Economy

MOSCOW (Reuters) – Russia should increase the rouble’s share in international settlements and gradually move towards stopping using currencies of designated ‘unfriendly’ countries that imposed sanctions on Russia, Prime Minister Mikhail Mishustin said on Tuesday.Mishustin also said that Moscow deems digital assets to be an alternative to foreign currencies in cross-border transactions. More

The IMF agreed to extend the programme by a year and increase the total funding by 720 million special drawing rights, or about $940 million at the current exchange rate.The funds will be a lifeline to the South Asian country now also suffering from devastating floods that have already killed more than 1,100 people and inflicted at least $10 billion of damage according to the country’s planning minister.In a statement, IMF Deputy Managing Director Antoinette Sayeh said adhering to scheduled increases in fuel levies and energy tariffs was “essential” with Pakistan’s economy being “buffeted by adverse external conditions”. These include “spillovers from the war in Ukraine, and domestic challenges, including from accommodative policies that resulted in uneven and unbalanced growth,” Sayeh noted.The floods were not mentioned in the fund’s statement. Pakistan’s Prime Minister Shehbaz Sharif said on Twitter (NYSE:TWTR) that the formal resumption of IMF support though was “a major step forward in our efforts to put Pakistan’s economy back on track”.Confirmation of the widely-expected assistance gave Pakistan’s government bonds a small lift on Tuesday. They have fallen heavily this year as the economic woes have left it with a wide current account deficit and critically low foreign exchange reserves. The IMF estimated those reserves would only cover key imports for little over two months. The economy is also wracked by soaring inflation and political upheaval after former prime minister Imran Khan was ousted in April.Pakistan must hold elections by the second half of next year, but Khan, who negotiated the latest IMF programme in 2019 and now faces terrorism charges for comments he made about the police, is calling for them to be held immediately.”Steadfast implementation of corrective policies and reforms remains essential to regain macroeconomic stability,” the IMF’s Sayeh said. MATERIAL RISKAfter announcing the Fund’s approval on Twitter, Pakistan’s Finance Minister Miftah Ismail said the government’s efforts to get the programme back on track via painful corrective economic measures had saved the country from default.Pakistan has had dozens of IMF programmes since the 1980s. The latest one was initially supposed to provide $6 billion over 36 months, but had been stalled by this year’s political turbulence and struggles to meet key programme targets. Tellimer economist Patrick Curran said there was material risk that the IMF’s current account forecast would prove overly optimistic and that Pakistan might not be able to bring in as much external financing from Gulf countries as it would like.”Any slippage from programme targets could land Pakistan back in hot water in light of its massive external funding needs, requiring renewed Pakistan rupee depreciation and support from bilateral partners to avoid a BOP crisis,” Curran said.The torrential flooding in three of Pakistan’s four provinces also threatens to worsen the situation, he added. Monday’s IMF statement also saw it approve Pakistan’s request for waivers related to the country’s failure to meet some of its targets. “The authorities have taken important measures to address Pakistan’s worsened fiscal and external positions,” the IMF said. More

UK consumers increased their credit card borrowing at the fastest annual rate in 17 years last month, according to figures published on Tuesday, in a sign of the intensifying cost of living crisis. Data from the Bank of England showed that the annual rate of credit card borrowing was 13 per cent higher in July than a year before. The jump, the biggest since October 2005, comes as wages fail to keep pace with inflation, which has already hit 10 per cent, with some investment banks suggesting it could roughly double by the turn of the year.The figures are a sign that households are struggling with the soaring cost of living, even before households are hit with an 80 per cent increase in energy bills. This will take effect from October 1, and could leave many people with the choice of cutting spending or borrowing more. The data also showed individuals took on a net additional £1.4bn in consumer credit in July, down from £1.8bn in June, but above the 12-month pre-pandemic average to February 2020 of £1bn. The additional borrowing was split equally between credit cards and other borrowings, such as car financing. Thomas Pugh, economist at the consultancy RSM UK, said the BoE data “suggests that consumers are already battening down the hatches against what will almost certainly be an exceptionally tough winter”.A rise in borrowing is usually associated with discretionary spending by consumers on non-essential goods and services. But with inflation running at the quickest pace in 40 years, real wages falling and consumer confidence at the lowest level since records began in the 1970s, several economists said that it was a sign of households borrowing more to maintain living standards.Paul Dales, chief UK economist at the consultancy Capital Economics, said: “Some of the increase in consumer credit in July may be because some households are already turning to borrowing to make ends meet.” But he added that the figures suggested that consumer spending was “not collapsing”. Separate figures also released on Tuesday by the debt charity StepChange showed the proportion of new clients citing the cost of living crisis as their reason for debt rose 2 percentage points between June and July to 20 per cent. The proportion of those seeking debt advice because they were behind on their gas bills and electricity bills also increased to 26 per cent and 30 per cent respectively. More than two-thirds had credit card debts. BoE figures also revealed that households were saving less than before the pandemic. The combined net flow into both deposits and National Savings and Investments accounts in July was £4.6bn, below the average monthly net flow of £5.5bn during the 12-month pre-pandemic period to February 2020.“The July money and credit data show that households continue to reduce their monthly savings, in an attempt to maintain their current level of real consumption amid surging inflation,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, a consultancy. UK inflation is expected to accelerate because of the surge in gas prices following Russia’s invasion of Ukraine. Citigroup, the bank, has forecast this month that inflation will rise to 18.6 per cent in January, while Goldman Sachs suggested it could reach 22 per cent.Capital Economics’ Dales said that, with the consumer price index rising, “more households will probably need to borrow more to tide them over” and that “the outlook for consumer credit is weak”. More

