Aurelia Butler

In a more optimistic era, the overthrow by Sri Lankans of a feckless government they blamed for their country’s economic collapse might have been called a Velvet Revolution. It began last Saturday when tens of thousands descended on the largest city Colombo and poured into public buildings, including President Gotabaya Rajapaksa’s official residence, amid chants of “Gota, go home”.The president had fled for his safety, but in scenes reminiscent of many 20th-century regime collapses, the crowds hunkered down in the palace, sitting behind the president’s desk, bathing in his pool, and showering in his bathrooms.By week’s end Rajapaksa was indeed gone — first on a military jet to the Maldives, then to Singapore, from where he finally tendered his resignation via email. With the military showing restraint, by this Friday protesters were leaving the government buildings. While the country appears to have moved away from the brink of violent confrontation, the economy is still mired in a profound crisis. Sri Lanka now needs a new government to rebuild its economy, starting with agreeing an IMF facility, a credible government plan to rein in rampant inflation, and balancing a government budget that ran in deficit of more than 10 per cent of gross domestic product in 2020 and 2021.Protesters storm the Sri Lankan prime minister’s office in Colombo. While the country appears to have moved away from violent confrontation, the economy is mired in a profound crisis © Rafiq Maqbool/APBut Sri Lanka’s economic and political woes are far more than a national problem — they are a dramatic example of the potential difficulties looming in a number of other emerging markets. If the string of economic shocks that have battered the global economy are hard enough to manage in rich countries, there is even more cause for worry in many of the poorer and emerging economies that are home to the majority of the world’s population. Economic pressures bring political instability — and today economic pressures are everywhere. After the unprecedented disruptions of the pandemic, the global economy was already suffering the frictions of reopening on still vulnerable supply chains. All that was before Vladimir Putin invaded Ukraine. A war in one of the world’s biggest food exporters, coupled with harsh western sanctions on Russia and Putin’s manipulation of energy exports, have sent commodity prices — foodstuff, energy goods and industrial metals — rocketing. With inflation high, the US is raising rates and the dollar is getting ever stronger, which in the past has often been a spark for economic crises in the developing world.“Emerging markets as an asset class are always the most sensitive to either economic or political risk. The way I look at Sri Lanka is the extent to which it is a canary in the coal mine,” says Tina Fordham, a geopolitical strategist and adviser at consultancy Fordham Global Foresight.Bond yields have spiralled in a number of countries — ranging from Pakistan to Ghana and Egypt — in a sign of mounting economic stress. “When you have a cost of living crisis it causes not just economic but social unrest”, says Gita Gopinath, first deputy managing director of the IMF. “We saw this last time we had a food crisis in 2008,” when food prices was one of the triggers for the Arab spring.Growth is weakening, just as interest rates rise because of inflation. “Everybody is concerned about a darkening economic outlook,” she adds. “Things could get a whole lot worse.”Interlocking crisesThe world economy now combines a number of separate crises, each of which has on its own historically constituted a danger for many — but not all — emerging economies.The first is the lingering impact of the pandemic, which not only caused such human suffering but has also left high debt burdens and less economic output from which to service it. Because poor and middle-income countries lacked the fiscal resources that rich ones lavished on their economies, the pandemic reversed the decades-long pattern of convergence where the rest of the world was catching up economically with the west. The IMF estimates that about 30 per cent of emerging markets and 60 per cent of low-income countries are now in or at high risk of debt distress.The second is high inflation. Commodity price shocks have caused particular stress for energy and food-importing countries. The UN Food and Agriculture Organization’s food price index soared after Russia’s invasion to levels 50 per cent above the average of the pre-pandemic years. Oil prices doubled from pre-pandemic levels. Both have come down in recent weeks, but inflation has been spreading beyond those categories and is fast driving up the cost of living generally. Customers shop at a food market in Cairo. Egypt, the biggest wheat importer in the world, has been badly hit by soaring grain prices, prompting the World Bank to advance a $500mn loan to the country © Islam Safwat/BloombergEgypt, the biggest wheat importer in the world, has been badly hit by soaring grain prices, but the government has not abandoned its subsidised bread programme which serves some 70mn people and is seen as crucial for social peace. The World Bank advanced a $500mn loan to Cairo in May to help fund wheat purchases.Economists say Egypt is likely to muddle through avoiding default because of support from Gulf oil exporters who have already given $13bn and have pledged $10bn more in loans and acquisitions of government stakes in Egyptian companies. The country is also negotiating an IMF loan, which is expected to be concluded within the coming months.This reprieve illustrates how one country’s higher commodity import bill can be another’s bumper export revenue. High oil prices, triggered by the pandemic and exacerbated by Russia’s invasion, have been good for some oil exporters such as Saudi Arabia and the UAE, which have new scope to loosen fiscal policy. Angola, Bahrain and Oman, which appeared to be running into debt difficulties a year ago, are among the small group of winners.But even some exporters of oil and other commodities have been less able to take advantage. William Jackson of Capital Economics points to Nigeria, where local refineries have shut down for lack of maintenance and the country is having to import expensive refined products. The government also pays high fuel subsidies to the population, which more than offsets the revenue boost from rising prices.