ReportWire

Tag: Government policy

  • A federal judge has ordered a US minority business agency to serve all races

    A federal judge has ordered a US minority business agency to serve all races

    [ad_1]

    NEW YORK — A federal judge in Texas has ordered a 55-year-old U.S. agency that caters to minority-owned businesses to serve people regardless of race, siding with white business owners who claimed the program discriminated against them.

    The ruling was a significant victory for conservative activists waging a far-ranging legal battle against race-conscious workplace programs, bolstered by the Supreme Court’s ruling last June dismantling affirmative action programs in higher education.

    Advocates for minority-owned businesses slammed the ruling as a serious blow to efforts to level the playing field for Black, Hispanic and other minority business owners who face barriers in accessing financing and other resources.

    Judge Mark T. Pittman of the U.S. District Court of the Northern District of Texas, who was appointed by former President Donald Trump, ruled that the Minority Business Development Agency’s eligibility parameters violate the Fifth Amendment’s equal protection guarantees because they presume that racial minorities are inherently disadvantaged.

    The agency, which is part of the U.S. Commerce Department, was first established during the Nixon administration to address discrimination in the business world. The Biden administration widened its scope and reach through the Infrastructure Investment and Jobs Act in 2021, making it a permanent agency and increasing its funding to $550 million over five years.

    The agency, which helps minority-owned businesses obtain financing and government contracts, now operates in 33 states and Puerto Rico. According to its yearly reports, the agency helped businesses raise more than $1.2 billion in capital in fiscal year 2022, including more than $50 million for Black-owned enterprises, and more than $395 million for Hispanic-owned businesses.

    In a sharply worded, 93-page ruling, Pittman said that while the agency’s work may be intended to “alleviate opportunity gaps” faced by minority-owned businesses, “two wrongs don’t make a right. And the MBDA’s racial presumption is a wrong.”

    Pittman ruled that while the agency technically caters to any business that can show their “social or economic disadvantage,” white people and others not included in the “list of preferred races” must overcome a presumption that they are not disadvantaged. The agency, he said, has been using the “unconstitutional presumption” for “fifty-five years too many.”

    “Today the clock runs out,” Pittman wrote.

    Dan Lennington, deputy counsel at the conservative Wisconsin Institute for Law & Liberty, which filed the lawsuit, said called it “a historic” victory that could affect dozens of similar federal, local and state government programs, which also consider people of certain races inherently disadvantaged. He said the ruling will pave the way for his and other conservative groups to target those programs.

    “We just think that this decision is going to be applied far and wide to hundreds of programs using identical language,” Lennington said.

    Justice Department lawyers representing Minority Business Development Agency declined to comment on the ruling, which can be appealed to the conservative-leaning 5th U.S. Circuit of Appeals in New Orleans. In court filings, the Justice Department cited congressional research showing that minority business owners face systemic barriers, including being denied loans at a rate three times higher than nonminority firms, often receiving smaller loans and being charged higher interest rates.

    John F. Robinson, president of the National Minority Business Council, said the ruling is “a blow against minority owned businesses,” and does nothing to help majority-owned businesses because they already enjoy access to federal resources through the Small Business Administration.

    “It has the potential of damaging the whole minority business sector because there will be less service available to minority-owned businesses,” Robinson said.

    In a similar ruling last year, a Tennessee judge struck down a program run by the Small Business Administration that steered some government contracts toward minority-owned businesses.

    Several other lawsuits have targeted government and private sector programs designed to benefit minority-owned businesses, including the case against the Fearless Fund, an Atlanta-based organization that provides early-stage funding to businesses owned by women of color.

    Arian Simone, CEO of the Fearless Fund, criticized what she called dwindling corporate commitment to equity programs in the face of the growing legal challenges.

    “Practically every day there seems to be a new legal ruling that chips away at our attempt to close economic gaps that exist for people of color,” she said in a statement. “The inaction by those who claim to be committed to equity has created the vacuum for this to happen.”

    But Alphonso David, president & CEO of The Global Black Economic Forum, who is helping to represent the Fearless Fund, said the Texas ruling is not necessarily predictive of how those other cases will play out.

    He pointed to another ruling Wednesday in which a conservative group lost its attempt to reinstate a lawsuit against pharmaceutical giant Pfizer over a fellowship program for Black, Latino and Native American professionals.

    The New York-based 2nd U.S. Circuit Court of Appeals ruled Wednesday that the group, Do No Harm, lacked standing because it didn’t identify the plaintiffs by name. David said the Fearless Fund is making a similar argument against the American Alliance for Equal Rights, the conservative group that filed its lawsuit on behalf of anonymous women.

    Do No Harm Chairman Dr. Stanley Goldfarb said he was “disappointed by the Court’s decision” and would continue to pursue appeals.

    Pfizer did not immediately respond to requests for comment. The company, despite winning dismissal of the original lawsuit, changed the criteria of its fellowship program last year to open it to all races.

    DEI advocates celebrated a separate win on Tuesday when a Florida law that limits discussions on race and diversity in the workplace was ruled to be unconstitutiona l by a federal appeals court.

    “I think what we’re going to see over the next months — and years — is just a flurry of lawsuits from different directions, with conservative and liberal judges around the country reaching totally contradictory decisions to one another,” said David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion, and Belonging at New York University’s School of Law. “And that ultimately it’s going to have to wind its way back to the Supreme Court.”

    ___

    AP Race & Ethnicity reporter Graham Lee Brewer and AP Business Writer Haleluya Hadero contributed to this story.

    [ad_2]

    Source link

  • Phones are distracting students in class. More states are pressing schools to ban them

    Phones are distracting students in class. More states are pressing schools to ban them

    [ad_1]

    SAN FRANCISCO — In California, a high school teacher complains that students watch Netflix on their phones during class. In Maryland, a chemistry teacher says students use gambling apps to place bets during the school day.

    Around the country, educators say students routinely send Snapchat messages in class, listen to music and shop online, among countless other examples of how smartphones distract from teaching and learning.

    The hold that phones have on adolescents in America today is well-documented, but teachers say parents are often not aware to what extent students use them inside the classroom. And increasingly, educators and experts are speaking with one voice on the question of how to handle it: Ban phones during classes.

    “Students used to have an understanding that you aren’t supposed to be on your phone in class. Those days are gone,” said James Granger, who requires students in his science classes at a Los Angeles-area high school to place their phones in “a cellphone cubby” with numbered slots. “The only solution that works is to physically remove the cellphone from the student.”

    Most schools already have rules regulating student phone use, but they are enforced sporadically. A growing number of leaders at the state and federal levels have begun endorsing school cellphone bans and suggesting new ways to curb access to the devices.

    The latest state intervention came in Utah, where Gov. Spencer Cox, a Republican, last month urged all school districts and the state Board of Education to remove cellphones from classrooms. He cited studies that show learning improves, distractions are decreased and students are more likely to talk to each other if phones are taken away.

    “We just need a space for six or seven hours a day where kids are not tethered to these devices,” Cox told reporters this month. He said his initiative, which is not binding, is part of a legislative push to protect kids in Utah from the harms of social media.

    Last year, Florida became the first state to crack down on phones in school. A law that took effect in July requires all Florida public schools to ban student cellphone use during class time and block access to social media on district Wi-Fi. Some districts, including Orange County Public Schools, went further and banned phones the entire school day.

    Oklahoma, Vermont and Kansas have also recently introduced what is becoming known as “phone-free schools” legislation.

    And two U.S. senators — Tom Cotton, an Arkansas Republican, and Tim Kaine, a Virginia Democrat — introduced legislation in December that would require a federal study on the effects of cellphone use in schools on students’ mental health and academic performance. Theirs is one of several bipartisan alliances calling for stiffer rules for social media companies and greater online safety for kids.

    Nationally, 77% of U.S. schools say they prohibit cellphones at school for non-academic use, according to the National Center for Education Statistics.

    But that number is misleading. It does not mean students are following those bans or all those schools are enforcing them.

    Just ask teachers.

    “Cellphone use is out of control. By that, I mean that I cannot control it, even in my own classroom,” said Patrick Truman, who teaches at a Maryland high school that forbids student use of cellphones during class. It is up to each teacher to enforce the policy, so Truman bought a 36-slot caddy for storing student phones. Still, every day, students hide phones in their laps or under books as they play video games and check social media.

    Tired of being the phone police, he has come to a reluctant conclusion: “Students who are on their phones are at least quiet. They are not a behavior issue.”

    A study last year from Common Sense Media found that 97% of kids use their phones during school hours, and that kids say school cellphone policies vary — often from one classroom to another — and aren’t always enforced.

    For a school cellphone ban to work, educators and experts say the school administration must be the one to enforce it and not leave that task to teachers. The Phone-Free Schools Movement, an advocacy group formed last year by concerned mothers, says policies that allow students to keep phones in their backpacks, as many schools do, are ineffective.

    “If the bookbag is on the floor next to them, it’s buzzing and distracting, and they have the temptation to want to check it,” said Kim Whitman, a co-founder of the group, which advises schools to require phones be turned off and locked away all day.

