Aurelia Butler

The rouble has been on the rise for two weeks, supported by high oil prices, strong supply of foreign currency on the market and month-end tax payments that usually prompt export-focused companies to convert part of their FX revenues into roubles.But the rouble lost ground on Thursday and slipped 3.3% on the day to 56.86 against the dollar as of 1227 GMT after hitting 58.89 for the first time since last Friday.Against the euro, the rouble shed 2.7% to 57.81.Russia’s central bank is set to meet on Friday, with analysts expecting a rate cut of at least 50 basis points from 9.5%. Strict currency restrictions and falling imports have pushed the rouble to multi-year highs despite the West’s imposition of sweeping sanctions against Moscow.But the surging rouble has caused a bout of deflation in the Russian economy and worried policymakers, who have taken steps to weaken the currency by removing some controls and slashing rates. Inflation data published on Wednesday showed another period of falling prices, with annual inflation in the Russian economy now running at 15.4%. That is far off the worst-case predictions that price rises could top 30% this year and has given the central bank cover to reverse its emergency hike to 20% in the days after Moscow sent tens of thousands of troops into Ukraine on Feb. 24.Analysts also pointed to thin summer-time trading for heightened volatility in Thursday’s session.Following the currency lower, Russia’s stock markets also fell.The dollar-denominated RTS index was down 4.4% at 1,136.1 points. The rouble-based MOEX Russian index was 1.1% lower at 2,052.8 points.Aeroflot shares outperformed the market and gained more than 4% on the day to 27.70 roubles ($0.4834) after the EU clarified some earlier sanctions, allowing technical assistance to Russia for aviation goods and technology to safeguard the technical industrial standard.For Russian equities guide seeFor Russian treasury bonds see($1 = 57.3020 roubles) More

Initial claims for state unemployment benefits rose 7,000 to a seasonally adjusted 251,000 for the week ended July 16 from a unrevised 244,000 a week earlier, the Labor Department said on Thursday. Economists polled by Reuters had forecast 240,000 applications for the latest week. With employment booming through the last year, claims fell to a near-record low in March and had been hovering around 230,000 since June before the previous week’s increase to the highest since last November. Still, they remain below the level most economists see as presenting a threatening signal for the job market and economy more widely.There have been reports of layoffs in the interest rate-sensitive housing and manufacturing industries. Despite some loss of momentum, hiring has remained robust, with 372,000 jobs created in June and a broader measure of unemployment falling to a record low. Demand for labor remains fairly strong, as well. There were 11.3 million job openings at the end of May, with nearly two job openings for every unemployed person.The Federal Reserve is expected to raise its policy rate by another 75 basis points at the end of this month, a call that was bolstered by annual consumer prices surging 9.1% in June, the largest increase since November 1981.The U.S. central bank has hiked its overnight interest rate by 150 basis points since March. The number of people receiving benefits after an initial week of aid rose by 51,000 to 1.384 million, the highest since April, during the week ending July 9, the claims report showed. More

The European Central Bank has raised interest rates by half a percentage point — its first increase for more than a decade — while pledging to prevent rising borrowing costs from sparking a eurozone debt crisis amid political turmoil in Italy. The ECB said in a press release after its governing council met in Frankfurt that it “judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting” because of higher than expected inflation and the support of its new bond-buying scheme. The central bank had said last month that it would raise rates by a quarter point. The euro gained more than 0.6 per cent against the dollar to rise to above $1.02. Concerns over global growth and inflation pushed the common currency to below parity last week.Eurozone government debt sold off. The yield on Germany’s 10-year Bund, a proxy for borrowing costs across the eurozone, rose sharply after the announcement, adding 0.1 percentage points. The rate rise and the unravelling of Mario Draghi’s national unity coalition earlier on Thursday sent the yield on Italy’s 10-year bond up 0.24 percentage points to 3.6 per cent.Its governing council said it would “safeguard the smooth transmission of its monetary policy stance” under a new programme set up to tackle any increase in the bond yields of individual countries beyond the level justified by economic fundamentals.The new bond-buying programme would have no upper limit on purchases and “can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area”, it said. More details of the new “transmission protection instrument” (TPI) would come in a separate announcement at 2.45pm Frankfurt time.The central bank’s deposit rate will rise from minus 0.5 per cent to zero, while the rate on its main refinancing operations will rise from zero to 0.5 per cent and its marginal lending facility will increase from 0.25 per cent to 0.75 per cent. The last time it raised rates by half a percentage point was in June 2002, a few years after the euro’s launch.The central bank said rates would rise further in future meetings, adding: “The front-loading today of the exit from negative interest rates allows the governing council to make a transition to a meeting-by-meeting approach to interest rate decisions.”The move is the first step in reversing a decade of ultra-easy monetary policy at the ECB, which has maintained a negative deposit rate and bought almost €5tn of bonds to support the economy over the past eight years. It is tightening policy in an effort to tackle record eurozone inflation of 8.6 per cent.There are growing fears that higher interest rates will tip the eurozone into recession. The bloc has already been hit by soaring energy and food prices following Russia’s invasion of Ukraine, a slowdown in business activity and a drop in consumer confidence to record lows.The ECB decision came hours after Draghi resigned as Italy’s prime minister. His planned exit is expected to trigger early elections this year. Krishna Guha, head of policy and central bank strategy at US investment bank Evercore, said: “The combination of a brewing giant stagflationary shock from weaponised Russian natural gas and a political crisis in Italy is about as close to a perfect storm as can be imagined for the ECB.”The political turmoil in Rome has raised concerns about how rising interest rates will affect the sustainability of Italy’s swollen public debts, which are higher than most eurozone countries at 150 per cent of gross domestic product.Officials in more frugal countries such as Germany and the Netherlands worry that the ECB’s new bond-buying tool will encourage fiscal profligacy among member states and stray into “monetary financing” of governments — the printing of money by a central bank to prop up a country’s budget — which is against the EU treaty.But the ECB believes its new instrument is justified because it will ensure its monetary policy is transmitted evenly across the bloc. It said: “By safeguarding the transmission mechanism, the TPI will allow the governing council to more effectively deliver on its price stability mandate”.The 50 basis point increase in the ECB’s main policy rates went beyond its guidance last month that it intended to start raising rates by 25 basis points and exceeded most economists’ expectations despite leaks this week that it was considering a larger move. Central banks are typically reluctant to break their guidance, as this risks eroding their credibility. But the ECB has been under intense pressure from critics accusing it of being behind the curve in tackling eurozone inflation, which hit an all-time high of 8.6 per cent in the year to June.The ECB lacks experience of raising rates. The last time that it did so in 2011, under then president Jean-Claude Trichet, it was forced to reverse the move a few months later as the eurozone was gripped by a sovereign debt crisis. The only current member of its 25-person governing council who was there at the time of its last rate rise was Klaas Knot, who had taken over at the Dutch central bank seven days earlier.The ECB has been slower than most central banks to respond to surging inflation and is lagging behind the US Federal Reserve, which is next week expected to raise rates by at least 75 basis points, matching a similar-sized move last month. More

