Economy

The survey from National Australia Bank (OTC:NABZY) Ltd (NAB) released on Tuesday showed its index of business conditions dipped one point to +17 in January, still well above its long-run average.The volatile measure of confidence fell back to -4, erasing January’s bounce to +6.”Overall, the survey confirms the ongoing resilience of the economy through the first months of 2023, though we continue to expect a more material slowdown in demand later in the year when the full effect of rate rises has passed through,” said Alan Oster, NAB’s chief economist.The survey paints a mixed picture for the Reserve Bank of Australia (RBA) which cited the strength of business activity as one reason it hiked interest rates to a decade-high of 3.6% this month.Markets had thought another two hikes were likely, until turmoil in the U.S. banking sector radically altered thinking on policy tightening worldwide.Now, swaps and futures imply only a minor chance the RBA will lift rates at its April meeting, and suggest it could be done tightening altogether.The survey was conducted from Feb. 20 to 28, so it missed the recent chaos in financial markets after Silicon Valley Bank’s collapse.Conditions were generally upbeat with the survey’s measure of sales at a very high +27 in February, supported by historically low unemployment and rapid population growth.Measures of employment edged up 1 point to +11, while profitability eased a touch to +14.The survey’s measure of labour costs ticked up to a quarterly rate of 2.8%, but retail price growth eased to 1.9%. More

Siemens is scouting for investments in south-east Asia to diversify away from China, as multinationals work to reduce supply chain risks against a backdrop of geopolitical tension between the west and Beijing. The German group, one of the world’s biggest industrial conglomerates, is taking on staff and considering adding factories in fast-growing economies including Indonesia, Vietnam and Thailand, said Judith Wiese, Siemens’ chief people and sustainability officer, in an interview.“It is a very varied region, but one that has a lot of potential and with the world talking very much about the US and China from a diversification perspective, it is very interesting for us,” Wiese, also a member of Siemens’ management board, said in Singapore.Rising tension between Washington and Beijing has made many multinationals wary of their dependence on China. Supply chains are being hit by US efforts to curb China’s access to cutting-edge technology, adding to shocks caused by the country’s former Covid-19 policy as well as slowing growth.Wiese said that while China remained Asia’s main manufacturing hub, it was more easily replaced as other places evolved. South-east Asia “has opportunities as a market as well as from a manufacturing perspective”, Wiese said.Siemens, a bellwether of the global economy that employs more than 311,000 people, has a large office in Singapore but China is its largest market in Asia and the second-largest overseas after the US. In 2021, 13 per cent of group sales came from China but the country is more important for some divisions, such as Siemens’ industrial automation and digitisation arm, which in the same year made a fifth of revenues there.In the wake of Russia’s invasion of Ukraine, which has forced Germany to reassess how its economy could have become so reliant on Russia, the country’s industrial giants have also come under increasing pressure to review their dependence on China.Philip Buller, analyst at Berenberg, said Siemens “cannot ignore geopolitics and since Russia invaded Ukraine, every government on the planet has started rethinking political ties, not just with Russia but also China”.But the driving force behind Siemens’ investment decision, Buller said, would be outlook on demand and growth. “For several decades, China has been the growth engine, but that is now moderating,” he added.

