Aurelia Butler

LONDON (Reuters) – France’s central bank governor François Villeroy de Galhau has pushed back against criticism of central banks’ increasing involvement in the fight against climate change, calling the issue a “must have” focus.”Climate-related risks are clearly among the long-term risks to which financial institutions are exposed: monitoring these risks is not a ‘nice to have’, or part of a CSR (corporate social responsibility) policy, but a ‘must have’,” Villeroy, who also sits on the European Central Bank’s Governing Council, said in a speech at the City Week conference in London.On some of the recent concerns voiced by a number of top central bankers, he added central bankers shouldn’t waste too much time on the legal and political debate about central bank mandates.”Central banks’ core mandate worldwide is price stability, and climate change already affects the level of prices and activity,” Villeroy stressed. “It’s not mission creep, it’s not a politicisation of our mandate – it is our core business and core duty.”The debate about how much influence central banks can have in tackling climate issues has become increasingly divisive this year.In January, the head of the U.S. Federal Reserve Jerome Powell, said it should “stick to its knitting” as it was “not a climate policymaker and never will be”.The Fed’s balancing act has become more delicate since the Republicans took control of the House of Representatives, although both Belgian ECB policymaker Pierre Wunsch and former Bank of England chief Mervyn King have also said fighting global warming was primarily the job of governments.Villeroy, however, who has long been a firm advocate of doing more, urged central banks and others to come up with better models of how climate change is likely to alter economies.He said recent “pilot stress tests” had been carried out and pointed to a need for shorter-term scenarios with a five-year time horizon because climate change was accelerating.The Network for Greening the Financial System, which most of the world’s central banks and multilateral lenders such as the International Monetary Fund are members of, would therefore publish a “conceptual framework” at end of this year, he added.It is also aiming to release short-term climate change scenarios by the end of 2024, which should show more adverse developments, incorporate tougher “shocks” and directly explore the potential impacts of climate change on inflation. More

The euro zone’s biggest economy has struggled for much of the past year as sky-high energy prices weighed on its vast industrial sector, but a modest rebound has been under way since gas prices fell back, boosting hopes that a recession can be avoided. “The German economy did better in the first quarter of 2023 than expected a month ago and activity is likely to have picked up again somewhat,” the Bundesbank said. “Industry recovered more strongly than expected.”The Bundesbank’s mild optimism is consistent with a recent string of survey data, which point to a mild recovery after a 0.4% contraction in the fourth quarter, even if growth could remain below trend for some time. Falling gas prices supported energy intensive industries while supply bottlenecks continued to ease, car demand picked up and construction also got a boost, even if that was partly due to mild weather.Industrial orders also surged recently, which may suggest that demand for manufactured goods has passed its cyclical bottom, the central bank said.High employment should also keep supporting consumption, and unemployment is likely to fall slightly in the coming month, the bank added. But the outlook is still mixed as inflation continues to weigh on consumption and the reversal in underlying price pressures has yet to work its way through to consumers.Still, price growth is likely to keep easing and even if core inflation remains elevated for some time, services inflation should ease slowly, the Bundesbank added. More

Rapidly-ageing Japan suffers from an increasingly severe shortage of labour in a number of sectors but remains reluctant to allow a widespread immigration of foreign labourers.The change, which could allow workers to stay for extended periods and bring their families with them, could include sectors such as food manufacturing and could take effect as early as June, the Nikkei added.An official at Japan’s Health and Labour Ministry said a change was being considered, but that he could give no further details.Most migrant workers in Japan currently come from countries such as Vietnam, Indonesia and the Philippines. Under a law that took effect in 2019, a category of “specified skilled workers” in 14 sectors such as farming, nursing care and sanitation have been granted Japanese visas.But stays have been limited to five years and without family members for workers in all but the construction and shipping sectors, with those in care for the elderly allowed extended stays under a special permit system. The revision would expand the long-term work visas to sectors including farming, fishing, food manufacturing and food services, the Nikkei said. Talks are underway with the aim of having the revisions approved by the cabinet as early as June, it added. More

