Aurelia Butler

Investing.com — Risk assets rise and havens fall as peace talks between Russia and Ukraine appear to get closer to a major breakthrough. European economic data remain alarmingly weak, however. U.S. house price figures and the Labor Department’s monthly Job Openings survey are due, as are earnings from Lululemon (NASDAQ:LULU) and chipmaker Micron (NASDAQ:MU). Oil edges higher as OPEC and its allies prepare for another phantom production increase. Here’s what you need to know in financial markets on Tuesday, 29th March.1. Peace talks make progressPeace talks between Russia and Ukraine appeared to be on the verge of a breakthrough. Diplomatic negotiations between the two sides resumed in Istanbul earlier and an aide to Ukraine’s President Volodymyr Zelensky promised a statement “in several hours.”At the same time, Russia’s Defense Minister Sergei Shoigu announced that Russia had achieved its main objectives with what it calls a “special military operation,” namely the degrading of Ukraine’s military capability and the ‘liberation’ of eastern Ukraine’s Donbas region, part of which had seceded with Russia’s assistance eight years ago.Western officials have expressed suspicion that Russia may only be using the peace talks to buy time to regroup, having suffered far higher casualties than expected over the last month. However, Kremlin spokesman Dmitry Peskov was quoted by newswires as saying that the fate of the talks could be decided “today or tomorrow.”2. Europe makes strong gains on peace hopesEuropean assets responded strongly to the signs of progress toward a diplomatic settlement, while safe haven assets retreated.By 6:15 AM ET (1015 GMT), the euro had gained 0.6% against the dollar to $1.1042, while European stock markets were up by as much as 2.3%. The Euro Stoxx 50 advanced 2.2%. Gold futures, by contrast, touched a two-week low of $1,906 an ounce before recovering slightly to trade at $1,913, down 1.4% on the day.The biggest gainers included stocks that are directly dependent on supplies of Russian gas for their operations. German chemicals giant BASF (DE:BASFN), one of whose board members warned that it might have to shut its Ludwigshafen headquarters even if Russian gas supplies only fall by 50%, saw its stock rise by 3.8%. Russia has threatened to suspend deliveries if European buyers don’t agree to pay in rubles from the end of the month. G7 Energy Ministers roundly rejected the demand on Monday.3. U.S. Stocks set to open higher; Lululemon, Micron eyed – as well as Fed speakersU.S. stock markets are set to open higher later, supported by the more friendly global tone, but with one eye on the day’s round of speeches from Federal Reserve officials. New York Fed President John Williams and his Philadelphia counterpart Patrick Harker are both due to speak in the course of the day.By 6:20 AM ET, Dow Jones futures were up 134 points, or 0.4%, while S&P 500 futures were also up 0.4%, and Nasdaq 100 futures were up 0.3%.There’s a reasonably full data calendar, with house price data due at 9 AM ET, and the Labor Department’s monthly job openings survey and the Conference Board’s consumer confidence index at 10 AM ET.Stocks likely to be in focus include Apple (NASDAQ:AAPL). Apple’s streaming win at the Oscars on Sunday is sustaining its longest winning streak in years despite signs that it’s struggling with weakening consumer demand, as rises in the cost of living leave less money available for its premium-priced products.Micron and Lululemon report earnings.4. Europe still low on confidence as cost of living hitsCost of living issues were unmistakably at work in data releases overnight, with sharp drops recorded in German and French consumer confidence in March. Food and energy prices have risen markedly in recent months, and consumers tend to attribute more