    Some students say such policies take away their autonomy and cut off their main mode of communication with family and friends. Pushback also has come from parents who fear being cut off from their kids if there is a school emergency. Whitman advises schools to make exceptions for students with special educational and medical needs, and to inform parents on expert guidance that phones can be a dangerous distraction for students during an emergency.

    Jaden Willoughey, 14, shares the concern about being out of contact with his parents if there’s a crisis. But he also sees the upsides of turning in his phone at school.

    At Delta High School in rural Utah, where Jaden is a freshman, students are required to check their phones at the door when entering every class. Each of the school’s 30 or so classrooms has a cellphone storage unit that looks like an over-the-door shoe bag with three dozen smartphone-sized slots.

    “It helps you focus on your work, and it’s easier to pay attention in class,” Jaden said.

    A classmate, Mackenzie Stanworth, 14, said it would be hard to ignore her phone if it was within reach. It’s a relief, she said, to “take a break from the screen and the social life on your phone and actually talk to people in person.”

    It took a few years to tweak the cellphone policy and find a system that worked, said Jared Christensen, the school’s vice principal.

    “At first it was a battle. But it has been so worth it,” he said. “Students are more attentive and engaged during class time. Teachers are able to teach without competing with cellphones. And student learning has increased,” he said, citing test scores that are at or above state averages for the first time in years. “I can’t definitively say it’s because of this policy. But I know it’s helping.”

    The next battle will be against earbuds and smartwatches, he said. Even with phones stashed in pouches, students get caught listening to music on air pods hidden under their hair or hoodies. “We haven’t included earbuds in our policy yet. But we’re almost there.”

    ___

    AP Reporter Hannah Schoenbaum in Salt Lake City, Utah, contributed to this report.

    ___

    The Associated Press’ education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org.

    [ad_2]

    Source link

  • Nigeria’s currency has fallen to a record low as inflation surges. How did things get so bad?

    Nigeria’s currency has fallen to a record low as inflation surges. How did things get so bad?

    [ad_1]

    ABUJA, Nigeria — Nigerians are facing one of the West African nation’s worst economic crises in years triggered by surging inflation, the result of monetary policies that have pushed the currency to an all-time low against the dollar. The situation has provoked anger and protests across the country.

    The latest government statistics released Thursday showed the inflation rate in January rose to 29.9%, its highest since 1996, mainly driven by food and non-alcoholic beverages. Nigeria‘s currency, the naira, further plummeted to 1,524 to $1 on Friday, reflecting a 230% loss of value in the last year.

    “My family is now living one day at a time (and) trusting God,” said trader Idris Ahmed, whose sales at a clothing store in Nigeria’s capital of Abuja have declined from an average of $46 daily to $16.

    The plummeting currency worsens an already bad situation, further eroding incomes and savings. It squeezes millions of Nigerians already struggling with hardship due to government reforms including the removal of gas subsidies that resulted in gas prices tripling.

    With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy. Its gross domestic product is driven mainly by services such as information technology and banking, followed by manufacturing and processing businesses and then agriculture.

    The challenge is that the economy is far from sufficient for Nigeria’s booming population, relying heavily on imports to meet the daily needs of its citizens from cars to cutlery. So it is easily affected by external shocks such as the parallel foreign exchange market that determines the price of goods and services.

    Nigeria’s economy is heavily dependent on crude oil, its largest foreign exchange earner. When crude prices plunged in 2014, authorities used its scarce foreign reserves to try to stabilize the naira amid multiple exchange rates. The government also shut down the land borders to encourage local production and limited access to the dollar for importers of certain items.

    The measures, however, further destabilized the naira by facilitating a booming parallel market for the dollar. Crude oil sales that boost foreign exchange earnings have also dropped because of chronic theft and pipeline vandalism.

    Shortly after taking the reins of power in May last year, President Bola Tinubu took bold steps to fix the ailing economy and attract investors. He announced the end of costly decadeslong gas subsidies, which the government said were no longer sustainable. Meanwhile, the country’s multiple exchange rates were unified to allow market forces to determine the rate of the local naira against the dollar, which in effect devalued the currency.

    Analysts say there were no adequate measures to contain the shocks that were bound to come as a result of reforms including the provision of a subsidized transportation system and an immediate increase in wages.

    So the more than 200% increase in gas prices caused by the end of the gas subsidy started to have a knock-on effect on everything else, especially because locals rely heavily on gas-powered generators to light their households and run their businesses.

    Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to head to the black market, where the currency was trading at a much lower rate.

    There was also a huge backlog of accumulated foreign exchange demand on the official market — estimated to be $7 billion — due in part to limited dollar flows as foreign investments into Nigeria and the country’s sale of crude oil have declined.

    Authorities said a unified exchange rate would mean easier access to the dollar, thereby encouraging foreign investors and stabilizing the naira. But that has yet to happen because inflows have been poor. Instead, the naira has further weakened as it continues to depreciate against the dollar.

    CBN Gov. Olayemi Cardoso has said the bank has cleared $2.5 billion of the foreign exchange backlog out of the $7 billion that had been outstanding. The bank, however, found that $2.4 billion of that backlog were false claims that it would not clear, Cardoso said, leaving a balance of about $2.2 billion, which he said will be cleared “soon.”

    Tinubu, meanwhile, has directed the release of food items such as cereals from government reserves among other palliatives to help cushion the effect of the hardship. The government has also said it plans to set up a commodity board to help regulate the soaring prices of goods and services.

    On Thursday, the Nigerian leader met with state governors to deliberate on the economic crisis, part of which he blamed on the large-scale hoarding of food in some warehouses.

    “We must ensure that speculators, hoarders and rent seekers are not allowed to sabotage our efforts in ensuring the wide availability of food to all Nigerians,” Tinubu said.

    By Friday morning, local media were reporting that stores were being sealed for hoarding and charging unfair prices.

    The situation is at its worst in conflict zones in northern Nigeria, where farming communities are no longer able to cultivate what they eat as they are forced to flee violence. Pockets of protests have broken out in past weeks but security forces have been quick to impede them, even making arrests in some cases.

    In the economic hub of Lagos and other major cities, there are fewer cars and more legs on the roads as commuters are forced to trek to work. The prices of everything from food to household items increase daily.

    “Even to eat now is a problem,” said Ahmed in Abuja. “But what can we do?”

    [ad_2]

    Source link

  • Nigeria’s currency has fallen to a record low as inflation surges. How did things get so bad?

    Nigeria’s currency has fallen to a record low as inflation surges. How did things get so bad?

    [ad_1]

    ABUJA, Nigeria — Nigerians are facing one of the West African nation’s worst economic crises in years triggered by surging inflation, the result of monetary policies that have pushed the currency to an all-time low against the dollar. The situation has provoked anger and protests across the country.

    The latest government statistics released Thursday showed the inflation rate in January rose to 29.9%, its highest since 1996, mainly driven by food and non-alcoholic beverages. Nigeria‘s currency, the naira, further plummeted to 1,524 to $1 on Friday, reflecting a 230% loss of value in the last year.

    “My family is now living one day at a time (and) trusting God,” said trader Idris Ahmed, whose sales at a clothing store in Nigeria’s capital of Abuja have declined from an average of $46 daily to $16.

    The plummeting currency worsens an already bad situation, further eroding incomes and savings. It squeezes millions of Nigerians already struggling with hardship due to government reforms including the removal of gas subsidies that resulted in gas prices tripling.

    With a population of more than 210 million people, Nigeria is not just Africa’s most populous country but also the continent’s largest economy. Its gross domestic product is driven mainly by services such as information technology and banking, followed by manufacturing and processing businesses and then agriculture.

    The challenge is that the economy is far from sufficient for Nigeria’s booming population, relying heavily on imports to meet the daily needs of its citizens from cars to cutlery. So it is easily affected by external shocks such as the parallel foreign exchange market that determines the price of goods and services.

    Nigeria’s economy is heavily dependent on crude oil, its largest foreign exchange earner. When crude prices plunged in 2014, authorities used its scarce foreign reserves to try to stabilize the naira amid multiple exchange rates. The government also shut down the land borders to encourage local production and limited access to the dollar for importers of certain items.

    The measures, however, further destabilized the naira by facilitating a booming parallel market for the dollar. Crude oil sales that boost foreign exchange earnings have also dropped because of chronic theft and pipeline vandalism.

    Shortly after taking the reins of power in May last year, President Bola Tinubu took bold steps to fix the ailing economy and attract investors. He announced the end of costly decadeslong gas subsidies, which the government said were no longer sustainable. Meanwhile, the country’s multiple exchange rates were unified to allow market forces to determine the rate of the local naira against the dollar, which in effect devalued the currency.

    Analysts say there were no adequate measures to contain the shocks that were bound to come as a result of reforms including the provision of a subsidized transportation system and an immediate increase in wages.

