Aurelia Butler

Five British energy suppliers were warned by regulator Ofgem on Wednesday they faced potential fines or a ban on acquiring new customers after it identified “moderate to severe” failings in how they calculated rises in households’ direct debit payments, following a sharp rise in energy bills.The regulator told Utilita, Green Energy UK, TruEnergy, Ecotricity and Good Energy they could be hit with enforcement action unless they improved quickly, and that they had two weeks to submit action plans. Ofgem has been investigating household direct debits after business secretary Kwasi Kwarteng claimed some suppliers had increased customers’ regular payments “beyond what is required”, even though Britain’s energy price cap rose 54 per cent on April 1.Publishing its findings, the regulator said direct debit levels increased by an average of 62 per cent between February 1 and April 30 for households on tariffs dictated by the price cap, although it insisted it had not found evidence of “unjustifiably high” rises.The regulator cautioned that the 54 per cent rise in the price cap, which dictates bills for 23mn British households, was based on the estimated consumption of a “medium energy user”. Actual increases in payments would differ depending on customers’ electricity and gas usage and other factors, such as whether they were in debt to their supplier, it said.However, Ofgem added it was “concerned” that half a million households experienced a 100 per cent increase in their direct debit payments in the same period. All suppliers that increased customers’ regular payments by that much would be required to review those cases and expected to refund and offer “goodwill” payments to customers if miscalculations were found, the regulator said.“It’s clear from today’s findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times,” said Jonathan Brearley, Ofgem chief executive.Of the 17 large suppliers investigated, “moderate to severe” failings were found at the five while “minor weaknesses” were discovered at seven others, including the bailed-out supplier Bulb, Octopus Energy and Ovo. The regulator found no significant issues at only four suppliers: British Gas, EDF, ScottishPower and So Energy.Among the worst offenders, Ofgem said problems ranged from weak governance to an “overall lack of a structured approach to setting customer direct debits”.Several suppliers challenged the regulator’s findings. Utilita, which is among Britain’s 10 biggest energy retailers, said it was “shocked and disappointed by Ofgem’s decision to name and shame suppliers at this time, given we’re still working on their follow-up request for additional information and evidence”. Green Energy UK said it had provided the regulator with “comprehensive information on our direct debit processes” and had “genuine concerns that the information that we supplied has been misunderstood or ignored”.

London-listed Good Energy insisted Ofgem had raised “just one concern about our direct debit governance . . . and we are taking rapid action to address it”. TruEnergy said it was working with the regulator to “demonstrate full compliance” with all parts of its supply licence. Ecotricity founder Dale Vince said the group had experienced difficulties with a new billing system but that an upgrade would be rolled out in six weeks. “Unfortunately [Ofgem] took no account of [this] in their assessment,” he added. More

NEW YORK (Reuters) – Vanguard Group, the world’s second-biggest asset manager, said on Wednesday the U.S. economy had a growing chance of falling into recession in the next two years but raised its expectations for annual returns on stocks and bonds.The Pennsylvania-based mutual fund manager noted a 25% probability of a U.S. recession over the next 12 months and 65% over the next two years. In the Euro area, the chance of a recession is around 50% over the next year and 60% over the next two years, it estimated.Vanguard expects the U.S. economy to grow 1.5% this year, down from its previous 3.5% forecast, it said in a mid-year update of its 2022 economic and market outlook.”Central banks have been forced to play catch-up in the fight against inflation, ratcheting up interest rates more rapidly and possibly higher than previously expected. But those actions risk cooling economies to the point that they enter recession,” Vanguard said.Recession worries have increased as the U.S. Federal Reserve tightens monetary policy, with some Wall Street banks in recent weeks raising their expectations of an economic downturn.The S&P 500 index is down 20% this year while U.S. government bonds are on track for their worst year on record, according to an ICE (NYSE:ICE) BofA index which is down nearly 10% this year.”There is an upside to down markets: Because of lower current equity valuations and higher interest rates, our model suggests higher expected long-term returns than our forecasts as of year-end,” Vanguard said.The Fed last month raised its benchmark overnight interest rate by three-quarters of a percentage point, its biggest hike since 1994. It is largely expected to deliver a similar interest rate increase later this month to curb inflation, which has reached 40-year highs.Vanguard expects the target federal funds rate to range from 3.25% to 3.75% by the end of this year, roughly in line with the Fed’s projections and market expectations. But it said the rate would reach at least 4% next year, higher than current market estimates.While higher rates and growing recessionary concerns have weighed heavily on bonds and stocks in 2022, Vanguard’s forecasts for long-term investment returns have improved since the end of last year.”There’s been a deterioration in valuations so valuations have become more attractive, whether you’re talking about higher yields or lower price-to-earnings multiples in equities markets,” said Andrew Patterson, Vanguard senior international economist, in an interview.Ten-year annualized return forecasts for U.S equities now range from 3.4% to 5.4%, up from 2%-4% at the end of 2021. For U.S. bonds, forecasts are for 3%-4%, up from 1.5%-2.5% at the end of last year, Vanguard said.The improved outlook for bonds means they will continue to offer diversification for investors using strategies such as the 60/40 portfolio, a standard approach that keeps 60% of assets in equities and 40% in fixed income, Patterson said.”We are more constructive on fixed income returns going forward, unfortunately as a result of some of that yield increase pain that we felt,” he said. More

