Aurelia Butler

DAVOS, Switzerland (Reuters) – The World Bank’s investment arm has continued disbursing funds to some private firms in Ukraine despite the war there and is looking to finance efforts to re-orient the country toward “greening” its economy, the head of the unit said on Wednesday.”In spite of the war, we have continued disbursing to some companies,” Makhtar Diop, managing director of the International Finance Corp, said on the sidelines of the World Economic Forum in Davos. “And so our commitment has been sustained.”Diop, who last year became the first African to run the World Bank’s private-sector unit, also told Reuters in an interview that the IFC was keen to arrange capital for companies that can help pivot Ukraine’s financial sector from its “energy intensive” focus. IFC is working with “a lot” of small-to-midsize businesses and “three or four” banks to push that effort ahead, he said.Last week, the World Bank said it would make $30 billion available to help stem a food security crisis threatened by Russia’s war in Ukraine, which has cut off most grain exports from the two countries. The IFC is looking to augment that with private-sector financing but is still working to set up the platform for doing so, Diop said.Diop also said IFC was looking to develop a regional approach for financing that would make capital available not just to clients in Ukraine but in its neighbors that have also been affected by Russia’s Feb. 24 invasion, particularly by the flow of refugees over Ukraine’s borders. His team is preparing a proposal for board approval.”In spite of the real risk … we are ready to take that risk and deal with it because the situation is so dire in Ukraine,” Diop said. More

WASHINGTON (Reuters) – All participants at the Federal Reserve’s May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation they agreed had become a key threat to the economy’s performance and was at risk of racing higher without action by the U.S. central bank, minutes of the session showed on Wednesday.This month’s 50-basis-point hike in the Fed’s benchmark overnight interest rate was the first of that size in more than 20 years, and “most participants” judged that further hikes of that magnitude would “likely be appropriate” at the Fed’s policy meetings in June and July, according to the minutes.”All participants concurred that the U.S. economy was very strong, the labor market was extremely tight, and inflation was very high,” the minutes said, with risks of even faster inflation “skewed to the upside” given ongoing global supply problems, the Ukraine war, and continued coronavirus lockdowns in China. In that context, “participants agreed that the (Federal Open Market) Committee should expeditiously move the stance of monetary policy toward a neutral posture … They also noted that a restrictive stance of policy may well become appropriate.””Many participants” judged that getting rate hikes in the books now “would leave the Committee well positioned later this year to assess the effects of policy firming.”U.S. stocks rose after the release of the report before reversing course. Futures traders eased up on their rate-hike bets, but are still solidly pricing in half-percentage-point increases in June and July, with quarter-percentage-point rises over the three remaining meetings in 2022. Bob Miller, head of Americas Fixed Income for investment giant BlackRock (NYSE:BLK), said the minutes signaled that July would be a key pivot point for the Fed.With two more half-percentage-point hikes firmly in view, “the policy path after July will depend upon the trajectory of inflation and progress toward correcting the … imbalances in the labor market,” he wrote after the release of the minutes. “If those factors are improving, then the Fed gains some breathing room” to shift to fewer rate increases, but otherwise might be forced to lean harder on the economy. The minutes showed the Fed grappling with how best to navigate the economy towards lower inflation without causing a recession or pushing the unemployment rate substantially higher – a task “several participants” at the meeting this month said would prove challenging in the current environment.By the Fed’s preferred measure, inflation has been running at more than three times the central bank’s 2% target.”A number” of Fed participants, however, said data had begun to indicate that inflation “may no longer be worsening.” But even they agreed it was “too early to be confident that inflation had peaked.”BROAD RANGE OF POSITIONSThe economy remained strong, the minutes noted, with households in such good shape that Fed officials said it might be harder to get them to stop spending and take the pressure off of prices.Supply constraints on businesses “were still significant,” the minutes noted, hiring remained difficult, and “the ability of firms to meet demand continued to be limited,” a recipe for continued rising prices. With little certainty about when those conditions might ease, officials have begun laying out a broad range of positions around what might happen after the upcoming rate hikes, from an outright pause in hiking borrowing costs this fall to calls for an aggressive string of half-percentage-point increases at the September, November and December meetings.Inflation data has yet to show a convincing turn lower from the levels that have unnerved Fed officials and drawn comparisons with the inflation shocks of the 1970s and early 1980s.Some analysts, meanwhile, have raised their risks of recession, and investors in contracts linked to the federal funds rate have of late pared back their estimates of how high interest rates will rise. More

