Economy

The ECB raised rates back to zero from negative territory in July and will likely hike again in September, fearing that inflation, now approaching double digits, is at risk of getting embedded in a hard-to-break wage-price spiral. “We may have to adjust our monetary stance further, but …. we have to be fully aware that the probability of a recession is increasing.” Panetta told a financial conference in Milan. “If we will have a significant slowdown or even a recession, this would mitigate inflationary pressures,” Panetta said.Exposing a rift among policymakers, Panetta also argued that interest rates, once adjusted for inflation, are “not too far away” from what is considered neutral, which neither stimulates nor holds back growth. Fellow board member Isabel Schnabel, however, last week argued that real short-term rates remain deep in negative territory and the ECB was “quite far” from becoming restrictive.While the ECB has not said where rate hikes will stop, it said that further “normalisation” will be needed, commonly understood as moving towards the neutral rate.Markets currently price in 62 basis points of rate hikes in September and a combined 131 basis points of moves for the rest of the year, suggesting that a rate hike is seen at each remaining policy meeting. The top of the rate hike cycle is now seen at around 205 basis points above the current level. More

KUALA LUMPUR (Reuters) -Malaysia’s top court ordered former prime minister Najib Razak to begin a 12-year prison sentence on Tuesday after upholding a guilty conviction on charges related to a multi-billion dollar graft scandal at state fund 1Malaysia Development Berhad (1MDB).The Federal Court ruling caps the stunning downfall of Najib, who until four years ago governed Malaysia with an iron grip and suppressed local investigations of the 1MDB scandal that has implicated financial institutions and high-ranking officials worldwide.Investigators have said some $4.5 billion was stolen from 1MDB – co-founded by Najib during his first year as prime minister in 2009 – and that over $1 billion went to accounts linked to Najib.Najib, wearing a dark suit and tie, sat in the dock as the verdict was read out. His wife, Rosmah Mansor, who is also facing corruption charges, and three children were seated behind him. Security officials then gathered around the bespectacled former premier and he was later seen leaving court in a black car with police escort.A court official and sources close to Najib said he was taken to Kajang Prison, about 40 km away from capital Kuala Lumpur. “This is unprecedented. Najib will be remembered for his many firsts, the first prime minister to lose a general election, the first to be convicted,” said Adib Zalkapli, Director at political risk consultancy BowerGroupAsia. The British-educated son of Malay nobility held the premiership from 2009 to 2018, when public anger over the graft scandal brought election defeat, and dozens of corruption charges were lodged in following months.Najib, 69, was found guilty by a lower court in July 2020 of criminal breach of trust, abuse of power and money laundering for illegally receiving about $10 million from SRC International, a former unit of 1MDB. He had been out on bail pending appeals. The former premier, who had pleaded not guilty, was sentenced to 12 years’ jail and a 210 million ringgit ($46.84 million) fine.The wide-ranging 1MDB scandal prompted the U.S. Department of Justice to open what became its biggest kleptocracy investigation.Opposition leader Anwar Ibrahim said the verdict proved the power of the people. “The people made the decision in 2018 to ensure an independent judiciary and that the country is clean of bribery. That decision allowed proceedings to be brought professionally,” he said.LUXURY ASSETSVarious recipients of the siphoned 1MDB funds, including a fugitive financier named Jho Low, used the money to buy luxury assets and real estate, a Picasso painting, a private jet, a superyacht, hotels, jewellery, and to finance the 2013 Hollywood film “The Wolf of Wall Street”, U.S. lawsuits have said.Knocking back Najib’s final appeal, the court also denied his request for a stay of sentence.”The defence is so inherently inconsistent and incredible that it has not raised reasonable doubt on the case… We also find that the sentence imposed is not manifestly excessive,” Chief Justice Tengku Maimun Tuan Mat said.The panel of judges had unanimously dismissed Najib’s appeals, she said.The court had earlier rejected a last gasp effort by Najib to forestall the final verdict by requesting the removal of the chief justice from the panel. Addressing the court moments before the final verdict was delivered, Najib said he was the victim of injustice.”It’s the worst feeling to have to realise that the might of the judiciary is pinned against me in the most unfair manner,” Najib told the court.Najib, who faces several more trials over the allegations, has consistently denied wrongdoing. He could apply for a review of the Federal Court decision, though such applications are rarely successful. He can also seek a pardon from the king. If successful, he could be released without serving the full 12-year term.But the conviction means Najib will lose his parliamentary seat and cannot contest elections.While Najib still has supporters among his base, many ordinary Malaysians welcomed the court decision.”He did a lot of things wrong for this country when he’s supposed to be responsible for our nation. He’s supposed to bring in money but instead he robbed money,” said tennis coach Farhan Raj, adding he was “very very happy” with the judgement. More

