Aurelia Butler

BRASILIA (Reuters) – Brazilian President Jair Bolsonaro on Thursday complained that U.S. President Joe Biden ignored him at a G20 summit last year and suggested it was due to the 79-year-old’s age, as he confirmed he would attend their first bilateral meeting amid chilly relations.Bolsonaro, 67, said he will attend the Summit of the Americas hosted by Biden next month in Los Angeles, despite what he called a “freeze” in Brazil-U.S. ties since the U.S. president took office in 2021.”I met him at the G20 (Group of leading economies) and he went by as if I did not exist, but that was how he treated everyone. It might be the age, I don’t know,” Bolsonaro told reporters.Bolsonaro, a right-wing populist and open admirer of former U.S. President Donald Trump, confirmed that he will meet with Biden on the sidelines of the summit. Bolsonaro was one of the last world leaders to acknowledge Trump’s 2020 electoral defeat and has not yet met with Biden. “I was inclined not to appear. Given Brazil’s size, I cannot just go there for a photo op … I am not going there to smile, shake hands and pose for a photograph,” he told reporters.Biden sent his special adviser for the Americas summit, former Senator Chris Dodd, to Brasilia on Tuesday to convince Bolsonaro not to skip the bilateral meeting.Bolsonaro said he told Dodd about the change in the behavior of the United States towards Brazil when Biden took office.”With Trump things were going very well. We had agreed on many things to do here in Brazil”, he said, without giving details.Presidents of Argentina and Mexico have previously said they will not attend the summit, in solidarity with left-wing governments in Venezuela and Cuba that were not invited.Mexico’s President Andres Manuel Lopez Obrador said on Thursday he would reflect and probably make a final decision on Friday.Relations between Brasilia and Washington remain frosty over Bolsonaro’s environmental record and his repeated attacks on Brazil’s electoral court and voting system, which he says calls vulnerable to fraud without providing evidence. More

North Sea oil and gas operators including BP have hit back at Rishi Sunak’s £5bn windfall tax on the sector, warning it was a “multiyear” assault on their profits that would “drive away investors” and cut production.Sunak turned his sights on “extraordinary” profits in the energy sector to help pay for a £15bn package to help UK households cope with rising domestic fuel bills, to the dismay of oil bosses and rightwing Tory MPs.After having repeatedly rejected Labour’s call for a windfall tax, Sunak announced a 25 per cent “energy profit levy” that will increase the rate paid by North Sea producers from 40 per cent to 65 per cent, raising £5bn this year.The chancellor caused dismay in the sector by announcing in the small print that the windfall tax would remain until December 2025 — unless oil and gas prices “return to historically more normal levels” in the meantime.“Today’s announcement is not a one-off tax — it is a multiyear proposal,” BP said. “Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.”One senior government figure said Bernard Looney, BP chief executive, was partly to blame for the move, after he said this month that a windfall levy would not affect his company’s investment plans. The government official argued that Johnson felt he could no longer hold the line against a windfall tax after the BP boss’s comments. “It was a game-changer.”Meanwhile the chancellor also said he was considering “appropriate steps” to target “extraordinary profits” made by electricity generators. A windfall tax on that sector could bring in a further £3bn-£4bn.Kwasi Kwarteng, business secretary, was among the senior Tories to oppose a windfall tax, while one Tory MP, Richard Drax, said Sunak was “throwing red meat to socialists”.

