Aurelia Butler

At a regular monthly meeting of ministers, the EU executive commission is expected to provide an update of its economic forecasts, showing slower growth and higher inflation, officials said.Ministers will focus on fighting inflation, indicating a will to shift further away from the massive economic stimulus offered during the acute phase of the COVID-19 pandemic.The fiscal advice should recognize that “we have moved away from the need to help the economy,” one official said, echoing a recommendation for “a moderately restrictive fiscal policy” next year issued in June by the European Fiscal Board (EBF), an advisory body. The EBF, whose recommendation will be discussed by ministers on Monday, urged fiscal prudence especially for countries with high debt, such as Italy, Greece or France.The discussion on the 2023 fiscal stance comes before governments prepare their national budgets for next year.The push against inflation, which would support the European Central Bank’s planned tightening of monetary conditions, comes however amid an expected further drop in economic growth.The Commission is set to again revise downwards its forecasts for the euro zone when it updates its outlook on Thursday, officials said.In May, it had cut its growth forecasts for the 19 countries sharing the euro to 2.7% this year from 4.0% predicted in February, and to 2.3% next year from 2.7%, in its first assessment of the impact of the war in Ukraine on the bloc’s economy.Inflation forecasts are also expected to be revised upwards from the 6.1% predicted by the Commission in May for this year, which was in itself a major uplift from the previously estimated 3.5%. The International Monetary Fund will also brief euro zone ministers at the meeting about its latest assessment of the bloc’s economy. More

NEW YORK (Reuters) -Second quarter profits at big U.S. banks are expected to fall sharply from a year earlier on increased loan loss reserves, as the pandemic recovery gives way to a possible recession. Analysts expect JPMorgan Chase & Co (NYSE:JPM) will report a 25% drop in profit on Thursday, while Citigroup Inc (NYSE:C) and Wells Fargo (NYSE:WFC) & Co will show 38% and 42% profit declines, respectively on Friday, according to Refinitiv I/B/E/S data.Bank of America Corp (NYSE:BAC), which like its peers has big consumer and business lending franchises, is expected to show a 29% drop in profit when it reports on July 18.The plunge in profit stems from lenders adding to their reserves for expected loan losses, a reversal from a year earlier when they benefited from reducing those cushions as anticipated pandemic losses failed to materialize and the economy strengthened.”Its going to be a shaky quarter for the sector,” said Jason Ware, chief investment officer for Albion Financial Group, which owns shares of JPMorgan and Morgan Stanley (NYSE:MS). Investors will want to hear executives’ insights into the health of the economy and if borrowers are “more shaky now,” Ware said.Banks must factor the economic outlook into loan loss reserves under an accounting standard which took effect in January 2020.While data on Friday showed the U.S. economy added more jobs than expected in June, it could still be on the verge of a recession. Gross domestic product contracted in the first quarter, with tepid consumer spending and manufacturing readings in the last two weeks.TIME TO BUILD UPLast month, JPMorgan CEO Jamie Dimon warned of an economic “hurricane,” while Morgan Stanley CEO James Gorman has said there is a 50% chance of a recession. “The banks are going to have to build up their reserves,” said Gerard Cassidy, a bank analyst at RBC Capital Markets.JPMorgan, Citi, Wells Fargo and Bank of America, the country’s largest four lenders, could record $3.5 billion of loss provisions compared with $6.2 billion of benefits last year when they released reserves, Cassidy estimated.As a result, the banks’ bottom lines will look worse than their underlying businesses. Pre-provision, pre-tax profits for the big four will be down only 7%, according to estimates by analysts led by Jason Goldberg at Barclays (LON:BARC).To be sure, banks are also adding to reserves for additional loans they have been making as companies have started to borrow more and consumers have been using credit cards to travel and eat out again. And actual loan losses and delinquency rates are still near record lows.But bank executives have said more loans will go bad. Analysts will press the banks for clues on the timing and magnitude and how much they might eventually offset gains in net interest income – the difference between banks’ cost of funds and the interest they receive.Net interest income growth is the highest it has been in a decade, powered by loan growth and higher interest rates, said Goldberg. Net interest income rose 14% in the second quarter, on average, for the four biggest banks, he estimates. “You have really strong loan growth and very low loan losses,” he added.But a severe recession could cause actual loan losses and negate such gains, said Cassidy. WALL STREET WIPEOUTMorgan Stanley, the sixth-biggest U.S. bank by assets and a major Wall Street player and investment manager, also reports on Thursday and is expected to show a 17% decline in profits. The fifth-biggest bank, Goldman Sachs Group Inc (NYSE:GS)., is expected to report a 51% profit drop when it reports on July 18. Goldman, like Morgan Stanley, does less consumer and business lending than the four biggest banks and changes in its loan loss provisions are less important for profits.But fees Goldman makes on deals, including stock and bond underwriting, are expected to be down sharply, partially offset by more trading revenue due to increased volatility. [L4N2YO3FW]Mortgage business revenue is expected to decline as higher interest rates dampen home loan demand and refinancing.Banks’ asset management businesses will also report lower revenue on lower stock and bond prices, Goldberg said. More

