Aurelia Butler

LONDON (Reuters) – The euro zone is almost certainly entering a recession, with surveys on Monday showing a deepening cost of living crisis and a gloomy outlook that is keeping consumers wary of spending.While there was some easing of price pressures, according to the surveys, they remained high and the European Central Bank is under pressure as inflation is running at more than four times its 2% target, reaching a record 9.1% last month.It faces the prospect of raising interest rates aggressively just as the economy enters a downturn.A rise in borrowing costs would add to the woes of indebted consumers, yet in a Reuters poll last week almost half of the economists surveyed said they expect an unprecedented 75 basis-point rate hike from the ECB this week, while almost as many forecast a 50 bps hike. [ECILT/EU]Despite those expectations the euro dropped below 99 U.S. cents for the first time in 20 years on Monday after Russia said gas supply down its main pipeline to Europe would stay shut indefinitely. [MKTS/GLOB]Gas prices on the continent soared as much as 30% on Monday, stoking fears of shortages and reinforcing expectations for a recession and a bitter winter as businesses and households are battered by sky-high energy prices.S&P Global (NYSE:SPGI)’s final composite Purchasing Managers’ Index (PMI), seen as a guide to economic health, fell to an 18-month low of 48.9 in August from July’s 49.9, below a preliminary 49.2 estimate. Anything below 50 indicates contraction.”The PMI surveys signal that the euro area is entering recession earlier than we previously thought, led by its largest economy Germany, and we now see the euro area ‘enjoying’ a longer, three quarter recession,” said Peter Schaffrik at the Royal Bank of Canada.”The revision is mainly due to developments in energy prices which, even after retreating over recent days, remain elevated and which mean that the impact on household spending will be larger than we hitherto anticipated.”That prospect of recession whacked investor morale in the currency union and it slumped in September to its lowest since May 2020, another survey showed.Services activity in Germany, Europe’s largest economy, contracted for a second month running in August as domestic demand came under pressure from soaring inflation and faltering confidence, earlier figures showed.Its economy is on track to contract for three consecutive quarters starting from this one, a Reuters poll suggested last week. [ECILT/DE]In France, the euro zone’s second-largest economy, the services sector lost more steam and only managed to eke out modest growth with purchasing managers saying the outlook was bleak.The Italian services industry returned to modest growth but in Spain activity expanded at the slowest rate since January, with companies concerned inflation would weigh on their profits and on customers’ demand.In Britain, the economy ended August on a much weaker footing than previously thought as overall business activity contracted for the first time since February 2021 in a clear signal of recession, its PMI showed. [GB/PMIS]Later on Monday the country will learn who will become its next prime minister, tasked with trying to manage an economy facing a long recession alongside eye-watering inflation and industrial unrest.In Asia, surveys showed a strong rebound in China’s services sector eased slightly amid fresh COVID-19 flare-ups, while in Japan the sector contracted for the first time in five months.However, India’s dominant services industry grew faster than expected last month thanks to a solid expansion in demand and a continued easing in cost pressures. More

The People’s Bank of China said it would cut the foreign exchange reserve requirement ratio (RRR) to 6% from 8% beginning Sept. 15, according to an online statement.The PBOC said the reduction aimed to improve “financial institutions’ ability to use foreign exchange capital,” the statement added.The move came after the Chinese yuan’s recent slide to two-year lows. The yuan has depreciated by 8% against the dollar in the year to date, as a result of broad dollar strength in global markets and China’s worsening economic slowdown. The reduction in reserve requirements would boost dollar liquidity. Based on end July data, when foreign exchange reserves stood at $953.7 billion, the lower requirements would free up around $19 billion.”It is not a huge amount compared to cross border receipts,” said Frances Cheung, rate strategist at OCBC Bank.”Still, the market is mindful of the signal the central bank sends.”Both onshore and offshore yuan briefly bounced about 200 pips following the PBOC statement and pared some of their earlier losses.Some traders and analysts said the cut was expected and was partly a signal to the market that rapid declines in the yuan would be unwelcome.”As recent daily yuan midpoint fixings persistently came in stronger than market expectations, the PBOC’s official action to stabilise the yuan was already within market expectations,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.The PBOC has been setting firmer-than-expected midpoint guidance rates over the past two weeks, with many market participants interpreting it as a sign of official efforts to rein in