Economy

Cryptocurrency valuations have plunged in recent weeks as investors dump risky assets in a rising interest rate environment. Bitcoin BTC=BTSP, which reached a record high of $69,000 in November, lost more than half its value this year.In an update on its website on Monday, Babel said it carried out an emergency assessment of its business operations to determine the company’s liquidity status.Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets. However, lenders have been unable to redeem their clients’ assets during the recent meltdown.”Babel Finance will actively fulfill its legal responsibilities to customers and strive to avoid further transmission and diffusion of liquidity risks,” the company said.Babel, which has 500 clients and only deals in bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet. More

“That tightening episode caused some disruption that year,” Bullard said during an event held by the AXA-Barcelona School of Economics in Barcelona, Spain. “However, I have always felt that set up the U.S. economy for a stellar performance in the second half of the 1990s … I hope we can get something like that this time.” Bullard has been a vocal backer of aggressive Fed action to tame stubbornly high inflation that is running at more than three times the U.S. central bank’s 2% goal. The 1994 tightening cycle saw the Fed double interest rates to 6% in seven rapid-fire hikes that included one 75 basis point and two 50 basis point moves. The Fed’s so-called soft landing, in which a recession was averted, was followed by a period of rapid growth and a historically tight labor market.Last week on the heels of another worse-than-expected inflation report, the Fed raised interest rates by three-quarters of a percentage point to a range of 1.50%-1.75%, but now forecasts borrowing costs more than doubling from that level over the next six months. Fed Chair Jerome Powell said last week that he anticipates either a 50 or 75 basis point move in July, and since then several policymakers, including those previously more cautious in their approach to reducing price pressures in case the central bank sent the economy into recession, have appeared to back a whatever-it-takes approach.On Saturday, Fed Governor Christopher Waller called for the Fed to implement another 75 basis point increase at its next meeting in July, saying the central bank is now “all in” on restoring price stability.Bullard noted the Fed still has some way to go in reducing inflation. “We are moving quickly, but moving from a low level and from the very accommodative monetary policy we put in place,” he said. More

The breakthrough in one of Ryanair’s largest markets came as unions representing cabin crew in Belgium, Portugal, France and Italy prepare to strike for between one and three days each later this week.”Following the intense negotiations Ryanair put forward a revised offer. BALPA members were balloted and voted to accept the offer,” a union spokesperson said in an email.In July 2020 BALPA members voted overwhelmingly to accept temporary pay cuts in order to avoid jobs losses due to COVID-19 groundings. Chief Executive Michael O’Leary in January then said that management had begun discussions with unions across its network about accelerating pay restoration in a deal he said might result in the extension pay agreements by a year or two.Asked how many pilots had accepted deals covering post-COVID pay restoration, a Ryanair spokesperson said over 70% of its pilots are covered by “newly renegotiated agreements”. There are pay agreements in place for all pilots, the airline said. BALPA last month said it was in negotiations with management “to end the COVID-19 mitigation measures … and to see some recognition, from management, of the loyalty and sacrifices the workforce has made.” It declined to provide further details of the approved deal. Ryanair shares were up 5.3% at the close of European trading. More

“When some countries opt into this (minimum corporate tax) and put these taxes in effect, it’ll begin to be more and more that see that it’s in their interest to join up,” Yellen said at a discussion with Canadian Finance Minister Chrystia Freeland in Toronto.Some 136 countries agreed a global deal in October 2021 to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation, but such a tax has not yet been implemented anywhere. More

As Britain prepares for its biggest rail strike for a generation, union leaders have warned that industrial action will spread across the country without government backing for wage rises.The issue is how wide-ranging such action will be, when it will occur, and how much of an impact it will have.This week’s rail strikes, led by the RMT rail union, revolve around salaries and redundancies — disputes echoed in other industries, as the government seeks to hold public sector wages below inflation. Mick Lynch, RMT general secretary, has suggested other unions might join in co-ordinated action, as his members “dig in” for a long stand-off with rail sector employers.The TSSA, which represents rail sector managers, and Aslef, the drivers’ union, are organising their own ballots with a view to launching action at some train operators later in the summer.A broader confrontation between the government and public sector workers is looming. Ministers are preparing to announce below-inflation pay deals for millions of teachers, doctors, nurses and local government workers whose earnings are already lower in real terms than they were in 2010, at the start of a decade of austerity policies. With inflation heading for double figures, Boris Johnson’s call — made last October — for businesses to raise wages to resolve labour market shortages seems long ago.Frances O’Grady, general secretary of the Trades Union Congress, said workers are now ‘facing low pay, insecurity and real cuts to their pay packets © Yui Mok/PAFrances O’Grady, general secretary of the Trades Union Congress, said people from all walks of life supported the rail workers and could take similar action if the government continued “picking a fight” with unions for political ends.Unions representing public sector workers have been calling for pay awards that would not only compensate them for rising living costs, but also regain ground lost over the past decade.But, despite increasingly heated rhetoric, some union officials privately play down talk of a “summer of discontent”. The RMT has long been one of the UK’s more radical unions, wielding more power than most because of its ability to bring the country to a halt.Others will want to test sentiment among their members carefully before trying to clear the legal hurdles that make it difficult to launch strike action at national level.“The decision to go on strike is never an easy one and the law makes taking action incredibly difficult . . . But if the government imposes below-inflation settlements on public sector workers, they’re likely to ask unions to run formal strike ballots,” said a spokesman for Unison, which has around 1.3 million members in public services. It is balloting some 25,000 of its members working in Scottish schools on possible action.Kevin Courtney, general secretary of the National Education Union, said pay was rapidly becoming a bigger issue than workload among teachers.“We are getting messages from people who are saying they can’t afford petrol in their car to drive to work,” he said, adding that the squeeze was worsening longstanding difficulties with teacher recruitment and retention.The NEU plans to run a “temperature check” to gauge the appetite for action among its members early in the autumn term, before holding a ballot for industrial action later in September or October.

