YCLOAK

A planned massive Republican tax overhaul has led Wall Street strategists to revise their 2018 corporate earnings forecasts sharply higher, but the jury is out on how long the accelerating effect on profits will last.

The tax bill, which the U.S. House of Representatives approved on Tuesday, will cut the corporate income tax rate to 21 percent from 35 percent, beginning Jan. 1, and would be the biggest positive factor for U.S. earnings in 2018. A Senate vote was still awaited.

Although there is a wide range of profit estimates for 2018, the expected tax plan benefit has strategists now calling for double-digit profit gains in 2018 over 2017, compared with their forecasts for mid-single-digit gains without the tax cuts. S&P 500 earnings growth for 2017 was an estimated 11.9 percent, according to Reuters data.

“This is going to drive the earnings numbers. [Tax] is going to overwhelm everything,” said Credit Suisse Group U.S. Equity Strategist Jonathan Golub, who was waiting for the bill’s passage to adjust his own earnings estimates.

With the U.S. and world economies expanding, consumer demand strong and interest rates low, corporate profits were expected to be healthy next year. The tax law will give them an added jolt of adrenaline.

Many strategists estimate the cut in corporate tax could deliver an extra boost to earnings next year of between about 7 percent to more than 10 percent. Some of the forecasts were based on a previous version of the legislation calling for a tax cut to 20 percent.

In one of the most recent projections, UBS on Friday said it saw a potential 9.1 percent boost to S&P earnings per share because of the tax plan.

Ripple effect unclear

It is unclear how great the lasting positive impact will be.

“The retention of this benefit is unclear,” said Savita Subramanian, Bank of America-Merrill Lynch’s head of U.S. equity and quantitative strategy, who forecasts the plan could add $19, or about 14 percent, to S&P 500 earnings including potential paybacks from repatriation, with the net recurring benefit likely to be closer to $11, or 8 percent.

Subramanian, in a presentation earlier this month, said companies may look to use the benefit for short-term lifts. For example, retailers, which have been suffering from competition from Amazon, may want to pass the benefit on with bigger sales and more promotions.

“You have to wonder how much of that benefit you’re going to really see float to the bottom line on a longer-term basis,” Subramanian said.

The boost to profits goes a long way to justify some of the rapid rise in stock valuations since Donald Trump’s election as president a year ago. Stronger earnings mean less stretched price-to-earnings ratios.

The S&P 500 has gained about 5 percent since mid-November when the House passed its tax overhaul bill, and is up about 20 percent year-to-date.

Golub and others said after the initial boost to forecasts, the profit numbers could still drift higher in the months ahead as companies adjust their plans.

“We’ll get a big jump in ’18, but the ripple effect of the tax bill could be the big surprise in the second half of ’18,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

“The tax cuts … will give companies a lot more flexibility to do dividend increases, buybacks and hiring, and that’s what’s difficult to get a handle on,” Hellwig said.
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U.S. single-family homebuilding and permits surged to more than 10-year highs in November, in a hopeful sign for a housing market that has been hobbled by supply constraints.

Builders have struggled to meet robust demand for housing, which is being fueled by a labor market near full employment.

Land and skilled labor have been in short supply, while lumber price increases have accelerated.

The Commerce Department said on Tuesday that single-family homebuilding, which accounts for the largest share of the housing market, jumped 5.3 percent to a rate of 930,000 units.

That was the highest level since September 2007.

Pointing to further gains, single-family home permits rose 1.4 percent to a pace of 862,000 units, a level not seen since August 2007. The jump in groundbreaking on single-family housing units suggests housing could contribute to gross domestic product in the fourth quarter.

Investment in residential construction has declined for two straight quarters, weighing on economic growth. A survey on Monday showed confidence among homebuilders soaring to near an 18-1/2-year high in December, amid optimism over buyer traffic and sales over the next six months.

Prices of U.S. Treasuries remained at session lows after the data while the dollar pared declines against a basket of currencies. U.S. stock index futures were mixed.

Last month, single-family home construction in the densely-populated South shot up 8.4 percent to the highest level since July 2007 as disruptions from recent hurricanes continued to fade and communities in the region replaced houses damaged by flooding.