the yuan’s weakness.Bruce Pang, chief economist at Jones Lang Lasalle (NYSE:JLL), said Monday’s announcement showed that the authorities have started to adopt appropriate policy tools and macro-prudential tools to iron out excess yuan volatilities.”It could cool down one-way depreciation bets against the yuan and alleviate the pressure of a fast yuan depreciation,” Pang added.Major investment houses have cut their yuan forecasts as its fall against the dollar accelerated since mid-August, with some expecting a breach of the 7-per-dollar milestone before next month’s politically sensitive Party Congress despite authorities’ efforts to slow the slide.The PBOC last cut the FX reserve requirement ratio by 100 basis points in April, in a bid to rein in a sliding yuan and make it less expensive for banks to hold dollars. More

Good morning. The euro has dropped to a fresh 20-year low against the dollar after Russia’s decision to shut a major gas pipeline to Europe intensified the region’s energy crisis.The common currency fell as much as 0.7 per cent to $0.988 in London trading, the lowest level since 2002. European stocks also fell, with the regional Stoxx 600 index down 1 per cent, Germany’s Dax off 1.7 per cent and France’s Cac 40 down 1.8 per cent. London’s FTSE 100 slipped 0.7 per cent.In energy markets, Dutch TTF gas futures, the benchmark European contract, jumped 30 per cent to €272 per megawatt hour, rising back towards all-time highs hit above €340 just under two weeks ago.European countries — including Sweden, Finland and Germany — scrambled over the weekend to respond to Russia’s “weaponisation” of energy supplies and offer financial support to businesses and consumers.Liz Truss, who is expected to be confirmed Britain’s new prime minister later today, is expected to unveil a new package of measures to help families and business cope with soaring energy bills within days of taking office.The latest spike in energy prices follows Russia’s decision on Friday after markets closed to indefinitely suspend natural gas flows through the Nordstream 1 pipeline, the main energy supply channel from Russia to European markets. State-owned Gazprom said the suspension was due to a technical fault.Russia’s announcement came just hours after G7 countries announced plans to move ahead with a price cap on Russian oil exports in an attempt to reduce revenues flowing to Moscow that could be used to fund its war in Ukraine.Opec oil-producing countries and their allies are likely to look at ways to prop up oil prices when they meet today. The 11 per cent drop in oil prices last week has prompted a clamour from some Opec+ members to reverse policy after months of supply increases.International benchmark Brent rose 1 per cent ahead of the meeting to $94.41 a barrel.Thank you for reading FirstFT Americas. We hope you have a great week — GordonFive more stories in the news1. Bed Bath & Beyond executive dies Police have confirmed the man who fell to his death from a New York high-rise apartment block on Friday was Gustavo Arnal, chief financial officer of troubled home goods retailer Bed Bath & Beyond. The 52-year-old was found unresponsive at a Tribeca tower in lower Manhattan and was pronounced dead at the scene, New York police said yesterday.2. Chileans reject new constitution Voters in Chile overwhelmingly rejected a new constitution, dealing a blow to President Gabriel Boric and bringing relief to investors, who had feared the changes would upend the country’s pro-market economic model. Only 38 per cent backed the proposals in a mandatory plebiscite yesterday, in which nearly 13mn Chileans participated. 3. China extends Covid lockdowns Chinese authorities have extended the Covid-19 lockdowns in Chengdu and Shenzhen, backtracking on promises of freedom for tens of millions of people in the southern megacities following mass testing campaigns. At least 68 cities are currently in partial or full lockdown in China, according to data from the country’s National Health Commission.4. Apple plans to double its digital advertising business workforce Apple plans to nearly double the workforce in its fast-growing digital advertising business less than 18 months after it introduced sweeping privacy changes that hobbled its bigger rivals in the lucrative industry. Apple’s once fledgling ads business has grown from just a few hundred million dollars of revenue in the late 2010s to about $5bn this year, according to research group Evercore ISI.5. Police hunt for two men after stabbings leave 10 dead in Canada Canadian police said that 10 people were killed and at least 15 others injured in stabbings in the province of Saskatchewan yesterday — and that two suspects remain at large. The Royal Canadian Mounted Police named the suspects as 30-year-old Damien Sanderson and 31-year-old Myles Sanderson.The day aheadAmerican Labor Day Markets in the US will be closed today as the country observes a national holiday commemorating the works and contributions of labourers.New UK prime minister named The winner of the Conservative party leadership contest will be announced later today. Liz Truss is widely expected to have beaten rival Rishi Sunak after weeks of campaigning. The winner becomes prime minister tomorrow and