“It is really remarkable for an oil-dependent economy that rising oil prices are having a negative effect,” he says.A worker cuts metal pipes at an oil pant in Lagos, Nigeria, where local refineries have shut down for lack of maintenance and the country is having to import expensive refined products © Tom Saater/BloombergThe third factor is US interest rates. The Federal Reserve has embarked on a tightening cycle that has been accompanied by a rising dollar. In just over a year, the trade-weighted value of the dollar has risen by about 10 per cent. In the past, such developments often triggered balance-of-payments crises in poorer dollar-dependent economies. One-third of emerging countries are paying more than a 10 per cent yield on their sovereign borrowing, says Gopinath, adding that “the risks of balance-of-payments crises are real . . . there are more things that can go wrong than can go right in the near term”.Here, too, there are nuances. In past crises, a strengthening dollar has caused widespread distress because so many emerging economies borrowed in dollars and other foreign currencies. Today, large economies such as India, Brazil and South Africa borrow mostly in their own currencies, with most of the debt held by local investors. This has given them new resilience to external shocks.But domestic borrowing is no free pass. If Argentina falls into default this year, as many fear it will, the problem will be local rather than foreign currency debt. “That tells you much about the highly dysfunctional macro economy and the punishing and unsustainable levels of financial repression,” says Alberto Ramos, head of Latin American economic research at Goldman Sachs in New York. The final crisis is the impact of Putin’s attack on Ukraine, which has shaken the global governance system to its foundations. “We’ve never been in a place like this where we have supply shocks, we have inflation, we have rate hikes at the same time as we have this seismic geopolitical event with the war in Ukraine,” says Fordham. “We know that Russia has effectively weaponised grain stores as well as energy. Energy-importing countries are going to be badly affected by this.”Global responseThis week, finance ministers and central bank governors from the G20 group of the world’s biggest economies met in Indonesia to discuss the grim outlook. However, unlike in the global financial crisis, it is proving much harder for G20 leaders to adopt joint responses. There are deep disagreements on how to handle Russia between rich countries, which have slammed unprecedented sanctions on Moscow and the big emerging powers that have avoided taking sides. Many leaders are also finding their attention diverted by political turmoil at home.Gita Gopinath, first deputy managing director of the IMF, says ‘everybody is concerned about a darkening economic outlook. Things could get a whole lot worse’ © Andrew Caballero Reynolds/AFP/Getty ImagesThe US seems in permanent political deadlock. The UK is changing its prime minister and Italy could end up doing the same. Although France has its elections behind it, they produced a parliament without a stable majority. Meanwhile, China has its hands full handling its zero-Covid policy.“I’m most worried about complacency”, says Fordham. “Governments can usually do one thing at a time at most. The leading nations are all very internally focused at the moment . . . [smaller] hotspots will be allowed to worsen as an unfortunate byproduct of firefighting at home and crisis fatigue.”That does not mean nothing can be done. Diplomatic efforts to make it safe for Ukraine to export more grain also seem to be progressing. The IMF has urged countries to continue reducing their exposure to foreign currency debt and to avoid export controls on food. The fund also wants fiscal support for the cost of living crisis to target those in need with direct transfers rather than subsidise energy prices. But more decisive international action could prove elusive. “It is a tough time for multilateralism for sure,” says the IMF’s Gopinath.Additional reporting by Heba Saleh in Cairo More

Good eveningWeaker than expected Chinese growth figures have fuelled fears of a global recession as coronavirus lockdowns continue to plague the world’s manufacturing powerhouse.The country’s economy grew just 0.4 per cent in the three months to June, the second-worst quarterly figure in 30 years and far below forecasts of 1.2 per cent. It is also a steep drop from the 4.8 per cent recorded in the first quarter. China is now expected to miss its target of 5.5 per cent annual growth, itself a three-decade low.The quarter included a two-month lockdown in Shanghai that exposed global supply chains, with multinationals from Apple to Tesla to Estée Lauder warning of disruption to their business from the city that handles 20 per cent of China’s international trade.

