Economy

LONDON (Reuters) – Liz Truss is expected to be named leader of the governing Conservative Party and Britain’s next prime minister on Monday, poised to take power at a time when the country faces a cost of living crisis, industrial unrest and a recession.After weeks of an often bad-tempered and divisive party leadership contest that pitted Truss against Rishi Sunak, a former finance minister, Monday’s announcement at 1130 GMT will trigger the beginning of a handover from Boris Johnson. He was forced to announce his resignation in July after months of scandal.On Tuesday, the winner will travel to Scotland to meet Queen Elizabeth, who will ask the new leader to form a government.Long the front runner in the race to replace Johnson, Truss, if appointed, will become the Conservatives’ fourth prime minister since a 2015 election. Over that period the country has been buffeted from crisis to crisis, and now faces what is forecast to be a long recession triggered by sky-rocketing inflation which hit 10.1% in July.Foreign minister under Boris Johnson, Truss, 47, has promised to act quickly to tackle Britain’s cost of living crisis, saying that within a week she will come up with a plan to tackle rising energy bills and securing future fuel supplies.Speaking in a TV interview on Sunday she declined to give details of the measures she says will reassure millions of people who fear they will be unable to pay their fuel bills as winter approaches.She has signalled during her leadership campaign she would challenge convention by scrapping tax increases and cutting other levies that some economists say would fuel inflation.That, plus a pledge to review the remit of the Bank of England while protecting its independence, has prompted some investors to dump the pound and government bonds.The Institute for Fiscal Studies cast doubt last month on Britain’s next prime minister having room to make large, permanent tax cuts.’SECOND MOST DIFFICULT POST-WAR BRIEF’Truss faces a long, costly and difficult to-do list, which opposition lawmakers say is the result of 12 years of poor Conservative government. Several have called for an early election – something Truss has said she will not allow.Veteran Conservative lawmaker David Davis described the challenges she would take on as prime minister as “probably the second most difficult brief of post-war prime ministers” after Conservative Margaret Thatcher in 1979.”I actually don’t think any of the candidates, not one of them going through it, really knows quite how big this is going to be,” he said, adding that costs could run into tens of billions of pounds.Truss has said she will appoint a strong cabinet, dispensing with what one source close to her called a “presidential-style” of governing.First she will turn to the urgent issue of surging energy prices. Average annual household utility bills are set to jump by 80% in October to 3,549 pounds ($4,084), before an expected rise to 6,000 pounds in 2023, decimating personal finances.Britain has lagged other major European countries in its offer of support for consumer energy bills, which opposition lawmakers blame on a “zombie” government unable to act while the Conservatives ran their leadership contest.In May, the government set out a 15-billion-pound support package to help households with energy bills as part of its 37-billion-pound cost-of-living support scheme. Italy has budgeted over 52 billion euros ($51.75 billion) so far this year to help its people. In France, increases in electricity bills are capped at 4% and Germany said on Sunday it would spend at least 65 billion euros shielding consumers and businesses from rising inflation.($1 = 0.8690 pounds)($1 = 1.0049 euros) More