will travel to Balmoral in Scotland for a meeting with the Queen before taking office.Lebanon presidential election The country’s parliament votes today to decide the next president for a term of six years.What else we’re reading‘A deglobalising world will be an inflationary one’ The war in Ukraine, the global carbon neutrality push, US-China decoupling, Federal Reserve rate rises putting a cap on easy money — there is no getting around the fact that a deglobalising world will also be a more inflationary one, at least in the short term, writes Rana Foroohar.Inside the revival brewing at Starbucks The grassroots effort to organise workers at the coffee chain has spread to more than 200 stores. The momentum of the worker movement among Starbucks employees is emblematic of the more widespread resurgence of support for trade unions across the US.Crypto real estate: the property market built on digital assets There are tens of thousands of bitcoin acolytes with the equivalent of more than $1mn in their digital wallets. A survey of US housebuyers found that 12 per cent of first-time buyers planned to liquidate digital assets for a downpayment. Agents are aiming to tap that pool of buyers and convert cryptocurrency into bricks and mortar. ‘I got mooed at for expressing milk at Goldman Sachs’ Bully Market is a sensational account of sexual discrimination and harassment at Wall Street powerhouse Goldman Sachs. Jamie Fiore Higgins worked at the bank for 17 years and left in 2016 but her book has lessons for any powerful organisation. Three ideas stand out, writes Pilita Clark. Summer is over. Will everyone now go back to the office? From Tesla to Apple and Peloton, some of the biggest companies are making a concerted push to get people to return to in-person work. Some executives are getting impatient and taking a harder line — only to be met with rejection and resentment from their employees.Go deeper: Business professor Stefan Stern explains why the office-home balance is still a challenge. TravelFrom Surry Hills in Sydney to Manhattan’s Lower East Side, via 18th-century Lisbon — here are five fabulous new hotels for great city stays. More

The EU needs a new fund to help manage downturns in its member states and pay for green investments, the International Monetary Fund said, as it called for an urgent overhaul of the way the bloc handles public finances amid rising economic hazards.Warning that the union’s current economic framework had “failed” in its basic task of containing budgetary risks, the IMF said in a policy proposal that the EU needed to create a new “fiscal capacity” funded by common debt issuance and new income streams, building on the experience of the temporary €800bn Covid-19 recovery fund. This would come on top of a revamp of the EU’s fiscal rules to deliver sounder public finances alongside better flexibility to tackle economic crises, the IMF proposed. “Reform of the EU fiscal framework cannot wait,” the IMF said in a paper published on Monday. “Multiple unprecedented shocks on top of already high debt levels complicate the conduct of fiscal policy. Interest rates have been rising, and monetary policy normalisation continues apace.”With the EU heading into a potential recession driven by the energy crisis, and interest rates surging against a backdrop of high debt burdens, fiscal policy reform is rising rapidly up the EU agenda. The looming shock to household incomes is likely to spark calls for fresh common EU borrowing to cushion economies — on top of the existing recovery fund. Among the ideas would be joint schemes to shelter households from soaring energy prices, or fresh common borrowing to back energy investment projects. However, northern EU member states backed the NextGenerationEU recovery fund in the teeth of the pandemic-induced slump on the basis that it was a one-off instrument, and they have shown little appetite to create a permanent new EU fiscal capacity. Efforts by some southern politicians early this year to galvanise a debate on extra borrowing foundered. Nevertheless, the IMF said the EU now needed to implement a “well-designed EU fiscal capacity” to help stabilise economies, especially when central banks had little monetary policy firepower, and to deliver key investments to counter climate change and boost energy security.This would come alongside an overhaul of the EU’s stability and growth pact, which requires member states to observe a deficit ceiling of 3 per cent of GDP and a debt limit of 60 per cent of that figure. The European Commission is preparing a set of proposals for overhauling the pact to make it clearer, more enforceable, and more responsive to the high public debt burdens that have emerged from the Covid-19 outbreak. Enforcement of the rules is currently on hold until the end of next year in the wake of the pandemic. The commission is expected to table reform proposals next month, which may require new EU legislation. The IMF report found that the pact in its current form had failed in its “most basic purpose” — reliably containing fiscal risks. It did not suggest ditching the 3 per cent or 60 per cent limits, but advocated that the speed at which member states needed to improve their budgetary positions would depend on analysis of their debt sustainability. All EU countries would have to enact medium-term fiscal frameworks and set multiyear annual spending caps, with independent national fiscal councils playing a stronger monitoring role. “The European Union needs revamped fiscal rules that have the flexibility for bold and swift policies when needed, but without endangering the sustainability of public finances,” the IMF said. “It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk. This will require building greater fiscal buffers in normal times.” More

