Aurelia Butler

NUSA DUA, Indonesia (Reuters) – China is a “very important” creditor of Sri Lanka and it would likely be in the interest of both countries if China participated in restructuring Sri Lanka’s debt, U.S. Treasury Secretary Janet Yellen said on Thursday.Yellen said she would urge other members of the Group of 20 major economies to put pressure on China to be more cooperative in long-stalled efforts to restructure the debts of countries in debt distress, including Sri Lanka.Sri Lanka owes at least $5 billion to China although some estimates put it at almost twice that amount. India has also lent it $3.8 billion and Japan is owed at least $3.5 billion, according to the International Monetary Fund, with another $1 billion due to other rich countries.”Sri Lanka is clearly unable to repay that debt, and it’s my hope that China will be willing to work with Sri Lanka to restructure the debt,” Yellen told a news conference on the sidelines of a meeting of G20 finance officials on the Indonesian island of Bali.She declined to comment on recent events in Sri Lanka, where people are waiting for the resignation of President Gotabaya Rajapaksa, who has fled the country to escape a popular uprising as it struggles with an economic crisis.Sri Lanka defaulted on its $51 billion of international debt in May after years of heavy borrowing and tax cuts by the government, plus the damaging impact of the COVID-19 pandemic.The economy of the country of 22 million people began to show cracks in 2019 after large tax cuts by Rajapaksa’s government drained the country’s coffers. The pandemic then shattered the lucrative tourism industry, and rising global prices have left Colombo struggling for essentials such as fuel, medicine and food.Yellen singled out China for failing to cooperate in efforts to provide debt relief under the Common Framework adopted by G20 members and the Paris Club of official creditors in October 2020 to help heavily indebted low-income countries weather the COVID-19 pandemic.Three countries – Zambia, Ethiopia and Chad – have applied for help under the framework, but those efforts have stalled, largely due to foot-dragging by China, now the world’s largest sovereign creditor, and private sector creditors.”More needs to be done to help the most vulnerable, and this is a key message I will be emphasizing at these G20 meetings,” Yellen told reporters, citing the deteriorating global economic conditions that have pushed many developing countries into graver economic straits since Russia’s invasion of Ukraine.”A key objective of this trip is to push G20 creditors, including China, to finalize debt restructurings for developing countries now facing debt distress,” she said.Yellen told reporters earlier this week that it was “quite frustrating” that China was not stepping up on the debt issues, and said Chinese leaders need to better coordinate among various Chinese lenders to developing economies.Washington would also provide a grant of $70 million to the International Monetary Fund’s Poverty Reduction and Growth Trust to further enable the IMF to continue making zero-interest loans to the world’s poorest economies, Yellen said. More

JOHANNESBURG (Reuters) – The South African Reserve Bank will raise its benchmark interest rate by 50 basis points to 5.25% next Thursday as it tries to rein in quicker inflation, a Reuters poll found.In a July 7-13 poll, 19 of 23 economists expected a half-point hike to 5.25%, with the other four forecasting a larger three-quarters of one percent increase. The poll found a median 65% probability of a 50 basis point rise and 35% chance of 75 basis points.”We expect the SARB to hike by 50 basis points in July and September before returning to 25 basis points increases afterwards,” said Johannes Khosa at Nedbank.The poll also concluded the SARB would hike another 50 basis points again in September, with a pause until early 2023 when the bank was expected to hike another 50 basis points by end-March. The SARB meets in January and March.The SARB has now hiked interest rates by a cumulative 125 basis points since November last year. At its last meeting two months ago it did so by 50 basis points for the first time since January 2016 to 4.75%. GRAPHIC: Reuters poll: South African monetary policy and inflation outlook https://fingfx.thomsonreuters.com/gfx/polling/zdvxobrmapx/Pasted%20image%201657726141948.png South Africa’s consumer inflation quickened by more than expected to 6.5% year-on-year in May, breaching the central bank’s target range for the first time since 2017.Economists project inflation to average 7.5% this quarter, before moderating gradually to 4.5% in the last quarter of next year, ushering in an interest rate cut in November 2023.Still, inflation was expected to average 6.5% this year – above the SARB’s 3-6% target.Khosa added global food and energy prices remain elevated in line with supply-demand imbalances that have been exacerbated by the Russia-Ukraine war and, to some extent, the zero COVID-19 policy in China.Globally, inflation is expected to remain elevated for most of 2022 in both advanced and emerging market economies.U.S. inflation rose to 9.1% in June, reinforcing expectations of steep interest rate increases, a bad omen for the rand as dollar bulls continue to gain momentum.”