Aurelia Butler

WASHINGTON (Reuters) – U.S. House Republicans and Democrats showed no sign of surrendering their partisan positions after a briefing on the nation’s $31 trillion debt on Wednesday, the day before President Joe Biden is due to unveil his 2024 spending plan.Biden said his proposal will cut the nation’s deficit by nearly $3 trillion over 10 years, though it relies on tax increases to do so while Republicans are pushing for sharp cuts to domestic spending.The closed-door meeting for House of Representatives members was meant to establish a common set of facts for the debate from the director of the nonpartisan Congressional Budget Office, Phillip Swagel, who has warned that the federal debt will surpass the size of the U.S. economy within the next decade if no steps are taken.”It’s important for members of both parties to get the information and be able to process it together,” said Republican Representative Mike Lawler. “We’re not always going to agree, obviously. But frankly, I think that’s part of the problem in Washington. There’s not enough opportunity to do these things together.”Republicans hold a majority in the House, while Biden’s fellow Democrats control the Senate.The CBO presentation laid out 17 options for reducing the deficit, several of which contained either new or higher taxes. Those with the biggest deficit-reducing potential were new consumption and payroll taxes, and new limits on tax deductions, each of which could cut the deficit by as much as $2.3 trillion-$3 trillion over a decade. Spending cuts would have significantly less impact, the CBO said, according to a copy of its presentation posted online.The White House said Biden’s budget plan is expected to extend the life of the Medicare healthcare plan for Americans age 65 and older, by raising the Medicare tax on those earning over $400,000. The budget plan would also raise taxes on billionaires.The Republican-led House Budget Committee is expected to follow up in coming weeks. It has been looking at $150 billion in cuts to nondefense discretionary programs for 2024 that would reset spending to fiscal 2022 levels and save $1.5 trillion over a decade by holding spending increases to an annual 1%.”It’s my hope that Republicans will release their budget sooner rather than later, so we can have a thoughtful discussion about alternatives,” the top House Democrat, Hakeem Jeffries, said as he emerged from the meeting.The emergence of the two budgets is seen as the starting gun for negotiations between Republican House Speaker Kevin McCarthy and Biden over spending for fiscal 2024, which begins on Oct. 1. But after hearing the CBO presentation, McCarthy ruled out new taxes as a way to address the U.S. fiscal position. “I do not believe that raising taxes is the answer,” McCarthy told reporters.”We could find common ground. It won’t be new taxes,” he said. “Raising taxes in a low-growth economy like this will only hurt us more and put us into recession.” The stakes of talks between Biden and McCarthy are elevated this year as the federal government is expected to hit the $31.4 trillion debt ceiling by summer. Failure to act by then could trigger a potentially disastrous default.McCarthy wants Biden to agree to spending cuts before his narrow Republican House majority would agree to raise the debt ceiling. Biden insists that Republicans must agree to a “clean” debt ceiling increase without a preliminary deal on spending.TRADING BLAMEEach party blames the other for the country’s fiscal position. Republicans say spending under Biden has added to the national debt, while Democrats point to tax cuts for businesses and wealthy individuals that were passed under former President Donald Trump and cost the budget $2 trillion in revenue.Biden and McCarthy last met over a month ago at the White House, and the speaker said he hoped Wednesday’s meeting with Democrats would spur the president to move forward on talks. Neither Biden’s proposal nor the one that House Budget Committee Chair Jodey Arrington is preparing would result in a balanced budget. In a blog post this week, Swagel said Congress could “nearly stabilize” the growth of federal debt by reducing deficits by an average of $500 billion a year for a decade-long savings of $5 trillion, a sum that dwarfs the combined 10-year savings proposed by Biden and Arrington.Overall, CBO projects that annual deficits will average $2 trillion between 2024 and 2033, approaching pandemic-era records by the end of the decade.”Republicans and Democrats alike know that we have to do something about the deficit,” said Democratic Representative Veronica Escobar. “The difference in approach is the issue here.” More

