Economy

PARIS (Reuters) – A top airline industry official called on Tuesday for calm surrounding recent travel chaos at some airports as people resume flying after the pandemic, blaming the gridlock on temporary delays in getting clearances for new staff.A snapback in air travel has triggered long queues at some British airports, as well as Amsterdam, Dublin and Toronto, as airport managers struggle to fill jobs fast enough.The time needed to get security badges for newly hired staff has risen from three to four weeks in Britain, for example, to as long as three months, said Willie Walsh, director general of the International Air Transport Association (IATA).”The problem is, you can’t start the training until you’ve got the security clearance,” Walsh told a small group of reporters on the sidelines of a conference on ground operations.”You offer them a job, they accept it, and then you have to go through this period of three months to get security clearance – they’re not going to hang around. They’ll go and find a job somewhere else.”The former British Airways and IAG (LON:ICAG) boss said he did not expect the trend to spread to other regions, but he sounded the alarm on growing pilot shortages in the United States.”I think it needs to be put in perspective; there are issues in some airports, it’s not across the world,” Walsh said.”I think it reflects the very significant increase in activity we’ve seen. It also reflects the fact that we’re coming off a very low base. So as airlines and airports try to rebuild, it is challenging for some of them … It will get addressed.”The pandemic led to international travel virtually shutting down as governments around the world curbed entry. However, the easing of curbs and bottled-up travel demand have led to an abrupt upswing in short- and medium-haul trips.Walsh played down concerns that pent-up demand could prove short-lived as worries about inflation and lower disposable incomes take a toll on future travel spending. Some executives have warned of uncertain demand over the winter.”Without question, what we’re seeing at the moment is very, very strong demand right across the world. It’s stronger than we had expected,” he said, adding traffic was moving towards reaching 2019 levels in 2023, rather than 2024 as previously forecast.Oil prices extended a bull run on Tuesday after the EU agreed to a partial and phased ban on Russian oil. Walsh said airlines had coped in the past with oil prices well above $100 a barrel for benchmark Brent and carriers would eventually pass on these costs to passengers.The crisis has seen the jet fuel prices to soar even more than crude because of scarce refining capacity, but Walsh said he expected that spread to narrow to more normal levels.While Europe scrambles to keep up with travel demand, Asian airspace is comparatively still because of factors such as China’s tough policies to control COVID-19. Air travel in Asia is still at 13% of 2019 levels, compared to about 50% elsewhere. More

