Aurelia Butler

Investing.com — Amazon (NASDAQ:AMZN) could be inching its way toward a breakup, if talk from an activist investor is to be believed. That’s still a long way in the future though. In the meantime, the e-commerce giant has patched up its quarrel with Visa (NYSE:V) over interconnection fees. Walmart (NYSE:WMT) earnings are due, a day after a solid retail sales report for January and the latest Fed minutes reinforced fears of higher interest rates. Data on jobless claims and housing starts are the big economic news. Russian-backed separatists in eastern Ukraine keep the region on tenterhooks, but oil drifts downwards after signs of demand destruction from high prices in the U.S.  Here’s what you need to know in financial markets on Thursday, 17th February.1. Amazon nudged in the direction of breakup?Amazon may be on the verge of being pushed into breaking itself up. That at least is the ultimate logical conclusion of comments by activist investor Dan Loeb, who reportedly told a call with clients that he sees another trillion dollars of untapped value in the company.The opportunity comes from the fact that Amazon’s underlying businesses have radically different profitability profiles. In the last quarter, Amazon made effectively all of its money from hosting Cloud services and advertising. Its e-commerce business, by contrast, operated at a loss owing to rising cost pressures in the U.S. and remains as far as ever from making a profit outside the country.Amazon was also in the news overnight for patching up its quarrel with Visa over card fees. The truce means that Amazon customers will continue to be able to use Visa cards in the U.K. and that other surcharges imposed in Australia and Singapore, introduced last year, will be dropped.Amazon’s Big Tech rivals Alphabet (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:FB) will also be in the spotlight later after Google said it will stop cross-app tracking, another blow to the ability of Facebook and other social media networks to sell targeted ads.2. Jobless claims and housing startsThe weekly update from the labor market comes at 8:30 AM ET, with analysts looking for initial jobless claims to stay in their recent range of just over 200,000.  The numbers come at the same time as January data for housing starts and building permits, which are expected to ease off only slightly from December’s levels. Housing starts haven’t sustained the current level of activity since the subprime boom in 2006, but have so far resisted pressure from rising mortgage rates.The Philly Fed business survey is the other main data point of the day.3. Stocks set to open lower; Walmart earnings eyedU.S. stock markets are set to open lower after the publication of the Federal Reserve’s latest policy meeting minutes offered a sharp reminder of the pressure on the central bank to raise interest rates and sell down its holdings of bonds.By 6:15 AM ET, Dow Jones futures were down 174 points, or 0.5%, while S&P 500 futures were down by a comparable amount and Nasdaq 100 Futures were down 0.7%.The day’s big corporate news will be Walmart earnings, due for early release, which come a day after official retail sales data for January showed a sharp rebound in spending. The outlook for consumption from the U.S.’s biggest brick-and-mortar retailer will offer a perspective that official data – struggling with distortions to the usual seasonal adjustment process – may not capture.Also in focus will be Nvidia (NASDAQ:NVDA), which is marked down in premarket after issuing guidance that wasn’t as explosively optimistic as many expected, and DoorDash (NYSE:DASH), whose record revenue in the last quarter defied fears that the reopening of physical restaurants would hit its business.4. Ukraine tensions continue to bubble as separatists reportedly fire over the borderTensions on the Ukrainian border continue to bubble, as Kyiv and NATO repeat that there has been no meaningful withdrawal of Russian troops from advanced positions that could be used as a springboard for invasion.Local media reported that Russian-backed separatists in eastern Ukraine fired artillery at targets in the government-held village of Stanytsia Luhanska, and that government forces refused to fire back, fearful of creating a provocation that would create a pretext for a Russian invasion.European natural gas futures rose as much as 8% in early trading but retraced to be up around 5% by midday. The Russian ruble, meanwhile, fell around 1% against the dollar.5. Crude retreats further after U.S. inventory riseCrude oil prices fell back towards $91 a barrel, as signs of slackening demand in the U.S. added to the factors that are making further gains difficult at such elevated levels.The Energy Information Administration had said on Wednesday that U.S. crude stocks had risen by 1.1 million barrels last week, in contrast to the American Petroleum Institute’s assessment of a modest decline. Gasoline inventories, however, looked tighter, falling by 1.3 million barrels.By 6:25 AM ET, U.S. Crude futures were down 2.4% at $91.42 a barrel, while Brent crude was down 2.1% at $92.77 a barrel. More