Federal Reserve officials discussed the possibility of moving the US central bank to a “restrictive” policy stance that would better fight inflation through more aggressive interest rate increases, but worried that this could undermine the strong recovery in the jobs market.According to minutes of the most recent Federal Open Market Committee meeting held in early May, most US monetary policymakers agreed on the need to keep increasing the Fed’s main interest rate — set at a range of between 0.75 per cent and 1 per cent — by 50 basis points “at the next couple of meetings”. This would match the Fed’s goal of “expeditiously” getting interest rates back up to a neutral setting, where it is neither boosting nor stunting the economy. But participants “also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook” — pointing to the possibility that the Fed may have to target an even higher level of interest rates, either by increasing the pace of its rate rises, lengthening its tightening cycle, or doing both.Fed officials, including chair Jay Powell, are trying to engineer what they have described as a “soft” or “softish” landing to bring down inflation without triggering a recession, which they acknowledged was a difficult balancing act. “Several participants commented on the challenges that monetary policy faced in restoring price stability while also maintaining strong labour market conditions,” the minutes said.Even though the Fed minutes pointed to more vigorous action by the US central bank to curb inflation, officials were still wary of committing to a particular policy path over the longer term given lots of uncertainty about the outlook. “Participants judged that risk-management considerations would be important in deliberations over time regarding the appropriate policy stance,” the minutes said. Less aggressive tightening, or even a pause, may be on the table later in the year if the economy starts to slow down dramatically, though that is not the Fed’s main assumption.During the last FOMC meeting, several officials also pointed to some risks to financial stability related to the tightening cycle, saying it could “interact with vulnerabilities related to the liquidity of markets for Treasury securities and to the private sector’s intermediation capacity”.

Some Fed officials also cited risks to commodities markets stemming from the disruptions associated with the war in Ukraine. While all participants backed the central bank’s plans to reduce its balance sheet, some suggested it should consider sales of mortgage-backed securities as an additional tool.A bout of choppy trading following the minutes ultimately pushed the S&P 500 and Nasdaq Composite indices to session highs. Treasury yields, which were lower across maturities on Wednesday, were little changed.In public remarks, Powell has vowed to keep tightening monetary policy until the central bank sees “clear and convincing” signs that inflation is slowing and moving back to its 2 per cent target. “We’re going to keep pushing until we see that,” he said earlier this month.Lael Brainard, the Fed’s vice-chair, on Wednesday said tackling high inflation was the central bank’s most “pressing challenge”. She noted that “price stability is of greatest importance for lower-income families because they spend more than three-quarters of their paychecks on essentials like groceries, gas or bus fare, and rent — more than double the 31 per cent spent by higher-income households”.“That is why we are taking strong actions that will bring inflation back down,” Brainard said during a commencement address at the School for Advanced International Studies at Johns Hopkins University in Washington.Additional reporting by Kate Duguid in New York More

The UK government has called in the acquisition of the country’s largest semiconductor plant by a Chinese company in a significant shift in approach to foreign takeovers.Kwasi Kwarteng, the business secretary, said on Wednesday the takeover last year of Newport Wafer Fab by Nexperia — a Dutch subsidiary of Chinese company Wingtech — would face a review under the new National Security and Investment (NSI) act.“We welcome overseas investment, but it must not threaten Britain’s national security,” Kwarteng said.The NSI act, which came into force on January 4 this year, allows greater scrutiny of foreign takeovers of companies in sensitive industries. Kwarteng’s intervention comes at a time of deteriorating relations between China and the west.The NSI gives the business secretary the power to block the deal on national security grounds. He has 30 working days from Wednesday to make the decision, although that can be extended by up to 45 further working days.In March, the government’s national security adviser, Stephen Lovegrove, concluded that there were insufficient reasons to block the deal on specific security grounds, given the company’s outdated technology, after UK prime minister Boris Johnson asked him to review the deal.But Ciaran Martin, former head of the National Cyber Security Centre, has expressed “very real concerns” about the buyout.Other senior figures in the government had also warned that the sale of Newport Wafer Fab, which produces silicon wafers at its plant in south Wales, to a Chinese buyer would undermine one of the country’s strategic industries.Kwarteng’s decision was hailed by Tom Tugendhat, Tory chair of the foreign affairs select committee, who said: “We need to maintain a base to build on to ensure the UK is resilient. This isn’t just about security today but independence tomorrow. Good decision.”Newport Wafer Fab is one of the four main companies that make up the Welsh semiconductor “cluster”, alongside IQE, SPTS Technologies and Microchip — making components for electric vehicles and smartphones.The cluster is estimated to generate more than £600mn in revenue every year and employ over 2,000 people.Officials have also been nervous about the global shortage of microchips and the fact that Russia’s invasion of Ukraine has highlighted the need to support critical domestic industries.The government is separately worried about the future of Arm Holdings, a Cambridge-based semiconductor and software design company, which looks likely to float on the New York stock exchange.SoftBank, the Japanese owner of Arm, had sought to sell it to Nvidia of the US only to abandon the deal in the face of regulatory opposition. Johnson has intervened to try to persuade the company to list Arm in London instead.Since Johnson became prime minister in 2019 the government has reversed plans to allow Chinese telecoms equipment maker Huawei to supply kit for Britain’s 5G phone networks. He has also intervened to block an investor linked to Beijing from taking control of the board of Imagination Technologies, a British chip designer.Newport is not the first deal to be called in under the NSI act but it is the first to be made public, according to government officials. The takeover by Nexperia was completed in July last year. Nexperia said in a statement: “We have been informed of the secretary of state’s decision. We welcome this opportunity to engage and contribute to an informed debate about our UK activities and investment plans.” Additional reporting by Tim Bradshaw More