The rate on the July contract rose as high as 2.416% after the consumer-price inflation data, some 83.6 basis points above the current effective fed funds rate. That implies a hike of at least 75 basis points is seen as definite and around a one-in-three chance that it could be a full percentage point. The market had already shifted earlier in the day to fully price in a 75-basis-point increase.The market also moved to almost fully price in a total of 1.5 percentage points of increases over the July and September meetings, while expectations for where the fed benchmark will max out in the first part of 2023 jumped to around 3.6%.The consumer price index rose 9.1% from a year earlier in a broad-based advance, the largest gain since the end of 1981, Labor Department data showed Wednesday. The widely followed inflation gauge increased 1.3% from a month earlier, the most since 2005, reflecting higher gasoline, shelter and food costs. Economists projected a 1.1% rise from May and an 8.8% year-over-year increase, based on the Bloomberg survey medians. Treasury yields rose across the curve, although more at the short end, and the dollar jumped too, sending the euro below parity with the greenback for the first time in two decades.(Updates throughout.)©2022 Bloomberg L.P. More

The consumer price index increased 1.3% last month after advancing 1.0% in May, the Labor Department said on Wednesday. In the 12 months through June, the CPI jumped 9.1%. That was the biggest gain since November 1981 and followed an 8.6% rise in May.MARKET REACTION:STOCKS: S&P 500 futures turned sharply lower, and were down 1.6%, pointing to an ugly open on Wall StreetBONDS: U.S. 10-year yields rose to 3.0524%; Two-year yields rose to 3.1775%, deepening the 2s/10s yield curve inversion to more than 13 basis pointsFOREX: The dollar index turned 0.21% higher COMMENTS:QUINCY KROSBY, CHIEF EQUITY STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA:    “The market had expected a higher print. The president mentioned inflation yesterday when he was speaking. Typically that’s an indication the concern has deepened for the administration. But no one expected over a 9% print…. The Fed has been clear almost since the end of the end of last Fed meeting that 75 basis points is coming at the end of July… It’s been well telegraphed. The market has also been suggesting that we’re close to peaking or plateauing in inflation. We’re starting to see prices come down in commodities, freight and shipping, and the global supply chain challenges appear to be easing at the margin, which should lead to prices coming down… More important will be the preliminary consumer sentiment report that comes out. The question now is, is 1% now on the table and up for discussion?”ANTHONY SAGLIMBENE, GLOBAL MARKET STRATEGIST, AMERIPRISE FINANCIAL, TROY, MICHIGAN“The market has been preparing for a hot number all week. I don’t think it’s a surprise that the number came in hot. For the week investors were building in the fact that we would get a hotter print. Now that we have it, it shows inflation has not peaked yet. The market wants to see at some point that inflation is going to peak. “Hotter inflation equals a more aggressive Federal Reserve. Powell is going to see inflation peak, which it might be in July. It means the Fed is going to continue to be aggressive, and right now the Fed is not your friend, at least from an investor stand point and until that changes, it’s going to be hard for stocks to gain traction.”EUGENIO ALEMAN, CHIEF ECONOMIST, RAYMOND JAMES, ST. PETERSBURG, FLORIDA    “Core inflation was expected to remain below 9% so it wasn’t a good number. In some ways it was expected from the point of view that gasoline prices were very very high at the beginning of the month. By mid-June that changed considerably but it still seems to have affected prices considerably more than what everybody was expecting. The good news is that July’s inflation is not going to be that bad because oil and gasoline prices have come down.”    “I believe this is the peak. Even if it is the peak, the risks still remain because the war between Russia and Ukraine still going on and any surprise could impact petroleum market and that will continue to be a risk going forward. The risk for continued higher inflation remains there just because of the uncertainties of the war.”    “It reinforces our view that the Fed is going to raise rate by 0.75% in the late July meeting. The Fed has to show they are on top of this and they cannot backtrack.”    MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS, NEW YORK”The stronger-than-expected 1.3% rise in consumer prices in June, pushing headline inflation to 9.1%, from 8.6%, nails on another 75 bp hike at the July meeting but, with commodity prices falling sharply since then and wage growth moderating in recent months, the outlook for inflation does not look as bleak as it did a month ago. Accordingly, speculation about a 100 bp hike this month looks to be misplaced.”CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NC     “This morning’s number is staggeringly high. It’s higher than expected and shows that inflation is going quickly in the wrong direction. It really pushes the Fed even further into the corner they’ve been operating in. They need to raise rates quickly and they need to raise rates by large amounts.”    “An increase of 75 basis points is the most likely for this month … the big change based on this data is that we’re likely to see more 75 basis point increases, not just this month but, in subsequent months.”    “The impact of tighter Fed policy is detrimental to stock prices market. The inflation threat is real to the bond market.”    “The picture before today was that the Fed has to fight inflation by raising interest rates. We still don’t know what’s going to happen but its most likely we’re going to have a recession because the Fed is going to have to act aggressively. A soft landing is relatively unlikely because that’s so difficult to achieve. Unfortunately we were looking for good news and this is not good news.”  RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS“If we did get a low print we probably could get a little rally in equities but I didn’t think that would happen. Even if you look at the core but I think it is important, really, to focus more on the actual headline number because when you talk to consumers the two things that are affecting them the most are the prices of food and energy so it’s hard to ignore that. But gasoline prices were rising throughout the first two-thirds of the month of June and they didn’t really start coming down until after that so it almost seemed certain that we would end up with a high print. But if we were to get a lower print then it would’ve been net bullish for equities and the reason I say that is that it might imply the Fed will tighten in smaller increments, in other words, bring that three-quarter hike at the end of the month down to a half or that they might stop sooner. Neither of those things happened.”“The probability of that rate hike was 100%, it hasn’t been that high since the last hike, it was like 85% just a week ago, so that number was implying we were going to get a hot print, which I am not surprised by. I do think this could be the peak, if you look across the commodity space, most commodities are on the way down and that includes energy, but that didn’t really start until the latter quarter of June so this could be the peak but you can’t really call it just yet, it’s too soon.” DAVE GRECSEK, MANAGING DIRECTOR IN INVESTMENT STRATEGY AND RESEARCH, ASPIRIANT, NEW YORK”The Fed sees broad commodity prices sharply lower. It sees wages higher but not like a wage-price spiral higher. And then the dollar is very strong. So there’s a bit of a cooling expectation in terms of where future inflation might head and they also realize that the hikes that they’ve already done are having effect. They’re going to hesitate to raise rates more than they need to at this point, even though we did get a higher than expected inflation number right now.””If we see a few more upside misses to the extent that we’ve seen today then that could matter for the Fed, but the markets are going to take this in stride today.””The Fed has been pretty clear and transparent in terms of conveying the expectation that they’re going to continue to move short-term rates rapidly higher. So this does not really change that too much. If we see another few months of greater-than-expected inflation at the levels we’re seeing today than that might change the Fed’s course.””Higher than expected inflation is just going to mean that the Fed is going to have to continue to increase policy rates which for both equities and bonds is going to continue to weigh on returns.”STEVEN RICCHIUTO, U.S. CHIEF ECONOMIST, MIZUHO SECURITIES USA LLC, NEW YORK“It is hot and suggests there will be further yield curve inversion. It suggests the front end of the curve is going to move up some more, as people price in 75 basis points, and maybe moving that end-of-year estimate from 3.5% to 4%, as that lone dot was in the June summary of economic projections. “This is a problem with all these data in that this becomes sticky for a while and when it finally changes it will change fairly quickly. But waiting for it to change is always the problem and everyone anticipates the next month is the peak, when actually it could be further into the equation than you thought. That’s what this number shows you.”PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK“The numbers were worse than expected, but the fact that the core (CPI) shows some deceleration year-over-year shows a bit of a hint that this the last hurrah in terms of inflation moving higher.”“While the numbers are ugly and certainly guarantee a 75 basis points (interest) rate hike by the Fed in July, the hints that inflation might be beginning to decelerate are there.” “It might even tip the hands of the Fed to raise (interest rates) by 75 basis points in September as well.”“Most of the gains are coming in energy. The good news is that energy prices have begun to head lower and that should show up in the next reading.”“The market doesn’t like it, but this is the first reaction. I suspect once the numbers are fully digested, we’ll see a repeat of what we’ve seen for the last couple of days.” More