By Karen Brettell(Reuters) – With the Federal Reserve set to begin letting bonds mature off its $9 trillion balance sheet, the key metric to watch will be whether Treasury volatility picks up as a result in a market already suffering bouts of low liquidity.The Fed’s so-called quantitative tightening (QT) could also send yields higher, though analysts say this will depend on the direction of the economy, among other factors. The Fed will let bonds mature off its balance sheet without replacement starting June 1 as it attempts to normalize policy and bring down soaring inflation. This follows unprecedented bond purchases from March 2020 to March 2022, meant to blunt the economic impact of business closures during the pandemic.But as the world’s largest holder of U.S. government debt reduces its presence in the market, some worry the absence of its dampening effect as a consistent, price-insensitive buyer could worsen market conditions.“The impact of QT will be more evident in places like money markets and in market functioning as opposed to yield levels and curves,” said Jonathan Cohn, head of rates trading strategy at Credit Suisse in New York, adding that he will be watching “the way in which it proceeds through deposits, through the withdrawal of liquidity and through the added burden that it places on dealers.”The Fed is pulling back at a time when the Treasury market was already struggling with periods of choppy trading. U.S. government debt issuance has soared while banks face greater regulatory constraints, which they say has impeded their ability to intermediate trading.“On the margin we could see a little bit weaker liquidity in the Treasury market because there’s no opportunity to sell bonds from dealer balance sheets on to the Fed,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. “That might increase volatility, but liquidity is also already pretty thin within the rates space and that’s not necessarily directional.”Banks have reduced bond purchases this year. Some hedge funds have also reduced their presence after being burned by losses during bouts of volatility. Foreign investors have also shown less interest in U.S. debt as hedging costs rise and as an increase in foreign bond yields offers more options.To the degree that the Fed’s retreat does impact yields, it will most likely be higher. Many analysts thought the Fed kept benchmark yields artificially low and contributed to a brief inversion of the Treasury yield curve in April.“The risk is the market is unable to absorb the additional supply and you do have a big adjustment in valuations,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities in New York. “We will still see more long-end supply than we did pre-COVID for quite some time, so all else being equal that should pressure rates a bit higher and the curve a bit steeper.”The direction of yields, however, will still be influenced by other factors, including expectations for the Fed’s interest rate hikes and the economic outlook, which could override any impact from QT.“From a top-down macro perspective we think other determinants will be just as or likely even more important for thinking about the direction of yields,” said Credit Suisse’s Cohn.The last time the Fed reduced its balance sheet it ended badly. Rates to borrow in the crucial overnight repurchase agreement market surged in Sept. 2019, which analysts attributed to bank reserves falling too low as the Fed ran down its balance sheet from Oct. 2017.That is less likely this time around after the Fed set up a standing repo facility that will function as a permanent backstop for the crucial funding market.There is also significant excess liquidity in the form of bank reserves and cash lent into the Fed’s reverse repurchase facility, which may take time to work through. Bank reserves stand at $3.62 trillion, up sharply from $1.70 trillion in Dec. 2019. Demand for the Fed’s overnight reverse repo facility, where investors borrow Treasuries from the Fed overnight, set a record at more than $2 trillion last week.The Fed is also taking time to ramp up to its monthly cap of $95 billion in bonds that it will allow to roll off its balance sheet each month. This will include $60 billion in Treasuries and $35 billion in mortgage-backed debt, and will fully take force in September. These caps will be $30 billion and $17.5 billion, respectively, until then.“It’s going to be very gradual… It’s just too soon to know what if anything the impact is going to be from QT,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale (OTC:SCGLY) in New York, noting that any issues may not begin to surface until the fourth quarter. (This story refiles to add “as” in the first paragraph) More

Other technologies could help to decarbonise the industry, meeting the same targets on emissions while preserving know-how and jobs in Italy, said Paolo Scudieri, the chairman of automotive industry association ANFIA.”I refer to the tangible contribution that biofuels and synthetic fuels, as well as hydrogen, can provide,” Scudieri said opening ANFIA’s public assembly, adding the Italian automotive industry was already making huge investments on hydrogen.Biofuels and synthetic fuels, referred to as e-fuels, are being developed to allow modified versions of combustion engines to continue to be used rather than a wholesale switch to battery electric vehicles (BEV).Scudieri said that exclusively focusing on BEV technology, currently dominated by Asian producers, would put some 73,000 jobs at risk in Italy in coming years, which would not be compensated by about 6,000 new jobs expected to be created by electric mobility.He added around 450 car parts maker in Italy, out of a total of 2,200, risk going out of business as they have not yet started to shift production towards electric technology.The European Commission has proposed a 100% cut in CO2 emissions by 2035 for the industry. The target, which is part of a bigger package of climate change policies launched last year, would make it impossible to sell new fossil fuel-powered vehicles in the 27-country bloc.The European parliament will hold a debate next week on a number of climate policies, including a plan to effectively ban combustion engine cars by 2035.Scudieri said there was not a prevailing position among different political groups within the European parliament.”Every single vote will count and my wish is that our MEPs will vote also having the country’s interests in mind,” he said. More

