Economy

RIO DE JANEIRO/SAO PAULO (Reuters) -Brazil’s government on Thursday night moved forward with its bid to privatize Eletrobras, Latin America’s largest utility, as the share offering through which its stake in the company is set to be diluted was priced.Centrais Eletricas Brasileiras SA, as the utility is formally known, said in the early hours of Friday that the offering was priced at 42.00 reais per share, with a total 29.29 billion reais ($5.97 billion) being raised.The total announced by the firm included only a primary offering of new shares issued by the company and a smaller secondary offering of shares held by the state development bank.If a greenshoe option aimed at price stabilization is fully exercised, the offering increases by 15% and the total amount goes up to 33.68 billion reais ($6.87 billion).According to sources, demand for the deal was strong and allowed the additional allotment to be sold, making it the world’s second-largest share offering this year.Reuters had reported the pricing late on Thursday, citing two sources with knowledge of the matter.Privatizing the utility was seen as crucial for President Jair Bolsonaro, who has so far delivered few of the state asset sales he pledged before taking office in 2019.Bolsonaro, a self-proclaimed free-market advocate, is set to face former President Luiz Inacio Lula da Silva – an avowed opponent of privatizations – in the first round of the presidential election on Oct. 2. A source said the demand for the deal, Brazil’s largest share offering in 12 years, was above $14 billion, with investors including pension funds, state investors, long-only portfolios, hedge funds and retail investors.”The high demand for the follow-on offering is yet another positive step in the company’s privatization process,” said Rodrigo Crespi, an analyst at Guide Investimentos.The 42-real pricing represented a 1.17% discount to the closing price of shares in Eletrobras on Thursday.On Friday, preferred shares in Eletrobras were down 5.7% at 40.06 reais, making the utility one of the top losers on Brazil’s Bovespa stock index, which fell 1.3%.”There is no panic, just a speculative move,” said Sidney Lima, an analyst at Top Gain, noting that a number of investors who bought shares of Eletrobras recently were now selling positions after the pricing was set.The government’s stake in the utility is set to drop from 72% to around 45%.Unlike some other big state asset sales, no single investor, foreign or domestic, was able to take control of the company through the process, which set a voting right ceiling of 10% on individual stakes. Eletrobras is yet to confirm its new shareholder structure.($1 = 4.9043 reais) More

Investors and economists had expected to see some moderation in inflation. Instead, prices accelerated again in May, delivering an unwanted surprise.Friday’s inflation report delivered an unwanted surprise for the White House, Federal Reserve and investors.While many economists and some administration officials had expected prices to show some signs of cooling, they got the opposite: a re-acceleration in price growth that makes it more likely the Fed is going to have to slam the brakes on the economy as it looks to slow the fastest pace of inflation in 40 years.As one left-leaning think tank put it, the report was “pretty ugly.”The news dispelled the notion that inflation may already have peaked and poured more fuel on the Biden administration’s biggest domestic policy vulnerability, politically and economically, as midterm elections approach in the fall.It also raised the chances that the Fed, which has already started raising borrowing costs to tamp down demand, will have to make a series of larger interest rate increases over the next few months.The Consumer Price Index data showed mounting evidence that the war in Ukraine was continuing to push the prices of food, gasoline, electric power and other staples higher. Inflation in services, like housing, remained high. Inflation in consumer goods — which administration officials had hoped was slowing as supply chain snarls are worked out in sectors like automobile manufacturing — surged anew after a spring slowdown. Costs for staples like eggs, meat and bread soared, with an index measuring the price of food at home registering its largest annual increase since 1979.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Greedflation: Some experts contend that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.For Investors: At last, interest rates for money market funds have started to rise. But inflation means that in real terms, you’re still losing money.The “1970s called and it wants its inflation back. There is no room to sugar coat this,” analysts at TD Securities wrote in a report shortly after the release. “The report should be of great concern for the Fed.”After a senior White House official expressed hope to reporters on Thursday that the report would show indications of an economy that was beginning to shift toward what the president has said is his goal of slower, more stable economic growth with lower inflation, administration officials and their allies did little on Friday to dispel the idea that the numbers were challenging and disappointing.The White House Council of Economic Advisers wrote in a series of Twitter posts that “price increases were broad-based,” while noting that core inflation — which excludes volatile commodities like energy and food — had fallen slightly from its average at the beginning of the year.Outside allies were more blunt. The liberal Economic Policy Institute in Washington wrote on Twitter that the report was “pretty ugly — and shows the pain workers and their families are experiencing.”Republicans blamed the president, as they have for more than a year, for the increases, saying his 2021 economic rescue bill effectively overheated the economy. “The truth is that inflation did not just sneak up on the Biden White House,” Representative Jason Smith of Missouri, the top Republican on the Budget Committee, said on Friday. “The warning signs were there all along.”Mr. Biden and his team have been trying to make a delicate pivot on the inflation issue, calling it his top economic priority and increasingly expressing sympathy for the households struggling to cope with rising prices. They have sought to reassure markets by leaning into a message of trust in the Fed to manage inflation with interest rate increases, while attempting to project a sense of urgency with actions that officials concede will have a small effect, at best, on broad prices — like an announcement this week that the administration was pausing tariffs on some imported solar panels.Inflation F.A.Q.Card 1 of 5What is inflation? More

