Finance and Economic

The signing ceremony for a deal to end Yemen’s political crisis was postponed indefinitely Sunday after the Yemeni president refused to sign it personally, a Gulf official said, signaling the possible collapse of the agreement.

Ahmed Khalifa al-Kaabi, a media official for the six Gulf Arab nations sponsoring the agreement, told The Associated Press that their foreign ministers would meet in the Saudi capital, Riyadh, on Sunday to try to find a way to salvage a deal.

The standoff between Yemeni President Ali Abdullah Saleh and the hundreds of thousands of street protesters demanding his immediate departure after 32 years in office threatens to pull the impoverished and fragile nation into greater disorder and destabilize the rest of the Arabian peninsula.

The Gulf Cooperation Council, an association of Yemen’s oil-rich neighbors, offered a deal that calls for Saleh to step down within 30 days and for the ruling party and the opposition to come together in a national unity government. In exchange, Saleh would get immunity from prosecution.

The GCC comprises Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Oman and Bahrain.

Yemen’s opposition parties, which had initially agreed to the deal, said they would not sign it if Saleh refused to do so personally.

For their part, representatives of the those staging anti-Saleh demonstrations since early February have rejected the deal outright, demanding that Saleh immediately step down and face trial for the killings of protesters and corruption.

They say the established opposition political parties taking part in the talks do not represent them, and even if a deal were reached it seemed unlikely that it would end the protests.

The ceremony was expected to be held in Riyadh on Sunday or Monday.

In what appeared to be a last-minute bid to salvage the deal, Saudi Arabia’s King Abdullah spoke to Saleh by telephone on Sunday, according to a brief Yemeni government statement paperless payday loans.

The deal’s collapse would raise the prospects of more bloodshed in a nation already beset by serious conflict and deep poverty and which is home to al-Qaida’s most active offshoot.

At least 140 people have died in the government’s crackdown on the protests, which have nonetheless grown in number week after week. The violence has prompted several top military commanders, ruling party members, diplomats and others to defect to the opposition.

Still, Saleh has clung to power and has the key backing of Yemen’s best trained military units, which he placed under the command of one of his sons and other close relatives.

Al-Kaabi’s citing of Saleh’s refusal to personally sign the deal indicated the GCC blamed him for the deadlock.

Government officials said Saleh had told GCC Secretary-General Abdullatif bin Rashid al-Zayani on Saturday that he intended to ratify the deal after sending a close aide and a senior ruling party official to sign it.

The officials spoke on condition of anonymity because they were not authorized to speak to the media.

The opposition, whose leaders have said before that they have little trust in Saleh’s word, feared he was leaving himself room to stay in power.

Leaders of the street demonstrations said they planned to step up their protests to force Saleh out.

Tens of thousands of protesters were out Sunday in a number of Yemeni cities, including Aden and Taiz in the south, to demand that he step down.

“We will not pay attention to any mediation or foreign intervention,” said protest leader Abdel-Hadi al-Azazi in Sanaa, the capital. “We will continue to march and protest until the uprising’s goal is achieved _ the ouster of the regime.”

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The Dollar Index fell toward the lowest level in more than two years on speculation the Federal Reserve will reiterate this week its intention to keep interest rates near zero.

The euro rose for a fifth day against the greenback on prospects European Central Bank officials will signal that higher borrowing costs will be necessary to contain inflation. Australia’s dollar climbed to a record as rising gold prices boosted the outlook for the nation’s resource exports.

“What’s behind the dollar’s weakness is the difference in monetary policy in the U.S. from other major economies excluding Japan,” said Daisaku Ueno, president of Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The European Central Bank will raise interest rates several times this year.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, declined to 73.978 as of 8:54 a.m. in Tokyo after touching 73.735 on April 21, the lowest since August 2008. The dollar was at 82.05 yen from 81.88 yen last week.

The euro climbed to $1.4587 from $1.4561 in New York last week. It reached $1.4649 on April 21, the highest since December 2009. The Australian dollar, known as the Aussie, reached $1.0776, the highest since it was freely floated in 1983.

Benchmark Rates

The Federal Open Market Committee announces its policy decision on April 27 and will hold the benchmark rate in a range of zero to 0.25 percent, according to all 80 economists surveyed by Bloomberg. Most of the 50 analysts in a Bloomberg survey last month said they expect the Fed will keep its bond portfolio stable for some time after its $600 billion purchase program ends in June.