The Monetary Policy Committee held its one-week repo rate at 14% as forecast by all 22 analysts surveyed by Bloomberg. Turkish inflation climbed to 48.7% last month, pushing the nation’s yield when adjusted for inflation to almost -35%, the lowest by far among emerging market peers.The lira was little changed and trading 0.2% lower at 13.6230 per dollar at 2:01 p.m. local time.Turkey’s aggressive rate cuts in late 2021 fueled a collapse in the lira, leaving the nation more exposed than peers to recent global price shocks. Erdogan is prioritizing growth at a time many emerging market peers are tightening monetary policy to counter price gains, reasoning — in a departure from economic orthodoxy — that higher borrowing costs fuel inflation.Boxed in by Erdogan’s demands, authorities have switched their focus away from rates. The central bank introduced incentives for a new savings scheme to stabilize the currency, while the government slashed value-added tax on staple foods in an effort to curb price gains. Treasury and Finance Minister Nureddin Nebati has predicted inflation will gradually slow this year as the economy attracts more dollar inflows from tourism over the summer. Inflation expectations for the end of the year jumped to 34.06% from 29.75%, according to the central bank’s February survey of market participants.Rising living costs are already sapping Erdogan’s political support ahead of 2023 national elections.The central bank’s steps to protect lira deposits and the government’s tax cuts aren’t sufficient to fight inflation, Deutsche Bank economist Fatih Akcelik said before the rate decision. “We maintain our view that the markets will force the central bank to hike its policy rate at some point this year,” he said.Turkey’s Statistical Institute will publish gross domestic product data for the fourth quarter of 2021 and the full year on Feb. 28. It will publish February inflation data on March 3.©2022 Bloomberg L.P. More

Low middle-income and middle income countries do not have enough resources and need global support to face these challenges, Indian Finance Minister Nirmala Sitharaman told her G20 counterparts hosted at a virtual meeting by Indonesia.G20 members should work together to address the gaps in global pandemic preparedness, which were raising “serious concern”, Sitharaman said.She said the World Health Organisation (WHO) needed to augment its capacity and mobilise global resources, and structural bottlenecks would have to be addressed to lessen the impact a pandemic might have. Earlier on Thursday, U.S. Treasury Secretary Janet Yellen urged G20 members to back a proposed fund to invest in pandemic prevention and preparedness, warning that failure to close gaps in global health systems could result in “devastating” costs.Yellen told finance ministers and central bankers from the world’s 20 top economies that the new financial intermediary fund – to be hosted at the World Bank – would help channel the estimated $75 billion in investments needed to reduce global vulnerabilities to future pandemics. More

DUBAI (Reuters) – The United Arab Emirates’ plans for a corporate tax risk eroding one of its main attractions as the Gulf’s premier destination for foreign firms, at a time when Saudi Arabia is opening up and pressuring multinationals to shift regional headquarters there.As the UAE aligns itself more with the global economy, Saudi Arabia is using its clout as the world’s top oil exporter and biggest Arab economy to vie for capital, giving firms until 2024 to set up regional bases in Riyadh or lose out on lucrative contracts.The standard UAE corporate tax rate of 9%, to be imposed from mid-2023, is below the 20% Saudi levy on foreign-owned firms. But tax experts said large multinationals are likely to pay 15%, in accordance with an OECD agreement on global minimum tax to which the UAE is a signatory.”There will be a different rate for large multinational organisations. We expect this to be 15%,” Tatyana Rahmonova, international tax senior manager at accounting and consulting firm PwC Middle East, said in a presentation this month.Freewheeling UAE, the region’s commercial hub and a magnet for the global ultra-rich, is taking tax cooperation and the tackling of illicit finance more seriously, but still retains much of its tax-free system, including within free zones.Saudi Arabia also imposes a 20% capital gains tax on non-residents on disposal of Saudi shares while the UAE has none, and Riyadh has tripled value-added tax to 15% versus 5% in the UAE.But other incentives offered by the two Arab economic powers to lure foreign firms and talent are also now a factor.The UAE advantage is narrowing in the face of opportunities offered by the opening up of Saudi Arabia, where the crown prince is pushing to wean the kingdom off oil revenues and challenging the UAE to be the region’s commercial, logistics and tourism centre with ambitious mega-projects.SAUDI RISINGAlex Nicholls of AstroLabs, which advises companies on setting up Saudi offices, said the tax differential between the two Gulf states would be less of