The war in Ukraine, Covid-19 and the rise of China will force multinational companies to embrace a new version of globalisation, where cutting costs comes second to a “predictability premium”, the US ambassador to Japan has said.In an interview seven months after his arrival in Tokyo, Rahm Emanuel said recent supply chain upheaval and Beijing’s regulatory unpredictability had exposed the dangers of over-reliance on China, drawing Japanese companies to invest in the US.A two-month spree of multibillion-dollar investment pledges in the US by some of Japan’s biggest companies, including Toyota, Panasonic and Honda, was just the start, said Emanuel, a former chief of staff for Barack Obama who has close ties to US president Joe Biden.“You really have a different iteration of globalisation emerging,” he said. “The last 20 years have been organised around cost and efficiency. That’s being either balanced against or replaced by stability and sustainability.”The ambassador, who has taken an unusually hands-on approach to attracting Japanese investment to the US, said his view on the new economic landscape was formed through exchanges with more than a hundred chief executives at companies including Honda, Takeda, NEC, Nissan and Hitachi.Companies were facing historic uncertainty about market growth, inflation and the terms of competition, Emanuel said. “We all know the term ‘risk premium’, well, there’s a predictability premium out there . . . business people and governments; that’s all they’re talking about,” he said.The Biden administration is offering generous incentives to attract multinationals to build supply chains for chips, batteries and other key technologies in the US in order to eliminate dependency on China. A critical pillar of that US strategy is the recently passed Inflation Reduction Act, Biden’s flagship climate, tax and healthcare bill that offers tax credits of up to $7,500 for electric vehicles assembled in North America.Emanuel said the Chips and Science Act, a bill passed last month that aims to provide incentives for the reshoring and growth of a domestic semiconductor industry, was another key element in US plans to attract stabilising investment around strategic technology.The US this week threatened China’s access to high-end processors from Nvidia, telling the chipmaker it would need special licences to sell the products to Chinese customers.

The Nvidia case illustrates the speed at which a form of economic decoupling between the US and China has been imposed on the market. Emanuel said delegations of top US politicians would be visiting Japan in the coming months to explain the full implications of the chips act to chief executives throughout Japan’s semiconductor production chain.While companies were still attracted to the growth opportunities in China, Emanuel also said they were rapidly moving to reduce risks in the supply chains. “Do multinationals want access to the China market? Yes. Do they want to be dependent on China sourcing? Not a chance,” he said. More

Minister Choo Kyung-ho made the remarks at the beginning of a scheduled meeting of top economic and finance officials, which also included the heads of the central bank and two financial markets regulatory agencies.The meeting was convened as aggressive policy tightening by the U.S. Federal Reserve and other major central banks and signs of slowing in most of the major economies have pulled down the won, bond and stock prices.He did not elaborate on action the authorities might take.Choo said external factors were mostly to blame for the increased volatility in the local markets, adding the country’s economic fundamentals remained strong, such as the current account balance still in surplus. More

(Reuters) – Britain’s business minister Kwasi Kwarteng believes Liz Truss will make it her aim to get to 2.5% trend growth, if appointed as the prime minister, he wrote in Financial Times on Sunday.Truss, who is the front-runner to become the next prime minister, will be “fiscally responsible” and will work to reduce the debt-to-GDP ratio over time, he added. (https://on.ft.com/3TGUYbE) More

Wall Street’s lurch into the red late on Friday sets a negative tone for the open in Asia on Monday, a stark reminder that investors are still far more inclined to sell into pockets of strength in riskier assets right now than push them higher.August purchasing managers index (PMI) reports on Monday from Australia, Japan, China and India could deepen or alleviate the general sense of gloom, but the U.S. close last week suggests any relief might be fleeting.U.S. markets are closed for the Labor Day holiday so liquidity will be lighter than normal, while European markets will digest the news that Russia scrapped a Saturday deadline to resume flows via a major gas supply route to Germany.The impact of Europe’s energy crisis on global financial markets cannot be ignored.It wasn’t meant to be like this after Friday’s non-farm payrolls report painted a “Goldilocks” scenario of the U.S. jobs market for the Fed – slowing but still solid job growth, and cooling inflationary pressures from slowing earnings growth. But stocks failed to hold onto the early gains, despite the pullback in bond yields, implied interest rates, and the dollar. (GRAPHIC-U.S.-Japan 2-year yield spread: https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgnwqdpb/USJP.png) The dollar will bear close monitoring, having hit a 24-year high on Friday against the yen above 140.00 yen. Japan’s Finance Minister Shunichi Suzuki said G7 financial leaders did not discuss FX on Friday, but insisted that sharp moves in exchange rates are undesirable.Meanwhile, U.S.-China tensions continue to taint regional sentiment. The State Department on Friday announced a potential $1.1 billion sale of military equipment to Taiwan, a measure that the Chinese Embassy in Washington said “severely jeopardizes China-U.S. relations and peace and stability across the Taiwan Strait.”All in all, a challenging environment for Asian markets on Monday.Key developments that should provide more direction to markets on Monday: Australia services, composite PMIs (Aug, final)Japan services, composite PMIs (Aug, final)China Caixin services PMI (Aug)India services PMI (Aug)South Korea FX reserves (Aug) More