(Local) price inflation will push higher in July and remain sticky at elevated levels in the months to follow. A hawkish U.S. Fed and the recent bout of rand weakness imply that the SARB will be attentive to the risk of capital outflows,” said Jee-A van der Linde (NYSE:LIN) at Oxford Economics.Although the inflation shock in South Africa has not been as severe when compared to advanced economies, price pressures have continued to build, van der Linde added. The poll showed economic growth slowing to 2.2% across this year, but 0.2 percentage points higher than predicted last month. Chronic power cuts – an Achilles heel for President Cyril Ramaphosa’s myriad problems – continues to threaten to push growth lower from last year’s technical bounce of 4.9%.South Africa’s gross domestic product (GDP) grew 1.9% in the first quarter in quarter-on-quarter seasonally adjusted and non-annualised terms.(For other stories from the Reuters global long-term economic outlook polls package:) More

Investing.com — JPMorgan gets the second quarter earnings season into gear, while producer price inflation data and jobless claims numbers will add to Wednesday’s inflation drama. Stocks are set to open lower, although earnings overnight from sector bellwethers Uniqlo and Taiwan Semiconductor were better than expected. Italy’s stocks and bonds fall as Mario Draghi threatens to quit as Prime Minister, and Celsius Network finally files for bankruptcy protection. Here’s what you need to know in financial markets on Thursday, 14th July.1. Bank earnings season beginsEarnings season gets underway in earnest in the U.S. with the release of JPMorgan’s (NYSE:JPM) results. There’ll be a lot to unpack in the statement from the U.S.’s biggest bank, usually a bellwether for the fortunes of the broader economy.Investors will be looking to see how far CEO Jamie Dimon’s apocalyptic warnings for the world economy translate into fresh provisions and actual write-downs against bad loans. However, the bank’s trading results may muddy the waters, depending on how well it has navigated an unusually volatile quarter. Analysts expect earnings to have fallen some 23% from last year to $2.94 a share.Also reporting later will be Morgan Stanley (NYSE:MS), which doesn’t have the same kind of Main Street loan portfolio.  2. PPI to add twist to inflation narrativeMore economic data could add to – or maybe cool – the speculation about further interest rate rises from the Federal Reserve.Wednesday’s 41-year high of 9.1% in the CPI has put market participants on alert for a possible 1 percent raise in the fed funds rate when it meets at the end of the month, a fear stoked by the Bank of Canada’s decision to go for a full point hike only hours after the U.S. numbers.The producer price index is expected to have risen another 0.8% in June, suggesting no let-up in pipeline inflation pressure even if the annual rate should tick down due to base effects. Weekly jobless claims will show whether the labor market is cooling off, or whether those losing their jobs are still simply sailing straight into new ones.  Both are due at 8:30 AM ET.3. Stocks set to open lower despite strong overnight reports U.S. stock markets are set to open lower again, after holding up surprisingly well in the face of another shocking inflation report on Tuesday. JPMorgan’s earnings and the economic data have a big influence on the actual opening level, however.By 6:20 AM ET, Dow Jones futures were down 316 points, of 1.0%, while S&P 500 futures were down 1.1%, and Nasdaq 100 futures were down 0.9%.Overnight, there were better-than-expected earnings from Uniqlo owner Fast Retailing (TYO:9983) and from Taiwan Semiconductor (NYSE:TSM), the world’s largest contract silicon chip manufacturer. Swedish telecoms network equipment maker Ericsson (BS:ERICAs) disappointed, however.Other stocks likely to be in focus later include Netflix (NASDAQ:NFLX) and Microsoft (NASDAQ:MSFT) after the news of their partnering in putting ads on some of the streaming giant’s content.4. Italian yields jump as Draghi faces key confidence vote                                       Europe’s energy crisis is snowballing into an economic one and, in some places, a political one too.Italian bond yields surged and the FTSE MIB plunged as Prime Minister Mario Draghi threatened to quit if the 5 Stars Movement (M5S) abandons his coalition government. Draghi’s presence at the top of Italian politics has been a calming factor for markets while first the pandemic then the Ukraine war buffeted an economy troubled by high debt and chronically low growth. Then there’s the threat of higher interest rates from the European Central Bank, which is set to squeeze public finances even harder.M5S is set to abstain in a vote of confidence in the government which takes place in the Senate from 8 AM ET. Draghi has threatened to resign if it does. If he does, then the ball will once again be in the court of ageing president Sergio Mattarella.5. Celsius Network files for bankruptcy protectionCelsius Network, one of the world’s biggest cryptocurrency lenders, succumbed to the inevitable and filed for bankruptcy protection, unable to recover loans to the collapsed hedge fund 3 Arrows Capital.  