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Sept. 13, 2010 | Written by Jeffrey Winograd
Positive stirrings in corporate tax receipts – The U.S. federal government deficit for the first 11 months of fiscal year 2010 was $1.265 trillion and is projected to exceed $1.3 trillion for the entire fiscal year which ends on Sept. 30, according to the Congressional Budget Office (CBO). Outlays are 2% below the level recorded for the same period last year while revenues are up by 1.5%. Relative to the size of the economy, the FY 2010 deficit will be the second-largest shortfall in the past 65 years and will measure 9.1% of gross domestic product (GDP), CBO said. The FY 2009 deficit was 9.9% of GDP. Corporate income tax receipts have climbed by $32 billion (or 30%) this year. CBO attributes this to “improved economic conditions” and the expiration of legislation that permitted taxpayers to take higher depreciation charges in 2009. Some eyebrows have been raised by the extraordinary jump in receipts from the Federal Reserve. These receipts were $41 billion (or 146%) higher than the amount received in the 11-month period of last year. They were the result of profits earned by the Fed, “which primarily reflect the central bank’s much larger portfolio and its shift to riskier and thus higher-yielding investments in support of the housing market and the broader economy,” CBO said.
Forex traders keep a close eye on economic indicators – A report on July industrial production in the euro zone is set for release today. On Sept. 14, the ZEW (Center for European Economic Research) Indicator of Economic Sentiment for Germany will be published. The indicator was 14 points in August and analysts expect a drop. A report on U.S. retail sales in August will be released the same day. Sept. 15 will see reports on euro zone inflation for August and U.S. industrial output for August. On Sept. 17, the U.S. inflation number for August and the preliminary Thomson Reuters/University of Michigan consumer sentiment index for September, which is a useful gauge of whether American consumers are likely to part with some of their greenbacks, will become available.
Basel III agreement designed to mitigate damage from bank failures – In several years time, the international banking industry will be required to markedly increase the reserves they must hold to ward off major damages from “future periods of stress,” the Basel-based Bank for International Settlements announced on Sept. 12. Specifically, the minimum common equity requirement is being raised from 2% to 4.5% and banks will be required to hold a capital conservation buffer of 2.5%, bringing the total common equity requirements to 7%. Implementation by member countries is set for Jan. 1, 2013 by which time they must adopt the rules into national laws and regulations. As of this key date, banks will be required to meet the following new minimum requirements in relation to risk-weighted assets (RWAs) – 3.5% common equity/RWAs; 4.5% Tier 1 capital/RWAs, and 8% total capital/RWAs. The agreements will fundamentally strengthen global capital standards, said Jean-Claude Trichet, president of the European Central Bank and head of the group that hammered out the accords, adding that they will substantially contribute to long-term financial stability and growth. The transition provisions will enable banks to achieve the new standards while supporting the economic recovery, Trichet stressed. The Basel Committee comprises representatives from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the U.K. and the U.S.
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