US stock futures plunge as Fed prepares for slump

n this Aug. 26, 2011 photo, a trader works on the floor of the New York Stock Exchange. The U.S. Federal Reserve's tacit acknowledgment that America's economic slowdown is likely to persist for quite a while sent global stock markets skidding Thursday, Sept. 22, 2011, as investors brushed off the central bank's efforts to spur growth and focused instead on its gloomy assessment. (AP Photo/Jin Lee)

Πηγή: AP

By FRANCESCA LEVY

Sep. 22 2011

NEW YORK (AP) -- Stock futures plummeted Thursday after the Federal Reserve indicated that the U.S. economic slump could last for years.

On Wednesday afternoon, the Fed announced a portfolio rebalancing designed to drive down interest rates on long-term government debt. The move was largely expected, but stock markets began a late-day slide that carried over to overseas markets on Thursday.

Analysts say the news troubled investors for two reasons: the Fed's statement offered a bleak assessment of the future of the U.S. economy, saying it sees "significant downside risks to the economic outlook" including volatility in overseas markets.

Secondly, the Fed also decided to purchase bonds that matured after 30 years, hoping to push down rates far into the future. That was at the far end of the bank's expected range of Treasury purchases, and some investors think the bank might have maxed out its ability to have much of an impact on growth or interest rates.

The government reported Thursday that fewer people filed new claims for unemployment benefits last week. Still, the number of applications remains high, at 423,000. The U.S. jobs crisis is one of the major economic challenges cited by the Fed.

An hour before the market opening, Dow Jones industrial average futures fell 234 points, or 2.1 percent, to 10,773. Standard & Poor's 500 index futures fell 27, or 2.4 percent, to 1,128. Nasdaq 100 futures fell 46, or 2 percent, to 2,199.

FedEx Corp. slipped 0.7 percent in premarket trading after it said that it would earn less in 2012 than it had expected. The company is seen as something of an economic indicator since demand for the global shipper's services tends to line up with how the economy is doing.

The next big round of corporate earnings reports doesn't start for several weeks, but many analysts expect big corporations won't be able to sustain the strong profits they have had for the last few quarters.

Concern that Greece won't be able to avoid defaulting on its debt has also fueled the market's slide. Greeks clogged city traffic and shut down airports to protest the latest round tax hikes and spending cuts that the government is proposing.

Greece must make deep budget cuts to meet targets set by international lenders. The spending goals are a prerequisite for getting an $11 billion installment of the rescue package the country received in 2010. Without the funds, the country will run out of money to pay its bills by next month.

Investors worry that this is another sign Greece won't qualify for bailout funds. A Greek default would have repercussions for larger European economies that are struggling with debt and could tighten lending in the global banking system. Many fear it could set off a chain reaction that would echo the credit crisis of 2008.

On Wednesday, stocks fell sharply in the last 45 minutes of trading. The Dow Jones industrial average lost 283.82 points, or 2.5 percent, and closed at 11,124.84. The Standard & Poor's 500 index fell 35.33, or 2.9 percent, to 1,166.76 The Nasdaq composite fell 52.05, or 2 percent, to 2,538.19.

London: City gears up to kill new finance tax

Battle lines are being drawn as the City of London prepares to resist European attempts to introduce new bank taxes.

Πηγή: The Bureau of Investigative Journalism
By Nick Mathiason

August 26th, 2011

Hostilities kicked off last week when Angela Merkel and Nicholas Sarkozy redoubled efforts to harmonise EU tax rates and levy a tiny financial transaction tax on financial trades of around 0.05%.

The French and German leaders united in a twin track attempt to recoup the hundreds of billions of euros spent bailing out failed banks and the bankrupt national economies of Portugal, Ireland and Greece. They were also driven to reassert a semblance of authority over financial markets.

Death knell of the financial sector?