The Treasury Department declined to label any country a currency manipulator, but singled out Switzerland as an offender in its semiannual foreign exchange report.WASHINGTON — The Treasury Department said on Friday that it was concerned that some of America’s trading partners were taking actions to weaken their currencies and gain unfair trade advantages against the United States — but declined to label any country a currency manipulator.In its semiannual foreign exchange report, the department singled out Switzerland, which in 2020 was deemed a manipulator, as a worst offender and said it was closely watching the foreign exchange practices of Taiwan and Vietnam. Department officials have been involved in “enhanced bilateral engagement” with all three countries in recent months.“The administration continues to strongly advocate for our major trading partners to carefully calibrate policy tools to support a strong and sustainable global recovery,” Treasury Secretary Janet L. Yellen said in a statement. “An uneven global recovery is not a resilient recovery.”The United States uses three sets of thresholds to determine if a country is weakening the value of its currency. It has broad discretion to determine if a country is manipulating the exchange rate between its currency and the dollar to gain a competitive advantage in international trade.A government can suppress the value of its currency by selling it in foreign exchange markets and stockpiling dollars. By depressing the value of its own currency, a country can make its exports cheaper and more competitive to sell on global markets.The Trump administration labeled Switzerland and Vietnam currency manipulators in 2020, but the Biden administration, seeking a more diplomatic approach, removed the designation.A Treasury official said the United States has had constructive talks with Switzerland over the last year, noting that its economy is facing unusual factors because it is a small and open European economy with a currency, the franc, that is considered a safe haven.Currency manipulation labels are supposed to set off talks with the United States and can involve input from the International Monetary Fund. If the concerns of the Treasury Department are not resolved, the United States can impose an array of penalties, including tariffs.Mark Sobel, the chairman of the Official Monetary and Financial Institutions Forum, noted that the more pressing issue in global currency markets was the strength of the dollar.“The real issue these days is the sharp dollar appreciation, which has clearly been generated by monetary policy divergences between a tightening Fed and others who are less aggressive,” Mr. Sobel said. “It would be hard to fault others.”The United States added Vietnam and Taiwan to its currency “monitoring lists,” a tally that includes China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore, Thailand and Mexico.The Treasury Department said it was closely watching the foreign exchange activities of China’s state-owned banks. It criticized China for providing “very limited transparency” over how it managed its currency. More

