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https://www.nationthailand.com/business/40008026

European Central Bank officials have some convincing to do about their commitment to rock-bottom interest rates, at a time when investors are growing skeptical.

Financial markets have stubbornly ignored recent warnings from policymakers including Chief Economist Philip Lane that they’re wrong to anticipate a rate hike at the end of next year. The task of persuading people otherwise will fall to President Christine Lagarde as she presents the Governing Council’s latest decision on Thursday.

With inflation spiking, stoked by supply bottlenecks and rising energy, investors are betting that global momentum for withdrawal of monetary stimulus as espoused by the Federal Reserve will soon enough pull the ECB in its wake.

That notion has been fed further by a public debate among officials wondering how to transition from emergency bond purchases, despite the institution’s new low-rate pledge established after Lagarde’s strategy review refocused minds on lackluster price increases.

Back in September, she suggested that financial-market speculation of some eventual tightening in the future was broadly on track. Since then, amid more evidence of inflation, investors started bringing forward expectations for a liftoff in rates. They now see the deposit rate, currently at -0.5%, reaching zero by the end of 2024.

“The market is well ahead of the likely ECB response,” said Giles Gale, head of European rates strategy at NatWest Markets. “We would expect Lagarde to remind the market that they are serious enough about their forward guidance that this path represents a pretty unlikely high-inflation scenario.”

Guiding investors will be a key challenge for Lagarde as she presents the outcome of a decision that has been flagged only as a stepping stone toward a showdown in December between policy makers determining the future of stimulus.

Data on Friday is expected to show consumer-price growth in the 19-nation euro area further approaching 4%, twice what the ECB aims to reach in the medium term. So far, policy makers have insisted that’s largely transitory.

The ECB’s latest forecasts show inflation slowing to 1.5% in 2023 — not enough to justify higher rates based on policy makers’ latest manual that says forecasts must show price pressures at 2% for some time before such a step can be considered.

Investors initially pared back rate-hike expectations when presented with that guidance in July. Bets on increases in borrowing costs picked up as the economy staged a strong summer recovery, and as price growth broke through 3%.

Even so, Lagarde showed little sign of alarm at the end of September, when markets priced in a 0% deposit rate in four years’ time. “Our forward guidance has already led to a better alignment of rate expectations with our new inflation target […] We expect to see further progress toward an even tighter alignment between the expected time of lift-off for our policy rates and the most likely inflation outlook,” Lagarde said at ECB Forum on Central Banking.

Now that rate-hiking bets have kept surging, it’s unlikely that the president can still be as sanguine. If such a trend continues along with a broader tightening of financial conditions guiding policy decisions, it risks curtailing the ECB’s room to gradually phase out crisis support and move to more standard ways of supporting the economy.

“It makes sense for the ECB to be focusing its discussion on the balance sheet, rather than rates at this stage,” said Mohammed Kazmi, a portfolio manager at Union Bancaire Privee.

That focus might have distracted the ECB, said Michael Leister, head of rates strategy at Commerzbank.

“The rate hike repricing was very, very swift,” he said. “You can excuse them for dealing with other issues first.”

While Lagarde hasn’t remarked on the move, some of her colleagues are on edge. Greek Governing Council member Yannis Stournaras said Oct. 7 that rate bets “are not in accordance with our forward guidance.” Italy’s Ignazio Visco warned on Oct. 18 that “perhaps the market has been a bit too hectic.”

Lane, a member of the ECB Executive Board, expressed concern just last week.

“It’s challenging to reconcile some of the market views with our pretty clear rate forward guidance. Various Governing Council members have been indicating [that] markets may not have fully absorbed rate forward guidance,” Lane said at conference on monetary policy approaches.

Even if Lagarde and her colleagues manage to change perceptions this week, their policy will remain vulnerable to investor preoccupations guided by surging global prices.

“Short-end pricing may correct somewhat lower on Thursday,” said Jan von Gerich, chief strategist at Nordea Bank Abp. “But in the bigger picture, global inflation worries still have room to escalate.”

Published : October 27, 2021

By : Bloomberg

#SootinClaimon.Com : ขอบคุณแหล่งข้อมูล : หนังสือพิมพ์ The Nation.

https://www.nationthailand.com/business/40008025

WASHINGTON – Senate Democrats this week are preparing to propose a new tax increase that would raise billions of dollars from a handful of the richest Americans, attempting to create perhaps the most narrowly focused tax policy in postwar history.

But criticisms of the proposal have emerged – including from at least one top Democrat – and party leadership is still considering more traditional approaches to taxing the rich.

Senate Finance Committee Chairman Ron Wyden, D-Ore., said Monday he will “in a matter of days” release a tax on billionaires that economists and tax experts project could raise more than half of its revenue from just 10 people, including Tesla co-founder and CEO Elon Musk and Amazon founder Jeff Bezos. (Bezos is the owner of The Washington Post.) Estimates vary widely on exactly how much money the plan would bring into federal coffers, in part because no such idea has ever been put into effect.