A long-term strategy is needed to lift borrowing costs from levels that are currently too low, though it wouldn’t make sense for the ECB to adjust rates all in one go, Lane told Spanish state-run broadcaster TVE on Tuesday.  The comments are similar to remarks he made Monday and reaffirm his apparent push back against calls by some officials for a 75 basis-point hike at next week’s policy meeting. The ECB is facing the twin challenges of record inflation alongside the growing likelihood of a recession in the 19-nation euro zone.Lane said the ECB’s staff predicts lower demand in the second half 2022 as the economy slows — which should curb inflation pressures, despite elevated energy costs. While output may shrink for “some” weeks, Europe is much better-positioned to face a slowdown than it was in 2008, with lower indebtedness and a healthy financial system, he said. (Updates with Lane comments throughout.)©2022 Bloomberg L.P. More

PARIS (Reuters) -France on Tuesday accused Moscow of using energy supplies as “a weapon of war” as Russian gas giant Gazprom (MCX:GAZP) reduced deliveries to one of its main utilities and prepared to halt flows along the major pipeline to Germany from Wednesday.European governments are trying to find a response to soaring energy costs for businesses and households and to find alternatives to Russian supply to store for winter.Western nations fear that Moscow is driving up gas prices to try to weaken their resolve in opposing its invasion of Ukraine, a tactic Ukraine’s President Volodymyr Zelenskiy on Monday dubbed economic terrorism. Moscow denies it is doing this.The Nord Stream 1 pipeline, the main conduit for Russian gas into Europe, has become a flash point in the economic war between Moscow and Brussels. Europe is already on notice that supplies will be squeezed as Gazprom shuts off Nord Stream 1 from Wednesday to Friday for maintenance.Kremlin spokesman Dmitry Peskov said on Tuesday that technological problems caused by Western sanctions are the only thing standing in the way of supplying gas via Nord Stream 1. But France’s Energy Transition Minister Agnes Pannier-Runacher said on Tuesday: “Very clearly Russia is using gas as a weapon of war and we must prepare for the worst case scenario of a complete interruption of supplies.” She was speaking to France Inter radio after French utility Engie said it would receive less gas from Gazprom from Tuesday because of an unspecified contractual dispute.Russia has been pumping gas via Nord Stream 1 at only 20% of capacity and there are fears that this week’s outage could be extended. “There are guarantees that, apart from technological problems caused by sanctions, nothing hinders the supplies,” the Kremlin’s Peskov said when asked if there are guarantees that Gazprom will restart gas flows via Nord Stream 1.RISING BILLEuropean energy ministers will hold an emergency meeting on Sept. 9 to discuss the crisis.Germany, Europe’s largest economy, is open to discussing a price-cap scheme on gas supplies at a European level, a source in Italy said, citing a text message Germany’s economy minister sent to his colleagues across Europe.The source said Robert Habeck sent a message to European energy ministers flagging that Berlin was open to discuss the price cap at next week’s meeting.Italian Prime Minister Mario Draghi has been pushing for a price cap, and has also called for steps to decouple the cost of electricity from the gas price. Such a move would allow European households to get the benefits from electricity produced from cheaper sources such as renewables.There was some respite on Tuesday when benchmark Dutch wholesale gas prices eased as Europe almost reached its target of gas stores being 80% full, the idea of a price cap circulated and traders took profits following record high prices last week.The front-month gas contract was down 3% at 259 euros/MWh on Tuesday morning, off all-time highs hit last week, and is trading at levels more than five times those seen a year ago. “Any action which caps power prices will limit the profitability of burning gas for power generation which could possibly feed through to lower gas demand,” ING analysts said.The rising cost of the crisis was illustrated when EU member Austria said that it was preparing to pump billions of euros into the electricity company that supplies much of the capital Vienna after a price surge on power markets left it unable to afford the guarantees needed to cover market transactions. More

