Aurelia Butler

WELLINGTON (Reuters) – New Zealand’s central bank is expected to deliver this week a third straight half-point rate hike in its most aggressive policy tightening in over two decades, but growing signs of a potentially sharp economic downturn may temper the hawkish dash. Slumping confidence and floundering economic data are seeing the market question whether the Reserve Bank of New Zealand (RBNZ) will do more harm than good in its combative quest to contain soaring inflation. “Monetary policy operates with a lag: it affects confidence and then activity and then finally inflation,” said ANZ chief economist Sharon Zollner. “So by focusing on those inflation indicators, they are driving looking in the rearview mirror, which tells you there’s a fairly high chance they’ll miss the turn off and end up over tightening.”A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ’s hawkish stride to curb the highest inflation in three decades, at 6.9%, has seen rates already up 175 basis points since October.A 50 basis point rise at Wednesday’s policy review means they will have risen tenfold from a record low of 0.25%. And economists are forecasting another half a point hike in August, which would make it the most aggressive policy tightening since the official cash rate was introduced in 1999.RBNZ Governor Adrian Orr has said going early and fast remained the best path for the central bank achieving its primary inflation and employment objectives. (nP8N2VA01J)But the problem – and one that could also face other central banks such Australia and South Korea as they move further into their own hiking cycles to tamp down rampant inflation – is that the rapid shift creates a real risk of tipping the country into a recession.ECONOMY SLIPPING, CONFIDENCE HIT”More businesses are facing high costs, and more businesses — almost the same proportion — raised their prices in June so what all that points to is further intensification of inflation pressures so the Reserve Bank will continue on,” said Christina Leung, principal economist at NZIER.However, a raft of weak economic data has seen the market roll back its expectations that the central bank will follow through with its plan to double the cash rate in the next year.The latest Reuters poll has rates at 3.50% for all of next year, short of the RBNZ’s forecast in May for rates to climb to 4.00% by the middle of next year.Reflecting the shift in market pricing, three of the largest banks cut their two-year mortgage rates last week by around 30 basis points.The economy unexpectedly contracted 0.2% in the first quarter, and ANZ’s Zollner said it was a close call as to whether the economy grew in the second quarter or slipped into recession. Surging inflation – and inflation expectations – and a lack of wage growth is hurting household demand. At the same time, the once red-hot housing market is now off its highs having fallen around 9% since November with further falls expected. One survey showed business confidence has fallen to its lowest level since the start of the COVID pandemic, with two-thirds of firms expecting conditions to deteriorate, while another showed consumer confidence at is lowest in the 34-year history of the series.”The real economy has deteriorated relative to that which the RBNZ based its May rate track on,” Bank of New Zealand economists said in a note. If the central bank were to publish a full rate track this week, “there would have been considerable discussion about the possibility of moderating the pace and scale of the tightening cycle.” More

Hello and welcome to the working week,In this year of significant elections, the UK has the most significant election this week, but one that is only open to a few hundred backbench Westminster MPs. It is the vote to refresh the Conservative party’s parliamentary governance body, the 1922 committee.The first task for the new group of 18 backbench Tory MPs after Monday’s plebiscite will be to agree the rules for the election of their party’s new leader (ie the British prime minister). This is expected to be completed by September. A clutch of MPs have already thrown their hat into the ring, but these could be whittled down to a shortlist of two in a matter of days, according to the FT’s parliamentary team.The timetable for deciding the new PM is important and serious, with UK inflation the highest in the G7 and the country’s growth next year (if it grows at all) forecast to be the slowest, according to the IMF. There is a critical need for someone competent to guide the country through the intervening period before the general public gets to decide its government again through a general election.Also, the British summer of discontent rolls on. If anything, it is gaining momentum. Criminal law barristers will walk out again on Monday, for reasons explained in this piece from a legal insider. Further train trouble is on the cards with the unions Aslef, representing train drivers, and TSSA, representing more than 6,000 Network Rail staff, balloting for strike action. And on Friday, a ballot for industrial action closes for University and College Union