Aurelia Butler

BUENOS AIRES (Reuters) – Argentine peso bills, devalued by years of inflation now soaring near 60%, are starting to cause a literal strain on wallets – with the largest banknote in circulation worth under $5 in commonly used exchange markets.That means people need to carry around huge wads of cash, a security concern and logistical headache for savers, businesses and banks.The situation marks Argentina out in the region, except perhaps for outlier Venezuela. The largest note in Mexico and Peru is worth around $50, in Brazil it is $40, in Chile and Colombia some $25 and in Paraguay $15.In Argentina the 1,000 peso note is technically worth $8.40 using the official exchange rate, but with strict capital controls limiting dollar purchases most people use alternative markets where the same amount gets you $4.80.Ten years ago, 1,000 pesos was worth $200. Until around two decades ago the same amount would have got you a full $1,000.”I have to carry that huge wad of bills in my wallet, because it doesn’t fit in my pockets, and I fear getting robbed,” said Laura, 40, a lawyer from capital Buenos Aires.”The 1,000-peso bill is no longer enough for anything. The (monthly) rent for my house is just over 50,000 pesos.”Years of high inflation, tight capital controls since 2019 to prevent currency flight, and popular black markets for trading dollars have hit confidence in the peso.The low value of the biggest tender means many businesses in the cash-heavy economy are left with huge physical piles of money at the end of the day. It is not unusual for people to arrive to pay larger outlays with bricks of banknotes.”The denomination of the bills is very decoupled from the average transactions of the economy,” said Camilo Tiscornia, director of C&T Asesores Economicos, adding that this creates inefficiencies in the market. “You have to make ridiculous payments with a huge number of bills.” A 1,000 peso note will hardly buy you two packages of top-end toilet roll, while a children’s menu hamburger with fries in a fast-food chain comes in at 940 pesos.While electronic payments have increased during the COVID-19 pandemic, a large part of sales are still made in cash.President Alberto Fernandez, who is trying to lead a “war against inflation,” unveiled newly designed banknotes on Monday, but there were no changes to the largest denomination. He contends that the solution is finding a way to curb inflation, not issuing bigger denomination bills.A financial sector source said the situation was also straining bank vaults, where physical cash simply takes up more room and creates higher costs.”For banks it is crazy time with operating and storage costs,” the source said, asking not to be identified. “Here we have entities that are saturated with banknotes.” Argentina: Paying the bill – https://graphics.reuters.com/ARGENTINA-CURRENCY/lbvgndljkpq/chart.png 1babb7e9-15f8-422d-aaee-f7496196df251 More

Growth in UK manufacturing and services activity has slumped much more than expected and to the lowest rate since January 2021, when the country was in a full lockdown, as the cost of living crisis hit demand.The interim, or flash, S&P Global/CIPS UK composite purchasing manager index, a barometer of the change in private sector activity relative to the previous month, fell sharply to a 15-month low of 51.8 in May, down from 58.2 in April.The reading, based on interviews conducted between May 12 and 20, was much worse than the 56.5 forecast by economists polled by Reuters. Any reading above 50 signifies a majority of businesses reporting an expansion in activity.Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey results “point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels”.Williamson added that forward-looking indicators were “hinting that worse is to come” and noted that businesses cited an increasingly cautious mood among households and business customers, linked to the cost of living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine.Sterling dropped 0.8 per cent against the dollar on the news. Gilt yields, which move inversely to prices, also fell.The market reaction “indicates just how deep-rooted growth fears are at present”, said Sandra Horsfield, an economist at Investec. The slump in the PMI index “is a clear sign that the economy looks set to worsen after contracting by 0.1 per cent in March and increases the chances of a bigger fall in the second quarter and of a recession this year”, said Thomas Pugh, economist at RSM UK. He added that the jump in the input prices index to a new record suggested that inflation had further to rise after hitting a 40-year high of 9 per cent in April. Survey respondents overwhelmingly cited higher wage bills, energy costs and fuel prices among the reasons for operating expenses rising at the fastest pace since this index began in January 1998.This reinforces the view that the hit to the economy is unlikely to prevent the Bank of England from increasing rates again in an attempt to rein in fast rising prices. Markets expect the bank’s policy rate to rise by more than 100 basis points by the end of the year from its current 1 per cent. Concerns about squeezed margins and weaker order books resulted in a considerable drop in business expectations for the year ahead. Service providers showed the greatest loss of momentum in May with the corresponding index dropping to 51.8, down from 58.9 in April. Survey respondents often noted that economic and geopolitical uncertainty had contributed to a slowdown in client demand. This is despite many businesses in the travel, leisure and events sector reporting strong growth due to the easing of Covid-19 restrictions.