Junior doctors — who last went on strike in 2016 in protest over changes to their contracts — are also gearing up for potential action as they reach the end of a four year pay deal. The British Medical Association, which has called for the government to compensate them for the real terms pay cuts suffered since 2008, said that if its demands were not met within six months, it could hold a ballot on industrial action early in 2023.The Royal College of Nursing, which represents almost half a million healthcare workers, contends that a pay rise 5 percentage points above inflation is needed to retain staff and draw new recruits to the profession. It is waiting to see the recommendations of the NHS pay review body, and the government’s response, before deciding on a course of action.Criminal barristers are stepping up action on legal aid and plan walkouts for several days over each of the next four weeks.More generally, while the scale of national action remains in doubt, both unions and employers say pay negotiations are becoming more fractious, with strikes becoming more likely to emerge at local level in individual workplaces in both the public and private sectors.Hackney is among the local authorities where strikes have broken out over a 1.75 per cent pay offer that was set nationally by the Local Government Association, in the teeth of opposition by three unions — Unison, the GMB and Unite. O’Grady said anger is rising among workers, not only because they were being asked to take a hit while corporate profits were rising, but because they felt the government had “abandoned working families” and was trying to gain political capital from a confrontation. “I’ve been asked a number of times where we are going to be coordinating action, and I wouldn’t rule that out,” she said. “But the point is that workers are coordinating themselves, not out of any deliberate strategy but because millions of workers are now facing low pay, insecurity and real cuts to their pay packets”. More

One of the Bank of England’s more hawkish policymakers has warned that the UK faces further rises in inflation if the central bank fails to increase interest rates as rapidly as the US Federal Reserve, causing the value of the pound to slip. Speaking online at a Market News International event, Catherine Mann said that a fall in sterling risked exacerbating high UK inflation, which she said five times was no longer just imported but “embedded” in companies’ domestic pricing decisions. With the official inflation rate likely to edge higher from 9 per cent for April when the May figures are published on Wednesday, further price rises coming from the weakness of the pound would intensify the cost of living crisis, the external member of the bank’s Monetary Policy Committee said.The pound, trading at $1.2232 on Monday afternoon, has lost 11.4 per cent of its value against the US dollar over the past year, although it has been broadly stable against the euro.With inflation already set to rise to more than 11 per cent in the autumn, Mann said further falls in sterling would be likely if the BoE raised interest rates much more slowly than the US Fed, which in turn would push up inflation further.Mann, who voted for a 0.5 percentage point rise in UK interest rates to 1.5 per cent last week, accepted that tightening policy quickly could hurt economic growth, but she thought the overall outcomes would be better if the BoE acted quickly to defeat inflation and then reversed course. “A more robust policy move . . . reduces the risk that domestic inflation . . . is further boosted by inflation imported via a sterling depreciation,” she said. “I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite.”With the BoE having failed to predict the rise in inflation from 1.5 per cent in April 2021 to 9 per cent a year later, Mann said it was now evident that inflation was part of the normal process of UK companies setting prices.