President Vladimir Putin has unveiled double-digit increases to Russia’s minimum wage and pensions as soaring inflation and western sanctions push up the cost of living.Putin admitted Russia faced “difficulties” but denied these were linked to what he referred to as the country’s “special military operation” in Ukraine and said the economy had “better dynamics than forecast by some experts”.The country had to ensure incomes remained above subsistence levels, Putin said at a state council meeting.Prices of food and other basic items in Russia jumped in the days following Moscow’s invasion of Ukraine, when the rouble weakened substantially. While the rouble has rebounded prices have not returned to previous levels.“This year is not a simple one [but] I do not mean that all these difficulties are due to this special military operation. Because in countries that are not conducting any operations, across the ocean in the US, in Europe, the inflation is similar,” Putin said.He suggested that Russia’s minimum monthly wage be increased 10 per cent to Rbs15,278 ($273) from June 1, while pensions for non-working retirees will rise by the same amount. “This will strengthen domestic demand . . . for local products,” he said. Putin also asked the government to increase pay for soldiers in Ukraine.Putin said he did not expect Russia’s inflation to rise above 15 per cent this year, despite the country’s central bank having earlier forecast inflation of 18-23 per cent this year and 4 per cent in 2024.He also noted that unemployment was stable at 4 per cent, despite expectations of rises.The higher social spending will cost Russia’s federal budget about Rs600bn ($10.5bn) this year and about Rs1tn roubles in 2023, finance minister Anton Siluanov said.The measures come as the rouble is trading at its highest level since 2018 despite efforts by western countries to put pressure on the Russian economy.On Thursday, Russia’s central bank is set to hold an extraordinary meeting at which it is expected to make a further cut in interest rates, which were pushed up to try to protect the economy from sanctions that followed the invasion of Ukraine in February.Central bank governor Elvira Nabiullina said last month that she would no longer seek to tame inflation “at any cost” through rate rises but has warned the economy faces a “structural transformation” after sanctions isolated Russia from global markets and disrupted supply chains.Higher rates helped stabilise price growth and slow consumer activity, she said, prompting the central bank to slash borrowing costs in the hope of stimulating growth. More

