Aurelia Butler

Ghana has moved one step closer to securing a $3bn IMF bailout after its monetary policymakers and ministry of finance signed a memorandum of understanding to end central bank lending to the government. Ernest Addison, governor of the Bank of Ghana, told the Financial Times that a “zero financing” agreement was signed last week between the central bank and the ministry headed by Ken Ofori-Atta. The agreement — a precondition to unlocking relief from the fund — will take effect when the fund’s board approves Ghana’s programme, Addison added.Government officials in Accra are optimistic of IMF approval this month, and believe the $3bn loan, to be disbursed over three years, will help set its battered economy on the path to recovery. However, the fund’s final vote on implementing a staff-level agreement, made in December, is still pending.The country is restructuring $58bn worth of debt after halting payments on most of its external bonds in December. The terms of about $11bn of domestic debt have also been renegotiated, with 85 per cent of bondholders in agreement. Other conditions of the IMF loan include measures to raise revenue through new taxes and tariff increases on public utilities. Value added tax has been increased to 15 per cent and three new tax bills were passed by parliament last month.Ghana’s economy, which relies heavily on commodity exports — including gold, oil and cocoa — is vulnerable to external events. A sharp fall in the cedi currency against the dollar and a surge in global borrowing costs over the course of last year sparked turmoil in the west African economy. The crisis led the government to turn to the central bank to plug revenue shortfalls. The Bank of Ghana said the amount lent to the government totalled 37.9bn cedis ($3.2bn) in 2022.Central bank financing has become a political issue, with Cassiel Ato Forson, an opposition MP in Ghana’s evenly-split parliament, alleging last year that the central bank printed 22bn cedis ($1.9bn) to fund the budget without parliamentary approval. The central bank denied the allegation.Ghana’s economic performance has improved in recent months, with gross domestic product growing by a better than expected 3.7 per cent in the last quarter of 2022. Addison said the improvements meant the government should be able to “operate without access to central bank financing”. Inflation remains high, at 45 per cent, although it has slowed from the two-decade record of 54.1 per cent it reached in the year to December.Addison expected price pressures to continue to fall “barring any unforeseen external shocks”. Addison, who has been central bank chief since 2017, is targeting a 29 per cent inflation rate by the end of the year. That is still far from the Bank of Ghana’s inflation target of 8 per cent, which the governor now hopes to meet by 2025.The bank has raised its benchmark interest rate by 12.5 percentage points since March 2022 as it battles inflation. At its most recent meeting, it increased interest rates to 29.5 per cent, much to the dismay of private sector executives.Joseph Obeng, president of the Ghana Union of Traders Association, a trade body, said the terms of commercial loans were “scary” and had left businesses short of capital. “The commercial lending rate is over 40 per cent,” he said. “How can a business survive at that rate? It’s exhaustively high and it’s not pro-business.”Addison would not be drawn on what the bank would do at its next policy meeting, due later this month, only saying that the bank would “remain focused on its objectives”. Businesspeople were being “short-termist” in criticising rate rises.“We’re not bringing a higher policy rate as an end to itself; the end [goal] is to have a low-inflation environment and create an environment in which business would be profitable and sustainable,” he said. “They should be looking at the medium to long-term objective of policy, which is in their interest and the interest of the economy as a whole.” More