A number of multinationals are reducing exposure to China and building up a supply chain role for other countries, in a “China plus one” production strategy. Sony, Apple, Samsung and Adidas are among businesses that have shifted production from China to south-east Asia, including Vietnam and Thailand.“European companies have been slower to shift their footprint to south-east Asia, but I think you’re going to see a rush now thanks to the escalating threat of confrontation and conflict between the US and China,” said one Singapore-based lawyer who advises global manufacturing businesses. India has similarly profited from companies moving or adding production lines out of China. Unlike south-east Asia, where groups must navigate a number of countries with different regulations, India is a single large market and has been touted as having potential to recreate the conditions that made China the world’s manufacturing powerhouse. Wiese said: “In terms of diversification [in Asia], it is China, India and Asean [the Association of Southeast Asian Nations].” More

The government took drastic action to shore up the banking system and make depositors of two failed banks whole. It quickly drew blowback.WASHINGTON — A sweeping package aimed at containing damage to the financial system in the wake of high-profile failures has prompted questions about whether the federal government is again bailing out Wall Street.And while many economists and analysts agreed that the government’s response should not be considered a “bailout” in key ways — investors in the banks’ stock will lose their money, and the banks have been closed — many said it should lead to scrutiny of how the banking system is regulated and supervised.The reckoning came after the Federal Reserve, Treasury and Federal Deposit Insurance Corporation announced Sunday that they would make sure that all depositors in two large failed banks, Silicon Valley Bank and Signature Bank, were repaid in full. The Fed also announced that it would offer banks loans against their Treasuries and many other asset holdings, treating the securities as though they were worth their original value — even though higher interest rates have eroded the market price of such bonds.The actions were meant to send a message to America: There is no reason to pull your money out of the banking system, because your deposits are safe and funding is plentiful. The point was to avert a bank run that could tank the financial system and broader economy.It was unclear on Monday whether the plan would succeed. Regional bank stocks tumbled, and nervous investors snapped up safe assets. But even before the verdict was in, lawmakers, policy researchers and academics had begun debating whether the government had made the correct move, whether it would encourage future risk-taking in the financial system and why it was necessary in the first place.“The Fed has basically just written insurance on interest-rate risk for the whole banking system,” said Steven Kelly, senior research associate at Yale’s program on financial stability. And that, he said, could stoke future risk-taking by implying that the Fed will step in if things go awry.“I’ll call it a bailout of the system,” Mr. Kelly said. “It lowers the threshold for the expectation of where emergency steps kick in.”While the definition of “bailout” is ill defined, it is typically applied when an institution or investor is saved by government intervention from the consequences of reckless risk-taking. The term became a swear word in the wake of the 2008 financial crisis, after the government engineered a rescue of big banks and other financial firms using taxpayer money, with little to no consequences for the executives who made bad bets that brought the financial system close to the abyss.President Biden, speaking from the White House on Monday, tried to make clear that he did not consider what the government was doing to be a bailout in the traditional sense, given that investors would lose their money and taxpayers would not be on the hook for any losses.“Investors in the banks will not be protected,” Mr. Biden said. “They knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”The Downfall of Silicon Valley BankOne of the most prominent lenders in the world of technology start-ups collapsed on March 10, forcing the U.S. government to step in.A Rapid Fall: The collapse of Silicon Valley Bank, the biggest U.S. bank failure since the 2008 financial crisis, was caused by a run on the bank. But will the turmoil prove to be fleeting — or turn into a true crisis?The Fallout: The bank’s implosion rattled a start-up industry already on edge, and some of the worst casualties of the collapse were companies developing solutions for the climate crisis.Signature Bank: The New York financial institution closed its doors abruptly after regulators said it could threaten the entire financial system. To some extent, it is a victim of the panic around Silicon Valley Bank.The Fed’s Next Move: The Federal Reserve has been rapidly raising interest rates to fight inflation, but making big moves could be trickier after Silicon Valley Bank’s blowup.He added, “No losses will be borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers.”But some Republican lawmakers were unconvinced.Senator Josh Hawley of Missouri said on Monday that he was introducing legislation to protect customers and community banks from new “special assessment fees” that the Fed said would be imposed to cover any losses to the Federal Deposit Insurance Corporation’s Deposit Insurance Fund, which is being used to protect depositors from losses.