Aurelia Butler

The head of one of America’s biggest defence companies has called on western governments to provide a “clear demand signal” if the industry is going to be able to provide the weapons needed for a prolonged conflict in Ukraine. Kathy Warden, chief executive of Northrop Grumman, one of the top five “prime” contractors in the US, warned that weapons stockpiles had not been built to service a lengthy war. “The most important thing now is to get a clear demand signal on what the sustained commitment is and the level of draw down from those stockpiles is going to be,” Warden said in an interview in London. “I wouldn’t necessarily say that I’ve heard we’re running out, but if you do project forward that we’re going to want to sustain these levels of commitments for another couple of years — that’s certainly not what anyone had built stockpiles to accommodate,” she said.Northrop Grumman, which is headquartered just outside Washington DC, makes the Bushmaster automatic cannons and midsized ammunition which have been supplied to Ukrainian forces from US government stockpiles. Its RQ-4 Global Hawk aircraft has been making regular surveillance flights over the Ukrainian border on behalf of the US air force and Nato allies.The US, along with other Nato countries, has been supplying a range of weapons, including Raytheon-made Stinger anti-air missiles, to Ukrainian forces but concerns over stockpiles are rising as the conflict shows no signs of ending soon. Global supply chain constraints mean the industry is also struggling to source critical components, with lead times in some cases having doubled or tripled, according to Warren.Raytheon, another major defence contractor, has already signalled that it would take the company a “little bit of time” to make more Stingers. In May, the US placed an order for 1,300 of the Stingers, its first in 18 years.The warning from Northrop Grumman was echoed by another prime contractor, which has started procuring components now in expectation there will be contracts for more weapons but with the risk that they are not ultimately used, according to one of its executives. “We think in the long term, there’s going to be a requirement to replace Russian air combat capability — fixed wing and rotary wing aircraft” for the Ukrainians, the industry executive said. Warden said that the defence industry’s dialogue with the Pentagon was “good” and that discussions were ongoing about “getting clarity on their plans”. The country’s prime contractors have been meeting with the Pentagon several times a week to discuss what is being provided to Ukraine. “They’ve been doing their best to pull industry together and share those plans, both at a more general level and specific, so that we can get ahead of contract and make investments and advance,” Warden added. Northrop was prepared to make investments, including expanding factories “ahead of a contract”, said Warden, but cautioned that industry needed to “get an indication that if we build it, the demand will come”. It can take years for a defence company to source parts, assemble, test, and deliver a system. Northrop Grumman generates more than 80 per cent of its annual revenues from contracts with the US government, including key roles on programmes such as the F-35 fighter jet where it provides parts for the weapons system and avionics. It also led the industry team for Nasa’s James Webb space telescope. Like many manufacturers, Northrop Grumman is wrestling with supply chain challenges, in particular shortages of electronic parts such as cables, connectors and power supplies. Lead times for such parts have “doubled or tripled,” said Warden.The biggest constraint facing the industry is securing microprocessors, a predicament made worse because decades-old technology is still used in some systems. In certain cases, companies are now guessing the quantity of parts they could need — both for potential use in Ukraine and elsewhere in the world — over the next couple of years and placing the orders now.“That buys us two or three years of time to figure out how to change the design of a system to incorporate a new generation of electronic components,” said the industry executive. More

(Reuters) -Consumer-focused digital tokens issued by private companies could be better than central bank-issued tokens assuming the companies can be regulated appropriately, the Australian central bank governor said on Sunday.Phillip Lowe was speaking in a panel discussion at the G20 finance officials meeting in Indonesia that was streamed online. At the same discussion, the Hong Kong Monetary Authority (HKMA) chief said greater scrutiny of such tokens could also help reduce risks from decentralised finance (DeFi) projects, part of the crypto currency ecosystem. Many central banks around the world are developing so-called central bank digital currencies (CBDCs), either retail tokens to be used directly by consumers or wholesale tokens to be used by banks within the financial system. This is partly in response to the development of so-called stablecoins, privately issued tokens such as Tether and USDC, whose value is pegged to that of a traditional asset, often the U.S. dollar, which are typically used as a store of value and to make payments. The risk of such tokens for financial systems was underscored in May when crypto markets were sent tumbling by the collapse of one stablecoin TerraUSD and its paired token Luna, though these helped underpin a network of DeFi applications, rather than being used to make real world payments.”If these tokens are going to used widely by the community they are going to need to be backed by the state, or regulated just as we regulate bank deposits,” said Lowe.”I tend to think that the private solution is going to be better – if we can get the regulatory arrangements right – because the private sector is better than the central bank at innovating and designing features for these tokens, and there are also likely to be very significant costs for the central bank setting up a digital token system,” he said. Lowe and his fellow panelists agreed that more needed to be done to create a sufficiently strong regulatory system for such tokens. HKMA CEO Eddie Yue said more scrutiny of stablecoins could also help reduce risks from DeFi, which aims to use computer code to remove the need for financial intermediaries from lending, investing and other financial activities. Stablecoins and crypto exchanges are gateways to DeFi projects, and Yue said it was easier to regulate them than the products themselves. “Despite the Terra-Luna incident I think crypto and DeFi won’t disappear – though they might be held back – because the technology and the bushiness innovation behind these developments are likely to be important for our future financial system,” Yue said. More