NEW YORK (Reuters) – Bond investors, fearing a recession is around the corner and preparing for an end of the Federal Reserve’s tightening cycle, have embraced the safety of U.S. Treasuries and shed risky exposures in investment grade and high yield credit. The collapse in March of Silicon Valley Bank and Signature Bank (OTC:SBNY), and the current turmoil at First Republic Bank (NYSE:FRC), have further pressured market players to take a defensive stance to protect their portfolios.The Fed is widely expected to raise interest rates by 25 basis points (bps) at its meeting this week to a range of 5.0%-5.25%. The betting is that it will pause after that and possibly start lowering rates in the fall, although the debt ceiling saga has complicated the thinking on that scenario.Since last March, the Fed has raised interest rates by 500 bps in one of most aggressive tightening cycles over a similar time span since the late 1970s.”Tight monetary policy, whose impact has not fully emerged yet but it’s going to over the next six months, combined with tighter lending conditions in the banking system, will result in growth continuing to slow as we move through 2023,” said Chip Hughey, managing director, fixed income, at Truist Advisory Services.It remains a nerve-wracking environment and fund managers have remained either neutral on their risk stance, stuck to Treasuries and high-quality investment grade corporate bonds, or extended duration, which measures the bond’s sensitivity to interest rate changes, in their portfolios.Going long duration reflects expectations U.S. yields will fall because the Fed will be forced to cut rates. As the economy slows down, longer duration in fixed income tends to perform well. That is the opposite though of what tends to happen in a tightening cycle. During the Fed’s aggressive rate-hike phase last year, investors shortened their duration exposure.Lon Erickson, managing director and portfolio manager at Thornburg Investment Management said any recession and rate cuts “should reverberate throughout the curve into the five-year, 10-year, and 30-year part.””You want to have more duration on because that means you will get more bang for your buck for that interest rate move.”In the credit sector, Thornburg has gravitated toward businesses such as health care and utilities, viewed as resilient in a downturn.Data showed U.S. government bond funds secured $2.22 billion worth of inflows, in the week ended April 26, compared with net selling of $2.14 billion in the previous week. Treasury ETFs saw inflows, as well, during the week totaling $634 million.    In terms of price action, U.S. 5-year yields dropped 67 bps since March, suggesting increased demand from investors. U.S. 10-year yields likewise showed the same pattern, dropping 47 bps.Chris Diaz, portfolio manager and co-head of global taxable fixed income at Brown Advisory, said long duration in the firm’s bond portfolio is concentrated in the two- to the seven-year part of the curve, with the firm holding low levels of credit risk. “We are pretty significant underweight investment grade corporate bonds and no high yield.”STAYING NEUTRALSome investors though have opted to stay “neutral duration” on their strategies, citing outsized moves in Treasuries that saw a big rally, combined with the uncertainty surrounding the debt ceiling.U.S. Treasuries rallied in March, pushing yields lower, as the market sought safety during the banking crisis. U.S. two-year yields, which reflect rate expectations, fell nearly 60 bps in March, the largest monthly fall since December 2007.”The market has already raced ahead — you have a 2-year (yield) right now of 4.03% and that is 100 basis points (below) what it was a month ago,” said Todd Thompson, managing director and portfolio co-manager at Reams Asset Management.”You don’t want to lean against that too much because we have the debt ceiling debate…sometime in the summer.”The U.S. Senate showed no sign of moving to avoid a looming crisis on Thursday, as Republicans rejected calls to raise the $31.4 trillion limit without conditions and Democrats dismissed the idea of talks.Investors feared that a debt impasse could damage the economy and cause market chaos, forcing the Fed to cut rates earlier than it should. “There’s so much in flux here and abroad impacting the rate environment,” said Thornburg’s Erickson. “We are going to stick to individual bonds like Treasuries where it makes sense.” More

After days of speculation about the future of First Republic, and a frantic weekend of negotiations, it was announced today that the US bank was to close and its $93.5bn deposits and most of its assets to be sold. JPMorgan Chase, which had led an effort to save First Republic a month ago, is to acquire most of the embattled lender.The deal means all depositors, including those above the $250,000 insurance limit, will retain access to their money when the bank opens this morning. However, the Federal Deposit Insurance Corporation estimated that losses to its insurance fund would be about $13bn.First Republic’s assets were badly hit by interest rate rises and had been struggling for two months. Its shares have lost more than 97 per cent of their value this year, while the bank revealed last week that it had suffered more than $100bn in deposit outflows in the first quarter. Concerns about regional banks had risen after the collapse of Silicon Valley Bank.JPMorgan had tried to stabilise the San Francisco-based lender, bringing together a group of 11 banks that put in $30bn in deposits. With that lifeline failing, First Republic has become the second-largest bank failure in US history, after Washington Mutual in 2008.“Our government invited us and others to step up, and we did,” said JPMorgan’s chief executive Jamie Dimon. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimise costs to the deposit insurance fund.”Don’t miss: “Person in the news” — Jim Herbert, founder of First RepublicHere’s what else I’m keeping tabs on today:May Day: Financial markets in the UK, France, Germany, South Africa, Switzerland and other countries are closed today. White House: US president Joe Biden welcomes his Philippine counterpart Ferdinand “Bongbong” Marcos Jr for a bilateral meeting after the two countries recently held their largest joint military drills in 30 years.Five more top stories1. Exclusive: Deutsche Bank is planning to expand its investment bank advisory team significantly and has already recruited 26 managing directors in the past two months, with several coming from collapsed rival Credit Suisse. Read the full story.2. Brazil’s Congress is poised to vote on contentious legislation to curb the spread of “fake news”. The measure is being pushed through at speed by the government led by President Luiz Inácio Lula da Silva, but critics are unhappy. Find out why.3. Jack Ma is taking up a teaching position in Japan from today, as the charismatic Chinese entrepreneur begins to reassume a public profile after largely disappearing from view during Beijing’s crackdown on tech. Here’s what he’ll be up to.4. US biotech group Iveric Bio is being bought by Astellas Pharma, marking the latest acquisition by Japanese companies seeking growth outside their home market. The deal values Iveric, formerly known as Ophthotech, at roughly $5.9bn, the Japanese drugmaker’s largest-ever acquisition.5. The fighting in Sudan has the potential to be “worse than Ukraine” for civilians, according to the UN. Amina Mohammed, deputy secretary-general, said Sudan’s army and its rival paramilitary group were waging an indiscriminate battle for Khartoum, and she feared mass casualties. The Big Read