NEW YORK (Reuters) – Hedge funds are increasingly using more leverage to make wagers on the stock market this year, but they remain less inclined to bet on the market direction due to heightened macroeconomic uncertainties.Investors are focused on the economic picture as they try and assess the risk of upcoming recession as the U.S. Federal Reserve tries to bring inflation under control by hiking rates aggressively. On Wednesday, Federal Reserve’s chair Jerome Powell said future interest rates hikes could go higher than market participants anticipated to fight inflation. Hedge funds’ gross exposure, or the sum of long and short positions – bets shares will rise and fall – as a percentage of their assets under management, last week reached peak levels for the last one year according to Goldman Sachs (NYSE:GS)’ prime services weekly report.Gross exposure went up 2.5 percentage points for the period between Feb. 24 and Mar. 2, to 241% of assets, the report showed.However, their long wagers minus short ones, known as net exposure – a measure of directional risk appetite – is close to a year low of 66%, Goldman Sachs showed. This illustrates that portfolio managers have little bias on overall market direction. Hedge funds’ more market neutral approach comes as market participants are trying to guess how high interest rates will get, for how long and when inflation will show consistent signs of decline – and its impact on the stock market.Goldman Sachs, one of the biggest prime brokers, uses its clients’ database to capture trends. Although the report does not reflect the entire $4 trillion industry, other market participants have expressed a more cautious approach.Volatility has caught hedge funds off-guard. In the beginning of the year, an unexpected rally forced hedge funds betting against stocks to abandon those trades at the fastest pace since 2015. The S&P 500 went up roughly 9% at its peak in February 2, but trimmed gains to 4% now.”Investors are not in full risk-on mode,” said Eamon McCooey, head of prime services at Wells Fargo (NYSE:WFC), adding his clients’ dry powder are close to peak levels.Long-short hedge fund Anson Funds, with $1.5 billion in assets under management, is roughly neutral, with shorts and longs matching off, portfolio manager Moez Kassam said. He said the fund is keeping cash and unused limits higher than in previous years due to economic uncertainties.”Our macro view centers on inflation,” he said. “It will stay elevated longer than most expect.”Higher interest rates are also forcing investors to make until recently unthinkable calculations, said Rob Christian, chief investment officer at hedge fund solutions group K2 Advisors, which manages a fund of hedge funds, as cash may provide a good return.”Our hedge funds in general have been taking less risk,” he said. “Now two-year Treasury is a very attractive asset class relative to everything.” (This story has been corrected to fix Rob Christian’s position as chief investment officer, not co-head of research and investment management, in paragraph 12)   More

WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell on Wednesday reaffirmed his message of higher and potentially faster interest rate hikes, but emphasized that debate was still underway with a decision hinging on data to be issued before the U.S. central bank’s policy meeting in two weeks.”If – and I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told the U.S. House of Representatives Financial Services Committee in testimony that added a cautionary clause to the otherwise identical message he delivered to a Senate committee on Tuesday.He emphasized the point again in response to a question explicitly about the expected outcome of the March 21-22 meeting from Representative Patrick McHenry, the Republican chair of the committee.”We have not made any decision,” Powell said, but will be looking closely at upcoming jobs data on Friday and inflation data next week in deciding whether rate hikes need to shift back into a higher gear.As happened in the session on Tuesday, lawmakers pressed Powell about the impact Fed policy was having on the economy and whether officials were risking recession in the drive to temper price increases.Powell acknowledged once again that the Fed was wrong in initially thinking inflation was only the result of “transitory” factors that would ease on their own, and said he was surprised as well in how the labor market has behaved through the recovery from the COVID-19 pandemic.There have been “a bunch of firsts,” Powell said. “If we ever get this pitch again, we’ll know how to swing at it.”Asked if he would pause interest rate hikes to avoid a recession, Powell responded “I don’t do ‘yes or no’ on ‘will I pause interest rate hikes?’ That’s a serious question. I can’t tell you because I don’t know all the facts.”The Fed’s intense battle against inflation over the past year has reshaped financial markets, made home mortgages and other credit more costly, and aimed to cool the economy overall.As of the start of the year it seemed to be working, with Powell at a Feb. 1 news conference saying a “disinflationary process” had taken hold.Inflation data since then has been worse than expected, and revisions to prior months showed the Fed had made less progress than thought in returning inflation to its 2% target from current levels that are more than double that. As Powell delivered his opening remarks, new job openings data showed little progress on one measure the Fed has focused on, with employers still holding 1.9 jobs open for each unemployed person, well above pre-pandemic norms. Other aspects of the data, however, moved gradually in ways consistent with a softer job market. Overall openings dropped slightly, the rate at which workers were quitting continued a gradual decline, and the rate of layoffs increased.In a separate release on Wednesday, the Fed’s “Beige Book” report of anecdotal information about the economy showed the mixed picture developing on the ground, as some businesses reported freely passing along higher prices to consumers while others said they were starting to slice into profits to keep prices competitive.Diminished corporate profit margins are something Powell said in the hearings this week should help pull inflation down after they escalated during the era of pandemic shortages. BLUNT ASSESSMENTBut even if inflation has moderated from its high point last summer, it is not falling fast enough for the Fed’s liking. The Fed chief’s semi-annual testimony to Congress this week has again reset expectations of where the Fed is heading, with his blunt assessment that “the ultimate level of interest rates is likely to be higher than previously anticipated” because inflation is not falling as fast as it seemed just a few weeks ago.Rate futures markets now expect policymakers to approve a half-percentage-point rate hike at the upcoming meeting.Officials will also update projections on how high rates will ultimately need to be increased in order to squelch inflation. In their last set of projections, in mid-December, the median estimate of the high point of the Fed’s benchmark overnight interest rate was between 5.00% and 5.25%, versus the current 4.50%-4.75% range.Where that ends up remains to be seen, with Powell even offering some rationale for the benefits of slower rate hikes.After a year of rapid rate increases, the economy may still be adjusting, Powell said, an argument for allowing more data to accumulate.”We know that slowing down the pace of rate hikes this year is a way for us to see more of those effects,” Powell said. More

