Aurelia Butler

Despite President Vladimir Putin’s mobilisation order, the rouble hit its highest level versus the U.S. dollar and euro since July in trading in Moscow.By 1153 GMT the rouble was 3.5% stronger against the dollar at 56.79, its strongest level since July 22. Against the euro, the Russian currency had gained 4.4% to stand at 55.05 after having firmed past 55 at one point for the first time since July 4.Currency controls and month-end tax payments, which see Russia’s exporters convert their foreign currency earnings into roubles to make payments to the treasury, are providing a boost to the rouble despite geopolitical headwinds, analysts say.The increased supply of foreign currency from exporters and reports of more sanctions against Moscow from the European Union, which make foreign currency investments less attractive, were supporting the rouble, said SberCIB Investment Research in a note. “Moreover, according to data published in the media on Russia’s budget parameters, there will be no return to the budget rule and foreign currency purchases linked to this next year,” SberCIB said. “In connection with this, risks of the rouble weakening have decreased,” SberCIB analyst Yury Popov said.The finance ministry hiked taxes on oil and gas and said it would not return to its usual budget rule until 2025.The budget rule dictates how much of Russia’s revenues from oil and gas exports are used for day-to-day government spending and how much is diverted into the government’s sovereign wealth fund. Designed to smooth boom-and-bust periods, it was suspended earlier this year due to Russia’s new financial situation.However, Russian stocks were deep in the red on Friday as markets remain jittery over how Russia’s mobilisation drive will affect the conflict. The dollar-denominated RTS index dropped 0.9% to 1,163.3 points. The rouble-based MOEX Russian index was 4.1% weaker at 2,100.4 points.Russian shares have seen heightened volatility all week in response to the mobilisation order and as Moscow stages referendums in four regions of Ukraine on joining Russia.After surging in Thursday’s session on news it had enough free cash flow to pay interim dividends, shares in Gazprom (MCX:GAZP) fell back in line with the wider market on Friday, down 2.6% in rouble terms.”Today the Russian market is dominated by negative sentiment … The Friday factor seems to be stronger than usual as market players are not risking keeping their long positions over the weekend,” said Zarina Saidova, an analyst at Moscow-based Finam investment firm.For Russian equities guide seeFor Russian treasury bonds see More

BUDAPEST (Reuters) – The National Bank of Hungary is likely to raise its base rate by another 100 basis points to 12.75% next Tuesday, a Reuters poll showed, with further hikes seen by the end of the year despite the bank flagging a possible halt to its increases.The median forecast of economists shows the NBH is set to maintain the 100 bps tightening pace delivered over the past months as Hungary grapples with a jump in inflation to two-decade highs amid surging food and energy costs.Out of the 14 economists who gave forecasts, five, however, projected that the bank would slow the pace of rate hikes to 75 bps, taking the base rate to 12.5%, while one analyst pencilled in a larger 125 bps increase to 13%.Deputy Governor Barnabas Virag told reporters on Thursday that the NBH, which has raised its base rate by more than 1,100 bps since June 2021 to the highest level in central Europe, could consider ending its rate rise cycle after Tuesday’s meeting.He said the bank could raise interest rates by 50, 75 or 100 basis points, after which “all options are on the table”, including ending rate rises at once or phasing out the cycle with several smaller steps.”We narrowly favour a 75 basis point hike at the National Bank of Hungary’s September meeting, taking the base rate and the one-week depo rate to 12.50%, although 100bp remains clearly on the table,” said economist Peter Virovacz at ING.”The announcement of a prolongation of the price cap measures in basic food and fuel from the government will lower the near-term inflation peak, somewhat limiting concerns about consumer inflation expectations becoming more extreme.”Last week Prime Minister Viktor Orban’s government extended price caps on fuels and basic foodstuffs by three months until the end of the year in a bid to shield households from soaring costs.Even with the price caps in place, however, analysts polled by Reuters see headline inflation averaging 13.6% this year, rising to 13.95% in 2023 before a retreat to 4.3% by 2024.Economic growth, however, is seen slowing sharply, to just 1.3% next year from 5% expected in 2022, implying a stagflation scenario for Hungary as the energy crisis hits major European economies that absorb most of its exports.A new economic trajectory unveiled by Finance Minister Mihaly Varga earlier on Friday showed Hungary’s economy was set to contract for several quarters from the end of this year. More

