Aurelia Butler

LISBON (Reuters) – The new instrument being designed by the European Central Bank will show its determination to fight the risk of bond market fragmentation, but there will be no goal for specific yield spreads, governing council member Mario Centeno said on Friday.The ECB agreed at an emergency meeting last week to create a new tool to contain divergence in borrowing costs, after yields rose on government bonds issued by indebted countries in the bloc’s south, widening their differential with low-risk Germany.Centeno said the new instrument will “fight the risks of fragmentation” as monetary policy is gradually normalised, but that “there is no single typology of indicators to measure the materialization of fragmentation”.”There is no goal regarding specific yield spread values,” he told reporters.Centeno said the risks of fragmentation had to be dealt with “in their genesis and not afterwards” and that the instrument “will certainly demonstrate the determination of the euro system and the council of governors in containing these risks”.The spread between 10-year Portuguese bonds and German Bunds, hit more than 140 basis points before the ECB’s announcement last week but had shrunk to around 108 basis points on Friday.In January 2012, at the height of the euro zone debt crisis, Portugal’s 10-year yield reached around 18% and its spread against Bunds soared to over 1,500 basis points.The ECB plans to raise interest rates by 25 basis points in July, its first increase in over a decade, and again in September, when the rise could be larger if inflationary pressures do not ease.Euro zone inflation hit a record-high 8.1% last month. Centeno said inflation in Europe has an important component imported from the United States, “where the inflationary phenomenon happened earlier”.”The U.S. economy recovered pre-pandemic demand levels in the summer of 2021, in Europe this has not yet happened,” he said, citing “wage pressures, which are not felt in Europe”. More

One of the most frustrating aspects of America’s Ukraine debate is its degree of self-deception about global unity. The assumption is false. Vladimir Putin is hated and feared by most of the west, just as Volodymyr Zelenskyy is lionised. But the west has not been joined by most of the rest. When Indonesia hosts the G20 summit in November, Putin will be there in spite of Washington’s demand that Russia be expelled. Only four out of 55 African leaders attended Zelenskyy’s virtual address to the African Union, which had finally agreed he could speak to them after 10 weeks of asking. Not every summit is a western movie festival, where Zelenskyy has become a staple. And not everyone shares the US foreign policy establishment’s view that Putin is waging an existential war on democracy. I do not need convincing of the dark consequences of Putin’s late imperial agenda, nor of the necessity that he fails. But I’m not an Indian diplomat, an African consumer, or a Latin American energy importer. The west is not the world, and the world is not the west. It is astonishing such a truism has to be emphasised. Here is rule number one of my unwritten primer on global diplomacy: Avoid navel-gazing. Good diplomacy sees things from other points of view and takes them into consideration. I fear that the US and the west in general are missing a big underlying reality in the global reaction to Putin’s barbarism: the Ukraine war is boosting demand for a multipolar world, which is very different to what we have been telling ourselves. Most of the non-west craves strategic autonomy. They may be upset by the images from Bucha and Mariupol, just as we are troubled by footage of ethnic cleansing in Myanmar or bombed out cities in Syria. That doesn’t mean they will suspend their interests to stop it from happening, any more than we do when others cry out for help. To much of the world, Ukraine is just another humanitarian tragedy. The fact that the west sees it as existential is an irritation. Africans and Arabs and Latin Americans know that when there is a clash between US ideals and interests, the latter generally win. We should be wary of judging those who make similar trade-offs.The world feels the Ukraine war primarily in two ways — higher food and energy prices. Following a pandemic in which emerging market growth collapsed and in which their debt to GDP ratios soared, inflation in basic staples is the last thing they need. If you add in rising US interest rates, we have the makings of the next emerging market payments crisis and rising political instability. We cannot blame countries such as India and Brazil for buying discounted Russian oil. Nor should we be surprised