NEW YORK (Reuters) – Federal Reserve Chair Jerome Powell said this week inflation could fall if companies curbed their profits – but the biggest U.S. retailers and consumer products makers have reported one key measure of profitability hardly budging in recent years.Gross profit margins, watched closely by investors and measuring profits as a percentage of sales, have remained flat or slightly down at manufacturers and sellers of household basics like toilet paper and cereal.Companies such as Tide maker Procter & Gamble (NYSE:PG) Co and Walmart (NYSE:WMT) Inc have passed through once-in-a-generation levels of price hikes to try to keep this metric of financial health steady as they face sky-high costs.But Powell took aim at Corporate America this week, saying if companies and shareholders took less for themselves, inflation could fall and workers’ wages may continue to rise.Procter & Gamble’s profit margins rose through the pandemic, and then inched lower last year. Walmart’s margins have followed a similar pattern as it tries to keep prices low for consumers, and maintain traffic for its stores.Kroger (NYSE:KR) Co’s margins also rose sharply in the pandemic, as food prices have spiked. P&G, Kroger and Walmart did not immediately return requests for comment. P&G executives said at an industry conference last month that as inflation continues, it becomes harder to increase prices. Executives at Walmart said last month inflation in food and consumables has persisted, with food inflation higher than what they thought it would be.U.S. lawmakers such as Senator Elizabeth Warren and Representative David Cicilline have taken companies to task over price hikes on items shoppers buy every day.The situation is not unique to the United States, with data shared at a recent European Central Bank retreat showing companies there are profiting from high inflation.”Corporate profits and higher margins have been a key driver of inflation and as they start to ease we will see lower prices in real life,” said Rakeen Mabud, chief economist at progressive advocacy group Groundwork Collaborative. “What works going up, works coming down. If we see margins ease, companies bring prices down, we’ll see lower inflation.”Some manufacturers of household goods are easing price hikes. Ketchup maker Kraft Heinz (NASDAQ:KHC) Co, Clorox (NYSE:CLX) Co and PepsiCo Inc have indicated they are pressing pause on further raising prices.Clorox declined to comment, while Kraft Heinz and Pepsico (NASDAQ:PEP) did not immediately return a request for comment.P&G and Stouffer’s frozen meal maker Nestle SA (SIX:NESN) have said they are planning to continue increasing prices, even as shoppers are buying less and trimming their budgets. Nestle did not immediately return a request for comment.Former Federal Reserve Vice Chair Lael Brainard said in the fall that retail margins – a measure of the price chains charge for a product compared to what they paid for it – have risen “significantly more” than wages for the typical store associate. Lowering those margins could help reduce inflation pressures in consumer goods, she said. More

