Aurelia Butler

The June contract on the most liquid three-year treasury bond futures fell as much as 43 ticks before cutting losses slightly to trade 37 ticks lower at 105.23 at 0020 GMT. “(I may be able to say) after watching the May policy meeting and more data by around July and August,” Bank of Korea Governor Rhee Chang-yong said when asked by reporters if the bank was considering a 50 basis-point inters hike at its May 26 meeting.South Korea’s central bank usually raises or cuts its benchmark interest rate in 25-basis point increments.At their first one-on-one meeting since taking office this month, Rhee and Finance Minister Choo Kyung-ho agreed to boost policy coordination in fighting inflation and financial markets instability, the biggest current risks facing the economy.They also agreed that downside risks to growth in Asia’s fourth-largest economy had increased, a joint statement from the two organisations added.The country’s two most powerful economic policymakers held their first one-on-one meeting on Monday after taking office this month and in a follow-up to their attendance at a meeting on Friday hosted by President Yoon Suk-yeol.The statement did not disclose any further comments on specific asset classes or indicators. More

The government, seeking to use its “Brexit freedoms”, announced this month that it would require regulators to help the City of London to remain a global financial centre after the country left the European Union.The group of 58 economists, including a Nobel Prize winner and former business minister Vince Cable, said making competitiveness an objective could turn regulators into cheerleaders for banks and lead to poor policymaking.It also raised the risk of hurting the real economy as the finance sector sucks in a disproportionate share of talent, they said in an open letter to finance minister Rishi Sunak.”The UK instead needs clear regulatory objectives that promote economy-wide productivity, growth and market integrity, and also protect consumers and taxpayers, advance the fight against climate change and tackle dirty money to protect our collective security,” the letter said.Britain’s financial services minister, John Glen, has said the new competitiveness objective for the Bank of England and the Financial Conduct Authority would be secondary to keeping markets, consumers and companies safe and sound.Banks have sought more focus on competitiveness than proposed, but the government has faced push-back from the BoE which has warned against a return to the “light touch” era that ended with lenders being bailed out during the financial crisis.The signatories of the open letter included Cable, a former leader of the centrist Liberal Democrats, Mick McAteer, a former FCA board member, and Nobel Prize-winning economist Joseph Stiglitz. More

UK employers with gaps in their workforce increasingly plan to train existing staff rather than raise wages to lure new recruits, according to a survey that suggests pay pressures may be easing.About two-thirds of employers expect to have difficulties filling vacancies over the next six months, and one-third expect these difficulties to be severe, the CIPD organisation for HR professionals said in its quarterly labour market outlook, published on Monday.But fewer now think they can solve recruitment problems by offering more money. Among those with hard-to-fill vacancies, only 27 per cent planned to respond by raising wages, compared with 44 per cent who had already done so over the previous six months. In contrast, 37 per cent said they planned to boost the skills of existing employees, while a similar proportion were aiming to improve the availability of flexible working arrangements. Jon Boys, labour market economist at the CIPD, said the research suggested “employers are running out of steam on their ability to increase pay any further” and were increasing their focus on retention of existing staff, because it was increasingly difficult to hire outside. He added: “They are saying that it’s very hard to buy in new skills at the moment . . . they need to inculcate them.”The CIPD’s survey, conducted in April, also found that employers were increasingly unlikely to absorb higher wage bills in their margins, with a growing proportion planning to raise prices.A cooling in wage growth would come as a relief to policymakers at the Bank of England, who warned earlier this month that rapid increases in nominal earnings could make high inflation persist for longer — even though pay is rising much more slowly than prices. But the BoE believes pay pressures are if anything likely to strengthen, after hearing from its agents that some businesses are considering one-off bonuses and mid-year increases in pay settlements.The CIPD’s finding that businesses would resist raising wages to attract new staff was also at odds with evidence from other surveys. Last week, the monthly report from the Recruitment & Employment Confederation showed the proportion of recruiters reporting higher starting salaries remained near record levels in April.