“What’s basically happened with these ‘special assessments’ to cover SVB is the Biden administration has found a way to make taxpayers pay for a bailout without taking a vote,” Mr. Hawley said in a statement.President Biden said Monday that he would ask Congress and banking regulators to consider rule changes “to make it less likely that this kind of bank failure would happen again.”Doug Mills/The New York TimesMonday’s action by the government was a clear rescue of a range of financial players. Banks that took on interest-rate risk, and potentially their big depositors, were being protected against losses — which some observers said constituted a bailout.“It’s hard to say that isn’t a bailout,” said Dennis Kelleher, a co-founder of Better Markets, a prominent financial reform advocacy group. “Merely because taxpayers aren’t on the hook so far doesn’t mean something isn’t a bailout.”But many academics agreed that the plan was more about preventing a broad and destabilizing bank run than saving any one business or group of depositors.“Big picture, this was the right thing to do,” said Christina Parajon Skinner, an expert on central banking and financial regulation at the University of Pennsylvania. But she added that it could still encourage financial betting by reinforcing the idea that the government would step in to clean up the mess if the financial system faced trouble.“There are questions about moral hazard,” she said.One of the signals the rescue sent was to depositors: If you hold a large bank account, the moves suggested that the government would step in to protect you in a crisis. That might be desirable — several experts on Monday said it might be smart to revise deposit insurance to cover accounts bigger than $250,000.But it could give big depositors less incentive to pull their money out if their banks take big risks, which could in turn give the financial institutions a green light to be less careful.That could merit new safeguards to guard against future danger, said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He thinks that bank runs in 2008 and recent days have illustrated that a system of partial deposit insurance doesn’t really work, he said.An official with the F.D.I.C., center, explained to clients of Silicon Valley Bank in Santa Clara, Calif., the procedure for entering the bank and making transactions.Jim Wilson/The New York Times“Market discipline doesn’t really happen until it’s too late, and then it’s too sharp,” he said. “But if you don’t have that, what is limiting the risk-tanking of banks?”It wasn’t just the side effects of the rescue stoking concern on Monday: Many onlookers suggested that the failure of the banks, and particularly of Silicon Valley Bank, indicated that bank supervisors might not have been monitoring vulnerabilities closely enough. The bank had grown very quickly. It had a lot of clients in one volatile industry — technology — and did not appear to have managed its exposure to rising interest rates carefully.“The Silicon Valley Bank situation is a massive failure of regulation and supervision,” said Simon Johnson, an economist at the Massachusetts Institute of Technology.The Fed responded to that concern on Monday, announcing that it would conduct a review of Silicon Valley Bank’s oversight. The Federal Reserve Bank of San Francisco was responsible for supervising the failed bank. The results will be released publicly on May 1, the central bank said.“The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review,” Jerome H. Powell, the Fed chair, said in a statement.Mr. Kelleher said the Department of Justice and the Securities and Exchange Commission should be looking into potential wrongdoing by Silicon Valley Bank’s executives.“Crises don’t just happen — they’re not like the Immaculate Conception,” Mr. Kelleher said. “People take actions that range from stupid to reckless to illegal to criminal that cause banks to fail and cause financial crises, and they should be held accountable whether they are bank executives, board directors, venture capitalists or anyone else.”One big looming question is whether the federal government will prevent bank executives from getting big compensation packages, often known as “golden parachutes,” which tend to be written into contracts.Treasury and the F.D.I.C. had no comment on whether those payouts would be restricted.Uninsured depositors at Silicon Valley Bank and Signature Bank, who had accounts exceeding $250,000, will be paid back.David Dee Delgado/ReutersMany experts said the reality that problems at Silicon Valley Bank could imperil the financial system — and require such a big response — suggested a need for more stringent regulation.While the regional banks that are now struggling are not large enough to face the most intense level of regulatory scrutiny, they were deemed important enough to the financial system to warrant an aggressive government intervention.“At the end of the day, what has been shown is that the explicit guarantee extended to the globally systemic banks is now extended to everyone,” said Renita Marcellin, legislative and advocacy director at Americans for Financial Reform. “We have this implicit guarantee for everyone, but not the rules and regulations that should be paired with these guarantees.”Daniel Tarullo, a former Fed governor who was instrumental in setting up and carrying out financial regulation after the 2008 crisis, said the situation meant that “concerns about moral hazard, and concerns about who the system is protecting, are front and center again.” More

