Aurelia Butler

BUENOS AIRES (Reuters) – Argentina’s embattled currency could cost the ruling Peronist party an election – and its key majority in the Senate.The peso, on par with the U.S. dollar two decades ago, is now officially worth just one cent. Go to the popular local black market for dollars – which has flourished amid tight capital controls – and it’s worth just half that amount again.The center-left government of President Alberto Fernandez is facing likely defeat in Nov. 14 legislative elections, which could hobble the second half of his term and rock his Peronist coalition, already weakened by a bruising primary defeat.Driving voter anger, in part, are the woes of an increasingly schizophrenic peso, which is trading officially at 100 to the dollar but at 200 to the greenback in alternative markets, sparking devaluation fears and heating inflation.”Inflation and devaluation affect my daily life every time I buy something,” said Marina Smith, 42, a travel agent in Buenos Aires. “It even happens to me that I see the value of something and I no longer know if it is expensive or cheap.”The unsettled currency, along with the pandemic, has hit her professionally, with capital controls, taxes and devaluation making it more expensive for Argentine tourist traveling abroad. “When I vote, I’ll take these factors into account,” she said, though she did not specify who she would vote for.Argentina’s government is fighting spiraling inflation running at an annual rate of above 50%, which is exacerbated by fears of currency devaluation and the real-life higher cost of goods as traders use more expensive informal FX rates.That rate recently shot above the psychological barrier of 200 pesos per dollar, double the official rate. The gap appeared in late 2019 after a Peronist election win sparked a market crash and led to capital controls, and it has since widened. (GRAPHIC: Argentina’s peso rates – https://graphics.reuters.com/ARGENTINA-CURRENCY/nmovaxxxgpa/chart.png) “The problem with the exchange rate gap is that it generates a change in incentives, and also in expectations,” said Isaías Marini, economist at consultancy Econviews.”Now we have a gap above 100%,” he added. “And the expectation of a devaluation generated by this gap translates into an increase in prices.”Argentina’s Minister of Economy Martín Guzmán has publicly said the government will not allow an abrupt devaluation of the peso, though many traders remain skeptical in a country all too accustomed to wage-sapping inflation that governments through the years have failed to bring under control or even explain.”It has an enormous influence on the collapse of public opinion,” political analyst Jorge Giacobbe told Reuters, citing “galloping inflation.””The blow you will see from the people in this election is down to the fear that what is coming is even worse.” (GRAPHIC: Argentina: Runaway prices – https://graphics.reuters.com/ARGENTINA-INFLATION/nmovaxelypa/chart.png) ‘VOTE WITH THEIR POCKETS’In the wake of the heavy September primary election loss, the government has rolled out spending measures to bolster growth and put money in voter’s pockets. This has seen transfers from the central bank to the Treasury shoot up while foreign currency reserves have dwindled, made worse by Argentines flocking to the perceived safe haven of dollars despite the high prices and controls. (GRAPHIC: Leaking reserves – https://graphics.reuters.com/ARGENTINA-ECONOMY/CURRENCY/gkplgdxzjvb/chart.png) Pablo Tufarolo, 38, owner of a cellphone sales and repair shop in the capital, said that the impact of the foreign exchange rate was enormous and that his costs were tied to the rate at 200 pesos per dollar, which made paying salaries and rent tough.”The truth is I would like to vote blank or annul the vote,” he said, lamenting that no government had done anything to help the situation in the country.The government is also locked in tense negotiations with the International Monetary Fund to revamp $45 billion it owes but cannot repay, and any deal will need to be ratified in Congress.Raúl Olaciregui, a 57-year-old industrial worker in Buenos Aires province, said that people would “vote with their pockets.” The populous province, normally a Peronist stronghold, swung strongly toward the opposition in the primaries.”For a long time we have suffered with so much inflation and devaluation, every day everything increases more and what we earn is barely enough to make it to the end of the month, if it can be reached at all,” Olaciregui said. (GRAPHIC: Argentina’s 100-to-1 peso – https://graphics.reuters.com/ARGENTINA-ELECTION/ECONOMY/gdvzydqxxpw/chart.png) More