The ECB on Thursday flagged a 25 basis point interest rate hike in July and said a bigger increase may be needed in September as inflationary pressures were increasing and broadening, raising the risk that high price growth will become entrenched. “Euro area inflation rates won’t fall by themselves,” German Bundesbank President Joachim Nagel said in a statement. “Monetary policy is called upon to reduce inflation through resolute action.”At an event later, Nagel said the ECB’s journey to higher rates had just began and its speed will depend on incoming data – a sign he was not clamouring for big rate hikes just yet.Although the ECB raised its 2022 inflation projection to 6.8% on Thursday, over three times its 2% target, it said that the figure would have been even higher, at 7.1%, if it had also included data released after the cut-off date. This meant prices in countries such as Germany would grow even faster this year than during the last period of high inflation in the early 1980s. The rate hikes however raise the risk that a wide gap will open between the borrowing costs of different euro zone members, particularly Germany and more indebted southern nations like Italy, Spain and Greece. ECB President Christine Lagarde promised to fight “unwarranted” fragmentation of this kind and said the ECB could even deploy a new tool, if necessary, but did not give details.Doubting the ECB’s resolve, investors sold off southern bonds after the ECB’s decision and 10-year Italian government bond yields are now 235 basis points above their German counterparts, the widest spread in two years.”Nobody should have the slightest doubt, including in the markets, concerning our collective will to prevent this fragmentation,” French central bank chief Francois Villeroy de Galhau said separately.”We have the will and nobody should doubt that we will have the tools when necessary,” Villeroy told BFM Business radio.Italy’s 10-year yield rose to 3.78% in early trade, its highest since 2018 and just below its highest since 2014, when the euro zone was still caught in a debt crisis.The equivalent Spanish bond spread to German debt was at 123 basis points on Friday, also a two-year high.But Villeroy also backed plans to raise rates on account of the worsening inflation outlook. “Inflation is too high and too broad in France, in Europe” he said, adding the European Central Bank was “strongly committed to bringing inflation down to 2%”.The Bundesbank meanwhile doubled its inflation outlook for Germany to over 7% on Friday and halved its growth estimate. More

Zhang Weiya bears the emotional scars of China’s “zero-Covid strategy”. The mother of a four-year-old son emerged recently from more than 50 days locked in her apartment in Shanghai with her husband, mother-in-law and a yapping family dog.She was ecstatic to breathe the fresh air at the end of last month as China’s biggest city lifted an enforced confinement that affected, at one time or another, most of its 25mn residents. But on Thursday she heard the news that authorities will again lock down a district of 2.7mn people to conduct mass coronavirus testing.“My arms are literally trembling,” she said. “It is not our district that is being locked down but it isn’t far away. I really don’t know if my mental health would be able to withstand another isolation. I even found myself getting pissed off with our beloved son because he wouldn’t keep quiet for even a minute.”Her experience reveals one aspect of the human cost of China’s “techno-authoritarian” approach to combating the pandemic. But the privations are not limited to those in incarceration. A new phase in the “zero-Covid” policy blends mass mobilisation tactics borrowed from China’s revolutionary past with 21st century technology used to monitor and corral people in the intimate detail of their daily lives.Every resident in most of China’s largest cities is required to carry a medical report on their mobile phone that shows when they were last tested for Covid. If more than three days have elapsed, they can be refused access to public spaces and to shops to buy daily necessities. Hundreds of thousands of Covid testing booths are being built in many cities across the country to ensure that no resident lives more than a 15-minute walk away from an available test. Beijing’s intention is to get ahead of the virus by picking up people who have tested positive before they have had a chance to spread it to others.This, in turn, is aimed at freeing the government from the need to impose protracted, citywide lockdowns that hammer the economy and stoke huge public resentment. Thus, the lockdown announced on Thursday in the Shanghai district of Minhang was not intended to be long-lasting, authorities said.For some Chinese, though, all this amounts to just another iteration of digital dystopia by a government sworn to contain the spread of Covid at almost any cost. “This is so much bullshit. When is it going to end?” asked a bar owner in Beijing. “[The government] is ruining us to save their face. What a bunch of posers! Why don’t they just lift the controls?”Small, mostly private, businesses have been among the worst hit as China’s economic growth slumped this year with the spread of the Omicron variant and the lockdowns it has engendered. An online survey of 16,500 small and medium enterprises published by Peking University, Ant Group and MYBank found that 40 per cent did not have enough spare cash to last another month.In a very real sense, the bar owner’s trials are also those of the world economy. Whether the new “dynamic testing” approach proves successful will have a profound influence on economic growth. China has long been the biggest engine of global prosperity, contributing 28 per cent of GDP growth worldwide from 2013 to 2018 — more than twice the share of the US, according to a study by the IMF.The World Bank this week named lockdowns in China, along with the war in Ukraine and supply chain disruptions, as one of the factors behind a cut in its forecast for global GDP growth this year to 2.9 per cent, down from an actual 5.7 per cent in 2021.Several economists say that China may flirt with a rare GDP recession in the second quarter of this year, raising some hopes that it could launch a “big bazooka” stimulus package to rescue its own flagging performance and, in doing so, impart some momentum to the global economy.