    So the more than 200% increase in gas prices caused by the end of the gas subsidy started to have a knock-on effect on everything else, especially because locals rely heavily on gas-powered generators to light their households and run their businesses.

    Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to head to the black market, where the currency was trading at a much lower rate.

    There was also a huge backlog of accumulated foreign exchange demand on the official market — estimated to be $7 billion — due in part to limited dollar flows as foreign investments into Nigeria and the country’s sale of crude oil have declined.

    Authorities said a unified exchange rate would mean easier access to the dollar, thereby encouraging foreign investors and stabilizing the naira. But that has yet to happen because inflows have been poor. Instead, the naira has further weakened as it continues to depreciate against the dollar.

    CBN Gov. Olayemi Cardoso has said the bank has cleared $2.5 billion of the foreign exchange backlog out of the $7 billion that had been outstanding. The bank, however, found that $2.4 billion of that backlog were false claims that it would not clear, Cardoso said, leaving a balance of about $2.2 billion, which he said will be cleared “soon.”

    Tinubu, meanwhile, has directed the release of food items such as cereals from government reserves among other palliatives to help cushion the effect of the hardship. The government has also said it plans to set up a commodity board to help regulate the soaring prices of goods and services.

    On Thursday, the Nigerian leader met with state governors to deliberate on the economic crisis, part of which he blamed on the large-scale hoarding of food in some warehouses.

    “We must ensure that speculators, hoarders and rent seekers are not allowed to sabotage our efforts in ensuring the wide availability of food to all Nigerians,” Tinubu said.

    By Friday morning, local media were reporting that stores were being sealed for hoarding and charging unfair prices.

    The situation is at its worst in conflict zones in northern Nigeria, where farming communities are no longer able to cultivate what they eat as they are forced to flee violence. Pockets of protests have broken out in past weeks but security forces have been quick to impede them, even making arrests in some cases.

    In the economic hub of Lagos and other major cities, there are fewer cars and more legs on the roads as commuters are forced to trek to work. The prices of everything from food to household items increase daily.

    “Even to eat now is a problem,” said Ahmed in Abuja. “But what can we do?”

    [ad_2]

    Source link

  • Farmers in Spain and Poland stage tractor protests over European Union policies and competition

    Farmers in Spain and Poland stage tractor protests over European Union policies and competition

    [ad_1]

    MADRID — Farmers in Spain and Poland demonstrated Friday as part of ongoing protests against European Union farming policies and to demand measures to combat production cost hikes, reduced profits and unfair competition from non-EU countries.

    Similar protests have taken place in other EU member states in recent weeks. Farmers complain that the 27-nation bloc’s policies on the environment and other matters are a financial burden and make their products more expensive than non-EU imports.

    The European Commission, the EU’s executive arm, has made some concessions over the last few weeks, including shelving plans to halve the use of pesticides and other dangerous substances. Nonetheless, the protests have spread.

    In Poland, where imports of cheap grain, milk and other produce from Ukraine have caused particular anger, farmers drove tractors across the country to slow down traffic and block major roads, some displaying signs that read “EU Policy is Ruining Polish Farmers.”

    Access roads to border crossings with Ukraine in Hrebenne and Dorohusk, in the east, were blocked by tractors, with only a trickle of traffic being let through.

    In the western city of Poznan, the police estimated that some 1,400 tractors entered the streets and reached the office of the regional governor. Protesters lit flares there and placed a coffin, symbolizing the death of Polish agriculture, as well as a manure-filled wheelbarrow with a EU flag stuck in it. There was no violence reported.

    Agriculture Minister Czesław Siekierski said he understood the grievances and he would talk to the farmers, who said they were also protesting on behalf of Polish consumers.

    Deputy Prime Minister Wladyslaw Kosiniak-Kamysz called on the EU commissioner for agriculture, Janusz Wojciechowski, Poland’s former agriculture minister, to resign. There was no immediate reaction from Wojciechowski.

    The organizers, the Solidarity Union of Individual Farmers, said EU policies triggered the protest.

    ”The protest is directed against the policy of the European Union, against the Green Deal and against the policy that allows for an uncontrolled inflow of farming produce from Ukraine,” Adrian Wawrzyniak, spokesman for the union, told The Associated Press.

    He said storage warehouses are filled with Ukraine grain, causing prices to fall 40% in 2023. Demand for Polish sugar, milk and meat has fallen: as a result, farmers are holding off on investments.

    Farmers are also concerned that the EU’s Green Deal, which calls for limits on the use of chemicals and on greenhouse gas emissions, will result in a reduction in production and income. They say that the EU’s requirement for 4% of farmland to be devoted to biodiversity and landscape protection will also have a negative effect on their output.

    Farmers in Spain staged similar actions in their fourth straight day of protests.

    Besides EU policies, Spanish farmers maintain that a law aimed at guaranteeing that wholesale major supermarket buyers pay fair prices for their goods isn’t being enforced while consumer prices soar.

    Friday’s protests centered around the northern cities of Oviedo, Pamplona and Zaragoza, with tractors clogging several city streets and commuter roads. In many places, farmers kept their protests going overnight.

    A group not affiliated with Spain’s three main farming organizations has called for farmers to move on Madrid at midnight for a Saturday protest near the headquarters of Prime Minister Pedro Sánchez’s Socialist party.

    The demonstrations are expected to continue over the coming weeks with a major protest being organized in the capital for Feb. 21.

    Several Spanish media reports have linked many of the protests to conservative and hard-right groups.

    Police said that 20 people have been arrested during this week’s demonstrations.

    ___

    Monika Scislowska reported from Warsaw, Poland.

    [ad_2]

    Source link

  • Mexico overtakes China as the leading source of goods imported to US

    Mexico overtakes China as the leading source of goods imported to US

    [ad_1]

    WASHINGTON — For the first time in more than two decades, Mexico last year surpassed China as the leading source of goods imported to the United States. The shift reflects the growing tensions between Washington and Beijing as well as U.S. efforts to import from countries that are friendlier and closer to home.

    Figures released Wednesday by the U.S. Commerce Department show that the value of goods imported to the United States from Mexico rose nearly 5% from 2022 to 2023, to more than $475 billion. At the same time, the value of Chinese imports imports tumbled 20% to $427 billion.

    The last time that Mexican goods imported to the United States exceeded the value of China’s imports was in 2002.

    Economic relations between the United States and China have severely deteriorated in recent years as Beijing has fought aggressively on trade and made ominous military gestures in the Far East.

    The Trump administration began imposing tariffs on Chinese imports in 2018, arguing that Beijing’s trade practices violated global trade rules. President Joe Biden retained those tariffs after taking office in 2021, making clear that antagonism toward China would be a rare area of common ground for Democrats and Republicans.

    As an alternative to offshoring production to China, which U.S. corporations had long engaged in, the Biden administration has urged companies to seek suppliers in allied countries (“friend-shoring”) or to return manufacturing to the United States (“reshoring”). Supply-chain disruptions related to the COVID-19 pandemic also led U.S. companies to seek supplies closer to the United States (“near-shoring”).

    Mexico has been among the beneficiaries of the growing shift away from reliance on Chinese factories. But the picture is more complicated than it might seem. Some Chinese manufacturers have established factories in Mexico to exploit the benefits of the 3-year-old U.S.-Mexico-Canada Trade Agreement, which allows for duty-free trade in North America for many products.

    Derek Scissors, a China specialist at the conservative American Enterprise Institute, noted that the biggest drops in Chinese imports were in computers and electronics and chemicals and pharmaceuticals — all politically sensitive categories.

    “I don’t see the U.S. being comfortable with a rebound in those areas in 2024 and 2025,” Scissors said, predicting that the China-Mexico reversal on imports to the United States likely “is not a one-year blip.”

    Scissors suggested that the drop in U.S. reliance on Chinese goods partly reflects wariness of Beijing’s economic policies under President Xi Jinping. Xi’s draconian COVID-19 lockdowns brought significant swaths of the Chinese economy to a standstill in 2022, and his officials have raided foreign companies in apparent counterespionage investigations.

    “I think it’s corporate America belatedly deciding Xi Jinping is unreliable,” he said.

    Overall, the U.S. deficit in the trade of goods with the rest of the world — the gap between the value of what the United States sells and what it buys abroad — narrowed 10% last year to $1.06 trillion.

    [ad_2]

    Source link

  • China, US hold economic talks as trade issues heat up on the campaign trail

    China, US hold economic talks as trade issues heat up on the campaign trail

    [ad_1]

    BANGKOK — Chinese and U.S. officials have met in Beijing for talks on tough issues dividing the two largest economies, as trade and tariffs increasingly draw attention in the runup to the U.S. presidential election.

    China’s Ministry of Finance said Beijing raised objections to higher tariffs on Chinese exports, two-way investment restrictions and other limits on trade and technology during the talks by the countries’ Economic Working Group. In a statement, it characterized the Monday-Tuesday talks as “constructive.”

    The talks sent a “positive signal,” the Global Times, a newspaper of China’s ruling Communist Party, said in an article published late Tuesday.