that there are plenty of takers for Russian grain. The fact that Putin is both blocking Ukrainian grain exports, and stealing what he can get his hands on, is a brutal reflection on Moscow’s ethics. But it does not alter others’ calculation. Hard economics trumps gauzy moralism. Joe Biden, after all, is about to travel to Saudi Arabia to press it for more oil production. This rips up two supposedly core tenets of Biden administration — reducing fossil fuels and shunning pariah autocracies. The west’s speedy decoupling from Russia is bumping up against geopolitical limits. Countries such as China and India are helping create alternative payments systems and transportation routes for Russian commodities. They are also blocking western attempts to eject Russia from the multilateral system. The west’s best response to this would be to provide the kind of largesse to emerging markets on which China has long since taken the lead. Washington ought to spearhead efforts to boost global food security, arrange emerging market debt restructurings, and license Covid vaccine production (or better still, suspend patents) around the world. If we want the rest to follow us against Russia we must pay attention to what they want. Telling ourselves repeatedly that we are in a war of light versus darkness in which there is no middle ground is not a diplomatic strategy. Rana, do you share my frustration with western navelitis? If so, what is your cure?Recommended reading I nevertheless took an ethical stance this week on my column about whether Donald Trump will be prosecuted (which I believe he should be). The January 6 hearings may not have revolutionised US public opinion, but they have given the US attorney-general, Merrick Garland, a lot more ammunition. “It’s a small step from believing in the stolen election myth to swallowing even darker ones,” I write. “If people can deny what happened 18 months ago, how easy would it be to convince them that slavery, for example, was a lie?” Some Swampians may have missed my Lunch with the FT with Hillary Clinton, which caused a stir. You’ll have to read it to find out why.Biden is still not able to catch a break — and the chatter around whether he will or can run again in 2024 is getting louder. This New York Magazine piece by Gabriel Debenedetti — “There has to be a back-up plan. There is a back-up plan, right?” — is a comprehensive look at all the fraught scenarios. Finally, our colleague, Martin Wolf, made a robust defence of globalisation, and basic economic logic, in his latest column — “The big mistakes of the anti-globalisers”. My one quibble is that he did not address global warming in this grand tour d’horizon. Rana Foroohar responds Ed, I find myself in somewhat rare disagreement with you. I don’t think US policymakers are at all naive about the fact that we are heading towards a multipolar world. Indeed, it’s the working assumption of almost everyone I speak with. The sort of rhetoric that you are referring to, about light and dark, good and evil, is what I think of as political PR — the stuff of speeches for the masses. Behind the scenes, the US trade representative is crafting a multipolar world trade policy (as I’ve written about here). Treasury secretary Janet Yellen is acknowledging that the Bretton Woods institutions are outdated for a multipolar world. Financial policymakers are grappling with a new multipolar world of finance. And everyone I know in Washington and the C-suite is trying to understand how a multitude of both public and private actors from various countries, cities and communities will engage, often as equals, in this new world. How many poles there will be and who will lead them is certainly up for grabs. But I wouldn’t confuse rhetoric with policymakers’ understanding of reality. Your feedbackAnd now a word from our Swampians . . . In response to ‘Can we ever rouse people about global warming?’:“The reality of the world is that selfish, rich, white men are still in charge. To get anything big changed requires motivating them. Decades of experience tell us that they are not motivated by tales of endangered animals or displaced poor people.To solve this, find something that they do care about that will be affected by climate change. Perhaps its golf — the original course at St Andrews is coastal: is golf still golf if that history is eroded by rising sea levels? Perhaps it’s the major sports — are baseball and football still real if they can only be played indoors or in Alaska?” — Phil Willoughby, Seattle, Washington“Your observation that sacrifice is not on anyone’s agenda does not only apply to the US. Beyond fringe groups it is not on anybody’s mind in the EU either. One reason is, I believe, that outside of war, managing sacrifice is not the strong suit of democracies. The challenge is to distribute pain equally throughout society so that citizens perceive their own share of pain as fair relative to the one of others. It’s somewhat akin to creating a fair tax system, only with the added difficulty of applying it to a shrinking instead of a growing cake.” — Arne Baumann, Berlin, Germany More