Sunak had previously said that he was determined to start cutting taxes and bear down on the deficit, but his £15bn energy relief package was funded by higher business taxes and £10bn of additional borrowing.Labour claimed that Sunak had stolen its ideas. However, the chancellor expects to raise more than twice as much as the £2bn proposed by Labour via a windfall tax and he has offered twice as much support to households.Sunak was determined to ease the pain of households facing a £800 rise in the energy price cap — the average maximum amount paid by a household — in October, when bills are expected to hit £2,800. The chancellor made a £6bn “universal offer” to all households. He replaced a proposed £200 one-off repayable discount to energy bills with a £400 grant, which will not have to be repaid.Economists said the conversion of the repayable loan into a grant to households worth £6bn would force the government to borrow even more, because it would no longer claw back the money over five years.Most of Sunak’s support went to the poorest, including a £650 one-off cost of living payment to 8mn households already receiving state benefits, at a cost of £5bn.Pensioners will receive an extra £300 winter fuel payment costing £2.5bn, while disabled people will get a £150 additional payment costing £1bn. Sunak said the most vulnerable households would receive an extra £1,200.Sunak insisted that a “pragmatic and compassionate” Conservative government was obliged to help vulnerable people and he defended the windfall tax. Shell said Sunak’s proposed tax relief on investments was “a critical principle in the new levy” but stressed the “importance of a stable environment for long-term investment”.Sunak said a Tory chancellor had to be “fiscally responsible” and if more spending was required he had to “fund as much of it as possible in as fair a way as possible”, rather than adding to borrowing and fuelling inflation.Although cutting energy bills could reduce the peak rate of inflation later this year, this large stimulus was seen as inflationary at a time when unemployment is at a near 50-year low.Samuel Tombs of Pantheon Macroeconomics described the package as “hefty” and said it gave the Bank of England more reason to raise interest rates this year. More

KARACHI, Pakistan (Reuters) -Pakistan on Thursday announced it will hike fuel prices so that it can resume receiving aid from a $6 billion package signed with the International Monetary Fund (IMF) in 2019, the country’s finance minister said.Prices will rise by 20% starting Friday, causing long lines to form at filling stations as the news spread. The new price of petrol will be 179.86 rupee per litre and diesel will be 174.15 rupee, said the minister, Miftah Ismail, in a tweet. Reuters reported earlier on Thursday that the IMF and Islamabad had reached a deal to release over $900 million in funds, once Pakistan removed the fuel subsidies and hiked prices, according to a Pakistani source directly involved in talks in Qatar. “When we raise fuel prices, the deal will be done. We have worked out the outlines of a deal,” the source said in a text message after the end of the talks in Doha.The price hike has been the main issue between Pakistan and the IMF as part of an agreement to withdraw subsidies in oil and power sectors to reduce the fiscal deficit before the annual budget is presented next month. Ousted Prime Minister Imran Khan had given the subsidy in his last days in power to cool down public sentiments in the face of double-digit inflation, a move the IMF said deviated from the terms of the 2019 deal.In addition to the $900 million, if IMF clears the seventh review as a result of the talks, it will also unlock other external financing for the cash-strapped South Asian nation, whose foreign reserves cover less than two months of imports. About half of the funds out of the $6 billion deal are yet to be released, and it is not clear when the IMF review would take place. BACK ON TRACKThe IMF has said that a considerable progress had been made in the talks, but emphasized the urgency of Pakistan removing fuel and energy subsidies to get back on track. The IMF representative in Pakistan did not immediately respond to a Reuters request for comment. Pakistan’s new government, which took charge in April, has been reluctant to remove the fuel price caps. The Pakistan government convened a joint session of parliament on Thursday to discuss the economic situation after the talks, according to an order seen by Reuters. Pakistan’s consumer price index rose 13.4% in April from a year earlier. A removal of fuel subsidies would likely have political consequences for the new coalition government, with elections expected within 16 months. More