    “This positive trend, despite lingering disputes, offers much-needed reassurance for businesses of the two countries as well as the international community amid rising global challenges,” it said.

    The U.S. Treasury Department said U.S. officials reiterated concerns over Chinese industrial policy practices and overcapacity, and the resulting impact on U.S. workers and firms.

    That reflects worries that as China’s economy slows, partly due to a prolonged crisis in its property market but also longer term trends such as an aging population, its leaders are likely to rely more heavily on boosting export manufacturing to make up for weak demand at home.

    Given China’s already huge market shares in many industries, that could boost capacity to unsustainable levels and crowd foreign manufacturers out of many industries, some economists say.

    One example: photo-voltaic solar panels, where massive investment means that China controls about 80% of the market share for all manufacturing stages, according to a recent report by the International Energy Agency. The rapid ascent of Chinese suppliers has raised proposals in Europe for import controls, but those could slow the region’s progress in combating climate change but cutting carbon emissions.

    The two sides said the talks in Beijing also touched on issues such as debt problems in developing countries, financial cooperation and economic policies.

    “U.S. officials reaffirmed that the U.S. is not seeking to decouple the two economies and instead seeks a healthy economic relationship that provides a level playing field for American companies and workers,” the Treasury Department said.

    It said both sides agreed to meet again in April.

    Exchanges between the two powers picked up last year, gaining momentum after President Joe Biden met with Chinese leader Xi Jinping at a November summit in San Francisco, California.

    But despite the slight improvement in relations, tensions remain high, particularly over Taiwan. Biden has kept in place most of the tariffs on Chinese imports that former President Donald Trump imposed when he launched a trade war in 2018.

    His administration has also tightened controls on Chinese access to advanced computer chips and the technology to make them, along with other strategically sensitive know-how.

    Reports that Trump would raise tariffs even higher if he is elected have shaken fragile investor sentiment in China, where the financial markets are in the midst of a prolonged slump.

    The Economic Working Group’s meeting was its third since it was established in September and its first in Beijing. A Treasury delegation met with Chinese Vice Premier He Lifeng while in Beijing and conveyed a message that Yellen hoped to visit China at an “appropriate time.”

    [ad_2]

    Source link

  • Small businesses are paying 100%+ of profits to Uncle Sam after tax-law change

    Small businesses are paying 100%+ of profits to Uncle Sam after tax-law change

    [ad_1]

    Small businesses in sectors like software and manufacturing are panicking over the expiration of a critical tax deduction that they say could lead to mass layoffs and business closures, unless Congress acts quickly to amend the law.

    “This is a life-and-death scenario for small software companies,” Michelle Hansen, co-founder of the geocoding company Geocodio, told MarketWatch.

    The tax change that Hansen and other software executives are taking issue with was signed into law by President Trump in 2017, as part of a larger tax overhaul that slashed the top corporate tax rate from 35% to 21%.

    But in order to satisfy Senate budget rules and pass the law with only Republican votes, the bill could not increase the budget deficit over a 10-year window.

    So lawmakers included a provision that, beginning in 2022, drastically reduced how much research-and-development spending a business could deduct from their annual revenue to determine taxable income.

    The change penalizes certain industries like software and information technology — where engineer salaries are often classified as R&D expenses — as well as manufacturing and pharmaceuticals
    IHE.

    IntervalZero CEO Jeff Hibbard, whose Massachusetts-based company designs and sells software for installation on precision machines like semiconductor manufacturers, told MarketWatch that he has had to tap into company savings for the past several years in order to avoid laying off engineers.

    He said that his firm brings in about $9 million in revenue annually with expenses of $8 million — but 60% of those expenses come in the form of engineer salaries, which can only be deducted from taxable income over a five-year period because the IRS treats it as R&D.

    He said that after taxes consumed all his profits in 2022, he had to pay an additional $800,000 to Uncle Sam, and an additional $600,000 for the 2023 tax year.

    “We’ve had to do a hiring freeze and postpone projects” in a cutthroat industry where technology progresses rapidly, Hibbard said. “We’ve been in existence for 15 years. For the first 14, we always hired additional people. Now we have a hiring and salary freeze.”

    The House of Representatives voted last week 357-70 to restore full expensing for R&D as part of a $79 billion tax package that boosted the child tax credit and extended other business tax breaks.

    The bill now heads to the Senate, which already has its hands full debating immigration and national-security issues, and analysts say election-year politics could thwart its passage in 2024.

    Henrietta Treyz, director of economic-policy research at Veda Partners, gave just a 10% chance of the bill passing the Senate in a recent note to clients.

    “This year’s effort to pass a tax package has been more robust than the effort we saw in 2022 and 2023,” she wrote. Treyz added, however, that “the competing need to pass border reform and Ukraine/Israel aid, and general dysfunction in Washington keep us pessimistic that we’ll see a bipartisan economic-stimulus package come out of Congress this year.”

     On top of Republicans not wanting to give President Joe Biden a victory that would provide tax relief for businesses and families, Senate Republicans could decide to drag their feet on the bill in the hope that they’ll retake the chamber next year and can play a bigger role in the process, according to Owen Tedford, policy analyst at Beacon Policy Advisors.

    “The critical member to watch is Senator Mike Crapo [of Idaho], the top Republican on the Senate Finance Committee,” Tedford wrote. “Crapo has not outright opposed the bill but has raised policy concerns and has expressed a desire to have a chance to amend it.” 

    Political considerations may be dictating the bill’s fate in Washington — but some business owners fear they don’t have the wherewithal to wait until next year for the problem to be fixed.

    Benjamin Bengfort, co-founder and CEO of Iowa-based software firm Rotational Labs, told MarketWatch that he had to lay off workers last year after his 2022 tax bill rose by 438%.

    He noted that even demand for his products has taken a hit because of the change in the law, because his services can count as an R&D expense for his customers, too.

    “So it is [between] a rock and a hard place for us, no matter how you look at it,” Bengfort said. “This is an existential threat for software engineering companies.”

    Andrew Keshner contributed.

    [ad_2]

    Source link

  • How to navigate market risk from interest rates, the economy and politics in 2024

    How to navigate market risk from interest rates, the economy and politics in 2024

    [ad_1]

    As the U.S. Federal Reserve’s three-year reign in the headlines potentially comes to an end, an analysis of this year’s market themes can offer valuable insights for predicting trends and ensuring attractive returns in 2024.

    Beyond the central bank’s actions, pivotal factors shaping the investment landscape this year include fiscal policies, election outcomes, interest rates and earnings prospects.

    Throughout 2023, a prominent theme emerged: that equities are influenced by factors beyond monetary policy. That trend is likely to persist. 

    A decline in interest rates could significantly increase the relative valuations of equities while simultaneously reducing interest expenses, potentially transforming market dynamics. Contrary to consensus estimates, 2023 brought a more robust earnings rebound, leaving analysts optimistic about 2024.

    The 2024 U.S. presidential election, meanwhile, introduces a new element of uncertainty with the potential to cast a shadow over the market during much of the coming year. 

    Choppy trading, modest earnings growth

    Anticipating a choppy first half of the year due to sluggish economic growth, we see a better opportunity for cyclicals and small-cap stocks to rebound in the latter part of the year. As uncertainty around the election and recession fears dissipate, a broad rally that includes previously ignored cyclicals and small-caps should help propel the S&P 500
    SPX
    higher. 

    Broader macroeconomic conditions support mid-single-digit growth in earnings per share throughout 2024. Factors such as moderate economic expansion, controlled inflation and stable interest rates are expected to provide a conducive environment for companies, enabling them to sustain and potentially improve their earnings performance. We estimate EPS growth of 6.5%. This projected growth aligns with the broader market sentiment indicating a steady upward trajectory in earnings for the upcoming year, fostering investor confidence and supporting valuation expectations across various sectors.

    “ If the economy has not been in recession at the time of the first rate cut but enters one within a year, the Dow enters a bear market.”

    When it comes to U.S. stock-market performance around rate cuts, the phase of the economic cycle matters. When there has been no recession, lower rates have juiced the markets, with the Dow Jones Industrial Average
    DJIA
    rallying by an average of 23.8% one year later.

    If the economy has not been in recession at the time of the first cut but enters one within a year, the Dow has entered a bear market every time, declining by an average of 4.9% one year later. Our base case is a soft landing, but history shows how critical avoiding recession is for the bull market as the Fed prepares to ease policy.   

    Big on small-caps

    This past year has posed a hurdle for small-cap stocks due to the absence of a driving force. These stocks typically perform better as the economy emerges from a recession. While they are currently undervalued, their earnings growth has been notably lacking. If concerns about a recession diminish, a normal yield curve could serve as a potential catalyst for small-cap stocks.

    Growth vs. value

    The ongoing outperformance of megacap growth stocks that we saw in 2023 might hinge on their ability to sustain superior earnings growth, validating their current valuations. Defensive sectors in the value category, meanwhile, are notably oversold and might exhibit strong performance, particularly toward the latter part of the first quarter. Should concerns about a recession dissipate, cyclical sectors within the value category could outperform, particularly if broader market conditions turn favorable in the latter half of the year.