Continental was unable to deliver its connected navigation and entertainment systems to a Citroen plant in Rennes, one of the sources said. The other said a Peugeot (OTC:PUGOY) plant in Sochaux was halted because Continental had not delivered touch screens.Continental declined to comment. Its shares opened flat on Friday morning. French business paper La Tribune first reported the news on Friday morning. A Stellantis spokesperson said the group would not comment on individual suppliers and reiterated that current stoppages at both plants were related to bottlenecks in semiconductor supply.Stellantis said on Wednesday that both plants would be stopped until next week. The group will also stop operations at its Melfi plant in southern Italy from late June 28 to July 2 due to a “structural” shortage of semiconductors.The sources could not say at what point in the supply chain disruptions began, whether it was an issue with Continental’s production or because of another supplier’s problems. More

Investing.com — Wall Street heads for a positive close to the week, snapping a three-week negative run, ahead of the release of the widely-watched Michigan consumer sentiment index. EU leaders continue their summit amid economic difficulties, Boris Johnson faces political woes in the U.K., and the crude market looks forward to next week’s OPEC+ meeting. Here’s what you need to know in financial markets on Friday, June 24.1. Investors digest Powell’s comments; Michigan sentiment dueInvestors will take this final day of the week to parse through Federal Reserve chairman Jerome Powell’s testimony to Congress, while studying the latest data on the state of the U.S. economy.Powell made clear the central bank’s commitment to reining in soaring inflation, calling it “unconditional”, even acknowledging that the sharply higher interest rates needed to do so may push up unemployment and increase the risks of a recession.Economic data due Friday includes new home sales for May, at 10:00 AM ET (1400 GMT), which is expected to show a slight slowdown, and the Michigan consumer sentiment index for June.Analysts expect the June Michigan number to be 50.2, which would be in line with the previous month. Earlier in the day, the German Ifo business sentiment index dropped in May as rising energy prices and the threat of gas shortages unsettled businesses in Europe’s largest economy, and U.K. consumer confidence dropped to a record low.2. EU summit continuesThe European Union leaders continue their summit Friday, a day after they took the historic decision to grant Ukraine, as well as Moldova, candidate status on the path to membership of the bloc.With that potentially thorny issue out of the way, the conversation is likely to turn more towards the economic situation the bloc finds itself in, with inflation soaring and the likelihood of a recession rising.Comments from Luis de Guindos, Vice-President of the ECB, at 09:30 AM ET (1330 GMT), will be carefully studied after the policymakers at the central bank paved the way for an interest rate hike next month.A poll by Reuters showed all but two of the 55 economists expected the ECB to deliver a quarter-point raise on July 21 to -0.25%, and 50 of 55 expected it to hike its policy rate by 50 basis points in September, taking the deposit rate out of negative territory to 0.25%.3. Stocks set to open higher; FedEx Impresses U.S. stock markets are set to open higher Friday, set to record a rare positive week during these turbulent times.By 06:00 AM ET (1000 GMT), Dow Jones futures were up 215 points, or 0.7%, while S&P 500 futures were up 0.8% and Nasdaq 100 futures were up 1%. All three cash indices are on course to snap three-week losing streaks, with the blue-chip Dow Jones Industrial Average up 2.6% so far this week, the broad-based S&P 500 3.3% higher and the Nasdaq Composite up 4%.Stocks likely to be in focus include FedEx (NYSE:FDX), after the transport company, widely regarded as a bellwether of the online shopping and remote economy in general, impressed with its quarterly earnings after the close Thursday. Carnival (NYSE:CCL) will also report its latest quarterly earnings, amid signs summer travel is picking up. 4. Johnson’s leadership in question after