The news puts Celsius’ 1.7 million users, who have nothing comparable to the deposit insurance enjoyed by clients of regulated banks, in a poor position to recover any of their money.Celsius is the highest profile casualty of the selloff in crypto to date. Celsius’ own native token, already effectively worthless, fell 18% as a speculative short squeeze unwound. More established crypto assets were broadly unchanged, however, with Bitcoin trading flat at $19,798 and Ethereum up 1.5% at $1,087. More

LONDON (Reuters) – The Bank of England may oblige all banks to tap their capital buffer and stop paying dividends in a crisis to avoid a vacuum in lending to households and businesses, one of its senior officials said on Thursday.Banks were reluctant to use up some of their capital buffers during extreme market volatility after economies went into lockdowns to fight COVID-19 in March 2020, an issue global regulators are already studying.Banks were worried about stigma or market backlash given that tapping their capital conservation buffer (CCB) puts a halt on paying dividends, bonuses and coupons on some debt, said Victoria Saporta, the Bank of England’s executive director for prudential policy.She proposed that in times of crisis, the BoE would force all banks to release their CCB at the same time, accompanied by a blanket ban on distributions in a combination that would avoid stigma and provide more predictability, Saporta said.With London a base for many international banks, the proposal will be discussed with global regulators before any decision is taken, Saporta said.”It needs to be worked out exactly how it happens,” Saporta told a BoE event.Banks were also reluctant to go below the minimum threshold for their liquidity buffers of bonds for similar reasons, she said”The regulatory messages in support of liquidity buffer usability communicated before and during the pandemic were on their own insufficient to address banks’ reluctance to use their liquid assets,” Saporta said.The reluctance implied that central banks had to intervene in markets more quickly during the COVID-19 crisis, Saporta said.”If we would like to change this, we may need to be bolder. One way to proceed would be to learn from our experience with capital buffers,” she said, adding there were “no silver bullets”.”I feel that here, we might not have got the balance quite right: maybe the system is relying a bit more than is appropriate on central banks to jump in super quickly and in size,” Saporta added. More

For many months, the Biden administration has been pushing for its allies to agree a price cap on Russian oil purchases. They have been sceptical — I think rightly so, as I will try to convince you in this note. Yet at the last G7 summit in Germany, the US seems to have browbeaten its partners into including at least a nod to the price cap option in their communiqué. The US Treasury has devoted quite a bit of public diplomacy effort to this. I myself have been at the receiving end of the sales pitch. So have many others. So why is the US government so keen on this idea, and why do I remain opposed to it?For an answer to the first question, read a piece by the Brookings Institution’s David Wessel, which channels US Treasury thinking as well as anything I have seen. As Wessel sets out, the objective is twofold: “to reduce the flow of oil revenues that are financing Russia’s war machine [and] to prevent an economically catastrophic increase in oil prices” if the EU implements its recently decided (partial) oil embargo and sanctions on shipping insurance for Russian oil cargos.The proposed solution — keep the oil flowing but only if it is sold at a bargain-basement price — sounds appealing. So why am I at best unconvinced?Start with the factual claim in the argument. The EU’s partial ban on oil imports and oil shipping insurance sanctions will come into force by the end of the year. The assertion from Washington is that this will lead to a devastating new oil price rise once the restrictions are applied. Does the US government know something oil traders do not? Because at the time of writing, those who buy and sell oil for a living are pricing Brent crude at about $98 today and about $90 for December or January delivery. So they either disagree with the US government that the EU sanctions will matter for the global oil market or, more likely, they have already priced in the effects. Either way, anyone who thinks they know more than the markets can secure their January oil supply for $90 a barrel now. So it is not clear that one of the problems US leaders are worried about actually exists.Second, how about the more altruistic-sounding challenge of preventing Russian president Vladimir