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The effects of Beijing’s zero-Covid policy have also been a recurring feature of the current company results season. British luxury goods company Burberry today said lockdowns were to blame for a 35 per cent fall in same-store sales, while Richemont, which sells watches and jewellery, said sales had fallen 37 per cent. Mining company Rio Tinto said they had caused demand to “trough” in its biggest market. Macau, the world’s biggest gambling hub, remains shut. Shares in its big operators, including MGM China, SJM Holdings and Wynn Macau are down 60 per cent in the past year, with operating margins turned negative since 2020. “On both counts, there are further declines ahead,” says the Lex column.There are also signs that as Chinese consumers emerge from lockdown they are re-evaluating their spending, especially when it comes to luxury goods.The weak GDP reading also helped push down the price of copper, widely regarded as a measure of economic activity because of its widespread manufacturing use, as recession fears hit commodities markets.The Chinese property sector remains a drag on growth. Regulators are currently trying to damp down panic over the cost of loans as homeowners join a mortgage boycott of unfinished houses. Developers in some parts of the country have even begun accepting garlic, watermelons, wheat and barley as down payments from farmers on new apartments. Today’s figures have fuelled expectations that Beijing could be preparing a huge new stimulus programme to revive growth. Local governments will be allowed to issue an additional Rmb1.5tn ($223bn) worth of bonds this year, brought forward from next year’s quota.Coronavirus infections meanwhile continue to rise, particularly from the BA.4 and BA.5 variants, with 11 Chinese cities under full or partial lockdowns, affecting almost 115mn people, according to Japanese bank Nomura. Hong Kong, where even feng shui masters have been thrown off balance by Covid restrictions, yesterday reported more than 3,600 new cases, while Shanghai residents fear another mass lockdown could be on the way.Latest newsUS retail sales rise by a more-than-expected 1 per cent in JuneEuropean Commission proposes ban on imports of Russian goldBrussels backs ‘crucial’ €5.4bn hydrogen plant For up-to-the-minute news updates, visit our live blogNeed to know: the economyInvestors are demanding a higher premium to hold Italian debt after political tensions led prime minister Mario Draghi to offer to stand down as his national unity coalition began to splinter. President Sergio Mattarella refused the offer, creating time for politicians to patch together a compromise and avoid an early election. Latest for the UK and EuropeThe British Chambers of Commerce urged the UK government to revamp the post-Brexit list of occupational shortages, after warning that many companies were struggling to recruit workers. Brussels increased its eurozone inflation forecast for this year from 6.1 per cent to 7.6 per cent, followed by 4 per cent next year. GDP growth was revised down to 2.6 per cent for 2022 and 1.4 per cent in 2023. Investors are betting the euro sell-off will continue as recession fears grow. Surging energy prices have led to the largest eurozone goods trade deficit since records began in the first five months of the year.French president Emmanuel Macron urged the country to do more to save energy as it braces for Russia to cut off gas imports and the war in Ukraine drags on. Shell chief Ben van Beurden also warned that Europe may need to ration energy this winter, and predicted “significantly” higher prices if Russia chokes off gas supplies. The EU meanwhile has drastically cut back imports of Russian thermal coal ahead of a full ban next month.Labour shortages across southern Europe could mean delays in large construction projects funded by the EU’s €750bn Covid recovery fund, which has a major focus on infrastructure investment.The UN said Ukraine and Russia were making progress on averting a global food crisis by securing safe passage for grain through the Black Sea. For an update on the military situation here’s our Big Read on what the next six months might bring.Global latestUS producer prices rose 11.3 per cent in June in the latest evidence of US inflationary pressures. The Federal Reserve is under pressure to abandon its guidance on monetary policy. One of its top officials left the door open for a possible full percentage point rise in interest rates at the end of the month.Sri Lankan president Gotabaya Rajapaksa resigned after a week of protests over shortages and soaring inflation. The situation has reignited fears that other emerging countries could be heading into similar problems of debt default and political upheaval.Pakistan said a deal with the IMF