Aurelia Butler

According to the proposal, published on Congress’ website, the government estimates economic growth of 3.5% next year, as announced Thursday by the minister of economy and finance, Kurt Burneo. Burneo has said that he is planning measures aimed at reviving private spending, increasing public investment and rebuilding investors’ confidence in the country.The budget plan also estimates a 3.5% increase in accumulated consumer prices for 2023, well below the 4.9% inflation forecast by the economic ministry the day before.Peru, the world’s second-largest producer of copper, counts mining as its main source of financing and the government is budgeting for a drop in copper prices in 2023. The industry frequently suffers from protests from local communities, stopping or slowing production.Friday’s budget also estimates an average exchange rate for next year of 3.94 soles to the U.S. dollar. As the country faces political uncertainty, with President Pedro Castillo plagued by a wave of corruption allegations, the sol slumped to a historic low last October, though it has gradually recovered and on Friday closed up 0.23% to 3.8380/3.841 soles per dollar.Along with the budget proposal, the government sent a public borrowing strategy for the coming year, with plans for domestic bond issues of up to 20.67 billion soles.The government also plans to carry out debt management operations for up to $6 billion through prepayment of obligations, debt swaps or exchanges, repurchases and internal or external title issues.($1 = 3.8198 soles) More

The EU and Latin America’s second-biggest economy in 2018 reached an agreement in principle on updating their joint trade deal, but the coronavirus pandemic and a complex approval process have hampered final ratification in Europe.Speaking to Mexican lawmakers, Ebrard said that concluding the process would depend on the EU, and that European officials had informed Mexico this would likely occur in 2022.”We’re expecting that this year they approve the update of the agreement that we already have with them,” he said. More

Typical household energy bills in Britain will rise above £3,500 in October and could exceed £6,000 by April. But why are they suddenly going up by so much and what can be done to mitigate the impact on households and the wider economy?Why are bills soaring?The simple answer is the price of gas had already shot up over the past year but it started to climb at an even faster rate in recent weeks.Over the past decade the price of gas has traded between about 20 pence and 75 pence a therm in the UK wholesale market. By January 2022, after Russia had started to squeeze supplies to Europe last year and as demand rebounded from the pandemic, gas rose to around 200 pence a therm. It went up again after the invasion of Ukraine in late February.But since June, when Russia slashed supplies to Europe by restricting flows on the Nord Stream 1 pipeline, prices have more than doubled to 555p a therm.

The Nord Stream 1 gas pipeline at Lubmin, Germany. Russia slashed supplies to Europe by restricting flows through the pipeline © Hannibal Hanschke/Reuters

At these price levels a 10 per cent rise in the price — as happened over the last week — is like adding the entirety of a normal year’s wholesale gas cost on to your bill again. That is why forecasts for the price cap have started to jump by such large amounts. Another factor is the recent move by regulator Ofgem to pass on rises in wholesale gas and electricity prices to consumers faster. Previously, the price cap changed twice a year in April and October. Now it will change every three months with the next rise due in January in the depths of winter. A month ago Ofgem criticised Investec, the investment bank, for suggesting the cap would be above £4,000 by next spring. But the wholesale market price rises since means the consensus forecast is that an annual bill for an average household will exceed £6,000 per annum by April. Before the crisis, a typical household bill was around £1,200.

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How long will this last? One of the most alarming aspects in recent weeks is how much forward contracts in the wholesale markets for gas delivery months or years in advance have started to climb.Traders are now expecting extremely high gas prices to persist through 2023 and possibly into 2024. They anticipate there is little prospect of Russia, which before the crisis made up 40 per cent of supplies to Europe, returning to its one-time role as a reliable supplier to the market.The UK does not have large gas storage facilities like other European countries, which have been filling them over the spring and summer for the winter ahead. Plans to reopen Rough, the UK’s largest storage facility mothballed in 2017, will come too late for this year.Assuming Russian supplies remain restricted and storage is drained over the winter, supplies across Europe will start from a lower base. While Britain is not directly reliant on Russian gas, shortages in the rest of Europe will still have an impact on UK prices as competition for supplies from elsewhere increases. Norway supplies about 40 per cent of the UK’s gas and the rest of Europe with about 25 per cent of total demand. There will also be competition with Asia for seaborne cargoes of liquefied natural gas. In a restricted Russian supply scenario, the most likely way for prices to fall eventually would be if demand drops sufficiently but that would imply a deep recession.What can the next prime minister do? Proposals that once might have appeared bold — like cutting green levies or removing VAT from energy bills — increasingly look like window dressing.Before the crisis, wholesale gas and electricity costs comprised less than half of bills. The rest was made up of taxes, levies and the cost of maintaining pipelines and networks. By April, wholesale costs will probably make up more than 80 per cent.This leaves next prime minister, whether Liz Truss or Rishi Sunak, with some difficult decisions. The immediate need is to shield consumers from bills that could exceed £500 a month by April without government intervention. But doing that for all 28mn UK households would be eye-wateringly expensive.