The Westpac-Melbourne Institute index of consumer sentiment was unchanged in March, following a dive of 6.9% the month before. The index reading of 78.5 meant pessimists greatly outnumber optimists.”Index reads below 80 are rare, back-to-back reads even rarer,” noted Westpac chief economist Bill Evans. “Both the COVID shock and the Global Financial Crisis saw only one month of sentiment at these levels.”The result was echoed by a weekly survey from ANZ which showed a 2.9% drop to the lowest since April 2020, when the pandemic closed much of the country.Both found mortgage holders and tenants were particularly gloomy after the Reserve Bank of Australia (RBA) lifted its cash rate a quarter point to 3.60% on March 7.Markets had thought another two rate hikes were possible, until turmoil in the U.S. banking sector radically altered thinking on policy tightening world wide.Now, swaps and futures imply only a minor chance the RBA will lift rates at its April meeting and could, in fact, be done tightening altogether.The impact of higher borrowing costs on household budgets was already clear with the Westpac measure of whether it was a good time to buy a major household item sliding 4% to the lowest in over a decade. The index of the economic outlook for the next 12 months dropped 2.3%, though the outlook for the next five years did bounce 5.6%. The survey’s measure of family finances compared with a year ago edged up 2.2% after diving in February, while the outlook for finances over the next 12 months fell 1.8%. More

Listen to This ArticleThe Federal Reserve’s hotly anticipated March 22 interest rate decision is just a week and a half away, and the drama that swept the banking and financial sector over the weekend is drastically shaking up expectations for what the central bank will deliver.The Fed had been raising interest rates rapidly to try to contain the most painful burst of inflation since the 1980s, lifting them to above 4.5 percent from near zero a year ago. Concern about rapid inflation prompted the central bank to make four consecutive 0.75-point increases last year before slowing to a half point in December and a quarter point in February.Before this weekend, investors believed there was a substantial chance that the Fed would make a half-point increase at its meeting next week. That step up was seen as an option because job growth and consumer spending have proved surprisingly resilient to higher rates — prompting Jerome H. Powell, the Fed chair, to signal just last week that the Fed would consider a bigger move.But investors and economists no longer see that as a likely possibility.Three notable banks have failed in the past week alone as Fed interest rate increases ricochet through the technology sector and cryptocurrency markets and upend even usually staid bank business models.Regulators unveiled a sweeping intervention on Sunday evening to try to prevent panic from coursing across the broader financial system, with the Treasury, Federal Deposit Insurance Corporation and Fed saying depositors at the failed banks will be paid back in full. The Fed announced an emergency lending program to help funnel cash to banks facing steep losses on their holdings because of the change in interest rates.The Downfall of Silicon Valley BankOne of the most prominent lenders in the world of technology start-ups collapsed on March 10, forcing the U.S. government to step in.A Rapid Fall: The collapse of Silicon Valley Bank, the biggest U.S. bank failure since the 2008 financial crisis, was caused by a run on the bank. But will the turmoil prove to be fleeting — or turn into a true crisis?The Fallout: The bank’s implosion rattled a start-up industry already on edge, and some of the worst casualties of the collapse were companies developing solutions for the climate crisis.Signature Bank: The New York financial institution closed its doors abruptly after regulators said it could threaten the entire financial system. To some extent, it is a victim of the panic around Silicon Valley Bank.The Fed’s Next Move: The Federal Reserve has been rapidly raising interest rates to fight inflation, but making big moves could be trickier after Silicon Valley Bank’s blowup.The tumult — and the risks that it exposed — could make the central bank more cautious as it pushes forward.Investors have abruptly downgraded how many interest rate moves they expect this year. After Mr. Powell’s speech last week opened the door to a large rate change at the next meeting, investors had sharply marked up their 2023 forecasts, even penciling in a tiny chance that rates would rise above 6 percent this year. But after the wild weekend in finance, they see just a small move this month and expect the Fed to cut rates to just above 4.25 percent by the end of the year.Economists at J.P. Morgan said the situation bolstered the case for a smaller, quarter-point move this month.