U.K. by-election defeatsThe problems facing British Prime Minister Boris Johnson are mounting, with his Conservative Party losing two by-elections overnight as voters turned against his party, including a swing of nearly 30% in a previously safe seat in southeast England.The results prompted Conservative Party co-chairman Oliver Dowden to resign from the role with immediate effect, stating that “someone must take responsibility”, a line which could be seen as a dig at Johnson’s leadership just a few weeks after he survived a vote of no confidence in the wake of the ‘Partygate’ scandal.Johnson’s political success has been based on his popularity in his party’s heartlands, but these results indicate that may be waning as surging prices, a squeeze on incomes, and disruption from strikes take a toll on the national mood.Additionally, U.K. retail sales volumes dropped by 0.5% in May, according to data from the Office for National Statistics. The decline was mainly due to slowing food store sales, which fell by 1.6% during the month, a sign that inflation concerns may be taking a bite out of consumer demand.5. Oil set for weekly fall; OPEC+ meets next weekCrude oil prices rose with risk sentiment on the up Friday, but the market is heading for its first back-to-back weekly loss since early April on fears that aggressive monetary tightening will slow global growth, weighing on demand.By 06:00 AM ET, U.S. crude futures were up 1.3% at $105.58 a barrel, while Brent crude was up 1.1% at $111.28 a barrel. Both benchmarks are on course for weekly losses of over 2%Attention will quickly turn to the meeting of the Organization of Petroleum Exporting Countries and allies next week to discuss the group’s production levels.The cartel, known as OPEC+, is widely expected to stick to its plan to boost output by 648,000 barrels a day in July and by the same amount in August, despite the plans of U.S. President Joe Biden to visit Saudi Arabia, the de facto leader of the group, to plead the case for lower crude prices. More

The Ifo institute said its business climax index dropped to 92.3 following a reading of 93.0 in May, when the closely watched indicator posted a surprise recovery despite the economic impact of the Russia-Ukraine war.A Reuters poll of analysts had pointed to a minimal fall in June to a reading of 92.9.”Despite increased uncertainty, there are no signs of a recession at the moment,” Ifo expert Klaus Wohlrabe told Reuters. “However, the threat of a gas shortage has significantly increased uncertainty among companies.”Not all sectors were suffering equally, as manufacturing and trade took significant hits while there was clear improvement in a services sector no longer encumbered by COVID-19 lockdowns, the data showed.However, supply bottlenecks – which are slowing down carmakers, for example – have eased only minimally and high inflation continued to suppress consumer spending, Wohlrabe said. More

Shares in Zalando plunged by almost a fifth on Friday after Europe’s largest online fashion retailer slashed its outlook for the year as consumers retrench amid deepening recession fears.The Berlin-based company warned that revenues may not increase at all this year following a much weaker than expected second quarter, an abrupt reversal from just four months ago when Zalando forecast growth of 12 to 19 per cent.In a bleak warning issued after markets closed on Thursday, Zalando said that “management now expects macroeconomic challenges to be longer lasting and more intense than previously anticipated.” Its hopes of a “rebound in consumer confidence in the short-term,” had been dashed, the group added.The acknowledgment from Zalando, which was among the beneficiaries as the pandemic forced more shoppers online over the past two years, is one of the starkest signs yet of the toll higher inflation is taking on consumers.While Zalando still expects to be profitable, its predicament is a sharp contrast to the benign backdrop it has enjoyed since going public in Frankfurt in 2014.Since its listing in Frankfurt, Zalando had trumpeted its annual revenue growth of 25 per cent. Last year, buoyed by the pandemic, its revenues surged 30 per cent.However, even before Thursday’s warning, Zalando’s shares been under pressure, making it the worst performing member of Germany’s Dax 40 blue-chip index, as investors anticipated that shopping habits adopted during the pandemic may not last. Friday’s fall takes the group’s shares below its 2014 IPO price of €21.50. After peaking at €26.4bn in July 2021, its market capitalisation has collapsed to roughly €6bn. The shares fell as much as 17 per cent to €21.10 on Friday before recovering somewhat to