Aurelia Butler

BRUSSELS (Reuters) -European Union states were holding a first discussion on Wednesday on proposed new sanctions over Russia’s war in Ukraine that would target Chinese and Iranian firms and allow export curbs on third countries for busting trade restrictions. Talks among the EU envoys were set to be heated, according to one diplomat, with Russia hawks upset the plan does not go far enough but others wary of damaging their international ties.Widely differing perspectives mean a quick deal is not expected, several diplomats said.The EU’s chief executive unveiled the plan on a symbolic trip to Kyiv on Tuesday – a counterbalance to annual celebrations in Moscow of the World War Two victory over Nazi Germany that President Vladimir Putin likens to his invasion of Ukraine. European Commission President Ursula von der Leyen said the new sanctions would focus on cracking down on the circumvention of Russia trade curbs already in place, and were designed “in very close coordination” with Group of Seven nations.”If we see that goods are going from the European Union to third countries and then end up in Russia, we could propose to the member states to sanction those goods’ export. This tool will be a last resort and it will be used cautiously,” she said. She added the EU would stop transit via Russia of more of its exports, including advanced tech products and aircraft parts.Diplomatic sources familiar with the proposal – drafted by von der Leyen’s Commission – said it also included blacklisting “tens” of new companies, including from China, Iran, Kazakhstan and Uzbekistan.The new sanctions would highlight that oil tankers are not allowed to offload in high seas or arrive in ports with their GPS trackers off, an attempt to push back against flouting G7 restrictions on trading Russian oil, according to the sources.Part of the push relates to growing concern, particularly in Spain, over the risk of spills as the “ghost” fleet moving Russian, Iranian and Venezuela oil grows. “New EU measures will unfortunately do little to address the problem which is old, uninsured vessels performing STS (ship-to-ship transfers) outside the EU,” Andrea Olivi, head of wet freight at commodities trader Trafigura, said. Olivi pointed to a fire last week on a tanker with no known insurance in waters off Malaysia as an example. “The EU should put pressure on the International Maritime Organization (IMO) to introduce more stringent safety and insurance measures on older vessels.”NO SWIFT DEAL SEEN All 27 EU countries must agree for new sanctions to take effect in what would be the bloc’s 11th round of such measures since Russia invaded Ukraine in February 2022. It would mark the first time the bloc had targeted China over accusations of Beijing’s role in the war, something China’s foreign ministry warned the EU against. A diplomatic source from an EU country hawkish on Russia was frustrated the Commission’s proposal did not include stopping Russian diamond imports or nuclear energy cooperation. The person said trade lost under the proposal was estimated to be worth up to 500 million euros ($550 million) compared to what von der Leyen said amounted to 11 billion euros in the previous round.At the opposite end of the debate, a diplomatic source from a country critical of the sanctions said the proposal to target third countries was bound to trigger a fraught discussion.($1 = 0.9084 euros) More

European stocks and US futures fell on Wednesday as traders nervously awaited the release of closely watched US inflation data, with a stronger than expected figure likely to raise the pressure on the Federal Reserve to continue increasing interest rates.The region-wide Stoxx 600 fell 0.2 per cent and Germany’s Dax dropped 0.3 per cent, while London’s FTSE 100 slipped 0.2 per cent. Contracts tracking the US benchmark S&P 500 and the tech-heavy Nasdaq lost 0.2 per cent ahead of the New York open, following on from losses on Tuesday. The falls come ahead of the latest inflation report from the US Bureau of Labor Statistics, which is expected to show the consumer price index rose 0.4 per cent month on month in April, up from 0.1 per cent in March. The yearly increase is expected to remain steady at 5 per cent, after nine consecutive months of decline since hitting a peak last June.Wary of stubbornly high inflation and trouble in the regional banking sector, the Fed last week raised its benchmark interest rate by a quarter of a percentage point to a new target range of 5 per cent to 5.25 per cent, the highest level since mid-2007.Though Wednesday’s CPI will be the main event, traders are also keeping an eye on political negotiations over the US debt ceiling. President Joe Biden yesterday implored Republicans to “take the threat of default off the table” after failing to reach a breakthrough in a meeting with congressional leaders.