The manufacturing PMI index showed a smaller deterioration in growth but factories reported the steepest drop in export orders since June 2020.The tumble in the UK composite index was in stark contrast with the stability of the corresponding index for the eurozone, which was boosted by a later reopening than in the UK. “The tailwind from the reopening of the economy has faded, having been overcome by headwinds of soaring prices, supply delays, labour shortages and increasingly gloomy prospects,” said Williamson. More

LONDON (Reuters) -Rising borrowing costs and the worldwide fallout from the Russia-Ukraine war could see up to 10% of riskier ‘junk’-rated emerging market countries suffer debt crises this year, analysts at U.S. investment bank JPMorgan (NYSE:JPM) have warned.More acute balance of payment pressures and larger fiscal deficits are now compounding problems for heavily-indebted countries that import most of their energy and food.Sri Lanka has just suffered its first ever sovereign default, joining a list that already included Lebanon, Suriname, Venezuela and Zambia. Russia and Ukraine are both teetering too and the worry is the numbers globally will soon balloon.”Nearly half of the (52) country sample is classified as carrying high repayment risk in our assessment. Of these, eight are at risk of reserve depletion by the end of 2023, signalling high default risks. These are Sri Lanka, Maldives, Bahamas, Belize, Senegal, Rwanda, Grenada, and Ethiopia,” said the note led by strategist Trang Nguyen on Tuesday. A jump in world interest rates in response to fast-rising inflation also means many countries are facing the reality of rising borrowing costs, a departure from over a decade of so-called “easy money”. “Accounting for risks of a potential default in Russia and restructuring in Ukraine…the EM sovereign HY default rate could reach 10% this year,” JP Morgan’s note added, also pointing out how Ethiopia was moving towards a G20-led restructuring of its debts.The International Monetary Fund too has said that nearly 60% of low income countries are either in, or at high risk of, debt distress. Analysts at investment firm Tellimer this week highlighted how a record 27 emerging market countries now have eurobond yields above 10%. Those yields are a proxy for what a government has to pay to borrow in the international capital markets and anything above 10% is generally seen as a sign of trouble. JP Morgan said that in addition to the eight countries flagged as in immediate default danger, larger economies such as Egypt, Ghana and Pakistan were also highly vulnerable from fiscal and debt standpoints over the slightly longer term. 9c325c13-c3f3-43d0-aa93-27ee523dc29c1Countries with bond yields above 10%https://tmsnrt.rs/3NrBtQoimage/pnggraphics:graphic:1https://fingfx.thomsonreuters.com/gfx/mkt/znpneoxyjvl/Pasted%20image%201653389128073.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:znpneoxyjvl More

Viktor Orbán has ruled out discussing the EU’s proposed oil embargo of Russia at next week’s summit of leaders, in a fresh blow to the union’s efforts to win backing for its landmark sanctions package.Hungary’s prime minister has written to the European Council’s president, Charles Michel, saying his country could not support the sanctions without more detail on the EU financing available to help Budapest wean itself off Russian oil.Orbán’s refusal to discuss the package leaves Brussels’ plans to end the bloc’s dependence on Russian oil hanging by a thread.“Discussing the sanctions package at the level of leaders in the absence of a consensus would be counterproductive,” Orbán wrote in the letter, seen by the Financial Times. “It would only highlight our internal divisions without offering a realistic chance to resolve differences. Therefore, I propose not to address this issue at the next European Council.”The European Commission has spent most of May seeking to win member states over to its sixth package of sanctions, which would include a phased-in embargo on Russian oil. But it has struggled to convince Hungary to support the package, as well as other landlocked states that are heavily dependent on Russian oil such as Slovakia and the Czech Republic.Last week the commission presented a €210bn plan dubbed REPowerEU, which sets out proposals for ditching Russian fossil fuels by 2027. While there were encouraging signals in the plan, Orbán wrote in his letter, he said it failed to address Hungary’s concerns because there “are no [funding] envelopes for the most concerned landlocked member states”. He added: “There is no indication on the modalities and the timing of the financing for the urgent investment needs related to replacing Russian oil.” In his letter Orbán warned that the proposed sanctions would cause “serious supply problems” in Hungary and undermine its vital energy security interests, delivering a “price shock” to the country’s households and economy. Orbán said Hungary needed money to adapt its refineries to non-Russian oil and build new pipelines to bring alternative supplies to the country.Brussels has earmarked €2bn for central European nations to invest in new infrastructure but it decided to channel it through the Recovery and Resilience Facility (RRF). Hungary has not yet clinched a deal with the commission over its bid for its share of the RRF because of EU concerns about breaches of the rule of law. Orbán’s letter raises “serious problems” because “countries without adopted recovery and resilience plans cannot benefit” from the bulk of the REPowerEU project in the short term. However, he also emphasises that he will continue discussions “with a pragmatic and result-oriented approach”.Orban’s spokesman did not immediately respond to a request seeking comment. More

