Aurelia Butler

LONDON (Reuters) – European stocks fell on Friday and German government bond yields hit multi-week highs after German producer prices saw their biggest rise on record.Asian stocks had struggled to find direction, with concerns about China’s sputtering growth weighing on sentiment. Earlier this week, China unexpectedly cut key lending rates in an attempt to revive demand after data showed the economy unexpectedly slowed in July amid a zero-COVID policy and property crisis.European stocks opened in the red and sentiment was further hit by data showing German producer prices – a leading indicator for inflation – saw their highest ever increases in July, as energy costs continued to surge. Energy prices were up 105% compared with July 2021, mainly due to higher prices for natural gas and electricity. Natural gas prices had hit a record closing high on Thursday.Germany’s finance ministry said on Friday that the economic outlook for Europe’s largest economy is gloomy. Meanwhile, UK consumer sentiment hit its lowest since at least 1974 in August, with households feeling “a sense of exasperation” about the rising cost of living.British retail sales data for July came in higher than expected, driven by a surge in online spending, but volumes are expected to resume their decline as costs rise.The Bank of England has warned that high inflation is likely to tip Britain into a recession later this year.”All three of the world’s major economic engines – the US, Europe and China – are spluttering,” wrote Berenberg economists in a note to clients.”While China struggles with its unsustainable zero-COVID-19 policy and a host of internal financial imbalances, an inflation tsunami is battering the US and Europe.””Consumers across the Western world have seldom been more pessimistic.”At 1040 GMT, the MSCI world equity index , which tracks shares in 47 countries, was down 0.3%.Europe’s STOXX 600 was down 0.4%, on track for a 0.4% weekly decline, too.German bond yields rose, with the 10-year yield reaching a one-month high of 1.202%, as the producer price data was seen as reinforcing fears of “stagflation” – a combination of high inflation and low growth.Wall Street was set to open lower, with S&P 500 futures down 1% and Nasdaq futures down 1.2%.”When market participants start to return from their holidays and look back at the past days and weeks, they will find central banks still far from having achieved their goals of reining in inflation,” ING rates strategists said in a note to clients.”That means a continued tussle between central bank tightening expectations and recession fears.”The threat of higher borrowing costs also hung over markets after four U.S. Federal Reserve officials signaled there was more work to do on interest rates. The U.S. dollar benefited from the Fed’s hawkish comments, and investor caution, hitting a one-month high. The dollar index was up 0.4% at 107.9 and the euro was down 0.3% at $1.0061.The 10-year U.S. Treasury yield climbed higher, close to a one-month high at 2.9335%.Oil prices slipped after two days of gains, set for a weekly drop as traders worried about a global demand slowdown.Bitcoin dropped sharply and hit a three-week low of $21,404.Next week, investors will be paying close attention to minutes from the European Central Banks’ July meeting, as well as comments by U.S. Federal Reserve Chair Jerome Powell when he addresses the annual global central banking conference in Jackson Hole on Aug. 26. (LINK)China is widely expected to lower its benchmark lending rates on Monday, a Reuters survey showed, with a vast majority of participants predicting a deeper cut to the mortgage reference to lift the ailing property sector.UK and euro area “flash” PMI data is due on Aug. 23. More