The EU’s executive arm is still in the process of devising various options for how the bloc could try to bring down the price of electricity, which is about 10 times higher than it was a year ago, the diplomats say.When European energy ministers gather in Brussels on Sept. 9 for an extraordinary meeting, they will aim to reach a political agreement on how the bloc should act, while leaving the regulatory details for later. Another big clue could come when von der Leyen delivers her annual state of the union speech on Sept. 14.“We need an emergency instrument which would be triggered very quickly, in weeks perhaps,” von der Leyen said Monday evening in Berlin. “After that, there will have to be a deep and structural reform of the energy market. I think that will come at the beginning of next year.”The mere announcement of the plan to intervene sent power prices plunging on Tuesday, despite the lack of details. German power for next year fell as much as 26%, while Dutch natural gas fell some 11%. Both benchmark contracts extended losses from Monday, after surging to records last week. Read more: EU Nears Gas Storage Goal Early Despite Russian Supply Cut (1)But the EU now has the difficult task of trying to devise a solution that all 27 nations — with varying power sources and needs — can agree on.The Czech Republic, which holds the bloc’s rotating presidency, is proposing to cap prices of natural gas used for electricity generation and is working to get others on board. In recent months, other countries have been recommending different steps, including Italy, which called for a limit on the price of gas imports from Russia. Greece has suggested separating electricity produced from renewable, hydropower and nuclear sources from those generated via fossil fuels when setting power prices.  Windfall TaxGerman Economy Minister Robert Habeck suggested implementing an excessive profit tax as a way to help companies and consumers cope with the price shocks.“This phase of transition should be used to skim some of these excessive profits,” he said Monday evening. “The companies would still earn this money, but then it would be taken from them and be used to preserve the social cohesion and also to finance any aid for the companies, until we have developed and implemented the new market design.”Once the bloc settles on a particular path, it will likely be implemented in the form of a regulation that can be fast-tracked but will still likely take at least several weeks to draft, review and approve.Von der Leyen also said it was time for the commission to come up with a longer-term plan to decouple electricity prices from natural gas. “We need to balance two things: one, of course, the seriousness of the situation and the consequences faced by consumers and industry,” Eric Mamer, the commission’s chief spokesman, told reporters Tuesday. “But, on the other hand, the need to come up with proposals that are suited to the complexity of our energy markets, and in particular of our electricity markets. So it’s very important that we take the time to come up with proposals that can cater to these two different dimensions.”French President Emmanuel Macron also repeated his call for a reform of the EU electricity market on Monday, saying he’s aiming for a market “protected from elements of speculation” and with new pricing formulas.Diplomats say that the drafting process for this more ambitious plan may start later this year, with a thorough study of its potential impact to be the first step. A legislative proposal could come next year in a process that usually takes as long as two years to be turned into a binding law. ©2022 Bloomberg L.P. More

European shares and US stock futures turned higher on Tuesday, following two days of declines triggered by concerns that central banks would raise interest rates aggressively to tame inflation.The regional Stoxx 600 share gauge added 0.7 per cent by mid-morning, while Germany’s Dax gained 1.9 per cent. London’s FTSE 100 rose 0.1 per cent, after it resumed trading after a holiday.Those moves came after global equities weakened in the previous session, following last week’s annual economic symposium in Jackson Hole, Wyoming. Central bankers reaffirmed their commitment to tackle rapid price growth at the summit, even as the prospect of tighter monetary policy threatens to induce a protracted slowdown.In a hawkish speech on Friday, Federal Reserve chair Jay Powell said the US central bank “must keep at it until the job is done” on inflation.Wall Street stock futures showed signs of stabilising on Tuesday, with contracts tracking the broad S&P 500 and the technology-heavy Nasdaq 100 up 0.9 and 1.1 per cent respectively.Investors could take advantage of the recent fall in prices to buy coveted stocks cheaply, said Willem Sels, global chief investment officer at HSBC Global Private Bank. “The bottom is a solid bottom — most investors think that — and as we approach it, people are happy to pick up the quality names on their bucket list,” he said. “But we’re not expecting a V-shaped rally.” Expectations of persistently high interest rates weighed on Chinese equities earlier in the session, with Hong Kong’s Hang Seng index falling as much as 1.9 per cent before trimming its losses to close 0.4 per cent lower. The mainland CSI 300 index finished 0.3 per cent lower. Japan’s Topix had a brighter day, up 1.3 per cent.At last week’s meeting in Jackson Hole, Powell said successfully reducing inflation would probably result in lower economic growth for “a sustained period”.Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he was “happy” to see markets lose ground following Powell’s speech, because it indicated that investors had taken the Fed’s commitment to bring inflation back to 2 per cent seriously.As UK markets reopened, the yield on the UK’s 10-year gilt added 0.11 percentage points on Tuesday to more than 2.7 per cent, catching up after large moves for other government bonds on Monday. The policy-sensitive two-year US yield had on Monday hit its highest level since 2007, as the price of the debt instrument fell.Other government bond markets were relatively subdued during European morning trading, with the yield on the benchmark 10-year US Treasury note slipping 0.03 percentage points lower to 3.08 per cent and the equivalent German yield trading flat. In currencies, the dollar slipped 0.4 per cent, having made gains since Powell’s comments in Wyoming.Fresh economic data due in the coming days will be scrutinised by investors for further clues about the health of the global economy, and how far and fast central banks will move to raise interest rates.Eurozone inflation figures for August will be released on Wednesday, with economists polled by Reuters expecting a year-on-year reading of 9 per cent, up from 8.9 per cent in July. US jobs data due on Friday may offer insights into the level of heat in the labour market of the world’s biggest economy. Economists polled by Reuters expect non-farm payrolls data to show the US added 300,000 new jobs in August. Additional reporting by William Langley in Hong Kong More