Hello from Davos, where the first day of discussions at the World Economic Forum has featured some eye-catching remarks on everything from the war in Ukraine to the worsening threat of global hunger and the push for higher standards in the carbon offset market.Another hot topic among delegates we have been speaking to is the continuing storm around comments made by Stuart Kirk, HSBC Asset Management’s head of responsible investment, at last week’s Moral Money Summit Europe. Kirk has now been suspended pending an investigation into his speech, in which he poured cold water on concerns about climate risks, and claimed that central banks had deliberately designed climate stress tests to make banks “look sick”. HSBC executives have been keen to distances themselves from the remarks, but they have also added to doubts about just how committed their bank — and the financial sector as a whole — is to sustainability. For the corporate bigwigs gathered in the Swiss mountains, the pressure is on to show that their talk of responsible business and stakeholder capitalism is more than just mealy words. Read on for more on the key takeaways from Monday — and on some important developments at the US Securities and Exchange Commission. (Simon Mundy)

Davos day one in briefUkrainian president Volodymyr Zelensky called for a unique reconstruction model, in which individual countries, cities and companies would take leading roles in rebuilding specific cities and industries in Ukraine. The nation has suffered more than $500bn in losses from the war, Zelensky said.Saudi Aramco chief executive Amin Nasser said the energy shock from the war in Ukraine has shown the need for continued oil and gas investment. “The crisis is just indicating to us [that] you are running the whole world with not enough spare capacity,” Nasser told the FT.The global economy is facing perhaps its “biggest test since the second world war,” IMF head Kristalina Georgieva said, warning that the outlook had darkened since the IMF last month cut its 2022 growth forecast from 4.4 per cent to 3.6 per cent. Debate over corporate and financial sector’s role in setting carbon offset standards Together with former Bank of England governor Mark Carney, Standard Chartered chief executive Bill Winters has been a key driver of the Integrity Council for the Voluntary Carbon Market, an initiative aimed at creating standards for carbon offsets.That market is under heavy scrutiny from critics who warn that the carbon impact of many offset projects is badly overstated, and that companies could use low-quality carbon credits to claim “net zero” status while continuing to heat the planet. Concerns have been raised, too, about how strong a role the corporate and financial sector plays in the standard-setting initiative.But Winters told a Davos audience yesterday that without action on this front from the private and non-governmental sectors, there might be no progress at all. “The voluntary carbon markets only exist because governments have failed,” he said.And despite some critics’ claims that corporate players might seek to tilt the development of the ICVCM’s standards in their own interests, Winters argued the group would do a better job than elected representatives. “Governments may or may not set the standards objectively. They’ve got political considerations,” he said. “We’ll set the standards, and they’ll be very high.”There is growing interest in a rapid scale-up of carbon removal technology, such as the system developed by Switzerland-based Climeworks, which we profiled in a recent edition. But Winters argued it would take time to roll out that technology at scale, meaning there was a need for rapid investment in nature-based offset projects. “If we don’t solve the nature problem first, it doesn’t matter what technology we build — it will be too late,” he said. (Simon Mundy)Millions knocking on famine’s door, as food crisis grows

Mariam Mohammed Saeed Al Mheiri has called for world leaders to give greater priority to the ‘food crisis’ © Bloomberg

