Aurelia Butler

The EU has agreed on an 11th package of economic sanctions aimed at punishing Russia for invading Ukraine, including unprecedented new powers to punish countries suspected of helping Moscow circumvent the existing restrictions.The new measures come as G7 states seek to tighten loopholes faster than Moscow can find new ways to evade them and crack down on routes that are supplying the Kremlin with goods and technologies used to manufacture weapons for the war.The EU, US and UK have in recent months stepped up pressure on countries such as Turkey, Armenia, the United Arab Emirates, Kazakhstan that have, since the war began in February 2022, increased imports of western technology that can also be used by the military while expanding exports to Russia. The measures were agreed by member state ambassadors on Wednesday after weeks of debate over the targeting of Chinese companies accused of sanctions evasion. After multiple countries objected, fearing reprisals from Beijing, just three Hong Kong-listed companies were included, according to officials.The sanctions, which are set to be formally adopted by the end of this week, include “exceptional, last-resort measures restricting the sale, supply, transfer or export” of sensitive technology that can be used for military purposes to countries “whose jurisdiction is demonstrated to be at a continuing and particularly high risk of being used for circumvention”, according to a document seen by the Financial Times.The move takes the EU into new territory of targeting third countries and would require both proof that they are involved in sanctions evasion and that they have refused to comply with repeated warnings.The new package also bans the “transit via the territory of Russia of goods and technology which might contribute to Russia’s military and technological enhancement”. FT research last month showed that more than $1bn of Moscow’s “ghost trade” with sanctioned EU goods never reached their stated destinations in Kazakhstan, Kyrgyzstan and Armenia.

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In addition, 71 persons and 33 entities are also added to the EU’s sanctions list, hitting them with asset freezes and travel bans to the bloc, according to the document. Some of those people and entities are in response to the illegal deportation of Ukrainian children to Russia.The Swedish EU presidency on Wednesday said that ambassadors agreed the package, which “includes measures aimed at countering sanctions circumvention and individual listings”. More

Investors broadly expect increases to resume at the Fed’s July meeting, after the Fed last week paused a 15-month hiking cycle. The hearing is the first of two Capitol Hill appearances this week as part of his twice-yearly reports to federal lawmakers, is set to begin at 10 a.m. (1400 GMT). After five percentage points of rate hikes the Fed has approved since March of 2022, the decision not to raise rates last week was taken as a “prudent” step that would “allow the Committee to assess additional information and its implications for monetary policy,” Powell said.MARKET REACTION:STOCKS: S&P 500 e-mini futures held losses and were off 0.26% BONDS: U.S. Treasury 10-year note yields ticked lower after the remarks, and were at 3.758%, FOREX: The euro turned 0.05% firmer and the dollar index paired a small gain COMMENTS:PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK”Stocks are going to stabilize because Powell is not going to divert from what he said at the press conference last week. The Fed is going to be hawkish until inflation reaches 2%. The market knows this is not attainable within two years. We probably won’t see 2% inflation for four years unless the Fed gets overly aggressive and pulls a Volcker, and that’s not in the cards. “The Fed is playing tough talk, they want to reassure the markets that they’re serious about bringing down inflation.”If the June and July inflation numbers come in lower, there’s a chance the Fed will skip in July as well. “We’ve had some strong (economic) indicators. But the numbers are uneven. Going into the summer months, if the high cost of money, of financing, begins to limit consumer spending, then we’ll be in recession.”I think the Fed is keeping this tough talk going because they don’t want the markets to get over enthusiastic.” HUGH JOHNSON, CHIEF ECONOMIST, HUGH JOHNSON ECONOMICS, ALBANY, NEW YORK   “If there’s a right word to describe Federal Reserve policy currently, it might just be confusion.””It’s very difficult for him (Powell) to be very definitive because what the Federal Reserve does will depend on the data we see between now and the July meeting and between the July meeting and the September meeting.”ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH FAIRFIELD, CONNECTICUT”The market is on edge as to what Powell’s going say in his testimony. Many have said that it’s (policy tightening) too much in too short a period of time and what you’re seeing is parts of the market trying to test the recent gains and see if they’ll hold.”  “I see higher interest rates for a fairly longer period of time perhaps going more than just July. Anybody banking on an interest rate cut in 2023 will be rethinking and pricing that into their models. I don’t think that a rate cut is coming in 2023 and anybody that’s thinking that is misdirected.” More

Annual rental prices rose 5 per cent in May, the highest rate for seven years, putting UK renters under further financial strain as the cost of living crisis deepens, new data showed.Rent rises were most acute in London where they grew 5.1 per cent, according to the Office for National Statistics on Wednesday, with soaring mortgage costs darkening the property market outlook.Higher mortgage costs are already weighing heavily on millions of homeowners, making it more difficult for prospective buyers to purchase a property and pushing rental demand higher.“Rising mortgage rates will exacerbate the situation this year, and upwards pressure on rents is unlikely to relent any time soon,” said Tom Bill, head of UK residential research at estate agency Knight Frank.The 5 per cent increase was the largest recorded since the ONS data set began in January 2016, and was up from 4.8 per cent in April. Markets are pricing in further increases ahead of an expected Bank of England interest rate rise on Thursday, its 13th consecutive increase as it struggles to tame stubbornly high UK inflation.

