Aurelia Butler

The writer is chief economist for Asia Pacific at Natixis and a senior research fellow at think-tank BruegelIf the rule for US markets is “Don’t fight the Fed”, the traditional knee-jerk reflex of investors in China is to always heed Beijing. That was underlined after last week’s move by the country’s top economic official to bolster flagging confidence in Chinese markets.Liu He, vice premier and President Xi Jinping’s close economic adviser, made a rare public intervention to reassure investors. His comments to China’s financial stability and development committee were a long way short of Mario Draghi’s “whatever it takes” speech that turned around the eurozone crisis in 2012. But they had an immediate response.The CSI 300 index, which tracks the largest listed companies in Shanghai and Shenzhen, has rallied 7 per cent from a low before the comments. Hong Kong’s benchmark Hang Seng index had its best day since 2008 in reaction, rising more than 9.1 per cent.Clearly Beijing had enough of the drubbing that Chinese stocks have taken since the start of the last year. From highs early last year, the CSI 300 index had fallen about a third before Liu’s intervention.Investor confidence had been hit by Beijing’s crackdown on the private sector, particularly on high-flying technology companies. A debt crisis at real estate developer Evergrande also raised concerns about the property sector. Sentiment then deteriorated sharply in the first half of March after a rapid increase in Covid cases in major Chinese cities and the start of the Russian invasion of Ukraine.The problem for investors, though, is that it will be highly challenging for China to follow through on the remedies outlined in vague terms by Liu. His comments were mainly aimed at reminding investors of China’s goal of stability, particularly in a crucial political year in which Xi is expected to be reappointed beyond his second term. But Liu also spelt out the three routes through which Chinese policymakers could help bring capital markets back to a stable path.They were facilitating Chinese companies’ access to overseas capital markets; offering a “standardised, transparent and predictable” approach to regulation of tech giants; and providing enough stimulus to reach the 5.5 per cent GDP growth target set by Premier Li Keqiang only a couple of weeks ago. However, there are obstacles to all three routes. On overseas listings, the thorniest point is the US requirement for the disclosure of detailed audit information on listed Chinese companies to regulators following legislation passed in late 2020. The Securities and Exchange Commission warned last week it will start delisting Chinese companies from the US unless they comply. However, there are rumours that regulators in China might be ready to compromise and allow companies to comply with the requirements.What might not be as easy for Liu is to convince China’s new array of regulators to reduce the pressure they have been imposing upon China’s internet companies to limit their overseas listings. These include the Cyberspace Administration of China, overseeing China’s internet companies, and the State Administration for Market Regulation, China’s antitrust body.

These regulators also hold the key to the second issue that Liu He needs to tackle, namely providing a more predictable regulatory environment for Chinese internet companies at home. This objective, though, may run counter to the overarching “common prosperity” push by Beijing as most of these internet companies are owned by billionaires, which are supposed to continue to pay the price of excessive market power. Economic stimulus — the other key part of Liu’s pitch — should, in principle, be the easiest to achieve. But the stimulus plans announced so far look very far from what China embarked on in the past, certainly when compared with the 2008 massive fiscal package and even the more modest one in 2016 after the stock market collapse in the summer of 2015. The People’s Bank of China also might feel that more needs to be done by other policymakers before it eases monetary policy further, particularly given that the Federal Reserve is expected to raise rates aggressively.Against the backdrop, Covid cases continue to pile up in China and lockdowns and other zero Covid-related policies continue to weigh on economic growth. The Ukraine war also will hit global demand for Chinese goods and Beijing’s ambiguous position on the conflict increases the risk of the country being caught up in Russia-related sanctions. Liu’s pitch can only be commended for its immediate effectiveness but the longer-term outcomes will be difficult to achieve. More