The CIPD acknowledged that pay awards were still running at historically high levels. Among employers planning a pay review over the next 12 months, the median increase in basic pay they anticipated was 3 per cent — the highest since 2012.Even in the public sector, where budgets are tighter, the median pay award expected by employers had risen to 2 per cent, up from 1 per cent in the previous quarter.But Boys said public-sector employers — who were even more keen to hire than their private-sector counterparts, but less able to increase pay and other benefits — could find it “increasingly difficult . . . to compete for talent”.Overall earnings growth in the economy is generally higher than pay awards, because some people win a bigger pay rise through promotion, changing jobs or receiving a bonus. More

British manufacturers are bringing back production to the UK in a “reshoring” push to try to address the supply-chain chaos caused by the coronavirus pandemic and Brexit.Three-quarters of companies have increased the number of their British suppliers in the past two years, according to a survey by Make UK, the manufacturers’ trade group. Almost half of companies said they intended to further boost their UK supply base in the next two years. Conversely, more than 10 per cent said they planned to reduce reliance on Asian suppliers over the same period.Make UK said successive economic shocks, including the war in Ukraine, were forcing manufacturers to reverse the decades-long move to offshore supply chains as producers were increasingly facing delays in the arrival of components and materials.The breakdown in the critical just-in-time supply-chain processes meant UK companies were turning away from sources of lower-cost production in Asia to suppliers closer to home, it said.Verity Davidge, director of policy at Make UK, said the era of globalisation might have passed its peak “with disruption and volatility for global trade fast becoming normal”. She added: “For many companies this will mean leaving just-in-time behind and embracing ‘just-in-case’.”Officials in Whitehall are increasingly concerned about the resilience of the British economy to future macroeconomic shocks, according to business leaders, with food, manufacturing and energy sectors the biggest worries.Make UK is calling for a cross-industry and government-backed task force to assess the resilience of the UK’s supply chains and draw up an action plan to protect the economy from any future significant disruptive events.The boost to domestic supply chains will also help meet the government’s levelling-up and skills agendas given the geographic spread of the UK’s biggest manufacturing centres outside London and the south-east.

Matt Lacey, sales and marketing manager at HV Wooding, a British manufacturer, said that more UK-based companies were using his company as a subcontractor as they shifted production away from Asia. “There was a race to the bottom on pricing but the perceived cost benefits of manufacturing overseas are not what they were. People are now looking more at flexibility around order volumes and lead times.”Katie Reed, marketing manager at BEC Group, a toolmaking and plastic-injection manufacturer based in the south of England, said the group had seen a “massive” increase in demand in the past month from companies seeking to reshore their operations.“People have no idea when things are coming in. They want to shore up their supply chains,” she said.Make UK’s study reveals that more than 90 per cent of manufacturers said the pandemic had disrupted supply chains, with a similar number citing Brexit as a cause.Andrew Kinder, who leads the industry team at Infor, the business cloud software firm that worked on the survey with Make UK, said: “Long-held beliefs in lean, just-in-time [processes] and offshoring are being questioned as volatility and uncertainty replaces predictability and reliability.” Manufacturers have also increased the number of different suppliers to give more options in the event of further disruption.Stephen Blythe, business manager at Jaltek, a UK contract electronics manufacturer, said companies could benefit both from shorter delivery times from domestically produced goods and materials as well as the more skilled workforce. More