a factor for foreign companies than the looming risk from the Saudi state to future contracts. “From last year the majority of our clients, who had clients in Saudi Arabia, have been told that ‘we will only work with you if you have a commercially registered company in Saudi Arabia’,” he said.As of last year, Saudi Arabia had licensed 44 international companies to set up regional headquarters in Riyadh and the city’s royal commission said last year it had identified 7,000 global companies that it wanted to target.”Saudi is being more assertive in terms of requiring corporations to hold appropriate licences to do business in the kingdom,” said corporate lawyer Rima Mrad of BSA Ahmad Bin Hezeem & Associates. “A lot of corporations used to do Saudi work remotely and this no longer is acceptable.”Shane Shin, founding partner of Abu Dhabi-based venture capital firm Shorooq Partners, told Reuters start-ups were increasingly looking at Saudi Arabia for access to funding and government support, talent, infrastructure and market size.”Once you have established yourself in Saudi Arabia, and have obtained the SAGIA licence, you will be able to take advantage of government assistance in many ways,” he said.FIRST MOVERThe UAE is counting on it remaining a first mover as it evolves an economy built on open-for-business credentials and glitzy expatriate lifestyles, by pushing in directions where it may take time for conservative Saudi Arabia to follow.Last month, the UAE adopted a Saturday-Sunday weekend instead of the traditional Muslim Friday-Saturday to move closer to global markets. It has also overhauled regulations, including decriminalising alcohol consumption and pre-marital cohabitation. To cushion the blow from the new tax, Dubai said it would reduce government fees on commercial activities, a move trade sources say some of the UAE’s other six emirates may mimic.And the UAE has said it would honour corporate tax incentives offered at its more than 40 free zones to firms that do not conduct business with the mainland.Industry sources say the free zone mechanism under the new UAE regime will likely involve all firms filing returns but with no tax applied to those doing business solely overseas.Saudi Arabia plans to offer incentives for more specialised zones focused on priority sectors, expanding the incentives for existing economic cities that enjoy exemptions from import duties, ownership of land and property, and taxation. More

(Reuters) – Amid a strong U.S. housing market, low interest rates and unnervingly high inflation, the Federal Reserve has been adding to its bond portfolio even to this day, prompting calls to not just let the securities expire over time but to lay plans to begin selling them outright. It’s unlikely that any sales would be included at the start of the balance sheet “normalization” plans officials are expected to approve in the coming months, a process that will run alongside interest rate hikes aimed at becalming inflation.But if the fight against inflation doesn’t succeed fast enough, some Fed officials want a “Plan B” that would venture into new territory and use sales of mortgage-backed securities (MBS) to raise home mortgage rates, one of the key channels that the U.S. central bank can use to lower inflation because it holds down home prices and leaves less room in household budgets for other spending.Fed officials discussed the possibility of MBS sales at their Jan. 25-26 policy meeting, with “many participants” saying it might be appropriate “at some point in the future,” minutes from the meeting showed on Wednesday.Home borrowing costs are already rising rapidly, with the average contract rate on a 30-year fixed-rate mortgage popping above 4% this month for the first time since 2019, according to the Mortgage Bankers Association. Even before the Fed’s first rate hike – expected to come next month – or the first bond matures from its portfolio without replacement, that key consumer interest rate has surged a full percentage point in less than six months. Mortgage rates are climbing fast – https://graphics.reuters.com/USA-FED/jnvwelnwdvw/chart.png Still, the Fed’s $2.7 trillion MBS stockpile acts as an anchor on interest rates in that market, preventing them from being even higher, and some officials argue the central bank’s footprint may need to shrink faster than it would through natural “runoff.” That process, of securities rolling off the balance sheet as they mature, is particularly slow and unpredictable for MBS and may take longer when rates are rising. “I still keep that option open in scenarios where inflation is not moderating in the way we hoped and we are going to have to get a little tougher,” St. Louis Fed President James Bullard told Reuters at the start of February. And speaking on CNBC this week, Bullard said he supports starting the balance sheet reduction in the second quarter of this year through the passive approach and then using asset sales as a “Plan B” if needed to “speed up the pace.” DECIDING EXIT STRATEGYInvestors are keen to know how the Fed is going to unwind more than $8 trillion of MBS and