While Democrats have increasingly eyed the plan as a way to win the support of Sen. Kyrsten Sinema, D-Ariz., who has expressed opposition to increasing the corporate tax rate, some legal scholars have warned it could get struck down by the Supreme Court. And while negotiations are rapidly evolving, Democrats are considering swapping the billionaire tax for a separate 3% “surtax” on millionaires earning more than $5 million per year, according to two people familiar with the negotiations who spoke on the condition of anonymity to reflect internal negotiations. Details remain very much in flux.

The competing tax plans show the difficult trade-offs Democrats must weigh as they try to come to agreement on new sources of revenue to pay for President Joe Biden’s climate and social spending plan – which could cost as much as $1.75 trillion over 10 years – by the end of this week.

The surtax on multimillionaires – originally pitched in House Democrats’ tax plan from September to pay for Biden’s economic package – may prove easier to administer and less vulnerable to legal challenge. But the billionaire tax would fall on far fewer people and, if successfully implemented, could do substantially more to reverse the massive concentration of wealth that Democrats have for years called reflective of a dangerous increase in U.S. inequality.

“If there’s a sliver of good news, it’s that there may be at least enough political cohesion to target a class that clearly has a great deal of resources way in excess of what it needs,” said Darrick Hamilton, an economist at the New School. “When you see billionaires being able to go to space and back for hobby and fun – in a society worried about floods on a periodic basis – that’s a problem.”

Democrats billionaire tax would heavily target 10 wealthiest Americans, but alternative plan is emerging

Billionaires have been able to pay low effective tax rates in part because the value of their company stock holdings is not subject to capital gains taxes until they are sold. Wyden’s plan would amount to a major shift in the U.S. tax code by leveling a 23.8% tax on the increase in stock value – or “unrealized capital gain” – even before those assets are sold.

As a result, the plan would fall primarily on billionaires who have held onto their publicly traded stock holdings – an easily measured and publicly identifiable criteria. Their private business holdings, such as Musk’s SpaceX or Bezos’s Blue Origin, would likely not fall under the tax.

Figures for how much the tax would raise over 10 years range from between $250 billion and upward of $500 billion. But roughly half of its potential new revenue would likely be paid by just the 10 wealthiest Americans, including Musk, Bezos, Bill Gates, Mark Zuckerberg and Warren Buffett, according to an estimate by Gabriel Zucman, an economist at the University of California at Berkeley. Several other tax experts supported his broad conclusions.

According to Zucman’s analysis, Musk would pay as much as $50 billion under the tax over its first five years, while Bezos could pay as much as $44 billion, according to economists’ estimates.

Musk weighed in on the proposal Monday evening, suggesting on Twitter that it could mark the beginning of a much more aggressive taxation campaign by Democrats. “Eventually they run out of other people’s money and then they come for you,” he wrote.

He also wrote: “Who is best at capital allocation – government or entrepreneurs – is indeed what it comes down to. The tricksters will conflate capital allocation with consumption.”

Collectively, the wealthiest 10 Americans own roughly $1.3 trillion, and the Wyden plan would require them to pay a combined $276 billion in taxes. These taxes would essentially fall on billionaires’ lifetime earnings. But, once paid, the billionaires would only pay further taxes on additional increases in unrealized stock gains. That distinguishes the Wyden plan from Sen. Elizabeth Warren’s, D-Mass., wealth tax, which would indefinitely reduce billionaire wealth every year.

Democrats have increasingly viewed the billionaire tax as a way to pay for the economic package in part because of the tremendous increase in wealth at the top of the income distribution since the beginning of the pandemic. The top five billionaires saw their wealth increase 82% since the pandemic began, adding $370 billion since the S&P 500’s pre-pandemic peak in February 2020, according to calculations based on the Bloomberg Billionaires Index.

These calculations are based on wealth as of Sunday, Oct. 24, but revenue estimates will evolve along with billionaire’s wealth. On Monday alone, the total wealth held by Musk skyrocketed by as much as $36 billion due to a new order of Teslas from the rental company Hertz.

The new law would see Musk and his peers paying orders of magnitude more than they had before. A June report from the nonprofit news organization ProPublica found Buffett paid $23.7 million in taxes from 2014 to 2018. He would pay about a thousand times that number under the new proposal. Musk paid $455 million over that time, the report found, or about a hundred times less than he’d pay under the new proposal. Bezos’s new tax bill would be about 10 times what he paid in the earlier five-year period.

“It is being written so that when nurses and firefighters pay taxes with every paycheck, billionaires, who have figured out how to not pay taxes because they don’t take a wage, they’re going to have to pay their fair share,” Wyden told reporters on Monday night.

But questions abound about implementing the billionaire tax. Steve Rosenthal, senior fellow at the nonpartisan Tax Policy Center think tank, said it would be far simpler to enact Biden’s initial plan to tax capital gains when they are inherited – a proposal abandoned due to opposition from centrist Democrats – than create a new part of the tax code for billionaires.