“I don’t hold that view with tons of confidence,” said Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that a move this month was conditional on the banking system’s functioning smoothly. “We’ll see if these backstops have been enough to quell concerns. If they are successful, I think the Fed wants to continue on the path to tightening policy.”Goldman Sachs economists no longer expect a rate move at all. While Goldman analysts still think the Fed will raise rates to above 5.25 percent this year, they wrote on Sunday evening that they “see considerable uncertainty” about the path.“I think the Fed is going to want to wait awhile to see how this plays out,” said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He explained that tremors in the banking system could spook lenders, consumers and businesses — slowing the economy and meaning that the Fed had to do less to cool the economy and lower inflation.“If it were me, I’d be inclined to pause,” Mr. English said.Other economists went even further: Nomura, saying it was unclear whether the government’s relief program was enough to stop problems in the banking sector, is now calling for a quarter-point rate cut at the coming meeting.The Fed will receive fresh information on inflation on Tuesday, when the Consumer Price Index is released. That measure is likely to have climbed 6 percent over the year through February, economists in a Bloomberg forecast expected. That would be down slightly from 6.4 percent in a previous reading.But economists expected prices to climb 0.4 percent from January after food and fuel prices, which jump around a lot, are stripped out. That pace would be quick enough to suggest that inflation pressures were still unusually stubborn — which would typically argue for a forceful Fed response.The data could underline why this moment poses a major challenge for the Fed. The central bank is in charge of fostering stable inflation, which is why it has been raising interest rates to slow spending and business expansions, hoping to rein in growth and cool price increases.But it also charged with maintaining financial system stability, and higher interest rates can reveal weaknesses in the financial system — as the blowup of Silicon Valley Bank on Friday and the towering risks for the rest of the banking sector illustrated. That means those goals can come into conflict.Subadra Rajappa, head of U.S. rates strategy at Société Générale, said on Sunday afternoon that she thought the unfolding banking situation would be a caution against moving rates quickly and drastically — and she said instability in banking would make the Fed’s task “trickier,” forcing it to balance the two jobs.“On the one hand, they are going to have to raise rates: That’s the only tool they have at their disposal” to control inflation, she said. On the other, “it’s going to expose the frailty of the system.”Ms. Rajappa likened it to the old saying about the beach at low tide: “You’re going to see, when the tide runs out, who has been swimming naked.”Some saw the Fed’s new lending program — which will allow banks that are suffering in the high-rate environment to temporarily move to the Fed a chunk of the risk they are facing from higher interest rates — as a sort of insurance policy that could allow the central bank to continue raising rates without causing further ruptures.“The Fed has basically just written insurance on interest-rate risk for the whole banking system,” said Steven Kelly, senior research associate at Yale’s program on financial stability. “They’ve basically underwritten the banking system, and that gives them more room to tighten monetary policy.”Joe Rennison More

LONDON/NEW YORK (Reuters) -The International Monetary Fund (IMF) and Argentina reached a staff-level agreement on the fourth review of their $44 billion loan program, the IMF said in a statement on Monday, confirming that some economic targets for the country could be eased.The IMF staff said that adjustments were being requested to key targets to build up foreign currency reserves, which has been hampered by a major drought gripping the grains producing nation that has hurt exports of soy, corn and wheat.It said adjustments would be focused on early 2023 and would help adapt the program for the “impact of the increasingly severe drought”, while also taking into account plans by the country to save dollars by cutting spending on energy imports.Argentina, the world’s biggest exporter of soymeal and soyoil and the No. 3 for corn, is facing the worst drought in at least six decades, combined with repeated heat waves.The IMF said that the country would need to strengthen its policy package in the face of the drought to ensure stability, rein in annual inflation running near 100% and address what it called “recent policy setbacks”.Reuters previously reported that Argentina was looking to lower the bar on the reserves targets agreed with the IMF, including by linking the targets to its exports.”The IMF is acknowledging that the macroeconomic backdrop has become more challenging, especially considering the severe drought,” said Gordian Kemen, a New York-based head of EM sovereign strategy at Standard Chartered (OTC:SCBFF).Even so, he said, it was unclear how Argentina would be able to “re-accelerate reserve accumulation later”, especially with pressure to spend ahead of elections slated for October.SCARCE RESERVESArgentina’s net reserves stood at around $4.2 billion at the end of February, according to calculations from Buenos Aires-based firm FMyA.The review is now pending board approval, after which some $5.3 billion would be made available to Argentina.The current loan arrangement was worth $44 billion when it was agreed in early 2022 to replace a failed $57 billion program from 2018. Most of the cash would be used to pay the fund back.Argentina surprisingly announced in January a debt buyback despite depleted hard currency reserves – a move that Moody’s (NYSE:MCO) considered a default, while S&P and Fitch did not. A top IMF official later said the fund would “prefer not to have actions that undermine the reserve accumulation that we’re assuming in the program.” More