Treasury securities – a portfolio that doubled during the coronavirus pandemic as the central bank snapped up the assets to stabilize markets and the economy.Bond purchases have long been a controversial aspect of monetary policy in part because of lingering questions around the exit strategy, with some critics arguing that selling securities when interest rates are rising can cause the central bank to lose money. Bond prices fall when interest rates are rising and vice versa. The Fed avoided bond sales when it last reduced the balance sheet between 2017 and 2019. Policymakers want to rely primarily on the runoff strategy this time around too, according to principles released last month. The first “QT” – https://graphics.reuters.com/USA-FED/BALANCESHEET/jnvwelojbvw/chart.png But some Fed officials and analysts say that passive approach could fall short. Bullard and Kansas City Fed President Esther George are among those who have pointed to high inflation as a concern. Sales may also be needed to help the Fed meet its goal of moving to a portfolio that is made up mostly of Treasury securities in the long run, Cleveland Fed President Loretta Mester recently said.Part of the issue lies with the Fed’s mortgage holdings, which are expected to move off its balance sheet more slowly than its Treasury holdings once the shrinkage of the portfolio is initiated. For example, about $2.5 trillion of the Fed’s Treasury holdings have short maturities and would come due in the next three years, according to an analysis by the fixed income team at the Schwab Center for Financial Research. But it’s difficult to know exactly how long it will take for the Fed’s mortgage holdings to roll off the balance sheet, analysts say. Portions of the securities are prepaid early as people sell their homes or refinance their loans, which leads them to pay their mortgages off ahead of the initial due date. And it typically takes time for MBS to roll off the balance sheet naturally. Between October 2017 and September 2017, the Fed capped the monthly reductions at $50 billion, but the actual decline was typically much less than that. Policymakers want to move faster this time, but are concerned the Fed’s mortgage holdings will prove “sticky,” particularly when mortgage rates are rising.That’s because fewer people refinance their mortgages when rates are going up, which slows the rate of loan prepayments, said Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research. In fact, that may already be happening. MBA’s data shows that refinancing application volumes are at a two-year low and their share of all mortgage applications is the lowest since July 2019.Fed officials are currently running the numbers on how long it could take for the mortgage holdings to run off the portfolio and no decisions have been made, Mester said. But the Fed may want to address the possibility of asset sales early on when it starts to provide guidance on its plans for the balance sheet, Jones said. “They’ll want to address the question in one way or another,” Jones said. The MBS rundown – https://graphics.reuters.com/USA-FED/BALANCESHEET/mopanyrykva/chart.png More

LONDON (Reuters) – More than seven out of 10 British exporters have found no benefit from the trade deal that Britain agreed with the European Union after Brexit, the British Chambers of Commerce said on Thursday.New trade rules took effect on Jan. 1, 2021, 11 months after Britain formally left the EU after almost 50 years of membership. British trade with the EU does not face tariffs, but there is extra paperwork for customs declarations and many services exports are restricted.Out of more than 1,000 businesses surveyed within the past month – which mostly had 250 staff or fewer – just 12% of exporters agreed that the new arrangements had helped them increase sales, while 71% disagreed.”Many of these companies have neither the time, staff or money to deal with the additional paperwork and rising costs involved with EU trade, nor can they afford to set up a new base in Europe or pay for intermediaries to represent them,” the BCC’s head of trade policy, William Bain, said.Britain’s official data shows that after a slump in exports to the EU in January 2021 when there were widespread delays at ports, exports are back around their previous level, while imports from the EU are some way below.Many economists say this is still a poor outcome, as global demand has boomed over the past year, with British exporters losing market share, and the overall reduction in trade with the EU will hamper Britain’s productivity in the long term.The BCC said key areas where it wanted changes included export health certificates for British-produced food, value-added tax registration for smaller online retailers and upcoming restrictions on electrical safety certification for imports. More