Metropolises from the southern tech hub of Shenzhen to southwestern Chengdu and the northeastern port of Dalian ordered measures such as lockdowns in big districts and business closures aimed at stamping out fresh outbreaks.The latest curbs, which will delay the start of the school year for some, reflect China’s strict adherence to a “dynamic COVID zero” policy of quashing every flare-up.That insistence makes it an outlier as the rest of the world tries to live with coronavirus despite the cost to the world’s second-largest economy.While many of the measures are initially planned to run just a few days, any major escalation or extension in some of China’s biggest cities risks further hurting already tepid growth.While the two most populous cities of Beijing and Shanghai have faced only sporadic cases recently, COVID worries still weighed on Chinese stocks. “Markets could once again be hit in the next couple of weeks, likely triggering another round of cuts by economists on the street,” Nomura warned in a note, highlighting the significance of cities such as Shenzhen, also a major port. On Tuesday, the Shenzhen district of Longhua, which has 2.5 million residents, closed entertainment venues and wholesale markets, and suspended large events.People must show proof of negative test results within 24 hours to enter residential compounds, and restaurants must limit patrons to half of capacity, Longhua’s district authorities said. The new curbs will run until Saturday. The moves followed similar measures on Monday covering three other districts that affected over 6 million in Shenzhen, which has fought outbreaks of Omicron sub-variants this year. City officials have stopped short of a blanket delay for the new school year, but six parents of young children said their schools had told them of postponements, as many in parent chat groups expressed anxiety over the uncertainty. PORT CITY SHUT DISTRICTSIn Dalian, a major import hub for soybeans and iron ore, a lockdown begun on Tuesday is set to run until Sunday in the main urban areas with about 3 million residents. Households may send one person each day to shop for daily needs.The lockdown requires non-essential workers to work from home, while manufacturing companies must cut on-site staff and maintain only basic and urgent operations.The southwestern city of Chengdu, with a population of 21 million, ordered blanket closure of public entertainment and cultural venues from Tuesday.It planned to delay the start of the fall school semester, and mandated residents to have proof of negative test result within 24 hours for entry to certain areas. The northern municipality of Tianjin, home to 13.7 million, started a new round of citywide COVID testing, its fourth since Saturday.The city of Tianjin said it would delay resuming offline classes for many schools. In the northern city of Shijiazhuang, about 3-1/2-hours drive from Beijing, four big districts have ordered more than 3 million people to work from home until Wednesday afternoon, except for those in essential jobs. Mainland China reported 1,717 domestically transmitted COVID infections for Aug. 29, 349 of these symptomatic and 1,368 asymptomatic, official data showed on Tuesday. From more than 20 places that reported infections for Monday, Tibet, Qinghai and the province of Sichuan, of which Chengdu is the capital, accounted for the bulk of daily cases. Qinghai’s capital of Xining, with a population of 2.5 million, ordered a lockdown from Monday until Thursday morning in key urban areas, halting public transport and limiting movement. Cases have been rising in Hong Kong, which does not have the same zero-COVID measures as mainland China, with government advisers expecting a daily tally of 10,000 infections this week, fanning fears of a tightening of just-eased curbs. More