WASHINGTON (Reuters) -U.S. President Joe Biden and European Commission President Ursula von der Leyen are expected to agree on Friday to begin negotiations on ensuring free-trade agreement-like status for the European Union, two sources familiar with the plans said on Wednesday. The leaders are set to meet in Washington on Friday. Reuters reported last week that the United States and EU were working to make European minerals eligible for tax credits under the $430 billion U.S. Inflation Reduction Act (IRA), citing a senior EU official. That law requires rising percentages of battery minerals to come from the United States or a Free Trade Agreement (FTA) partner.A U.S. Treasury spokesperson said the department, which oversees the electric vehicle (EV) tax credits at the heart of the dispute, would evaluate any newly negotiated agreements to ensure they meet the critical minerals requirement of the tax credit during the rulemaking process.”Given the extremely high concentration of Chinese control over critical mineral extraction globally, strengthening our supply chains for critical minerals along with like-minded partners is vital for the growth of the clean energy economy,” the spokesperson said.Working with allies to reduce U.S. reliance on China for critical minerals would aid U.S. energy and economic security, the spokesperson added.Up to $3,750 per vehicle of the available tax credits relate to critical minerals for batteries, taking effect when the U.S. Treasury issues guidance, which is expected later this month.The EU, South Korea, Japan and other U.S. allies have harshly criticized the IRA’s provision requiring EVs to be assembled in North America to qualify for consumer EV tax credits.But the EU in December praised a U.S. Treasury Department decision to allow EVs leased by consumers to qualify for up to $7,500 in commercial clean vehicle tax credits. More

Peanuts have become China best-performing agricultural commodity as dry weather and Beijing’s policies have eaten into supplies, raising traders’ fears that demand from the world’s largest importer of the legume will push up international prices.China suffered a severe drought in key growing areas last year, while the government’s agricultural subsidy programme, which favours soyabeans, has led to a sharp drop in the country’s peanut acreage. Futures contracts traded on the Zhengzhou Commodity Exchange have risen about 10 per cent this year to just under Rmb11,000 ($1,582) a tonne. They are hovering just below a record high touched late last month, making them the country’s best-performing agricultural commodity so far in 2023.The rally in Chinese peanut prices comes as the global market remains tight, with drought having affected many of the main international exporters last year. Weather in Argentina, the leading exporter, has been erratic during the past few months, raising traders’ concerns about lower yields and smaller kernels, while heavy rains in Brazil have hampered harvesting, leading to analyst worries about quality issues, according to Mintec, the commodity data and analysis firm.China is the world’s largest peanut producer, mainly crushing it for oil, but it is also the leading importer of the commodity. This year it is expected to import 1.1mn tonnes of the groundnut, more than quadruple that of the EU, the second-largest market.Since China reopened at the start of the year, it has actively bought up supplies, said traders and analysts. “They are everywhere trying to buy peanuts,” said Martin Masopust, director at Netherlands-based trader Bohemia Nut. “China is the market driver. If they plant less peanuts because they lose acreage to soyabeans, then it will affect the world market.”Masopust said last year’s drought had helped exacerbate domestic supply shortages and was driving Chinese buyers to snap up supply across global markets ranging from Senegal to Sudan.Aidan Wright, senior nuts and dried fruit analyst at Mintec, said: “Chinese buyers have been securing peanut oil out of South America and buying up US farmer stock for crushing.” Analysts at the US Department of Agriculture had warned as early as November that “low prices, combined with unfavourably dry planting conditions in some regions, forced some farmers to forgo planting typically higher margin peanuts for other crops”, but added that “high losses are likely limited to a few regions”.Beijing has yet to announce official production figures for 2022, but Chinese media have begun sounding the alarm in recent months, warning that government subsidies encouraging farmers to raise corn and soyabeans, a rival oilseed, had pushed farmers to abandon peanut planting in pursuit of greater returns from other crops.Last month, the state-run Economic Daily reported that arable land used to cultivate peanuts in China shrank almost 19 per cent in 2022, a record fall, concluding that improvements “clearly remain to be made with regards to policies meant to ensure simultaneous growth in output capacity for cereals, soyabeans and other oils”. Chinese news and data provider Grain News has reported that industry estimates pointed to a fall of more than 23 per cent in China’s peanut production last year.Darin Friedrichs, a commodities analyst at Shanghai-based Sitonia Consulting, said China’s domestic peanut futures market, which launched just two years ago, was “just getting tossed around by government subsidies”. More

Moscow blames a “special state service” for the explosions that destroyed Nord Stream gas pipelines that link Russia to Europe, Kremlin spokesperson Dmitry Peskov told reporters on Thursday.He said he did not believe a separate pro-Ukrainian group was responsible.“You see the simultaneous release of materials in different countries,” Peskov said. “The Anglo-Saxons are bustling: [the explosion] clearly made their relationship with Germany uncomfortable.”He added: “As for the pro-Ukrainian Doctor Evil: this is really hard to believe. Only a special state service, which are few, could have performed such a complicated task.”He warned that one should not be distracted by secondary hypotheses. “We demand a transparent international investigation Russia has access to.” As for Russia potentially being behind the attack, he said, “only an inflamed brain could come up with the idea that Russia, as one of the main project’s shareholders, would chop off its own leg”. More