Economy

KYIV (Reuters) – Securing a new $5 billion loan from the IMF would help reassure Ukraine’s other creditors that the war-torn country’s macroeconomic situation was under control, President Volodymyr Zelenskiy’s chief economic adviser told Reuters on Friday.Fresh financing from the International Monetary Fund for around 18 months could serve as the anchor for a larger package of $15 billion-$20 billion to help Ukraine weather the economic crisis caused by Russia’s invasion, the adviser, Oleg Ustenko, said.He said Ukrainian officials were in touch with the global lender about the potential request, adding that the goal should be to move forward as quickly as possible.Ustenko’s comments came just over two weeks after Ukraine’s central bank governor, Kyrylo Shevchenko, told Reuters that he was seeking as much as $20 billion from the IMF over two or three years – an amount that would have put Ukraine well over the fund’s “exceptional access limit” for lending. The large size of that request had triggered intense debate within the IMF because it would have also raised questions about the sustainability of Ukraine’s debt.The revised plan would be modeled on a financing package https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr15107 agreed in 2015, after Russia’s invasion of the Crimea region of Ukraine, that included $17.5 billion in IMF funding but helped leverage total funding of $40 billion.”An IMF program of $5 billion would be in line with earlier funding levels and might be a catalyst for funding from other courses, including the EU, (the U.S.) Treasury and other individual countries,” Ustenko told Reuters.Ukraine’s previous $5 billion loan program was canceled in March as the IMF approved $1.4 billion in emergency financing with few conditions in the early weeks of Russia’s invasion.Ukrainian authorities pledged to work with the Fund to design a new economic program “aimed at rehabilitation and growth, when conditions permit.” Ukraine, grappling with the internal displacement of some 7 million people by Russia’s invasion on Feb. 24, is scrambling to marshal resources to deal with energy shortages, rising inflation, and a worsening humanitarian crisis as winter approaches.It faces a 35%-45% economic contraction in 2022 and a monthly fiscal shortfall of $5 billion, with only a third of some $29 billion in Western aid pledges having materialized thus far, economists say.This week, Ukraine’s overseas creditors backed its request for a two-year freeze on payments on almost $20 billion in international bonds, but Ukraine must still make $635 million in principal payments on prior IMF loans beginning in mid-September.Ustenko said Ukraine hoped to move forward quickly with negotiations with the IMF with an eye to reaching a preliminary agreement before those payments were due.RISKS, PRECEDENTS Proponents of the new program argue that Ukraine had made good progress on tackling deficits and addressing corruption before the war, and the new lending would allow it to stabilize the economy. But critics say a large new loan could put the Fund at risk, as Russia could still win the war and refuse to make good on Ukraine’s debts.Mark Sobel, U.S. chair of the OMFIF financial policy think tank and a former senior Treasury official, said the Fund was set up to be a “first responder to severe systemic global economic crises” and it should act to help Ukraine pay pensions and other obligations.Martin Muehleisen, a former IMF strategy chief now affiliated with the Atlantic Council, said even a loan of $5 billion would raise debt sustainability questions in the midst of a war and set worrisome precedents, shifting it clearly to Western priorities. “The IMF was used by the U.S. and its allies for strategic purposes during the Cold War. Tying the fund closer to the West’s political objectives may again be called for, but it would conflict with the IMF’s aspiration to be a truly global organization,” Muehleisen said. More

Import prices fell more than expected and brought some some much-needed good news for consumers.
That news followed reports earlier in the week that both wholesale and retail price increases abated for the month.
Taken together, the numbers are reason for at lit least a little optimism. But it’s probably wise to put exuberance on hold.

Gas station prices are seen in Bethesda, Maryland on August 11, 2022.
Mandel Ngan | AFP | Getty Images

There was more good news Friday for inflation, as import prices fell more than expected and brought some much-needed relief for consumers.
The report capped off a relatively upbeat week for those worried about rising prices — and “relatively” is the operative word — as the U.S. is on pace this year to import just over $4 trillion of goods and services this year, according to the latest Bureau of Economic Analysis data.