TORONTO (Reuters) – Last week’s sudden collapse of Silicon Valley Bank (SVB) could choke funding for Canada’s technology start-ups and place them in the hands of domestic lenders who may be more selective in financing new ventures, financiers told Reuters.That would be bad news for a sector that took a beating in 2022, which has made investors more risky averse in early stage investments.”I would say this is probably the worst possible time (for this to happen) in the last decade because of the tech pullback we’ve had,” said Neil Selfe, CEO at advisory INFOR Financial. SVB’s Canadian division, which received a license to operate in 2019, competed against other banks and private lenders to help finance the growth of the Canadian technology sector, before it collapsed on Friday. It had doubled its secured loans to C$435 million ($314 million) in 2022 from previous year.Canada had come to be known as the world’s second-biggest global tech hub in the world after Silicon Valley, Kim Furlong, CEO of Canadian Venture Capital and Private Equity Association told CBC News on Monday.Companies including Shopify (NYSE:SHOP) Inc were examples of Canada’s tech success story, which helped pull more investments into the sector.U.S. regulators stepped in on Sunday after the collapse of SVB, which had a run after a big bond portfolio hit.CIBC, Royal Bank of Canada and Bank of Montreal were the most likely to pick up both SVB’s current book, and future clients in Canada, John Ruffolo, Managing Partner Maverix Private Equity, a Toronto-based PE firm said.All three banks have dedicated technology lending groups.A spokesperson for RBC declined to comment while CIBC and BMO did not respond to requests for comment.Selfe at INFOR Financial said while SVB Canada was a smaller player “it was an important competitor in that market.””I think Canadian banks will continue to lend to earlier stage technology companies but without Silicon Valley Bank as a lender, I think they can afford to be much more selective in who they lend to and potentially increase the price at which they lend.”Canada’s top six banks already control more than 80% of the banking assets and the industry has come has attack from consumers advocates and politicians for its dominance.Benjamin Bergen, president at Council of Canadian Innovators, a lobby group for Canadian technology companies, agreed.”Before SVB went down, accessing capital was increasingly becoming tighter and tighter for Canadians for startups for scale ups,” he said.”And with this, really what we’re hearing from the ecosystem is, you know, it is going to make it even more difficult, so that’s really what we’re monitoring.”Canadian companies saw overall venture capital investment of C$1.3 billion ($947.38 million) so far this year, compared to C$4.5 billion over the first three months of 2022 and C$3.5 billion over the same period in 2021, according to Refinitiv data.Funding environment for start-ups was already getting difficult due to rising interest rates. Investors were also turning selective due to the threat of a recession. Aside from the banks, the federal government also has a Venture Capital Catalyst Initiative program that invests in promising Canadian technology companies. ($1 = 1.3722 Canadian dollars) More

Ahead of Hunt’s annual budget on Wednesday, the finance ministry said each of the zones will be backed by 80 million pounds spread over five years that can be directed towards tax relief for businesses, training and infrastructure.Hunt also announced 100 million pounds ($122 million) of funds to be shared across Glasgow, Manchester and part of central England to improve their research and development centres.Hunt looks set to keep his grip on public finances in the budget, holding off on any big tax cuts or spending increases until the next election comes closer into view.”True levelling up must be about local wealth creation and local decision-making to unblock obstacles to regeneration,” Hunt said in a statement.”From unleashing opportunity through new Investment Zones, to a new approach to accelerating R&D in city regions, we are delivering on our key priority to supercharge growth across the country.”Hunt’s predecessor Kwasi Kwarteng had previously announced investment zones – a key policy of the short-lived Truss government – that would have offered much larger tax relief for businesses but at a larger cost for the government.Truss’s spending plans – and the promise to fund them out of future economic growth – triggered a sell-off in British assets that ultimately ruined her premiership and ushered in Rishi Sunak as her replacement.The finance ministry said it was working closely with the devolved governments of Scotland, Wales and Northern Ireland to establish how investment zones would be delivered in those places.($1 = 0.8222 pounds) More