The president later apologized, saying he thought the decision had already been made public.The unanimous decision by the Bank of Mexico’s five-member board was in line with a Reuters poll of analysts which forecast the bank would set a rate of 6.5%, the seventh hike in a row.The bank cited tightening global monetary and financial conditions, and the prevailing uncertainty and rising inflationary pressure linked to geopolitical conflict, an apparent reference to the war in Ukraine.”The balance of risks for the trajectory of inflation within the forecast horizon has deteriorated and remains biased to the upside,” the bank said in its policy statement.Earlier, while speaking about inflation, Lopez Obrador noted the U.S. Federal Reserve had last week raised its key lending rate for the first time since 2018, then said Mexico’s central bank had voted to hike its benchmark rate by 50 basis points.”We’re going to have an interest rate of 6.5 (percent),” he said, speaking at a regular morning news conference. “The Bank of Mexico took the decision yesterday unanimously, and we respect the Bank of Mexico’s autonomy.”The peso currency extended gains against the dollar after the president made his remarks, and closed on Thursday at its strongest level since late September.Still, several analysts expressed shock and alarm that the president had revealed the decision early.Gabriela Siller, an economist at Banco Base, said revealing the rate decision in advance was unprecedented and a “scandal” that raised questions about the bank’s autonomy.Galia Borja, one of the Bank of Mexico’s board, denied that the president’s move would compromise the bank’s autonomy and said that it had made its decision completely independently.Mexico is currently holding its annual banking convention in Acapulco, with top finance officials due to attend, including the new governor of the central bank, Victoria Rodriguez.The central bank board’s policymaking decision, which normally takes place on Wednesday evening, was moved forward a few hours to help with the arrangements for the convention, according to a person familiar with the matter.While attending the convention on Thursday evening, Lopez Obrador said he thought the bank’s decision had already been announced when he spoke in the morning.”I want to apologize to the governor of the bank and the deputy governors because I received the information last night that they had taken the decision,” he said.Mexican policymakers face a delicate balancing act between taming high inflation while not choking off fragile economic growth, which stalled at the end of 2021. The economy ministry has forecast the economy will expand about 2.5% in 2022.Inflation hit 7.29% in the first half of March, slightly lower than the previous two-week period, but more than double the central bank target rate of 3%. The bank has a one percentage point tolerance range above and below the target. More

By Davide Barbuscia and Ira IosebashviliNEW YORK (Reuters) – A sharp sell-off in U.S. Treasuries has increased concerns about low levels of liquidity in the $23.5 trillion market, potentially amplifying losses for investors which already had a dire start to the year.U.S. government bond yields have spiked this year as the Federal Reserve has sounded more hawkish about how aggressively it will hike interest rates to cool the economy, hitting bond returns. The ICE (NYSE:ICE) BofA Treasury Index has recorded its worst start to the year in history, down 6%. (Graphic: Bonds bleed- https://graphics.reuters.com/USA-MARKETS/BONDS/klvykjgmovg/chart.png) While liquidity in the U.S. Treasury market has been an ongoing issue, traders and investors said there had been particular concerns during this sell-off. “People who buy longer-dated Treasuries, such as pensions, central banks and insurance companies, tend to stay away when you have this type of volatility,” said Ed Al-Hussainy, senior rates and currency analyst at Columbia Threadneedle, adding that liquidity “is not good” and that trading big blocks of Treasuries “has become very difficult.” The market for Treasury securities is typically one of the most liquid in the world, and the global financial system uses the instruments as a benchmark for asset classes. But it has seen liquidity issues, such as in late February and early March 2020, when pandemic fears caused market ruptures and liquidity rapidly deteriorated to 2008 crisis levels, prompting the Fed to buy $1.6 trillion of Treasuries to increase stability.Investors say liquidity concerns this year have not reached the point of threatening market functioning, but concerns have increased for several factors.One is that the Fed has ceased buying U.S. Treasuries, after ending this month https://www.federalreserve.gov/newsevents/pressreleases/monetary20220316a1.htm a bond-buying programme aimed at supporting the economy during the coronavirus crisis.”We are adjusting to that new world where the Fed is not a buyer,” Al-Hussainy said. Some investors are also concerned that wild price swings in the commodities markets due to the Ukraine crisis and sanctions on Russia, a commodities export giant, could create pockets of illiquidity in the financial system.”There’s a lot of correlation risks that are out there that I think have reduced balance sheet availability for the system at large, so even Treasuries get impacted by that,” said George Goncalves, head of U.S. Macro Strategy at MUFG.”There’s a reduction in balance sheet capacity because people are de-risking, and when you start to really delve into it, you start to think that there’s knock-on effects that reduce not only risk appetite but also the ability to trade,” he said.Some measures of liquidity have shown stress. Bid-ask spreads — a commonly used indicator of liquidity — widened significantly in March on short-term Treasury notes, Refinitiv data showed.Data from CME Group (NASDAQ:CME) showed order book liquidity for Treasuries has declined since Feb. 24, when Russia began its invasion of Ukraine, and volatility has increased. Cash contracts volume in terms of the daily average top of the book bid/ask quantity for five-year Treasuries declined to $10 million in March from about $25 million in February.For the benchmark 10-year notes, order book liquidity went down to an average of $14 million in March from about $20 million in Feb. Relative volumes, however, remained unchanged on a month-on-month basis.Steven Schweitzer, senior fixed income portfolio manager with the Swarthmore Group, said he had seen a “pretty big disconnect” on the short end of the U.S. Treasury curve earlier this month – in a reminder of the lack of liquidity seen in the aftermath of the global financial crisis.”Bonds and credit are the lubricant for the economy, and when you get the short end drying up, that’s a very big warning sign for us,” he said.The weakness in bonds this week came after Fed Chair Jerome Powell said on Monday the U.S. central bank must move quickly to counter too-high inflation and that it could use bigger-than-usual interest rate hikes if needed.Benchmark 10-year Treasury yields jumped to 2.296% on Monday from 2.153% on Friday, and two-year notes spiked to 2.117% from 1.942%, compressing the gap between the yields of those two maturities – a sign that the market is anticipating a sharp economic slowdown.With a Fed sounding increasingly determined to fight inflation despite the risk that tighter monetary policy may slow growth, there is less support for buying Treasuries, therefore sell-offs find little counteraction to offset them, some investors said.Expecting higher yields had become a consensus trade, investors said.”People are probably on the right side of that trade now,” said Matthew Nest, global head of active fixed income, State Street (NYSE:STT) Global Advisors. “The next pain trade is when and if yields go back down,” he added. (This story corrects 10-year yield in paragraph 21 to 2.296%, not 2.969%) More