The City lobbying machine went into overdrive in a ferocious attempt to garner support from David Cameron’s government, against the proposals that they, rather dramatically, claim will kill the country’s financial sector.

The billions that would be skimmed off City profits into Treasury coffers by the banking levy amount to little more than loose change to a sector where $1.8 trillion is traded on a daily basis on London’s foreign exchange markets.

Buoyed by huge injections of public money into capital markets known as quantitative easing, banks and hedge funds have been making huge profits. They have feasted on currencies, commodities, sovereign debt and equities both in the two-year share rally after the economic crash of 2008 and in the recent sell-off thanks to the practice of shorting (borrowing shares, selling them and buying back after the price has fallen).

At the same time wider European and United States’ economies have flat-lined sparking high unemployment, high inflation and increased social unrest.

Bank tax is loose change

Against this backdrop, European politicians are increasingly emboldened to create a long-term banking tax by placing a small levy on each individual transaction on financial markets.

France and Germany are effectively attempting to claw back some of the cash governments were forced to hand over to prop up the world’s economy after footloose, lightly regulated financiers brought it to near collapse.

The City of London has the most to lose with 36.7% of all global currency transactions – the first trading area likely to be taxed under the new proposals – taking place in the Square Mile.

A micro-tax on all currency could be worth as much as £20bn.

While seemingly large, however, the billions that would be skimmed off City profits into Treasury coffers, amount to little more than loose change, to a sector where $1.8 trillion is traded on a daily basis just on London’s Forex markets.

The Square Mile Money Machine

The Bank for International Settlements (BIS) last year stated the total turnover on foreign exchange markets worldwide has now reached $4 trillion a day.

Forex trading in the UK is $1.8 trillion which is 36.7% of global market share. The UK’s market share is more than double the United States in second place.

The London Stock Exchange is the fourth largest domestic equity market capitalised exchange in the world.

London is the most active Eurobonds trading centre. New notes issued in London last year totalled £416.6bn.

BIS data shows that the UK is the leading financial derivatives market. Of the entire $2.7tn global daily turnover, $1.23tn is traded in the UK every day equivalent to a 45.8% market share.


‘Economic suicide’

Yet City big shots have come out in force against the Franco-German proposals arguing that any tax on banking would destroy London’s pre-eminence and undermine mainstream businesses.

Last weekend Michael Spencer, a former Conservative Party treasurer and one of the most influential figures in the Square Mile, in an interview with the Independent on Sunday stated: ‘It would be economic suicide if the UK agreed to this tax.’

‘It would be economic suicide if the UK agreed to this tax.’
Michael Spencer, former Conservative party treasurer

It did not go un-noted that Spencer also, effectively, called on the loyal support of his old friends in government. ‘I know that David Cameron and George Osborne will not fall for this as it will destroy the City of London,’ he added.

Spencer may be basing his confidence on the tens of millions of pounds donated by his City comrades to the Tory party. Earlier this year, the Bureau revealed that in the five years since Cameron became leader, City lucre has poured into Conservative headquarters going from 25% of all the party’s funds to 50.8% in 2010.

Spencer’s observation was followed the next day by Simon Lewis, chief executive of the Association for Financial Markets in Europe, a lobby group representing the world’s biggest banks.

The rich get richer

Writing in the Daily Mail, Lewis argued the idea of a financial transaction tax has been around for 40 years and ‘with good reason, the proposal has never been taken up’.

Since the crash there has been little meaningful reform on bankers’ pay, tax abuse and transparency in markets, despite wide public desire that the City should be made to pay for some of the mess western economies are now in.

And while many economies hang in the balance, profits in many financial sectors are back up to pre-crash levels and bankers’ pay is back in the stratosphere.

But the City lobby is powerful. And with Spencer effectively challenging the Conservative party to stay loyal to its City paymasters and side against the European proposals, Merkel and Sarkozy are going to need great powers of persuasion to force the EU financial tax agenda beyond the Eurozone and into London’s markets.