Credit Suisse has revealed for the first time the scale at which depositors rushed to withdraw their money from the Swiss bank before it was forced to merge with rival UBS last month.In what is likely to be the final set of results as a stand-alone bank, Credit Suisse said it suffered outflows of SFr61bn ($68.6bn) in the first quarter as it reported a SFr1.3bn pre-tax loss for the period.The 167-year-old bank said the outflows had stabilised but not reversed, underlining the challenge confronting the management team at rival UBS as it sets about trying to integrate its former rival.The $3.25bn takeover was the most significant banking deal since the financial crisis 15 years ago. UBS chair Colm Kelleher and new chief executive Sergio Ermotti have shortlisted four management consultants to help with the complex operation of merging the two banks, which is expected to take years and lead to thousands of job cuts. Meanwhile, Santander, which has ambitions to become a significant player in investment banking in the EU and the US, is in talks to hire several of Credit Suisse’s most senior bankers in New York, the Financial Times reports this morning.Here’s what else I’m keeping tabs on today:Results: Regional lender First Republic and consumer goods group Coca-Cola Company report.Five more top stories1. EXCLUSIVE: The White House has asked South Korea to urge its chipmakers not to fill any market gap in China if Beijing bans Idaho-based Micron from selling chips. The US request was made ahead of a state visit by South Korean president Yoon Suk Yeol to Washington.2. The US home goods retailer Bed Bath & Beyond filed for Chapter 11 bankruptcy protection yesterday. The store chain, founded in 1971, said it planned to shut all of its 400 stores by June if it cannot find a buyer.3. Comcast yesterday said Jeff Shell, chief executive of NBCUniversal, was stepping down after an investigation into a complaint of alleged inappropriate conduct with a female colleague. Read more about the list of candidates to succeed Shell.4. Australia has unveiled the biggest strategic shift in its military posture since the second world war to adapt to China’s military build-up in the region. The country’s defence spending review warned of “major power strategic competition” in the Indo-Pacific and that the country’s defence posture was “no longer fit for purpose”. Read more on the planned overhaul. Related: Beijing’s ambassador in Paris has angered France’s European allies after he questioned the legal status of former Soviet states and Ukraine’s sovereignty over Crimea. 5. A broad international effort is under way to evacuate foreign nationals from Sudan. The White House said over the weekend that it was suspending operations at its embassy and had conducted an operation to remove US government personnel from the capital Khartoum.The Big Read

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The weeks since Silicon Valley Bank collapsed on March 10 have brought an uncomfortable realisation — the problems that provoked the biggest bank run in history were neither a freak occurrence nor an unforeseeable emergency. Ahead of the first official post-mortem on its failure, almost everyone agrees that the crisis had been hiding in plain sight.We’re also reading . . . Banking on Apple: Rana Foroohar asks if the tech giant — with its considerably greater global reach and consumer trust than most banks — can fix a troubled sector.‘You shut up shop or you die’: Gustavo Petro took office in Colombia eight months ago promising “total peace” from a conflict that has killed more than 450,000 people and displaced over 7mn. But he has struggled to deliver.War games: US and Philippine troops have been conducting their biggest military exercises in more than three decades. Here’s what we have learnt.Chart of the day

Central bankers who manage trillions in foreign exchange reserves are loading up on gold. An annual poll of 83 central banks, which manage a combined $7tn in foreign exchange assets, found that more than two-thirds of respondents thought their peers would increase their gold holdings in 2023.Related: Ruchir Sharma explores what this trend means for the dollar.Take a break from the newsFor 40 years, AlixPartners has been collecting data on the core psychological needs of potential recruits — from its receptionists to its chief executive. Read more on what the tests show.Additional contributions by Tee Zhuo and Annie Jonas More

The writer is a philanthropist, investor and economistThe recent failure of Silicon Valley Bank combined two ingredients: excess deposits and losses on assets, even in securities such as Treasury bonds that are ordinarily considered “safe”.SVB did not have adequate liquidity to tolerate a bank run and did not have adequate solvency to meet its liabilities. Emphatically, however, the failure did not occur because there was too little liquidity in the banking system as a whole. It occurred because there was too much.At the end of 2022, the US banking system had $18tn in domestic deposits, including an estimated $10tn of deposits insured by the Federal Deposit Insurance Corporation. That meant there were $8tn of deposits that exceeded the FDIC insurance limit.Those destabilising excess deposits are there because in more than a decade of “quantitative easing”, the Federal Reserve took $8tn of bonds out of the hands of the public and replaced them with bank reserves.Conceptually, one can think of a customer deposit as being “backed” either by reserves that the bank holds with the Fed or by assets such as an IOU that the bank received in return for a loan it made.By buying trillions of dollars of bonds under quantitative easing, the Fed also in effect pushed trillions of dollars of deposits into the banking system, backed by newly created reserves rather than bank loans. Yet despite the most aggressive monetary expansion in history, the growth rate of US commercial bank loans (business, consumer, real estate) averaged just 3.4 per cent annually between 2008 and 2022, easily the slowest growth rate in data since 1947.

