Economy

LONDON/BERLIN (Reuters) – Britain will cap consumer energy bills for two years and funnel billions to prop up power companies, its new leader Liz Truss said on Thursday in a bid to tackle an energy crisis that has Europe and Russia squaring off in a deepening economic war.European governments are spending hundreds of billions of euros to help consumers and businesses cope with soaring energy bills as the price of gas, already high post the COVID pandemic, went stratospheric in the wake of Russia’s invasion of Ukraine.”This is the moment to be bold, we are facing a global energy crisis, and there are no cost-free options,” Truss told parliament, embarking on a major turnaround after ruling out “handouts” during her campaign to become prime minister.Truss’s package, funded by government borrowing, could cost Britain about 150 billion pounds, rattling financial markets, where the pound is hovering around lows plumbed in 1985.Russia’s invasion of Ukraine has exposed Europe’s reliance on Russian gas with the bloc accusing Moscow of weaponising energy supplies in retaliation for Western sanctions imposed on it over the conflict. Russia blames those sanctions for causing the gas supply problems.European Union energy ministers will meet on Friday to discuss the 27-nation bloc’s response to the crisis, after a mixed initial response to a planned Russian gas price cap that risks provoking Moscow.Just before the EU announced the price cap on Wednesday, Russian President Vladimir Putin threatened to sever all energy supplies if such limits were imposed, warning the West it would freeze like the wolf’s tail in a famous Russian fairy tale.GERMAN SUBSIDIESAs part of measures to shield its economy, Germany plans to subsidise a basic level of electricity usage for households and set aside cheaper power for small and medium-sized businesses, according to measures set out in an Economy Ministry paper seen by Reuters on Thursday.Electricity distributors would be required to grant households a certain electricity quota at a discounted price per kilowatt hour, with a similar contingent planned for small and medium-sized enterprises, the paper said.With Russian deliveries in doubt, Europe has also been on the hunt for alternative sources of gas and delivery routes, with several countries pushing for more liquified natural gas (LNG) import terminals.On Thursday, the Netherlands said the first ship to bring LNG had docked at a new terminal at the Dutch port of Eemshaven.Capacity has been booked by Shell (LON:RDSa), France’s Engie and CEZ of the Czech Republic.Friday’s EU ministerial meeting is not expected to approve any policies, but should make clear which options have strongest support. The Baltic states are in favour of putting a price cap on Russian gas, as do countries that do not rely on Moscow for fuel, including Portugal, diplomats said. Others have warned that unity among EU members would be needed to make it happen. Given the low volumes supplied to Europe – and thus, Moscow’s lower gas revenues – some suggested a price cap would not accomplish much. “It wouldn’t solve anything,” one EU diplomat said.UK SUBSIDIESIn Britain, Truss said average household energy bills would be held at around 2,500 pounds a year for two years, staving off a major price leap expected next month that threatened the finances of millions of households and businesses.She said new methods of supply would also be introduced, with a moratorium on fracking being dropped and new oil and gas exploration licences issued for the North Sea.Separately the Treasury and Bank of England will launch a 40 billion pound scheme to shield energy firms from a liquidity squeeze due to sky-high gas prices.Other countries have set up similar schemes, with Denmark announcing on Thursday that it would provide 100 billion Danish crowns ($13.4 billion) in guarantees to energy firms. Meanwhile, a Russian strategy document, seen by Reuters, showed that Putin’s threat to completely cut off energy supplies could prove to be a double-edged sword for Russia.”A reduction in supplies to foreign consumers will lead to an imbalance in the system, when low prices on the domestic market are offset by export revenue,” said the document, which was discussed at a closed meeting chaired by Prime Minister Mikhail Mishustin in Moscow on Aug. 30. More

Last-mile autonomous delivery has emerged as a focus area for companies as consumers have stuck to ordering meals online from the comfort of their homes even after lifting of COVID-19 lockdowns. Tests with Nuro will begin this fall in Houston, Texas, and Mountain View, California, under a 10-year partnership and the company plans to expand the service to the greater Bay Area. Uber, which aims to have only electric vehicles on its platform in the United States, Canada and Europe by 2030, has also been running tests for autonomous delivery with Serve Robotics that provides sidewalk machines for delivery, and self-driving start-up Motional. Nuro, founded by former lead engineers from Google (NASDAQ:GOOGL)’s self-driving car project, already has partnerships with U.S. retailers such as Kroger (NYSE:KR) and Walmart (NYSE:WMT), as well as restaurant chains including Domino’s Pizza (NYSE:DPZ) Inc and Chipotle Mexican Grill Inc (NYSE:CMG). In the Uber Eats trial, customers will be able to choose driverless delivery as an option when ordering food and groceries. While Uber’s ride-hailing business has recovered from pandemic lows as people resume travel, attend social events and return to offices, its food delivery unit faces risks from restaurant reopenings and rising costs of ordering in. More