The International Monetary Fund (IMF) on Thursday approved a $1.3 billion, 38-month loan programme, a step taken after its main creditors China and France agreed in July to negotiate to restructure the southern African country’s debt. “The bonds fall due (but) we will not pay on this basis. Let’s talk. Let’s agree on new terms before we can start servicing,” Musokotwane told local news channel ZNBC in an interview. The negotiations with private creditors are likely to be tough but Zambia has the support of the international community, the minister said.Zambia became the first African country to default in the pandemic era in 2020, struggling with debt that reached 120% of its gross domestic product.Besides the $750 million euro bond, Zambia has a $1 billion euro bond due in 2024 and another $1.25 billion euro bond due for repayment in 2027.Musokotwane said the government had agreed with the IMF to put in place measures to ensure Zambia will not fall back into unsustainable debt. More

FRANKFURT/BRUSSELS (Reuters) -The European Union is preparing an emergency plan to separate power prices from the soaring cost of gas – as well as longer-term reforms aimed at ensuring electricity prices reflect cheaper renewable energy.Energy ministers from EU countries will meet on Sept. 9 to discuss how to ease the burden of soaring energy prices https://www.reuters.com/business/energy/eu-sets-sights-energy-market-reform-prices-soar-2022-08-30 on businesses and households as a matter or urgency.European power costs have surged in the last year, driven by record gas prices as Russia curbed supply to Europe. European governments have accused Moscow of using energy as blackmail, in retaliation for western support for Ukraine after Russia’s invasion. Russian gas giant Gazprom (MCX:GAZP) says it is a reliable supplier and has blamed cuts in flows on technical issues.Changing the 27-country EU’s energy systems may be complex and lengthy, as the cross-border trading of energy commodities among the bloc’s members has taken two decades to emerge and solidify. But policymakers are racing to find a short-term solution. Here’s why Europe is considering energy market reforms, and what they could entail.WHY IS THE ELECTRICITY PRICE LINKED TO GAS?In the EU energy system, the wholesale electricity price is set by the last power plant needed to meet overall demand. Wind farms, nuclear, coal and gas plants and all other generators bid into the power market, with the cheapest sources coming in first, followed by pricier sources like gas. Gas plants often set the price in this system.The idea is that because all generators sell their power at the same price, the cheaper renewables generators end up with a bigger profit margin – a stimulus that incentivises more investment in the renewable generation Europe needs to reach climate change goals.But countries including Spain have said the system is unfair, as it results in cheap renewable energy being sold to consumers for the same price as costlier fossil fuel-based power.Gas prices have soared as Russia has cut the volumes it sends to Europe. Gas prices are determined by global competition for the fuel, and European buyers are competing with firms in other countries to snap up non-Russian gas.The effect has been to drive up the price of producing power from gas in Europe, resulting in higher overall power prices.”The current market design offers Russia, for example, a virtual field of action for destructive market manipulation,” Nina Scheer, parliamentary energy spokeswoman of the Social Democrats, the leading party in the Berlin coalition, wrote in the Handelsblatt business daily on Aug. 30.Other factors boosting power prices include problems with French nuclear plants https://www.reuters.com/world/france-braces-uncertain-winter-nuclear-power-shortage-looms-2022-08-30 and severe drought in Europe that hampered hydropower output and affected coal deliveries. Germany’s benchmark power contract for 2023 on Monday hit 1,050 euros a megawatt hour (MWh), 14 times the level a year ago.HOW COULD THE EU CHANGE ENERGY PRICES?EU Commission chief Ursula von der Leyen said on Aug. 29 that the EU needed to decouple the price of gas and power, without giving further details.The Czech Republic https://www.reuters.com/business/energy/high-energy-prices-should-be-tackled-european-level-czech-leader-says-2022-08-29, which holds the EU’s rotating presidency, is rallying support for a cap on the price of gas used to generate electricity. The idea of capping gas or power prices has long had support from Spain, Belgium and others, and now initially reluctant Austria and Germany. France is among the states in favour of action to separate the price of electricity from the price of gas. One option, proposed by Italian Prime Minister Mario Draghi, would be for EU countries to agree a cap on the price of gas imported from Russia. Critics say that would risk Russia completely cutting off Europe’s gas supply in retaliation.Another option could be for governments to cap the gas price, and pay gas companies the difference between the capped price and the higher market price. Countries, including Germany and the Netherlands, previously opposed that since it would effectively subsidise fossil fuel generation with public funds that they said would be better spent on the shift to cheaper clean energy. Other options could include restricting financial speculators’ participation in gas markets, or setting up a parallel market for gas-fuelled power, separate to the existing electricity market.WHAT ARE THE POTENTIAL DOWNSIDES?High gas prices provide a financial incentive for industries and households to reduce their gas consumption – a behavioural change governments are trying to encourage to ensure there is enough fuel to get through winter. Capping the gas price would limit that incentive, and critics say it could even encourage more gas use when governments need to be rolling out policies to reduce consumption.Some analysts have suggested targeted financial support for low-income households and businesses hit hardest by the soaring prices would be a better option than a hasty market overhaul.Other questions remain about how governments could cap the cost of gas-fuelled power in a way that did not encourage gas plant owners to produce less power when countries urgently need it. More