But is this really likely? “Probably not,” says May Yan, managing director at UBS, an investment bank in Hong Kong. “I don’t think China can manage a big stimulus even for its own sake, let alone to save the rest of the world.”For one thing, the big, structural drivers of Chinese growth over the past two decades are now close to tapped out. The local governments that fuelled the world’s biggest infrastructure boom are drowning in debt, much of which they keep hidden from their superiors in the central government.Goldman Sachs estimated last year that the total debts owed by local government financing vehicles, the thousands of poorly regulated funds run by local authorities, amounted to around Rmb53tn ($8.2tn) — more than twice the size of the German economy.Financing these is becoming a severe challenge. One crucial source of funding — the sale of land to property developers — is drying up because China now has enough empty apartments to house an estimated 90mn people. China’s record in keeping Covid largely under control since the initial outbreak in Wuhan has allowed it to maintain a general equilibrium. But the spread of Omicron is now imposing deep human and economic costs that show little sign of abating.Additional reporting by Nian [email protected] More

Good eveningToday’s higher than expected consumer price growth from the US caps a busy week of data and policy announcements in the battle against surging inflation.US consumer prices rose by a more than expected 1 per cent during May, piling further pressure on the Federal Reserve to tighten monetary policy. The year-on-year increase of 8.6 per cent is the highest since December 1981. The Biden administration has blamed the war in Ukraine and supply chain problems caused by China’s coronavirus lockdowns.China itself however remains at odds with global trends. Data earlier today from the world’s second-largest economy showed factory gate prices rising at the slowest rate in more than a year as lockdowns pushed down demand for commodities, while consumer prices rose just 2.1 per cent from the year before.The European Central Bank meanwhile has called time on the easy money era as it strives to contain inflation which hit 8.1 per cent in the year to May — more than four times its target of 2 per cent. The ECB signalled yesterday that it was likely to raise rates by half a percentage point in September in addition to a quarter-point rise in July. Its remaining €20bn-per-month bond purchases programme will also come to an end.The ECB’s hawkish turn has revived investor concerns about the ability of weaker eurozone states to support their massive debt loads, triggering a sell-off in bond markets today. Some economists believe the bank’s governing council lacks the expertise to get the balance right between fighting inflation and avoiding economic and financial meltdown. The outlook across the Channel however looks even more grim. FT analysis shows the UK set for the highest inflation in the G7 from now until 2024 as it suffers from the worst aspects of mainland Europe (surging energy prices) as well as those in North America (rises in other goods and services). The price of filling a typical family car with petrol yesterday topped £100.Investors are betting the pound will fall further as the prospect of weakening growth on top of rising inflation darkens the economic outlook. Britons meanwhile are cutting spending, with some turning to loan sharks as the cost of living crisis intensifies. Unions are threatening strikes as pay rises fail to keep up. The Bank of England is also facing increasing criticism for how it is tackling the problem: an official survey today showed Britons expect prices to continue to rise sharply over the next five years.Compare rising prices around the world with our global inflation tracker.Latest newsUS consumer sentiment falls to its lowest value everBus journeys and cycling surge as UK drivers try to cut fuel useCanada’s unemployment rate hits a record low as labour market remains tightFor up-to-the-minute news updates, visit our live blogNeed to know: the economyHalf of Shanghai’s 16 districts went back into lockdown after a handful of new Covid cases were detected, barely a week after authorities had declared victory over the virus. China is set to extend its zero-Covid strategy for the long-term, despite the economic and human toll.The latest twist in the global energy crisis involved a fire at an LNG plant in Texas, causing another surge in gas prices in Europe, which is increasingly looking to the US for supplies. In the UK, Centrica has applied to reopen the country’s biggest gas storage site, while the government has given the go-ahead for gas drilling in countryside south of London. Energy editor David Sheppard says the world must brace itself for a further surge in oil prices.The crisis continues to peck away at the move to sustainable sources. Members of the European parliament knocked back parts of an EU climate bill, highlighting the political difficulty of tackling climate change at a time of soaring energy bills. Meanwhile, interest in Canada’s oil sands, home to some of the world’s dirtiest fuel, is rocketing.