importance to items that are bought frequently.Elsewhere, the U.K. reported the biggest monthly rise in over five years in household borrowing, suggesting that consumers are rapidly running down their pandemic-era savings as inflation runs at the highest rate in 30 years. Mortgage approvals and mortgage lending both resumed their downward trends, too, falling well short of expectations.British consumers at least had the entertaining spectacle of the Metropolitan Police handing out fixed penalty notices to Downing Street officials who had organized a series of lockdown-busting parties during the pandemic. The Met refused to name any individuals involved, although newspapers had reported that Prime Minister Boris Johnson was unlikely to receive a fine, despite attending at least two of the banned events. As such, he’s likely to avoid getting a criminal record.5. Oil prices edge up as OPEC stands firmMinisters from OPEC countries again refused to budge from their long-standing position of gradual increases in output to bring down crude prices that are still well above $100 a barrel.OPEC and allies, including Russia, are due to meet later this week and are expected to stick with their plan for an increase of 400,000 barrels a day from May. However, they seem even less likely to achieve that than usual, given supply problems in both Russia and Kazakhstan. The Caspian Pipeline Consortium, which ships Kazakh oil to world markets via the Black Sea, will be shipping at reduced rates for at least the next three to four weeks due to storm damage to its export terminal.By 6:30 AM ET, U.S. crude prices were up 1.4% at $107.39 a barrel, while Brent futures were up 1.4% at $110.98.The API reports its weekly inventory data at 4:30 PM ET as usual. More

Australia has announced a giveaway budget aimed at easing cost-of-living pressures while investing in defence and infrastructure projects ahead of a general election in May. Josh Frydenberg, Australia’s treasurer, detailed a series of measures including a temporary cut to fuel excise, A$38bn (US$28bn) of regional and rural investment, A$17.9bn of road and rail projects — many in marginal seats — and a A$9.9bn investment in bolstering the country’s cyber-security capability as part of “a new chapter in Australia’s economic story”.Tuesday’s budget was delivered with Prime Minister Scott Morrison’s coalition government trailing the opposition Labor party, led by Anthony Albanese, in the polls. But Frydenberg denied he had unveiled a “spendathon” budget, which included measures to ease the cost of living in the form of a petrol tax cut as well as a one-off $250 payment to 6mn low-income Australians, ahead of the election. He said the government was instead “banking the dividend of a strong economy”.The Australian economy has been bolstered by the sharp rise in the price of iron ore, coal, gold and nickel in the wake of Russia’s invasion of Ukraine. The budget included a forecast of a big drop in the price of iron ore and coal by the end of September, but stated that if prices remained at current levels then tax receipts would increase by A$29.5bn. The Ukraine invasion has also strengthened Morrison’s campaign to increase military spending amid rising regional tensions. The budget included a push to establish a cyber security centre dubbed “Redspice”, which will employ 1,900 data scientists and software engineers. The government said Redspice would support other military initiatives, such as the Aukus nuclear submarine agreement with the US and UK, and a A$38bn investment in expanding the size of Australia’s armed forces. “The lesson of history is that weakness invites aggression. It leaves nations vulnerable to coercion. This is the reality we must confront. The world is less stable. We must invest more in the defence of our nation,” said Frydenberg.