By Nick Carey and Ben KlaymanMACCLESFIELD, England (Reuters) – Large corporations are jumping on the “green” bandwagon left and right, which in turn is pushing firms that lease and manage car fleets to convert to electric vehicles (EVs) faster than they had ever thought possible.In late 2020, fleet management company ALD set a to have 30% of its new cars electrified by 2025 – a goal that seemed like a stretch because as recently as 2019 only one in 200 of ALD’s new vehicles was an EV or a hybrid. But corporate clients chasing environmental, social and governance (ESG) goals pushed the leasing giant, a unit of Societe Generale (OTC:SCGLY), past that target in 2021. ALD will likely set a new goal that around 50% of its new vehicles will be either EVs or hybrid models by 2025 as corporations’ hunger for zero-emission options to meet ESG targets keeps growing, Deputy Chief Executive Officer John Saffrett told Reuters. Corporate clients are “all sitting there trying to figure out how they’re going to meet their sustainability objectives,” Saffrett said. “An obvious part of their footprint today that they’re trying to address is their vehicle fleet.”Firms like ALD – which replaces its entire fleet every 42 months – play an important role in the auto industry, buying millions of vehicles globally that also help shape the future of the used car market when they come off lease. ALD also leases cars to both firms and consumers on behalf of some major carmakers including Tesla (NASDAQ:TSLA) Inc and Ford Motor (NYSE:F) Co.According to industry data, leasing has grown as retail sales have fallen – the share of cars bought at retail in Europe fell to 45% in 2021 versus 55% in 2020.BANISHING CARBON FROM SUPPLY CHAIN France-based ALD is taking over Dutch rival LeasePlan, giving it a combined global fleet of around 3.5 million vehicles, as it focuses on scaling up its EV business. Large ALD customers like AstraZeneca (NASDAQ:AZN) Plc have set electrification targets – the drugmaker wants its global fleet of 17,500 vehicles to be fully electric by 2025 – and are pushing carmakers to make those cars greener. That intensifies the pressure on the auto industry to squeeze carbon and other harmful materials out of their supply chains.But electrifying large fleets is easier said than done. A lack of available public charging infrastructure means that for companies with sales representatives who drive long distances, only plug-in hybrids will work for now.”The challenge you have with electrification as a corporate is you can’t just switch drivers on day one,” ALD’s Saffrett said. “You’d love to, but it simply doesn’t work.” In Africa, some parts of Asia and Europe, companies like AstraZeneca also face a lack of available EV or hybrid models. In other areas, where a more rugged pickup truck is needed to reach the doctors served by such companies, suitable EVs are in short supply. AstraZeneca, for instance, has no choice but to buy fossil-fuel models in those regions, said Juliette White, the drugmaker’s head of global sustainability.Around 58% of AstraZeneca’s global fleet are EVs, hybrids or plug-in hybrids.”What we’re absolutely clear about is if there is a plug-in hybrid or EV available, you’re not getting a combustion engine model,” White said at AstraZeneca’s manufacturing site in Macclesfield in Northern England. ‘LOW-HANGING FRUIT’The rush to electrification is intensifying in Europe, where corporations face regulatory pressure to cut carbon footprints. The most immediate focus is on so-called Scope 1 and Scope 2 emissions – those a company generates itself directly and indirectly. AstraZeneca’s fleet, for instance, accounts for just under 17% of its emissions. At German agriculture and pharmaceuticals company Bayer (OTC:BAYRY), its fleet accounts for under 5% of emissions. Bayer is aiming for 30% of its global fleet of 26,000 light-duty trucks, SUVs and sedans to be electric within the next four years. Going electric ticks both of those boxes. “It’s very low-hanging fruit and it’s super easy to focus on your fleet,” said Wolf-Dieter Hoppe, a Munich-based partner at consultancy Arthur D. Little. Passenger cars and commercial vehicles are by far the largest asset class in Europe’s leasing market. According to industry lobby group Leaseurope, in 2020 new vehicle leases totaled 244 billion euros ($249.5 billion), or 69% of all equipment leases.AstraZeneca’s White said large companies are also “pushing for greener and more sustainable EVs … because otherwise what’s the point?”In Europe, EVs can also serve as a marketing tool for companies battling for qualified employees. “Company cars can be a determining factor in the war for talent,” said Piet Briers, Bayer’s head of benefits. “As the availability of zero-emission car models as well as charging infrastructure continue to positively evolve, we see that employees are getting more engaged to opt for sustainable solutions.”But North America is catching up. By 2030, around 40% to 60% of the 1.5 million vehicles Toronto-based Element Fleet Management Corp manages – 75% of which are in the United States and Canada – will be fully electric as businesses pursue ESG goals, said Chief Executive Jay Forbes. Again, though, the availability of suitable models and charging infrastructure will slow the adoption of EVs by corporate customers, he said.”In 2019, I couldn’t get anyone talking about this,” Forbes said. “In 2022, all my clients want to talk about this evolution.”($1 = 0.9780 euro) More