Workers should blow the whistle on bosses who are encouraging them to quit retirement plans to save companies money, the Pension Regulator has said. The watchdog’s intervention comes after the Trades Union Congress, the UK’s main movement for organised labour, last week said more of its members were leaving their pension schemes to cope with the intensifying cost of living crisis. The regulator said employers that sought to induce staff to opt out of their pension plan risked enforcement action and fines, and that employees should sound the alarm if this was happening. It added that companies could not “encourage their staff to reduce their contributions below the statutory minimum or opt out. It can only be the saver’s decision”.The intervention comes as businesses across the UK are also facing unprecedented financial strain from soaring energy bills, and demands for inflation-matching pay rises. Official guidance states that an inducement is any action taken by the employer, the sole or main purpose of which is to attempt to induce a jobholder to opt out or cease active membership of a qualifying scheme.More than 10mn UK employees are enrolled into company pension plans, and businesses have since 2012 been obliged to automatically enrol eligible staff into a qualifying scheme. Under this model, employers pay at least 3 per cent of a worker’s pensionable salary into the retirement plan, with the worker contributing at least 5 per cent. If an auto-enrolled employee reduced their monthly contributions to less than the minimum 5 per cent, they could continue saving but their employer would not be obliged to maintain its contribution,The regulator said that even in “difficult times”, it was important for people to keep up their pension contributions “whenever they are able to, as stopping contributions could have a serious impact on their retirement living standards”. “While staff can ask to opt out, we are calling on employers to do the right thing and encourage them to seek impartial advice . . . before making any decisions. “Anyone who is concerned their employer is encouraging them to opt out of their pension should contact our whistleblowing service,” it addedThe consultancy Barnett Waddingham last month estimated that more than 1mn workers were looking to reduce their pension contributions to help pay for soaring living costs. Unions have been on the alert following high-profile inducement cases, such as when an NHS trust was in 2016 referred to the regulator after it offered newly qualified nurses more pay if they opted out of their NHS pension. “The law is clear, and any worker who is concerned about this should speak to their union,” said Jack Jones, pensions policy officer at the TUC. Matthew Percival, changing workforce director at the CBI, the business group, said: “To be clear, employer induced opt-outs are illegal. The regulator is right to highlight the potential sanctions for firms taking such action.” More