Putin from raking it in on higher oil prices? There is no doubt that Russia’s oil revenues have soared despite stable or falling volumes. But here it is the logic rather than the facts that fail in the American position. If the premise is that EU shipping insurance sanctions will be effective, so that Russian oil supplies will be removed from global markets, it is at least theoretically consistent to believe that prices could go up (even if the empirical evidence from oil markets says something else). What is not consistent is to think that Russia would be paid for that oil since, by hypothesis, it would be prevented from selling it. Alternatively, the thinking may be that the sanctions will not work, so Russia will still be able to sell its oil. But if so, there is no reason to think oil prices will go up. At most, oil will be traded in a more roundabout way — with oil previously shipped to Europe now shipped to more remote markets, and those markets’ previous suppliers starting to sell more to Europe instead. But at most, these frictions will marginally increase the price Europeans will pay. Others may well see lower prices because Russia has to offload its supplies in new markets — as the large discount it must already accept on Urals crude already shows.I suppose you could construct a model where the sanctions are a little bit effective, so Russian sales fall, but only a bit — and that partial supply contraction sends prices up by so much that Moscow ends up with larger revenues. If so, Washington’s alleged altruistic motive should prompt it to support the EU to make its sanctions tougher, rather than push back against them. And we should be very clear about what the US is asking for: what sounds like getting tough on Russia (capping the price it can earn) is in practice bullying Europe into being less tough (softening its sanctions for oil cargos below a certain price).A more realistic worry is that the sanctions only come into force later, but markets have priced them in today, so we are foolishly (but temporarily) paying the price of sanctions without achieving the goal of cutting off Putin’s revenues from them. The right way to fix this, of course, is to speed up the implementation of sanctions — not lobby and waste diplomatic time and capital on trying to soften them. Third, while not quite economically illiterate, there is something obscurantist in economic officials’ willingness to focus on the downsides but not the benefits of market-set energy prices. The price mechanism is powerful, and the economy’s ability to respond is often underestimated. As I have argued in the past, we should not try to contain market-clearing energy prices. Instead, we should help those truly in need, while letting the incentives to economise on energy use work. And they are already working: we are seeing oil consumption fall in advanced economies. It is true for gas consumption as well. According to EU figures, the flow of Russian gas is already as low as 30 per cent of normal averages. That suggests European consumers have already managed to adapt significantly, painful as the higher prices have been. A new study by a group of Hertie School economists carefully constructs a model of projected German gas demand based on past years to separate adaptation to the crisis from other factors affecting demand such as the weather. They find that in March and April, consumers cut back demand by 6 per cent. Industry started economising much earlier, cutting demand as soon as prices started rising in late 2021. On average, companies have managed to get by with 11 per cent less gas than they normally would.Capping the oil price would reverse all the incentives for this. And it would do harm beyond the immediate crisis. It would signal to both consumers and industrial users that as soon as oil prices go up, politicians will do anything to bring them down. In other words, they do not mean what they say about either decarbonisation or reducing their dependence on Russian oil specifically. For this is the core objective without which the US proposal makes no sense: to continue burning Russian oil, but ideally at a low price. Showing that dependence, of course, just enhances Putin’s ability to threaten the west into submitting to his designs. It is worse than hypocritical, it is a policy of geopolitical self-harm.Other readablesPaul Krugman is always worth reading, whether you agree with him or not. His latest column on the “Humbug economy” is particularly useful. Krugman points out that different data about the US economy are so all over the place as to give a completely contradictory picture. With one exception: all indicators show inflation expectations are modest. Remember that when you take in the latest inflation score (below).In last month’s marvellous essay on James Joyce’s Ulysses and the author himself, David McWilliams explores the kinship between the poet and the entrepreneur.Numbers newsUS inflation remains high, as this week’s June numbers showed.The European Commission released its latest economic forecasts today. More