High levels of inflation will ensure a large overshoot in government borrowing this year, economists said on Friday, as the deficit was again higher than expected in July Although the UK public finances improved in July from a particularly weak reading in June, the data from the Office for National Statistics was still significantly worse than the fiscal watchdog had expected for the month.The figures will put further pressure on the Conservative party leadership candidates, Liz Truss and Rishi Sunak, to explain how they will finance their plans for large tax cuts when the public finances are deteriorating. Public sector net borrowing came to £4.9bn last month, an improvement of £800mn compared with July 2021 and far better than the £20.9bn deficit in June, according to the ONS. But the decline between June and July was expected because the government did not have big debt interest bills to pay last month, and the level of borrowing was still £4.7bn higher than the Office for Budget Responsibility, the spending watchdog, had forecast for the month. Martin Beck, chief economic adviser to the EY Item Club, said the government was set to continue missing OBR forecasts for the rest of the financial year, which ends next March. “This is likely to reflect the slowdown in economic activity in the first half of 2022, while on the expenditure side the impact of much higher-than-expected inflation on debt interest payments has been key,” he said. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the OBR’s forecast of £99bn public borrowing in 2022-23 was likely to be revised higher to £150bn, mostly reflecting the higher cost of inflation-linked debt. He also noted that the current bout of inflation would not help to boost government coffers much because it was the “wrong type” for the public finances because food is zero rated for VAT, and electricity and natural gas consumption incurs only a 5 per cent rate of VAT. “As a result, the reallocation of households’ expenditure from other goods and services towards food and energy will act as a drag on overall tax receipts,” Tombs said.Ministers will be relieved that tax receipts held up well in July, with the government collecting £78.2bn in revenues over the month — £6.1bn more than a year earlier. But Chancellor Nadhim Zahawi acknowledged that high inflation was “putting pressure on the public finances by pushing up the amount we spend on debt interest”. The Treasury cautioned that there was not much comfort to be taken from July’s figures being stronger than June’s because at a time of elevated inflation there would be significant volatility in the monthly data.Alison Ring, public sector and taxation director for the Institute of Chartered Accountants in England and Wales, said: “The UK’s deteriorating fiscal situation will make it hard for the new prime minister to deliver on promised tax cuts, invest in energy resilience and support struggling families and businesses over the winter without breaching fiscal rules intended to ensure the long-term health of the public finances.”Both Truss and Sunak have promised an emergency Budget to flesh out the energy price support and tax cuts they will offer soon after one of them is elected to be the new UK prime minister.

Sunak’s leadership campaign said the public finance figures highlighted “why gripping inflation must be the priority. “The figures show that inflation is causing the economy to slow and the deficit to increase. Permanent and unfunded tax cuts now would make both of these problems a lot worse,” a spokesperson said.Officials at the Treasury and the OBR have indicated that they will be ready to provide new medium-term forecasts to inform any emergency Budget, which will prove uncomfortable reading if independent economists’ predictions for the public finances are an accurate guide to the fiscal watchdog’s thinking. Additional reporting by Sebastian Payne More

BENGALURU (Reuters) – Bank Indonesia (BI) is expected to leave its policy rate unchanged at record lows on Tuesday, a small majority of economists estimate in a Reuters poll. BI is one of a few major Asian central banks that have not lifted interest rates from pandemic-era levels despite many policymakers around the world raising them to battle high inflation. In an Aug. 12-19 poll, 16 of 27 economists, or nearly 60%, said it would keep its benchmark seven-day reverse repurchase rate unchanged at 3.50% at its Aug. 23 meeting.Eleven economists expect the central bank to raise rates by 25 basis points to 3.75%.While growth in Southeast Asia’s largest economy has stayed strong there are signs of price pressures heating up.Calls for a rate hike gathered pace after last quarter’s growth showed the economy had outperformed expectations. However, Dody Budi Waluyo, the central bank’s deputy governor told Reuters BI would only raise rates when it sees a persistent rise in core inflation.While headline inflation rose to a seven-year high of 4.94% in July, core inflation was 2.86% and within the BI’s 2% to 4% target range.”The main reason for BI to hold rates is due to benign core inflation, reflecting that demand recovery is not yet robust enough for a rate hike cycle. BI will wait until core inflation heats up,” said Irman Faiz, economist at Bank Danamon Indonesia.”On top of that, IDR is quite resilient.”Among 13 of the 16 economists who said the central bank would keep policy rates unchanged at the upcoming meeting and provide long-term forecasts, 10 said it would move in September. The remaining three forecast it would wait to raise rates in the fourth quarter. Several economists have warned about capital outflow pressures if Indonesia keeps rates on hold as other countries raise rates, adding further pressure on the rupiah which is down about 4% this year.The poll found economists expect further tightening ahead. The rate was seen reaching 4.25% by end-2022, with eight of 22 forecasting rates to go even higher. Among the smaller sample of respondents who had a view until end-2023, 10 of 15 saw rates at 4.75% or higher, including six who forecast borrowing costs to reach 5.00% or higher – where they were before the pandemic. More

