Daily News Briefing: Thursday, July 26, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • FISCAL CLIFF - U.S. Treasury Secretary Timothy Geithner warned Congress Wednesday that Europe's debt crisis and the looming budget crisis in the United States could weaken an already-fragile U.S. economy.
  • INFLATION - The U.S. Agriculture Department on Wednesday left its food-inflation forecast unchanged for this year but said consumers will start to feel the effects of the severe drought in 2013.
  • CONGRESS - The U.S. House of Representatives on Wednesday overwhelmingly approved legislation to subject U.S. Federal Reserve monetary policy to audit scrutiny, a measure that is expected to die in the Democrat-controlled U.S. Senate.
  • CONGRESS - The U.S. Senate voted Wednesday to approve a Democratic proposal to partially extend the Bush-era tax rates -- while letting taxes rise for top earners -- in an election-year showdown that served more to put lawmakers on record over the tax rates than advance any particular plan.
  • CONGRESS - The U.S. Senate Wednesday approved a bill to force the Obama administration to report its plans for enacting about $1 trillion in across-the-board discretionary spending cuts triggered by the failure of a budget negotiating group last fall.
  • ISRAEL - Israel's foreign minister warned on Wednesday his country will act immediately if it discovers Islamic militants are raiding Syria's chemical or biological weapons stocks, while Israelis rushed to stock up on gas masks as the bellicose rhetoric swells.
  • EURO ZONE - The economies of Europe continue to weaken, with Britain reporting on Wednesday that its second recession in three years had deepened and several other reports showing business conditions were deteriorating in Germany.

WHAT WE KNOW

ECONOMIC NEWS

  • UNEMPLOYMENT - The U.S. Labor Department said the number of people who filed applications for unemployment benefits fell by 35,000 last week to a seasonally adjusted 353,000.
    • Auto manufacturers used to schedule brief shutdowns of plants every July to retool for new models, but the size of temporary layoffs has varied widely since the industry was bailed out several years ago. That makes the claims report especially volatile in July and less useful in gauging labor-market trends.
    • The four-week average reduces seasonal volatility in the weekly data. Meanwhile, continuing claims decreased by 30,000 to a seasonally adjusted 3.29 million in the week ended July 14. About 6.0 million people received some kind of state or federal benefit in the week ended July 7, up 280,405 from the prior week.
  • HOUSING MARKET - Sales of new houses fell 8.4% in June after reaching a two-year high in May, suggesting that the slowdown in the U.S. economy might be making buyers more cautious.
    • Sales declined to an annual rate of 350,000 in June and median prices of new homes also fell to the lowest level since January, the Commerce Department reported Wednesday.
    • The pullback in June, however, was largely offset by a bigger increase in transactions in May than originally reported. Sales in May were revised up to an annual rate of 382,000 — the highest level since April 2010 — from 369,000. Sales in April were also revised higher.
  • FISCAL CLIFF - U.S. Treasury Secretary Timothy Geithner warned Congress Wednesday that Europe's debt crisis and the looming budget crisis in the United States could weaken an already-fragile U.S. economy.
    • Geithner also tells a House panel that regulators must pursue stricter oversight of the financial system to help stabilize the economy.
    • Meanwhile, Geithner came under fire Wednesday by Congress for not taking strong enough action in the scandal involving U.K. bank Barclays PLC and its attempted manipulation of the Libor overnight interest rate.
    • At issue is what the New York Fed did after a Barclays employee told the regional bank in April 2008 that the bank was submitting false reports to the Libor-setting panel in London to try to send a signal that it was healthy.
  • INFLATION - The U.S. Agriculture Department on Wednesday left its food-inflation forecast unchanged for this year but said consumers will start to feel the effects of the severe drought in 2013.
    • The department's forecast calls for 2012 inflation of 2.5% to 3.5% for all food, according to a monthly report. In its first forecast for 2013, the USDA projected the price of all food will climb 3% to 4%.
    • The drought across the Midwest has sent prices of corn, soybeans and wheat higher, which eventually will increase the cost of meat and other products, economists say. But the Agriculture Department said the effect on food prices won't be clear until it is known how severe the drought has been and how much of the corn crop has been destroyed.
  • The Dow Jones Industrial Average rose 58.73 points, or 0.5%, to 12,676.05.
  • The S&P 500 index fell nearly half a point to 1,337.89.
  • The Nasdaq Composite fell 8.75 points, or 0.3%, to 2,854.24.


COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.49.
    • When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 88 percent higher than they were when Mr. Obama became president.
  • Crude oil for September delivery rose 47 cents, or 0.5%, to $88.97 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery rose $31.90 to settle at $1,608.10 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • PROTESTORS – The Occupy Wall Street protests continue around the world, now in their 309th day.
  • CONGRESS - The U.S. House of Representatives on Wednesday overwhelmingly approved legislation to subject U.S. Federal Reserve monetary policy to audit scrutiny, a measure that is expected to die in the Democrat-controlled U.S. Senate.
    • The legislation written by Republican representative Ron Paul, who rode his long crusade against the Fed to a presidential bid and grass-roots folk-hero status, passed the House by a 327-98 vote, exceeding a required two thirds majority. Some 89 Democrats joined 238 Republicans in approving it.
    • The U.S. Federal Reserve argues that members of Congress who oppose an interest-rate move by the central bank could launch an audit and put its officials under political pressure.
    • The bill now faces long odds in the Democrat-controlled U.S. Senate. Mark Calabria, director of financial regulation studies at the libertarian Cato Institute, said that a few Republican senators are trying to find a way to get a floor vote for the measure. But he added he thinks Democrats don’t have any desire to bring it up for a vote.
  • CONGRESS - The U.S. Senate voted Wednesday to approve a Democratic proposal to partially extend the Bush-era tax rates -- while letting taxes rise for top earners -- in an election-year showdown that served more to put lawmakers on record over the tax rates than advance any particular plan.
    • The U.S. Senate narrowly approved the bill on a 51-48 vote. The plan would extend current rates for households making less than $250,000, and let the rates rise for everyone else. The move came after the Senate rejected a Republican measure extending the Bush-era rates for everyone next year, including the nation's highest earners.
    • Though a win for Democrats, the approval of their tax plan late Wednesday afternoon could amount to little. Republicans have an overwhelming majority in the U.S. House, and are likely to reject the bill on procedural grounds anyway -- by citing a provision that revenue bills are supposed to originate in the House.
  • CONGRESS - The U.S. Senate Wednesday approved a bill to force the Obama administration to report its plans for enacting about $1 trillion in across-the-board discretionary spending cuts triggered by the failure of a budget negotiating group last fall.
    • The Sequestration Transparency Act, approved last week by the U.S. House, was passed by unanimous consent in the U.S. Senate and will now head to President Barack Obama’s desk. It will require the White House to submit a detailed plan on the cuts, both military and domestic, to Congress within 30 days of the law’s enactment.
    • The spending cuts were enacted into law one year ago as part of the Budget Control Act, which slashed spending by about $2.5 trillion in exchange for extending the nation’s borrowing capacity.
  • WHITE HOUSE - President Obama is creating a new office to bolster education of African-American students.
    • The White House says the office will coordinate the work of communities and federal agencies to ensure that African-American youngsters are better prepared for high school, college and career.
    • Obama is announcing his election-year initiative Wednesday night in a speech to the civil rights group the National Urban League as he seeks to rally black voters. Aides say his executive order, to be signed Thursday, will set a goal of producing "a more effective continuum" of programs for African-American students.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House.
  • Later in the morning, the president will meet with U.S. Veterans Affairs Secretary Eric Shinseki at the White House.
  • In the afternoon, the president will hold a cabinet meeting at the White House.
  • Later in the afternoon, the president will meet with the vice president and U.S. Defense Secretary Panetta at the White House.


HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is in session today.