Investing.com — The dollar surges to a new 20-year high, supported by Friday’s jobs report. Twitter hires a crack legal team to squeeze a $1 billion break fee out of Elon Musk after he abandoned his $44 billion takeover offer. Stocks are set to open lower, bracing for another big rate hike from the Federal Reserve. Europe meanwhile, is bracing for a total cut-off of Russian gas supplies. And oil is down ahead of Joe Biden’s visit to Saudi Arabia. Here’s what you need to know in financial markets on Monday, July 11.1. King DollarThe dollar hit a fresh 20-year high, pushing the euro down as far as $1.01 and sending the yen as low as 137.26 as Friday’s solid U.S. jobs report underlined the yawning gap in interest rate differentials between the developed world’s three main currency areas.Elections in Japan at the weekend appeared to confirm the country’s current economic policy course, suggesting that the yen’s weakness hasn’t led to the ruling Liberal Democratic Party losing votes. The LDP was, however, buoyed by sympathy votes after the assassination of former Prime Minister Shinzo Abe at a campaign rally on Friday.By 06:30 AM ET (1030 GMT), the dollar index that measures the greenback against a basket of six major developed economy currencies was up 0.6% at 107.46.New York Federal Reserve President John Williams is due to speak at 02:00 PM ET.2. Twitter seeks $1 billion as Musk walks from takeover bidTwitter (NYSE:TWTR) hired a crack team of lawyers to set about claiming its $1 billion break fee from Elon Musk, after the Tesla (NASDAQ:TSLA) CEO officially revoked his $44 billion offer for the social media company.Whether that break fee gets paid will be down to the issue of spam bots. Musk, who had earlier waived his right to due diligence and only raised the issue of fake accounts after struggling to raise the money for the acquisition, has argued that Twitter’s user numbers are vastly inflated. Twitter claims it has sent Musk the best information it can without violating the terms of its user agreements.Twitter stock was down 7% in premarket as it shed its implicit takeover premium, but Tesla stock failed to benefit, falling 0.3% having rallied hard last week in anticipation of the removal of a potentially massive stock overhang. Morgan Stanley (NYSE:MS), which had stood to gain the most in fees from a completed deal, was down in line with the broader market.3. Stocks set to open lower on rate hike, COVID cautionU.S. stock markets are set to open lower later, with investors once again having reflected over the weekend that taking money off the table is the best course of action. That’s despite the fact that the market held up reasonably well on Friday after a jobs report that cemented expectations of another 75-basis point interest rate hike later this month.By 06:15 AM ET, Dow Jones futures were down 121 points, or 0.4%, while S&P 500 futures were down 0.5%, and Nasdaq 100 futures were down 0.7%.Caution was the watchword, after news of another rising wave of COVID-19 cases in China and anxiety about the fate of European gas supplies as Russia takes the Nord Stream pipeline down for scheduled maintenance.4. China’s COVID-19 lockdowns spread; Shanghai detects new variantThe number of Chinese living under COVID-19-related restrictions rose to over 114 million, according to Nomura, as a fresh wave of cases led to a combination of lockdown and mass-testing.  The island of Macau has closed its casinos for a week – in one case, locking the house with 500 gamblers still trapped inside – while the city of Xi’an, with 13 million inhabitants, has also locked down for the week.Most importantly for world markets, Shanghai city authorities said at the weekend they had identified a new sub-variant of the now-dominant BA.5 Omicron strain, and that the risk of transmission in the city was high. Most of its districts are being subjected to three days of mass testing this week.China remains the one major economy worldwide without a serious inflation problem, consumer prices staying unchanged in June, leading the annual rate to tick up to a modest 2.5%. Annual producer price inflation, more important for the world economy, fell to 6.1% from 6.4%.5. Oil falls ahead of Biden’s Saudi visitCrude oil prices came under pressure again amid the broader risk-off sentiment coursing through China and Europe. That comes ahead of U.S. President Joe Biden’s visit to Saudi Arabia this week, where he is expected to press for an increase in oil production from the Desert Kingdom.How much Biden will be able to offer in return, with regard to arms sales and diplomatic cover for Saudi Arabia’s war in Yemen, is unclear, his administration having rather boxed itself in with a hard line on human rights over the killing of a dissident Saudi journalist.By 06:30 AM ET, U.S. crude futures were down 2.4% at $102.33, while Brent was down 1.8% at $105.09 a barrel.European natural gas futures were broadly flat, after Canada called Russia’s bluff in allowing the return of compression equipment to the Nord Stream pipeline. That will make it harder for Russia to claim any technical explanation for its supply cuts once the line’s scheduled maintenance is complete in 10 days. More