Food systems to tackle the global crisis in agriculture will be given as much weight as energy conservation at the COP28 conference scheduled next year in the United Arab Emirates, a top official told the World Economic Forum yesterday.Mariam Mohammed Saeed Al Mheiri, minister of climate change and the environment, called for leaders to give greater priority to the “food crisis”, stressing that the world would need 50 per cent more food by 2050.She called for a sharp increase in innovation, the importance of keeping markets open to prevent famine and redoubled efforts to reduce meat consumption and food waste.Her comments came at a time of growing concern over the widespread international repercussions from Russia’s war against Ukraine, which has restricted agricultural exports and fertilisers, and damaged infrastructure.The failure to end Russia’s blockade of ships leaving the Ukrainian port of Odesa threatens widespread global starvation and migration, according to David Beasley, executive director of the World Food Programme. Up to 323mn people were “marching towards starvation” and 49mn people were “knocking on famine’s door” in 43 countries, he added.“Every 1 per cent increase in hunger [leads to] a 2 per cent increase in migration,” Beasley said. “It’s a perfect storm within a perfect storm.”Philip Isdor Mpango, vice-president of the United Republic of Tanzania, called for more investment — including from international financial institutions — in irrigation, rural roads, smart agriculture and efforts to tackle land ownership as a way to turn Africa into a net food exporter.However, Beasley cautioned that money invested in Africa had not led to sufficient progress to date, and called on lenders “to be more strategic and effective” in how funds were used.Erik Fyrwald, chief executive of Syngenta Crop Protection, said: “Agriculture has to be part of the solution to climate change.” He called for greater efforts to work with farmers on crop rotation, reduced tilling, adding carbon to the soil and other regenerative practices to increase yields while reducing greenhouse gas emissions.He also highlighted how the Chinese government was working with farmers, food companies and consumers to support sustainable production across “the whole value chain” and provide information to purchasers seeking healthy food. (Andrew Jack)Quote of the dayWhile some (including Saudi Aramco’s boss, as we noted above) are calling for new fossil fuel investments amid the energy crisis, International Energy Agency head Fatih Birol issued words of caution yesterday. “My worry is that some people may well use Russia’s invasion of Ukraine as an excuse for a large-scale new wave of fossil fuel investments,” he said. “I worry about that for two reasons. It will forever close the door to reach our climate targets. [And] it may not be, as it seems now, a lucrative business.” Elsewhere in ESG: US cracks down on greenwashing

The SEC on Monday fined BNY Mellon for allegedly misstating and misleading investors on ESG claims © Bloomberg

The US is often chided for moving too slowly on rules for sustainable investing. Europe, for example, has already required that asset managers publish their sustainable investing methods and categorise funds based on sustainability. The European parliament is expected to vote in July on a sustainable investing taxonomy.But the US this week is taking a big step toward policing environmental, social and governance investing. The Securities and Exchange Commission on Monday fined BNY Mellon for allegedly misstating and misleading investors on ESG claims. Though the SEC’s penalty was just $15mn for a bank that earned $699mn in the first quarter, the case speaks volumes. Every investment house in the US will be scrambling to get on the phone with lawyers to see if they are vulnerable to similar SEC enforcement concerning ESG claims.But the agency is not done yet. On Wednesday, the SEC will unveil proposed rules aimed at cleansing potential greenwashing from funds and investment advisers. These proposed rules include mandating funds require more information when they use “green,” “low carbon” or some other eco-friendly term. The agency is also looking at standardised ESG disclosures for investment advisers.When viewed in tandem with the big SEC’s climate disclosure rules for companies, these proposed rules for the investment management universe show the US is suddenly serious about regulating greenwashing. (Patrick Temple-West)Smart readAustralia is set to become less of an outlier on climate change among rich-world countries. After years of Scott Morrison’s pro-coal policies, Labor’s strong election showing over the weekend could halt new gas and coal projects in the country. More

DAVOS, Switzerland (Reuters) – The head of the Organisation for Economic Cooperation and Development (OECD) on Tuesday said he was “quietly optimistic” a landmark deal to establish a global minimum tax will be approved by European Union members but implementation may not occur until 2024.OECD Secretary General Mathias Cormann also told a panel at the World Economic Forum in Davos, Switzerland, that it was “manifestly” in the interest of the United States to join the deal struck last year among nearly 140 countries to establish a global minimum tax rate of 15% on multinational corporations. “I’m quietly optimistic the European Commission will be presenting the directive to implement” the deal, Cormann said.Cormann’s remarks came as French Finance Minister Bruno Le Maire said on Tuesday he was confident EU finance ministers would unanimously back the global minimum tax next month.Approval by the EU has been held up by objections from Poland, which vetoed a compromise in April to launch the 137-country deal. U.S. approval, meanwhile, has been stalled in Congress, and Cormann was asked if prospects for U.S. ratification would be scuppered should Republicans who broadly oppose the deal win majorities in the House of Representatives and Senate in November’s mid-term elections. The deal could be implemented by other countries even if U.S. legislators decline to sign on, and Cormann argued that would put U.S. multinational businesses at a disadvantage.”I can’t imagine that any country … would make a judgment that would put themselves at that sort of disadvantage,” Cormann said. “I believe that irrespective of who’s in the majority in Congress … this is manifestly in the U.S. interest.”Congress needs to approve changes to the current 10.5% U.S. global overseas minimum tax known as “GILTI”, raising the rate to 15% and converting it to a country-by-country system.The changes were initially included in U.S. President Joe Biden’s sweeping social and climate bill, which stalled last year after objections from centrist Senate Democrats.But prospects for a slimmed-down spending package with the tax changes look increasingly difficult as midterm congressional elections approach and as lawmakers voice concerns about more spending amid high inflation. More