Brussels is set to cut its growth forecasts further and lift its inflation outlook as the energy crisis triggered by Russia’s invasion of Ukraine exacts its toll on the EU economy. Both the EU and euro area are forecast to expand by 2.7 per cent this year, well shy of the previous expectation of 4 per cent, according to a draft of European Commission forecasts to be published on Monday. Growth is tipped to be 2.3 per cent in 2023. Inflation is expected to surge above 6 per cent in both the EU and euro area this year, with some central and eastern European countries likely to see double-digit price rises in 2022. Eurozone inflation is set to fall to 2.7 per cent in 2023. But the figure remains above the European Central Bank’s target of 2 per cent, underscoring the delicate balancing act policymakers face in an environment of tepid growth and soaring prices. Last week, central bank president Christine Lagarde signalled that she would support raising the main interest rate in July, paving the way for the first increase for more than a decade. The commission previously forecast that inflation would fall back below the ECB’s target next year. Energy costs have soared and confidence has faltered in the wake of the invasion of Ukraine. EU member states have pushed through five rounds of sanctions, and are now in the process of seeking to finalise a package targeting the oil sector. Those measures have yet to be agreed, however, given resistance from EU member states heavily reliant on Russian oil — most notably Hungary. Commission officials remain engaged in talks with Budapest, as well as the Czech Republic and Slovakia, over special terms to help them wean themselves off Russian energy.

While Europe’s economy is still set to expand this year, the commission has stressed that some of the growth is down to a statistical boost coming from momentum that built up last year. The threats to growth, meanwhile, are building. The commission’s draft analysis suggests that if there were an outright cut in gas supply from Russia, coupled with higher energy commodity prices, the economy would suffer even more damage. Growth this year would be lowered by 2.5 percentage points to just 0.2 per cent under this scenario, while a percentage point would be shaved off the 2023 growth forecast. Inflation would be 3 percentage points higher than the baseline projection in 2022 and one percentage point higher in 2023.Some economists want the European Commission to announce another suspension to its deficit and debt rules next year. Alongside energy prices, which were up 38 per cent year on year in April in the euro area, households are being hit by higher food costs, which were up more than 6 per cent in the same period. Industrial production is still being impeded by supply-chain disruptions. China’s harsh Covid-19 lockdown is further damaging global trade, while the US outlook is increasingly uncertain given the Federal Reserve’s need to clamp down on inflation without imposing too brutal a clampdown on activity. Despite the harsh outlook, the commission still expects unemployment to carry on falling following the surge induced by Covid-19. The jobless rate will drop from 7.7 per cent last year to 7.3 per cent in 2022 in the euro area, according to the draft forecasts, before slipping further to 7 per cent in 2023. Budget balances are also expected to gradually improve. The overall euro area budget gap is predicted to drop from 5.1 per cent of GDP last year to 3.7 per cent this year and 2.5 per cent in 2023. More