(Reuters) – When Elon Musk asked his Twitter (NYSE:TWTR) followers last weekend if he should sell 10% of his Tesla (NASDAQ:TSLA) Inc stock, he said he was posing the question because “much is made lately of unrealized gains being a means of tax avoidance.” Yet the timing of his upcoming stock sale could solve a major tax headache for himself and save Tesla billions of dollars from its own tax bill before congressional Democrats clamp down on such breaks and try to hike taxes for the super-wealthy, tax and corporate compensation experts said. Musk could time the proposed sale to coincide with a federal tax bill of nearly $11 billion that would be triggered by exercising a chunk of his Tesla stock options worth $26.6 billion as of Monday’s close. The options expire in August 2022 and Musk has said previously he does not keep much cash around, because his wealth is tied up in his 17% stake in Tesla. He could also borrow against Tesla shares to raise debt to pay the taxes on the options.The options were granted to Musk in 2012, the year Tesla first rolled out its Model S and built just 3,100 cars.Almost a decade later, Tesla is now the world’s most valuable car maker, with annual deliveries approaching 1 million vehicles and factories under construction across the globe. Musk would have to pay full income tax on the massive gain in the shares’ value, but could sell some without additional capital gains taxes.Tesla can also use the move to take a corresponding income tax deduction of more than $5 billion for the transfer of shares to Musk, taking advantage of a decades-old feature of corporate tax law, said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.This is a benefit that Tesla would risk losing if Musk waited much longer, because Democratic lawmakers have proposed a 15% corporate alternative minimum tax that would negate such deductions as part of President Joe Biden’s sweeping social and climate spending plan.”Musk gets the last laugh when Tesla takes a large deduction, which they may not get to take next year,” said Steve Rosenthal, a tax lawyer and senior fellow at the Urban-Brookings Tax Policy Center, a Washington think-tank.Musk and Tesla did not immediately respond to requests for comment.SELLING VERSUS BORROWINGTo receive the stock options, Musk had to hit performance targets, including a $4 billion increase in Tesla’s market capitalization and operational goals related to vehicle development. The gain on exercising the options would be taxed at the top rate of 37% plus an additional 3.8% surcharge for Medicare, tax experts said. California and Texas, where he now lives, would collect additional taxes.Brian Foley, an independent compensation expert, said Musk had two options to pay for the tax bill – sell stock or borrow against it. The second option is risky because Musk could find himself in the red were Tesla shares to lose value, he said.”If you have stock that has appreciated as much as his stock has, which is insanely appreciated, I think it makes sense to sell the shares,” Foley said.Musk did not make clear in his proposal why he would sell 10% of his shares. In one of his tweets last weekend, Musk alluded to his potential tax liabilities without referring specifically to the exercising of options. “Note, I do not take a cash salary or bonus from anywhere. I only have stock, thus the only way for me to pay taxes personally is to sell stock,” Musk wrote.MINIMUM TAX PUSH Tesla’s practice of using the exercising of options as a tax benefit has long been a feature of U.S. corporate tax law, which allows some large firms to reduce their tax liabilities to zero as they compensate executives heavily with stock. Biden has railed against big corporations paying little in taxes and has backed Democrats’ proposal for the 15% corporate minimum tax that excludes stock related deductions, which would curtail the abilities of companies to slash their tax bills. The minimum tax is a key revenue-raising measure in Biden’s “Build Back Better” bill that would help pay for universal pre-school, an expanded child tax credit and a host of green energy and electric vehicle tax breaks. The provision has been estimated to raise $319 billion in new revenue over 10 years.While the draft Build Back Better legislation shows the corporate minimum tax starting in the 2023 tax year, elements of the package have shifted rapidly in recent weeks to meet lawmakers’ demands. Democrats’ latest version of the bill does not contain a proposed tax on the unrealized investment gains of billionaires that Musk referred to in his tweet.This provision was dropped from the bill in favor of a 5% income tax surcharge on earnings of $10 million and an 8% surcharge on earnings above $25 million – a provision that also could ensnare Musk if it is enacted before his stock option gains are taxed at regular income tax rates. More