COLOMBO (Reuters) -Sri Lanka’s cash-strapped government on Tuesday announced a taxation overhaul to boost revenue amid the country’s crippling economic crisis, hiking value added taxes and corporate income tax, and slashing the relief given to individual taxpayers.Prime Minister Ranil Wickremesinghe, who took office this month and plans to present an interim budget within weeks, said measures were necessary as the current state of government finances was unsustainable.”The implementation of a strong fiscal consolidation plan is imperative through revenue enhancement as well as expenditure rationalization measures in 2022,” Wickremesinghe’s office said in a statement.Sri Lanka’s inflation rose to 39.1% in May, its statistics office said on Tuesday – a record level, compared to the previous high of 29.8% set in April.An increase in Value Added Tax (VAT) to 12% from 8% with immediate effect is among the key tax increases announced on Tuesday, which is expected to boost government revenues by 65 billion Sri Lankan rupees ($180.56 million).Other measures, including increasing corporate income tax to 30% from 24% from October, will earn an additional 52 billion rupees for the exchequer. Withholding tax on employment income has been made mandatory and exemptions for individual taxpayers have been reduced, the statement said.The island nation of 22 million people has been battered by its worst economic crisis since independence from Britain in 1948, with a severe shortage of foreign currency stalling imports of essentials, including food, fuel and medicines. The roots of the crisis lie in tax cuts enacted by President Gotabaya Rajapaksa in late 2019, which came months before the COVID-19 pandemic that battered the country’s lucrative tourism industry and led to a drop in foreign workers remittances.The tax cuts caused annual public revenue losses of about 800 billion rupees, the prime minister’s office said in its statement.The new tax regime and COVID-19’s impact, together with the pandemic relief measures, widened the budget deficit significantly to 12.2% of GDP in 2021 from 9.6% of GDP two years earlier.In an interview with Reuters this month, Wickremesinghe – who also holds the finance ministry portfolio – said he would cut expenditures down “to the bone” in the upcoming interim budget and re-route funds into a two-year relief programme.The tax hikes are aimed at putting public revenues back at pre-pandemic levels and focused on fiscal consolidation as the country seeks a loan package from the International Monetary Fund (IMF), said Lakshini Fernando, a macroeconomist at investment firm Asia Securities.”The tax increases are definitely a very positive first step, especially for IMF talks and debt restructuring,” Fernando said.”This was required to take forward discussions and will also help the government in talks with bilateral and multilateral partners to secure more funding,” Fernando said.($1 = 360.0000 Sri Lankan rupees) More

DUBAI (Reuters) – Israel signed a free trade agreement with the United Arab Emirates on Tuesday, its first with an Arab state and one which eliminates most tariffs and aims to lift their annual bilateral trade to more than $10 billion.It was signed in Dubai by Minister of Economy and Industry Orna Barbivai and her counterpart, UAE Minister of Economy Abdulla bin Touq Al Marri, after months of negotiations.Tariffs will be removed or reduced on 96% of goods traded between the nations. The UAE predicted the Comprehensive Economic Partnership Agreement would boost annual bilateral trade to more than $10 billion within five years.Emirati-Israeli trade stood at $1.2 billion in 2021, official Israeli data showed.Tariffs will be reduced on goods including food, medicine, diamonds, jewelry, fertilisers and other chemicals.Most duties are to be eliminated immediately, while others will be removed over 3-5 years. Some products will still be subject to customs tariffs but at a lower rate.Emirati trade minister Thani Al Zeyoudi said the deal had written “a new chapter in the history of the Middle East”.”Our agreement will accelerate growth, create jobs and lead to a new era of peace, stability, and prosperity across the region,” he wrote on Twitter (NYSE:TWTR).Barbivai said in a statement the expected strengthening in trade, removal of barriers and promotion of new business opportunities and partnerships would form a “solid foundation” for the “joint path” shared by Israel and the UAE.The trade agreement defined tax rates, imports and intellectual property, which would encourage more Israeli companies to set up offices in the UAE, particularly in Dubai, said Dorian Barak, president of the UAE-Israel Business Council .The council predicts there will be almost 1,000 Israeli companies working in or through the UAE by the end of the year. “The domestic market doesn’t represent the entirety of the opportunity. The opportunity is really setting up in Dubai, as many companies have, in order to target the broader region,” Barak told Reuters by phone.VIOLENCE CONDEMNEDThe agreement was signed amid Israeli-Palestinian violence. The UAE foreign ministry on Monday condemned what it called a “storming” of the Al Aqsa compound in Jerusalem by “extremist settlers under the protection of Israeli forces”. That appeared to refer to visits by thousands of Jews, who revere the site as a vestige of their two ancient temples, on the day marking Israel’s capture of Jerusalem’s Old City in a 1967 war. Some visitors prayed and held up Israeli flags which police said resulted in their removal.Al Aqsa, which is also the third holiest site in Islam, is in East Jerusalem’s Old City which Israel has annexed but is not recognised internationally.MORE DEALSThe deal marked the UAE’s second free trade pact after it signed a similar accord with India in February. It is in trade talks with several other countries, including Indonesia and South Korea.The UAE has sought to strengthen its economy and status as a major business hub following the coronavirus pandemic.Israel and the UAE established ties in September 2020 in a U.S.-brokered deal that broke with decades of Arab policy that had called for a Palestinian state before ties with Israel.Bahrain and Morocco recognised Israel the same year. More