Chinese authorities have extended Covid-19 lockdowns of Chengdu and Shenzhen, backtracking on promises of freedom for tens of millions of people in the southern megacities following mass testing campaigns. At least 68 cities are in partial or full lockdown, according to data from the country’s National Health Commission, fuelling anxieties that restrictions initially planned for days could extend into weeks or longer as occurred in Shanghai this year. Authorities in Shenzhen, China’s manufacturing and technology hub, said on Monday that restrictions would continue for three days in parts of the city where cases had been reported after a weekend lockdown of some of its 17.5mn residents. On Sunday, the city reported 71 new coronavirus cases.“The city’s Covid situation is severe and complex. The number of new infections remains relatively high and community transmission risk still exists,” warned Lin Hancheng, a local official.Chengdu, a city of 21mn and the capital of Sichuan province, announced a four-day lockdown last week. But authorities reported 140 cases on Sunday and said the restrictions would persist until at least Wednesday. The measures sparked panic buying across the city, with videos spreading online of people piling up their cars with pork and vegetables. Reflecting the sweeping impact of President Xi Jinping’s zero-Covid policy, authorities have urged citizens to stay home for the upcoming Mid-Autumn Festival. The decision has dealt a blow to hundreds of millions of workers, who often make a rare trip to their hometowns for family gatherings for the annual event, which starts on Saturday. The latest restrictions also added to pressure on the world’s second-biggest economy, which has been grappling with a liquidity crisis in the property sector. The economy expanded 0.4 per cent year on year in the three months to the end of June, below the 1.2 per cent forecast by economists.“Uncertainty over China’s growth prospects and concerns about project incompletion will largely drive weak homebuyer demand over the next six to twelve months. Covid-19 disruptions to business activity and sales execution will also dampen consumer sentiment,” said Daniel Zhou, an analyst at Moody’s, the rating agency.Other provincial capitals have halted transportation or movement of their citizens to get cases back to zero, aligning with the central government’s elimination strategy.

For example in Hangzhou, the capital of Zhejiang province in eastern China, testing requirements for anyone going to work, shop or take public transport have been tightened to 72 hours from once a week. But some businesses are showing increasing signs of being able to operate under the zero-Covid policy. In Chengdu, many factories, including German carmaker Volkswagen, have arranged for workers to live on their campuses in “closed-loop” systems in order to stay open.The lockdown has followed a tough month for Sichuan province, which has endured a record heatwave and drought. On Monday, a 6.6 magnitude earthquake struck Luding county, south-west of Chengdu.

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For the last few decades, globalisation and disinflation have gone hand in hand. As multinational companies grew far beyond the confines of individual nation states, they were able to use technology, outsourcing and economies of scale to drive down prices. Cheap labour, cheap capital and cheap commodities kept them down. Now war in Ukraine has put an end to cheap Russian gas. The global push towards carbon neutrality will ultimately add a permanent tax on fossil fuel usage. Decoupling between the US and China means an end to “efficient” (aka cheap) but fragile supply chains. The end of quantitative easing and the Federal Reserve’s rate rises are putting a cap on easy money.Aspects of this new reality are welcome. Counting on autocratic governments for crucial supplies was never a great idea. Expecting countries with wildly different political economies to abide by a single trade regime was naive. Polluting the planet to produce and transport low-margin goods around the world doesn’t make as much sense when you tally in the true cost of labour and energy, not to mention changing geopolitics. More than three decades of falling real interest rates have resulted in unproductive and dangerous asset bubbles; we desperately need some price discovery in markets.All this said, there is no getting around the fact that a deglobalising world will also be a more inflationary one, at least in the short term. This will present a major challenge for both the US economy and the wider world.As Credit Suisse analyst Zoltan Pozsar told clients in a recent note, “war means industry”, be it hot