All of the Fed’s policymakers agreed to hike interest rates by half a percentage point at the May 3-4 policy meeting to counter rampant inflation and most participants said further hikes of that magnitude in June and July could be appropriate.But the minutes also showed the Fed grappling with how best to reduce inflation without causing a recession or pushing the unemployment rate substantially higher – a task that several participants said would prove challenging.The central bank would likely pause its tightening in September, leaving its benchmark overnight interest rate in a range of 1.75% to 2% if financial conditions worsened, BofA strategists said in a note.”We have recently seen a tenuous but remarkable change in Fed communications, where some Fed officials suggest the option of downshifting or pausing later in the year as they reach 2% given the challenging macro backdrop, tightening of financial conditions, and potentially softening inflation,” they said.Inflation, by the Fed’s preferred measure, is currently running at more than three times the central bank’s 2% target.Fed funds futures traders on Thursday were pricing in 50-basis-point rate hikes at each of the central bank’s June and July meetings and another 25-basis-point hike in September.While noting that it was not its base case scenario, BofA said the central bank may see a federal funds rate at 1.75%-2% as providing “a normalization of policy which then offers an opportunity to pause and assess the impact on jobs and inflation.”A pause in tightening could lead to lower rates across the U.S. Treasury yield curve, the strategists said.The benchmark 10-year U.S. government bond yield hit its lowest level since April on Thursday. It has fallen from 3.2% on May 9, as the bond market sees the economy slowing and expects inflation to lose momentum.Other analysts, however, do not see the Fed as having shifted to a more dovish stance.Strategists at TD Securities said they expected the central bank to hike rates above the neutral rate, the level which neither stimulates nor constricts economic growth, but at a more gradual pace after the June and July policy meetings. Fed policymakers estimate the neutral rate to be roughly between 2% and 3%.”The views expressed in the minutes are about all they could say at the start of an aggressive tightening cycle where no one really knows how far rates have to go,” investment bank Brown Brothers Harriman said in a note.”The Fed is facing a very complicated situation and so is trying to burnish its hawkish credentials while trying not to pre-commit to any rate path”, it said. More

In his brief statement to the House of Commons on the UK’s cost of living crisis, Rishi Sunak managed to alleviate two economic problems, but at the cost of aggravating a third.The good news is that his actions are likely to lower the peak rate of inflation this year and will help UK households deal with immediate cost of living problems. But they will also deliver the hottest of inflationary potatoes straight into the lap of the Bank of England. The chancellor also left hanging huge questions over what will happen to support for households next year. The first effect of the measures is likely to be mechanical, reducing the expected increase in inflation, and potentially avoiding the dreaded rise above 10 per cent this autumn. If household energy bills rise to roughly £2,400 a year on average rather than the £2,800 level Ofgem this week said was likely, inflation is not likely to rise as high as previously expected. This is not certain because the Office for National Statistics has not announced whether it will classify the support as a rebate, which would limit the rise in inflation, or as support for income, which would have no impact on the measured inflation rate. Although this difference is mostly semantic — since a rebate and income support both make households better off to the same extent — most economists think the ONS will rule that the package will lower the rate of inflation. Ben Nabarro, chief UK economist at Citi, said he expected the £400 rebate to reduce the peak inflation rate in October by 1.3 percentage points from where it would otherwise be. He said this would mean that “consumer price inflation would peak at an annual rate of 9.5 per cent” and retail price inflation at 11.5 per cent. This would lower the cost of servicing the government’s £500bn of debt, which is linked to RPI. But while households will be helped by the universal support, alongside more targeted assistance for those on means-tested benefits, pensioners and the disabled this financial year, economists noted that on average households would still be worse off.Paul Dales, chief UK economist at Capital Economics, estimated that average real household disposable income would now drop by 1 per cent in 2022, although this is an improvement on the 2 per cent drop expected before the chancellor delivered his statement. The big question is whether the package will increase consumer spending and encourage companies to raise prices, which would fuel inflation next year, leaving households ultimately no better off at all.An aide to the chancellor accepted that the stimulus offered by the package might be seen as inflationary, but said the net support was not that large. Instead, Sunak passed the difficult job of controlling the level of inflation to the central bank. “I know the governor and his team will take decisive action to get inflation back on target and ensure inflation expectations remain firmly anchored,” he said.