The government will finance the plan with the aid disbursed by the European Union to help member states overcome the effects of the COVID-19 pandemic, she told a news conference.($1 = 1.0077 euros) More

The euro hit a fresh two-decade low against the dollar on Tuesday as fears of tighter US Federal Reserve monetary policy and a European energy crisis darkened investor sentiment.Europe’s common currency fell as much as 0.4 per cent to $0.9899 reaching a fresh 20-year low, having dropped below parity with the dollar on Monday, as concerns about Russia choking off gas supplies to Europe in retaliation for western support for Ukraine clouded the eurozone economic outlook. The currency has slumped 2.9 per cent against the dollar so far in August, its third straight month of declines.The move reflects both rising jitters about how the energy crisis will affect Europe’s economy and expectations that the US central bank will continue aggressively raising interest rates. Higher rates typically make a country’s debt market look more alluring to foreign investors because it boosts the payout they can receive from holding bonds issued in that currency.Surveys of business executives in the euro area, which were released on Tuesday, highlighted concerns about the bloc’s economy. The S&P Global purchasing managers’ index fell to 49.2 in August from 49.9 the previous month, pointing to a pick-up in the rate of contraction in business activity. “Today’s euro area data was in line with our expectation of subdued manufacturing activity and a slowing in services momentum,” said economists at Goldman Sachs.In equities, Europe’s Stoxx 600 share index slipped 0.3 per cent in afternoon dealings, having dropped by its most in more than a month on Monday. Futures trading on Tuesday implied that Wall Street’s S&P 500 share index would tick up 0.1 per cent on Tuesday, having closed 2.1 per cent lower in the previous session in its steepest daily drop in more than two months. The moves came ahead of the Jackson Hole central bankers’ symposium later this week, at which Fed chair Jay Powell is expected to underline a commitment to raising interest rates to quell consumer demand in order to tackle stubbornly high inflation.“Chair Powell is likely to state that the Fed will raise rates as far as it takes, and for as long as it takes,” said Standard Chartered strategist Steve Englander. Minutes from the Fed’s July monetary policy meeting — at which it raised its main interest rate by 0.75 percentage points to a target range of 2.25 per cent to 2.5 per cent — showed that policymakers discussed keeping rates at levels that would restrict the US economy.In bond markets, the benchmark 10-year US Treasury yield fell 0.01 percentage points to 3.02 per cent. This debt yield, which underpins loan pricing worldwide, had climbed in recent days as traders anticipated a hawkish tone from Powell at Jackson Hole. More

Growth in UK economic activity has slowed more than expected to an 18-month low as manufacturing shrank on weaker demand, supply shortages and labour, according to a closely watched survey.The S&P/Cips global flash UK composite purchasing managers’ index, a measure of private sector activity, dropped to 50.9 in August from 52.1 last month. That is the lowest reading since February 2021, when the country was in a pandemic-related lockdown. The reading, based on data collected between August 12 and 19, was weaker than the 51.1 forecast by economists polled by Reuters and was only marginally above the 50 mark, which indicates a majority of businesses reporting a month-on-month expansion.Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: “The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers.”The PMI index for manufacturing collapsed from 51.1 in July to 46 in August, the first reading indicating a contraction since May 2020, when the UK economy was under a stringent lockdown. Reduced customer demand, the delayed delivery of goods and materials and labour shortages all weighed on performance, according to panel members.A number of companies said increased economic uncertainty and high costs had weighed on market confidence and sales. The PMI sub-index for factories’ orders fell sharply, indicating the third consecutive month of contraction.Consumer demand is limited by historically high UK inflation, which rose to 10.1 per cent in July. Citigroup, the bank, on Monday forecast that inflation would exceed 18 per cent in January next year, as energy prices continue to soar.Paul Dales, chief UK economist at Capital Economics, a consultancy, said “we suspect the composite PMI will be ringing the recession alarm bell before long”, adding that he expected a recession in the third quarter after official data showed that the economy contracted in the second quarter. The Bank of England this month forecast a prolonged recession that would leave the economy smaller by Q3 2025 than it was before the pandemic. However, Dales said that, in view of soaring inflation, the BoE would have little choice but to continue lifting interest rates from 1.75 per cent now to 3 per cent.Simon Harvey, head of FX analysis at Monex Europe, a foreign exchange company, said that with the PMI sub-index for inflation still pointing to prices rising, albeit at a slower pace than in previous months, Tuesday’s data “confirms our view that the BoE will likely conduct a second 50 basis points hike at their September meeting”.That view is supported by recent further surges in European wholesale gas prices, which suggest the cost pressure could intensify in the coming months. The downturn in the manufacturing sector was confirmed by the first fall in output since February 2021 in the three months to this August, the CBI, an employers’ organisation, reported on Tuesday.