Rosenthal also raised the question of how to ensure billionaires do not simply evade the tax by moving their publicly held stock into more opaque forms of assets, such as private companies. Wyden’s plan proposes an interest penalty on privately held assets, but such an idea is untested.

“While only a few taxpayers would pay the new tax, many more would need to value all their assets annually, including their privately-held businesses,” Rosenthal wrote in a blog critiquing the idea. “Taxpayers close to the line might move in and out of the new tax regime frequently. How would the IRS determine whether all billionaires filed properly?”

House Ways and Means Committee Chairman Richard Neal,D-Mass., has also expressed reservations about the billionaire tax idea. Neal said House Democrats previously had looked at the idea and concluded then – as now – that “it will be a challenge.” Neal raised a number of areas to address, including what the government would do when billionaires had bad years and had taxes owed to them.

“I like the politics of it, yeah, I think it’s sensible,” he said. “I think the implementation of the plan may be a bit more challenging.”

Democrats billionaire tax would heavily target 10 wealthiest Americans, but alternative plan is emerging

Other tax experts say a conservative-dominated Supreme Court would be unlikely to uphold the new tax. The constitutionality of a tax on wealth remains unclear, and it is unclear if the administration could successfully convince the court that the measure is instead an income tax – which would be permissible under the 16th Amendment.

“If I were a justice, I would uphold it . . . But I’m not. Six Republican-appointed judges on the Supreme Court are,” said Daniel Hemel, a tax law professor at the University of Chicago. “There are lots of constitutional ways to do this, and we’ve picked the one constitutionally problematic option.”

Zucman rejected the argument that the tax could prove complicated to implement. He said it “would be the most progressive tax in history,” noting the next closest – the estate tax – raises roughly $20 billion a year, possibly as little as 5% of the Wyden plan.

“For these guys, the truth is it’s so easy to enforce the tax because it’s so obvious what they own,” Zucman said.

Published : October 27, 2021

By : The Washington Post

#SootinClaimon.Com : ขอบคุณแหล่งข้อมูล : หนังสือพิมพ์ The Nation.

https://www.nationthailand.com/business/40008024

U.S. stocks traded near all-time highs as corporate earnings helped boost sentiment amid lingering concerns about inflation and growth.

The S&P 500 and Dow Jones industrial average set records as Tuesday’s round of earnings kicked off, with United Parcel Service Inc. and General Electric Co. gaining after strong results. Facebook Inc. dropped as a pledge to buy back more shares and increase spending on digital offerings was offset by a revenue miss. Big-tech peers Twitter Inc., Alphabet Inc. and Microsoft Inc. are reporting after the market close on Tuesday.

“I don’t think anybody’s too worried about the big tech names,” said Ross Mayfield, investment strategy analyst at Baird. “Their performances are all incredibly strong in absolute standards that the bar is just so high for them at this point that it can be harder to meet expectations.”

The Stoxx Europe 600 index also rose 0.8% to close at a record high. Reckitt Benckiser Group Plc gained after the maker of Strepsils throat lozenges raised its sales forecast and Novartis AG advanced on news it may spin off its generic-drug unit.

The 10-year U.S. Treasury yield fell and the dollar gained. The debate over price pressures continues: former Treasury Secretary Lawrence Summers said officials are unlikely to deal with “inflation reality” successfully until it’s fully recognized.

“We’re coming off a 40-plus-year bond-bull market,” said Megan Horneman, portfolio strategy director, Verdence Capital Advisors, on Bloomberg TV and Radio’s “Surveillance.” “And right now we’re looking at interest rates that should be a lot higher from here. So with duration, as high as it is in the fixed income market, you have to be very cautious around fixed income.”

Earnings season is helping to counter concerns that elevated inflation and tightening monetary policy will slow the recovery from the pandemic. Some 81% of S&P 500 members have reported better-than-expected results so far, though Citigroup Inc. warned that profit growth may be close to peaking.

WTI crude oil traded above $84 a barrel as investors weighed the outlook for U.S. stockpiles and prospects for talks that may eventually help to revive an Iranian nuclear accord, allowing a pickup in crude exports.

Gold fell to $1,790 an ounce and Bitcoin slid to $62,000.

Some of the main moves in markets:

Stocks

The S&P 500 rose 0.2% as of 4:02 p.m. EDT

The Nasdaq 100 rose 0.3%

The Dow Jones industrial average was little changed

The MSCI World index rose 0.2%

Currencies

The Bloomberg Dollar Spot Index was little changed

The euro was little changed at $1.1599

The British pound was little changed at $1.3763

The Japanese yen fell 0.4% to 114.13 per dollar

Bonds

The yield on 10-year Treasurys declined two basis points to 1.61%

Germany’s 10-year yield was little changed at -0.12%

Britain’s 10-year yield declined three basis points to 1.11%

Commodities

West Texas Intermediate crude rose 1% to $84.58 a barrel

Gold futures fell 0.7% to $1,794.90 an ounce

Published : October 27, 2021

By : Bloomberg