The treasury has tried to strike a balance between boosting public spending ahead of the election without triggering a further increase in inflation. Australia’s net debt is forecast to rise to A$865bn by 2026 from A$592bn in 2021. Frydenberg said the ratio of debt to gross domestic product remained well below other advanced economies, including Japan and the US. Australia is expected to record a deficit of $78bn in the next financial year, or 3.4 per cent of GDP, which the treasurer said would fall to 1.6 per cent within three years. Other measures in the budget included more funding to protect the Great Barrier Reef, money to restore koala habitats after the 2020 bushfires and support for small-scale renewable energy projects. Frydenberg said a low-emissions future was critical to building a strong economy, in a rare reference to climate change by his government. “Australia is on the pathway to net zero emissions by 2050 and [is] playing its part in responding to the critical global challenge of climate change,” he said. “Technology, not taxes, will get us there.” More

BRUSSELS (Reuters) – The European Central Bank is ready to organise a scheme for millions of Ukrainian refugees to exchange their hryvnia currency into euros if the EU gives the ECB a guarantee that would cover the bank’s risk, an ECB document showed.Almost 4 million Ukrainians have fled the Russian invasion into the EU but they face problems with exchanging money because few banks want to buy the currency of a country engulfed by war.Sources told Reuters earlier in the month that the ECB was working on a currency conversion facility, but the document spells out for the first time the options for how that might be achieved. “The preferred option would be that the ECB and Eurosystem National Central Banks act as fiscal agents for the Union,” said the ECB paper, sent to the European Commission last week and seen by Reuters. Under this option, EU governments would mandate the ECB to carry out the scheme and, to adhere to the prohibition of monetary financing of governments by the bank, they would provide the bank with the money needed to fulfil that mandate.”The alternative option is based on a mandate given to the ECB by the central bank of Ukraine,” the ECB paper said. The ECB would sign a deal with the central bank of Ukraine to act as its agent and the EU, through its budget, would extend a guarantee to cover the risk that the Ukrainian central bank might not be able to honour the deal because of the war.The deal would include the exchange rate for the exchange of hryvnias into euros, the maximum amount and the time during which the scheme would be operational.While the ECB proposal is for euros, the bank said it could be extended to include EU countries that do not use the euro.Most of the refugees have headed to Poland, which says it has welcomed 2.3 million people so far. Fellow EU members Romania, Slovakia and Hungary have also seen large numbers of arrivals. Of those, only Slovakia belongs to the single currency.An EU official said there was broad support among EU countries for an EU wide guarantee proposed by the ECB because it would mean the risks of the scheme would be shared more equally among EU countries.Now they affect mainly the national central banks in countries where the refugees are the most numerous.The ECB proposal is separate from another plan now under consideration by EU governments under which each Ukrainian refugee could exchange up to 10,000 hryvnias (311 euros) into an EU currency for three months with each EU country handling on its own the financial risk of the exchange. More

In the days after the March 15-16 Federal Open Market Committee meeting, Chair Jerome Powell and his colleagues shifted from a long-standing preference for slow and gradual interest-rate increases to front-loading policy with a half-point hike on the table in May and more to come. The war in Ukraine initially made them cautious, with officials backing a quarter-point increase this month as they raised rates from near zero. But investors took the hike in stride and the Fed quickly became more concerned that the surge in food and energy prices caused by the war would entrench inflation — and expectations — at unacceptably high levels. In speech after speech since they raised rates, officials stress that they want the central bank’s lead role in cooling price pressures to occupy a much more prominent part in the national conversation.“Inflation, inflation, inflation is the top of everyone’s mind,” San Francisco Fed President Mary Daly told the Bloomberg Equality Summit on March 23, adding that “I have everything on the table right now,” including a half-point hike in May, to cool the hottest price pressures in 40 years. Daly’s comments followed those of Chair Jerome Powell who in a March 21 speech said the policy committee needed to move “expeditiously,” a more aggressive tone than his post-meeting press conference a few days earlier.The suddenness of the shift — the latest escalation from the Fed since it began signaling tighter policy toward the end of last year — leaves the impression that officials are scrambling to catch up, said Derek Tang, an economist at LH Meyer in Washington.