war or economic war, and growing industry means inflation. This is the exact opposite of the paradigm we’ve experienced for the last half century, during which “China got very rich making cheap stuff . . . Russia got very rich selling cheap gas to Europe, and Germany got very rich selling expensive stuff produced with cheap gas.” The US, meanwhile, “got very rich by doing QE. But the licence for QE came from the ‘lowflation’ regime enabled by cheap exports coming from Russia and China.” All this is now changing. And that means even hawkish central bankers may not be able to control the inflationary environment. That’s a topic that was front and centre at the central bankers’ Jackson Hole conference recently, when economists Francesco Bianchi of Johns Hopkins University and Leonardo Melosi from the Chicago Fed released an important paper questioning how much monetary policy can do to bring down inflation if the fiscal position of the country is deteriorating.The core idea is that if rate hikes lead to recession, tax receipts go down and in lieu of spending cuts to the big stuff — such as entitlements and defence — or a default on Treasury bills, you get rising debt. When the debt picture deteriorates significantly, it gets harder and harder for monetary policy alone to curb inflation, so you get a snowball effect. The upshot? Unless monetary policy is accompanied by a more stable fiscal situation, rising inflation, economic stagnation and increasing debt will be the result. Central bankers have been begging politicians of both stripes to supplement their monetary efforts with appropriate fiscal policy for years. Now, the rubber is hitting the road. When interest rates rise, you ideally want less debt. That requires increased taxes or reduced spending. The first option relies on Democrats controlling Congress; it’s unclear how long they will, as November midterms loom. The second option is unlikely, given the fiscal investments inherent in a deglobalising, decarbonising world.Consider, for example, the cost of more secure supply chains. The US has just passed an act giving chipmakers $52bn in subsidies. Germany is spending $100bn on modernising its armed forces. The west is likely to spend $750bn rebuilding Ukraine, and the G7 recently announced plans to pump $600bn into infrastructure to counter China’s own massive Belt and Road Initiative. All that is, in the short term at least, inflationary. Then there are the challenges of ensuring production. “Inventory for supply chains is what liquidity is for banks,” says Pozsar, and “in the context of supply chains, leverage means excessive operating leverage.” He notes, for example, that some $2tn of German value-added production relies on $20bn worth of gas from Russia. What happens if that stops flowing entirely this winter? We may be about to see. There are important caveats to this story. Productive spending on things like infrastructure, high value goods and services and the transition to clean energy may be inflationary in the short term but ultimately bolsters a country’s fiscal position by fuelling longer-term growth. Indeed, these types of “productive bubbles” — in which the public sector provides incentives for investment into crucial technologies and new markets — enable periods of widely shared, sustainable growth.The question is how much of today’s spending will be productive, and whether governments will have the ability to cut what is not. Either way, in the near term, the end of the neoliberal globalisation era will be a tailwind to higher trend inflation. Just like deglobalisation itself, that represents a massive economic shift, which will herald all sorts of unexpected [email protected] More

With most of the world’s biggest economies having curbed pandemic restrictions, the mantra for the global events industry is “business is back”, following a difficult two years.But attendance at the Imex show in Frankfurt — which caters to the trade show and travel sectors themselves, with attendees including conference venues, event managers and hotel groups — is telling. The May event had about 9,500 participants, compared with 14,000 before the pandemic.“Obviously the industry has suffered during the past years, people have lost jobs, but demand has exploded,” said Carina Bauer, chief executive of Imex, adding that recent events had a “global range of exhibitors”.But she added: “We had very few participants from China this year.”The 32 per cent drop in attendance points to a mixed picture for the industry as the world reopens. The critical Chinese market remains stymied by restrictive lockdowns as Beijing pursues a zero-Covid policy. Meanwhile, convention centres and organisers elsewhere are still gauging whether demand for face-to-face meetings will return to pre-pandemic levels despite an initial surge.Imex chief executive Carina Bauer: ‘We had very few participants from China this year’ © ImexChina offered the events industry a sliver of hope two years ago when it became the first large country to cautiously reopen after the first phase of the pandemic.Now the tables have turned. While many wealthy countries have signalled that companies should not expect future restrictions on social mingling, China has chosen to impose travel restrictions, as well as lockdowns on cities when local coronavirus outbreaks occur.