Charlie Munger has warned of a brewing storm in the US commercial property market © Bloomberg

The golden age for investing is over and investors need to contend with a period of lower returns, warned Charlie Munger, in a wide-ranging and thought-provoking interview with Eric Platt and Harriet Agnew. The 99-year-old investor — sidekick to billionaire Warren Buffett — warned of a brewing storm in the US commercial property market, with American banks “full of” what he described as “bad loans”. For some behind the scenes extras from this interview, don’t miss today’s Asset Management newsletter from Harriet Agnew. We’re also reading . . . Global trade: The economic system as it stands isn’t working well, writes Rana Foroohar, but a new narrative beyond “all growth is good” is shaping up. Casement Park: The Northern Ireland site could host some of the Euro 2028 football championship matches if London and Dublin win a deeply symbolic joint bid. US-China: Countries must “continuously” fight protectionism, the Asian Development Bank’s chief told the FT, even as tensions between the two superpowers threaten free trade.Chart of the dayThe costs of entrenched high inflation in the UK cannot be ignored. The Bank of England may not be able to fix everything, but it must get this under control, writes Martin Wolf.

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Take a break from the newsDon’t miss this delightful — and fragrant — horticulturist’s green-fingered guide to New York. And do share your favourite New York florist or public garden in the comments below.Additional contributions by Annie Jonas and Tee Zhuo More