On Wednesday, data from the ONS showed that inflation remained unchanged at 8.7 per cent, disappointing expectations of a decline.Meanwhile, mortgage rates have risen to about 6 per cent, near to where they stood in 2007. The ONS also reported that the average UK house price dropped to £286,000 in April, £7,000 below its September 2022 peak. “Were mortgage rates to be sustained at that level for several years, a 25 per cent drop in house prices would be likely,” said Andrew Wishart, economist at Capital Economics. He added that the impact of higher mortgage rates would be worst for the estimated 1.4mn households reaching the end of their fixed-rate deals this year — their increase in payments would be similar to those incurred by borrowers in the late 1980s.“The future for the property market feels very uncertain” said Jamie Elvin, director at Brighton-based Strive Mortgages. “I fear for the property market, and a house price crash seems inevitable at this point.” Rents rises have also been driven by a lack of housing stock, compounded by tax changes that have hit landlords and leading some to withdraw from the property rental market, experts warn.

The latest survey by the Royal Institution of Chartered Surveyors reported an increase in the number of buy-to-let landlords looking to sell their properties and a decline in interest from overseas buy-to-let investors. Julian Jessop, Economics Fellow at the Institute of Economic Affairs think-tank said the government should avoid introducing mortgage subsidies or price controls. But, he added, it had “a role in tax and regulatory reform, including fixing our broken planning system, to ease constraints on the supply side and to boost the economy’s productive potential”. More

WASHINGTON (Reuters) -U.S. Federal Reserve Chair Jerome Powell and nominees for three Fed Board seats will testify on Capitol Hill on Wednesday, laying out over several hours of hearings a set of views that could broadly shape the economic conditions facing the country during a contentious presidential election campaign next year.The themes sounded familiar in prepared testimony released ahead of the congressional meetings: Inflation is too high and interest rates need to remain restrictive to fight it; the job market remains strong and may even need to weaken some for prices to cool; bank failures in March haven’t rattled the financial system in a fundamental way.But next year’s economy, when the U.S. may face an era-defining rematch between incumbent Democrat Joe Biden and Republican former President Donald Trump, could well be made or broken by upcoming Fed decisions over how much higher interest rates need to rise, and whether the bias in monetary policy remains tilted towards controlling inflation even at the possible cost of a recession. “Inflation has moderated somewhat since the middle of last year,” Powell said in remarks prepared for delivery to the House Financial Services Committee in one of his regularly scheduled twice-yearly monetary policy updates to Congress. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”Though Fed officials held off on raising interest rates at their meeting last week, Powell called that an exercise in prudence, allowing time to gather more information before deciding on further rate increases that “nearly all” Fed policymakers feel will be necessary by the end of the year.Powell’s inflation-fighting message was echoed by others testifying on Wednesday.”The economy faces multiple challenges, including inflation, banking-sector stress, and geopolitical instability. The Federal Reserve must remain attentive to them all,” Fed Governor Philip Jefferson said in prepared testimony released on Tuesday, ahead a Senate Banking Committee confirmation hearing on Wednesday for his nomination as vice chair. “Inflation has started to abate, and I remain focused on returning it to our 2% target.” Alongside Jefferson at the same hearing, senators will question Fed Governor Lisa Cook, who is up for appointment to a full 14-year term on the seven-seat Board of Governors, and Adriana Kugler, the U.S. executive director to the World Bank and the first Fed board nominee of Hispanic heritage.Both the House and Senate committee hearings start at 10:00 a.m. (1400 GMT). Despite the consensus on lowering inflation, the Fed is at a point where opinions about the need for and timing of additional interest rate increases may start to diverge. As it was for past presidential incumbents, how that debate gets resolved could make the difference between a benign election-year economy and a corrosive one.For Biden, the success or failure of Fed policy could mean a “soft landing” of continued economic growth, lower inflation and only modestly higher unemployment, or it could force him to campaign against a backdrop of increasing joblessness, stubbornly higher prices, and punishing interest rates for anyone trying to buy a home or car or finance a business. The outcome of the Fed’s inflation battle may still take months to spool out, and “the closer it happens to election day the worse it is for Biden,” said Preston Mui, senior economist with Employ America, a research and advocacy group that focuses on full-employment policies.Mui said recent data have made the achievement of a “soft landing” seem more likely, though the Fed still is primed for further rate increases that could raise the possibility of a recession or an unnecessary increase in unemployment. The Fed at its meeting last week held its benchmark interest rate steady at between 5% and 5.25%, but officials projected rates will have to increase another half percentage point by year’s end because inflation has been falling so slowly and remains more than double the Fed’s 2% target.JOBS AND INFLATION At this point in his first term Biden is given particularly low marks for his management of the economy, despite near-record-low unemployment, steady job gains and rising wages.Rising prices, which at one point or another have touched food and gas as well as discretionary goods and a variety of services, may be one reason why.In a Reuters/Ipsos poll conducted June 2-5, just 35% of respondents approved of Biden’s economic stewardship. Some 53% disapproved, according to the poll, which had a three-percentage point margin of error.Just 25% of respondents approved of how Biden has handled inflation.In large part that job has fallen to the Fed, but it is a central bank of Biden’s making. If the current crop of nominees is approved five of seven board members would be Biden appointees. It would also be the most diverse board in the Fed’s history, with two Black board members including the vice chair, the first Hispanic, and as many women, three, as white men, the Fed’s traditional recruitment pool.Powell was initially elevated to Fed chair by Trump but reappointed by Biden.The Fed under Powell has raised interest rates faster than at any time since former Fed Chair Paul Volcker’s inflation fights of the 1970s and 1980s. Though Fed officials and economists disagree over whether there needs to be a tradeoff with unemployment to control inflation – a deeply rooted concept in economics, with labor “slack” seen loosening the pressure on prices – policymakers at last week’s central bank meeting projected the jobless rate will continue to rise from now through 2024 as inflation falls. The increases are modest, from the current 3.7% to 4.1% by the end of this year. But the rate also continues increasing through the election year, to 4.5% – the equivalent of about 1.3 million lost jobs from today’s level.For U.S. electoral politics, a backdrop of rising unemployment is hard on incumbents, and data from May show some of the risk for Biden. The unemployment rate for Black Americans, a constituency central to his 2020 victory, jumped nearly a full percentage point – an increase which, if sustained or added to, could raise the political stakes around the Fed’s inflation fight. More