The ZEW economic research institute said its economic sentiment index increased to 31.7 from 22.3 points in October. A Reuters poll had forecast a fall to 20.0.”Financial market experts are more optimistic about the coming six months,” ZEW President Achim Wambach said in a statement.A fall in a current conditions index to 12.5 from 21.6 – compared with a consensus forecast for 18.0 – showed investors expected that supply bottlenecks and inflationary pressures would hold back the economy in the current quarter, he said.”For the first quarter of 2022, they expect growth to pick up again and inflation to fall both in Germany and the euro zone,” Wambach added.Supply bottlenecks for raw and preliminary materials have weighed down industrial production https://www.reuters.com/business/german-industrial-production-drops-september-supply-chain-shortages-2021-11-05 in Germany. Exports fell https://www.reuters.com/business/german-exports-fall-second-consecutive-month-september-2021-11-09 for a second consecutive month in September.German consumer goods group Henkel trimmed its full-year earnings outlook https://www.reuters.com/article/henkel-ag-results/update-1-henkel-takes-earnings-hit-from-raw-material-prices-idUSL8N2RZ0W6 on Monday, saying it could not fully compensate for a spike in raw materials prices.Infineon (OTC:IFNNY), which gets around 40% of its sales from the automotive sector, expects the supply of crucial semiconductors to remain tight well into next year, Chief Executive Reinhard Ploss said on Tuesday.Despite the bottlenecks, German retailers expect Christmas sales to rise https://www.reuters.com/business/retail-consumer/german-retailers-optimistic-about-christmas-sales-2021-11-08 2%, the HDE industry association said on Monday. More

Indonesia, the world’s eighth-biggest carbon emitter, has brought forward its goal for net zero emissions to 2060 or sooner and is looking to CCS to help realise the goal. Daniel Purba, Pertamina’s senior vice president of corporate strategy, said the CCS facilities were likely to be installed in two Pertamina oil and gas fields, namely the Gundih field in Cepu and the Sukowati field in Bojonegoro, in Central and East Java respectively.The provisional estimate for investment needs is around $500 million, excluding operating costs, he said. Pertamina would need to build a 4 km (2.49 miles) gas pipeline from Gundih to a reservoir where they would inject the carbon, and another 30 km gas pipeline from Sukowati, Purba added. This comes a week after Pertamina and American energy giant Exxon Mobil (NYSE:XOM) signed a memorandum of understanding (MoU) during the COP26 summit last week to look at ways of using CCS in Southeast Asia’s largest country. “Both projects are still in the study phase. .. It started before the MoU signing with Exxon,” Purba said. A spokesperson for Exxonmobil did not immediately respond to a request for comment. CCS traps emissions and buries them underground but is not yet at the commercialisation stage. CCS advocates see the technology as essential to help meet net zero emission goals and key to unlocking large-scale economic hydrogen production. Critics, however, say CCS will extend the life of dirty fossil fuels. More

When the Bank of England sprang a surprise last week by keeping interest rates on hold, the impact quickly spread beyond UK government bonds.The ensuing rally in the gilt market, as traders unwound their bets on UK rate rises, also jammed yields sharply lower on eurozone bonds and US Treasuries. The episode highlights how a clutch of smaller central banks — most notably the BoE, but also the Bank of Canada and Reserve Bank of Australia — have recently found themselves in the unusual position of dictating moves across the world’s biggest bond markets.“We’ve seen on a number of occasions now that these central banks that are usually on the fringes of global markets have been in the driving seat,” said Rabobank rates strategist Richard McGuire. “It’s definitely the tail wagging the dog.”Some investors attribute the unusual pattern to the perceived contrast between the Federal Reserve’s smoothly-telegraphed glide towards reducing its asset purchases or the European Central Bank’s consistent dovishness, and a series of screeching handbrake turns by smaller central banks. The BoE has been the main protagonist, jolting UK and global bond markets when it first hinted in September that interest rates could rise this year, further stoking expectations of rapid tightening with a series of public comments by policymakers, before dashing them last week by leaving rates on hold. Last month, the RBA caused a stir of its own by letting bond yields blow past its long-held target, while the BoC made waves by abruptly ditching its bond-buying programme.Even so, the spectacle of these relative central bank minnows calling the shots has provoked some head-scratching. As one US portfolio manager put it: “The Bank of England not hiking . . . as strange as it sounds, was a big catalyst [for the rally in Treasuries]. I say ‘strange’ with no offence to our British friends. But dude, you don’t matter that much. Why are you driving our market?”The answer, in part, lies in a common challenge faced by central bankers around the world: how to respond to a rapid surge in inflation without overreacting in a manner that chokes off the economic recovery. Given monetary policy across the developed world has for years moved largely in lockstep, Fed- and ECB-watchers are looking to smaller — and often nimbler — central banks for clues as to how the big beasts will respond to the dilemma.