“The debt ceiling issue is a very serious one but the markets are not reacting yet, and I stress yet,” said Mike Zigmont, head of trading at Harvest Volatility Management. “If the political brinkmanship gets too dicey, markets are going to freak out. If the US actually defaults, look out below.”Francesco Pesole, currency strategist at ING, said there was “growing concern that it might actually take a market sell-off in the equity or money markets to break the impasse”.In Asia, Hong Kong’s Hang Seng index fell 0.5 per cent and China’s CSI 300 lost 0.8 per cent.China’s import volume contracted by the most in a year last month, while exports expanded at a slower pace than expected, heightening concerns over the pace of the country’s economic recovery since Beijing ditched strict zero-Covid measures in late 2022.“The downturn in Chinese exports may still have some way to run before bottoming out later this year”, said Zichun Huang, China economist at Capital Economics. “The effect of higher interest rates in developed economies is still feeding through, and jitters in the global banking system have caused credit conditions to tighten, which will weigh on economic activity.” More

WASHINGTON (Reuters) – Talks on raising the U.S. federal government’s $31.4 trillion debt ceiling enter a new phase on Wednesday, after Democratic President Joe Biden and top congressional Republican Kevin McCarthy’s first negotiating meeting in three months.Time is tight to avoid a historic and economically destabilizing default, which the Treasury Department has warned could come as soon as June 1, but some areas of potential compromise emerged after Tuesday’s White House meeting.Biden signaled an openness to Republicans’ demand to claw back some unused money for COVID relief, which is less than $80 billion. House of Representatives Speaker McCarthy told reporters that Biden also indicated a willingness to work on speeding up permitting for energy projects, a goal that went unmet in 2022.The White House has previously supported that idea.Aides for Biden, McCarthy, top Democratic Senate Majority Leader Chuck Schumer, top Senate Republican Mitch McConnell and top House Democrat Hakeem Jeffries were to begin meeting daily, with another meeting planned on Friday, both sides said.”Default is not an option,” Biden told reporters after Tuesday’s meeting. “I told congressional leaders I’m prepared to begin a separate discussion about my budget.”Biden and opposition Republicans have been locked in a standoff for months over the debt ceiling, with Democrats calling for a “clean” increase without conditions to pay debts resulting from spending and tax cuts approved by Congress.House and Senate Republicans, meanwhile, have said they will not authorize any additional borrowing without an agreement to cut spending.McCarthy estimated that the two sides had as little as two weeks to reach a deal that could then be passed by Congress.”I would hope he would be willing to negotiate for the next two weeks so that we can solve this problem,” McCarthy said.Adding to the urgency, Biden is scheduled to leave on May 18 to attend an annual meeting of the leaders of “Group of Seven” major industrialized nations, though he said he would cancel that trip if needed to avoid default.”If somehow we got down to the wire and we still hadn’t resolved this … I would not go. I would stay until this gets finished,” Biden said.But even if there is significant progress, the House and Senate each have their own, often time-consuming procedures for advancing legislation that opponents of any deal could use to slow things down.Few countries in the world have debt ceiling laws, and Washington’s periodic lifting of the borrowing limit merely allows it to pay for spending Congress has already authorized.Wall Street executives who have advised the U.S. Treasury’s debt operations for the past 25 years warned on Tuesday they were “deeply concerned” about the debt limit impasse, which has markets worried about a U.S. default on payment obligations.The last time the nation got this close to default was in 2011 – also with a Democratic president and Senate with a Republican-led House. More

WASHINGTON (Reuters) – It wasn’t the March 10 collapse of Silicon Valley Bank that prompted Carissa Rodeheaver, head of a community bank tucked in the mountains of western Maryland, to rethink strategy. That process started last year when Federal Reserve interest rate hikes and a less certain economic environment caused Rodeheaver, the CEO of the $1.9 billion First United Bank & Trust in Oakland, Maryland, to shift focus from commercial real estate lending, begin “husbanding deposits” with a tougher look at the collateral backing loans, and end up with only a slight, $9.6 million increase in lending over the first three months of 2023.”When you get into higher interest rates … you look to your collateral,” Rodeheaver said in an interview. “We are tightening on price and profitability … That is going to slow lending a bit.”In assessing the impact of the aggressive rate hikes that have lifted the Fed’s benchmark overnight interest