“We have no idea how to compensate for China if the country does not return,” said Wolfgang Marzin, chief executive of Messe Frankfurt, a German events organiser co-owned by the city of Frankfurt and the state of Hesse that runs trade fairs around the world.“Everybody took advantage of labour and production capacity in China — much still comes from there — and now we are as dependent on them as we are from oil for Mr Putin,” he added, nodding to the number of international companies manufacturing in the country.For now, Marzin said Chinese buyers and sellers were largely absent from events in other parts of the world. “The zero-Covid policy means that since January we don’t see Chinese companies,” he said. “For a show in textile, typically we would have around 400 exhibitors and now we have 25.”Marzin would not disclose the private company’s revenues and profits but said turnover this year was likely to be close to levels in 2010, adding that he expected the company to be back on track in 2025 — assuming the global economy is not derailed by further crises.Informa’s Arab Health 2022 trade show in Dubai. The company has maintained 2019 prices for its exhibitions to attract customers © InformaChina is not only an indispensable part of many companies’ supply chains, but the world’s second-largest economy has also emerged as an important buyer at trade shows.In 2019, mainland China accounted for 16 per cent of events revenues at Informa, the world’s largest trade fair group. In 2021, the company had recovered to only four-fifths of this level.But the FTSE 100 company is more sanguine about the situation in China, arguing that rebounding demand in the US has offset the lag.Both Marzin and Bauer are bullish about the eventual full-scale return of in-person meetings, so is Lord Stephen Carter, Informa’s chief executive.“The power of physical presence will not go away,” said Carter. “Even if China is opening at a slower rate than other countries, we know that it will be reopening.”The group has put its money where its mouth is, announcing last December that it would dispose of its intelligence arm and focus on events and academic publishing. It had unveiled an annual £1.1bn pre-tax loss for 2020 linked to lockdown-related exhibition cancellations. But in 2021 it swung back to a £137mn pre-tax profit as restrictions eased.Informa said in July that it would begin paying dividends again following a pandemic hiatus, brushing off a global economic slowdown that is threatening many industries. The group expects its revenue and adjusted operating profit this year to reach the upper end of previous guidance of £2.15bn-£2.25bn and £470mn-£490mn respectively.“All the events businesses I speak to are tremendously bullish,” said Citi analyst Thomas Singlehurst, who added that as exhibitions businesses tend to have a low cost base they could stand to be beneficiaries of surging inflation as they raised their own prices.“What’s interesting with events is that re-emergence of inflation could be the best thing that has happened,” he said, explaining that most growth in the industry came from pricing.Carter said Informa had maintained 2019 prices for its exhibitions in order to encourage as many customers as possible, but added that in the future “of course, there will be natural price inflation as you would expect”.Nevertheless, the industry remains under pressure. Of the three biggest listed events providers — Informa, Hyve and Relx — only the latter’s share price has recovered to the level of early 2020 and it is largely focused on subscription businesses such as academic publishing.But Hyve, which runs the annual retail shows Shoptalk and Groceryshop, has still struck an optimistic note, saying the 2022 editions either had or were expected to make more money than the year before Covid-19 struck.“Post-pandemic . . . our customers spend more with us than before,” said chief executive Mark Shashoua. The UK-based group reported revenue of £59mn in the first half of 2022, compared with £68mn for the same period in 2019. It blamed the delay of two large events in the mining and paper industries in the second half of the year for the decrease.There are predictions of a shakeout. Shashoua said some smaller or more niche shows were unlikely to return at all, even online, after the pandemic, with the largest groups such as Hyve who run the “must-attends” of various industries in a position to consolidate.This has already begun. In March, Hyve announced the acquisition of US-based Fintech Meetup for up to £42mn, a few months after it snapped up an events organiser focused on the mining industry for a similar amount. Meanwhile, Informa bought business-focused publisher Industry Dive in July, a deal that will grant it a content arm to better engage clients beyond events.For Informa’s Carter, future growth in the industry will come from an increase in the range of services that events companies can provide, with the main shows becoming “much more digitally enhanced [with more] sophistication at registering and profiling [buyers and sellers]”.“If you are operating with a tier-one product, demand is extremely high,” he said.