members in a separate dispute over low pay, unmanageable workloads and professional respect. This could lead to further disruption for students at UK universities and colleges once this long hot summer of unrest is over.Thank you again for the comments about this newsletter. Please contact me at [email protected] or hit reply to this email.Economic dataIt is a busy week for significant economic data announcements, including inflation figures for the US, UK, France and Germany — possibly giving an indication of whether the cost of living rise is nearing a peak — plus GDP data from China and the UK.The Federal Reserve publishes its latest Beige Book on the current state of the US economy and the rate setting committees of New Zealand and South Korea’s central banks could raise their respective rates by 50 basis points. Also, Croatia is being accepted as the latest member of the eurozone group.CompaniesUS banks will kick off the American earnings season this week, with bumper results forecast thanks to the Fed’s run of interest rate increases. Analysts expect JPMorgan Chase, Bank of America and Citigroup to see growth in net interest income, the difference between what banks pay depositors and what they earn from loans and other assets.The big fear is recession. Banks are typically the hardest hit stocks during downturns. When trouble appears on the horizon, the pressure builds to increase capital reserves in case existing loans turn bad.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayItaly, May retail sales figuresTuesdayGermany, ZEW economic sentiment surveyIndia, June consumer price index (CPI) data and May industrial production figuresJapan, June producer price index (PPI) dataOpec monthly oil market reportUK, British Retail Consortium and KPMG June retail sales reportResults: Grafton Group H1 trading update, PepsiCo Q2WednesdayCanada, Bank of Canada’s monetary policy committee meets to set ratesChina, June trade figuresEU, May industrial production dataFrance, final June CPI figuresGermany, final June CPI figuresNew Zealand, Reserve Bank of New Zealand monetary policy committee meetsSouth Korea, rate-setting meetingUK, June GDP figures plus May trade and services output dataUS, June CPI figures plus Federal Reserve publishes its latest Beige Book on current economic conditionsResults: JD Wetherspoon FY, PageGroup Q2 trading updateThursdayEU, European Commission publishes its summer economic forecastsJapan, May industrial production figuresUK, Royal Institution of Chartered Surveyors monthly residential market surveyUS, June PPI dataResults: Barratt Developments trading update, Ericsson Q2, Experian Q1 trading update, Ferrovial H1, JPMorgan Chase Q2, Morgan Stanley Q2, Rio Tinto Q2 operations review, Tullow Oil trading updateFridayCanada, May wholesale trade dataChina, Q2 GDP figures and June retail sales and industrial production dataEU, May goods trade figuresIndia, trade statisticsItaly, June CPI figuresPoland, June CPI figuresUK, June company and individual insolvency figuresUS, June food services and retail sales dataResults: Bank of New York Mellon Q2, BlackRock Q2, Burberry Q1 trading update, Citigroup Q2, Svenska Handelsbanken H1, Wells Fargo Q2World eventsFinally, here is a rundown of other events and milestones this week. MondayEU, eurozone finance ministers to meet in BrusselsUK, continuation of strike action by criminal law barristers in England and Wales over cuts to legal aid. Plus, TSSA ballots more than 6,000 staff at Network Rail in a dispute over pay, conditions and job securityUK, election of members of the Conservative party’s 1922 committee, who will then rubber stamp the terms of the leadership election to decide the country’s next prime ministerTuesdayEU, ministers from 27 member states due to pass the final three legal acts required for Croatia to become the 20th member to adopt the euro currencyUK, Transport for London ends a consultation on reshaping inner city bus services following the government’s requirement for significant cost savingsUK, 12th July bank holiday in Northern Ireland, commemorating protestant King William of Orange’s defeat of the Catholic King James II at the Battle of the Boyne in 1690US, New York observes the phenomenon of “Manhattanhenge”, where the sun sets in perfect alignment with the borough’s east-west numbered streetsWednesdayFrance, Bastille Day public holiday, commemorating events at the start of the French Revolution in 1789Montenegro, National Day public holiday, commemorating date when the country’s borders were formally recognised at the Congress of BerlinUS president Joe Biden begins a Middle East tour travelling to Israel, the Palestinian territories and Saudi ArabiaThursdayGermany, delegates at a German Social Democrats conference in Hannover will discuss whether to expel former chancellor, Gerhard Schröder, from the party over his close links with RussiaIraq, National Republic Day commemorating the overthrow of the Hashemite monarchy in 1958UK, NHS publishes May waiting times for suspected and diagnosed cancer patients and Home Office publishes June EU Settlement Scheme statistics. Also, the