Senators will hold a confirmation vote on Barr’s nomination to the Fed Board on Wednesday at 11:30 a.m., followed by a procedural vote on his nomination to be the Fed’s vice chair of supervision. At 2:30 p.m., the Senate will hold a confirmation vote on Barr to take the Fed’s top banking cop job. The votes follow broad bipartisan backing in the Senate Tuesday on a motion to limit debate on his nomination as Fed governor, and are expected to pass.The Fed is raising interest rates sharply to bring down inflation that’s running at a 40-year high, and Barr will join as the seventh and last member of the Fed’s Board who, along with the Fed’s 12 regional bank presidents, decide every six weeks exactly how much policy tightening to deliver. It is unclear if Barr could be sworn in in time for the Fed’s next policy-setting meeting at the end of this month. As vice chair of supervision, Barr’s to-do list will likely include revisiting rules for banks that were eased under his predecessor, Randal Quarles. The Fed has been without a point person on regulation since Quarles, a Trump appointee, left the role last October after four years.Barr is also expected to use the powerful role overseeing the country’s largest lenders to step up efforts on other issues dear to the Biden administration such as climate change risk, as well as addressing other rapidly evolving areas like fintech and cryptocurrencies. More

FRANKFURT (Reuters) – The euro’s tumble to parity against the dollar has pushed the European Central Bank back against a wall, leaving its policymakers with only painful and economically costly choices.Letting the currency fall further would push up already record high inflation, raising the risk of price growth becoming entrenched at a rate well above the ECB’s target of 2%.But fighting back against 20-year lows for the euro would require more rapid interest rate hikes, which could add to the misery for an economy already facing a possible recession, looming gas shortages and sky-high energy costs that are depleting purchasing power.The bank has so far played down the issue, arguing that it has no exchange rate target, even if the currency does matter. Even the accounts of its June policy meeting published on Thursday indicated no particular concern. But the market moves are now too big to play down.”The euro’s weakness reinforces the notion that the ECB is behind the curve,” Dirk Schumacher, head of European macro research at Natixis CIB, said. “Given how high inflation is, a stronger euro would be quite helpful because it lowers inflation.”The euro is now down around 10% against the dollar this year, even if the trade-weighted currency has only dropped 3.3% so far.This raises the cost of imports, especially for energy and other dollar-denominated commodities, making everything more expensive. Studies frequently cited by the ECB suggest that a 1% depreciation of the exchange rate raises inflation by 0.1% over one year and by up to 0.25% over three years.MORE WEAKNESS?The problem is that economic fundamentals point to even more euro weakness.Firstly, the ECB and the U.S. Federal Reserve are moving at vastly different speeds.While Fed Chair Jerome Powell has made clear he was willing to risk a recession with oversized rate hikes to bring down inflation, the ECB continues to take baby steps in unwinding the exceptionally easy policy of the past decade, when inflation was too low.It will raise rates for the first time this month but expects to lift the deposit rate out of negative territory only in September, with any further move clouded by recession risks. The euro zone’s outlook has soured so much since mid-June that one rate hike has been priced out and markets now see just 135 basis points of tightening from the ECB. The Fed, which has already raised rates several times, including by 75 basis points last month, is expected to increase them by another 180 basis points.That gives investors higher profits on the other side of the Atlantic, so they are moving cash out of Europe and weakening the euro in the process.Secondly, the euro zone’s huge energy dependence, primarily on Russian gas, also makes the economy more vulnerable to the fallout of the war in Ukraine, a natural drag on the currency.”Faced with the looming risk of recession – and the euro being a pro-cyclical currency – the ECB’s hands may be tied in its ability to threaten more aggressive rate hikes in defence of the euro,” ING said in a note to clients.Finally, the bloc’s energy bill has pushed up import costs, leaving it with a rare current account deficit. Such outflows also weaken the currency over time.Since each of 19 euro zone countries are impacted differently, consensus on any push back is also likely to be difficult to achieve.To prop up the euro, the ECB could signal more aggressive policy tightening, including a 50 basis-point hike in September, and further moves in October and December.But since markets already expect these steps, the ECB must also at least in part match the Fed’s message that getting inflation down trumps all other priorities, even if that means reinforcing a recession.Such a message, even if euro-positive, would likely fuel a selloff on the currency bloc’s periphery, setting off debt sustainability concerns.So the ECB must also roll out its already flagged bond-buying scheme aimed at limiting the rise in borrowing costs for Italy, Spain, Portugal and Greece. More