1. First Republic Bank fallsFirst Republic Bank’s (NYSE:FRC) days as a stand-alone entity are over, after California’s financial regulator announced on Monday that it has taken possession of the San Francisco-based lender, while JPMorgan Chase (NYSE:JPM) will assume all of its deposits.U.S. regulators had called on Sunday for banks to submit final bids for the troubled lender in an auction, with Reuters reporting that PNC Financial Services Group (NYSE:PNC), JPMorgan Chase, and Citizens Financial (NYSE:CFG) were among banks that got involved, while Bank of America (NYSE:BAC) and US Bancorp (NYSE:USB) decided against bidding.Authorities have stepped in after the regional lender’s stock slumped over the past week, following the revelation that more than $100 billion in deposits departed in the first quarter in the wake of the failures of Silicon Valley Bank and Signature Bank.2. All eyes on the FedThe week’s highlight for investors will be the Federal Reserve’s policy-setting meeting, which could mark the last increase of the U.S. central bank’s aggressive year-long tightening cycle.The Fed is widely expected to increase interest rates by another quarter percentage point on Wednesday, marking the 10th consecutive increase going back to March of last year, as inflation remains stubbornly high.But expectations are growing high that slowing economic growth and concerns about the banking sector will persuade officials to then hold policy before turning toward lowering rates by year’s end.Last week’s first-quarter gross domestic product figures pointed to an economy that’s struggling, putting the economic data focus next on Friday’s jobs report. The forecast 182,000 increase in April payrolls would mark the third straight month of decelerating employment growth.3. Futures subdued; ISM manufacturing data due U.S. futures traded in a subdued fashion Monday, with investors cautious at the start of a week that includes a crucial Fed meeting, the widely-watched monthly jobs report, and corporate results from a number of important companies.At 05:00 ET (09:00 GMT), the Dow futures contract traded largely flat, S&P 500 futures inched down 2 points or 0.1%, and Nasdaq 100 futures dropped 10 points or 0.1%.The main indices are coming off a positive month, with the blue-chip Dow Jones Industrial Average gaining 2.5%, its best month since January, the broad-based S&P 500 up 1.5%, while the tech-heavy Nasdaq Composite just edged higher.Away from a deluge of quarterly corporate earnings, Monday also sees the release of ISM manufacturing data and construction spending, with investors looking for clues on the strength of the economy ahead of Wednesday’s Fed meeting.4. Apple leads earnings chargeThe quarterly corporate earnings season continues this week, with Apple (NASDAQ:AAPL), the largest U.S. company by market value, set to report earnings on Thursday.The report from the iPhone maker is a bellwether for global consumer demand and its results stand to ripple through markets.A little over half of S&P 500 companies have reported so far, and first-quarter earnings are on track to fall 3.7% for the period, a smaller drop than the 6.7% decline projected at the end of March, according to FactSet.Monday sees the results from Norwegian Cruise Line (NYSE:NCLH) and MGM Resorts (NYSE:MGM), and some other big-name companies set to report in the coming week include Ford (NYSE:F), Starbucks (NASDAQ:SBUX), Advanced Micro Devices (NASDAQ:AMD), Kraft Heinz (NASDAQ:KHC), Marriott International (NASDAQ:MAR), Moderna (NASDAQ:MRNA), Pfizer (NYSE:PFE), and Uber Technologies (NYSE:UBER).5. Oil prices slip on Fed hike, Chinese PMI concernsCrude prices fell Monday, weighed by weak Chinese manufacturing data as well as concerns another interest rate hike by the Federal Reserve will limit activity in the world’s largest economy.By 05:00 ET, U.S. crude futures were 2.2% lower $75.10 a barrel, while the Brent contract dropped 2.1% to $78.65 per barrel.Data released Sunday showed that China’s official manufacturing purchasing managers’ index slipped into contraction territory, falling to 49.2 from 51.9 in March, dashing hopes for a prompt and sustained recovery in activity after the lifting of severe COVID restrictions by the largest importer of crude in the world.On the supply side, oil output cuts of just over 1 million barrels per day, announced last month by the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, have taken effect. More

WASHINGTON (Reuters) – The World Bank will announce on Monday a new methodology for assessing the business climate in up to 180 countries after embarrassing revelations of data irregularities and favoritism toward China forced it to cancel the “Doing Business” rankings two years ago.The bank said a pilot edition of the new replacement annual series called “Business Ready” would be published in the spring of 2024, covering an initial group of 54 economies in Asia, Latin America, Europe, the Middle East and Sub-Saharan Africa.Subsequent reports adding more countries will follow in the next two years as the bank refines its methodology and ramps up the new flagship project, which aims to help countries attract investment and boost jobs and productivity to accelerate development.The bank scrapped Doing Business in September 2021, citing internal audits and an independent probe that found senior World Bank leaders had pressured staff to alter data to favor China, and cited data irregularities that also boosted rankings of other countries, including Saudi Arabia, the United Arab Emirates and Azerbaijan.”Business Ready improves upon and replaces the World Bank Group’s earlier Doing Business project. It reflects a more balanced and transparent approach toward evaluating a country’s business and investment climate,” the bank said in a statement.World Bank Chief Economist Indermit Gill said the new approach enabled “a fuller and sharper measure of the investment climate of countries — something that is badly needed in a global economy in the midst of a generalized slowdown.””Business Ready” was shaped by recommendations from World Bank experts, governments, the private sector, and civil society groups, and includes for the first time worker rights, as defined by the International Labor Organization, while acknowledging that regulation can also have positive aspects.”The main thing that went wrong was the data integrity of Doing Business was compromised,” Norman Loayza, director of the World Bank’s Indicators Group, which leads the project, told Reuters. “The main point for us is that we need to ensure data integrity and we have a very comprehensive approach to do that.”Loayza said the bank would publish all data collected for the project – raw data, scores and calculations to obtain the scores – from private sector contributors, as well as surveys of entrepreneurs, company owners and managers to ensure full data transparency, unlike the predecessor report.The bank will also make available the tools needed by outsiders to replicate the results of the data assessments.But World Bank officials were still debating whether to revive the business climate rankings that were at the heart of the “Doing Business” controversy or produce an overall index, Loayza said, with a decision expected prior to the first report. He said the rankings were criticized for encouraging political pressure to try to lift country scores, but also helped spur nearly 4,000 regulatory reforms in developing and developed economies over the past two decades.Loayza said the new project focuses on 10 topics covering the lifecycle of a firm, including business entry, utility services, labor, dispute resolution, market competition, taxation and insolvency – another move aimed at addressing criticism of the earlier product.”We take into account not only the perspective of the private entrepreneur, but also the perspective of workers, consumers and other market participants,” he said. “So for instance, we will look for worker safety, environmental sustainability and market competition.” More