to release $1.2bn of a stalled lending package offered a path out of the country’s economic crisis. The total size of the package was also raised from $6bn to $7bn.Need to know: businessQuarterly earnings season on Wall Street is turning quite dramatic. BlackRock, in what it described as the worst market environment in decades, reported assets under management falling to $8.5tn; JPMorgan Chase said net income had fallen 30 per cent as it announced it was suspending share buybacks to meet new Federal Reserve rules on capital requirements; and Morgan Stanley said profits had also fallen 30 per cent as investment banking fees dried up from the slowdown in stock market listings. It also expects to pay a $200mn penalty after a federal investigation into misuse of personal devices. Citigroup was a rare bright spot as it reported higher-than-expected earnings as trading and cash management offset rising credit costs and a drop in deal activity.Amazon joins the UK’s top 10 private sector employers with its announcement of more than 4,000 new permanent jobs, even as the group experiences a slowdown in overall revenue growth. It has also offered to stop using huge volumes of data it gathers from third-party sellers to benefit its own retail business as part of a deal with Brussels.The era of the Great Moderation is over: welcome to the Great Exasperation. Markets editor Katie Martin assesses vibe management among investors when even the golden rule of buying when everyone else is selling seems to be out.Web3, which its techno-utopian advocates say will create a new democratised internet out of reach of today’s tech giants, is just the same old crypto nonsense, writes Alphaville’s Jemima Kelly.Watch our new film on Credit Suisse, which has been hit by a string of high-profile scandals, from corporate espionage to cocaine smuggling.

Video: Credit Suisse: what next for the crisis-hit bank? | FT Film

Science round upThe Omicron sub-variant BA. 2.75 is spreading across India and parts of Europe. The WHO warned that the Centaurus strain could be better than others at overcoming immunity from prior infection and vaccines.European health agencies backed a second Covid booster for the over-60s as the BA.5 Omicron sub-variant drives an increase in hospitalisations. The move is also noteworthy for marking support for the wider use of current mRNA shots before Omicron-targeted versions are introduced later this year.The WHO and Unicef published new data showing the biggest drop in childhood vaccinations against diphtheria, tetanus and pertussis in 30 years because of global conflict, misinformation and disruption from the pandemic.Investing more money in the next Covid vaccine is not only likely to create scientific spillovers for other vaccines but is the best way we have of reducing the risk of disaster, says columnist Tim Harford. Doubts have grown about the effectiveness of Pfizer’s antiviral drug Paxlovid which was initially greeted last year as a key to “living with Covid”.Moderna chief Moubar Afeyan tells the FT about the race to create a Covid vaccine and potential new applications for messenger RNA — a genetic material that transports messages from our DNA to protein-making cells within the body — to deliver vaccines. More than 1bn Covid-19 vaccines — more than 10 per cent of all shots produced — have been wasted due to their lopsided distribution, vaccine hesitancy and storage problems, according to a new analysis. Get the latest worldwide picture with our vaccine trackerAnd finally.Don’t despair — prepare! With passenger numbers limited at Heathrow (a policy dubbed “airmageddon” by Emirates), flight cancellations and rising Covid cases, this summer above all others it really pays to take some extra precautions before heading for the airport, says consumer editor Claer Barrett.© FT Montage: Getty More

The Conservative party’s contest to replace Boris Johnson as prime minister has an air of fantasy. Listening to the candidates, you would not know that spiralling energy costs are causing misery to households, and inflation is now broadening to most goods and services. Or that simmering disputes over pay and conditions promise a prolonged period of industrial unrest. You certainly would hear little about the UK’s longer term challenge of sluggish growth, made worse by poor planning regulations and the exit from the EU.Instead, the candidates are competing largely on a single issue of if and when they will cut taxes. One reason the internal debate refuses to recognise the reality of Britain is the early success of Rishi Sunak. The former chancellor, in post during the pandemic, quickly gathered a lot of endorsements from Conservative MPs. Promises of immediate tax cuts are a way for Sunak’s opponents to remind Tory members that he has been a tax-raising