WASHINGTON (Reuters) – The Federal Reserve’s fight to lower inflation back to its 2% target “has a long way to go,” Federal Reserve Chair Jerome Powell said on Wednesday in testimony prepared for delivery to the House Financial Services Committee.”Inflation has moderated somewhat since the middle of last year,” with the Fed’s preferred measure of inflation falling substantially from a peak around 7% last year to 4.4% as of April.But recent progress has been slow.”Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” Powell said, noting that even as the Fed held off raising interest rates at the Federal Open Market Committee meeting last week “nearly all” participants expect further rate increases will be appropriate by the end of the year. Investors broadly expect increases to resume at the Fed’s July meeting, though financial market indicators reflect doubts that the Fed will deliver more increases beyond that meeting.”My colleagues and I understand the hardship that high inflation is causing, and we remain strongly committed to bringing inflation back down to our 2% goal,” Powell was set to tell the House committee, where Republicans hold the majority.The hearing, the first of two Capitol Hill appearances this week as part of his twice-yearly reports to federal lawmakers, is set to begin at 10 a.m. (1400 GMT). Powell will appear before the Senate Banking Committee on Thursday.Powell laid out the contours of a debate that has policymakers weighing the continued strength of the U.S. labor market and ongoing “modest” economic growth against the fact that the full impact of rapid Fed rate increases likely has not been felt on the economy as a whole.”We have been seeing the effects of our policy tightening on demand in the most interest-rate–sensitive sectors of the economy” such as housing, Powell said.”It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,” Powell said, a fact that has made it increasingly difficult for officials to judge if they have raised interest rates high enough yet to reach their inflation goal, or need to restrain the economy further.Stress in the banking sector is also creating “headwinds” for households and businesses, the effect of which remains uncertain, Powell said.Given that situation, and the rapid five percentage points of rate hikes the Fed has approved since March of 2022, the decision not to raise rates last week was taken as a “prudent” step that would “allow the Committee to assess additional information and its implications for monetary policy,” Powell said. More