With Americans already paying huge bills for food, energy and a host of other items in their daily lives, any respite is a welcome one. After all, the monthly import price drop of 1.4% was just the first this year, and the year-over-year increase is still more than 8.8%.
That news followed reports earlier in the week that both wholesale and retail price increases abated for the month. Producer prices declined 0.5%, and consumer prices including food and fuel were flat, both numbers owing largely to a sharp slide in most of the energy complex.
People are noticing: A New York Federal Reserve survey released Monday showed consumers are expecting inflation to stay high but not by as much as previous months. On Friday, the University of Michigan consumer sentiment survey — whose ups and downs tend to ride in tandem with prices at the pump — was higher than expected, though still just off record-low levels hit in June.

‘This is just one report’

Taken together, the numbers are reason for at least a little optimism. But it’s probably wise to put exuberance on hold.
The consumer price index is still up 8.5% from a year ago, while the producer price index has surged 9.8% during the same period.

Krishna Guha, who heads global policy and central bank strategy for Evercore ISI, cautioned in a client note on CPI that, “while the report is consistent with the notion that inflation pressures may finally have peaked, this is just one report.”
Similar comments came Friday from Richmond Federal Reserve President Thomas Barkin. The central bank official told CNBC that the inflation news was “very welcome,” but added that he didn’t see any reason to pull back on the interest rate increases that some economists fear will drag the U.S. into a recession.
“There is a very long way to go before the Fed will feel it has sufficient compelling evidence that inflation is moderating to stop raising rates,” Guha added.
The Fed and investors will get a look next week at how much of an impact inflation has made on spending.

View from the consumer

The Wednesday advance report from the Commerce Department is expected to show a modest 0.2% headline gain for July in retail sales after a 1% increase in June, according to FactSet. The report is not adjusted for inflation.
However, there is a wide range of opinion on where the numbers could land.
Citigroup said its credit card data show a potential 1.1% decline for the month, while Bank of America said it sees a 0.2% decrease, though control group spending — excluding a variety of volatile categories — may have risen 0.9%.
Fed officials will be watching closely to see larger trends in how inflation is impacting Main Street.
“It does appear that a tentative peak in inflation is in place,” said Joseph Brusuelas, chief economist at RSM.
However, he said this week’s numbers are likely to do little to sway a Fed intent on stomping inflation down to the central bank’s 2% target.
“I think that the July inflation does nothing to alter the path of Fed policy, and any notion that a Fed pivot is at hand should be dismissed,” he said. “We are some months away from any potential clear and convincing evidence that inflation is well on its way back to the 2% target that currently defines price stability.”