(Reuters) -Wizz Air expects to have to cut flights this summer due to labour shortages and strikes at European airports, the budget airline said on Monday, sending its shares down around 5%.Wizz Chief Executive József Váradi had said in June the company was confident of returning to pre-COVID productivity by reaching full utilisation of its aircraft this year.However, the company said on Monday it expected to cut utilisation another 5% for the summer to reduce the impact of “ongoing external disruptions”.After a blip caused by the Omicron coronavirus variant, travel demand has roared back, with airlines betting on summer holiday travel in July-September to boost their bottom-lines. But strikes and staff shortages are forcing airlines to cancel thousands of flights and causing hours-long queues at major airports across Europe.Airlines have raised fares to offset higher fuel costs, with pilots and cabin crews making a case for higher pay due to inflation. Scandinavian airline SAS cancelled hundreds of flights last week after talks with pilots over a new collective bargaining agreement collapsed.Meanwhile, Britain laid out various plans for the industry last week, including help in recruiting staff, as the country’s busiest airport Heathrow asked airlines to cancel 30 scheduled flights due to passenger numbers exceeding the airport’s capacity on Thursday. Heathrow on Monday apologised for “unacceptable” service in recent weeks and signalled it could ask for more flight cuts.London-listed Wizz, which on Monday reported an operating loss of 285 million euros ($289 million) in the first quarter, said it expected to return to a “material” profit this quarter.It said its load factor, which measures how well an airline is filling available seats, as of July, continued to improve to above 90%. ($1 = 0.9862 euros) More