Wealth managers have urged retail investors to take account of the impact of rising inflation in the wake of a 10.1 per cent surge in UK consumer prices revealed this week.Savers should look to pay off debt, review present and future spending intentions and retirement plans, and try to reduce the effects of inflation on their portfolios, as a result of soaring prices, financial experts said.The official inflation statistics for July broke through the double-digit barrier for the first time in more than four decades to hit an annual 10.1 per cent. UK households face the highest inflation in the G7 group of advanced economies.As well as intensifying worries about the cost of living, inflation leads to rocky market performance, which makes it harder for savers to guard their wealth through investing. Only gold and residential property investments gained ground in inflation-adjusted terms in the year to the end of June, according to analysis from investment platform Interactive Investor, while other asset classes lost value in real terms. “Rising inflation continues to attack consumers from all angles and shows no signs of easing off any time soon,” said Les Cameron, savings expert at M&G Wealth.Cameron said that official inflation statistics were more useful as a broad economic gauge than as a guide for households rethinking their budgets. “The inflation measure is ‘one size fits all’, so depending on your age and lifestyle your reality may seem wholly different,” he said.Rather than assuming that prices will rise about 10 per cent across the board, people need to dig into their personal budgets to see how much they spend in different categories and how much those costs are going up. Those on lower incomes, who spend a larger share of their income on food, will be hit harder as food prices rose 12.7 per cent, for example. Housing costs went up by an overall 9.1 per cent increase in the year to July, an impact split between renters and homeowners, many of whom will have to worry about the knock-on effects on their mortgages. Adrian Lowery, financial analyst at UK wealth manager Evelyn Partners (formerly Tilney, Smith & Williamson), said higher inflation increased the pressure on the Bank of England to raise interest rates. “[This] should really focus the minds of borrowers who can take steps to try and lock in at rates that are on the market now,” he said. “Some lenders will be considering withdrawing their best rates after this inflation data.”“The increasing cost of servicing mortgage debt is inflicting something of a double whammy for homeowners, and particularly those with larger loans that are coming up for renegotiation in the coming year,” he added. The cost of other borrowing is also expected to rise, so experts suggest households pay down as much debt as possible before higher interest rates bite even harder. Retirees face particular challenges as rising prices make it tempting to take more out of their pensions savings, at the same time as markets have hammered portfolios. “The natural thing to do in response to rising living costs might be to take more income from your pot to maintain your standard of living, but this increases the risk of your fund running out early,” said Tom Selby, head of retirement policy at AJ Bell. “This risk will be further exacerbated if larger withdrawals are combined with substantial market falls — something many have already experienced in 2022.” Among AJ Bell customers, 16 per cent of pension investors were increasing their withdrawals. But a larger cohort, 24 per cent, were cutting back their income as the markets fell, and 60 per cent were holding steady. “In order to retire, people will need bigger pension pots than before to cope with rising prices, but at the same time, they are likely to feel even more cautious about using their retirement savings, for fear of running out of money too soon. They are caught between a rock and a hard place,” said Becky O’Connor, head of pensions and savings at Interactive Investor.The simultaneous sell-off in stocks and bonds for much of this year has been particularly hard on do-it-yourself investors, since conventional wisdom holds that losses in one asset class should be counterbalanced by the other. Interactive Investor said the average Isa portfolio on its platform lost 16 per cent in the year to June. Dan Howe, head of investment trusts at Janus Henderson, said: “It is essential in inflationary environments like this that families and individuals take action to protect their savings . . . Diversification is our friend in times of uncertainty.” More