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In 1852, Walter Bagehot wrote: “John Bull can stand many things, but he cannot stand 2 per cent.” For more than a decade, quantitative easing stretched that thesis to extremes.Once the Fed created $8tn in base money, it ensured that, in equilibrium, someone in the economy would have to hold it indirectly as bank deposits, indirectly in money market funds or directly as physical currency.All of the increased reserves — and associated bank deposits — earned nothing. Someone had to hold them, and nobody wanted to. The moment any holder attempted to put the money “into” a security, the seller of that security took the money right back “out.” Long-term securities, including Treasury bonds, were driven to record valuations because yield-starved investors, banks and pension funds could not tolerate the perpetual zero-interest rate world created by central banks.Having engineered a toxic combination of excess bank deposits and yield-seeking speculation, the Fed ensured that instability would follow.As I wrote in the Financial Times in January 2022, by relentlessly depriving investors of risk-free return, the Fed has spawned an all-asset speculative bubble that may now leave investors with little but return-free risk.Investment losses have emerged since early 2022, both because inflation pressures forced the Fed to normalise rates after 13 years of zero-rate financial repression and because extreme valuations are never sustained indefinitely. The Fed can no longer operate monetary policy without explicitly paying interest to banks on the liquidity it created. Sudden banking strains in the US and Europe, the British pension crisis last year, equity market losses — all these are merely symptoms of an unwinding bubble. The Fed itself would technically be insolvent if it was to mark its assets to market value.In response to the insolvency of SVB, the FDIC took the bank into receivership, wiping out the stockholders and unsecured bondholders. This was, and remains, the proper approach to bank insolvency. The largest bank failure in US history — the 2008 failure of Washington Mutual — is unmemorable because it was also resolved in this manner. The FDIC took receivership. Stockholders and unsecured creditors lost because they were supposed to lose in this situation. Depositors lost nothing.While the decision by the FDIC to cover uninsured deposits remains controversial, enhanced deposit insurance, funded by higher fees, may become necessary for a period of time. It is not the fault of savers that the banking system is drowning in excess deposits.Savers, in aggregate, are captive victims of the Fed’s dogmatic “ample reserves regime”. Until it winds down this misguided experiment, global policymakers will continue their scramble to create new special programs, acronyms and emergency facilities to manage the whack-a-mole world of complications it has produced. More