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NEW YORK (Reuters) – Optimism is seeping back into the U.S. stock market, as some investors grow more convinced that the economy may avoid a severe downturn even as it copes with high inflation.The benchmark S&P 500 has rebounded about 15% since mid-June, halving its year-to-date loss, and the tech-heavy Nasdaq Composite is up 20% over that time. Many of the so-called meme stocks that had been pummeled in the first half of the year have come screaming back, while the Cboe Volatility Index, known as Wall Street’s fear gauge, stands near a four-month low. In the past week, bullish sentiment reached its highest level since March, according to a survey from the American Association of Individual Investors. Earlier this year, that gauge tumbled to its lowest in nearly 30 years, when stocks swooned on worries over how the Federal Reserve’s monetary tightening would hit the economy.“We have experienced a fair amount of pain, but the perspective in how people are trading has turned violently towards a glass half full versus a glass half empty,” said Mark Hackett, Nationwide’s chief of investment research.Data over the last two weeks bolstered hopes that the Fed can achieve a soft landing for the economy. While last week’s strong jobs report allayed fears of recession, inflation numbers this week showed the largest month-on-month deceleration of consumer price increases since 1973.The shift in market mood was reflected in data released by BoFA Global Research on Friday: tech stocks saw their largest inflows in around two months over the past week, while Treasury Inflation-Protected Securities, or TIPS, which are used to hedge against inflation, notched their fifth straight week of outflows. “If in fact a soft landing is possible, then you’d want to see the kind of data inputs that we have seen thus far,” said Art Hogan, chief market strategist at B. Riley Wealth. “Strong jobs number and declining inflation would both be important inputs into that theory.”Through Thursday, the S&P 500 was up 1.5% for the week, on track for its fourth straight week of gains. Until recently, optimism was hard to come by. Equity positioning last month stood in the 12th percentile of its range since January 2010, a July 29 note by Deutsche Bank (ETR:DBKGn) analysts said, and some market participants have attributed the big jump in stocks to investors rapidly unwinding their bearish bets. With stock market gyrations dropping to multi-month lows, further support for equities could come from funds that track volatility and turn bullish when market swings subside. Volatility targeting funds could soak up about $100 billion of equity exposure in the coming months if gyrations remain muted, said Anand Omprakash, head of derivatives quantitative strategy at Elevation Securities.    “Should their allocation increase, this would provide a tailwind for equity prices,” Omprakash said.Investors next week will be watching retail sales and housing data. Earnings reports are also due from a number of top retailers, including Walmart (NYSE:WMT) and Home Depot (NYSE:HD), that will give fresh insight into the health of the consumer.Plenty of trepidation remains in markets, with many investors still bruised from the S&P 500’s 20.6% tumble in the first six months of the year. Fed officials have pushed back on expectations that the central bank will end its rate hikes sooner than anticipated, and economists have warned that inflation could return in coming months.Some investors have grown alarmed at how quickly risk appetite has rebounded. The Ark Innovation ETF, a prominent casualty of this year’s bear market, has soared around 35% since mid-June, while shares of AMC Entertainment (NYSE:AMC) Holdings, one of the original “meme stocks”, have doubled over that time.“You look across assets right now, and you don’t see a lot of risks priced in anymore to markets,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.Keith Lerner, co-chief investment officer at Truist Advisory Services, believes technical resistance and ballooning stock valuations are likely to make it difficult for the S&P 500 to advance far beyond the 4200-4300 level. The index was recently at 4249 on Friday afternoon. Seasonality may also play a role. September – when the Fed holds its next monetary policy meeting – has been the worst month for stocks, with the S&P 500 losing an average 1.04% since 1928, Refinitiv data showed.Wall Streeters taking vacations throughout August could also drain volume and stir volatility, said Hogan, of B. Riley Wealth.“Lighter liquidity tends to exaggerate or exacerbate moves,” he said. More

A growing number of fund managers now expect a broader policy shift in 2024 or later, according to a Bank of America Corp (NYSE:BAC). survey released Friday. Roughly a third of respondents foresee that timeline, up from about a quarter last month. At the same time, the poll of 75 investors shows managers are increasingly divided on whether government-bond rates have peaked, although a rising share say that is the case for 10-year yields. Correspondingly, Treasuries are becoming a more attractive hedging instrument for some respondents, while dollar positioning fell moderately from last month‘s 7-year high.Markets have been whipsawed by economic data the past couple of weeks. The gap between 2- and 10-year Treasury yields touched its lowest since 1982 this week after US inflation data for July came in cooler than expected. Those figures also sent the dollar plunging and stocks soaring as traders trimmed bets that the Federal Reserve will stick to its aggressive rate-hiking path. Meanwhile, the central bank hasn’t wavered from its stance on combating high inflation. “Despite the palpable relief in markets at a move in the right direction on inflation (at least in the US), investors are wary of how long it will take to get back towards target (and how much tightening that entails),” the survey said.The survey was conducted from Aug. 5 through Aug. 10, polling 75 fund managers across the UK, Europe, Asia and the US with a combined $1.25 trillion under management.Some other key findings of the survey were: ©2022 Bloomberg L.P. More