rate a full 5 percentage points over 14 months, U.S. central bank officials may take some solace from First United’s experience that the worst sort of credit shock has been avoided despite the dramatic collapses two months ago of SVB and Signature Bank (OTC:SBNY) and the more recent failure of First Republic Bank (OTC:FRCB). First United did see deposits leave early in the first quarter of this year as some account holders spent down balances and others sought higher interest rates, but padded its cash with brokered deposits and “strategic” borrowing from the Federal Home Loan Bank system, according to the company’s results for the quarter.Yet if lending increased only slightly, increase it did. For Fed officials, that could spell the difference between concerns about an economy-wrecking credit crash, and the sort of restraint policymakers would not only expect as they raise rates, but need to take root for inflation to slow. Graphic: Overall bank credit – https://www.reuters.com/graphics/USA-ECONOMY/BANKS/jnvwyjlokvw/chart.png ‘PART OF THE TRANSMISSION’A Fed report on financial stability and a central bank survey of bank loan officers this week reinforced that the banking system wasn’t on the brink of a broad crisis but was making credit less available and more expensive, a process that should mean less consumer and business spending and, eventually, lower inflation. “Data showing that banks have started to raise lending standards … is typical for where we are in the economic cycle,” Fed Governor Philip Jefferson said on Tuesday. “The economy has started to slow in an orderly fashion” in response to higher interest rates, Jefferson said, calling tighter credit conditions “part of the transmission mechanism of monetary policy.”After the Fed raised its policy rate to the 5.00%-5.25% range at a meeting last week, debate shifted to whether policymakers would find that level adequate to control inflation, allowing them to pause the tightening cycle, or whether further increases might prove necessary.One focus is whether the banking sector, rattled by the failures of the three regional lenders and facing the fastest rate increases since the 1980s, would crack down so hard on lending that the economy spun into a recession. According to the minutes of the Fed’s March 21-22 meeting, central bank staff at least saw “the potential economic effects of the recent banking-sector developments” as sufficient to shift the outlook from “subdued growth” to a “mild recession” later this year. Fed Chair Jerome Powell said that staff forecast was reiterated at last week’s meeting.Powell, however, said he felt the impact of the credit shock “remains uncertain,” and his own baseline outlook does not include a recession.Recent data and survey responses also have pointed away from the harshest outcomes. Bank lending dipped about 1.7% in the two weeks following SVB’s collapse, but has risen since then and recouped about a third of the decline. The Fed’s Senior Loan Officer Opinion Survey, which was conducted after the collapse of SVB and released on Monday, was less dire than anticipated: Only a slightly larger share of banks tightened standards for key business loans compared with the survey in January. The Fed’s semi-annual financial stability report, also released on Monday, saw scant evidence of a broad crisis developing. Graphic-Cr Graphic-Le edit nding demand-https://www.reuters.com/graphics/USA-FED/SLOOS/byprlnabgpe/chart.png conditions – https://www.reuters.com/graphics/USA-FED/SLOOS/klvyglrlgvg/chart.png ‘STILL MAKING DEALS’ Investors responded by boosting bets that the Fed will end up raising rates at its next meeting in June, though they continue to give more than an 80% probability that it will hold rates at the current level.Analysts say the loan officers survey may be less important for what it says about the current state of credit after the SVB collapse than for what it shows may unfold in response to a weakening economy – a dynamic that seems to be affecting loan demand as well as the potential supply.In response to special questions tailored to the current climate, loan officers saw continued credit tightening through this year, particularly for commercial real estate loans, and declining demand for a broad swath of lending. The most recent sentiment survey from the National Federation of Independent Business buttressed that view, with the share of firms planning capital outlays in the next three to six months dipping to what NFIB characterized as a “historically weak” 19% in April. The overall index fell to more than a 10-year-low.The Fed loan officers survey showed a general wariness about the economy, with respondents saying their plans to tighten credit revolved around risk version and concerns about the value of collateral more than from problems with their own capital or liquidity positions – the sort of issues that might flag broader financial stress.”There is a threat of recession and obviously we see that, we are