Good evening,Growth in UK manufacturing and services activity has plunged to a 15-month low, fuelling the risk of a recession. Business activity has hit its lowest level since January 2021, when the country was in full lockdown. The UK composite purchasing managers’ index, an indicator of overall economic health, fell sharply to 51.8 in May, down from 58.2 in April.Chris Williamson, chief business economist at S&P Global Market Intelligence, said the results hinted that “worse is to come”. He added that companies cited an increasingly cautious mood among households and business customers linked to the cost of living crisis, Brexit, rising interest rates, China’s Covid lockdowns and the war in Ukraine.Despite a tight labour market, UK income inequality is on the rise with pay growing fastest for the highest earners, while those on the lowest incomes are most adversely affected by soaring inflation. Recent payroll data from HM Revenue & Customs, which include bonuses, show that for the top 1 per cent of employees pay rose by more than 7 per cent in real terms between December 2019 and March 2022. For the tenth lowest paid, real terms wage growth was just over 2 per cent.The acceleration in pay at the top of companies is a sharp reversal of the trend in the years leading up to the pandemic, when earnings were growing fastest for the lowest paid, partly owing to rapid increases in the UK’s minimum wage.There is also the problem of price increases outstripping salary gains, even in America’s hot labour market where companies are willing to offer more competitive and higher wages. Over the past year, prices for urban consumers in Atlanta, for example, are up 10.8 per cent, more than the 7.9 per cent increase across the country as of April, according to the Bureau of Labor Statistics. The agency’s latest data show that real hourly earnings, adjusted for inflation, are down 2.6 per cent year on year.“We have this situation where it’s not really worthwhile to participate in the labour market. It’s expensive to go to work, especially if you don’t make a lot and you have to find childcare,” said Nela Richardson, chief economist at payroll processor ADP.Latest newsRussia simplifies citizenship process for Ukrainian regions of Kherson and ZaporizhzhiaStocks struggle for direction as traders assess monetary policy directionG7 explores ways to bypass Odesa to export Ukrainian grainFor up-to-the-minute news updates, visit our live blogNeed to know: the economyChina’s premier has said the world’s second-largest economy could struggle to record positive growth in the current quarter, urging officials to help companies resume production after Covid-19 lockdowns.The eurozone banking system will remain “resilient” despite disruption in energy and commodity markets caused by Russia’s invasion of Ukraine, the European Central Bank has concluded after carrying out a “vulnerability analysis” of the sector.Pakistan’s foreign minister Bilawal Bhutto Zardari says he hopes the country can renegotiate a loan with the IMF in response to the surge in global food and fuel prices, as mounting political unrest piles pressure on Prime Minister Shehbaz Sharif’s new government.Sri Lanka has opened talks with the IMF over a $4bn bailout with observers waiting to see how China, one of the main creditors, will react. This month, the country defaulted on its overseas loans after missing interest payments on two $1.25bn sovereign bonds. This made it the first country in the Asia-Pacific to do so in more than two decades, according to Moody’s data.Latest for the UK and EuropeEU officials are working on a potential centralised procurement deal for smallpox vaccines to be used against rising numbers of monkeypox infections in Europe, as nations race to secure orders for the relatively limited number of doses available. There were nearly 100 confirmed cases globally as of May 21, according to the World Health Organization.Many consumers fear being forced into fuel poverty, which is one reason why a UK windfall tax has widespread public support. Shares in some of Britain’s biggest power companies fell sharply yesterday, as chancellor Rishi Sunak drew up plans for a windfall tax on the energy sector to help offset spiralling domestic fuel bills.UK prime minister Boris Johnson has accepted “full responsibility” for a drinking and lawbreaking culture in Downing Street during the Covid pandemic, after senior civil servant Sue Gray published a scathing verdict on the partygate affair.Global latestThe head of Pfizer, Albert Bourla, has warned that growing public complacency towards Covid-19 and the continuing politicisation of the pandemic response will cost lives as the world is hit by new waves of the virus in the coming months.US president Joe Biden made an emotional plea for the country to “stand up to the gun lobby” after an 18-year-old gunman killed at 19 children and two adults in the deadliest school shooting in America for a decade.Two years ago today, African-American George Floyd was murdered by a white police officer in Minneapolis. Talk of systemic racism still dominates local politics, but efforts to address it have been frustrated by a host of factors, from a divided state legislature to the distractions of the lingering Covid crisis. The anniversary of Floyd’s death comes as police reform has stalled at both the federal and local levels. Today, Biden is expected to issue an executive order aimed at reforming some areas of policing.

The site of the George Floyd memorial at 38th Street and Chicago Avenue in Minneapolis © Kerem Yuce/FT

Need to know: businessThe “subscription economy” is heading into its first serious downturn, writes Helen Thomas. Businesses offering consumers services or products on subscription took off in about 2011, led by TV and music streaming services and quickly followed by beauty products, clothes, organic coffee, craft beer, pet food and much more. Now, this business model is about to be tested.Hedge funds that use powerful computers to run their portfolios are making huge profits in this year’s market turmoil, marking a resurgence for a sector trying to recover from a long stretch of weak performance. The $337bn industry is now making its biggest gains since the 2008 financial crisis. Airbnb will close its China business this summer after a years-long push to crack the market was throttled by the effect of Beijing’s harsh zero-Covid strategy on domestic and international tourism.Amazon shareholders will challenge the company on executive pay, tax transparency, working conditions and unionisation today, as chief executive Andy Jassy faces his first annual meeting at the helm of the ecommerce giant.Glencore will plead guilty to multiple counts of bribery and market manipulation and pay penalties of up to $1.5bn following US, UK and Brazilian investigations that uncovered corruption at one of the world’s largest commodity traders.The World of WorkA virtual office in the metaverse is being touted as the future of work, but raises many unanswered questions. One of which is how working in a virtual reality world beyond national and corporate borders might affect both employment rights and our relationships with colleagues. This week’s Working It podcast looks at the practicalities.Working from a subtropical island sounds like a dream — but don’t get too jealous. Our technology reporter Cristina Criddle not only missed in-person interactions and the separation of home and office, but discovered that working in the sun is impractical — find out why.Join us at the FT’s Future of Work event, focusing on rethinking the digital workplace, on October 19. Listen to talks on topics such as preparing businesses for a cyber attack and creating a leadership style for the hybrid world. There will be guest speakers from Nasa, the World Economic Forum, LinkedIn, Facebook and the Institute for the Future of Work.Get the latest worldwide picture with our vaccine trackerAnd finally . . . Kylie Minogue has wowed the world with her catchy pop songs. In 2020, she expanded her talents and launched her own wine brand, which will be available in the US from next month. Minogue tells Jessica Beresford why she could not get the idea of having her own rosé out of her head.Kylie Minogue: ‘Sometimes the bottle of wine is almost like another guest at the table’ © Michelle Tran More