When the Razoni left Odesa at the start of this month, the first ship to sail from Ukraine with a cargo of food since Russia’s full-scale invasion was hailed by UN secretary-general António Guterres as carrying two commodities in short supply — “corn, and hope”.But the world’s most closely monitored vessel has since proved an imperfect symbol of the path towards solving the global food crisis.After navigating through the mines in and around the Ukrainian Black Sea ports, the Razoni never arrived at its originally stated destination, Tripoli in Lebanon. The shipment’s buyer rejected the 26,500 tonne corn cargo on quality grounds and the vessel remained stranded until new buyers were found and 1,500 tonnes of the grain were unloaded in Turkey. On its way to its next stated destination, Egypt, the vessel on Friday stopped transmitting from its transponder, which broadcasts position and route information, with its last signal sent earlier that morning from the north-west coast of Cyprus and its subsequent location unclear. The Razoni’s voyage has put a spotlight on the complex and secretive nature of commodities trading and the layers of middlemen, agents and insurers involved.“[Grain trading] is very complicated. The UN is relying too much on the private sector under a very half-baked initiative,” said Jean-Francois Lambert, a consultant and former commodities-trade banker.Under a deal brokered by the UN and Turkey last month, Kyiv and Moscow agreed to open a humanitarian corridor allowing the passage of cargo ships carrying Ukrainian grain, stranded in the country’s ports because of the war, through the Black Sea to Istanbul. The two countries agreed not to attack vessels or ports covered by the 120-day initiative, with the UN hoping grain exports will reach about 2mn-5mn tonnes a month once the operation is running in full.The UN-led joint committee (JCC) overseeing the deal said the Razoni was chosen as the first vessel based on information provided by the Ukrainian port authorities, including its readiness to sail. The vessel is known in the shipping industry for being one of those that moves regularly between the Mediterranean’s riskier ports, for example in countries affected by conflict. “These are difficult locations,” said Yörük Işık, a geopolitical and maritime analyst based in Istanbul. “Ships that work the region tend to have more adventurous crews. The Razoni is a ship that works in between the more challenging routes.” Its cargo of corn was originally sold by an Austrian commodities trader, VA Intertrading, first noted by price reporting agency Agricensus. Under an agreement commonly known as “free-on-board”, the company said it had loaded the corn on to the Razoni, which had been chartered by the unidentified buyer, in February.

Satellite images appear to show the Razoni calling at the Syrian ports of Tartus, left, and Latakia, right, while its transponders were switched off © Planet Labs

The buyer, who is reportedly Lebanese, has now sold the grain on. The change of final destination and purchaser during the voyage was “a fairly common commercial process”, said the JCC. Ukraine’s agricultural ministry said all grain shipped from the country underwent quality inspections under international standards and dismissed suggestions that its grains kept at the ports since the outbreak of war were rotten. Apart from the original buyer’s rejection of the Razoni shipment, “so far, there have been no negative reviews”, it said. If the identity of the Razoni cargo’s buyer remains a mystery, the vessel itself is also an enigma even within the grain trading community. Sailing under a Sierra Leone flag, a practice known as a “flag of convenience” where an owner registers a vessel in a country other than their own, the ship is owned by Razoni Shipping Ltd, according to industry databases. However, its contact details are unavailable and the FT has been unable to reach the company or the vessel’s crew. The ship’s agent in Turkey said the captain and most of the crew were Syrian.Mainly operating in the Black Sea and Mediterranean region, the vessel last year made three voyages where its transponders were turned off. After a time they were turned back near Cyprus, according to data from marine platform Sea/.Photos from Planet Labs, a satellite photography platform, appear to show the Razoni calling at Syrian ports during the times it went dark. Trading grain and food with Syria does not contravene western sanctions imposed on the Damascus regime over the country’s long-running civil war. But some vessels avoid openly sailing to the country because of the stipulations of financial institutions, according to grain traders.Questions have also been raised about the Razoni’s insurance. It has no entry in the ship search provided by the International Group of P&I Clubs, a group of 13 mutually owner insurers that provide liability cover for around 90 per cent of the world’s ocean-going tonnage. The list shows which ship is covered by which insurer and is regularly updated, according to a person familiar with the matter. Many ports will not allow vessels to enter if they have no liability cover.Earlier this week, Frederick Kenney, interim co-ordinator for the UN at the JCC, said the organisation was not responsible for checking ship ownership. “We are not serving as a port state control authority,” he said, adding that this was a role for the flag state of the vessel and the countries in which ports were located.The JCC says its role is to ensure the safe passage of vessels carrying Ukrainian food exports between the grain corridor and Istanbul and to check whether vessels had any unauthorised crew or cargo. “We are not involved in conducting food inspection, this is not part of the agreement,” said an official. “We do not monitor where the vessel goes when it departs Istanbul and its destination may change depending on commercial activity that we do not control.” The UN’s aim is to ease the global food crisis by bringing prices down through increasing Ukrainian supplies. The country is the world’s fifth-largest exporter of wheat and a leading supplier of corn and sunflower oil. It accounts for 80 per cent of Lebanon’s wheat imports and is a leading supplier for countries in Africa and the Middle East. Grain prices, including for corn and wheat, have now fallen to prewar levels, partly in anticipation of increased supplies from Ukraine.