However, the UK composite PMI was stronger than in the eurozone, where the index dropped to 49.2, thanks to the resilience of the British services sector.The UK services PMI remained largely stable at 52.5, with Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, saying this could reflect “the additional support to incomes provided by the government in July”.But overall, the survey showed that the UK’s economic recovery from the hit of the pandemic has stalled. John Glen, Cips chief economist, said disruptions to supply chains from the Ukraine war, soaring inflation, higher interest rates and now industrial action at ports were all “keeping private sector business owners awake at night”. More

There are currently more than 300 supervisory bodies across Germany, a figure the finance ministry would like to reduce.With the new authority, the finance ministry hopes to make it easier to tackle complex international money laundering cases, which have long been a weak spot for the country. “We need to do better in many areas,” said a government representative, referring to the fight against money laundering.The current FIU unit, which receives suspicious activity reports, will work with the new authority, and a coordination unit will be set up to supervise the non-financial sector. Details on the ministry’s plans will be published this week. More

Investing.com — The dollar charges to a new high as the euro weakens again. New home sales data for July are due, and the Federal Reserve’s Neel Kashkari will speak after the market close. Elon Musk wants to know what Jack Dorsey has on file about Twitter’s spams and bots, and crude oil prices rise after Saudi Arabia’s oil minister warns of a supply cut to stop what he sees as unjustified weakness in futures markets. Here’s what you need to know in financial markets on Tuesday, 23rd August.1. Euro hits new 20-year low as PMIs point to recessionThe dollar marched to a new 20-year high as the euro slumped again with the prospect of an energy-driven recession in the second half of the year looming ever larger.The euro fell as low as $0.9902 before paring losses, after figures suggesting that the key German manufacturing sector held up better than expected in August as supply chain bottlenecks eased.However, that didn’t stop the composite purchasing managers indices of both Germany and France slipping into contraction territory. S&P’s manufacturing PMI for Japan also fell to its lowest level since February 2021.2. U.S. New Home Sales due; Fed’s Kashkari to speak laterThe dollar’s strength owes much to the fading of hopes for a dovish pivot on monetary policy from the Federal Reserve. Instead, expectations are mounting that Chairman Jerome Powell will use his keynote speech at Jackson Hole on Friday to ram home the message that the Fed will keep tightening policy.If any of Powell’s colleagues feel like dissenting as the economy shows signs of cooling off, it’s likely to be Neel Kashkari, head of the Minneapolis Fed, one of the most dovish members of the Fed’s policymaking committee. He’s due to speak at 19:00 ET (23:00 GMT).Redbook Research’s latest update on the economy and New Home Sales data for July are due before that at 08:55 ET and 10:00 ET respectively.3. Stocks set for a weak bounce as Zoom outlook weighsU.S. stock markets are expected to open with a weak bounce, after suffering their worst daily loss in eight weeks on Monday.By 06:15 ET, Dow Jones futures were up 47 points, or 0.1%, while S&P 500 futures and Nasdaq 100 futures were both up 0.2%. The main cash indices had lost between 1.9% and 2.6% on Monday.Sentiment is not being helped by a sharp cut in guidance from Zoom Video (NASDAQ:ZM) after hours on Thursday which exposed the extent of its struggle to grow beyond its basic videoconference offering. Medtronic (NYSE:MDT) is the big name reporting earnings before the open, while Intuit (NASDAQ:INTU) headlines after the bell. Chinese e-commerce company JD.com (NASDAQ:JD) is also due to report.4. Musk subpoenas documents from Dorsey to bolster Twitter fightElon Musk subpoenaed documents from Twitter (NYSE:TWTR) founder and former CEO Jack Dorsey, aiming to bolster his arguments about the social media company’s spam and bot users as he tries to fend off Twitter’s attempts to force him to buy it.Twitter sued Musk for failing to proceed with his binding takeover offer earlier in the summer, while Musk countersued, claiming Twitter had withheld information about spam accounts.Prior to that, Musk had counted on support from Dorsey and others to help him take the company private, encouraged by Dorsey’s supportive (but non-binding) comments on social media. Dorsey would stand to realize around $1 billion from a sale of his stake in the company to Musk, however.A five-day trial is due to start on October 17th.5. Oil rises as Saudi Minister threatens supply cut; natgas continues its LNG-driven surgeCrude oil prices bounced after Saudi Arabia’s oil minister tried to jawbone the market higher with warnings of a possible cut in output.In interviews with Energy Intelligence and Bloomberg, Prince Abdulaziz bin Salman said that futures prices, which have fallen over 25% from their peaks earlier in the summer, are failing to reflect the tightness of the physical market, and that the OPEC+ group of producers may need to cut supply to end that ‘disconnect’. The American Petroleum Institute’s weekly inventory data are due at 16:30 ET as usual.By 06:25 ET, U.S. crude futures were up 1.8% at $92.00 a barrel, while Brent futures were up 1.5% at $95.97 a barrel. Natural gas futures continued to push to new 14-year highs as demand from Europe ahead of the coming winter kept the Atlantic LNG market acutely tight. More