    Handling uncertainty

    The Fed’s enduring influence regarding the prospect of a soft landing in 2024 remains a pivotal point in the market’s focus. Considering the themes of the past year and the multifaceted influences on equities beyond monetary policy, investors are advised to navigate through uncertainties stemming from unintended fiscal shifts, upcoming elections and the impact of fluctuating interest rates. While a potentially choppy start to the year is anticipated, it could create opportunities for cyclical and small-cap stocks later in the year.

    Ed Clissold is chief of U.S. strategies at Ned Davis Research.

    Also read: Mortgage rates dip after Fed meeting. Freddie Mac expects rates to decline more.

    More: After the Fed’s comments, grab these CD rates while you still can

    [ad_2]

    Source link

  • Mark Zuckerberg could pay millions to the IRS on Meta dividends. He still might be getting ‘a major break’.

    Mark Zuckerberg could pay millions to the IRS on Meta dividends. He still might be getting ‘a major break’.

    [ad_1]

    Mark Zuckerberg delighted Meta shareholders and Wall Street this week with news of the social media giant’s first-ever dividend.

    The IRS may also be happy, now that it’s staring at millions in taxes on the Meta stock dividends bound for Zuckerberg’s portfolio.

    Zuckerberg, the CEO of Meta Platforms Inc.
    META,
    +20.32%    ,
    is poised to make $700 million in dividends yearly. He owns nearly 350 million shares, according to FactSet, and the company will start paying a quarterly dividend of 50 cents a share.

    That would yield nearly $167 million in federal taxes yearly, after a qualified-dividend tax of 20% and another 3.8% tax on the investment returns of rich households, two accounting experts said.

    California income taxes of 13.3% on the dividends could cost Zuckerberg another $93.1 million, said Andrew Belnap, an accounting professor at the University of Texas at Austin’s McCombs School of Business.

    All in, that’s a combined $259.7 million in federal and state taxes annually on the Meta dividends, Belnap estimated.

    For context, U.S. taxpayers reported over $285 billion in qualified-dividend income to the IRS though mid-November 2023, according to agency statistics. Nearly 30 million tax returns reported qualified dividends through that time.

    Meta said it plans a quarterly cash dividend going forward, with the first such payment in March.

    Meta shares soared 20.5% on Friday, ending with a record-high close of $474.99. The Dow Jones Industrial Average
    DJIA,
    S&P 500
    SPX
    and Nasdaq Composite
    COMP
    all closed higher Friday.

    ‘Zuck is getting a major break’

    Meta announced the dividend payment in its earnings results Thursday, on the same week that Americans began filing their income taxes.

    A look at Zuckerberg’s dividends and their tax implications offer a peek at the debate about the varying ways wages and wealth are taxed.

    “Zuck is getting a major break,” said Andrew Schmidt, an accounting professor at North Carolina State University’s Poole School of Management who also crunched the numbers for MarketWatch.

    Approximately $167 million “seems like a high tax bill,” he said. But if Zuckerberg received the $700 million as a straight salary, Schmidt estimated he’d be looking at a roughly $259 million tax bill on the wages after they were taxed at the top marginal rate of 37%.

    Federal income tax brackets run from 10% to 37%.

    Meanwhile, the IRS taxes qualified dividends and capital gains at 0%, 15% and 20%, depending on income and household status. The net investment income tax adds another 3.8% for individuals making at least $200,000 or married couples worth $250,000.

    For federal and state taxes on the Meta dividends, Zuckerberg would face a combined rate of 37.1%, Belnap noted. “His tax rate on this is actually fairly high,” he said.

    The gap in tax rates on income derived from wages and investments “has been a big criticism with U.S. tax policy,” Schmidt said, especially as lawmakers look for ways to come up with more tax revenue.

    Regular retail investors enjoy the same preferential rates on capital gains and dividends as the top 1% of taxpayers, Schmidt added. The issue is that those dividends and stock profits are a smaller part of their income while salaries, taxed at higher rates, are a bigger proportion.

    Belnap noted that California’s state tax rules don’t provide special treatment to dividends.

    Read also: Where Trump, Biden and Haley stand on capital gains, the child tax credit and other key tax questions

    Zuckerberg received a $1 base salary in 2022, a figure that hasn’t changed in several years. He is now worth $142 billion, according to the Bloomberg Billionaires Index, making him the fifth-richest person in the world.

    Meta did not immediately respond to a request for comment.

    Taxes on the Meta dividends will not be something Zuckerberg, or any Meta shareholders big or small, need to deal with until next year’s tax season, Belnap and Schmidt observed.

    But as taxpayers amass their 1099-DIV forms on dividend income, IRS figures show that it’s mostly upper-echelon taxpayers reaping the rewards on the preferential rates for qualified dividends.

    Households worth at least $1 million accounted for 40% of the approximate $285.3 billion in qualified dividends reported through mid-November, according to agency figures.

    For less affluent investors, “it’s usually a nice supplement, but I’d say very few people are living off dividends,” Belnap said.

    [ad_2]

    Source link

  • Stock market today: Asia markets mixed ahead of Fed decision; China economic data disappoint

    Stock market today: Asia markets mixed ahead of Fed decision; China economic data disappoint

    [ad_1]

    HONG KONG — Asian stocks were mixed Wednesday as markets awaited a decision on interest rates by the Federal Reserve, while China reported manufacturing contracted in January for a fourth straight month.

    U.S. futures and oil prices declined.

    Japan’s Nikkei 225 added 0.6% to 36,286.71.

    South Korea’s Kospi shed 0.1% to 2,497.09 after Samsung Electronics reported reported an annual 34% decline in operating profit for the last quarter.

    Hong Kong’s Hang Seng sank 1.6% to 15,460.78, while the Shanghai Composite shed 1.5% to 2,788.55.

    Official data showed China’s manufacturing purchasing managers index, or PMI, rose to 49.2 in January, up from 49.0 in December, but still below the critical 50 mark that indicates expansion rather than contraction. Weak demand in the world’s second largest economy is dragging on growth.

    Australia’s S&P/ASX 200 rose 1.1% to 7,680.70 after a survey showed Australia’s inflation rate fell to a two-year low in the December quarter, with the consumer price index at 4.1%, leading to bets that the Reserve Bank may consider an interest rate cut in the next move.

    India’s Sensex was 0.9% higher while Bangkok’s SET fell 0.5%.

    In Wall Street, U.S. stocks drifted through a quiet Tuesday and held near their record heights following a mixed set of profit reports.

    The S&P 500 slipped 0.1% from its record to 4,924.97. The Dow Jones Industrial Average gained 0.3% to 38,467.31, and the Nasdaq composite fell 0.8% to 15,509.90.

    UPS slumped 8.2% even though it reported stronger profit for the latest quarter than analysts expected. Its revenue fell short of Wall Street’s estimates, and it also gave a forecast for full-year revenue in 2024 that was weaker than expected.

    Whirlpool sank 6.6% despite likewise reporting a better profit than expected. Its forecast for 2024 revenue of $16.9 billion was roughly $1 billion below analysts’ estimates.

    Helping to offset those losses was General Motors. The automaker jumped 7.8% after reporting stronger profit and revenue than expected.

    Treasury yields were also mixed in the bond market following reports that showed the economy remains stronger than expected. One said confidence among consumers is climbing, while another suggested the job market may be warmer than forecast.

    U.S. employers advertised 9 million job openings at the end of December, which was a touch more than economists expected and slightly above November’s level. Traders were expecting the data to show a cooldown in the number of openings.

    A drawdown would have fit more neatly into the trend that’s carried Wall Street to a record: a slowdown in the economy’s growth strong enough to keep a lid on inflation but not so much that it will create a recession.

    Hopes for a continued such trend are what have Wall Street foaming about the possibility of several cuts to interest rates by the Federal Reserve this year. Cuts would mark a sharp turnaround from the Fed’s dramatic hikes to rates over the last two years, and the reductions would give a boost to the economy and investment prices.

    The Federal Reserve began its latest policy meeting on interest rates Tuesday, but virtually no one expects it to cut rates this time. That won’t stop economists and traders from parsing every word coming out of the Fed Wednesday after its meeting finishes. They’ll be searching for clues that a rate cut may arrive at its next meeting in March.

    The yield on the 10-year Treasury, which is the centerpiece of the bond market, fell to 4.03% from 4.06% late Tuesday.

    In energy trading, benchmark U.S. crude lost 33 cents to $77.49 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, fell 36 cents to $82.14 per barrel.

    In currency trading, the U.S. dollar rose to 147.81 Japanese yen from 147.59 yen. The euro cost $1.0818, down from $1.0845.