FOREIGN POLICY

MIDDLE EAST

  • ISRAEL - Israel's foreign minister warned on Wednesday his country will act immediately if it discovers Islamic militants are raiding Syria's chemical or biological weapons stocks, while Israelis rushed to stock up on gas masks as the bellicose rhetoric swells.
    • Israeli political and security leaders have been watching the intensified bloodletting in neighboring Syria with mounting concern, afraid that Lebanon's Hezbollah and other militant groups could raid these arsenals should the central government in Damascus collapse. In recent days, Israeli political leaders have said they would be prepared to strike weapons depots to prevent this from happening. At this point, Israel's assessment is that Syria retains control over these arsenals.
    • On Monday, the Syrian regime threatened to unleash its chemical and biological weapons if it faces a foreign attack, a threat widely believed to be directed at Israel.
  • SYRIA - Dozens of government tanks converged on Syria's largest city Wednesday as President Bashar Assad marshaled his forces to stamp out a five-day rebel fight to wrest Aleppo from the regime's grasp.
    • As the fighting raged in Aleppo, Turkey said that it had sealed its border to trade with Syria, effectively ending a relationship once worth $3 billion, but would keep the frontier open to civilians fleeing the violence or in search of supplies. Two more Syrian diplomats, meanwhile, defected in the latest sign of cracks in the upper echelons of the Assad regime.
    • Fierce streets battles have raged in Aleppo since Saturday as rebels have slowly pushed through friendly neighborhoods on the outskirts of the city towards its ancient center. Although the regime has brought in its superior firepower, including attack helicopters and fighter jets, its forces have yet to drive out the rebels without additional reinforcements.
  • IRAN - Iran and North Korea have pledged to deepen their collaboration on bilateral "strategic projects" that could include additional nuclear and high-altitude missile work.
    • The new understanding was reached in April during talks in Pyongyang between a three-person Iranian team and top North Korean regime officials, an unidentified diplomatic insider informed the Japanese news agency.
    • The source, said to specialize in North Korea-Iran relations, said he has "no doubt" the new strategic bilateral cooperation will encompass missile and nuclear development. Iranian-North Korean collaboration on such projects had reportedly slackened following a summer 2008 stroke by longtime dictator Kim Jong Il, who died late last year and was replaced by his youngest son.
    • The deal could be a sign that the new Kim Jong Un regime is looking to deepen its connections with Iran at at time when both nations are increasingly being cut off from the rest of the world due to their atomic activities. Pyongyang has a known nuclear weapons program, while Tehran says its atomic work is strictly nonmilitary in nature.
  • IRAQ - The militant organization that was once the scourge of the U.S. military campaign in Iraq and probably is responsible for more than 100 deaths in the country over the last few days has set its sights on launching attacks in the United States, intelligence officials said.
    • Al Qaeda in Iraq released a message this week that threatened to strike at the "heart" of the United States, and several associates of the group have been arrested in the U.S. and Canada in the last two years, said American officials, a sign that the organization has tried to establish a network in North America.
    • Al Qaeda in Iraq had been known primarily for launching attacks against the American forces in Iraq and the Shiite Muslim-led government there, as well as helping to plot attacks in neighboring Jordan.

EUROPE

  • EURO ZONE - The economies of Europe continue to weaken, with Britain reporting on Wednesday that its second recession in three years had deepened and several other reports showing business conditions were deteriorating in Germany.
    • Late Tuesday, Moody’s downgraded the European Financial Stability Facility, the fund that European leaders put together to keep the long-running debt crisis from spreading. The cut in its credit rating could make raising money more costly for the fund and thus for the European rescue effort.
    • Fears are growing that Spain may have to seek an international bailout for its teetering economy, on top of a bailout of 100 billion euros ($121 billion) that was recently approved for its banks. Investors have been driving up Spain’s future borrowing costs. The interest rate on its 10-year debt stood at 7.31 percent late Wednesday. The country is already struggling to cope with new austerity measures, even as unemployment nears 25 percent and some of its largest regions seek assistance.