British Open, the world’s oldest golf tournament, begins in St AndrewsFridayUK, BBC Proms music concerts begin at the Royal Albert Hall in London. Plus, the Royal International Air Tattoo, Europe’s largest air show, begins at RAF Fairford in Gloucestershire. Also, Saint Swithin’s Day when folklore says that if it rains it will rain for another 40 daysUS, Donald Trump and two of his adult children have agreed to testify in a New York state civil investigation starting today into the former president’s business practices. Also, the World Athletics Championships begin in Oregon, the first time they have been held in the USSaturdayUK, workers at the Budweiser Brewing Group’s Lancashire site, which brews Budweiser, Stella Artois, Becks, Boddingtons and Export Pale Ale, begin a 36-hour strike over pay More

US commerce secretary Gina Raimondo conceded that removing US tariffs on Chinese goods would not ease inflation in a “very significant way”, underscoring the White House’s struggle to devise an effective plan to fight high prices.The senior administration official on Sunday still lent her support to the move, on which President Joe Biden is due to decide soon. But she emphasised that its impact would probably be limited given the multitude of factors pushing up prices.“Lifting tariffs isn’t going to bring down top-line inflation in a very significant way,” she said in an interview with NBC on Sunday. “What it will do potentially is help consumers on certain . . . household goods. And so for that reason, given where inflation is, I think it could make sense to do it.”Biden has repeatedly stressed that counteracting inflation, which is running at the fastest pace in four decades, is his administration’s number-one priority, a message Raimondo reiterated on Sunday. Beyond removing Chinese tariffs, the president has also discussed a move to cancel some student loans and last month proposed a petrol tax holiday.Economists warn that many of these efforts to provide relief to households and businesses suffering from much higher costs either will have minimal effect or could in some cases make the problem worse. The White House is seeking to ease supply-related constraints as well, which have contributed in large part to the inflation surge since the onset of the pandemic. Prolonged Covid lockdowns in China have gummed up one of the world’s largest manufacturing hubs, while Russia’s invasion of Ukraine has caused spikes in the costs of energy, food and other essential commodities.In an interview with ABC on Sunday, Raimondo said it was essential for Congress to pass a bipartisan bill designed to increase the domestic supply of semiconductors, an industry that has suffered globally from severe shortages that have pushed up the price of vehicles and other industrial electronics.“We have inflation now because of lack of supply,” said Raimondo, calling the bill a “perfect example” of how to bolster capacity.The president is also headed to Saudi Arabia this week with an aim of resetting relations with a country he once called a pariah state. In an article published on Saturday, Biden lauded the kingdom for helping “stabilise oil markets with other Opec producers”.Energy prices have plummeted in recent weeks as fears of an impending recession have mounted following clear signs from the Federal Reserve that it will aggressively raise interest rates to a level that begins to constrain economic activity in order to restore price stability.Raimondo on Sunday characterised the Fed’s actions as “strong”, adding that the administration is “doing everything we know how to do” to root out inflation. More

Macky Sall, president of Senegal and chair of the African Union, speaks for many poorer nations when he says: “We will not accept that polluting countries, responsible for the situation of the planet, tell us that we are no longer going to finance fossil fuels.”Sall’s argument, increasingly familiar among leaders of poorer states sitting on large oil or gas reserves, is essentially that countries left behind by the rapid industrialisation of the richer world must be allowed to exploit their fossil fuels. To tell them not to, or to deny them financing, is humbug. Africa’s 54 countries, with about a fifth of the world’s population, are responsible for 2 to 3 per cent of cumulative carbon emissions from energy and industrial sources, according to the World Resources Institute. That drops even lower if coal-intensive South Africa is excluded. Poor countries in Africa and elsewhere have missed out on the magic of the fossil fuel-fuelled industrial revolution that, one by one, has conjured rich countries from poor ones. And though poorer nations have contributed virtually nothing to the climate crisis, they will be among the worst affected by changing weather patterns. Now they are being told they have missed the boat. Western governments, private banks and well-meaning ESG investors are, in effect, saying: we are terribly sorry but, in the interests of the planet, poor countries must leave their fossil fuels in the ground. Instead, they are told to use sun and wind to power their dreams.