Liz Truss, favourite to be the next prime minister, opposes measures such as additional windfall taxes and wants to ‘maximise’ North Sea oil and gas production © Rui Vieira/AP

One proposal from Scottish Power under consideration is to cap the typical bill at around £2,000 per annum for two years at a cost of £100bn, which would be funded by government-backed borrowing to either be repaid through bills over 10 to 15 years or absorbed into general taxation. If gas prices keep rising, that estimate would be too low.Encouraging energy conservation measures would also help given that the price cap is the unit price of energy. That means lower consumption could bring the annual bill in below the estimates based on a typical household’s usage. So far the government has refused to push energy saving measures, unlike other European countries.Should the government be bolder? Some have suggested more radical solutions, arguing that the UK needs to move on to a “war footing” given the scale of the crisis.Dale Vince, founder of energy retailer Ecotricity, has proposed mitigating high prices and cut them at source by capping the price producers in the UK North Sea receive. He argued it would “solve half of the crisis at a stroke” as about 50 per cent of the UK’s gas supplies are domestic.The industry would fiercely resist such a move but, in theory, if the price cap was imposed at a high enough level it would still leave producers comfortably profitable. Moreover, Truss, who is the favourite to be the next prime minister, has said she opposes measures such as additional windfall taxes and wants to “maximise” North Sea oil and gas production, even though output peaked two decades ago.Removing the de facto ban on onshore shale drilling has also been floated, but enjoys little public support, including in Tory-leaning rural areas. Another possibility exploring with Norway a return to long-term oil-linked gas contracts. Oil currently trades near $100 a barrel, while gas prices in the UK are close to $360 a barrel of oil equivalent and above $500 a barrel in mainland Europe. Others have argued the UK needs to accelerate plans for the “degasification” of the UK economy and contend that net zero targets are no longer only about the environment but the country’s economic resilience. But that would require huge investment in domestic supply chains, building out wind, solar farms and nuclear power, as well as an overhaul of the UK’s housing stock, as the vast majority of homes are heated with gas. Such a transformation would take many years. More

NEW YORK (Reuters) – The 10.7% rally in the S&P 500 from its June lows is stumbling as it runs into what has historically been the toughest month for the U.S. stock market, sparking nerves among some fund managers of a broad sell-off in September.The S&P has been in a bear market since plummeting early this year as investors priced in the expectation of aggressive Federal Reserve interest rate hikes, but the index has rallied strongly since June, regaining half its losses for the year.That rebound has been fueled by a combination of strong earnings from bellwether companies and signs that inflation might have peaked, potentially allowing the Fed to slow rate hikes.But as investors and traders return from summer holidays, some are nervous about a bumpier ride in September, due to seasonal concerns and nervousness about the Fed’s pace of hikes and their economic impact. The S&P 500 fell nearly 3.4% Friday after Fed Chair Jerome Powell reiterated the central bank’s commitment to taming inflation despite a possible recession.”These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said in a closely watched speech in Jackson Hole, Wyoming. September typically is a down month for the stock market because fund managers tend to sell underperforming positions as the end of the third quarter approaches, according to the Stock Trader’s Almanac.”We’ve had a breathtaking run and I wouldn’t be shocked if the market takes a hit here,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Management Solutions. The S&P 500 could fall as much as 10% in September as investors price in the likelihood that the Fed will not start to cut rates as early as some had hoped, Janasiewicz said. September has been the worst month for the S&P 500 since 1945, with the index advancing only 44% of the time, the least of any month, according to CFRA data. The S&P 500 has posted an average loss of 0.6% in September, the worst for any month. The index is down 14.8% year to date and has been in a bear market, hitting its lowest level in June since December 2020 after the Fed announced its largest rate hike since 1994.Chief among the reasons for the gloomy outlook is a belief that the Fed will continue hiking rates and keep them above neutral longer than markets had anticipated as recently as a week ago, weighing on consumer demand and the housing market. Nearly half of market participants now expect the Fed funds rate to end the year above 3.7% by the end of the year, up from 40% a week ago, according to the CME FedWatch tool. [/FEDWATCH] The fed funds rate is currently between 2.25 and 2.5%.The Sept. 20-21 FOMC meeting will also likely drive volatility during the month, prompting the S&P 500 to fall near its June lows, said Sam Stovall, chief investment strategist at CFRA. Ahead of that will be critical economic data, such as a reading on consumer prices that will give investors more insight into whether inflation has peaked. The strong rally since June, however, suggests the index will continue to rebound through December, Stovall said. “While we might end up retesting the June low, history says that we will not set a new low,” he said. While fund managers as a whole remain bearish, the ratio of bulls to bears has improved since July, reducing the likelihood of outsized gains in the months ahead, according to Bank of America (NYSE:BAC) survey released Aug. 16. The bank’s clients were net sellers of U.S. equities last week for the first time in eight weeks, suggesting that investors are growing more defensive, the bank said.At the same time, the use of leverage by hedge funds – a proxy for their willingness to take risk – has stabilized since June and is near the lowest level since March 2020, according to Goldman Sachs (NYSE:GS). Investors may rotate into technology and other growth stocks that can take market share despite an economic slowdown, said Tiffany Wade, senior portfolio manager at Columbia Threadneedle Investments, who is overweight mega-cap stocks like Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT). “We expect the pullback will start with some of the riskier names that have run up a lot since June,” she said. More