The ECB said earlier this month its would end its bond-buying stimulus scheme this summer and raise interest rates for the first time in over a decade some time after that, as it comes to grips with a sudden rise in inflation.Schnabel, the most hawkish of the six board members who run the ECB, said the central bank had “left the door ajar” in case events took a turn for the worse for the euro zone, which is highly dependent on Russian gas and other raw materials.”If we now fall into a deep recession due to the Ukraine crisis, we’ll have to rethink that,” she told a German web show.”Otherwise, we’ll end the bond purchases in the third quarter and as soon as we’ve done that we can raise rates at any time depending on how inflation develops.”Estonian central bank governor Madis Mueller, another hawk on the ECB’s policy-making Governing Council, said in a Politico interview the ECB would only extend its Asset Purchase Programme if there was “a dramatic shift” in the inflation outlook.His Portuguese peer Mario Centeno, a dove, cautioned the “normalisation of the ECB’s monetary policy will be carried out gradually and proportionally at the end of this year”.The ECB has said it expects the euro zone’s economy to expand by 3.7% this year and would still grow even if stricter sanctions were imposed on Russia or supply dried up and financial markets seized up.The central bank for the 19 countries that share the euro sees inflation above or at its 2% target this year and the next under any scenario. More

LONDON/WASHINGTON (Reuters) -Police in Britain have arrested seven people following a series of hacks by the Lapsus$ hacking group which targeted major firms including Okta (NASDAQ:OKTA) Inc and Microsoft Corp (NASDAQ:MSFT), City of London Police said on Thursday.San Francisco-based Okta Inc , whose authentication services are used by some of the world’s biggest companies to provide access to their networks, said on Tuesday it had been hit by hackers and some customers may have been affected.”The City of London Police has been conducting an investigation with its partners into members of a hacking group,” Detective Inspector Michael O’Sullivan said in an emailed statement in response to a question about the Lapsus$ hacking group.The ransom-seeking gang had posted a series of screenshots of Okta’s internal communications on their Telegram channel late on Monday.”Seven people between the ages of 16 and 21 have been arrested in connection with this investigation and have all been released under investigation,” O’Sullivan said.News of the digital breach had knocked Okta shares down about 11 percent amid criticism of the digital authentication firm’s slow response to the intrusion.Shares of Okta were trading down 4.8% on Thursday.City of London Police did not directly name Lapsus$ in its statement. A spokeswoman said none of the seven people arrested had been formally charged, pending investigation.WHO ARE LAPSUS$?Last month, Lapsus$ leaked proprietary information about U.S. chipmaker Nvidia (NASDAQ:NVDA) Corp to the Web.More recently the group has purported to have leaked source code from several big tech firms, including Microsoft, which on Tuesday confirmed that one of its accounts had been compromised.Lapsus$ have not responded to repeated requests for comment on their Telegram channel and by email.A teenager living near Oxford, England, is suspected of being behind some of the more notable attacks, Bloomberg News reported on Wednesday.Reached by phone, the father of the teenager – who cannot be named because they are a minor – declined to comment. Reuters confirmed that cybersecurity researchers investigating Lapsus$ believe the teenager was involved in the group, according to three people familiar with the matter.In a blog post on Thursday, Unit 42, a research team at Palo Alto Networks (NASDAQ:PANW), described Lapsus$ as an “attack group” motivated by notoriety rather than financial gain.Unlike other groups, they do not rely on the deployment of ransomware – malicious software to encrypt their victims’ networks, a hallmark of digital extortionists – and instead manually lay waste to their targets’ networks.Along with Unit 221b, a separate security consultancy, the Palo Alto researchers said they had identified the “primary actor” behind Lapsus$ in 2021 and had been “assisting law enforcement in their efforts to prosecute this group”.”The teenager we identified as being in control of Lapsus$ is particularly instrumental,” Allison Nixon, chief research officer at Unit 221b, told Reuters.”Not just for their leadership role, but for the vital intel they must possess on other members”. More