chancellor. Although his record is far from perfect he has at least been a rare voice of realism as far as fiscal policy is concerned. Whoever emerges as the next prime minister will have serious political and economic constraints. UK voters’ strong endorsement of Johnson in 2019 came, in part, due to the Conservatives’ promises of more money for the country’s schools, hospitals and the police. Those commitments cannot easily be put aside or forgotten, and Conservative politicians must recognise that, ultimately, an appetite to spend must be balanced with a willingness to tax. Sunak and Kemi Badenoch, who is running as the standard-bearer of the socially and economically conservative right, have been willing to explicitly argue that cuts in tax must first be preceded by reductions in public spending. But the realism does not extend far: Neither has shown any real willingness to make an explicit argument for what that means in practice, beyond Sunak’s promises not to engage in ‘fairy tales’, and Badenoch’s to ‘tell the truth’. There are circumstances in which cutting taxes is the right remedy, but the structure of how governments levy taxes, and the incentives they create in doing so, are more important right now than the overall level of taxation. These aims, the focus of a lecture given by Sunak earlier this year, should be near the centre of the contest. The incredible pledges being put out by the Conservative party’s leadership candidates are, like the UK’s inflation problem, one caused by demand as well as supply. The candidates have made irreconcilable and unachievable promises because they believe it is what their members and MPs want to hear. The Conservative party, and the UK as a whole, badly needs an injection of realism into the debate; it is telling that some of the broadcasters’ questioning has proved uncomfortable for candidates. Televised debates this weekend are an opportunity to press the candidates on the substance and trade-offs of their plans.But Tory MPs, too, need to take responsibility for the tone and direction of their contest. That Tom Tugendhat, an articulate and well-respected select committee chair, has no prospect of winning due to his vocal advocacy for a Remain vote six years ago feels like behaviour more suited to a historical re-enactment society than a governing party. Too many Tory MPs have spent the contest making demands for further spending in the morning while calling for tax cuts in the afternoon. The party faces not only a choice of leader, but a more fundamental choice for Conservatives about whether or not they wish to conduct their government in a serious manner. More

A US inflation survey closely watched by the Federal Reserve showed consumer expectations of future price growth eased in July, tempering fears the central bank will raise interest rates by a full percentage point this month. The University of Michigan’s consumer sentiment study showed households’ expectations of where inflation will be in five years dropped more than expected to 2.8 per cent from the previous reading of 3.1 per cent. The expectation for inflation one year from now was 0.1 percentage point lower at 5.2 per cent.The preliminary results, which also showed consumer sentiment still near all-time lows, come days after an inflation report that top Fed officials characterised as “uniformly bad” and “major league disappointment”. Price gains across most goods and services accelerated again in June, according to the consumer price index released by the Bureau of Labor Statistics, with annual inflation hitting a 40-year high of 9.1 per cent.With core inflation — which strips out volatile items such as food and energy — also picking up in June, traders ratcheted up bets the Fed would jettison its previous policy guidance and implement a full percentage point adjustment at its meeting this month. At one point, the odds surged to well over half, according to CME Group. That dropped sharply after the Michigan survey showed a moderation of inflation expectations and various Fed officials pushed back on the move. Just days after saying “everything is in play”, Raphael Bostic, president of the Fed’s Atlanta branch, on Friday said the central bank’s next step should be “orderly”, and that “moving too dramatically” could undermine the economic recovery. James Bullard of the St Louis Fed on Friday also emphasised that the difference between a 0.75 percentage point move and a larger option might not make too significant a difference in the central bank’s fight against soaring prices. Instead, he said the benchmark policy rate may need to rise to between 3.75 per cent and 4 per cent by the year-end in order to sufficiently restrain the economy. It currently hovers between 1.50 per cent and 1.75 per cent.Notably, no official took the larger option off