So far 12 vessels, including the Razoni, have set sail from the three Black Sea ports designated under the deal — Odesa, Chornomorsk and Pivdennyi — carrying more than 375,000 tonnes of food commodities, mostly corn. The priority is “to free up space in the Ukrainian ports and get all those vessels frozen there the last few months to leave Ukraine with cargo, so [they] can get new ships in”, said the UN official.Despite the issues with the Razoni voyage, commodities traders using the grain corridor remain optimistic. “It’s a learning curve for everybody. Things will be perfected over time. The Razoni was a leader in getting out of the corridor,” said Gaurav Srivastava, chair of trader Harvest Commodities, which transported corn out of Ukraine on the vessel Riva Wind earlier this week. Many ship owners are reportedly reluctant to send vessels back to Ukraine amid concerns that the war could leave them trapped again. But Srivastava said he would continue to do so. “This is potentially the first step towards having some sort of peace. That as an outsider is the hope,” he said. “That gives us a perspective as a business and that business will get back to normal.” Additional reporting by Ian Smith, Harry Dempsey and Chris Cook in London, Raya Jalabi in Beirut and Ayla Jean Yackley in Istanbul More

For a guy on holiday with his family, Martin Lewis looked and sounded anything but relaxed.The Money Saving Expert founder (and closest thing Britain has to a patron saint of personal finance) usually adheres to a self-imposed media embargo for two weeks every summer, but broke it following shock predictions that average energy bills in the UK could exceed £5,000 next year.Staring down the barrel of the camera, Lewis warned this was a “national crisis on the scale of the pandemic”, urging Britain’s “zombie government” to wake up and increase state support now or risk leaving “millions destitute and in danger this winter”. Lewis cares. Why? Because he can foresee exactly how bad this could get.A lightning rod for the tens of millions of consumers who subscribe to his weekly money saving email and follow him on social media, Lewis has a deep insight into the nation’s financial state of being. Politicians should ignore this at their peril. When energy regulator Ofgem announces the October price cap on August 26, it will be open season for energy companies to demand customers pay even higher direct debits. For many, monthly energy bills stand to be higher than their mortgage or rent.Ofgem says its recent upward adjustments to the price cap will prevent more energy companies going bust. But what about people going bankrupt? Lewis grimly predicts civil unrest.There’s been a surge of support for the Don’t Pay campaign. Supporters intend to cancel energy payments in protest (this will wreck their credit scores, but campaigners see no viable alternative).I’m a regular pundit on LBC Radio with Eddie Mair. Callers we speak to cannot understand the Westminster bubble’s continued ignorance of the financial ruin people and small businesses now face.At first, it was people with delivery jobs priced out of work by the increases in petrol and diesel. Others spoke of giving up jobs they were passionate about because the money was slightly better stacking supermarket shelves. But in recent weeks, the cost of gas and electricity has been the primary cause of anguish.We have heard from a mother of three who can only afford to eat her children’s leftovers. The dad of a newborn who runs his own business and is staring at bills he knows he has no means of paying. A Dundee shop owner who is not sleeping because his energy bills are about to quadruple to £53,000.The one that tipped me over the edge was a man who described how he was working two jobs — one day shift and one night shift, six days a week (and sleeping on Saturdays) yet this was still not enough to provide for his family.“The sense of bleakness stays with you,” says Mair. “The listeners who are suffering do not convey anger. I sense weariness; embarrassment at being unable to cope; despair.”For now, the only hope people can cling on to is that something will be done, eventually, but there is scant evidence of government planning to head off the “financial cataclysm” that Lewis and others predict. By contrast, fuel poverty charities are already in disaster planning mode. Christians Against Poverty handed out nearly triple the amount of emergency energy top-up vouchers in July as it did last year, and the Fuel Bank Foundation is also experiencing record demand.They know the double whammy of winter price cap rises will tip more households into “deficit budgets” — where their income is unable to cover basic outgoings of rent, fuel and food — and the impact is being felt by people higher and higher up the income scale.Energy debts are rising and providers simply don’t have the resources to speak to every affected customer and agree a repayment plan. Unless pandemic-style mass solutions are found, more customers face being switched over to expensive prepayment meters (if you have a smart meter, energy companies can do this without having to enter your home). Lack the cash to top up? You will literally be left sitting in the dark.In an indication of the expected scale of the fallout, several charities are working up plans to create “warm spaces” in community buildings across the UK for people who can no longer afford to heat or even cook in their homes.The government’s existing support package will give every household an energy rebate of £400, regardless of income, to get through the winter months. If you can afford to donate yours to help fund the frontline work of fuel poverty charities, I would urge you to do [email protected]; Twitter @Claerb; Instagram @Claerb More