ECB executive board member Jose Manuel Gonzalez-Paramo will speak in Spain tomorrow. ECB policy makers led by President Jean-Claude Trichet raised the key interest rate to 1.25 percent from a record low of 1 percent on April 7 and left the door open for further increases.

Gold, Australia’s third most-valuable raw material export, climbed 0.5 percent to $1,514.07 an ounce today, after earlier touching an all-time high of $1,520.00.

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The chief of General Electric (GE, Fortune 500) on Thursday defended the conglomerate’s zero tax rate in 2010, and called for reform of the U.S. tax code.

In his first public speaking engagement since a barrage of criticism about not having to pay taxes in 2010, GE chief executive Jeff Immelt told the Economic Club in Washington that his company did nothing wrong.

"At GE, we do like to keep our tax rate low, but we do it in a compliant way, and there are no exceptions," Immelt said. "Our tax rate will be much higher in 2011 as GE Capital recovers."

But Immelt added that he, along with many other corporate leaders, wants the federal government to reform the U.S. tax code, which he called "old, complex and uncompetitive."

Immelt also pointed out that over the past five years GE has paid $14 billion in taxes. He said that even though GE made money in 2010, "we didn’t make a lot of that in the U.S."

The company is particularly in the spotlight because Immelt also serves as the chief of President Obama’s innovation and jobs council payday loans with no fax. When asked what he thought of criticism that GE isn’t a good role model and shouldn’t be leading the jobs council, Immelt said he was committed to helping the president build jobs.

"I’m completely committed to doing this job and working with the president and building jobs in the U.S.," Immelt said.

Later, in an interview with the media after his speech, when asked what GE was doing to help job growth, he said the company expects to have hired 16,000 new employees this year and last year, mostly in manufacturing and high tech services industries.

Immelt said he understands why his company is taking heat in the media.

"I don’t fault this type of reporting," Immelt said. "It is what it is. You can’t do any job like this unless you have a thick skin." 

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ST. LOUIS

President Barack Obama is riding high, with legislative successes in the lame duck congressional session, an inspirational speech after the Tucson shootings and a can-do State of the Union address.

Given what looks like an unusually weak Republican presidential field, Obama today is a favorite for re-election.

Yet as events in the Middle East over the last two weeks show, unforeseen crises can shake up the political dynamics. If over the next year regimes that are more Democratic and not hostile to U.S. interests emerge in Egypt and elsewhere, the president will win praise for skillful diplomacy; if chaos or more radical elements take over, his political stock will drop.

Frustrating for Obama is that there isn’t a lot he can do to shape this outcome. The same is true of several variables that likely will be determinative in the 2012 election: the economy, the war in Afghanistan and the behavior of the House Republican majority.

Since World War II, no president or incumbent party has won re-election in a presidential race when the unemployment rate is higher than 7.5 percent. The current rate officially is 9 percent, and if those who have given up looking for a job are included, it’s actually greater than 10 percent; almost no expert thinks it will drop sharply in the next year and a half.

Home Prices, Debt

Mark Zandi, chief economist at Moody’s Analytics Inc., sees unemployment close to 8 percent in the autumn of 2012. He offers three caveats that could worsen the outlook: if the weakness in U.S. home prices persists, or, on a global level, if the European debt crisis worsens, or if China’s economy, the world’s second-largest, has a bumpier landing than envisioned.

An 8 percent jobless rate in October of next year probably would be a political winner, Zandi suggests, as voters would see a clear pattern of progress. One model may be President Ronald Reagan in 1984. Despite the memories of “the morning in America,” a Reagan theme that year, the unemployment rate on Election Day was 7.4 percent. A year earlier, it had been 8.8 percent. It was the direction that mattered.

The Obama White House would settle for anything resembling such signs of forward movement in Afghanistan. That may be tough. Last year, U.S. deaths in that conflict reached almost 500, up 60 percent from the year before and more than triple the number two years earlier. The number of wounded more than doubled from 2009, as the U.S. struggles to counter the improvised explosive devices that are the largest cause of casualties.

Loss of Holbrooke

The government of President Hamid Karzai, insiders acknowledge, is as corrupt as ever. And Obama lost his most creative diplomat when Richard Holbrooke, the special envoy for Afghanistan and Pakistan, died suddenly in December, though the White House foolishly didn’t fully utilize his talents.

The president has vowed to start withdrawing some of the 100,000 U.S. troops in Afghanistan starting in July. That assumes progress, a dicey assumption.