STMicroelectronics and GlobalFoundries are teaming up to build a semiconductor manufacturing factory in France, a multibillion-euro project that will receive significant government support as part of Europe’s effort to boost its independence in critical technologies. The Élysée Palace said the joint investment from the Switzerland and US-based companies would be worth €5.7bn, but declined to specify how much public money would be allocated since details were still being finalised.President Emmanuel Macron will visit the STMicroelectronics site where the factory will be built in south-eastern France near Grenoble on Tuesday.“This is the biggest industrial investment in recent decades outside of the nuclear sector and a big step for our industrial sovereignty,” said French finance minister Bruno Le Maire.The project is the second foundry to benefit from the EU’s Chips Act, a €43bn plan to subsidise production in the bloc with the aim of securing supplies of the semiconductors that drive the global economy while also attempting to catch up in cutting-edge smaller chips that are made almost exclusively in Asia.In March, Intel announced plans to build a €17bn foundry in Magdeburg, Germany, as well as other investments in Europe. The company is expected to get billions in state and EU subsidies to produce the miniaturised chips that are usually used for high-performance computing devices, servers and smartphones. The STMicroelectronics and GlobalFoundries facility will make chips of different sizes down to 18 nanometres that are used in automobiles, factories and appliances. Such chips more closely match the needs of European industry, since few electronics or computing manufacturers are based in the region. In a joint statement, the companies said they “will receive significant financial support from the state of France for the new facility”, which aims to be at full capacity by 2026. About 1,000 jobs will be created at STMicro’s site in Crolles, up from 6,000 now, and the manufacturing capacity will increase from 10,000 wafers a week to 22,000.France and Italy are the biggest shareholders in STMicroelectronics, with each holding a 13.75 per cent stake in the company with a market capitalisation of €28bn. GlobalFoundries is a semiconductor contract manufacturer with a market capitalisation of $24bn. The announcement comes amid a global supply crunch in semiconductors that has dragged on during the coronavirus pandemic, hampering manufacturing output for companies including Infineon and STMicroelectronics that supply Europe’s automotive industry and leading to temporary factory shutdowns at Stellantis and Renault, among others.Industry executives have said the bottlenecks will persist into 2023 and 2024 or longer, in part because of shortages of the machines needed to make chips and how long it takes to build factories.

The crisis has prompted European leaders to seek to avoid being overly reliant on chip production from Asia, such as industry leader Taiwan Semiconductor Manufacturing Co. The Chips Act being championed by Brussels is intended as an important step in the EU’s broader “strategic autonomy” agenda, a drive to reduce the continent’s vulnerability to supply chain disruptions and geopolitical risks.Asked how much the government support had affected the companies’ choice of where to build the plant, the chief executive of GlobalFoundries Thomas Caufield said: “without the French participation, these investments would be very challenging.” The US is working on a similar programme to plough up to $52bn into subsidies for chip manufacturing under its own Chips Act, but the law has not been financed by Congress. More

I used to scoff at colleagues who, following the election of Donald Trump, predicted that the US would someday splinter into separate states. I am not laughing any more. Supreme Court rulings over the past few weeks have deepened the fissures that have been opening up in America for years. These are rooted not just in Trump’s election and the progressive backlash to it, but can be traced right back to the 2008 financial crisis. Policy decisions made by both Republicans and Democrats since then (including the bailout of banks rather than homeowners, and big corporate tax cuts) have eroded trust in American institutions, which is now at a record low, according to Gallup. The court judgments, in particular the overturning of Roe vs Wade, and the new curbs put on the ability of federal agencies to act at a national level, will weaken and divide the country further. Taken to their natural limits, they would make it impossible for the federal government to guarantee a single rule of law across America on basic issues that matter not only to citizens but to investors.