A string of big rate rises by the Federal Reserve has put pressure on central banks around the world to follow suit to counter soaring inflation and the strong dollar. A Financial Times analysis found that central banks are now, more than at any other time this century, opting for large rate rises of 50 basis points or more, laying bare the challenges of tackling price pressures and higher US rates. Rises by the Fed, including its first 75 basis point increase since 1994, and fears over the health of the global economy, have bolstered the US dollar against almost all currencies. As many goods are priced in dollars on international markets, the strong dollar adds to inflationary pressures by raising the cost of imports — creating what analysts have described as a “reverse currency war” between monetary policymakers. “We’re seeing a rate hike feeding frenzy,” said James Athey, a senior portfolio manager at Abrdn, an investment company. “It’s the reverse of what we saw in the last decade . . . Nowadays the last thing anyone wants is a weak currency.”Canadian policymakers became the latest to surprise markets with a bigger than expected rise, opting for a 100 basis point increase on Wednesday, the largest by any G7 economy since 1998. The Philippines raised rates by 75 basis points the following day. In the three months to June, 62 policy rate increases of at least 50 basis points were made by the 55 central banks tracked by the Financial Times. Another 17 big increases of 50 basis points or more have been made in July so far, marking the biggest number of large rate moves at any time since the turn of the millennium and eclipsing the most recent global monetary tightening cycle, which was in the run-up to the global financial crisis.“We’ve seen this pivot point in the market where 50 is the new 25,” said Jane Foley, head of foreign exchange strategy at Rabobank.

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Central banks in countries acutely exposed to foreign exchange market pressure have increased rates by particularly large amounts. Hungary stands out, with its key policy rate up 385 basis points in just two months as the country faces inflation and a currency depreciation against the dollar at double digit rates. The exchange rate component is important in monetary policy decision making for many emerging markets, said Jennifer McKeown, head of the global economics service at Capital Economics. They included several economies in emerging Europe whose currencies had been hit by concerns about the Ukraine war as well as a general environment of risk aversion, she said.But the trend is broad-based and has affected central banks in richer countries too. South Korea’s central bank made its first 50 basis point increase in July. Many of the large moves have wrongfooted investors, including in Australia, Norway and Switzerland, where the central bank unexpectedly made a 50 basis point rise in June. Markets had forecast the traditionally dovish Swiss National Bank would wait until later in the year to raise rates, but concerns about inflation and the exchange rate led policymakers to act sooner. In most advanced economies, rates are rising from all-time lows following aggressive easing by central banks during the early months of the Covid-19 pandemic. With rates still low by historical standards, economists expect several major central banks to raise rates by 50 basis points or 75bp at their next rate-setting meetings to move borrowing costs closer to longer-term averages.McKeown said that central banks needed to act quickly to get rates out of “stimulative” territory, “particularly in an environment where wage growth and inflation expectations are rising and there is a risk that inaction would allow wage-price spirals to develop”.The Bank of England and European Central Bank have not yet made such large rate increases. However, Matthew Ryan, senior market analyst at global financial services firm Ebury, said the BoE “will likely need to join the ‘50 club’ in order to lift the pound from its current suppressed levels”. The euro reached parity with the dollar this week, but the ECB, which meets on July 21, is expected to raise rates by a more modest 25 basis points.Strong employment data and higher-than-expected inflation in June have reinforced expectations of another big rate increase by the Fed at its next meeting on July 27. Markets are even pricing in a 40 per cent probability of a full percentage point increase, and expect the federal funds target range to reach between 3.5 per cent and 3.75 per cent by the end of the year. Further increases by the Fed will put pressure on many emerging markets to catch up, even though many started tightening their monetary policies last year, earlier than advanced economies. Agustín Carstens, general manager at the Bank for International Settlements, said at a recent conference organised by the ECB that emerging markets had “learned the lessons” from previous US tightening cycles. He said that while traditionally, emerging markets would increase interest rates after their counterparts in advanced economies, “now they started very early on and what you can see is that they have managed to keep their exchange rates quite stable”.

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China’s economy grew just 0.4% in the second quarter from the same period last year, down sharply from 4.8% growth for the first three months, the government said on Friday, as widespread lockdowns to extinguish outbreaks of COVID-19 hobbled the world’s second-largest economy.While June data showed signs of improvement, analysts do not expect a rapid recovery as China sticks to its tough zero-COVID policy, the country’s property market is in a deep slump and the global outlook is darkening.”Looking out to the second half of the year, the foundation of our economic rebound is still not solid and economic operations still face many uncertain and unstable factors,” Sunday’s commentary said.”In terms of coping with new challenges and changes that may exceed expectations, monetary policy has sufficient space and ample tools.”But many analysts believe the People’s Bank of China has only limited room for further easing due to worries about capital outflows, as the U.S. Federal Reserve and other central banks aggressively raise interest rates to fight soaring inflation.The Securities Times commentary cited China’s relatively constrained monetary policy stance during the pandemic, preemptive policies to stabilise capital outflows, including cuts in banks’ foreign exchange reserves and a more flexible yuan currency, among factors that would provide a buffer to outside shocks. “We will … keep the yuan exchange rate basically stable on a reasonable and balanced level and proactively and steadfastly manage new challenges and new changes,” it said. More