HONG KONG (Reuters) -Chinese developer Zhongliang Holdings is scrambling to secure bondholder approval to extend the repayment on notes worth $729 million ahead of a key deadline next week, joining peers desperate to avoid offshore debt defaults.The Shanghai-based company has struggled to sell enough houses amid a sustained property downturn in China or secure refinancing to pay investors who are due full redemption on their bonds in May and July.A bond default by Zhongliang would deepen investor worries about China’s property sector as Beijing seeks to shore up confidence in the wider economy.Even if Zhongliang gets approval to extend by another year, the developer, reeling under a cash crunch, would need to pay an additional $1.25 million on its bond coupons now due to a weaker yuan. For other cash-strapped issuers with heavier debt burdens, additional repayment costs due to the currency swing could be much larger.”The situation is definitely more severe this time,” said Zhongliang Chief Financial Officer Albert Yau, comparing current conditions to the yuan’s last major decline in 2018.Unlike the 2018 tumble, developers are now unable to refinance offshore after a series of defaults by other issuers in the troubled sector made new debt raising impossible. That means repayments would need to be transferred from onshore yuan accounts.Zhongliang asked holders of its May and July 2022 notes in late April to delay the maturities by exchanging their bonds for new issuance due next year.Bondholders have until late Monday to give their consent, a deadline extended from May 10. Failure to secure 90% approval would likely result in a default.FRESH CHALLENGESCasting a cloud over Zhongliang’s tight cashflow is a grim outlook for the property market, which is now depressed by strict COVID-19 lockdowns in many Chinese cities. Zhongliang’s sales have plunged 55% in the first four months of 2022.”We expect it will take a longer period of time for sales to recover – it’s a long-term battle,” Yau said, adding the developer’s business in 40% of the coastal cities were disrupted because of the lockdowns.A sharp slowdown in home sales in the world’s second-largest economy and a weaker yuan are set to pile pressure on property developers already struggling to repay debt and raise fresh capital.An over 6% drop in the yuan has made offshore debt maturities worth around $20 billion for rest of the year more expensive for developers, some of whom have already defaulted on their repayment obligations this year.Sunac China on Wednesday became the latest to join other developers that have failed to make dollar bond payments in the recent months, renewing investor concerns about the sector that accounts for a quarter of the country’s economy.The developers, who were hoping for the market to bottom out in the second quarter, are revising down investor expectations for full-year sales after posting a 50% plunge in the first four months, with no demand rebound seen in the near future.A developer based in the Guangdong province said city curbs not only hurt short-term sales but also affect longer-term purchasing power with potential buyers feeling insecure about their jobs.The mounting challenges for the developers come against the backdrop of repeated assurances by the Chinese policymakers and regulators to ensure healthy sector development by avoiding defaults and efforts including banks extending loans.”It is indeed a double whammy situation that they will face, not only about this weaker revenue but on the other hand it’s this weaker currency plus higher yield,” said Gary Ng, Asia Pacific senior economist of Natixis. “I think definitely there will be more concerns in terms of repayment ability as we have seen the default ratio, which is dominated by real estate developers in the offshore market, has increased.”An executive of another listed developer, who has delayed its dollar bond payments to next year, said a weaker yuan has a big long-term impact on its offshore debt restructuring under discussions because it will become much more expensive.The executive declined to be named because the restructuring discussion is private. More

Former Goldman Sachs chief executive Lloyd Blankfein has warned corporate America and US consumers to be prepared for a recession as the Federal Reserve tightens policy to combat high inflation. Speaking to CBS News on Sunday, Blankfein, who stepped down as Goldman chief in October 2018 and remains the Wall Street bank’s senior chair, said there was a “very, very high risk” that the US economy was heading towards a recession. “If I were running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it. But it’s not baked in the cake.” Blankfein said that enormous amounts of government stimulus introduced to lessen the economic impact from the pandemic, together with supply chain issues, lockdowns in China and the war in Ukraine had contributed to the high inflation that the Fed was fighting. “The Fed has very powerful tools. It’s hard to finely tune them and it’s hard to see the effects of them quickly enough to alter it. But I think they’re responding well,” Blankfein added. Federal Reserve chair Jay Powell this week warned that bringing down inflation to the US central bank’s target of 2 per cent would cause “some pain”. The Fed this month raised its benchmark policy rate by half a percentage point for the first time since 2000 and said that further increases of the same size should be on the table at its next two meetings. David Solomon, Blankfein’s successor as Goldman chief, was less definitive about the prospect of a recession when asked about the impact of Fed rate rises on the bank at Goldman’s annual shareholder meeting last month. “Our economists think the chance of a recession here in the US over the next few years is about 30 per cent,” Solomon said. “But again, that’s a big unknown, and there’s a wide disparity of outcomes, so we’re all going to watch that very closely.” More

In March, Egypt said it was in talks with the IMF about potential funds in addition to technical support to hedge against the economic effects of the Russia-Ukraine crisis, should it be prolonged.”There have been discussions by the finance ministry and the central bank with the IMF, we are moving in great strides,” Madbouly said. “I don’t want to get ahead of events, but within a very few months the programme will be in operation.” “We are working according to procedures and official visits are expected in order to agree on the programme in a detailed manner,” he added. The Ukraine crisis cut into tourism revenue, pushed up the cost of commodity imports and prompted foreign investors to flee, but Cairo has since received billions of dollars in financial support from several Gulf Arab states. More