LONDON (Reuters) – The prospect of a global recession and doubts over economic stimulus in China, the world’s biggest user of raw materials, add to the challenges of mining companies as they grapple with energy costs, raising the risk of downsizing and layoffs.None of the major diversified miners is under financial strain after years of strong commodity prices.But leading miners Rio Tinto (NYSE:RIO), Anglo American (LON:AAL) and Antofagasta (LON:ANTO) are among many to have posted a fall in half-year earnings and lowered shareholder payouts.Even those whose profits stayed high, including BHP Group (NYSE:BHP) and Glencore (OTC:GLNCY), flagged the risk sluggish commodity demand over the coming months could lower returns. The IMF forecast that global growth could slow to 2.9% in 2023, stalled by higher interest rates, inflation and a prolonged energy crisis. At the same time, China, the world’s second biggest economy that accounts for more than 50% of global demand for raw materials, is sticking to its strict zero-COVID policy, enforced by recurrent lockdowns that slow output and demand.So far, it has fought shy of the huge amounts of stimulus it introduced when Chinese economic weakness led to a drop in demand and a commodity price crash in 2015-6.”Many industry players seem to be banking on the fact that China will launch a big stimulus package very soon,” said Jean-Sebastian Jacques, former CEO of Rio Tinto, one of the miners most exposed to demand from China, the leading buyer of its iron ore.”But unless there is an immediate domestic agenda, it is difficult to see why China would launch a large stimulus package that would benefit the world especially in the context of a fragile geopolitical environment.”DARKENING MOODEconomically interdependent, China and the West saw their relations worsen this year after Russia’s invasion of Ukraine began in February.The mood deteriorated further this month after the U.S. House of Representatives Speaker’s visit to Taiwan against Beijing’s wishes. If commodity demand falls and lowers prices, companies could be forced to consider reducing capex, review discretionary spending and slow recruitment, Jacques said.The next phase would be “restructuring marginal assets that are not making money, be aggressive on headcount reduction and, even more difficult, reopening supply agreements,” Jacques said, referring to long-term contracts with clients that may not reflect current costs.While the miners’ profits rise or fall in line with the raw materials they produce, they are mostly punished by higher costs for energy as their own production is not enough to fuel their energy-intensive operations.The invasion of Ukraine by leading energy producer Russia has driven energy costs for most of the world, pushing inflation to the highest in decades and making global recession ever more likely.Europe’s biggest economy Germany is especially vulnerable because of its high dependence on Russian gas supplies, which Russia has reduced as tensions with the West have risen.The government’s emergency planning would include rationing supplies to industry to protect consumers and emergency services and would be expected to reduce production at major commodity users such as automakers Volkswagen (ETR:VOWG_p) and BMW Group.The auto industry is already reporting signs of lower consumer demand as inflation cuts spending power.”The nightmare scenario would be that due to the energy shortages, some industries, the German car industry and chemical industry for example, are forced to take extended shutdowns,” said Ian Woodley, portfolio manager at Old Mutual, which holds shares in Anglo, BHP and others. “These are huge consumers of commodities, so that would obviously have kick-on effects as well as further impacts on a shaky supply chain.”  Energy bills have forced zinc and aluminium smelters in Italy, Norway, Slovakia, Spain and the Netherlands to halt production, and more cutbacks are likely, companies have said. “There is no point in us producing if there are no automotive producers that want to buy parts,” Paal Kildemo, CEO of aluminium maker Norsk Hydro (OTC:NHYDY) said after earnings in July. More

Investing.com — It’s the dog days of summer, and there’s nothing on either the data or earnings calendars to really fire the imagination. The vacuum has been filled by an egregious pump-and-dump in Bed Bath & Beyond stock by Ryan Cohen, which appears to have spilled over into crypto markets, as his army of retail investor followers was forced to cover losses on their bets. Stocks are set to open lower, after disappointing earnings from Kohl’s and Xiaomi. Deere and Foot Locker are due to report. European power prices ease as water levels in the Rhine recover, but a drought in China is cutting output at factories along the Yangtze basin. Here’s what you need to know in financial markets on Friday, August 19.1. Bloodbath and BeyondBed Bath & Beyond (NASDAQ:BBBY) stock plummeted in premarket trading after Chewy (NYSE:CHWY) founder Ryan Cohen unloaded his entire stake in the company, booking an estimated profit of around $60 million on a five-month investment.The move came at the end of a three-week long short-squeeze on the ‘meme’ stock, which retail investors had aggressively stoked on the hope that Cohen – who became chairman of the original meme stock company GameStop (NYSE:GME) after accumulating a stake in a similar fashion – would stay on board to oversee a turnaround at the struggling retailer.That seems a forlorn hope now. The company is still losing customers and has yet to replace its last chief executive.2. Crypto liquidationsThe abrupt reversal of BBBY stock may have contributed to one of the worst days in weeks for the cryptocurrency universe.Data analytics company Coinalyze showed hundreds of millions of dollars’ worth of crypto liquidations in the hours following the disclosure, although that may have included unrelated selling out of Asia. Bitcoin fell 7.6% to its lowest in three weeks, while Ethereum fell 6.2%.Ethereum has been under pressure since pioneer Vitalik Buterin said on Wednesday that the long-anticipated switch to a system that uses less energy to mine new coins won’t lead to a reduction in so-called ‘gas fees’, the payments individuals make to complete a transaction on a blockchain.3. Stocks set to open lower; Kohl’s, Xiaomi flop; Deere in the spotlightU.S. stock markets are set to give up most of their weekly gains at the open, as faith in the recent rally weakened amid signs of continued hawkishness at the Federal Reserve.By 06:15 ET (10:15 GMT), Dow Jones futures were down 205 points or 0.6%, while S&P 500 futures were down 0.8%, and Nasdaq 100 futures were down 0.9%.Stocks likely to be in focus later include Applied Materials (NASDAQ:AMAT), after an impressive earnings beat late on Thursday, while Deere (NYSE:DE), Foot Locker (NYSE:FL), and Madison Square Garden (NYSE:MSGS) report earnings before the open. Overnight, Chinese smartphone maker Xiaomi (HK:1810) reported a 20% drop in revenue and an 83% drop in profit that may have a read across to the chipmaking and electronics sectors. Kohl’s Corp (NYSE:KSS) also disappointed late on Thursday.4. Rhine recovers, Yangtze dries outEuropean power prices moderated a little after rainfall in the middle of the week allowed German authorities to forecast a significant rise in water levels in the river Rhine next week. They had fallen so low over the previous weeks that many power stations in southern Germany were unable to receive coal and heating oil shipments via the crucial waterway.The effects of surging energy prices were visible in another blockbuster set of German producer price data that kept up the pressure on the European Central Bank to raise rates by 50 basis points at its September meeting. Across the North Sea meanwhile, energy price woes drove U.K. consumer confidence to a new all-time low.Drought issues aren’t confined to Europe. The river Yangtze in China has also sunk to half its usual depth due to a drought that has cut hydropower supplies, forcing a variety of industries to cut or even stop production. Thousands of factories that make processor chips, solar panels, and auto components in Sichuan and Chongqing shut down this week for at least six days, according to the Associated Press.5. Oil heads for weekly loss on strong dollar, economy fearsCrude oil prices weakened again on Friday and are on course to book a hefty weekly loss, as fears for the global economy mount. A rising dollar, which makes oil more expensive for non-dollar-based economies, is also making things worse.By 06:30, U.S. crude futures were down 1.8% at $88.93 a barrel, while Brent crude futures were down 1.8% at $94.89 a barrel.Some tension that had mounted after Russia’s threats regarding the Zaporizhzhya nuclear power plant receded, as those threats failed to materialize. Also weighing on prices were reports that Russia’s exports rose again in July, finding a way to energy-hungry emerging markets after being rejected by Europe, Japan, and the U.S. More