African leaders are rightly calling time on this hypocrisy. Rich countries got the world into a climate mess, they say, and it is their job to get the world out of it. If that means they must become carbon negative in order to allow poor countries to do a bit of carbon-fuelled catch-up, then so be it. They must also pay for technology to help countries transition to new forms of energy such as hydrogen and new mitigation efforts such as carbon capture. After all, rich countries have been shovelling coal and guzzling oil for decades.This argument is sound as far as it goes. But it cannot go entirely unchallenged. Yemi Osinbajo, Nigeria’s vice-president and another forceful proponent of the “it’s our turn to pollute” argument, has pointed out that nearly half of Nigeria’s 210mn people have no access to electricity. The country still has a nominal per capita income of only $2,400 and a life expectancy of 55. Nigeria needs more time, he says, to use its oil and gas to bring light and prosperity to its people.But Nigeria has had 60 years to do precisely that. It began serious oil production in 1960 and has been producing 2mn barrels or thereabouts for decades. Almost all of that oil, however, was exported to rich countries, which burnt it and benefited as a result. The lion’s share of profits — rent, as economists call it — went to Nigerian elites who controlled access to the resources and the multinational oil companies that persuaded them to part with it. The same goes for other oil-producing countries whose governments have failed to transform oil into prosperity. Angola, with 32mn people but similar reserves, has squandered even more oil wealth per capita than Nigeria — no mean feat. Mozambique has Qatar-proportioned quantities of offshore gas but almost no credible plan to transform these riches into sustainable benefits for its impoverished people.

“For all the talk that exporting energy is going to make us rich, I refer you to Equatorial Guinea,” says James Mwangi, executive director of the Dalberg Group consultancy, pointing to another country whose ruling class has lined its pockets while most of its people remain poor. Certainly, if you listen carefully enough to talk of a just transition, you can just about discern the sound of elites panicking that they are going to be deprived of their rents. Mwangi argues that poor countries can do much more to cash in on opportunities thrown up by the global push towards net zero. For the just transition argument to land, countries such as Nigeria must change what they use hydrocarbons for. Instead of flaring gas, as they have done in enormous quantities for decades, they need to pipe it ashore and transform it into power for homes and industry. Aliko Dangote, Nigeria’s top businessman, has finally opened a plant on the outskirts of Lagos to transform gas into fertiliser — it’s a no-brainer and ought to have been done decades ago. If countries argue for a just transition, it needs to benefit the majority of their people through electricity, power and industrial transformation. Anything else is just hot air. [email protected] More

AIX-EN-PROVENCE, France (Reuters) – France’s business elite is grappling to live with a new more hostile political order a month after far-right and hard-left parties robbed President Emmanuel Macron’s government of its control of parliament.The country’s corporate leaders, who were gathered for an annual business conference in southern France, spent the last five years safe in the knowledge that Macron’s government could push its pro-business reform agenda largely unobstructed.Not only can Macron’s government no longer expect parliament to rubber stamp its plans, but opposition parties are impatient to wield their new power to substantially rewrite its proposed legislation.A CEO at one of France’s largest industrial companies said that they had contact with some of the new lawmakers and meanwhile were paying closer attention to legislation in the pipeline.”We are going to have to explain to a lot of new people in parliament that we are not the absolute devil and that we do some good things,” the CEO told Reuters during a break at France’s answer to the Davos forum.With the anti-capitalist France Insoumise (France Unbowed) part at its head, the leftwing Nupes alliance is particularly eager to flex its new-found muscle in parliament.The far-right Rassemblement National (National Rally) has yet to indicate how obstructive it intends to be. It also remains to be seen whether Macron’s party can win cooperation from the conservative Les Republicains.Meanwhile, memories of large-scale “yellow vest” street protests and violence in 2018 remain seared in ministers’ minds, leaving the government eager to avoid the possibility of adding a political crisis to a cost-of-living crisis.That means the government and the public finances are vulnerable to pressure to ease households’ inflation pain with costly new measures to support their incomes, said Paul Hermelin, chairman of French IT consultancy Capgemini.”Let’s not downplay the fact that the results of the recent elections have created a chaotic situation with a very combative leader on the left,” he said.”That can lead the government to make salary concessions in order to avoid strikes,” he said.Macron’s government has already aggressively rolled out inflation relief, most recently with a new 20 billion euro ($20.4 billion) package of measures ranging from a 4% hike in welfare and pension benefits and 3.5% salary hike for civil servants.While some companies seek to build bridges with opposition parties, others are counting on their public support eroding away as the voters who elected them come to the conclusion that their most radical promises cannot be implemented.”I told the prime minister, we are in a outlandish situation … But the French will realise the futility of what they’re being told,” the chairman of another French industrial company told Reuters.Meanwhile, other business leaders were confident that the political imperative of getting laws passed in the middle of a cost of living and energy crisis would force more radical parties to back down.”There’s parties in parliament with more drastic positions than others, and they’re just going to have to learn to be responsible,” the chairman of a major French company said.($1 = 0.9820 euros) More