Germany’s 10-year bond yield briefly rose after the hike but was last at 1.58%, unchanged from prior to the decision. The two-year yield, sensitive to interest rate expectations, was up 2 bps to 1.10%, similar to before the decision. Italian bond yields fell 1.5 bps to 3.8147. The closely-watched risk premium they pay over German peers was unchanged at 225 bps.Money markets moved to price in another 49 bps of rate hikes at the ECB’s October meeting, compared to around 50 bps before the decision. The euro briefly edged up but was last trading at around $1.0007, little changed from where it was trading just before the rate move. Euro zone bank stocks jumped and were up more than 1%, while the broader stock market wavered and was last down 0.1%. . More

KYIV (Reuters) -Ukraine’s central bank kept its main interest rate unchanged at 25% on Thursday, warning of high inflationary pressure and saying an extended full-scale war with Russia remained the key economic risk. Inflation rose to 22.2% year on year in July, reaching around 23% last month, though the growth in inflation was slightly slower than earlier forecast and inflation was set to remain under control, it said. The central bank was ready to step in to hike the rate if required and to deploy other measures to protect its international reserves and maintain control over inflation. “Inflationary pressure remains high,” it said. “Effects of the war, in particular the destruction of production facilities and disruption of logistics, still have a major impact on prices of almost all goods and services in the consumer basket,” it added. Buffeted by Russia’s Feb. 24 invasion, the government has forecast an economic contraction of 30-35% this year, while forecasts for gross domestic product in 2023 range from a further contraction of 0.4% to an expansion of 15.5%.The central bank saw no grounds to revise the current official exchange rate for the hryvnia, the national currency, Central Bank Deputy Governor Serhiy Nikolaychuk told reporters at a briefing. Ukrainian officials have estimated the country faces a $5 billion-a-month fiscal shortfall and outside financing has taken on vital significance for Kyiv as the war with Russia nears the seven-month mark. “Ongoing international support will enable the (National Bank of Ukraine) to maintain international reserves at a sufficient level in the coming years,” the central bank said. Ukraine turned to the International Monetary Fund for a new credit programme at the beginning of August. Nikolaychuk told reporters after the rate meeting that active consultations continued between Kyiv and the IMF. “We hope that as a result of these discussions, in the nearest future there will be official announcements on the formats of IMF support of Ukraine in (the current) conditions,” he said. President Volodymyr Zelenskiy said on Wednesday that Ukraine needed a “full-fledged” programme of IMF financing. More

The ECB lifted its deposit rate to 0.75% from zero and raised the main refinancing rate to 1.25%, their highest level since 2011, as inflation is becoming increasingly broad and was at risk of getting entrenched.”Over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations,” the ECB said in a statement.The move comes after weeks of canvassing by policymakers, with a seeming majority making the case for a 75 basis-point hike and a few policy doves trying to downgrade expectations.Markets, however, sided with the conservatives and priced in an 80% likelihood of a 75 basis-point move, even as economists polled by Reuters were more evenly split, showing only a slight majority expecting the larger move.The large hike comes as the ECB increased its own inflation forecasts and continues to see price growth well above its 2% target throughout its entire projection horizon.”ECB staff have significantly revised up their inflation projections and inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024,” the ECB added.Conservatives feared that anything but an oversized move would signal that the ECB was not serious about its inflation-fighting mandate. That risked pushing up already high long-term inflation expectations, which would signal a loss of confidence in the ECB.Timid action would have also weakened the euro, boosting inflation through more expensive energy imports.Frontloading the rate hikes also allows the ECB to get most of the work done before the recession sets in.Attention now turns to ECB President Christine Lagarde’s 1245 GMT news conference. More

The threat to Europe’s industrial might and living standards is particularly acute as policymakers race to decouple the continent from Russia’s power sources.Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”Several countries, including Germany, the region’s largest economy, built up a decades-long dependence on Russian energy. The eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.The risk of sinking incomes, growing inequality and rising social tensions could lead “not only to a fractured society but a fractured world,” said Ian Goldin, a professor of globalization and development at Oxford University. “We haven’t faced anything like this since the 1970s, and it’s not ending soon.”Other regions of the world are also being squeezed, although some of the causes — and prospects — differ.Gazprom, Russia’s state-owned energy company, said this week that it would not resume the flow of natural gas through its Nord Stream 1 pipeline until Europe lifted Ukraine-related sanctions.Hannibal Hanschke/EPA, via ShutterstockHigher interest rates, which are being deployed aggressively to quell inflation, are trimming consumer spending and growth in the United States. Still, the American labor market remains strong, and the economy is moving forward.China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.A troubled real estate market has added to the economic instability in China. Hundreds of thousands of people are refusing to pay their mortgages because they have lost confidence that developers will ever deliver their unfinished housing units. Trade with the rest of the world took a hit in August, and overall economic growth, although likely to outrun rates in the United States and Europe, looks as if it will slip to its slowest pace in a decade this year. The prospect has prompted China’s central bank to cut interest rates in hopes of stimulating the economy.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More