ZURICH/STOCKHOLM (Reuters) – Hyundai Motor Co, factory robot builder ABB and Swedish fridge maker Electrolux see the semi-conductor chip shortage easing, executives said Thursday, in a boost for manufacturers after a long struggle for components.An increased supply of chips will reduce one burden facing an industry that is also battling raw material price inflation, a tight energy market and rising interest rates that are throwing a dampener on consumer demand.Hyundai turned in its best quarterly profit in eight years on Thursday as a weak won currency lifted the value of its earnings abroad and demand stayed strong for the South Korean automaker’s high-margin sport utility vehicles (SUVs).The carmaker was also boosted by the easing of a global chip shortage, which helped it resume overtime and weekend shifts at domestic plants. It now plans to step up vehicle production in the second half to meet consumer demand.ABB, a big supplier to the automotive industry, said semiconductor chip bottlenecks were now easing as it reported its second quarter earnings.The Switzerland-based company, which competes with Germany’s Siemens and France’s Schneider Electric (EPA:SCHN), is seen as a barometer of the global economy with its control systems and motors used in the transport industry and factories.It anticipates double digit-comparable revenue growth in the next three months as the increased supply of chips means it can deliver factory robots, motors and drives ordered by customers.”The good thing to know, it is easing up,” Chief Executive Bjorn Rosengren said about the semiconductor shortages which he said were “severe” at the start of the year.”Commitments from our suppliers are significantly better,” he told reporters.Production capacity at chip manufacturers was increasing, Rosengren said, while demand from other sectors, such as consumer electronics, seemed to be lower, allowing more chips to be allocated to industrial customers like ABB.”I would not say the problems are over yet, but we have commitments for the second half which look quite good,” he said.Finnish telecom equipment maker Nokia (NYSE:NOK) said it expected the global semiconductor shortage to ease later this year, as it reported quarterly operating profit that beat market expectations.”The overall direction in the semiconductor industry is positive at the moment, but we did continue to have constraints in the second quarter,” Chief Executive Pekka Lundmark said.Volkswagen (ETR:VOWG_p) last month forecast a strong second half of 2022 and progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs.ABB’s Rosengren said he expected a slowdown in inflation, with commodities prices going down and interest rate hikes by central banks taking effect.A resumption of gas supplies from Russia to Europe via the Nord Stream 1 pipeline after a maintenance outage also sent “good signals into the market,” he said – although gas flows remain at levels below the pipeline’s capacity.But it was not all good news for companies who have already faced disruptions caused by the war in Ukraine and pandemic-related shutdowns in parts of China earlier this year. Sweden’s Electrolux missed second-quarter profit expectations on Thursday hit by supply chain problems and a loss in its North American business.Europe’s biggest home appliances maker said it expected those supply chain constraints to ease in the second half but warned of continued disruption risks ahead related to COVID-19 and the Ukraine crisis.Still, Chief Executive Jonas Samuelson said the supply situation, including for semiconductors, looked better for the third and fourth quarters versus the preceding quarters.”Step by step we are coming back to a more normalized supply environment,” he told analysts and journalists during a webcast. More

The following are details of the scheme.WHY IS IT NEEDED? ECB rate hikes push up borrowing costs on the bloc’s periphery disproportionately, meaning countries like Italy, Spain and Portugal face a bigger rise in yields than “core” members like Germany and France.Italy, which has a lot of debt and is engulfed in a government crisis, is especially vulnerable as markets fear a prolonged period of political instability. The ECB raised rates for the first time in over a decade on Thursday and flagged further increases, so the bloc’s southern rim faces a steady and potentially large rise in borrowing costs in the coming months. “In particular, as the Governing Council continues normalising monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries,” it said in a statement.WHAT DID THE ECB DECIDE ON THURSDAY?Full details of the TPI will be set out in a separate statement to be published at 1345 GMT, the ECB said.Ahead of that, the ECB said the TPI could be activated to counter “unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area”.It added: “The scale of TPI purchases depends on the severity of the risks facing policy transmission. Purchases are not restricted ex ante.”Its statement later will be scrutinised for further detail on how the mechanism will work, notably what conditionality will be attached to participation. More