Eurozone house prices are set for a correction as interest rates start to rise in response to higher inflation, posing greater risks for low-income households, the European Central Bank has warned.A reversal in the region’s housing markets was one of the main risks identified by the ECB’s twice-yearly financial stability review, which also warned that Russia’s invasion of Ukraine meant more companies were likely to default due to lower growth, higher inflation and rising borrowing costs.Predicting that asset prices could fall further if economic growth continues to weaken or inflation rises faster than expected, the ECB said a sharp increase in rates could cause a “reversal” in eurozone house prices, which it estimated were already about 15 per cent overvalued, when weighed against overall economic output and rents.The central bank is gearing up to raise its deposit rate in July for the first time in a decade and markets expect four quarter-point rises this year, which it said “could challenge the valuations of riskier assets, such as equities”.

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Mortgage rates in the eurozone have already been rising since the start of the year. The ECB’s composite indicator of the cost of borrowing for house purchases rose from a low of 1.3 per cent last September to 1.47 per cent in March.“An abrupt increase in real interest rates could induce house price corrections in the near term, with the current low level of interest rates making substantial house price reversals more likely,” the ECB said.House prices rose almost 10 per cent in the eurozone last year, the fastest rate for more than two decades, according to data from Eurostat, the European Commission’s statistics bureau. They could fall between 0.83 and 1.17 per cent for every 0.1 percentage point increase in mortgage lending rates, after adjusting for inflation, the ECB calculated.The Bundesbank recently warned that German banks were becoming too complacent about the risk of borrowers defaulting and the potential for interest rates to rise, pushing up the amount of capital lenders must put against their mortgages.“We think the German housing market is likely to peak in the next couple of years, probably around 2024, though it could be much earlier if we have an interest rate shock,” said Jochen Möbert, an analyst at Deutsche Bank Research. Rising interest rates are likely to prompt institutional investors to shift money they have been putting in property back into the German bond market, Möbert said, predicting this was likely to happen when Bund yields rose from 1 per cent currently to between 2 and 4 per cent. “Rental yields are below 4 per cent in German cities on average and in the metropolises they are lower, in some cases they are even at 2.5 per cent, so once risk-free rates reach that level it would make sense to switch back to Bunds,” he added.The central bank said a shift towards fixed-rate mortgages would shield many households from the immediate impact of higher borrowing costs.Richer households would also be able to cushion the hit by saving less or drawing on extra savings accumulated during the coronavirus pandemic, it said. However, it warned that this would leave low-income households “more exposed to the inflation shock”.The ECB said its recent “vulnerability analysis” of the banking sector had shown that it was “resilient to the macroeconomic ramifications of the war in Ukraine”. Banks accounting for more than three-quarters of assets in the sector would maintain a core capital ratio above 9 per cent in its “severely adverse scenario”, in which the eurozone economy would shrink for the next three years, the central bank said. Higher interest rates are expected to boost banks’ lending margins in the short term. But Luis de Guindos, vice-president of the ECB, warned that “in the medium term the situation might be different”.De Guindos said banks’ profit margins could be eroded by a “duration gap” between rising short-term funding costs for banks and their longer-term loans, such as mortgages, that lock in low rates for many years.He admitted the ECB had been “too pessimistic” in its 2020 warning that the fallout from the pandemic could cause a €1.4tn increase in non-performing loans for banks, which did not materialise as bankruptcies fell instead thanks to massive state support. However, he said higher inflation and rising borrowing costs could cause some companies that have already been weakened during the pandemic to slide into default. “Perhaps the insolvencies that did not take place during the pandemic could, at least in part, take place now,” he added. More