The government’s own review at the end of last year was optimistic that al-Qaeda and the Taliban militants have been weakened, and the influence of Pakistan reined in. Bruce Riedel, a former Central Intelligence Agency officer and Afghanistan expert, now at the Brookings Institution in Washington, says the U.S. is “no longer close to the precipice of defeat and strategic disaster,” as it was when Obama took office in January 2009 payday loan companies.

Yet, especially with a delicate state of play in Pakistan, he also writes, “we are far from being on the edge of anything anyone would describe as success.” The administration’s own review warns the situation “remains fragile and reversible.”

Tea Party Overreach

When it comes to domestic politics, the White House and other Democratic strategists are optimistic that congressional Republicans, with the take-no-prisoners Tea Party newcomers, will overreach. They believe the president will be able to out- position and outmaneuver the opposition, a brightening picture that began to emerge with the State of the Union address.

There already are schisms within Republican ranks. Minnesota Congresswoman Michele Bachmann, the self-styled Tea Party leader, has made clear she has no intention of following the line of the House speaker, Ohio Representative John Boehner, or other leaders. Nationally, the ubiquitous Sarah Palin hijacks the agenda anytime she weighs in.

The establishment Republican leaders, including Representative Paul Ryan of Wisconsin, who has received mostly uncritical press for months, will soon have to produce on the tough fiscal issues, specifically by showing how they would slash domestic spending or whether to touch politically lethal entitlements like Social Security and Medicare. Democrats are salivating over these pending particulars — such as proposed cuts in education or health research — which will come as early as this week.

No Election Mandate

There remain a few Republicans who misread last November’s election as a mandate for their agenda rather than a protest against the governing party and tough economic times. Even a seasoned professional like the Senate minority leader, Mitch McConnell, sometimes seems tone deaf. “If the president is willing to do what I and my members would do anyway, we’re not going to say no,” the Kentucky Republican cracked the other day.

Still, top Senate Republicans such as McConnell, Arizona’s Jon Kyl and Tennessee’s Lamar Alexander aren’t likely to provide many such openings for the Democrats to exploit. And Tom Davis, a former top Republican congressman who is an astute analyst of U.S. politics, suggests the White House is miscalculating that House Republicans will make the same mistakes their predecessors did in 1995 when they shut down the government, assuring President Bill Clinton’s re-election.

Boehner, Not Gingrich

“John Boehner is not Newt Gingrich; he’s not out there going to the zoo,” Davis says, noting the different styles and skills of the current Republican House speaker and the one 15 years ago. “The Republican base in the House is fractured but Boehner is the right guy to manage it well.”

The odds are the economy will continue to improve over the next year and half, the situation in Afghanistan won’t deteriorate and the Republicans will overreach on unpopular positions. If one, or certainly two, of these occur, and there’s no global cataclysm, bet on Obama’s re-election. That, however, largely is out of his control.

Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)

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Democratic state lawmakers in Illinois are scrambling to pass massive personal and corporate income tax hikes Tuesday to bring their state budget back from the fiscal abyss.

Timing is critical because it will be much harder to raise taxes after Republicans take over more seats on Wednesday. The state GOP is firmly opposed to hiking taxes, preferring instead to cut spending. (Update: Tax hikes approved)

While the proposal is still in flux, it contains a mix of tax increases and new borrowing, with a nod to keeping spending under control. Democrats are trying to garner more support for the measure by scaling back the tax spike to 66%, down from an initial proposal of 75%.

Among the measures on the table are:

Temporarily raising the personal income tax rate to 5%, from 3%.Temporarily hiking corporate income taxes to 7%, from 4.8%.Increasing the tobacco tax to $1.99 per pack, from 98 cents.Imposing a moratorium on new programs with spending growth capped at 2% per year, with the exception of increased school aid of more than $700 million.Borrowing $8.5 billion to clear the current stack of unpaid bills.Borrowing $3.7 billion for the fiscal 2011 pension payment.

Deficits and unpaid bills

Illinois is not alone in its budget problems. States are facing a collective $41 billion budget gap, according to a recent survey. California’s new governor, Jerry Brown, just unveiled a budget proposal that will slash funding for social services, universities and aid to the needy.

But the Illinois budget crisis, which has been decades in the making, is arguably among the worst in the nation. The state’s income tax rates have not risen since 1989.

The state is facing a $13 billion shortfall that must be resolved by the end of the fiscal year on June 30. Illinois has $6 billion in unpaid bills to social service agencies, healthcare providers, contractors and others. And its state pension plan is severely underfunded.