the table entirely — arguing that the final decision would depend on incoming data — but the drop in inflation expectations seals the deal for many economists.While US retail sales in June came in slightly stronger than expected, advancing 1 per cent, the reading was not robust enough to tip the balance towards a larger rate rise.The foremost fear motivating the Fed to remain ultra-hawkish in its approach to tightening monetary policy revolves around expectations of future inflation and whether forecasts signal that consumers and businesses think the US central bank has lost control. The risk is that expectations move higher, further fanning price pressures and unleashing a worrisome cycle that might force the Fed to take even more forceful action in response. That is a chain reaction the central bank said it could not entertain, with a sharp recession in that scenario all but guaranteed. So far, market measures of inflation expectations over five and 10 years do not show signs of becoming unmoored. Break-even rates were little changed on Friday, at 2.54 per cent and 2.34 per cent, respectively. Both rates have fallen significantly from peaks in April, as investors have bet that the Fed’s aggressive policy to rein in prices will be effective.Officials still maintain that the Fed can bring down inflation without causing excessive economic pain, but many have acknowledged the path to that outcome is becoming more narrow and largely depends on external factors such as commodity prices continuing to moderate and supply chain bottlenecks easing.Wall Street economists are less optimistic, with most pencilling in a recession next year. Additional reporting by Kate Duguid in New York More

Revenue at the markets business jumped by a quarter to $5.3 billion, thanks to volatility in the commodities and foreign exchange markets – a particularly strong segment for the bank. Trading has emerged as a bright spot for Wall Street banks this quarter as clients look to rebalance their portfolios in the face of geopolitical tension, surging inflation and fears that aggressive Federal Reserve policy tightening could plunge the economy into a recession.Citi shares were more than 4% higher in premarket trading.The bank’s profit fell to $4.5 billion, or $2.19 a share, in the quarter ended June 30, from $6.2 billion, or $2.85 a share, a year earlier.Excluding items, Citi earned $2.30 per share, according to Refinitiv calculations, beating the average analyst estimate of $1.68 per share.The profit drop also reflected a $375 million increase in reserves for potentially sour loss loans as the economic outlook darkens. A year earlier, exceptional government stimulus and the economy’s recovery from the pandemic had allowed it to release $2.4 billion of reserves.That pushed up credit costs to $1.3 billion, a sharp contrast to the $1.07 billion benefit a year earlier. Investment banking revenue fell 46% to $805 million as the volatility in markets dried up underwriting and advisory fees for investment bankers who drove Wall Street’s profit during the depths of COVID-19.The Treasury and Trade Solutions business – Citi’s crown jewel – posted a 33% jump in revenue to $3 billion on the back of higher net interest income and fee growth. The bank, which disclosed an exposure of $8.4 billion to Russia as of the second quarter, said it was mulling options to exit its consumer and commercial banking business in the country.As the most global U.S. bank, Citigroup (NYSE:C) has been hit by Western sanctions on Russia following its invasion of Ukraine, which has seen scores of corporations exit the country. More

Retail sales rose 1.0% last month, the Commerce Department said on Friday. Data for May was revised up to show sales falling 0.1% instead of 0.3% as previously reported.Economists polled by Reuters had forecast retail sales would increase 0.8%, with estimates ranging from as low as a 0.2% drop to as high as a 2.2% increase. Retail sales are mostly made up of goods, and are not adjusted for inflation.Annual consumer prices shot up 9.1% in June, the largest increase since November 1981, putting the Federal Reserve on track to deliver another 75-basis-point interest rate increase at the end of this month. The U.S. central bank has hiked its policy rate by 150 basis points since March.Gasoline prices surged in June, averaging above $5 per gallon, according to data from motorist advocacy group AAA. That boosted sales at service stations. Prices at the pump have since declined from last month’s record peaks and were averaging $4.577 per gallon on Friday. Retail sales also got a lift from a rebound in motor vehicle purchases after being weighed down by shortages.Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.8% in June. Data for May was revised lower to show these so-called core retail sales falling 0.3% instead of being unchanged as previously reported.Core retail sales correspond most closely with the consumer spending component of gross domestic product. Despite June’s rise, inflation-adjusted core retail sales were probably softer. That implies moderate consumer spending.Second-quarter GDP estimates range from as low as a 1.7% annualized rate of decline to as high as a 1.0% pace of growth. The economy contracted at a 1.6% rate in the first quarter because of a record trade deficit.With the labor market generating jobs at a brisk clip and 11.3 million unfilled positions at the end of May, a second straight quarterly decline in GDP would not necessarily mean the economy was in recession. Excess inventories would probably account for much of any decline in GDP last quarter. More

In a statement released Thursday night, the bank said the peso has depreciated with unusually high intensity and volatility over the last few days, putting pressure on the prices of the foreign exchange market.”The persistence of this scenario raises the probability that significant distortions will be generated in the functioning of the financial market in general,” the statement said.The bank said it decided to intervene due to the U.S. dollar’s strong global advance since June, the drop in the price of copper, Chile’s main export, and “local uncertainty.”The bank announced a $10 billion sales program on the spot market from July 18 to July 30 and the sale of foreign exchange hedging instruments for the same amount.”The monetary effects in local currency of the operations of this intervention will be duly sterilized, so that the provision of liquidity in pesos is consistent with the monetary policy rate,” the bank said.Additionally, to increase the provision of liquidity in dollars, it will offer a currency swap plan for up to $5 billion, complemented by a liquidity program in pesos.”These exceptional measures are consistent with the monetary policy scheme, based on an inflation target and exchange rate flexibility,” the statement said.Earlier in the week, the bank had said that the current deterioration of the local currency has not significantly affected the financial system, although it said it would continue to assess the situation in order to act if necessary. On Thursday, the Chilean peso closed down 3.7% at a record low of 1,045.80/1,046.10 per dollar. (Report by Fabián Andrés Cambero; Writing by Alexander Villegas; Editing by Raissa Kasolowsky and Jonathan Oatis) More

(Reuters) -Wall Street’s main indexes were set for a stronger open on Friday as upbeat retail sales data allayed some concerns about an economic slowdown, while Citigroup (NYSE:C)’s shares surged after quarterly results.The third-largest U.S. bank jumped 4.9% before the bell as strong trading activity in the second-quarter helped offset a slump in investment banking. Wells Fargo (NYSE:WFC) fell 0.7% as it set aside more money to cover potential loan losses. On the data front, U.S. retail sales increased more than expected in June as consumers bought motor vehicles and a range of other goods even as they paid more for gasoline.Investors are jittery over a potential 1% Federal Reserve rate hike at the end of July after grim inflation reports this week highlighted that price pressures were unabated in June.Calming some nerves, two of the Fed’s most hawkish policymakers on Thursday said they favored another 75 bps rate increase at the U.S. central bank’s policy meeting this month.”The debate of a rate hike of a 100 basis points was keeping the market on edge,” said Peter Cardillo, chief market economist at Spartan Capital Securities.”If we should manage to close around yesterday’s levels, it’s more proof of the markets having priced in a fairly respectable earnings season, and an overly aggressive Fed.”While traders have priced in a 75-basis-point (bps) rate hike at the Fed policy meeting scheduled for July 26-27, odds of a 100 bps rate hike have grown recently, with participants placing a 65% chance of a full 100 bps rate hike, according to the CME group’s Fedwatch tool.So far this year, recession worries have pushed the benchmark index down 20.5% amid a flight to safer assets as traders fret about aggressive policy tightening campaigns, inflation and disappointing corporate earnings.BlackRock (NYSE:BLK) fell 1.6% following a bigger-than-expected quarterly profit slip as market turmoil shrank the world’s largest asset manager’s fee income.At 09:01 a.m. ET, Dow e-minis were up 322 points, or 1.05%, S&P 500 e-minis were up 34.5 points, or 0.91%, and Nasdaq 100 e-minis were up 91 points, or 0.77%.UnitedHealth Group Inc (NYSE:UNH) rose 2.5% after raising its full-year profit forecast for a second straight quarter, as strong sales at its Optum unit helped it top quarterly results. More