“They bet their name on inflation coming down in the second half,” he said. But with Ukraine raising food and energy prices and China supply chains further crimped by virus lockdowns, “it looks less and less likely that is going to happen.”That assessment seems to have pushed the center of gravity on the Federal Open Market Committee toward a half-point hike in May, with investors leaning into that bet in interest-rate futures markets and pricing around 2.1% percentage points of more tightening for the year as a whole — the equivalent of about eight quarter-point hikes over six remaining meetings this year.Some on Wall Street expect the Fed to go even faster: Citigroup Inc. economists have penciled in four straight half-point hikes, followed by two quarter-point moves.What Bloomberg Economics Says…“Fedspeak since the March FOMC meeting has confirmed one thing: The FOMC would have hiked interest rates by 50bps in March had Russia not invaded Ukraine. The war has immediately exacerbated inflation, but the dampening effect on U.S. growth or the labor market has yet to show.”– Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger (economists)For the full note, click hereMinneapolis Fed President Neel Kashkari, one of the last doves, penned a clarifying mea culpa on March 18 explaining how his views on both inflation and interest rates had evolved.Loretta Mester, the Cleveland Fed President who is a voting member of the Federal Open Market Committee this year, suggested Feb. 24 that she would wait until mid-year to determine whether the rate path needed to speed up. A month later, she said she found it “appealing” to front-load some of the rate increases “earlier rather than later.”“When things turn out different than you anticipated, you admit your forecast was wrong and adapt,” said former Fed Vice Chair Donald Kohn, who’s now a senior fellow at the Brookings Institution. “You might argue that the forecast was unusually wrong and the adaptation has had to be unusually quick and large.”In fairness to his former colleagues, Kohn also pointed out that there’s nothing in the experience of recent policy making or forecasting to compare with the shock of the Covid-19 pandemic. In past cycles, Fed officials had reasonable confidence in their forecasts and that the economy would behave as it had done in the past. Now, they say they are beyond both their goals for maximum employment and stable prices. That’s put their forecast on trial: If the evidence makes a strong case that it is wrong, they must adjust policy.Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., said evidence of a mistake has been building up since last summer.Officials expected the tight U.S. labor market to loosen as the virus faded and schools reopened in September, allowing millions to return to work and easing wage pressures. But the labor force participation rate, which measures people who have a job or are looking for one, didn’t rise that much. Durable goods prices also kept rising, as did gauges of underlying price pressures.“The inflation, labor market and wage developments all kind of demolished their thinking prior to Labor Day,” Feroli said. One of the reasons that the Fed was slow to raise rates was a new policy framework they adopted in 2020 aimed at ensuring broad-based and inclusive full employment that ruled out preemptively raising rates to keep price pressures in check, which has been the Fed’s reflex since former Chair Paul Volcker defeated inflation in the 1980s.Feroli is among many economists wondering if that new strategy, which saw it hold rates near zero until it reached full employment, unnecessarily tied their hands.“That may be part of what got us here,” he said.©2022 Bloomberg L.P. More

ACCRA (Reuters) – Everything changed for Ghanaian storekeeper Isaac Siaw when his telecoms provider launched mobile payments for business in 2017.Sales boomed at his 20-year-old store, as customers no longer had to pay cash for household goods that include mosquito repellent, batteries, razors, soap and superglue.But as parliament considers a new 1.75% tax on electronic payments, known as the ‘e-levy’, Siaw said he may return to cash full-time.Finance Minister Ken Ofori-Atta proposed the e-levy in November to widen the tax net, but opposition was so fierce that it caused a brawl in parliament a month later, and it failed to pass.The government plans to resubmit the bill next week and try to fast-track it. Lawmakers will recess on April 15, closing the window for its passage if it is not voted on before then. The tax, which would cover mobile money payments, bank transfers, merchant payments, and inward remittances, could raise up to 6.9 billion Ghanaian cedi ($926 million) in 2022, according to official estimates.But Ghana’s $50.8 billion public debt is unlikely to drop significantly.”We have prices of goods going up each and every day,” Siaw said. “If a customer must pay a higher price for a commodity, then after paying that high price he also must pay for the e-levy, it won’t be good for business.”Just as Ghana’s small business owners begin to drift from cash-based sales, many believe the e-levy will price them out of the digital economy. But officials see it as the panacea for a raft of financial woes that could spark an economic crisis. Consumer inflation reached 15.7% year-on-year in February, the highest