Power problems will continue to plague Europe, while the central bank spotlight falls on New Zealand.Here’s your week-ahead in markets from Sujata Rao in London, Ira Iosebashvili and Lewis Krauskopf in New York, Vidya Ranganathan in Singapore, Riddhima Talwani in New Delhi and Sumanta Sen in Mumbai.1/ RETAILERS ROUND OFF EARNINGSInvestors will be looking out for what the biggest U.S. retailers have to say on rising prices, after a rare bit of good news on inflation in the past week.Walmart (NYSE:WMT) and Target (NYSE:TGT), which report second-quarter earnings on Tuesday and Wednesday, respectively, have recently cut forecasts and warned inflation was squeezing margins and forcing consumers to reduce discretionary purchases.Retailers’ outlook for consumer behavior will be key for investors looking to assess the pace of inflation. U.S. consumer prices were unchanged last month, the largest month-on-month deceleration of price increases since 1973.Other big retailers reporting include Home Depot (NYSE:HD) on Tuesday and Lowe’s (NYSE:LOW) the following day, while U.S. retail sales data, set for Wednesday, will give a broad picture of how the consumer is faring. GRAPHIC: U.S. retail sales https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/zgpomgndnpd/chart.png 2/ EUROPE’S SICK MAN GETS SICKERWith the Bank of England’s dire warnings still ringing in their ears, traders can expect no cheer from UK upcoming data. British consumer inflation figures for July due Wednesday will likely top June’s 9.4% print, heading towards a 13.3% peak forecast for October.    The BoE predicts a long and deep recession, evidence of which may come from July retail sales data out on Aug. 19. Sales slumped 5.8% year-on-year in June, while consumer confidence is languishing at its lowest since 1974.     The UK labour market has so far been robust; almost 300,000 jobs were added in the quarter to May, leaving unemployment at just 3.8%.     However, adjusted for inflation, pay excluding bonuses fell by the most since records began in 2001. Another such reading may emerge on Tuesday, just as rail workers prepare for more of the strikes that have paralysed public transport this summer. GRAPHIC: UK economic data https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/byprjyqwxpe/chart.png 3/ STILL GOING 50-50 DOWN UNDERTight labour markets in New Zealand and Australia are making it difficult for both the inscrutable Reserve Bank of New Zealand and the more vocal Reserve Bank of Australia to find a middle ground on rate hikes. Investors are certain RBNZ Governor Adrian Orr is not yet ready to compromise on inflation and will raise rates by another 50 basis points on Wednesday, notwithstanding the slight easing of inflation expectations and cooling property prices. What the RBNZ signals about wage growth could sway current expectations for a peak policy rate of 4% early next year.Second-quarter wages data in Australia is due the same day, and anecdotal signs suggest the tightest labour market in five decades also will set the RBA up for 50 bps next month, and for 225 bps of tightening in four months – a pace unseen since the 1990s.Norway’s central bank meanwhile is expected to hike rates when it meets on Thursday. It raised rates by 50 bps in June and some economists expect big hikes in August and September. GRAPHIC: New Zealand’s monetary policy woes https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/dwpkrwzbmvm/chart.png 4/ PRAY FOR RAINAlready reeling from gas supply shortages, Europe faces soaring electricity prices and possible power cuts, as blistering summer weather sends water levels to critically low levels in rivers, lakes and reservoirs.    Along the German stretch of the Rhine, barges can only sail with partial loads of coal, threatening output at power plants. Norway, experiencing low rainfall after a winter with relatively little snow, may cap hydropower exports to preserve its reservoirs.      As a result, German baseload 2023 contract, Europe’s benchmark, has hit record highs, almost doubling since mid-June.   GRAPHIC: Price scaling new peaks https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/gkplgolervb/chart.png 5/ HOME RUNThe cooling U.S. housing market gets a couple of gut checks in the coming week. July data on housing starts is due on Tuesday, after new U.S. home-building activity fell to a nine-month low in June.Data on U.S. existing home sales for last month is released on Thursday after such sales fell for a fifth straight month in June to the lowest level in two years.However, a moderation in mortgage rates could underpin support for housing, with the 30-year rate trending lower since mid June after doubling in 2022. The SPDR S&P homebuilders ETF has rebounded 25% since mid June after getting pummelled in the first half of the year. GRAPHIC: U.S. housing market https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/klpykwnropg/chart.png More