US stocks tumbled after Federal Reserve chair Jay Powell emphasised his resolve to hoist interest rates to curb inflation in a hawkish address on Friday at the annual Jackson Hole central banking summit.Wall Street’s S&P 500 index fell 3.4 per cent, while the Nasdaq Composite, which is dominated by technology shares that are more sensitive to interest rate expectations, slid 3.9 per cent. It was the biggest one-day decline for both indices since mid-June.Europe’s regional Stoxx 600 share index lost 1.7 per cent.Friday’s fall in US equities was broad, with 99 per cent of the companies on the S&P 500 down on the day. Every big sector was in the red, with tech and cyclical consumer stocks such as Amazon leading the way lower.Speaking in Jackson Hole, Wyoming, Powell said the Fed “must keep at it until the job is done”, underscoring the US central bank’s determination to tame rapid price growth.The Fed is fighting the most vigorous surge of consumer price increases in about four decades, with annual inflation clocking in at 8.5 per cent in July. But policymakers are also trying to avoid tipping the world’s largest economy into a recession with their programme of aggressive rate rises.“[Powell] is pushing against the idea of raising rates and cutting them soon,” said Stewart Robertson, chief economist at Aviva Investors. “I think this is the first sign of Powell saying ‘we will have a nasty period and we need to have it’.”Market pricing on Friday indicated investors were expecting the Fed to raise interest rates to 3.8 per cent by February 2023, up from expectations of 3.3 per cent at the start of this month. The current target range of the benchmark federal funds rate is 2.25 per cent to 2.50 per cent. “The implications for the equity market is that previous expectations of a Fed pivot seem premature and hence the short-term direction could be a reversal of the summer rally. Ultimately, these higher interest rates and further economic slowdown will weigh on corporate profits later this year,” said Janet Mui, head of market analysis at wealth manager Brewin Dolphin.US government bond markets took Powell’s speech in stride, according to Robertson. The yield on the two-year Treasury note, which closely tracks interest rate expectations, rose 0.01 percentage points to 3.38 per cent. The yield on the 10-year note, which is more sensitive to economic growth expectations, was flat at 3.03 per cent. Predictions of tighter policy and higher borrowing costs have already started to weigh on investor sentiment in corporate debt markets.The difference in yield between high-yield US corporate bonds and ultra-low-risk government debt has widened in recent weeks, rising from 4.2 percentage points on August 11 to 4.6 percentage points at the close of trade on Thursday, according to an Ice Data Services index. Junk bond funds recorded $4.8bn in outflows in the week to Wednesday, marking the biggest redemption in nine weeks, according to EPFR data collated by Bank of America.Elsewhere, the European Central Bank is widely expected to raise rates by a half percentage point for the second consecutive time at its next policy meeting on September 8. Some policymakers are pushing for the ECB to consider a more aggressive move to raise rates by 0.75 percentage points because of fears about soaring energy prices that have already driven eurozone inflation to a record level, according to a Reuters report.The ECB declined to comment. But no decision has been taken on whether such a move will be discussed at next month’s meeting, and this may hinge on whether inflation continues to outstrip expectations when the latest figures are released on Wednesday.The ECB raised borrowing costs by 0.5 percentage points to zero last month.The yield on Italy’s 10-year bond jumped 0.19 percentage points to 3.72 per cent, reflecting a steep drop in price as investors weighed the possible effect of higher borrowing costs on Europe’s weaker economies. Germany’s equivalent yield added 0.08 percentage points to 1.40 per cent, while the policy-sensitive two-year Bund yield added 0.11 percentage points.Additional reporting by Martin Arnold in Frankfurt More