"This is unprecedented," said Richard Dye, professor at the Institute of Government and Public Affairs at the University of Illinois. In a recent report he co-authored, he wrote it is hard to overstate the depth of the fiscal hole the state is in.

If the legislature doesn’t act by Wednesday, Gov. Pat Quinn will have tougher decisions to make when he introduces his Fiscal 2012 budget in mid-February. He may have to suggest deep spending cuts, which he has been loath to do.

And he may find it harder to turn to the bond markets since investors are growing increasingly skittish. Illinois relies on borrowing more than most states because it is allowed to use debt to fill budget shortfalls.

Republicans, meanwhile, are firmly opposed to raising taxes, saying it will hurt businesses and discourage new ones from moving to Illinois.

"While Illinois’ budget problems are grave, the answers lie in first attacking the excessive spending and enacting structural reforms that are needed before any new revenues are even considered," the Illinois Republican Party said in a statement. "We cannot let the Democrats drive business out of Illinois and all of the jobs that go with it."

The governor has promised to deal with the state’s financial problems very soon.

"We will pay our bills," he said in his inaugural address Monday. "We will stabilize our budget."

Even if Democratic lawmakers manage to pass the tax hikes, it won’t be enough to fully close the budget gap, Dye said. His analysis, which was based on the initial tax hike proposal of 75%, showed the state would still have to battle deficits in the coming fiscal year.

"It only solves half the problem," he said. 

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The Bank of Canada will need to raise interest rates this year as inflation accelerates, and policy makers have overestimated how much slack is left in the economy, said Sheryl King, head of Canada economics at Bank of America Merrill Lynch.

The difference between Canada’s economic output and how much companies can produce without stoking inflation is about half a percentage point and shrinking quickly, King said in an interview yesterday in Toronto.

“We are closer to closing the output gap than the Bank of Canada is assuming,” King said. “There is a strong case to be made that potential output actually declined in late 2008 and early 2009” she said, noting a drop in industrial capacity utilization.

King’s view contrasts with the central bank’s last quarterly forecast in October, which said “the output gap is slightly larger” than policy makers expected and would take an extra year, until the end of 2012, to close. Governor Mark Carney and his deputies also said in October inflation would be at the bank’s 2 percent target at that time.

The movement of the economy to its full potential means the so-called core rate of inflation — which excludes eight volatile items and is used by the central bank to judge future inflation trends — will quicken to 2.7 percent by the end of 2011 from a December pace of 1.4 percent, King said.

The Bank of Canada’s benchmark overnight interest rate is 1 percent today and the next decision is on Jan. 18. The rate will rise to 2 no faxing payday loan.5 percent by the end of the year, King said. Her prediction is greater than the 2 percent median estimate in a Bloomberg News survey with 17 responses, including King’s.

Yield Gap to Disappear

The increase in the central bank’s rate and in foreign purchases of Canadian bonds means the gap between short-term and long-term bond yields will disappear this year, King said. Investors should protect themselves with purchases of 30-year government bonds and sales of short-term debt, she said.

“The yield curve by the time we get to the end of 2011 is going to be virtually flat,” she said at a presentation before the interview.

Purchases of provincial and Canadian federal government bonds from January to October of last year have already exceeded annual records, Statistics Canada said Dec. 16. Demand for the country’s bonds may be supported by Finance Minister Jim Flaherty’s goal of balancing the government’s budget by 2015-16, making Canada the first Group of Seven country to do so.

“I don’t think that the bid of foreigners goes away” for Canadian debt, King said.

King joined Merrill Lynch as a senior economist in 2004, serving as the U.S. macroeconomic forecaster in New York. Prior to joining Merrill Lynch, She worked at Toronto-Dominion Bank in Toronto for four years, and eight years at the Bank of Canada.

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Stocks are pointed to early gains as the market heads into the last few days of trading before the new year.

The market is expected to be buoyed by a spate of positive economic news in recent weeks, though economic data released Tuesday showed that consumers are still fretting about high unemployment.

Overseas markets in China and Germany were also performing well.

Ahead of the opening bell on Wednesday, the Dow Jones industrial average futures are up 12 points, or 0.1 percent, to 11,521. S&P 500 futures are up 1.3, or 0.1 percent, to 1,255. Nasdaq composite futures are up 5.5, or 0.2 percent, to 2,231.

Traders will closely watch the U.S. Treasury’s auction of $29 billion in 7-year notes on Wednesday, following a disappointing sale of Treasury notes on Tuesday that sent bond prices lower.

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The Toronto stock market was lower Friday, dragged down by the financial sector after Bank of Montreal announced a sizable all stock deal to expand its presence in the U.S. banking industry.