I’m talking here about corporate regulations and reporting standards, labour and environmental rules, various consumer protections and even what kind of assets can be traded or not. Just think of everything that a federal agency such as the Environmental Protection Agency or, perhaps more importantly, the Securities and Exchange Commission, regulates. The legality and enforcement of those rules is now up for renegotiation across the country, depending on which state you live in.This comes at a time of an increase in mass shootings across the US (along with frightening Supreme Court rulings that make it easier to carry concealed weapons), rampant inflation and a backdrop of televised congressional hearings about the January 6 Capitol Hill attacks. These hearings make it easy for every schoolchild to see that America is a country in which armed insurrections can, and do, happen. All of this raises a larger question currently being discussed by some investors. When it comes to issues of political risk and volatility terms, is the US starting to more closely resemble an emerging market than a developed economy?Mark Rosenberg, founder and co-head of the research firm GeoQuant, has been tracking various measures of political risk in America and numerous other countries on a daily basis since January 2013. In a recent client letter, he noted that, as it celebrated Independence Day on July 4, the country hit a new high in political risk. This was driven by increases in sub-indicators including governance risk, social risk and security risk.While US political risk in global comparisons is still relatively low (it ranks 85 out of the 127 countries tracked by Rosenberg), it is now by far the highest of any developed market. Only countries such as Turkey, Colombia, Mexico and Israel look anything like the US within the OECD nations. Even more worrisome is the fact that the change and volatility of key metrics, including the risks of social and government instability, political violence and even the risk to democracy, make the US look much more like a developing nation than a developed one — let alone the supposed leader of the free world.Rosenberg calls this the “EM-ification” of US politics, which he defines as “a less stable form of political conflict in which institutions are too weak to clearly define or enforce the rules, increasing social polarisation as well as political and economic uncertainty around key political events”. “EM-ification” intensified under the Trump administration but has also increased under Biden as America’s political factionalism worsened. “US social and institutional risks are now more like those in an emerging market than the world’s oldest democracy,” says Rosenberg.

Of course, not all EMs are fractured or on the brink of violence; many, including China, India, Taiwan, Poland, Greece and the Philippines, have seen risk scores improve over the past decade. What’s more, while political risk has risen in the US, the size and depth of the US capital markets and the massive power of its consumer market mean there has been little to no impact economically from that. The dollar is strong, and the US has fared better economically than many developed countries over the past few years.Still, economies and reserve currencies require trust to thrive over the long term. And trust is built on consistent adherence to the rule of law. The recent, radical rulings by the Supreme Court, which itself reflects political polarisation, have made clear that the law won’t be applied in the same way everywhere. The legal framework that binds you will depend on who you are, and where you live. What might happen in a country in which a handful of coastal states and a few blue ones in the middle have wildly different frameworks for corporate regulation, social issues, taxation, labour and the environment? We are about to find out. Secession used to be something that was joked about in the US — people spoke of “Tex-it” or the western states’ independence movement known as “Cascadia”. Armed conflict was something that happened elsewhere. Not any more. With or without guns, the US is now at war with [email protected] More

Two-thirds of business leaders expect rapid UK price rises to persist longer than the Bank of England hopes, with most not expecting inflation to peak until spring of next year.The views from a June survey of the Institute of Directors’ (IoD) membership suggest that companies are planning to raise their prices in moves that are likely to embed high inflation more deeply in the UK economy.Evidence of persistent price and wage rises has been cited by numerous members of the BoE’s monetary policy committee as grounds for acting “forcefully” with interest rates.The survey will increase the likelihood that the central bank will increase interest rates by half a percentage point at its meeting on August 4.Even though financial markets have scaled back expectations of interest rate rises coming from the BoE in response to increased fears of a recession, traders in futures markets still expect a half point rise in interest rates next month.In its survey, only 27 per cent of IoD members who expressed an opinion thought inflation would peak before the spring of next year. The BoE expects inflation to rise from the 9.1 per cent rate in May to a high of over 11 per cent in October before beginning to fall back. By contrast, 21 per cent of IoD members thought inflation would peak next spring and a further 45 per cent thought the peak would come even later. Only 7 per cent of its 431 members surveyed declined to express a view.Kitty Ussher, chief economist of the IoD, said inflation was the prime concern of businesses across the UK and that it was undermining growth and investment. “What the economy needs right now is a sense that inflation has peaked and is starting to fall back. That in itself would go a long way towards improving both business and consumer confidence, in turn leading to greater investment and growth,” she said.Noting that the expected peak of inflation among IoD members was “worryingly far into the future”, Ussher added that “if business leaders expect inflation to persist for longer, they may adjust their own pricing strategies accordingly, leading to a potential for the expectation of price rises to become self-fulfilling”.“We would like to see the Bank of England focus its messaging on when it expects the rate of inflation to start falling again, to re-anchor expectations and bring forward the date at which business leaders believe we are through the worst,” she said.The IoD survey is not the only bad news on corporate inflation expectations the BoE has received in the past week.Its own decision maker panel of companies showed an increase in inflation expectations in June and found that managers were expecting to increase pay by 5.1 per cent over the next year. This was up from an expectation of 4.8 per cent wage increases over the following year from the May survey data.BoE officials have toughened their language on inflation over the past week with Huw Pill, its chief economist, telling an academic audience that the big question for the next meeting was “whether the pace of policy tightening now needs to change”.Other leading economies are also taking action to tackle inflation. The Federal Reserve increased US interest rates by 0.75 percentage points at its June meeting and the European Central Bank has signalled that it would implement the first rate rise in over a decade at its July meeting. More