    [ad_2]

    Source link

  • Biden urges Congress to embrace border bill. But House speaker suggests it may be ‘dead on arrival’

    Biden urges Congress to embrace border bill. But House speaker suggests it may be ‘dead on arrival’

    [ad_1]

    WASHINGTON — President Joe Biden on Friday pressed Congress to embrace a bipartisan Senate deal to pair border enforcement measures with Ukraine aid, but House Speaker Mike Johnson suggested the compromise on border and immigration policy could be “dead on arrival” in his chamber.

    The Democratic president said in a statement late Friday that the policies proposed would “be the toughest and fairest set of reforms to secure the border we’ve ever had in our country.” He also pledged to use a new emergency authority to “shut down the border” as soon as he could sign it into law.

    Biden’s embrace of the deal — and Republican resistance — could become an election-year shift on the politics of immigration. Yet the diminishing prospects for its passage in Congress may have far-reaching consequences for U.S. allies around the globe, especially Ukraine.

    Senate Republicans had initially insisted that border policy changes be included in Biden’s $110 billion emergency request for funding for Ukraine, Israel, immigration enforcement and other national security needs. But the Senate deal faced collapse this week as it came under fire from Republicans, including Donald Trump, the likely presidential nominee, who eviscerated the deal as a political “gift” to Democrats.

    Johnson, a Louisiana Republican, on Friday sent a letter to colleagues that aligns him with hardline conservatives determined to sink the compromise. The speaker said the legislation would have been “dead on arrival in the House” if leaked reports about it were true.

    A core group of senators negotiating the deal were hoping to release text early next week, but conservatives already say the measures do not go far enough to limit immigration. The proposal would enact tougher standards on migrants seeking asylum as well as deny asylum applications at the border if daily migrant encounters grow to numbers that are unmanageable for authorities.

    “Rather than accept accountability, President Biden is now trying to blame Congress for what HE himself intentionally created,” Johnson said in the letter.

    The speaker’s message added to the headwinds facing the Senate deal, closing a week in which Senate Republican Leader Mitch McConnell acknowledged to his colleagues that the legislation faced tough opposition from Trump that could force them to pursue Ukraine aid another way. He later clarified that he was still supportive of pairing border measures with Ukraine aid.

    If the deal collapses, it could leave congressional leaders with no clear path to approving tens of billions of dollars for Ukraine. Biden has made it a top priority to bolster Kyiv’s defense against Russia, but his administration has run out of money to send ammunition and missiles. Ukraine supporters warn that the impasse in Congress is already being felt on battlefields and leaving Ukrainian soldiers outgunned.

    Oklahoma Sen. James Lankford, the lead GOP negotiator in the border talks, has repeatedly urged lawmakers to refrain from passing final judgment on the bill until they receive legislative text and said some of the reports of its contents in conservative media are not accurate depictions of the bill.

    The Republican speaker was already deeply skeptical of any bipartisan compromise on border policy. On Friday, he again pointed to a sweeping set of immigration measures that the House passed last year as being the answer to the nation’s border challenges. But that bill failed to gain a single Democratic vote then and has virtually no chance of picking up Democratic support now, which would be necessary to clear the Senate.

    As they enter an election year, Republicans are seeking to drive home the fact that historic numbers of migrants have come to the U.S. during Biden’s presidency. His administration has countered that global unrest is driving the migration and has sought to implement humane policies on border enforcement.

    “Securing the border through these negotiations is a win for America,” Biden said in the statement. “For everyone who is demanding tougher border control, this is the way to do it.”

    Still, the speaker leaned into the Republican push on immigration, saying in his letter that the House would hold a vote on impeaching Homeland Security Secretary Alejandro Mayorkas “as soon as possible” after a committee advances articles of impeachment against him next week. Johnson also said he was standing with Texas Gov. Greg Abbott, who has refused to give federal Border Patrol agents access to a riverfront park that is a popular corridor for migrants illegally entering the U.S.

    But Johnson is also under potential pressure himself.

    If the Senate were to pass an immigration and Ukraine package, he would face a decision about whether to bring the measure to the floor. And while the speaker is skeptical of continued funding for Ukraine, he has also expressed support for halting Russian President Vladimir Putin’s advance in Europe.

    At the same time, hardline House conservatives have become vocal opponents of any compromise on immigration policy. Rep. Marjorie Taylor Greene, a hard-right Republican of Georgia, has threatened to initiate an effort to oust Johnson if he put the Senate deal on the House floor.

    “This bill represents Senate Republican leadership waging war on House Republican leadership,” said Sen. Ted Cruz, a Republican of Texas, at a news conference this week.

    Still, other Republicans have lamented that conservatives are throwing away an opportunity to gain a victory on an issue they have talked about far more than Democrats.

    Opposition from the right has stymied efforts to reform immigration law in Congress for decades. Trump allies have argued that Congress does not need to act because presidents already have enough authority to implement tough border measures.

    Johnson echoed that sentiment in his letter, arguing that Biden could start to fix the border problems “with the stroke of a pen.”

    Sen. Markwayne Mullin, an Oklahoma Republican, said earlier this month that conservative reports on the bill had “ginned up a lot of the base” voters against the proposals, even as the policy represented meaningful changes to immigration enforcement.

    “This is a national security issue,” Mullin said. “And if you’re waiting until another president gets in, you’re playing politics with it.”

    __

    Associated Press writers Aamer Madhani and Zeke Miller contributed.

    [ad_2]

    Source link

  • 3 things to know about how the Fed might roll back quantitative tightening

    3 things to know about how the Fed might roll back quantitative tightening

    [ad_1]

    The notion that the Federal Reserve will soon slow, or perhaps even end, its program of quantitative tightening is increasingly being talked about on Wall Street like a foregone conclusion.

    But while investors wait to hear more on the subject from Fed Chair Jerome Powell during next week’s post-meeting press conference, they could be forgiven for asking themselves some questions.

    What might an imminent taper of the Fed’s balance-sheet runoff look like? Why has it suddenly become so urgent? What might it mean for the six or so interest-rate cuts investors are expecting from the Fed this year, as well as for markets more broadly?

    We aim to answer these questions below.

    What inspired talk of tapering QT?

    It wasn’t until the minutes from the Federal Reserve’s December policy meeting were published earlier this month that investors started to take the notion of the Fed declaring “mission accomplished” on QT seriously.

    The minutes revealed that a number of senior Fed officials felt it was nearly time to “begin to discuss” the technical factors that would govern the Fed’s decision to slow the runoff of maturing bonds from its balance sheet.

    Shortly after the minutes’ release, several senior Fed officials came forward to discuss the importance of ending the balance-sheet runoff. Dallas Fed President Lorie Logan, the first senior Fed official to expand on what was noted in the minutes, said earlier this month that the Fed should start to slow the pace of its balance-sheet shrinkage once assets locked up in the Fed’s reverse-repo facility fell below a certain level.

    According to Logan, senior Fed officials had been unsettled by the drain of $2 trillion in assets from the RRP facility last year.

    But there was another issue that was also likely bothering monetary policymakers heading into the Fed’s December meeting.

    Sudden spikes in overnight repo rates late last year drew uncomfortable comparisons to the repo-market crisis of September 2019, which foreshadowed the end of the Fed’s previous attempt at tapering its balance sheet, according to TS Lombard’s Steve Blitz.

    See: Something strange is happening in the financial plumbing under Wall Street

    See: One of Wall Street’s most important lending rates will stay elevated for weeks, Barclays says

    TS LOMBARD

    What is the Fed’s ‘lowest comfortable level of reserves’?

    A re-run of the repo-market crisis of 2019 is what the Fed is presumably trying to avoid. Economists are so concerned the central bank might accidentally bump up against the lower bound for reserves in the banking system, that they have come up with a name for the concept: They’re calling it the “lowest comfortable level of reserves.”

    According to this idea, strain in overnight-financing markets should emerge once reserves in the banking system retreat below a certain threshold. This would, in turn, likely force the central bank to scale back or even reverse quantitative tightening immediately, according to several economists.

    In order to avoid such a risk, Jefferies economist Thomas Simons said in a note to clients earlier this month that he expects the Fed will announce plans to start tapering QT after its March meeting.

    Across Wall Street, most economists expect the Fed will begin by tapering the pace at which Treasurys are redeemed from its balance sheet — perhaps cutting it in half to start, from $60 billion a month to $30 billion a month. Reducing the pace at which mortgage-backed securities are running off won’t matter as much until prepayments begin to climb.

    Going even further, economists at Evercore ISI said in a report shared with MarketWatch earlier this week that they expect the tapering to begin around the middle of 2024 and continue potentially through 2025, until the Fed has succeeded in reducing the size of its balance sheet to about $7 trillion.

    The balance sheet presently stands at $7.7 trillion, according to data published by the Fed. It peaked at nearly $9 trillion in April 2022.

    However, one key issue may complicate the Fed’s efforts to ascertain the “LCLoR.” According to Jefferies’ Simons, the amount of banking-system reserves counted as liabilities on the Fed’s balance sheet has been more or less steady since the Fed started its latest round of balance-sheet tapering. It stood at roughly $3.3 trillion recently, according to Fed data cited by Jefferies.