The last time UK inflation was as high as it is now the British pound was linked to the now-defunct Deutschmark. In the US, the rate of price growth is the highest since 1982, which economic historians see as roughly the end of the 1970s “Great Inflation”. Eurozone inflation, meanwhile, is the highest it has been in the currency bloc’s history — unsurprising, perhaps, given soaring natural gas prices and the spectre of an inflationary war in Europe. Only Asia seems immune from the pressures.It is clear that emergency stimulus is no longer required for economies with tight labour markets and high inflation. Yet central banks face hard choices over how fast and far to raise rates. Move too early and they risk choking off growth, while doing nothing to counter cost pressures that are more to do with Covid-related bottlenecks and geopolitical tensions. Move too late and an even more aggressive approach may be required to tame inflation. The worry for central bankers is a “wage-price spiral” as workers attempt to shield their take-home pay from the effects of higher prices. A tight labour market, fuelled by cheap money, could cause rising inflation to feed off itself. Workers, aware that vacancies are at a record high in many advanced economies, might sensibly try to ensure their pay packets keep pace with prices (though there are some questions about whether workers in modern, deregulated labour markets have the clout to negotiate wage rises that keep up with inflation). Any wage gains, however, would be illusory and quickly fade as they, in turn, sparked higher inflation.Combating a wage-price spiral moves central banks into controversial territory. Andrew Bailey, the governor of the Bank of England, attracted a widespread backlash for comments that workers should exercise pay restraint. One tabloid went so far as to label him the “Plank of England” on its front page along with a reference to his high salary. But while Bailey’s words were clumsy, it is the job of a central banker to play “bad cop” when required. Unelected technocrats do not need to be liked. A bigger concern than the public relations issue is that tightening too fast will bring about the very situation central bankers wish to combat. Since the 1980s, some economists have argued that, in the long run, monetary stimulus can only lead to inflation, not real income growth — necessitating that central bankers should be conservative and, in the interests of workers as well as everyone else, overly sensitive to the inflationary risks from rising labour costs. A growing contingent of economists, however, argue it is precisely this conservatism that has led to multiple decades of meagre wage growth. Focusing excessively on inflation can lead to a permanent loss of economic output and productivity, scarring the economy. In the US, the pattern of higher nominal wage growth — especially for lower income households — could end. Not only could this be bad for workers, it would also cut off the demand necessary to convince businesses to invest more. To top it off, the supply problems that led to inflation in the first place may remain.These are the most difficult monetary policy decisions central bankers have faced since the early 1980s. That makes effective communication, and avoiding Bailey’s “foot-in-mouth” comments, vital. Workers, just as much as companies, are right to act in their own interests and pursue the best deals they can. Central bankers, however, must make it clear that monetary policy will tighten and they will always pursue a 2 per cent norm for inflation; workers should similarly expect central banks to do their best too. More

(Reuters) – U.S. President Joe Biden will visit Ohio on Thursday to tout $1 billion in funding from the bipartisan infrastructure bill signed last November aimed at cleaning up and restoring environmentally damaged areas in the Great Lakes region.The trip is part of the White House’s efforts to showcase the benefits of the infrastructure bill ahead of crucial midterm elections where the Democrats hope a results-oriented message will allow them to retain power in Washington. Biden is expected to visit the Ohio cities of Cleveland and Lorain. In Lorain, which sits on Lake Erie, Biden will provide more details on how the funding will help remove toxic sediment and restore habitats in the Great Lakes region, a senior administration official said. The $1 billion is the single largest federal investment in Great Lakes restoration efforts.”This level of progress would have been inconceivable just a few years ago,” the official said. The administration believes the funding will help accelerate completion of clean ups in federally-designated “Areas of Concern,” or AOCs, which were damaged by decades of manufacturing and agricultural interests. It now expects 22 of the remaining 25 AOCs to come off the federal list by 2030.The infrastructure package will also provide $10 billion in highway funding for Ohio, plus more than $33 billion in competitive grant funding for highway and other transportation projects. It also provides $60 billion for state and local governments to fund major projects.This will be Biden’s second trip to northeast Ohio in less than a year. The state is home to several important elections this year, including a governor’s race and a closely-watched U.S. Senate race to fill the seat of retiring Republican Rob Portman. More