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Latest for the UK and EuropeUK chancellor Rishi Sunak was accused of wasting £11bn of taxpayers’ money by paying too much interest on government debt because of a failure to take out insurance against interest rate rises. The loss is greater than the amount Conservatives accused former Labour chancellor and prime minister Gordon Brown of losing on sales of gold reserves in the 2000s.Sunak’s boss Boris Johnson has been trying to make economic growth his top priority after months of negative headlines about lockdown shenanigans, but FT analysis shows business investment remains weak, despite government incentives. One of Ukrainian president Volodymyr Zelenskyy’s top advisers told the FT that Russia’s wealth must be targeted to offset the estimated $600bn in damages caused by its invasion. Kyiv is stepping up takeovers of Russian assets in the country such as banks and factories and wants its allies to start making seizures worldwide. The UN meanwhile warned of the risk of global hunger as talks stalled over the blockade of grain at the port of Odesa.In contrast with much of the rest of the world, Russia today cut its key interest rate for the fourth time since March to 9.5 per cent, citing slowing inflation and growth. Inflation has been declining in Russia because of the strength of the rouble, the best performing currency this year.Global latestHotspots in London and parts of the US may still be attracting attention, but interest rate rises look likely to cool the rapid growth in global house prices that has taken place over the past two years, writes economics reporter Valentina Romei.Japan, one of the last countries in Asia to resume overseas tourism, reopens today but with last-minute guidelines restricting entry to escorted visitors only. The move has caused dismay among business owners in the country’s $36bn tourism market. The cost of living crisis may be intensifying but the world’s richest are sitting pretty. A new study shows that wealth growth has proven extremely resilient to economic shocks, with financial wealth alone likely to increase at about 5 per cent a year for the five years to 2026.

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Need to know: businessThe Bank of England said HSBC, Lloyds Banking Group and Standard Chartered had “shortcomings” in their plans to ensure they could fail without harming customers and taxpayers. Banks had been told to create “resolution plans” to make sure the bailouts of the 2007-08 financial crisis would not be repeated, even if lenders were to collapse.An investigation by the UK competition regulator into Apple and Google’s dominance in smartphone browsers and cloud gaming is the latest crackdown against the power of Big Tech.Trafigura, one of the world’s largest commodity traders, reported record half-year profits up 27 per cent to $2.7bn as it took advantage of volatile markets. The FT Editorial Board criticised airlines for promises they were unable to keep and said they should cut back flights now to prevent a summer of chaos. Pilot unions hit back at Wizz’s call for staff to go “the extra mile” when they were tired. Meanwhile, flights to European holiday destinations have passed 2019 levels for the first time. Our Big Read examines prospects for buy now, pay later companies as doubts grew that cash-strapped customers would be able to keep up payments. The industry was turbocharged by the ecommerce boom during the pandemic, with Swedish group Klarna becoming the most valuable fintech start-up in Europe.The boom in Spacs — shell companies that raise money from investors and list on the stock market — appears to be fizzling out, thanks to rising interest rates, a weakening market and the prospect of tighter rules from US regulators. Science round upModerna said its new Covid-19 booster increased immunity against Omicron after the first clinical trial of a jab targeting the variant. The “bivalent” booster contains the genetic code of Omicron as well as the original strain of the virus.US regulators backed the Novavax Covid vaccine, a protein-based jab which is an alternative to the mRNA technology used by BioNTech/Pfizer and Moderna and has been used against diseases such as shingles and the flu for decades. Pandemic upheavals meant 23mn children across the world missed out on the usual protective vaccinations in 2020. Health authorities in Europe have warned of a heightened risk of measles over the coming months, as well as potential outbreaks of mumps and rubella. Beijing has adopted a novel approach to win over vaccine sceptics: it is offering insurance against jab-related side effects.Get the latest worldwide picture with our vaccine trackerAnd finally. . .The FT’s Peggy Hollinger and Clive Cookson yesterday carried out the ultimate remote interview: talking to an astronaut live in space. The European Space Agency’s Samantha Cristoforetti discusses life on the International Space Station, the fallout from the Russian war and the dangers of space junk.