President Joe Biden promised that his Inflation Reduction Act would reindustrialise the US and create new jobs. What the law will not do, say economists and investors ranging from Bank of America to BlackRock’s Larry Fink, is reduce inflation.The IRA includes $369bn in subsidies to spur domestic clean energy manufacturing and deployment. The Chips and Science Act, passed around the same time, offers more than $50bn in incentives to reshore semiconductor production.The scale of the federal handouts has already sparked an investment boom. But it is now stoking fears that a scramble for workers will trigger another bout of inflation, complicating the Federal Reserve’s efforts to cool the economy. “We’re pouring a lot of money into getting these firms to come to the US, expanding in the US, and there aren’t workers for that, and it’s not like you’re going to pull workers from McDonald’s,” said Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.Hufbauer estimates the tight labour market and sourcing requirements will add 10 per cent to project costs. The US will need an additional 546,000 construction workers on top of the normal hiring pace to meet increased demand for projects pushed along by the IRA and other bills, estimates Associated Builders and Contractors. Consultants at McKinsey warn the US semiconductor push will exacerbate the existing shortfall of engineers and technicians, with companies across industries expected to need an additional 300,000 engineers and 90,000 technicians by 2030.“I’m all for high paying jobs. But then either customers have to pay more, or you have to have higher productivity . . . and the easiest way to get more productivity is to use more automation,” said Willy Shih, a professor at Harvard Business School.Developers have already pledged $200bn for new projects since the IRA and Chips Act became law last August. But the administration’s effort to break dependence on China by subsidising domestic manufacturing will also keep prices high, warned BlackRock boss Larry Fink. “You don’t hear the word globalisation anymore,” Fink told an energy conference at Columbia University this month. “We’re building new chip factories in the United States — at what cost?”Fink said the Biden administration’s efforts to reshore manufacturing would mean US inflation was unlikely to fall below 4 per cent “anytime soon”. While the IRA includes subsidies for clean energy worth $369bn, the credits are “uncapped”, meaning the final bill for taxpayers could eventually exceed $1tn, according to Credit Suisse, Goldman Sachs and the Brookings Institution. Analysts say the sheer scale of the handouts will put a wrench in markets.“You’re distorting free markets when you create these incentives and when you create rules that require you to buy from domestic firms,” said Ethan Harris, head of global economics at Bank of America. “If it was the most cost efficient way to do something, you wouldn’t need a subsidy for it.”Although Biden has made job creation a central theme of the huge new spending commitments, the IRA is also part of the White House’s attempt to slash emissions. But the pace of the decarbonisation effort may also push up prices, warned analysts. “We need to move so fast to build clean energy . . . creating that much demand for wind turbine blades or whatever component you’re talking about is going to be inflationary,” said Jason Bordoff, head of Columbia University’s Center on Global Energy Policy. Bordoff added that higher costs may be a price “worth paying” if it means an energy supply chain less vulnerable to geopolitical disruptions.White House assistant press secretary Michael Kikukawa said that fighting inflation and reducing costs was Biden’s “top priority”. “[The Inflation Reduction Act] invests in our workers and increases our economy’s productive capacity. It reduces the deficit by hundreds of billions of dollars. It lowers costs of prescription drugs, insulin, energy efficiency appliances to lower utility bills, and electric vehicles. And, it spurs clean energy production to lower energy prices,” Kikukawa said.The crux of the issue is the US attempt to break dependence from China, whose low-cost manufacturing base has driven down clean energy costs in recent years. Developers are sceptical.Morris Chang, founder of Taiwan Semiconductor Manufacturing Company, called US efforts to reshore semiconductor production a “very expensive exercise in futility”. Production costs at TSMC’s Oregon plant were 50 per cent more expensive than in Taiwan, he said in a conversation with Brookings last year.

In December, TSMC announced a $28bn expansion of its semiconductor factory in Phoenix, the largest foreign direct investment of its kind in the US.“If you want to scale clean energy at the pace and magnitude we need you’re still going to be dependent on China, as one example, for meaningful parts of our supply chains,” said Bordoff. A recent Brookings paper provided a more neutral picture of the IRA’s impact on prices, saying the bill’s clean energy incentives could shave inflation by 3-6 basis points by 2030, assuming the US’s onerous permitting process is reformed and supply chain constraints abate. But both remain significant obstacles, while the Biden administration’s efforts to satisfy its decarbonisation, industrial and geopolitical ambitions at the same time — all while promising to drive down costs — are causing alarm among some analysts. “Once you go down the national security path and don’t narrowly constrain it, boy, it’s a killer to economic efficiency,” Hufbauer said. More