COLOMBO (Reuters) -Leaders of Sri Lanka’s protest movement said on Sunday they would occupy the residences of the president and prime minister until they finally quit office, the day after the two men agreed to resign leaving the country in political limbo.Thousands of protesters stormed President Gotabaya Rajapaksa’s home and office and the prime minister’s official residence on Saturday, as demonstrations over their inability to overcome a devastating economic crisis erupted into violence.Rajapaksa will quit on July 13, while Prime Minister Ranil Wickremesinghe also said he would step down to allow an all-party interim government to take over, according to the speaker of parliament.”The president has to resign, the prime minister has to resign and the government has to go,” playwright Ruwanthie de Chickera told a news conference at the main protest site in Colombo. Flanked by other leaders helping coordinate the movement against the government, she said the crowds would not move out of the official residences of the president and prime minister until then.Though calm had returned to the streets of Colombo on Sunday, throughout the day curious Sri Lankans roamed through the ransacked presidential palace. Members of the security forces, some with assault rifles, stood outside the compound but did not stop people from going in.”I’ve never seen a place like this in my life,” 61-year-old handkerchief seller B.M. Chandrawathi, accompanied by her daughter and grandchildren, told Reuters as she tried out a plush sofa in a first-floor bedroom.”They enjoyed super luxury while we suffered. We were hoodwinked. I wanted my kids and grandkids to see the luxurious lifestyles they were enjoying.”Nearby, a group of young men lounged on a four-poster bed and others jostled for turns on a treadmill set up in front of large windows overlooking manicured lawns.ECONOMIC CRISISThe political chaos could complicate efforts to pull Sri Lanka out of its worst economic crisis in seven decades, triggered by a severe shortage of foreign currency that has stalled imports of essentials such as fuel, food and medicines.The financial meltdown developed after the COVID-19 pandemic hammered the tourism-reliant economy and slashed remittances from overseas workers.It has been compounded by large and growing government debt, rising oil prices and a seven-month ban on importing chemical fertilisers last year that devastated agriculture.Petrol has been severely rationed and long lines have formed in front of shops selling cooking gas. The government has asked people to work from home and closed schools in an effort to conserve fuel. Headline inflation in the country of 22 million hit 54.6% last month, and the central bank has warned that it could rise to 70% in the coming months. U.S. Secretary of State Antony Blinken said any government in power would have to “work quickly to try to identify and implement solutions that will bring back the prospect of long-term economic stability, address the Sri Lankan people’s discontent, which is so powerful and palpable”.”We would urge the Sri Lankan parliament to approach this with a commitment to the betterment of the country, not any one political party,” he said at a news conference in Bangkok.India, Sri Lanka’s giant neighbour which has provided support of about $3.8 billion during the crisis, said it was watching events closely.The International Monetary Fund (IMF), which has been in talks with the government for a possible $3 billion bailout, also said it was monitoring events closely. “We hope for a resolution of the current situation that will allow for resumption of our dialogue on an IMF-supported programme,” the global lender said in a statement.WHERE IS PRESIDENT RAJAPAKSA?Rajapaksa has not been seen in public since Friday has not directly said anything about resigning. Wickremesinghe’s office said he would also quit, although neither he nor Rajapaksa could be contacted.Parliament Speaker Mahinda Yapa Abeywardena said on Saturday Rajapaksa’s decision to step down was taken “to ensure a peaceful handover of power”.Constitutional experts say if the president and prime minister resign, the next step would be for the speaker to be appointed as acting president and for parliament to vote for a new president within 30 days to complete Rajapaksa’s term.Frustration with the economic crisis boiled over on Saturday when a huge crowd of protesters surged passed armed guards into the colonial-era presidential palace and took it over. Furniture and artefacts were smashed, and some took the opportunity to frolic in its swimming pool.They then moved on to the president’s office and the prime minister’s official residence. Late in the evening, protesters set fire to the private home of Wickremesinghe.Neither Rajapaksa nor Wickremesinghe were in their residences when the buildings were attacked.About 45 people were brought injured into a main hospital on Saturday, a hospital official said, but there were no reports of deaths in the otherwise peaceful takeovers. More