The S&P/TSX composite index lost 30.93 points to 13,150.3, finding some support from a strong earnings report from tech giant Research In Motion Ltd. (TSX: RIM), while the TSX Venture Exchange gained 9.41 points to 2,115.22.

Bank of Montreal (TSX: BMO) shares fell $3.65 or 5.9 per cent to $58.40 after it announced it is buying Wisconsin-based bank Marshall & Ilsley Corp. (NYSE: MI) for US$4.1 billion in shares. Marshall & Ilsley has US$51.9 billion in assets.

The Canadian dollar declined as the U.S. dollar advanced against other currencies continuing nervousness about the government debt crisis in Europe. The loonie lost 0.55 of a cent to 98.86 cents US.

Research In Motion (TSX: RIM) shares rose $2.60 to $62.21 after the company posted record third-quarter results after the market closed Thursday, helped again by strong international growth and sales of its new BlackBerry Torch, which has a touchscreen and a pullout keyboard.

RIM earned US$911.1 million, or $1.74 per diluted share in the third quarter. That compared with a profit of $628.4 million or $1.10 per share a year ago.

Revenue for the quarter totalled $5.49 billion, up from $3.92 billion.

Oil prices moved slightly higher despite the rising greenback, with the January crude contract on the New York Mercantile Exchange up a dime to US$87.80 a barrel. The energy sector rose 0.18 per cent and Suncor Energy (TSX: SU) gained 16 cents to $36.62 after the energy giant launched a $1.75-billion development agreement in Canada

U.K. retail sales rose in November after a bigger than estimated increase in October, led by demand for food, toys and jewelry in the run-up to Christmas.

Sales increased 0.3 percent from October, when they gained a revised 0.7 percent, the Office for National Statistics said today in London. That matched the median forecast of 24 economists in a Bloomberg News survey. From a year earlier, sales rose 1.1 percent.

Recent data indicate the economic recovery maintained momentum in the fourth quarter, with jobless claims falling for a second month in November and surveys showing manufacturing growth accelerated to a 16-year high. Retail sales may also have been boosted by consumers bringing forward spending to avoid next year’s increase in value-added tax.

“There’s an element of pre-Christmas demand in the numbers, and the budget cuts haven’t started to kick in yet,” said Alan Clarke, an economist at BNP Paribas in London. In 2011, “incomes will be eroded by inflation and that will make it harder for retailers.”

Prime Minister David Cameron’s government will increase value-added-tax to 20 percent from 17.5 percent starting from January. Almost two-thirds of U.K. retailers predict Christmas sales will be the same or better than last year, according to the British Retail Consortium.

Food Sales

The pound was little changed against the dollar after the report, and traded at $1.5591 as of 9:46 a.m. in London, up 0.3 percent since yesterday.

Excluding fuel, sales increased 0.3 percent in November from October and were up 1.8 percent on the year, the statistics office said. Food-stores sales increased 0.6 percent from the previous month, and non-food sales rose 0.2 percent. Tesco Plc, the U.K.’s largest supermarket chain, said on Dec. 7 that sales in the peak Christmas period are ahead of its forecast.

Internet sales surged 37.5 percent by value in November. Such sales now account for 10.5 percent of all retail sales, compared with 7.9 percent a year earlier. Average weekly internet sales in November amounted to 660 million pounds ($1.03 billion), according to the statistics office.

Bank of England Deputy Governor Charles Bean said this week the recovery “has remained on track” and may have persisted this quarter. Nevertheless, the pace of consumer-spending growth may be curbed by the government’s planned fiscal squeeze. The Treasury’s fiscal watchdog has said the U.K. faces a “sluggish” recovery and forecasts that about 330,000 government jobs will be axed by 2015.

Inflation Pressure

Accelerating inflation may also undermine households’ spending power. Consumer-price growth unexpectedly accelerated to a six-month high of 3.3 percent in November. The Bank of England said in a report today that Britons’ inflation expectations surged to their highest level for more than two years in a sign that price increases may be becoming embedded in the minds of consumers.

Policy makers held the benchmark interest rate at a record low 0.5 percent this month and left their bond-purchase plan at 200 billion pounds. Adam Posen said in a speech today that policy makers shouldn’t “overreact” to the fact that inflation is above the 2 percent target.

The retail deflator, a measure of changes in shop prices, showed a 2.3 percent annual increase in November, the statistics office said. The deflator on clothing was 2.5 percent, the most since records began in 1988.

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