The government has mainly blamed massive ticket fraud and Liverpool’s handling of their fans for Saturday’s trouble but also said the transport strike contributed to an overcrowding of fans near the Stade de France stadium.”The success of the strike during the Champions League final resulted in a clear display of strength for the trade unions,” said a joint statement from the CGT and UNSA unions representing workers on Paris’ RER and RATP public transport networks.The unions also threatened another strike on Friday to coincide with the France versus Denmark Nations League soccer match. The unions want better pay and working conditions. British Prime Minister Boris Johnson described the scenes outside the Stade de France, which saw some fans including children tear-gassed by French police, as deeply upsetting, while Liverpool Chairman Tom Werner has demanded an apology from the French sports minister.French Interior Minister Gerald Darmanin said Liverpool had provided their supporters with paper tickets, not electronic, which allowed for the possibility of what he described as a “massive fraud on an industrial scale”.The crowd trouble has become a political issue ahead of next month’s parliamentary elections and embarrassed France, which hosts the Rugby World Cup in 2023 and Olympic Games in 2024. More

How much cash should I keep as a proportion of my investments, beyond a fund for emergencies? Inflation would suggest as little as possible, but I know lots of people who have moved a big proportion of their assets into cash as stocks have fallen, both to mitigate losses and be ready to buy when things pick up again. What’s the best cash strategy in a high-inflation environment? Paul Surguy, managing director and head of investment management at Kingswood, recalls that former US president Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” Perhaps inflation is better described as a silent assassin: for most economies, it is always there, gradually eating away at the purchasing power of cash.

Paul Surguy, managing director of Kingswood

With price rises running at levels not seen since the 1970s, many have begun to ask what steps they can take to protect their assets. To appreciate the impact it can have on cash holdings, consider £1,000 in a bank today. At a current (and assumed consistent) level of inflation this will be worth £917.43 in a year’s time. In the UK, supply bottlenecks and the price of oil have intensified the increase. As these ease, it is hoped that inflation will naturally start to fall away. Cash is held as the ultimate protection. Historically, for those with memories that stretch back to the 1990s and early 2000s, one might expect to get a little bit of interest on cash in the bank. However, even with interest rates rising across the globe, any interest received is both minuscule and irrelevant when compared with inflation. So where can people go to protect their assets against inflation? Traditionally, property and equities would be the first port of call and should, within a certain risk tolerance, still be the best place. Inflation-protected bonds are a lower risk method of protecting investments. However, all of these are higher risk than cash in the short term, as their values will fluctuate. This is why investors should ensure they have a diversified portfolio appropriate for their risk tolerance. There are also a wider range of alternatives, such as gold (the traditional inflation hedge) and uncorrelated assets such as low-risk, hedge fund type investments.Having said this, cash remains the ultimate safety net for investors. Three to six months of income still feels like a sensible level of cash to maintain to cover any short-term emergencies. This can always be reassessed should inflation fall away or risk assets increase in value. We should also start to see a small increase in the interest paid by banks as central banks have clearly signalled that the direction for interest rates is upwards. Current expectations are for the UK to have an interest rate of just over 2 per cent by the end of the year. In the US the number is closer to 3 per cent. Certainly, this is higher than we have been used to, though less than history would suggest is “normal”.How can I settle holiday home dispute?My mother recently passed away and left her estate, including a holiday house on the Sussex coast, to my brother and me. My brother, who is an executor of the will, does not appear to be in a hurry to sell the holiday house, even though this was always the understanding. Can I force a sale?Kai Jones, a senior associate in the private client team at RWK Goodman, says it cannot be easy to deal with the loss of your mother and the fact that your brother appears to be reneging on the sale of the holiday home.