China’s Huawei has signed a deal to build 161 telecoms towers across the Solomon Islands in a sign of strengthening ties between the Pacific nation and Beijing just months after they agreed a controversial security deal. China signed a security and economic pact in April with the Solomon Islands that ratcheted up geopolitical tensions in the Pacific and triggered a stern reaction from the US and Australia in a bid to counter Beijing’s growing influence in the region.The contract between the Solomon Islands and Huawei will be funded by the Export-Import Bank of China, which leads the country’s state investments overseas. The bank will loan almost Rmb450mn ($66mn) to the country over a 20-year period at a 1 per cent interest rate to fund the project.“This proposal will be a historical financial partnership with the People’s Republic of China since the two countries established diplomatic ties in 2019 as the two countries work closely to ensure the successful implementation and operation of the project,” the Solomon Islands government said in a statement.Telecom networks have become a focal point of friction in the Pacific. Australia agreed to fund a subsea cable to the Solomon Islands in 2018 to prevent Huawei from winning the contract. It then bankrolled Telstra’s acquisition of Digicel, the dominant telecoms company in the Pacific islands, this year to stop any potential sale to a Chinese operator. Canberra is also funding the construction of six towers in the Solomon Islands. Fergus Hanson, a director at the Australian Strategic Policy Institute think-tank, said that the Huawei agreement was a “slap in the face” for Australia’s prime minister Anthony Albanese, who was assured by his Solomon Islands counterpart Manasseh Sogavare last month that Canberra remained the country’s top partner. “This is another blow to the credibility of Australian diplomacy in the region,” Hanson said, adding that the deal raised national security and debt diplomacy concerns.

Work will begin next year and 48 of the towers are due to be erected before the start of the Pacific Games in Honiara in November 2023. China is also funding the construction of a stadium for the event. The Solomon Islands said that the tower build was a financially viable project. But one senior telecoms executive was sceptical that the government would generate enough money from the network to pay back the loan, given the size of the lending package, low population density outside Honiara and low average revenue per user levels across the Pacific.Huawei’s 5G equipment has become the epicentre of the tensions between Washington and Beijing in recent years, as countries including Australia and the UK opted to ban the Chinese supplier and its domestic rival ZTE from building networks. More