Jay Powell is set to defend the Federal Reserve’s decision to forgo an interest rate rise at its recent policy meeting, but will signal that the battle against inflation is not yet finished, in remarks prepared for a high-stakes congressional appearance on Wednesday.Powell, chair of the US central bank, will tell lawmakers on the House financial services committee that skipping a rate rise last week was “prudent” given “how far and how fast” the Fed has lifted its benchmark rate since March 2022. In just over a year, the federal funds rate has risen from near-zero to a range of 5 to 5.25 per cent.The “full effects of monetary restraint” will take time to be realised, Powell will say in opening remarks on the first of two days of semi-annual testimony to Congress. He will also highlight that the tightening in credit standards following the collapse of Silicon Valley Bank in March could cause “headwinds” for the world’s largest economy.However, Powell will hint that the central bank still has more to do in terms of squeezing the economy in order to get inflation under control.“Inflation has moderated somewhat since the middle of last year,” he will say. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 per cent has a long way to go.”His comments come on the heels of the Fed’s latest policy meeting last week at which officials opted to hold rates steady after 10 consecutive increases in order to better assess how much further the central bank will need to raise borrowing costs in order to tame stubbornly high inflation. Powell last week billed the move as both “reasonable” and “common sense” as he was forced to defend the Fed’s decision to pause what has become the most aggressive monetary tightening campaign in decades at a time when inflation concerns remain rampant. Despite staying pat at the latest meeting, Fed officials signalled, in the latest “dot plot” of individual projections, their support for two more quarter-point rate rises this year. And Powell hinted at the time that the first of those could come as early as the next policy gathering in July.If both increases are implemented, that would ultimately raise the funds rate to 5.5 to 5.75 per cent. No cuts are expected until 2024.

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Democratic lawmakers are set to press Powell on the economic pain associated with the Fed’s efforts to stamp out inflation. Most Fed officials now expect more robust growth this year than three months ago, according to projections released last week, but the unemployment rate is still expected to peak nearly 1 percentage point higher than its current level of 3.7 per cent. An increase of that magnitude is typically associated with a recession. Republicans, meanwhile, are likely to question Powell about the decision to pause the monetary tightening campaign amid relentless concerns about price pressures.In the latest forecasts, policymakers at the Fed revised lower their expectations for how quickly “core” inflation, which strips out food and energy prices, will descend this year. Most now expect it to moderate to just 3.9 per cent by the end of the year, 0.3 percentage points more than what was pencilled in March. It has hovered around 4.7 per cent in recent months. More

BENGALURU (Reuters) – U.S. bond markets are already pricing beyond expected Federal Reserve interest rate hikes in coming months, with strategists polled by Reuters forecasting short-dated yields to fall sharply and most saying they will not revisit the year’s highs.Since reaching a high of 5.08% on March 8 after hawkish testimony from Fed Chair Jerome Powell, followed by a safe-haven plunge related to concerns about smaller U.S. banks after a Fed-arranged rescue of Silicon Valley Bank, 2-year yields have traded well below that level.That is despite resilience in the economy as well as the banking system, along with the latest set of Fed policymakers’ projections that suggest two additional quarter-point rate rises may be required.Much will depend in the near-term on Powell’s testimony to Congress later on Wednesday and whether he reinforces that rate view, which could lead to a surge in yields and forecast upgrades over coming weeks.Interest rate futures are pricing in only one more rise.The yield on the 2-year Treasury note, traditionally sensitive to the near-term monetary policy outlook, is forecast to fall about 70 basis points in six months to 4.00% from around 4.70% currently, according to median forecasts in a June 15-21 poll of 26 strategists.That would be far below the near 16-year high it reached in March following Powell’s previous Congressional testimony but still above a low of 3.55% on March 24.”That is essentially the markets getting ahead of the anticipated tightening,” said Bas Van Geffen, strategist at Rabobank. “It is going to be very difficult for the Fed to convince markets they will keep rates higher … and that there won’t be a quick pivot,” he said. Three-quarters of strategists, 15 of 20, who answered an extra question said the 2-year Treasury yield was unlikely to revisit its cycle peak over the coming three months. Only two of 27 respondents had the 2-year yield trading higher than the current level at the end of August. The highest forecast was 5.00%.The benchmark 10-year note yield, meanwhile, was forecast to decline by much less, about 25 basis points over the coming six months.Although the 2- to 10-year yield spread was expected to remain inverted, it was forecast to narrow about 50 basis points from nearly 100 bps now, the poll showed. An inverted yield curve has historically been a reliable indicator of an oncoming recession but so far, having been inverted for almost a year, that has not happened. “The economy has been more durable, and inflation higher for longer than market expectations,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.”Persistence of this configuration — continued growth along with above target inflation — will keep mild upward pressure on two-year and 10-year yields.” More