LONDON (Reuters) – Inflation in the euro area is too high for comfort, meaning markets expect the European Central Bank to deliver its seventh straight interest rate hike on Thursday.With some stability returning to banks after a March rout, hawks may feel confident pushing for a larger hike, and key inflation and bank lending data on Tuesday could sway the debate.”The big question is, is it going to be 25 or 50 bps?,” said Gareth Hill, fund manager at Royal London Asset Management. “On balance at this stage, I’m certainly leaning more towards 25.”Here are five key questions for markets.1/ How much will the ECB hike rates by on Thursday?Economists polled by Reuters expect a 25 bps rise to 3.25%. A recent source-based report suggested policymakers were converging on a such a move, even if other options remain on the table.ECB board member Isabel Schnabel reckons a 50 bps increase is not off the cards, while France’s Francois Villeroy de Galhau has said further moves should be limited in size and number.April inflation and bank lending on Tuesday could be key. Data on Friday showed Germany’s economy stagnated in the first quarter, supporting the case for a small hike. The race to raise rates, https://www.reuters.com/graphics/GLOBAL-MARKETS/byprlexkqpe/chart.png 2/ When will the ECB be done with tightening?Not yet. Most analysts expect at least one more rate move after Thursday, even as the Federal Reserve looks set to pause its rate hike campaign.Market pricing suggests ECB rates will peak around 3.6% this year, and Belgium’s central bank governor Pierre Wunsch says he wouldn’t be surprised to see rates rise to 4%. Deutsche Bank (ETR:DBKGn)’s global head of rates Francis Yared said he saw a possible terminal rate above 4% given that underlying inflation and wages are growing faster in Europe versus the United States, while euro area fiscal policy has more scope to be expansionary.”If you look at it under that perspective, it’s not obvious to have a more than 1% gap between the peak policy rates in the two areas,” he said. ECB hawkishness to moderate, https://www.reuters.com/graphics/GLOBAL-MARKET/THEMES/lgvdkazlxpo/chart.png 3/ How sticky is core inflation?    Very. Tuesday’s flash inflation release should show that although headline inflation continues to ease from 2022’s record highs, the underlying measure remains well above its 2% target.Strong growth in the bloc’s services sector, making up the bulk of its economic activity, suggests core inflation and wage pressures remain elevated, complicating ECB efforts to tame inflation.The April flash Composite Purchasing Managers’ Index, seen as a good gauge of overall economic health, jumped to an 11-month high of 54.4 in April. Euro zone core inflation remains sticky, https://www.reuters.com/graphics/GLOBAL-MARKETS/znpnbngmkpl/chart.png 4/ What’s going on with wage pressures?Well, labour markets are tight and workers are demanding wage increases to keep up with higher prices.Germany’s public sector workers just secured a deal to give 2.5 million employees a 5.5% permanent increase next year.That will set an important precedent for other pay talks and could threaten the ECB’s forecast for wage growth to peak this year.”Tight labour markets are supporting worker and union bargaining power,” said Patrick Saner, head of macro strategy at Swiss Re (OTC:SSREY). “Whilst we view a 1970s wage-price spiral as unlikely, recent labour market developments must for sure be concerning for the ECB as it keeps the risk of a spiral simmering.”5/ How has the banking turmoil impacting financing conditions?Tuesday’s bank lending should offer some clues but it might be too early to gauge the full impact of the March banking crisis on financing conditions.Analysts suspect that the turmoil, which knocked 14% off European banks’ share prices overall in March, has further tightened lending for corporations.”After the developments in the U.S. and Switzerland banking systems, we cut our policy terminal rate forecasts by 25 bps to 3.75% as we expect banks’ loan offices to become more risk-averse,” said Barclays (LON:BARC) European economist Silvia Ardagna, adding that the chances of a 50 bps rate hike in May was “very low” given easing economic growth and inflation. Euro zone banks tighten credit, https://www.reuters.com/graphics/EUROZONE-MARKETS/ECB/znvnbnaqwvl/chart.png More