SYDNEY (Reuters) – Asian shares started cautiously on Monday as investors braced for a U.S. inflation report that could force another super-sized hike in interest rates, and the start of an earnings season where profits could be under pressure.An upbeat U.S. June payrolls report already has the market wagering heavily on a hike of 75 basis points from the Federal Reserve this month, and sending bond yields higher.Underlining the global nature of the inflation problem, central banks in Canada and New Zealand are expected to tighten further this week. [NZ/INT] [CA/INT]While Wall Street did eke out some gains last week the market mood will be tested by earnings from JPMorgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) on Thursday, with Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) the day after.”Consensus expects 2Q S&P 500 EPS growth of just +6% year/year,” says Goldman Sachs (NYSE:GS) analyst David J. Kostin. “While firms will likely clear this low bar, we expect cautious commentary will prompt cuts to forward estimates.”If the economy does manage to dodge recession, Kostin sees EPS growth of 8% in 2022 and 6% in 2023, with the S&P 500 index rising to 4300. In a moderate recession, EPS could fall by 11%.Early Monday, S&P 500 futures were down 0.2% and Nasdaq futures off 0.3%.MSCI’s broadest index of Asia-Pacific shares outside Japan hovered around flat. South Korea eased 0.3%, but Japan’s Nikkei added 1.5%.Japan’s conservative coalition government was projected to have increased its majority in upper house elections on Sunday, two days after the assassination of former prime minister Shinzo Abe.A major hurdle will be Wednesday’s U.S. consumer price report where markets see headline inflation accelerating further to 8.8%, but a slight slowdown in the core measure to 5.8%.An early reading on consumer inflation expectations this week will also have the close attention of the Fed.”Unexpected weakness in these releases will be required to dislodge expectations for a 75bps July 27 Fed rate rise, which lifted from about 71bps to 74bps post the payrolls report,” said Ray Attrill head of FX strategy at NAB.PARITY PARTYLikewise, Treasury yields climbed around 10 basis points on the jobs report and the 10-year stood at 3.08% on Monday up from a recent low of 2.746%.A hawkish Fed combined with fears of recession, particularly in Europe, has kept the dollar up at 20-year highs against a basket of competitors. The dollar was firm at 136.30 yen, just off its recent peak of 137.00.The euro continued to struggle at $1.0164, having shed 2.4% last week to hit a two-decade low and major retracement target at $1.0172.”With little economic relief on the horizon for Europe, and U.S. inflation data likely to mark a new high for the year and keep the Fed hiking aggressively, we think the risks remain skewed in favour of the greenback,” said Jonas Goltermann, a senior markets economist at Capital Economics.”Indeed, we think the EUR/USD rate will break through parity before long, and may well trade some way through that level.”Rising interest rates and a strong dollar have been a headache for non-yielding gold, which was ailing at $1,742 an ounce having fallen for four weeks in a row. [GOL/]Oil prices also lost around 4% last week as worries about demand offset supply constraints. [O/R]Data from China due Friday are likely to confirm the world’s second-largest economy contracted sharply in the second quarter amid coronavirus lockdowns. On Monday, Brent was trading 12 cents lower at $106.90, while U.S. crude eased 34 cents to $104.45 per barrel. More