Good evening from a sweltering LondonEuropean governments continue to search for ways of weaning themselves off Russian power before huge increases in energy bills hit households over the next few months.The latest push came with German chancellor Olaf Scholtz’s backing for a new gas pipeline linking Spain and Portugal to central Europe via France. The proposal, backed today by Madrid and Lisbon, could be ready within nine months, according to Spanish energy and environment minister Teresa Ribera. In the meantime, according to Portuguese prime minister António Costa, the port of Sines on his country’s south-west coast could be used as a hub to ship liquefied natural gas into Europe. LNG is becoming increasingly important as Russian gas dwindles, but Europe faces strong competition from Asia to lock in supplies for the winter months.The EU has identified the lack of alternative pipelines as a key obstacle in beefing up the bloc’s energy infrastructure. Berlin is already under serious pressure after Russia cut flows through Nord Stream 1, the key connector with Europe, which is currently running at just 20 per cent capacity. German households are bracing for a surge in heating bills this winter as the shortfall pushes up prices and complicates the country’s efforts to fill its gas storage facilities.A range of government measures to tackle the surge in energy prices are in operation across Europe, from price caps to tax cuts, windfall taxes and subsidies. Low rainfall is also complicating matters. Norway this week said it would curb electricity exports to Europe if water levels for its hydropower plants remained low, denting hopes it could come to its neighbours’ rescue. And in Germany, low levels on the Rhine are adding to business worries: inland waterways may only account for about 6 per cent of German transport volumes but are used to ship 30 per cent of coal, crude oil and natural gas.In the UK, forecasts for household energy bills continue to escalate, fuelling a deepening cost of living crisis. The latest, from consultancy Auxilione, suggests the average could top £5,000 next year, following a steep rise in wholesale gas prices. Ministers are meeting power company chiefs to discuss possible remedies, while also drawing up plans to combat the threat of outages this winter. On the positive side, a common front against Russia’s energy squeeze has improved fractious relations between the UK and the EU.The IMF last week suggested European countries pass on increased energy costs to consumers to encourage energy saving and the shift to greener power, albeit with targeted help for poorer households that are disproportionately affected by the increases. Meanwhile, the International Energy Agency said western sanctions had only had a “limited impact” on Russian oil output. Although exports have fallen to Europe, the US, Japan and Korea, the routing of flows to countries such as India, China and Turkey has mitigated the country’s losses. The IEA also lifted forecasts for oil demand thanks to its increased use for power generation in Europe and the Middle East as gas becomes too expensive. Amid the gloom there are some crumbs of comfort for consumers. US petrol prices have dipped below $4 a gallon for the first time since Russia’s invasion of Ukraine. The trend is also being replicated in Europe, reports our Energy Source newsletter: EU drivers are paying 9 per cent less than in June and British drivers 8 per cent.Latest newsFarmers fight to save stunted crops in record UK heatOutgoing UK PM Boris Johnson admits cost of living support not enoughUS import prices fall for the first time this year For up-to-the-minute news updates, visit our live blogNeed to know: the economyNew UK GDP figures this morning showed the economy shrank 0.1 per cent in the second quarter, following growth of 0.7 per cent in the first three months of the year, as households cut spending and falling Covid cases and testing depressed health output. The country also reported its worst trade deficit since records began.Latest for the UK and EuropeDrought was formally declared across parts of England, as the UK suffers its driest summer for 50 years, with rainfall, river flows, soil moisture, groundwater and reservoir levels all much lower than normal.Industrial production in the eurozone increased for the third month in a row, raising hopes that supply chain problems may be easing. The June rise of 2.4 per cent on the previous year was well ahead of the 0.8 per cent forecast by economists.The German economy, in particular its industrial sector, has been hit hard by surging inflation, supply chain issues and faltering global