“Central banks have been in sync for so long that people can’t imagine anything else,” said Andrea Iannelli, investment director at Fidelity International. “Anyone who’s not aligned is not seen as an outlier, but as a canary in the coal mine.”Some of this “read-across” from the BoE to the other central banks has been exacerbated by investor positioning, Iannelli argues. That is because investors wrongfooted by moves in the UK used Treasuries as a proxy for gilts as they rushed to exit lossmaking positions. “You might not be able to do that in the size you need in the gilt market so you buy Bunds, you buy Treasuries, you buy whatever you can,” he said.The global nature of the government bond market, where investors regularly make relative assessments of the yields on offer in different economies, also means moves in one market tend to ricochet in to another.“If interest rates are going to be higher in other countries and some of these global investors can stay home and get yield, that will matter for [the US] market,” said Tom Graff, head of fixed income at Brown Advisory.But the role of investors’ positioning or relative value is limited by the mismatch in size of the economies and bond markets in question. With slightly less than £2tn of UK government bonds outstanding, the gilt market is little more than a tenth of the value of the Treasury market, IMF figures show. Australia and Canada’s bond markets are much smaller.Instead, it is the clues offered by shifts in these markets about the likely next steps for bigger central banks — chiefly the Fed — that have given them outsize significance.“The rates market has been driven by global monetary policy communication,” said Mark Cabana, head of US rates strategy at Bank of America. “The Bank of England in particular has had a big effect on the US rates market because the factors driving inflation are somewhat global in nature. And if central banks push back, that would have effects that were global in nature.”For now, that means the twists and turns of monetary policy in the UK, Canada and Australia are likely to be subject to unusual scrutiny. Seema Shah, a London-based investment strategist for US asset manager Principal Global Investors, said she has recently fielded a flurry of calls from US colleagues. “People suddenly wanted to find out about the BoE’s reaction function,” she said. “But there’s still this underlying disbelief. They were struggling to admit that this could have all started with the BoE.” More

The surge in inflation is leaving the world’s leading economies with their lowest real interest rates in decades, as central banks delay any abrupt tightening of the extra-loose monetary policy used to help weather the coronavirus crisis, arguing that the recent rise in prices is transitory. Real interest rates, which subtract inflation from central bank policy rates, reflect the real cost of borrowing and real return on savings. The combination of accelerating inflation in the US, eurozone and UK, and their central banks’ decision to remain patient when it comes to rate increases, effectively raises monetary stimulus despite these countries being close to recovering lost output from the crisis.Real interest rates “will remain at historically low levels for the next several years”, said Elena Duggar, managing director at the rating agency Moody’s.In the US, where nominal interest rates are near zero, real rates stand at around -5.3 per cent. They are at -3 per cent in the UK and -4.6 per cent in Germany, according to Financial Times analysis.Those remain highly stimulative interest rates, given that multiple studies suggest the neutral real interest rate — which neither deters nor encourages borrowers and investors — has fallen in developed economies to around zero today, from roughly 4 per cent in the 1980s.The last time real rates were as negative as today was in the 1970s, when rising energy prices pushed up inflation, studies show. Real interest rates also slumped in the wake of the 2008 financial crisis.Negative rates “keep financing conditions accommodative and should support credit growth, as it makes the cost of debt