Unlike BoE governor Andrew Bailey, who has said that 80 per cent of price rises came from abroad and the central bank could do nothing about them, the external member of the MPC said that “the incoming data on inflation show increasingly domestic embeddedness, persistence and momentum”.She said that of all the items measured by the Office for National Statistics, prices for nine in 10 of them were now rising faster than they had between 2012 and 2019. She thought that incomes were being hit, but spending might prove to be more resilient, further embedding inflation, particularly if the BoE was seen to be reluctant to tighten monetary policy. In what she called an “extremely stylised” model she noted that when the Fed typically raised interest rates by 1 percentage point, sterling would fall because the BoE would not follow suit and UK prices would rise another 0.5 per cent. More

To QE or not to QE? That is the question. The European Central Bank made it clear it would seek a new tool to contain eurozone sovereign spreads at its emergency meeting last week. Rising inflation and the promise of higher interest rates are just two hurdles in the way of a new quantitative easing programme and the continuation of the “Draghi put” on European debt.So far the market is playing along. Yields on Italian debt are back below levels that caused panic. But as the ECB forges ahead with its first rate rise in more than a decade, pressure on peripheral debt will resume. It will mean tightening via rate rises while selectively loosening to prevent “fragmentation”. To be successful, the next step in the European monetary and political experiment has to be more radical than the last.What the ECB will do is reinvest in existing maturities from its pandemic emergency purchase programme (PEPP). At about €15bn-€20bn monthly this would fall well below historic bond buying of up to €80bn monthly. It could choose to do the same with the public sector purchase programme maturities (PSPP), which would roughly double monthly purchases.Another option would be to sell down holdings of core German and French sovereign bonds and buy peripheral debt. Critics would point this out as a further step in the direction of monetary financing of government deficits. It would be open to legal challenge. Sterilisation of bond buying could also be tried, where counter measures offset any expansion in the money supply. Higher deposit requirements were used to do this in the relatively small securities markets programme in 2010. What the market really wants is another “whatever it takes” moment, invoking Mario Draghi’s 2012 commitment to preserve the euro. Underpinning that were outright monetary transactions, a bottomless bond-buying programme that shored up confidence in the euro without ever having to be used. ECB dithering only serves to extend the amount of time — and the pain — before a new bazooka becomes inevitable. More

LONDON (Reuters) -Scandal-hit lender Credit Suisse has opted to tap investors for a pricier dollar bond in order to repay a $1.5 billion capital-boosting issue, a measure investors say was necessary to avoid raising concern over its ability to pay debt. Credit Suisse’s bond issue raised $1.65 billion at a 9.75% interest rate, according to an IFR pricing sheet on Friday. A source familiar with the matter confirmed the details to Reuters.The bond sold this week, like the one it refinances, is a so-called Additional Tier 1 issue – a type of contingent convertible (CoCo) bond. Deemed to be the most risky debt banks can issue, CoCos are designed to be perpetual in nature, though banks can repay them after a specified period.It is standard practice for banks to redeem or “call” AT1 instruments at the first opportunity but past exceptions — notably Deutsche Bank (ETR:DBKGn) in 2020 – imply Credit Suisse could have done the same, instead of opting to issue another bond at a higher price.Its new bond pays 9.75%, considerably above the 7.125% interest rate on the previous high-trigger convertible issue.Some investors said, however, that choosing not to redeem the bond risked raising concerns that the bank might be unable to repay debt as it weathers a turbulent period. “The position that CS has been in the headlines over the last year or 18 months, they probably couldn’t afford this to go wrong,” Dillon Lancaster, portfolio manager at TwentyFour Asset Management, said. “I think the first decision was to do it and I think that’s a good one made by management in terms of being bondholder-friendly. And the second one was having the ability to do it, to get the book for the new deal to (refinance) the old deal.”Lancaster estimated that had the original bond not been called, its coupon would have reset at around 8.55%, meaning the new deal cost Credit Suisse roughly 120 basis points more than sticking with the old one.Devised in the wake of the 2008 financial crisis, AT1 securities aim to bolster a bank’s capital buffers and aim to ensure that investors, rather than taxpayers, would be on the hook if a bank ran into financial difficulties.But while a bank can opt not to call the bond, Deutsche Bank’s 2020 decision not to redeem its $1.25 billion in AT1 bond sparked market turmoil.It followed a similar move in 2019 by Santander (BME:SAN).Filippo Alloatti, head of financials at Federated Hermes (NYSE:FHI) Limited, welcomed the decision to redeem the debt calling, saying “it helps Credit Suisse credit spreads to be perceived as a good corporate citizen”.Credit Suisse shares closed 2% higher on Friday following the news, while rival UBS’ shares were down.Credit Suisse also said that redeeming the outstanding instruments helped it to simplify its AT1 capital portfolio. All its AT1 bonds will now be structured to be written off should capital fall below a certain threshold, as opposed to being converted into equity, as was case with the bond now being redeemed.Some argue too that borrowing costs are likely to increase in coming months as central banks raise interest rates.Finally, for the bank battered by a string of scandals and profit hits, (the new issuance) was an opportunity to send “a message to the market,” one person familiar with the situation told Reuters.”That Credit Suisse can raise an AT1 for size…and get investors buying Credit Suisse paper.” More