Video: FT interviews astronaut Samantha Cristoforetti in space More

Producers in the French-speaking Canadian province harvested 211.3 million pounds of syrup this spring, according to a survey by Quebec-based agri-food consultant Groupe Ageco. The Quebec Maple Syrup Producers — the de facto cartel of the sticky stuff — said the amount allows it to restock reserves drained after last year’s harvest. This year’s output topped the previous record of 175 million pounds in 2020.“We benefited from excellent weather conditions this spring,” Luc Goulet, president of the Quebec Maple Syrup Producers, said Friday in the statement.Producers were helped by cool spring temperatures, which allowed farmers to tap trees for a longer period. The so-called sugaring season typically occurs between late February and the end of April, because tree sap flows when daytime temperatures alternate between freezing and thawing. Read more: Chilly Canada Weather Brings Pancake Bliss Amid Maple Syrup BoomWarm weather affected last year’s output just as global demand for the pancake topping surged, forcing the Quebec Maple Syrup Producers drain nearly 50 million pounds of syrup from its strategic reserve — about half its stockpile and the biggest drawdown since 2008. The producers group sets bulk prices, caps production and sends unsold syrup output to a warehouse in Laurierville, Quebec.The Canadian producers sold a record 180.2 million pounds of syrup last year, 22% more than the prior period, while exports jumped almost 21% to 160.8 million pounds. Quebec accounted for 73% of global output in 2020.©2022 Bloomberg L.P. More

Italian and Greek borrowing costs hit multiyear highs on Friday as investors were rattled by a hawkish European Central Bank meeting that raises the pressure on the finances of Europe’s most indebted countries.The yield on Italy’s 10-year bond jumped to its highest level since 2014, at 3.75 per cent. Greece’s 10-year bond rose 0.23 percentage points to 4.28 per cent, climbing past the level it reached at the height of the Covid-19 pandemic.The ECB on Thursday confirmed plans to end its bond-buying programme and raise interest rates for the first time since 2011 next month, and hinted that more aggressive rate rises could follow later in the year. The move to tighten monetary policy as the central bank seeks to rein in record-high inflation has reawakened investor concerns about the ability of weaker eurozone members to support their massive debt loads without the support of the ECB.Spanish and Portuguese debt was also hit, while the selling spread to European bank stocks, many of which are heavily exposed to a debt sell-off due to their holdings of government bonds.Italy’s main stock index fell by 5 per cent, led by the banking sector. Lenders UniCredit and Intesa Sanpaolo lost 9 per cent and 7.6 per cent respectively.Crucially, ECB president Christine Lagarde on Thursday said the central bank could introduce a new tool to avoid “fragmentation” of the euro area by keeping a lid on sovereign borrowing costs, but offered scant details. She also reiterated that the central bank could reinvest the proceeds of maturing bonds that it holds to ward off bond market stress.“There are big doubts about whether reinvestments can really help if things start to go haywire,” said Rohan Khanna, a rates strategist at UBS. “There was some hope ahead of the meeting that they were working on some kind of new facility, but Lagarde told us nothing new. The big question clients keep asking is who is going to buy Italian bonds once the ECB backs away.”The euro extended declines on Friday, falling 0.9 per cent against the dollar to a three-week low of $1.052. The currency had initially climbed following Thursday’s ECB announcement, but gave up its gains as the market shifted its focus from the prospect of higher interest rates in the eurozone to renewed bond market tensions.The gap between Italian and German 10-year bond yields, a closely watched gauge of market stress, widened to as much as 2.27 percentage points on Friday, the most since May 2020. Khanna said some investors had been speculating that the ECB might be forced to step back into markets if this spread reaches 2.5 percentage points — a level that provoked a response from the central bank in the early stages of the pandemic.“After what we saw yesterday, I think many people are wondering if the level at which the ECB comes in and saves the day is now higher than previously thought,” he said. More