since 2016. The cedi depreciated some 20% against the dollar this year, second only to the Russian rouble, and public debt hovers around 80% of gross domestic product. For a related graphic on Ghana’s Cedi shedding value, click https://tmsnrt.rs/3wOpVlv”The unyielding stance of the minority in parliament against the e-levy … gravely affect(ed) investor confidence in our capacity to implement programs and settle our debts,” Ofori-Atta said at a press conference last week.PRAYERS Even if the e-levy overcomes Ghana’s hung parliament, around 73% of Ghanaians oppose it, as a February survey by Global Info Analytics shows.But analysts said it could reassure investors and lenders of Ghana’s ability to make tough choices to generate revenue, helping to narrow bond spreads.”It’s taken on a psychological importance for many investors,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered (OTC:SCBFF). “If there are no big revenue measures … it’s not clear where the revenue upside is going to come from.”Ghana’s sovereign Eurobond yields have spiked in the last year, effectively shutting it out of international markets, as investors consider the debt too risky.Ghana’s $1 billion 2026 Eurobond is trading below par at 79.25 cents, with a yield of more than 18%, according to Refinitiv data.That lack of access factored into ratings agency Fitch’s decision to slash Ghana’s credit rating to B- from B in January. Moody’s (NYSE:MCO) downgrade followed a month later, causing Ghana’s sovereign dollar bonds to tumble further.For a related graphic on Ghana’s bonds under pressure, click https://tmsnrt.rs/3DeF28VIn a note last week, JP Morgan analysts estimated a 30% probability of the e-levy passing in parliament. Without it, they wrote, Ghana may have to pursue a debt relief program through the International Monetary Fund, which the government has so far resisted.”We’ve got a critical 14 or maybe 15 days to make it happen,” Ofori-Atta said. “I’m sure if you pray with me, we can pass the e-levy.” ($1 = 7.4500 Ghanaian cedi) (Additional reporting and writing by Cooper Inveen; Editing by Bate Felix and Richard Chang) More

Adeyemo, speaking in London on a European trip to consult with allies on strengthening and enforcing sanctions to punish Russia, said the broadening of those efforts was aimed at undermining “the Kremlin’s ability to operate its war machine”.”In addition to sanctioning companies in sectors that enable the Kremlin’s malign activities, we also plan to take actions to disrupt their critical supply chains,” Adeyemo told an event at the think tank Chatham House.”Our goal is to use an integrated approach that includes export controls which will bite over time and sanctions that will bite immediately,” he said, adding they would also target alternative military suppliers used by Russia. Russian President Vladimir Putin sent his troops into Ukraine on what he calls a “special military operation” to demilitarise and “denazify” Ukraine.Since the invasion began on Feb. 24, western allies have frozen Russia’s central bank’s foreign currency assets, banned key Russian banks and wealthy elites from hard currency transactions and put restrictions on exports of advanced semiconductors and other technology. The sanctions have stripped the Kremlin of resources and helped to cripple Russia’s economy. Adeyemo said they would stay in place for as long as the invasion continued. He attributed the success of the sanctions to a strong multilateral effort and the strength of an international economic and financial system built by democratic countries at the end of World War Two, which created institutions including the International Monetary Fund, the World Bank and the precursor to the World Trade Organization.INTERNATIONAL NORMSThese institutions created international rules, norms and values that set the stage for decades of prosperity, but which have been rejected by Russia in its invasion, he said.Adeyemo said he expected countries such as China and India to remain part of the global financial system rather than seeing the crisis in Ukraine as a moment to decouple from the West. “The system has adapted and moulded to members that have come along to create huge reductions in poverty, and not just western countries,” he said. “That is why, I think, ultimately they are going to remain part of the system because the benefits of the system far outweigh the risks.”He said however that it was not open to those that failed to respect the core principles of territorial integrity and self-determination, including Russian oligarchs targeted by sanctions and those who may attempt to help them hide their assets. Adeyemo said that the international system that gave rise to the sanctions needed strengthening, including by addressing food insecurity resulting from the conflict, which has disrupted grain shipments from Ukraine.He added that the use of economic sanctions must be refined to preserve their efficacy, including avoiding unilateral actions and ensuring that they are tied to clear policy objectives and can be easily reversed when these are met. He also said that the international community needed to finalise the global minimum corporate tax agreement and continue providing the resources needed to end the COVID-19 pandemic, with broader vaccine access. More