demand. Growth in what was traditionally Europe’s powerhouse has stagnated, with the IMF slashing its 2023 forecasts. On top of this, severe drought along the Rhine poses a massive threat to business.Global latestFed official Mary Daly told the FT it was too soon to “declare victory” against inflation despite Wednesday’s encouraging CPI report. She did however signal support for the Fed to slow the pace of its interest rate increases. Columbia’s first leftist government in modern times is targeting the wealthy and the country’s commodities exports in a major tax reform. The measures aim to raise an additional $5.8bn next year or 1.7 per cent of GDP.Argentina raised interest rates to 69.5 per cent as inflation leapt 7.4 per cent in July from the previous month, marking an annual increase of 71 per cent.Need to know: businessThe head of SMIC, China’s top chipmaker, said geopolitical tensions were creating panic in an industry already beset by high inflation and a gradual downturn in demand. US west coast editor Richard Waters says the use of data is moving to the forefront of regulators’ antitrust concerns. Lina Khan, chair of the US Federal Trade Commission, has emphasised the need to act more aggressively against vertical integration — deals that combine companies in different parts of a value chain, such as Amazon’s purchase of iRobot. Pandemic-related migration to Florida has led Miami to become the new boom town for corporate lawyers.Beijing’s zero-Covid policy and weak consumer confidence has battered China’s second-hand market for luxury goods such as high-end watches and handbags.One high-end industry definitely not on the rocks — unless you like it served that way — is Scotch whisky. The spirit has proved surprisingly resilient considering the headwinds of Brexit changes in trade rules, supply chain problems and surging inflation. The number of Scottish distilleries is at its highest since the second world war.Steady progress is being made on driverless cars, writes innovation editor John Thornhill, but the lack of public acceptability and legal certainty could yet prove the industry’s biggest roadblock. Carmakers are also facing challenges in their drive towards an electric future. China has monopolised supplies of materials for electric batteries while the cost of those that remain on the market is soaring. Chinese company CATL today announced a €7.3bn battery plant in Hungary, confirming its status as the world’s largest car battery manufacturer.Science round upNorth Korea declared “victory” over Covid-19, just three months after first admitting to an outbreak of the virus, with a total death toll of just 74. Experts are sceptical, given the lack of mass testing, while some suggest it may have more to do with wanting to revive trade with China.The Omicron variant continues to cause havoc in parts of the world. Tibetan cities were locked down after experiencing their first Covid outbreak in two years. Lockdowns have also affected popular Chinese tourist destinations such as Hainan.There was however optimism in Hong Kong, which this week shortened its hotel quarantine for international arrivals to three days.The EU drugs regulator said it would await trial data before approving vaccines designed to tackle the original coronavirus and the Omicron variant. The decision contrasts with the US, which is planning to approve the jabs before data on their efficacy are released.BioNTech and Pfizer are starting clinical trials for vaccines targeting the BA.4 and BA.5 variants of Omicron. BioNTech reported lower sales and earnings than expected in the second quarter after the EU renegotiated its Covid vaccine contract amid a glut of shots. Pfizer is also testing a vaccine for Lyme disease.Novavax also pointed to lower demand for jabs as it slashed its 2022 revenue forecast. People in rich countries have become more reluctant to take repeated booster shots, while vaccine hesitancy is still a factor in poorer nations.Health authorities are increasingly focused on the threat from monkeypox. Vaccines are in short supply across Europe, and in the UK could run out this month. Another potential danger is poliovirus, which has been detected in London sewage, prompting the rollout of a vaccine booster to children in the city aged one to nine.Get the latest worldwide picture with our vaccine trackerSome good news…Columnist Sarah O’Connor picks out a cheering nugget from some new official statistics. Compared with pre-pandemic times, Britons are spending more time socialising, relaxing and keeping fit and less time commuting. Long may it continue.

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