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Economists agreed that Sunak’s actions would act as a stimulus, making it more likely that the BoE would raise interest rates faster and further than previously expected, but they disagreed on the extent of the monetary tightening needed to offset this fiscal boost. Kallum Pickering, senior economist at Berenberg Bank, described the chancellor’s package as “misguided” because it “will add to demand at a time when private wages are surging . . . and most households have excess savings accumulated during lockdowns”.“Keep this up and, eventually, the BoE will be forced to bring inflation under control by raising rates well above neutral and triggering a recession,” he added. But Robert Wood, chief UK economist at the Bank of America, said the package would require the BoE only to impose “modestly higher interest rates” because tax revenues were also rising unexpectedly quickly. Nabarro, who also thought the package would put only marginal pressure on the central bank to raise inflation, said hints of further tax cuts in the autumn Budget were more worrying in terms of the likely impact on interest rates. “The question now is whether the Chancellor comes back for more before the end of the fiscal year. This seems increasingly plausible”, he said. Economists also disagreed on the exact level of stimulus that Sunak had delivered. He told the House of Commons that the package would cost £15bn, offset by a £5bn windfall tax on North Sea profits. But some economists said the chancellor underestimated the total stimulus in his package because he failed to count the scrapping of his February plan to claw back £40 a year over five years from a £200 loan to help households pay their energy bills.Sandra Horsfield, economist at Investec, said: “The true fiscal support now relative to what was put on the table in February [is] some £5bn higher [than £15bn].”The chancellor could plausibly claim that in future the windfall tax will continue to raise roughly £5bn a year until its sunset clause is activated at the end of 2025. He said that would happen only if energy prices remained high, although he failed to specify the price threshold at which the tax would be phased out. The chancellor himself noted that the problem of inflation was becoming more broad-based, with price rises exceeding 3 per cent in four out of five categories of goods and services. As a result, economists and financial markets now expect interest rates to be significantly higher. Allan Monks, chief UK economist at JPMorgan, said the package would help “steer the economy away from recession,” in the short term, but would come at a price of interest rates higher than the current 1 per cent rate. “That would imply the BoE keeps on hiking at every meeting until November, taking rates up to 2 per cent by year end and then up to 2.75 per cent by next August,” he said. More

Rishi Sunak, the UK chancellor, has bowed to pressure and announced a £15bn package of measures to help households struggling with energy bills, funded by a windfall tax on oil and gas producers. More help will be directed to those on the lowest incomes, but the government has also looked to help the “squeezed middle”, with a range of universal and targeted measures. FT Money offers a guide to what assistance is available. What new help has been announced this week? All UK households with an electricity meter will receive a one-off grant of £400, which will be automatically applied to bills from October and does not need to be repaid. This replaces previous plans for a £200 “heat now, pay later” scheme that would have been clawed back over five years. More than 8mn households on means-tested benefits (including universal credit, tax credits and pension credit) will additionally be eligible for a one-off £650 “cost of living payment” to be paid in two stages: the first in July and the second this autumn. The Department for Work and Pensions and HM Revenue & Customs will make these payments directly. The money is tax-free, will not count towards the benefit cap and will not have any impact on existing benefit awards. What extra help will pensioners receive? More than 8mn pensioner households that receive the winter fuel payment will additionally receive a one-off £300 “pensioner cost of living payment” this winter that will be paid directly to them. This will be per household, not per pensioner, and will be paid on top of any help they are already entitled to, such as pension credit or disability benefits. It is not taxable and does not affect eligibility for other benefits. In his speech, the chancellor recognised that not all households that were entitled to claim pension credit were doing so. If you are unsure of your entitlement, use the government’s checking tool gov.uk/pension-credit/eligibility.What about those with disabilities?A separate £150 “disability cost of living payment” will be made in September to people who already receive benefits, including disability living allowance, the personal independence payment and attendance allowance. The government said this was to reflect additional costs, such as powering specialist equipment and increased transport costs. Some disabled people will also be entitled to the main £650 cost of living payment — but only if they are on means-tested benefits, which has prompted criticism from campaigners. “The Tories have now given disabled people a one-off £150 payment for the cost of living crisis — having removed many disabled people’s annual £150 Warm Home Discount,” Dr Frances Ryan, the author and disability rights campaigner, said on Twitter. “You’ve almost got to respect the nerve.”When will the £150 council tax rebate be paid? In England, all properties in council tax bands A-D are entitled to a £150 rebate on top of the measures announced today. Many local authorities have already made this in the form of a reversed £150 direct debit, but households that do not pay by direct debit will have to apply to their local council to receive it. Households that do not qualify for this and other benefits can additionally apply for a share of their local authority’s Household Support Fund for help with the rising cost of food, energy and water bills. On Thursday, the chancellor announced a further £500mn of funding. I don’t need this money. Can I opt out? It is not possible to opt out of the winter fuel payment, pensioner cost of living payment or £400 grant applied to energy bills — but you could donate it to charity. The #donatetherebate campaign on social media shows that many people are donating to fuel poverty charities such as Fuel Bank Foundation and National Energy Action, as well as local food banks — and eligible taxpayers can boost the value of their donation by adding Gift Aid. More