planning for it,” said Greg Hayes, president and chief operating officer of Kish Bank in central Pennsylvania. “The question is will the Fed back off at the right time or overshoot?”Ramon Looby, president and CEO of the Maryland Bankers Association, said Fed rate hikes have posed challenges, with some of the drop in loan demand, he suspects, because higher borrowing costs “might be pricing folks out and having them wait on projects.”But banks “are still making deals,” Looby said. “The Fed and Chair Powell have made it tremendously clear that the goal is to tame inflation, and they will do it by tightening financial conditions … How the industry responds – folks are going to be paying much more attention to liquidity and then being judicious.” More

Latin America is blessed with abundant and cheap renewable energy. It is one of the world’s biggest food exporters. It is at peace, far from global conflicts and its nations are mostly robust democracies. It is close to the US, ideally placed to profit from the moving of production from China.Yet Latin America’s presidents seem to have other priorities.Rather than figuring out how Brazil can compete with India to assemble iPhones or win investment in microchips, President Luis Inácio Lula da Silva wants to build oil refineries, revive shipbuilding and pursue a currency union with near-bankrupt neighbour Argentina.“Brazil has all this potential to be thinking about green hydrogen,” says Monica de Bolle, of the Peterson Institute for International Economics in Washington. “And yet the government is simply not there at all.” “There’s a sort of old-guard view of the world which is getting in the way,” she added, calling it a kind of “industrial nostalgia”. “It’s the typical story of Brazil missing opportunities”.Lula’s apparent mis-steps come as Latin America is, surprisingly, struggling to manage good economic growth. This should not be so hard. Recent geopolitical trends have presented the region with some extraordinary advantages.Chile’s leftwing president Gabriel Boric outlined a strategy to exploit the country’s abundant lithium reserves last month. It ticked several boxes: greater concern for the environment, consultations with local communities, a desire to use a rare opportunity to boost economic development.One missing ingredient: any incentives for mining companies to choose Chile over other competitors for lithium investment. The leftist president’s decision to put future lithium projects under state control sliced $5.7bn off the value of the two companies currently mining the “white gold” in Chile.“It was poorly crafted and poorly released,” said Joe Lowry, a US-based lithium expert, of Boric’s announcement. “This has created a huge amount of uncertainty.”Mexico should be the best placed Latin American nation to win so-called near shoring business, given its proximity to the US and its free trade agreement. Yet President Andrés Manuel López Obrador has abolished the investment promotion agency, attacked renewable energy companies, halted a large and mostly built US brewery project and scrapped a partly constructed international airport for Mexico City. Among his top priorities: a tourist train around the Mayan peninsula and a $14bn new oil refinery.The result of López Obrador’s approach, says Shannon O’Neill, a Mexico expert at the Council on Foreign Relations in New York, is “a stream of . . . near shoring, not a tsunami”. “The politics and the policies are holding it back,” she concludes. “Even as China has lost market share [in the US] . . . that’s mainly going to south-east Asia.”

Argentina, the third biggest regional economy, is almost bankrupt. Its Peronist government has imposed price and exchange controls that have failed to halt inflation of over 100 per cent a year, yet killed off most foreign investment. Buenos Aires has also created uncertainty over taxation and foreign exchange for farm exports and imposed limits on grain sales abroad, holding back the vast potential of the agricultural sector. (The lithium industry, regulated by provincial governments, remains a bright spot.)In Colombia, President Gustavo Petro has opposed new projects in oil and mining, the mainstay of the economy. The former guerrilla revolutionary has also just forced his entire cabinet to resign, including his respected finance minister, as part of a shift to an “emergency” government. Reacting to what they see as an anti-business climate, many of Latin America’s wealthy have been shifting assets overseas in the past two to three years rather than investing at home.“Many countries in the region are going through an inward-looking phase and may be at risk of missing out on the opportunities that are out there in the changing global context,” concludes Carlos Felipe Jaramillo, World Bank vice-president for Latin America and the Caribbean.When Boric announced his lithium plan, he told Chileans: “We cannot afford to waste this opportunity.” He may have done just [email protected] More