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The European Central Bank’s sense of urgency in tackling inflation has overtaken concerns over the damage an aggressive rate increase would inflict to the eurozone economy ahead of a policy meeting this week.Several ECB rate-setters have said they are focusing more on current record levels of inflation to decide policy, moving away from an earlier, more dovish approach that hinged mostly on where they expected prices to be two years from now. The shift has led many economists to forecast a 0.75 percentage point rise on Thursday for only the second time in the central bank’s history — a move that would leave the benchmark deposit rate at 0.75 per cent. “There are no doves left at the ECB, only average hawks and uber-hawks,” said Katharina Utermöhl, senior European economist at German insurer Allianz.The ECB surpassed expectations in July by raising its deposit rate by 0.5 percentage points to its current level of zero, the first increase in more than a decade — and a bigger rise than president Christine Lagarde and its chief economist Philip Lane had flagged. The latest hawkish shift has been led by Isabel Schnabel, an executive board member, who emphasised at the Jackson Hole gathering of central bankers a week ago that the bank would be willing to raise borrowing costs to a level that would lead to higher unemployment and possibly recession to fight inflation. “The ECB president hasn’t spoken [on monetary policy] for six weeks — it would have been good to hear from her,” said Piet Haines Christiansen, chief strategist at Danske Bank. “She is more inclusive and doesn’t make up her mind until she has heard everyone else speak . . . But that puts her at risk of markets boxing the ECB into a corner in the meantime.”Jürgen Stark, a hawkish German economist and former ECB executive, asked in a letter to the Frankfurter Allgemeine Zeitung newspaper why Schnabel was delivering the key Jackson Hole speech and not Lagarde or Lane, suggesting there could be a “reallocation of responsibilities” on the bank’s board. Lane has continued to caution against the dangers of raising rates too aggressively. He told an event in Barcelona last week that there were “no shortcuts” to analyse the inflation cycle and he was confident inflation would soon fall from its “extremely high levels”. The ECB said Lagarde had been in “constant contact” with the 11 of its council members who were at Jackson Hole and pointed out that its president had not always attended previously.Isabel Schnabel has said the ECB would be willing to raise borrowing costs to a level that would lead to higher unemployment and possibly recession to fight inflation © Ralph Orlowski/ReutersAs well as raising rates on Thursday, the 25 members of the ECB governing council are also expected to discuss ways of pushing up banks’ financing costs. Policymakers want to restrict commercial banks from earning billions of euros in interest on some €4.5tn in deposits placed at the central bank. The ECB granted €2.2tn of subsidised loans at rates as low as minus 1 per cent during the pandemic to encourage banks to keep lending, but now that rates are rising this could generate more than €20bn for the private sector, which is politically unpalatable and contradicts efforts to tackle inflation.Some policymakers have even floated the idea of the ECB starting to shrink its almost €9tn balance sheet by reducing the amount of money it reinvests from maturing bonds in its €5tn securities portfolio. But this looks unlikely to be decided before October or December.Sven Jari Stehn, chief European economist at Goldman Sachs, said the “important shift” challenged expectations the ECB would halt rate rises should the eurozone fall into recession, as he and several analysts expected. Stehn highlighted that inflation would hit double figures before the end of the year, which would force the ECB to raise the deposit rate to 1.75 per cent by 2023. Calls for the ECB to join the US Federal Reserve in raising rates more aggressively were bolstered by eurozone data showing inflation surged to a record high of 9.1 per cent in August, while unemployment hit a record low of 6.6 per cent.But even before this, several factors were pushing rate-setters in a more hawkish direction. Wholesale energy prices soared to all-time highs in Europe last month on fears Russia would keep throttling gas supplies. While they have retreated in recent days, German power prices on Friday were still about 10-times higher than a year ago. Growth has been resilient despite the energy crisis, helped by supportive fiscal policy and the lifting of coronavirus restrictions. Meanwhile, the euro has fallen to near par with the dollar — pushing up inflation further through higher prices of imports, especially energy. Another element behind the shift is that, after underestimating inflation for a year, many ECB rate-setters are losing confidence in the models they rely on to forecast where prices are heading. Because the impact of monetary policy decisions take at least 18 months to affect the economy, those models previously provided the reference point for decision-making. “It was more or less impossible in our models to produce any inflation that would not be temporary,” Belgium central bank governor Pierre Wunsch, an ECB council member, said last week, adding that they always showed price rises falling to the 2 per cent target, regardless of the assumptions. “We have come to the conclusion that we know much less about inflation drivers than we thought.”Inflation was also now so high that, as Schnabel outlined in Jackson Hole, it risked becoming “an important reference point” for where consumers and businesses expect price pressures to be. Some ECB rate-setters still believe in its models. Greek central bank governor Yannis Stournaras said last week that inflation would soon “steadily decelerate” and urged only “gradual” rate rises to “ensure a soft landing” for the economy. More