SYDNEY (Reuters) – Asian shares started cautiously on Monday in a week packed with economic data and central bank meetings, along with earnings from the tech giants that have kept the S&P 500 afloat so far this year.Early action was sluggish in the wake of Friday’s surprisingly strong surveys of business activity which reinforced the case for higher interest rates.MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1%, while Japan’s Nikkei nudged up 0.2%.S&P 500 futures and Nasdaq futures both eased 0.2% ahead of a busy week of earnings.Apple Inc (NASDAQ:AAPL) and Microsoft Corp (NASDAQ:MSFT) alone have accounted for nearly half of the S&P 500’s gains through March, so there is much riding on their outlooks.”We believe stalwarts Microsoft, Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) should all deliver cloud results that meet and likely exceed Street 1Q expectations this week despite recent noise in the market,” said analysts at Wedbush Securities.”We also believe a major narrative of tech earnings season will be the AI arms race and each Big Tech player updating investors on their own AI ambitions/monetization strategy as Redmond battles Google and other tech stalwarts for the AI trophy case.”The U.S. House of Representatives could this week vote on a Republican plan to raise the debt ceiling in exchange for spending cuts. Weak tax receipts mean the government could run out of money earlier than expected, and the risk of default has seen a rise in U.S. credit default swaps.Figures on U.S. wages and economic growth due this week will likely reinforce the case for further tightening. The Atlanta Fed’s influential GDP Now tracker has the U.S economy growing an annualised 2.5% in the first quarter, only a shade slower than the previous quarter.BOJ GETS A NEW BOSSMarkets are pricing in an 89% chance the Federal Reserve will hike rates by a quarter point at its meeting in the first week of May, and fully expects a similar hike from the European Central Bank with some risk of a half-point move.Central banks in Canada and Sweden meet this week, but most attention will be on the Bank of Japan for the first meeting chaired by its new governor, Kazuo Ueda.Only three out of 27 economists polled by Reuters expect the BOJ to start to scale-back its yield curve control policy (YCC) this soon, but there are reports the central bank is considering conducting a comprehensive review of the impact of its easing.”Media background suggests don’t expect tweaks to YCC, but its clear the writing is on the wall and the risk is of more substantive change at the next meeting,” said Tapas Strickland, head of market economics at NAB.The divergence in policy between Japan and the rest of the developed world has seen the yen weaken steadily in the last few weeks, with the euro in particular hitting a six-month high.The single currency was firm at 147.33 yen on Monday, while the dollar held at 134.03.The euro also edged up to $1.0992 and nearer its recent one-year peak of $1.1075.A higher dollar and bond yields have been a burden for gold, which shed 1.2% last week and was last lying at $1,984 an ounce. [GOL/]Oil prices also lost ground last week, though planned production cuts from OPEC offer some support. [O/R]Brent eased 9 cents on Monday to $81.57 a barrel, while U.S. crude fell 12 cents to $77.75 per barrel. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Inflation figures from Singapore top the Asian economic calendar on Monday, kicking off a week in which eyes of the Asia Pacific region – and beyond – will be focused on the Bank of Japan’s first policy meeting under guidance of new governor Kazuo Ueda.The BOJ’s decision, and Ueda’s press conference on Friday, will round off a week in which attention in Asia also turns to Japanese retail sales, unemployment and Tokyo consumer inflation reports, South Korean GDP and Australian inflation.This comes as month-end approaches and investors look ahead to the U.S. central bank’s May 2-3 policy meeting. Fed officials are in blackout period, so expectations for the decision will be molded by U.S. data, corporate earnings, signals from the banking sector, and the ebb and flow of debt ceiling concerns.The advance estimate of first-quarter U.S. GDP growth is out this week, and big tech earnings from Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) are due. Tesla (NASDAQ:TSLA) shares fell 13% last week after an earnings miss, the biggest fall in almost a year.Back in Asia, the BOJ spotlight falls on Kazuo Ueda after a decade of uber-dove Haruhiko Kuroda. It is unlikely that Ueda, on his debut, will bin Kuroda’s super-loose yield curve control(YCC) policy so soon, but that is exactly what Marcel Thieliant at Capital Economics thinks. Thieliant is probably in a minority of one, but Ueda will likely steer the BOJ in a more hawkish direction sooner or later. Inflation is higher and stickier than officials had expected and many analysts say YCC has distorted the functioning of the bond market. GRAPHIC:10y yields since Japan adopted ‘yield curve control’ (https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdldekpm/YCC.jpg)GRAPHIC: Japan core CPI inflation (https://fingfx.thomsonreuters.com/gfx/mkt/zjpqjojwavx/JapanCPI.jpg) Consumer price inflation data on Friday showed that price growth in March held steady above the BOJ’s target, while a narrow measure of core prices rose at the fastest annual pace in four decades. Ueda has insisted that the current policy will remain in place for now, damping down prospects of a shift this week. The central bank’s revised inflation and growth forecasts might also give a clue as to when it will tweak or abandon YCC.While the BOJ is likely to stand pat on Friday, Ueda’s honeymoon will be a short one. On the data front Monday, the consensus estimate for Singapore annual headline and core inflation in March is for a decline to 5.60% from 6.30% and to 5.1% from 5.5%, respectively.Here are three key developments that could provide more direction to markets on Monday:- Singapore inflation (March)- Hong Kong unemployment (March)- Taiwan industrial production, unemployment (March) (By Jamie McGeever; Editing by Diane Craft) More