sustainable”, said Ana Boata, global head of economic research at Euler Hermes Group.This may help governments finance the massive debts they took on during the pandemic. However, as negative rates are stimulative in monetary policy terms, Boata warned that they could cause already richly valued financial markets to “become exceedingly unsustainable, causing concerns about financial stability risks”.The big exception is China, where real rates are already positive despite slowing growth. Last week, the Czech Republic and Poland joined countries such as Russia, Mexico and Brazil in raising interest rates aggressively. But higher inflation meant that real rates remained negative. However, as inflation is forecast to fall next year, real rates will turn positive — rising up to as much as 3.3 per cent in Brazil and 3 per cent in Russia — reflecting the perceived risk premium traditionally attached to investing in emerging markets.In developed economies, central banks are only slowly removing the massive stimulus put in place during the pandemic, even though economists have revised up their inflation forecasts recently on the back of supply chain problems and surging energy prices.Last week, US Federal Reserve chair Jay Powell said it was too early to raise interest rates. The Fed, which has begun reducing its bond-buying programme, said that US inflation — currently running at a 13-year high of 5.4 per cent — was due to factors “that are expected to be transitory”.Christine Lagarde, European Central Bank president, also pushed back on expectations that rates would rise next year despite inflation rising to a 13-year high of 4.1 per cent in October. She said the ECB, which had also slowed its pandemic bond-buying programme, expected inflation to fall next year.Similarly, the Bank of England last week backed away from an immediate increase in nominal rates from their historic low of 0.1 per cent, even though it predicted inflation would reach 5 per cent early next year before falling back.Yet even if inflation does retreat, real rates are expected to remain negative. Using consensus inflation forecasts for 2022, real rates are expected to stand at around -3.3 per cent in the US, -2.7 per cent in Germany and -3.2 per cent in the UK.Even for the central banks of Canada and Australia, which have signalled that they may raise rates soon, inflation of more than 3 per cent combined with a near zero level of interest means they also have negative real rates.“Real rates are going to be well below most estimates of neutral [rates] for the foreseeable future,” said Neil Shearing, chief economist at Capital Economics. More

SYDNEY (Reuters) -Bitcoin and ether made record peaks in Asia trade on Tuesday as enthusiasm for cryptocurrency adoption and fears about inflation leant support to the asset class.Bitcoin rose as high as $67,803 and ether, the second-biggest cryptocurrency by market value, hit $4,825 in early Asian hours.Both have more than doubled since June and added nearly 70% against the dollar since the start of October.”Crypto is where the fast money is at,” said Chris Weston, head of research at brokerage Pepperstone. “(Ether) is trending like a dream and I’d be long and strong here,” he added.”Clients are net long, with 79% of open positions held long, and I can sense the $5k party could get going soon.”Momentum has been gathering since last month’s launch of a futures-based bitcoin exchange-traded fund in the United States raised expectations of flow-driven gains.Bitcoin inflows totalled $95 million last week, representing the largest inflows of all digital assets, while inflows during an eight-week bull run for the cryptocurrency were $2.8 billion, the CoinShares data showed on Monday.In recent weeks, Australia’s biggest bank has also said it will offer crypto trading https://www.reuters.com/business/cop/australias-cba-leads-industry-offer-in-app-crypto-trading-2021-11-02 to retail customers, Singaporean authorities have sounded positive on the asset class and spillover from a positive mood in stocks has lent support.The moves have helped lift the total market capitalisation of cryptocurrencies above $3 trillion, according to crypto price and data aggregator CoinGecko.On the CoinMarketCap platform, which tracks 13,796 cryptocurrencies, the total cryptocurrency market capitalisation was just below $3 trillion at $2.92 trillion. More

Participants at the meeting, which took place on Monday, included China Vanke, Kaisa Group, Ping An Bank, China Citic Bank, China Construction Bank (OTC:CICHF) and CR Trust, according to the source. Investors are concerned about a broadening liquidity crisis in China’s property sector, with a string of offshore debt defaults, credit rating downgrades and sell-offs in some developers’ shares and bonds in recent weeks. More