    Why stop at $7 trillion if bank reserves haven’t been all that heavily impacted by QT anyway? It’s probably worth noting that, whatever happens, nobody on Wall Street expects the Fed would attempt to shrink the size of its balance sheet back toward pre-crisis levels, when the amount of bonds on its balance sheet was miniscule compared to today.

    Why? Because there is simply too much debt sloshing around the global financial system to justify such a withdrawal of support, according to Steven Ricchiuto, chief economist at Mizuho Americas.

    “The Fed is not in a position to remove all that extra liquidity because now the system needs it just to function,” Ricchiuto said.

    What does this mean for markets?

    Because quantitative tightening is a hawkish policy stance, its rolling back should be bullish for stocks and bonds. But there are other considerations that could impact the outcome, market strategists said.

    Not only would a reduction in the pace of the Fed’s monthly runoff introduce a fresh dovish tilt to the Fed’s monetary policy, but by reducing the amount of bonds it allows to roll off its balance sheet every month, the Fed would become more active in the Treasury market, said James St. Aubin, chief investment officer at Sierra Investment Management, during an interview.

    There are also a few contextual factors that could impact how the equity market reacts. For example, as St. Aubin pointed out, context is equally as important as the nature of the decision itself. Should the Fed decide to end QT abruptly because the U.S. economy is sliding into a recession, then the decision could hurt stocks.

    Another issue, raised by a different market strategist, is the notion that the Fed could decide to start tapering QT in lieu of cutting interest rates — or at least in lieu of cutting them as quickly as investors expect. This could buy the central bank more time to press its battle against inflation while mitigating the risks that it could hurt the economy by keeping policy uncomfortably tight for too long, economists said.

    Ben Jeffery, U.S. interest-rate strategist at BMO, said in a recent note to clients that, based on Logan’s comments from earlier this month, he would lean toward this being the most likely scenario. Additionally, he said, tapering QT could potentially impact the Treasury’s refunding announcement due in May.

    Jeffery calculated that the Fed tapering QT by $20 billion beginning in April would save the Treasury from issuing nearly $250 billion in bonds compared to if the Fed had continued with its balance-sheet runoff apace.

    This should lead to lower Treasury yields, all else being equal. And lower long-dated Treasury yields are typically seen as beneficial for stocks, according to Callie Cox, a U.S. equity strategist at eToro.

    Although, once again, the outcome for markets would likely depend on the specific context.

    “Higher yields probably aren’t a good thing for stock investors these days, but in particular environments, higher yields and less Fed intervention could hint that the economy is healing,” Cox said.

    [ad_2]

    Source link

  • JetBlue, Spirit Airlines appeal court ruling blocking their proposed merger

    JetBlue, Spirit Airlines appeal court ruling blocking their proposed merger

    [ad_1]

    JetBlue Airways Corp. and Spirit Airlines Inc. said late Friday that they have appealed a court ruling that earlier this week blocked their planned merger.

    JetBlue
    JBLU,
    -1.19%
    and Spirit
    SAVE,
    +17.19%
    announced the appeal in a terse press release that provided no more details, adding only that the process is “consistent with the requirements of the merger agreement.”

    Wall Street was split on whether the airlines would be legally obliged to appeal the Tuesday ruling, which sided with the Justice Department in saying that a merger between low-cost JetBlue and ultra-low-cost Spirit would hurt competition.

    Shares of Spirit rallied 12% after hours Friday, while JetBlue shares fell nearly 2%. Analysts at JP Morgan said this week that the ruling freed JetBlue from a “costly merger.”

    Earlier Friday, Spirit sought to reassure investors about its liquidity and issued an upbeat fourth-quarter revenue guidance. Spirit has amassed about $5.5 billion in debt, and is reportedly seeking advisers to help restructure it.

    The likelihood of Spirit attracting a new merger or takeover bid is considered low without a debt restructuring. Frontier Group Holdings Inc.
    ULCC,
    -2.13%
    and JetBlue competed for Spirit in 2022, with Frontier ultimately bowing out in July of that year.

    Raymond James analyst Savanthi Syth said in a note earlier Friday that it was “clear to us that Spirit is pressing JetBlue to appeal the antitrust ruling, but we continue to believe the chances of success are low.”

    Syth has estimated that an appeal would take some four to five months.

    Shares of Spirit have lost 67% in the past 12 months, while shares of JetBlue are down 41%. The U.S. Global Jets ETF
    JETS
    has lost 9% in the same period. Those losses contrast with gains of 24% for the S&P 500 index
    SPX.

    [ad_2]

    Source link

  • iRobot Stock Plunges as Its Takeover by Amazon Likely Is Dead

    iRobot Stock Plunges as Its Takeover by Amazon Likely Is Dead

    [ad_1]

    Amazon’s $1.4 billion deal for Roomba-maker iRobot looks set to be blocked by European Union antitrust authorities. It’s only a small setback for the e-commerce giant but it’s a reminder that regulators are still skeptical over acquisitions made by big technology companies.

    Continue reading this article with a Barron’s subscription.

    View Options
    [ad_2]
    Source link

  • Spirit Airlines Stock Gets a Downgrade. It’s the Least of the Carrier’s Problems.

    Spirit Airlines Stock Gets a Downgrade. It’s the Least of the Carrier’s Problems.

    [ad_1]

    Spirit Airlines stock was falling again Thursday as the ultra-low-cost carrier’s predicament worsened.

    Continue reading this article with a Barron’s subscription.

    View Options
    [ad_2]
    Source link

  • SEC weighing ‘additional measures’ after hacked post on bitcoin ETF approval

    SEC weighing ‘additional measures’ after hacked post on bitcoin ETF approval

    [ad_1]

    The Securities and Exchange Commission on Friday said that a social-media post on X falsely stating that it had approved spot bitcoin exchange-traded funds was created after an “unauthorized party” obtained control over the phone number connected with the agency’s account on the platform.

    The markets regulator said its staff would “continue to assess whether additional remedial measures are warranted” in the wake of the breach, which occurred Tuesday and raised questions about cybersecurity at both the agency and the social-media platform, formerly known as Twitter.

    The agency said it was coordinating with law enforcement on the matter, including with the FBI and the Department of Homeland Security.

    “Commission staff are still assessing the impacts of this incident on the agency, investors, and the marketplace but recognize that those impacts include concerns about the security of the SEC’s social media accounts,” the SEC said in a statement.

    The confusion began on Tuesday afternoon, when the hacked post appeared on the SEC’s X account.

    “Today the SEC grants approval for #Bitcoin ETFs for listing on registered national securities exchanges,” the post read. “The approved Bitcoin ETFs will be subject to ongoing surveillance and compliance measures to ensure continued investor protection.”

    A second post appeared two minutes later that simply read “$BTC,” the SEC noted in its statement. The unauthorized user soon deleted that second post, but also liked two other posts by non-SEC accounts, according to the agency. The price of bitcoin
    BTCUSD,
    -0.71%
    rose sharply in the wake of the posts, before soon pulling back.

    In response to the hack, SEC staff posted on the official X account of SEC Chair Gary Gensler announcing that the agency’s main account had been compromised, and that it had not yet approved any spot bitcoin exchange-traded products. Staff then deleted the initial unauthorized post, un-liked the liked posts and used the official SEC account to make a new post clarifying the situation, the agency said Friday.

    The SEC also said that it had reached out to X for assistance Tuesday in the wake of the incident, and that agency staff believe the unauthorized access to the SEC’s account was “terminated” later in the day.

    “While SEC staff is still assessing the scope of the incident, there is currently no evidence that the unauthorized party gained access to SEC systems, data, devices, or other social media accounts,” the agency said.

    The following day, the SEC announced that it had, in fact, approved the listing and trading of spot bitcoin ETFs.

    Wednesday’s move marked a breakthrough for the crypto industry, which for years has tried to get such ETFs off the ground in hopes of drawing more traditional investors to the digital-asset space.

    Bitcoin was down 7.6% over a 24-period as of Friday evening.

    [ad_2]

    Source link

  • Taiwan prepares to elect a president and legislature in what's seen as a test of control with China

    Taiwan prepares to elect a president and legislature in what's seen as a test of control with China

    [ad_1]

    TAIPEI, Taiwan — With rallies and concerts attended by thousands of flag-waving supporters, Taiwanese are preparing to elect a new president and legislature on Saturday in what many see as a test of control with China, which claims the self-governing island republic as its own.

    The race is tight, and both China and Taiwan’s key ally, the United States, are weighing in on political and economic issues they hope will sway voters.

    The election pits Vice President Lai Ching-te, representing the Democratic Progressive Party known as the DPP, against Hou Yu-ih of the main opposition Nationalist Party, also known as the Kuomintang or KMT, and the former mayor of the capital city Taipei, Ko Wen-je, of the Taiwan People’s Party.

    Speaking in his hometown of Tainan in the island’s south, Lai reflected on why he had left his career as a surgeon because of China’s missile tests and military exercises aimed at intimidating Taiwanese voters before the first open presidential election in 1996.