Kai Jones, a senior associate at RWK Goodman

I presume that your brother is the sole executor and your mother’s estate is to be divided equally between the two of you. As executor, your brother has a duty to collect in the assets of the estate, settle any of your mother’s outstanding liabilities and administrative expenses, for example, legal fees. Once the estate assets have been gathered and liabilities settled, the executor is to distribute the balance to the beneficiaries. In addition, your brother should be aware that as executor, he should avoid any possibility of a conflict of interest between his duties and responsibilities as executor and his personal wishes. As a beneficiary, you have the right to require that the estate is administered properly and in accordance with the will.Therefore, if your brother has settled the estate liabilities he should distribute your share of the estate to you. The distribution would be by either liquidating the assets in the estate and distributing the cash equally or transferring the assets into your joint names. From what you said, the will does not make specific arrangements for the holiday home and its sale was an agreement between you. While you cannot technically force your brother to sell the holiday home, you could suggest that if he wishes to keep the holiday home for himself in his capacity as beneficiary, he could reimburse you for your share of the holiday home from his own funds or from his share of the estate.I would advise that you and your brother seek to resolve this amicably and mediation may assist with this. Legal action should only be considered as a last resort.If you are unable to resolve things amicably and believe that your brother is acting improperly as executor, you can apply to the court for directions regarding the sale of the property. You could also apply to have your brother removed as executor if you are concerned that he is having an adverse effect on the administration.If you made an application, the court will look at how the administration is being conducted and will act in the best interest of the estate. It will look at the terms of the will and ignore any agreement you and your brother may have made. I do hope that you and your brother are able to resolve the issue without legal intervention in order to avoid animosity. The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent. More

Eurozone inflation soared to a new record high of 8.1 per cent in the year to May, piling pressure on the European Central Bank to speed up the pace of its exit from ultra-loose monetary policy.The jump in eurozone price growth, from 7.4 per cent the previous month, was much higher than forecast by economists, who had expected 7.7 per cent, according to a Reuters poll. The core number, which excludes more volatile energy and food prices and is closely watched by ECB policymakers, also rose above expectations to 3.8 per cent, up from 3.5 per cent in April. The higher than expected core measure, which signals price growth is gathering pace across most categories of goods and services, could tip the balance at the ECB’s meeting in Amsterdam next week in favour of raising interest rates at a more aggressive pace than currently outlined. The ECB’s chief economist Philip Lane signalled earlier this week that the bank would raise rates 0.25 percentage points in July, and the same amount in September, saying this margin was the governing council’s “benchmark”. However, hawks are likely to push for a half percentage point rise at the July 21 vote. “These data are too hot to handle,” said Claus Vistesen, an economist at Pantheon Macroeconomics. “The risk of a 50 basis point hike [in interest rates] in July is very real, and we’d even argue that next week’s meeting is live.” Most ECB governing council members accept that the rise in inflation to quadruple its target of 2 per cent requires them to start raising its deposit rate, which is at minus 0.5 per cent and has been stuck in negative territory since 2014. But there are divisions over the pace of the move. President Christine Lagarde has urged the council the the council to move “gradually” by raising rates a quarter percentage point in July and September, following the end of the ECB’s bond-buying programme in early July. “Had they not boxed themselves in by promising to continue asset purchases until the third quarter, the ECB would surely be raising rates at next week’s governing council meeting,” said Andrew Kenningham, an economist at Capital Economics. Inflation has been pushed higher by the fallout from Russia’s invasion of Ukraine, which has sent energy and commodity prices surging and added to global supply chain disruption, while the lifting of Covid-19 restrictions has boosted demand across Europe. Energy prices increased 39.2 per cent in the year to May, while the price of food, alcohol and tobacco grew at an annual rate of 7.5 per cent, according to data released by Eurostat on Tuesday.The sharp rise in prices, which hit a record high in Germany of 8.7 per cent in the year to May, as well as rising in France, Spain and Italy, has prompted politicians to announce measures to offset the impact on households and businesses with subsidies, electricity price caps and tax rebates.The fastest rate of inflation in the 19-member eurozone was 20.1 per cent in Estonia, while the slowest was 5.6 per cent in Malta. More