Single-family starts in the West increased 11.4 percent to their highest level since July 2007. They were unchanged in the Northeast and fell 11.1 percent in the Midwest.

Overall housing starts increased 3.3 percent to a seasonally adjusted annual rate of 1.297 million units. While that was the highest level since October 2016, October’s sales pace was revised down to 1.256 million units from the previously reported 1.290 million units.

Economists polled by Reuters had forecast housing starts decreasing to a pace of 1.250 million units last month. Starts for the volatile multi-family housing segment fell 1.6 percent to a rate of 367,000 units.

Overall building permits dropped 1.4 percent to a rate of 1.298 million units in November, pulled down by a 6.4 percent decline in permits for the construction of multi-family homes.
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The U.S. House of Representatives will vote Tuesday on a Republican $1.5 trillion tax bill that will provide tax relief for most Americans, but benefit the wealthy the most, according to a non-partisan tax analysis group.

Following the House vote, the Senate will vote on the measure later Tuesday, according to Senate Republican leader Mitch McConnell.  If both houses approve the measure, it will be sent to President Donald Trump for him to sign into law, completing the first extensive modification of the U.S. tax code in more than 30 years and giving Trump his first major legislative victory.

Republican lawmakers appear to have the votes to permanently cut corporate taxes from 35 to 21 percent, temporarily and modestly reduce taxes paid by wage and salary earners, and boost America’s national debt by up to $1.5 trillion.

The non-partisan Tax Policy Center concluded Monday the bill would cut taxes for 95 percent of Americans next year, but average cuts for top earners would greatly exceed reductions for people earning less.

The legislation also partially repeals former president Barack Obama’s signature health care law and is expected to add nearly $1.5 trillion to the federal debt during the next decade.

Republican supporters of the measure are hoping that eight consecutive years of U.S. economic growth will continue and accelerate due to a stimulus they hope the tax cuts will provide.

“This is going to make such a positive difference in the lives of working Americans,” House Speaker Paul Ryan told reporters Tuesday on Capitol Hill.

Democratic opposition

Democrats, who were excluded from the Republican closed-door bill drafting meetings, are unanimously opposed to the measure.  They have argued the tax package favors big corporations and the wealthy, largely ignores the middle class and forces the elderly to pay a heavy price.

“There are so many rip-offs in this bill that people are going to say this is some kind of new Gilded Age,” said Ron Wyden, the highest-ranking Democrat on the Senate Tax Committee.

Unless Republicans withdraw their support at the last minute, Congress could send the tax bill to the White House for Trump’s signature as early as Wednesday.  Minority Democrats do not have the votes to kill the bill on their own, but have vowed to make it a major campaign issue in next year’s midterm elections.   

As the Republican bill moves closer to becoming law, many polls show that most Americans oppose it.

A Harvard CAPS-Harris survey conducted between December 8-11 indicates 64-percent of American voters oppose the measure.  A new CNN poll conducted by the research firm SSRS shows 55-percent of Americans oppose it, a 10-percent increase since early November.  A Reuters/Ipsos released on December 11 found nearly half of Americans opposed the plan.

When asked about the bill’s weak showing in the polls, Ryan said he had “no concerns whatsoever,” and added “when you have a mudfest on TV … that’s what’s going to happen. Results are going to make this popular.”

 
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European Union environment and energy ministers on Monday agreed on renewable energy targets for 2030 ahead of negotiations next year with the European Parliament, which has called for more ambitious green energy goals.

Ministers said they would aim to source at least 27 percent of the bloc’s energy from renewables by 2030 — up from a target of 20 percent by 2020.

In October, the European Parliament called for this target to be increased to 35 percent, a level also put forward by a group of big technology, industry and power companies last week.

As part of the package of measures, ministers also agreed on the share of renewable fuels to be used in transport, while setting a cap on first-generation biofuels, which critics say compete for agricultural land with food.

EU member states set a 14 percent renewables target for fuels used in road transport by 2030, with bonuses given for the use of renewable electricity in road and rail transport.

The inclusion of rail into the renewable transport targets was criticized by the European Commission, as large parts of the European rail network are already electrified.

“The level of ambition is clearly insufficient,” Europe’s climate commissioner Miguel Arias Canete told ministers during negotiations.

The European Council and the European Parliament will need to find a compromise in talks over the final legal texts on these matters next year.

The EU’s renewables targets are part of a set of proposals to implement the bloc’s climate goals of reducing greenhouse gas emissions by at least 40 percent below 1990 levels by 2030, in the wake of the Paris Agreement to limit further global warming to no more than 2 degrees.

Ministers also reached a common position on a set of rules for the internal electricity market, such as the roll out of more sophisticated electricity meters to consumers and allowing grid operators to run energy storage facilities.
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Argentina’s Congress could pass a hotly debated pension reform measure Monday, lawmakers told reporters, as stone-throwing demonstrators gathered in the capital and the country’s main union called a 24-hour general strike to protest the proposal.

Debate on the bill was suspended Thursday amid violent protests, which were put down by police firing rubber bullets and tear gas. On Friday, the government amended the proposal to include a bonus payment to the most needy retirees.

But that did not satisfy thousands of opposition demonstrators who gathered around the congressional building again Monday as lawmakers debated the proposal inside.

The protesters, some wearing balaclavas, used sling shots to fire rocks at police. Security forces answered by using water cannons and tear gas, turning the vast lawn in front of the capital complex into a battlefield.

“This bill will put millions of retirees at risk. It changes the whole pension system,” Laura Rivas, a 34-year-old teacher, told Reuters, standing back from the most violent protest areas.

The day-long strike called by Argentina’s main CGT labor group started at noon local time (1500 GMT). It was not expected to affect the nation’s transportation system until late Monday night, allowing workers to get home in the afternoon.

The bill, key to President Mauricio Macri’s efforts to lower business costs and reduce Argentina’s fiscal deficit, has already passed the Senate, leaving the lower House to give final legislative approval. Opposition lawmakers said the one-time bonus amendment did little to persuade them to vote in favor.

“It will be a one-time bonus payment made in March,” opposition lawmaker Agustin Rossi told reporters, adding that the overall bill remained inadequate to meet pensioners’ needs.

Macri is aiming to cut the fiscal deficit to 3.2 percent of gross domestic product next year from 4.2 percent this year, and reduce inflation to between 8 percent and 12 percent from more than 20 percent this year.

The pension bill would change the formula used to calculate benefits. Payments would adjust every quarter based on inflation, rather than the current system of twice-yearly adjustments linked to wage hikes and tax revenue.

Economists say the current formula means benefits go up in line with past inflation. Left unchanged, that could harm Macri’s efforts to cut the deficit.

Under the new formula, benefits would increase by 5 percentage points above inflation, according to cabinet chief Marcos Pena. The plan would take effect at a time of lower inflation expectations and would slow the pace of pension benefit increases.
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Egypt’s economic prospects are looking brighter after the long-anticipated production of undersea gas from the al Zohr gas field began coming online in recent days.

Petroleum Minister Tareq al Molla tells Arab media the al Zohr field will be a major boon for the economy, saving $750 million to possibly several billion dollars a year in energy costs.

He says that the giant al Zohr gas field has a reserve of 30 trillion cubic feet and the first phase of production of 1.2 billion cubic feet per day is expected to be reached around mid 2018, with production being ramped up to 2.7 billion cubic feet per day by mid- to late 2019.

Italy’s ENI petroleum company is heading production of the al Zohr field, while the BP company is overseeing production of another large undersea gas field off Egypt’s Nile Delta region, known as al Nooros.

Al Molla told Egyptian media the al Nooros field presents an unexpected bonus.

Al Molla said he was expecting a production of 350 million cubic feet per day [from the al Nooros field], but production has reached 1.1 billion cubic feet per day, which came as a pleasant surprise.

Natural gas use

Egyptian consumers use natural gas for cooking, heating and running natural gas-powered vehicles. The government is also planning to produce more electricity with natural gas powered plants, now that water levels on the Nile are in danger of dropping from construction of a new dam in Ethiopia. Egypt’s Aswan High Dam produces electricity from Nile water.

Egyptian President Abdel Fattah el Sisi recently met with the leaders of Cyprus and Greece to discuss the prospects of economic cooperation, as Cypriot undersea gas is also brought online. Prospects of laying an undersea pipeline to Greece and exporting gas to Europe were also discussed.

He says the discovery of energy in the eastern Mediterranean could be an important factor in achieving stability and peace, in addition to the fact that these discoveries could supplement the energy needs of Europe and diversify its energy sources, adding to the strategic importance of countries like Egypt and Cyprus.

Contractual arrangements give Egypt 40 percent of the revenue from the al Zohr.

Georgetown University adjunct professor Paul Sullivan is cautious about Egypt’s natural gas windfall, telling VOA estimates of possible reserves are sometimes off the mark.

“What is actually in place is not the same amount of natural gas that can be taken out, and if they are talking about 500 million cubic feet per day, it could be 350, it could be 500, it could be 600,” Sullivan said. “There are lots of geological and other things that happen and pressures change, and frankly, inside of gas fields, it is hard to tell exactly what you are going to get out of them within five to 10 years.”

Sullivan says that al Zohr is “one of the biggest fields in the world discovered in the past 20 years,” but he added, “There is also a lot of competition in the area,” which could depress prices in the regional market. Israel has already been producing gas from its undersea natural gas reserves for some time, and Lebanon and Cyprus are in various stages of starting production.

 
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Parceling out holiday shopping in small amounts and completing it in a realistic schedule helps people maintain the self-control needed to avoid being swept away in impulse purchases that can wreck budgets, a study to be published in January said.

The study from Texas A&M University researchers looked at how well people complied with maintaining self-control for tasks such as making purchases and found that people should pace themselves if they want to accomplish larger goals.

“Try to conserve your energy. Don’t try to make it too hard on yourself because it is going to backfire,” said Marco Palma, director of the Human Behavior Laboratory at Texas A&M and co-author of the study called “Self-control: Knowledge or perishable resource?” It will be published in the Journal of Economic Behavior & Organization.

Palma recommended making a list and dividing it into sub-goals of small purchases. Shopping online and shopping early in the day can help conserve energy, which can also help people exercise self-control.

“Committing to a shopping list will help you stay on budget,” he said in an interview this week.

The worst shopping scenario in terms of self-control is waiting until the last minute to make the bulk of holiday purchases, he said.

The study used biometric data including eye tracking and brain scanning to measure how well people complied with easy and difficult tasks that required self-control.

It found that an initial moderate self-control act enhances subsequent self-control ability by increasing confidence and motivation, but exerting too much self-control drains subsequent self-control ability.

But humans are humans and even when they are nice, they can be a little bit naughty. A person who completes a holiday shopping list as planned may splurge with a little reward for themselves, Palma said.
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Peru’s president has acknowledged that he did “earn some money” from scandal-plagued Brazilian builder Odebrecht when his consulting business received payments from the builder more than 10 years ago

In a televised interview Sunday, Pedro Pablo Kuczynski characterized the payments as simply “dividends,” the result of business and investments the company earned in a year. “There is nothing hidden here,” he said.

Kuczynski, who is facing impeachment proceedings over alleged corruption, said during the interview that “it would have been much better,” if he had known about the transactions. He did not, however, admit to any wrongdoing and did not reveal how much he profited from his company’s dealings with Odebrecht.

Kuczynski has said he had no management duties in his consulting firm when it received nearly $800,000 from Odebrecht.

The president denied as recently as last month to having any links to Odebrecht.

Opposition lawmakers filed an impeachment motion against the president last week, saying he was morally unfit to lead the country after he resisted calls to resign over the alleged corruption.

Twenty-seven of 130 members of Peru’s Congress approved launching the process to oust the president during a special session on Friday.

Kuczynski vowed to fight on and not resign during a televised speech Thursday.

Odebrecht has shaken the politics across Latin America with its confession as part of a leniency deal last year that it gave kickbacks to officials in a dozen countries for more than a decade.

Peru’s opposition lawmakers control more than half of the seats in the country’s Congress, whose president, Luis Galarreta, said a vote on impeachment could take place this week.

If Kuczynski is removed from office, his first vice president would be next in line to the presidency.
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Another security based on the price of bitcoin, the digital currency that has soared in value and volatility this year, began trading on the Chicago Mercantile Exchange on Sunday.

The CME Group, which owns the exchange, opened up bitcoin futures for trading at 6 p.m. EST on Sunday. The futures contract that expires in January opened higher at $20,650, then declined steadily. The futures were trading at $18,775 at 9:00 p.m. EST, down $725.

The CME futures, like the ones that CME competitor the Cboe started trading last week, do not involve actual bitcoin. The CME’s futures will track an index of bitcoin prices pulled from several private exchanges. The Cboe’s futures track the price of bitcoin prices on the particular private exchange known as Gemini.

Each contract sold on the CME will be for five bitcoin.

As bitcoin’s price has skyrocketed on private exchanges this year, largely under its own momentum, interest on Wall Street has grown. The virtual currency was trading below $1,000 at the beginning of the year, and rose to more than $19,000 on some exchanges in the days leading up to its debut on the Cboe and CME. Bitcoin was trading at $18,417 Sunday evening on Coinbase.

But the growing interest in bitcoin has raised questions on whether its value has gotten too frothy. The Securities and Exchange Commission put out a statement last week warning investors to be careful with any investment in bitcoin or other digital currencies. Further, the Commodities Futures Trading Commission has proposed regulating bitcoin like a commodity, not unlike gold, silver, platinum or oil.

Futures are a type of contract where a buyer and seller agree on a price on a particular item to be delivered on a certain date in the future, hence the name. Futures are available for nearly every type of security out there, but are most familiarly used in commodities, like oil wheat, soy and gold.

Bitcoin is the world’s most popular virtual currency. Such currencies are not tied to a bank or government and allow users to spend money anonymously. They are basically lines of computer code that are digitally signed each time they are traded.

A debate is raging on the merits of such currencies. Some say they serve merely to facilitate money laundering and illicit, anonymous payments. Others say they can be helpful methods of payment, such as in crisis situations where national currencies have collapsed.
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Vietnam is set to auction up to a $5 billion stake in top brewer Sabeco on Monday, with Thai Beverage the only potential bidder to have expressed interest in a majority stake.

The keenly anticipated sale of the state-owned maker of Bia Saigon gained momentum in recent months after being hampered for years by political resistance, fickle policy-making and complications over valuations.

The government has set a minimum sale price of 320,000 dong or $14.10 a share for Saigon Beer Alcohol Beverage Corp (Sabeco), whose shares have nearly trebled to 309,200 dong since its listing a year ago.

Thai Beverage, through a partly owned Vietnam unit, is the only company that has expressed interest in owning more than 25 percent of the company, which has roughly 40 percent of the beer-loving Vietnamese market.

So far no formal bid had been made.

Vietnam’s young population and booming economy should make Sabeco an attractive asset for global brewers hoping to expand in Southeast Asia, but a high minimum bid price and foreign ownership limits appear to have turned off potential buyers.

Sabeco’s foreign ownership is capped at 49 percent. With 10 percent already in foreign hands, that leaves only 39 percent on the table for overseas buyers at Monday’s auction. Local bidders can bid for a majority stake of up to 54 percent. Heinken holds a 5 percent stake.

“There’s a disconnect between what the government wants to achieve and how international brewers view this auction,” said one person familiar with the matter. “In a normal auction, bidders are fully aware of what stake they’ll end up owning and bid for it accordingly,” said the person, who was not authorized to speak to the media.

Unlike similar sales in developed markets, where investors are whittled down over several rounds and offers can be adjusted, Sabeco bidders need to submit a single offer for a specific number of shares in a sealed envelope in one round.

Thai Bev, controlled by tycoon Charoen Sirivadhanabhakdi, was keen to acquire Sabeco as part of a strategy to expand outside its home market, sources told Reuters. The company had lined up bank guarantees to support the bid by its Vietnam unit, sources said.

There was no immediate response from Thai Bev to a query from Reuters.

Reuters previously reported that the auction was drawing the interest of brewing groups such as Anheuser-Busch InBev, Kirin Holdings, Asahi Group Holdings and San Miguel, but there is no clear sign of whether they have participated in the auction so far.

The government’s minimum price for the 54 percent stake on offer valued Sabeco at about 36 times core earnings, more than double the trading multiples of around 15 for some global peers, according to Reuters data.

Vietnam’s trade ministry is expected to announce the bidding result Monday afternoon.
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