    “I wanted to protect the democracy that just gotten underway in Taiwan. I gave up my well-paid job and decided to follow the footsteps of our elders in democracy,” Lai said.

    Hou, a former head of Taiwan’s police force and mayor of the capital Taipei’s suburbs, said that Lai’s view on relations with Beijing could bring uncertainty and even the possibility of war.

    “I advocate pragmatic exchanges with China, the defense of national security, and protection of human rights. I insist that Taiwan’s future will be decided by 23.5 million (people of Taiwan) and I will use my life to protect Taiwan,” Hou said.

    Eric Liao, a 54-year-old aviation engineer, didn’t divulge what party he was favoring, but said dialogue between the sides was crucial.

    “I believe that there must be exchanges between the two sides of the Taiwan Strait. Only by having exchanges can we live in peace, which will be beneficial to the people on both sides,” he said.

    Ko has strong appeal among younger voters, but is running a distant third in most polls.

    Younger voters were mostly focused on their economic futures in a challenging environment.

    “I still don’t know who to vote for. I feel that none of the candidates are good enough for me to have the urge to vote,” said Iris Huang, 27, who works in online marking.

    Ko’s participation in the election has stirred things up for voters accustomed to the usual choice between the KMT and DPP, said Yoshi Liao, a 40-year-old construction engineer

    “It’s different from what we had before … therefore, no one knows who will be elected before the results are counted,” Liao said.

    A young woman who commutes on one of Taiwan’s ubiquitous motor scooters said that financial stability was her main priority.

    “My salary raises. Its the only thing I care about at this moment,” said the woman, who only gave her surname Liu to protect her privacy.

    At a news conference on the eve of the vote, Central Election Commission Chairman Lee Chin-yuan said that he would “like to emphasize once again that all processes for the voting and counting of this election are transparent, open and subject to public supervision.”

    China’s military threats may sway some voters against independence-leaning candidates, but the U.S. continues to pledge support for whatever government emerges, reinforced by the Biden administration’s plans to send an unofficial delegation made up of former senior officials to the island shortly after the polls.

    That move could upset efforts to repair ties between Beijing and Washington that plunged in recent years over trade, COVID-19, Washington’s support for Taiwan and Russia’s invasion of Ukraine, which China has refused to condemn at the United Nations.

    Apart from China tensions, the Taiwan election largely hinges on domestic issues, particularly over an economy that was estimated to have only grown by 1.4% last year. That partly reflects inevitable cycles in demand for computer chips and other exports from the high-tech, heavily trade-dependent manufacturing base, and a slowing of the Chinese economy.

    But longer-term challenges such as housing affordability, a yawning gap between the rich and poor, and unemployment are especially prominent.

    Candidates will make their final appeals Friday with campaigning to end at midnight. The candidate with the most votes wins, with no runoff. The legislative races are for districts and at-large seats.

    While dinner table issues gather the most attention, China remains the one subject that can be ignored but not avoided. The two sides have no official relations, but are linked by trade and investment, with an estimated 1 million Taiwanese spending at least part of the year on the mainland for work, study or recreation. Meanwhile, China has continued flying fighter planes and sailing warships near the island to put teeth behind its pledge to blockade, intimidate or invade.

    Those threats were thrown into stark relief in 2022, when Beijing fired missiles over the island and conducted what was seen as a practice run of a possible future blockade of the Taiwan Strait after then U.S. House Speaker Nancy Pelosi visited Taiwan. Chinese President Xi Jinping, at his most recent meeting with President Joe Biden in November, called Taiwan the “most sensitive issue” in U.S.-Chinese relations.

    Washington is bound by law to provide Taiwan with the means to defend itself and consider all threats to the island as matters of “grave concern,” while remaining ambiguous on whether it would use military forces.

    In recent years, the U.S. has stepped up support for Taiwan as Beijing ratchets up military and diplomatic pressure on the island, although the wars in Ukraine and Gaza have drawn down what U.S. military industries can provide to customers and allies.

    The U.S. government insists the differences between Beijing and Taipei be resolved peacefully, and opposes any unilateral change to their status quo. While Chinese leaders and state propaganda proclaim unification is inevitable and will be achieved at any cost, Taiwanese have consistently voted in favor of maintaining their de facto political independence.

    Lai is considered the front-runner in the race, but Hou trails closely. While the Nationalists formally support unification with China, they say they want to do so on their own terms, a somewhat abstract concept given the Communist Party’s demand for total power, but which some consider as a useful workaround to avoid outright conflict.

    Beijing has labeled Lai a “Taiwan independence element,” an appellation that he hasn’t repudiated and which carries little or no stigma in Taiwan. Lai, however, has pledged to continue current President Tsai Ing-wen’s policy that Taiwan is already independent and needs to make no declaration of independence that could spark a military attack from China.

    While running third in most surveys, the TPP’s Ko said during a news conference Friday that he would aim to strike a balance between Taiwan and the U.S. that wouldn’t upset relations with China.

    “The U.S. is the most powerful country in the world and Taiwan’s most important ally,” he said. “So no matter who is elected, the relationship between Taiwan and the U.S. will not change.”

    Ko said that he is the only “acceptable” candidate for both Washington and Beijing, adding that while there’s nothing Taiwan could do to please both China and the U.S., it is important for the island to refrain from “behavior that is intolerable to either side.”

    ___

    Johnson Lai contributed to this report.

    ___

    Follow AP’s Asia-Pacific coverage at https://apnews.com/hub/asia-pacific

    [ad_2]

    Source link

  • Bitcoin ETFs finally approved after a chaotic, ‘embarrassing’ 24 hours for SEC

    Bitcoin ETFs finally approved after a chaotic, ‘embarrassing’ 24 hours for SEC

    [ad_1]

    On Wednesday, the U.S. Securities and Exchange Commission for the first time greenlighted several exchange-traded funds investing directly in bitcoin.

    But the 24 hours leading up to that approval were chaotic, to say the least.

    The SEC approved the launch of 11 bitcoin
    BTCUSD,
    +0.09%
    ETFs, according to a filing posted on the regulatory agency’s website. The ETFs are due to start trading on Thursday.

    On Tuesday, however, the SEC’s official account on X, formerly known as Twitter, published what the agency described as an “unauthorized” post indicating that it had approved the spot bitcoin ETFs. In reality, the regulator had not approved any such ETFs as of Tuesday and its X account had been “compromised,” SEC Chair Gary Gensler said on the social-media platform. The SEC subsequently deleted the unauthorized post.

    The agency found “there was unauthorized access to and activity on” the its X account by “an unknown party,” an SEC spokesperson said on Tuesday, adding that the “unauthorized access has been terminated” and that the SEC would work with law enforcement to investigate the matter.

    Bitcoin’s price briefly shot 2% higher after the unauthorized tweet went out on Tuesday before soon pulling back.

    Then on Wednesday, shortly before the U.S. stock market closed for the day, the SEC posted an actual approval order of bitcoin ETFs on its website — but the link was soon broken, leading to an “error 404” page. The same filing was later reposted by the SEC. 

    It is unclear why the first link was broken. A SEC spokesperson did not respond to an email seeking comment on the matter.

    The events of the past 24 hours have proven “a bit embarrassing” for the SEC, especially as the agency has stressed that cryptocurrencies are exceptionally risky and vulnerable to market manipulation, according to Greg Magadini, director of derivatives at Amberdata. 

    Despite those warnings, Magadini said he doesn’t expect investors to be deterred from investing in the bitcoin ETFs.

    Bitcoin has actually seen lower volatility on Tuesday and Wednesday than options traders had priced in, Magadini said. The crypto was up about 0.4% over the past 24 hours to around $46,400 on Wednesday evening, according to CoinDesk data.

    Investors have been pricing in $1 to $2 billion of initial flows into the bitcoin ETFs.

    Read: Bitcoin in spotlight as SEC approves new ETFs, ether rallies. Here’s why.

    Steven Lubka, head of private clients and family offices at Swan Bitcoin, echoed Magadini’s point, noting that the hiccups on the way to SEC approval are unlikely to impact investor interest in the funds.

    “Ultimately, the SEC is not the one that launches the ETFs,” Lubka said in a call. “If anything, it shows how much attention is on these ETF products.”

    [ad_2]

    Source link

  • SEC Approves Bitcoin ETFs for Everyday Investors

    SEC Approves Bitcoin ETFs for Everyday Investors

    [ad_1]

    Updated Jan. 10, 2024 5:56 pm ET

    The U.S. Securities and Exchange Commission voted Wednesday to allow mainstream investors to buy and sell bitcoin as easily as stocks and mutual funds, a decision hailed by the industry as a game changer.

    The SEC decision clears the way for the first U.S. exchange-traded funds that hold bitcoin to be sold to the public. Expectations of U.S. regulatory approval for such funds drove the price of bitcoin to the highest level in about two years. The digital currency fell to just below $46,000 late Wednesday, up from $17,000 in January 2023.

    Copyright ©2024 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

    [ad_2]

    Source link