LONDON (Reuters) – A downturn in business activity across the euro zone deepened in September, according to a survey which showed the economy was likely entering a recession as consumers rein in spending amid a cost of living crisis.Manufacturers were particularly hard hit by high energy costs after Russia’s invasion of Ukraine sent gas prices rocketing, while the bloc’s dominant services industry suffered as consumers stayed at home to save money.S&P Global (NYSE:SPGI)’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, fell to 48.2 in September from 48.9 in August, as expected by a Reuters poll.”The third decline in a row for the euro zone PMI indicates business activity has been contracting throughout the quarter. This confirms our view a recession could have already started,” said Bert Colijn at ING.A Reuters poll earlier this month gave a 60% chance of a recession in the euro zone within a year.The downturn in German business activity deepened as higher energy costs hit Europe’s largest economy and companies saw a drop in new business, data showed.However, in France activity was higher than expected although its PMI showed the euro zone’s second biggest economy was still struggling as a modest rebound in services offset a slump in the manufacturing industry.”It’s possible German GDP fell in Q3 whereas France’s economy eked out a small expansion, consistent with our view Germany will suffer more than most over the coming quarters as high energy costs weigh on energy-intensive industry as well as household budgets,” said Jack Allen-Reynolds at Capital Economics.The euro, German government bond yields and stocks all fell after the PMI data.In Britain, outside the European Union, the economy worsened as firms battled soaring costs and faltering demand, hammering home the rising risk of recession there too. In a bid to spur growth, new UK finance minister Kwasi Kwarteng on Friday was detailing close to 200 billion pounds ($223.2 billion) of tax cuts, energy subsidies and planning reforms.PRICE PRESSURESOverall demand in the euro zone fell to its lowest since November 2020, when the continent was suffering a second wave of COVID-19 infections. The new business PMI fell to 46.0 from 46.9.The euro zone services PMI fell to 48.9 from 49.8, its second month sub-50 and the lowest reading since February 2021. The Reuters poll had predicted a more modest fall to 49.0.With prices on the rise again and demand falling, optimism about the coming 12 months waned. The business expectations index fell to 53.8 from 56.6, its lowest since May 2020.Manufacturers also had a worse month than predicted. Their PMI sank to 48.5 from 49.6, compared to the 48.7 forecast in the Reuters poll and the lowest since June 2020. An index measuring output, which feeds into the composite PMI, nudged down to 46.2 from 46.5.Likely of concern to the European Central Bank, which raised its key interest rates by 75 basis points earlier in September to try and tame inflation running in August at over four times its target, the survey showed prices had risen faster this month.Both the input and output manufacturing prices indexes reversed a downward trend and rose. The input price index reached a three-month high of 76.4 from 71.7.($1 = 0.8962 pounds) More

Investors exited a net $7.32 billion of global bond funds, marking their biggest weekly net selling since Aug. 31, data from Refinitiv Lipper showed. GRAPHIC: Fund flows: Global equities bonds and money market https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrxorjpm/Fund%20flows-%20Global%20equities%20bonds%20and%20money%20market.jpg The Federal Reserve raised its benchmark rate by 75 basis points on Wednesday, the third such rise in a row, and officials project rates hitting 4.4% this year, which was 100 bps higher than what the Fed had projected three months ago.”Sooner or later bond yields will peak, though timing this precisely is difficult. The market is currently expecting the terminal US fed funds rate to be reached by around March-June 2023,” said Bimal Patel, senior fund manager at Canada Life Asset Management.Global short- and medium-term bond funds saw their biggest weekly outflow in 11 weeks, amounting to a net $4.98 billion, while investors also exited a net $3.29 billion in high yield funds. GRAPHIC: Global bond fund flows in the week ended Sept. 21 https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnkqgovq/Global%20bond%20fund%20flows%20in%20the%20week%20ended%20Sept%2021.jpg Meanwhile, global equity funds witnessed disposals worth $1.86 billion in a fifth straight week of net selling.Financials and consumer staples lost $1.55 billion and $687 million respectively in outflows, but utilities and tech both obtained about $300 million worth of inflows.”Energy, financials, and materials are still attractively valued when compared to the rest of the US equity market. Valuation multiples of these companies remains low, and they remain to be beneficiaries of the prolonged inflation and interest rate rising environment,” said Eugene Barbaneagra, portfolio manager at SEI. GRAPHIC: Fund flows: Global equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkrxkopx/Fund%20flows-%20Global%20equity%20sector%20funds.jpg On the other hand, safer money market funds attracted investor interest as they obtained a net $28.23 billion, the biggest weekly inflow since July 6.Data for commodities funds showed precious metal funds remained out of favour for a 13th week with net disposals worth $474 million. Investors also exited energy funds of $60 million. An analysis of 24,559 emerging market funds showed investors sold $2.39 billion worth of equity funds, marking a 10th weekly outflow in a row, while also exiting $2.78 billion worth of bond funds. GRAPHIC: Fund flows: EM equities and bonds https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoazoqvr/Fund%20flows-%20EM%20equities%20and%20bonds.jpg More

The Hong Kong Monetary Authority (HKMA) said it had told banks to lower the interest rate stress testing requirement to 200 basis points from 300 basis points, with immediate effect. Under the new requirement, the stress test aims to ensure borrowers have sufficient repayment capability if interest rates rise by 200 basis points. HKMA said in a statement that the new level is considered to be sufficiently prudent in terms of the effective risk management of banks’ property lending business.”At this stage, it has not been confirmed that the (Hong Kong) property market has entered a downward cycle,” an HKMA spokesperson said, adding that the decision is not related to countercyclical measures. The decision came after Hong Kong banks raised their best lending rate by 12.5 basis points on Thursday, the first rate hike in four years.”The relaxation is for supporting the market,” said Eric Tso, senior vice president of mReferral Mortgage Brokerage Services. “It will offset part of the impact from the interest rate hike yesterday and allow homebuyers to borrow more.” More