Eurozone business activity has suffered its biggest contraction for 18 months as a result of higher prices, falling demand and rising inventories of unsold goods, according to a benchmark survey of companies, which has added to fears of an impending recession.S&P Global’s flash composite purchasing managers’ index on Tuesday fell 0.7 points to 49.2, its lowest level since February 2021 and the second consecutive month below the crucial 50 mark that separates growth from contraction Economists polled by Reuters had expected a slightly bigger fall. But the survey underlined the challenges confronting the eurozone economy after German businesses reported their biggest reversal of activity for more than two years, while French businesses suffered their first contraction in 18 months.Andrew Harker, economics director at S&P Global, said the data “point to an economy in contraction during the third quarter”. He added: “Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August.”Tourism and hospitality-related services were boosted this summer by the lifting of most coronavirus restrictions in Europe, but the benefits appear to have been cancelled out for many companies by a rising number of countering factors. Russia is squeezing natural gas supplies to Europe, causing record eurozone inflation, eroding household spending and hitting business investment while forcing the European Central Bank to raise interest rates and convincing many economists that the eurozone is heading for recession. “August’s flash PMIs suggest that the eurozone economy is now contracting,” Jack Allen-Reynolds, an economist at Capital Economics, wrote in a note to clients, adding that “the ECB will have to press ahead with monetary tightening even as the economy falls into recession”.Eurozone government bonds sold off on Tuesday reflecting a belief that the economic downturn will not be enough to deter the ECB from raising its deposit rate from zero to 0.5 per cent at next month’s meeting. Italy’s 10-year bond yield rose to 3.65 per cent, a two-month high.New orders for eurozone businesses in both services and manufacturing fell for a second consecutive month, according to S&P Global, leaving factories grappling with the biggest increase in inventories of unsold products in the 25-year history of the survey. “Particularly sharp declines in output were seen across basic materials categories and in the autos sector, but reductions were also recorded in parts of the service sector, including in tourism and recreation and real estate,” it said.The survey also found evidence that inflationary pressures were easing, as input costs and selling prices both rose at their slowest pace for almost a year. Supply chain constraints also abated as delivery times rose at their slowest pace since October 2020. The reduction in business activity was mostly concentrated in Germany and France, it found, while output in other eurozone countries continued to increase, “albeit only marginally”.The PMI reading for Germany fell 0.5 points to 47.6, a slightly smaller decline than expected to its lowest level since June 2020, as a sharp drop in the services index offset an improvement in manufacturing. “German GDP may not have fallen in the second quarter, but it will all but certainly do so in the third quarter, and we doubt it will be able to avoid a technical recession this year, Melanie Debono, an economist at Pantheon Macroeconomics, said in a note to clients.The French PMI reading fell more than expected, dropping 1.9 points to 49.8, as activity was hit by a sharp slowdown in the services sector. More