trade down 15 per cent.The darkening outlook from Zalando also hit the shares of UK-listed fashion retailers Asos and Boohoo, who have already been hit by a combination of a reversion to pre-pandemic shopping habits, higher costs and squeezed consumers.Asos shares were down 4.5 per cent and Boohoo’s were 3.6 per cent weaker in early trading in London. Like Zalando, the companies have also had to grapple with more competition, notably from China’s Shein.Zalando expects operating profits of just €180mn to €260mn for the year, well below its prediction from earlier in the year. However, that forecast is based on a “significant improvement in profitability in the second half of 2022”, the company said, adding that it had embarked on a cost-cutting plan. In the second quarter it lowered its marketing expenditure, cut infrastructure investments and introduced minimum order volumes in 15 countries.According to analysts at Deutsche Bank, the company’s new guidance implies that its full-year earnings will be some 90 per cent lower than previously expected.The analysts remain positive on Zalando in the long run, cautioning investors not to “throw the baby out with the bathwater” as Zalando was “a quality asset with realistic earnings expectations at a cheap valuation”.“While this new environment is creating a negative impact on our financial performance, our strategy and long term goals are unchanged,” said co-chief executive Robert Gentz.With reporting by Jonathan Eley in London More

Beijing and Canberra should reset their relations following the election of a Labor government, China’s envoy to Australia said in a rare public speech that was interrupted repeatedly by human rights protesters.Xiao Qian, who was appointed China’s ambassador in January, was questioned on the fraying of ties between two countries, trade tariffs and the plight of Australian citizens detained in China after addressing an audience at the University of Technology Sydney on Friday.The ambassador said the election of Anthony Albanese’s government provided an “opportunity for a possible improvement for bilateral relations” following a tense period between the Asia-Pacific countries. But protesters condemned the university for hosting Xiao and interrupted his reception on eight separate occasions to express anger and dismay over the Chinese government’s policies towards Hong Kong, Tibet and Xinjiang. One protester dressed in a Chinese Red Guard uniform was refused entry while other demonstrators were removed from the hall after holding up signs or shouting at Xiao.Drew Pavlou, an anti-Chinese Communist party activist, said Xiao — whose speech was carried by national broadcaster ABC — had been given a platform to defend Beijing’s actions.“This was basically a whitewashing exercise,” Pavlou told the Financial Times. “I struggle to understand why they are not treated as pariahs. You would never ever expect the Russian ambassador to have the red carpet rolled out like this.” Tensions between the countries rose in recent years after Australia banned the use of Huawei and ZTE equipment in 5G networks and former prime minister Scott Morrison called for an independent investigation into the origins of Covid-19, triggering a furious reaction from Beijing. Xiao described the Huawei ban as “the first shot that damaged our normal relations”.China responded by imposing punitive tariffs on Australian imports including wine and barley and slapping a ban on Australian coal. The Chinese navy has also been accused of acting aggressively towards Australian aircraft in the South China Sea and close to the Australian coast.Since his election, Albanese has called on Beijing to end the tariffs and has criticised China’s military actions. His government has also moved to improve relations with Pacific Island nations to counter the growing influence of China in the region.In a sign of a diplomatic thaw, Australian defence minister Richard Marles met his Chinese counterpart Wei Fenghe in Singapore this month.

China remains Australia’s largest trading partner and Xiao said that the tariffs were “an issue of complexity”.Michael Fullilove, head of the Lowy Institute think-tank, said that Albanese needed to remain “strong on China” even as the government developed a more balanced foreign policy than the “one-dimensional” approach adopted by Morrison.“We should co-operate with China when we can, disagree when we must and always stand our ground,” he said.Fullilove added that a Lowy Institute poll due to be published this month showed that the number of Australians who trusted China had dropped to 12 per cent this year from 16 per cent last year, and 52 per cent four years ago. More