICS survey shows jump in house prices in September - - "The RICS net balance of surveyors reporting rising rather than falling house prices improved again in September, having turned positive in August for the first time since May 2007. The net balance came in at 21.5% versus the consensus estimate of 22%. As in August, improving sentiment in the sector is being driven by London where the net price balance improved sharply.
At the same time, future house price expectations among surveyors continues to rise. The net balance expecting an increase rather than a decrease in prices rose again in September to its highest level since January 2007. Price expectations rose across all regions with the exception of the North West. Not surprisingly, expectations in London increased the most of any region in September.
Average sales per surveyor rose moderately on the month to reach their highest level in 18 months. The regional trend threw up a few sharp swings with gains registered in the East, North and London and declines seen in the North West, Wales and the South East. The level of unsold stock per surveyor rose marginally to 63.7 from 63.5 in August.
New buyer enquiries continued to edge lower from the peak reached in June, driven by a sharp decline in the East. Enquiries in this region fell off a cliff in September and the region is now the only part of the country where enquiries are falling. New instructions to sell also eased lower although still remaining in positive territory. New instructions were sharply lower in the North West and West Midlands, two regions where demand has proved sporadic throughout the recent revival."
Some on Washington want to place government caps on compensation, with Mark Calabria, Cato Institute and Peter Morici, former ITC chief economist and now University of Maryland professor:
Forecasts look too light for US earnings season
Davy chief economist Rossa white comments:"The US Q3 earnings season really only gets going this week. Today sees the likes of Johnson & Johnson and Intel report, the latter after hours. We noted recently that nominal GDP will rise in Q3, possibly by 4-5% annualised. That is some sort of proxy for revenue growth. Keeping in mind the significant costs cuts in many sectors earlier this year, the potential is for better-than-expected margin uplift. The promising negative-to-positive pre-announcement ratio backs up the thesis that earnings forecasts are too low.
Yesterday's guidance from Black & Decker could prove a harbinger. It saw higher than anticipated sales: the net result was a more-than-doubling in its earnings guidance. Note that overall US consumer demand in Q3 rose at its fastest pace since at least Q4 2007. The market does not seem to be expecting much good news on revenue, but it is likely to be surprised.
Over the last ten days, earnings estimates have not really been revised, according to Thomson Reuters. The market now expects earnings to decline 24.6% year-on-year — 0.2 percentage points better than the estimate on October 2nd. Financials are still expected to see the biggest uplift from last year's depressed base. The market is looking for a gain of almost 60%, but the effect of the favourable yield curve has probably been underestimated. We will find out when JP Morgan, Citigroup, Goldman Sachs and Bank of America report later this week. Guidance remains favourable for the S&P 500: the negative-to-positive ratio is 1.6, well below the long-run average of 2.1."
US markets
US stocks notched new 52-week highs again on Monday and The Wall Street journal reports that starting with aluminum giant Alcoa Inc., which Thursday reported its first profitable quarter in a year, 78% of the 32 U.S. companies that have so far reported have beat analysts' expectations.
Dow was left up by just 20.86 points, or 0.2%, at 9885.80 after hitting a new 2009 intraday high of 9931.82.
The S&P 500 climbed 0.4% and the Nasdaq slipped 0.01%.
Asia
The MSCI Asia Pacific Index rose 0.3% Tuesday.
China’s passenger-car sales jumped 84% in September, boosted by government stimulus measures and an economic recovery.
Sales of cars, sport-utility vehicles and multipurpose vehicles rose to 1.015 million, the China Association of Automobile Manufacturers said today. A year earlier, sales fell 1.4 amidst the end of the Beijing Olympics and the global recession.
The Nikkei rose 0.6%; the Shanghai Composite gained 1.44%.
Gold is trading at $1,065.30 up $8.60 from Monday's spot price close in New York.
Gold continues to shine with the price of the precious metal up by more than $50 an ounce in the last week alone. But what has led to the surge in gold prices? CNBC's Louisa Bojesen investigates and Charlie Morris from HSBC Global Asset Management has analysis:
