Coming up: Nonfarm payroll for Nov.
WASHINGTON (MarketWatch) – The Labor Department’s nonfarm payroll report for November is due for release at 10 a.m. Eastern. Economists are expecting the pace of job growth to improve a bit. Analysts polled by MarketWatch expect nonfarm payroll to rise 155,000 in November, slightly higher than 151,000 in October. The unemployment rate is expected to hold steady at 9.6%.
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Skimming Off the Top: US Army Charged Germany Fees for Afghanistan Donations
One cable obtained from WikiLeaks highlights irritation between Berlin and Washington over a 15-percent “administrative fee” the US sought to charge Germany on a 50 million euro donations made to a trust fund whose purpose is to improve the Afghan army. A top German diplomat complained the fee would be a tough sell to taxpayers.
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US looking for progress on yuan by January
YOKOHAMA, Japan: The United States wants progress on China’s pledge to let the yuan rise against the dollar by the time President Hu Jintao visits Washington in January, a senior official said Saturday.
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Germany, China Lead International Criticism Of Decision By U.S. Federal Reserve To Buy $600 Billion In Bonds
Washington, D.C., United States (AHN) – The decision by the United States Federal Reserve to pump $600 billion into the nation’s economy by buying U.S. Treasury Bonds has sparked international criticism led by Germany and China.
China and Germany represent the world’s second- and fourth-largest economies respectively. In addition, they were joined by Brazil and South Africa in criticizing the “quantitative easing.” Quantitative easing is the economic term for buying assets to attempt to boost the economy and lower unemployment.
However, Germany, China, Brazil and South Africa allege that the scheme will not help the U.S. economy and will instead create more problems in the rest of the world. Quantitative easing is expected to lower the value of the dollar, which will make U.S. exports cheaper in world markets.
That means that U.S. exports would be more competitive against German and Chinese exports.
Indeed, the dollar did plunge in value against several of the world’s currencies on Thursday.
Germany’s Finance Minister Wolfgang Schaeuble on Friday said the U.S. Federal Reserve’s move would undermine efforts to create a level playing field in the currency markets.
China Central Bank chief Zhou Xiaochuan said the U.S. should focus on reforming the international currency system. He argued that if the U.S. central banking policy is good for the U.S., but not good for the rest of the world that it might have a negative impact on the rest of the world.
The U.S. has criticized China for artificially keeping its currency devalued for many years to make its exports cheaper. But China made that move when its country had full employment and a budget surplus. The U.S. central bank is not buying U.S. Treasury bonds to deflate the value of the dollar abroad but rather to try to pour money into the American economy – which currently has a budget deficit – and to stimulate the weak economy to encourage American businesses to hire unemployed American workers at a time of continued high unemployment.
Germany also criticized the move because they said it would add to America’s deficit.
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Dollar printing is feeding inflation in China: minister
BEIJING: Rampant issuance of dollars by the United States is saddling China with “imported inflation”, Chinese commerce minister Chen Deming was quoted as saying by state media on Wednesday.
“Given the current situation, companies have thought ahead and prepared for exchange rate fluctuations as well as an increase in labour costs,” Chen said, according to the state-run China Business News.
“But because the issuance of dollars is out of control, and international commodities prices are continuing to rise, China is confronted with imported inflation, which has created major uncertainties for businesses,” he said.
The comments came ahead of a meeting of the US Federal Reserve next week at which the central bank is expected to announce additional stimulus measures.
While critics in the United States accuse China of artificially undervaluing its currency to give exporters an unfair advantage, Beijing says Washington is foisting its economic woes on the rest of the world by printing more money.
Beijing pledged in June to let the yuan trade more freely and the currency has since strengthened slightly, but US and European policymakers say it could be undervalued by as much as 40 per cent.
At the weekend, Group of 20 finance ministers meeting in South Korea pledged to “refrain from competitive devaluation of currencies” and aim for “more market-determined exchange rate systems”.
Jittery financial markets were looking for a strong stand from G20 members against beggar-thy-neighbour currency policies, in the leadup to a November 11-12 summit in Seoul.
Chinese Finance Minister Xie Xuren urged “major reserve currency countries to take responsible economic policies”, with the dollar sliding on expectations that the Federal Reserve would launch even bolder monetary easing.
China’s central bank on Wednesday set the central parity rate at 6.6912, weaker than the 6.6762 on Tuesday. The yuan can trade up or down 0.5 per cent from that mark. – AFP
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IMF to ‘deepen’ work on currencies, capital flows
WASHINGTON (MarketWatch) — The governing body of the International Monetary Fund on Saturday backed a plan for the international financial institution to “deepen its work” on exchange-rate movements and capital flows. In a statement following its annual meeting, the finance ministers and central bankers said capital flows and exchange rate movements were critically important to the operation of the global economy and the stability of the international monetary system. The ministers asked the IMF to conduct in-depth studies to strengthen the management of capital flows. The officials said economic recovery remains fragile and uneven. They said that countries should avoid protectionist measures.
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China Pledges to Balance Trade as U.S. House Prepares Tariff Vote
Washington, D.C., United States (AHN) – The Chinese government announced Wednesday it would allow the value of its currency to rise one day before a vote in Congress on whether to penalize countries that undervalue their money.
China will “further improve” its currency exchange rate and “increase the flexibility” of the yuan, the People’s Bank of China said in a statement on its Web site.
U.S. economists accuse China’s government of subsidizing its currency exchange rate to make it artificially low compared to the currency of the United States and other countries.
As a result, its manufactured products can be sold internationally at lower prices compared with competitors.
Some members of Congress say the undervalued Chinese currency is unfair competition that is forcing American manufacturers out of business and has cost millions of jobs.
A bill in Congress would allow American companies to petition the U.S. government to impose tariffs on the products of any country with undervalued currency, such as China.
The bill is set for a vote Sept. 30 in the House of Representatives. The Senate plans to vote on its version of the same bill after the November elections.
“The bill we vote on this week will help level the playing field for American businesses and workers,” House Majority Leader Steny Hoyer (D-Md.) said in a speech Tuesday.
However, a new Congressional Budget Office report questions whether the proposed legislation would be effective in equalizing trade between China and the United States.
Some economists say China’s undervalued currency helped it surpass Japan this year as the world’s second largest economy. China beat out Germany last year as the biggest exporter.
Chinese government reforms would “enhance exchange rate flexibility against the backdrop of a recovering global economy,” the People’s Bank of China announcement said.
However, it gave no details of the planned reforms.
Some members of Congress are skeptical of the Chinese government’s sincerity.
In June, the Chinese made other pledges to stop underwriting the value of their currency.
Since then, the value of the Chinese yuan has risen only 2 percent while the value of the U.S. dollar declined amid ongoing economic problems.
During congressional hearings in recent weeks, economists said China’s exchange rate has contributed to the high U.S. unemployment rate, which stands at 9.6 percent.
Congress is under pressure from voters and industry to create more jobs.
The Precision Metalforming Association, a trade group of small auto-parts makers, said in a statement this week that China’s currency exchange rate “gives an unfair and illegal advantage to our overseas competition.”
China’s central bank did not mention the pending congressional bill in its announcement Wednesday of currency reform measures.
The new value of the yuan would be “based on market supply and demand with reference to a basket of currencies,” the Web site announcement said.
If Congress does approve the trade bill, the new tariffs are likely to raise only $20 million a year, a Congressional Budget Office report released this week said.
The $20 million a year is tiny compared with the $1 billion per day China imports into the United States, the report said.
“Many [Chinese] imports do not injure domestic firms because there are no competitors currently operating in the United States,” the Congressional Budget Office report said.
U.S. businesses that previously made the products already have shut down after being overwhelmed by foreign competition.
As a result, there are likely to be few U.S. manufacturers who would petition for the U.S. government to impose tariffs on Chinese competitors, the Congressional Budget Office reported.
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U.S. Prosecutors Probe Karzai Brother
Federal prosecutors in New York have opened a criminal probe of one of Afghan President Hamid Karzai’s brothers, raising the stakes in Washington’s sometimes-contentious dealings with the Karzai government.
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UAE Restricts Money Dealings with Iran
Dubai, United Arab Emirates (TML) – The waters between Iran and the United Arab Emirates used to be crowded by small cargo vessels carrying goods from the Dubai port to Tehran markets, but as the United Nations sanctions on Iran come into effect the flow of boats has slowed to a trickle and the cash flow is slowing considerably.
The United Arab Emirates, a close ally to the United States, is putting transactions between its banks and Iranian counterparts under increased observation, which in some cases has led to a total stop of transactions, according to AFP.
“United Arab Emirati banks are prohibited from dealing with individuals and entities that are specifically named in the latest sanctions document but the Central Bank is also tightening rules for transactions with Iran in general,” Ayesha Sabavala, who follows the Emirati banking sector for Economist Intelligence Unit, told The Media Line.
“Examples of this tightening include asking for prior approval from the Central Bank when transacting with Iranian companies,” she said. “This has made United Arab Emirati banks reluctant to lend or provide letters of credit to Iranian companies.”
For the month of August, the Central Bank has directed UAE banks to provide it with details of all remittances to and from Iran. Local financial institutions no longer accept property in Iran as collateral in borrowing deals. Therefore, transactions with Iran, both with corporations and individuals have been affected,” Sabavala said.
The trade between the United Arab Emirates and Iran is estimated at $8 billion.
“Although it is hard to gauge the impact on banks in the United Arab Emirates, one has to assume that this tightening has led to some loss of business since trade mostly re-exports between Iran and the UAE, specifically Dubai, is quite substantial and also due to the sizeable Iranian community in Dubai,” she said.
“That said, one must realize that a lot of trade with Iran also goes through unofficial channels and although sanctions will likely impact trade with Iran, trade between the two countries will continue,” Sabavala added.
Dr. Christian Koch, director of international studies at the Gulf Research Center in Dubai said that while sanctions are affecting trade it would not grind to a halt.
“Trade with Iran is still going on and will also continue despite the sanctions being imposed on Iran,” Koch told The Media Line.
“What is being done is that sanctions are being applied more effectively and yes, that leads to some curtailing in trade as conditions are getting more difficult,” he said.
“For the United Arab Emirates however, this is not an either/or issue and they do not see the declining trade with Iran as coming at a cost to the US relationship. United Arab Emirates – United States relations are strategic in nature and given the difficult GCC-Iran relationship as a whole, this is not going to change at any time soon,” Koch said referring to the Gulf Cooperation Council, a regional economic bloc made up of Kuwait, Bahrain, Qatar, Oman, Saudi Arabia, and the United Arab Emirates.
“Furthermore, as a whole, trade volume with Iran is only a small part of the United Arab Emirates’ trade balance so in the end the actual impact will also be less than is usually assumed,” he added.
Tim Williams, a senior analyst with global intelligence firm Stirling Assynt, said that in the end Iran still needs the services of the United Arab Emirates.
“There may be some hostile rhetoric from Tehran and there is some risk that unresolved territorial issues could flare up,” Williams said referring to the contested ownership of three small islands in the Gulf.
“Iran will still be seeking to exploit United Arab Emirates’ relatively loose trade and financial controls to smuggle goods and, possibly, funds through Dubai,” he concluded.
The United Nations Security Council slapped a fourth round of sanctions on Iran in June, barring dealings with firms linked to the Iranian Revolutionary Guard Corps.
The Revolutionary Guard is a separate organization from the Iranian army and operates its own armed forces, navy, air force and militia. Its goal is to preserve the theocracy in Tehran, but over the years it has widened its scope to run a vast business empire, ranging from construction to telecommunications.
The new UN sanctions are the latest stage in an ongoing dispute between the United States and Iran over the end goal of Iran’s nuclear program. Washington and others claim Iran is using its program as a cover to produce atomic bombs, but Tehran argues the program is for the peaceful purpose of power production.
Following the new UN sanctions, which cover all 192-member states of the global body, both the United States and European Union tightened their sanctions further.
In June, shortly after the sanctions were imposed, authorities in the United Arab Emirates closed down 40 companies for selling products to Iran or dealing with Iran’s Revolutionary Guard in violation of UN sanctions on Iran.
The 40 companies that were shut down reportedly had been found to be trading strategic dual-purpose goods, which could be used in both civilian and military production, as well as other dangerous materials.
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