The writer is professor of finance at the Shanghai Advanced Institute of FinanceRecent swings in global financial markets have occurred partly because the market is unsure of the direction of post-Covid economic policy in the US and China. While inflation is probably the most daunting challenge facing the US Federal Reserve, growth has become the focal point of the People’s Bank of China’s deliberations. Given that “stability” is the keyword for China’s economic policy in 2022, some investors have been surprised that the PBoC’s monetary policy has not been as active as they might have hoped. And such sentiment has grown stronger after a number of Chinese cities went into lockdowns of varying degrees of severity in response to the spread of the Omicron variant of Covid-19. Earlier this week, China’s premier, Li Keqiang, warned that the world’s second-largest economy could struggle to record positive growth in the current quarter. “We will try to make sure the economy grows in the second quarter,” he said. “This is not a high target and a far cry from our 5.5 per cent goal.”Some argue that the slowdown of the Chinese economy is so alarming that aggressive monetary easing aimed at stabilising growth at all costs is urgently needed. In fairness to the central bank, the art of balancing multiple policy objectives has never been easy, even in a “normal” economic environment and calmer market conditions. The PBoC faces a range of challenges, from stabilising the renminbi exchange rate overseas to pushing forward with financial reform domestically. Such objectives do not always align well with each other and may even come into conflict from time to time. If anything, Covid has made the central bank’s balancing act even more delicate. On the one hand, the pandemic-induced economic slowdown, coupled with China’s continuing transition to a more sustainable growth model, poses a challenge to the PBoC as it seeks to maintain growth and ensure employment. On the other hand, surging inflation is forcing central banks around the world to taper stimulus programmes and raise interest rates much faster than previously expected. Such moves by its international counterparts limit the PBoC’s room for manoeuvre. Further easing may lead to a weakening of the renminbi. While a weaker yuan would probably help China’s export and trade balance, it would also make it less attractive for foreign investors to hold yuan-denominated assets. Domestically, a strong dose of monetary easing may achieve the desirable goal of boosting short-term growth. But it would risk inflating stock and housing bubbles. To make things more challenging still, it is not certain that further monetary easing would even achieve its intended goal. The effects of previous rounds of stimulus dissipated quickly and failed to turn around the tepid demand in borrowing in the real economy, especially by small and medium-sized enterprises. Covid did not cause many of the problems in the Chinese economy — but it did make them more acute. Many of the difficulties the PBoC faces can be traced back to the Rmb4tn fiscal stimulus programme of 2009. House prices and debt levels have since climbed sharply, with echoes of the credit-fuelled economic boom and bust in Japan in the late 1980s and in the United States before the global financial crisis. What would have helped in the US and Japan back then, and what the PBoC needs to focus on today, is better expectation management. The deeply rooted and widespread belief that the Chinese government will always do whatever it can to guarantee breakneck growth and rapidly growing asset prices has itself become a serious risk. The irresponsible borrowing, aggressive investment, surging housing prices and leverage that followed the 2009 stimulus subsequently constrained the PBoC’s ability to act during the Covid pandemic. Chinese leaders have expressed concern that an overly optimistic mentality could eventually lead to financial crisis and systemic risks. And such worries may also be tying the PBoC’s hands when it comes to rolling out more aggressive monetary stimulus in response to recent lockdowns. In the PBoC’s defence, China’s broader economic policy arguably already took an important, if subtle, turn well before the pandemic struck. With policy priorities transitioning from the old high-speed growth model to a more sustainable, inclusive and ecologically friendly high-quality model in the future, it should probably come as no surprise that Beijing’s monetary policy would adjust accordingly. More