Economy

“It’s a new situation, for the first time since 2008, we are seeing monetary policy moving toward tightening in most currency areas,” Jordan told the magazine in an article to be published on Friday.”We are moving into an unpleasant situation for monetary policy: inflation is already high globally and is even rising in many countries, while at the same time economic activity is weakening worldwide,” he said.The magazine said the comments hinted at a change from the ultra-expansive course the SNB has followed in recent years, marked by the world’s lowest interest rate and large-scale currency interventions to stem the rise of the Swiss franc.The SNB declined comment on the magazine’s interpretation when asked by Reuters.This week SNB governing board member Andrea Maechler said the central bank would not hesitate to tighten policy should inflation in Switzerland remain persistently high.April saw the highest inflation rate in Switzerland for 14 years, with prices rising by 2.5%, outside the SNB’s target range of 0-2%.Still Swiss inflation remains much lower than in 8.5% level in the United States and 7.4% in the eurozone.The SNB is due to give its next policy update on June 16, where it would include the impact of higher inflation rates abroad in its assessment, Jordan told Bilanz.”We will, of course, analyze and take into account the impact of the sharp rise in global inflation on Switzerland,” he said. More

DAVOS, Switzerland (Reuters) – While government debt levels are climbing around the world, with debt burdens in emerging markets rising rapidly, so far there is not evidence of a systemic debt crisis, but there are risks ahead, International Monetary Fund First Deputy Managing Director Gita Gopinath said on Wednesday.”As yet we do not see a systemic sovereign debt crisis,” she told a panel at the World Economic Forum here, but the risk ahead is “salient.” More

“I’m fully on board, I fully support everything that is in the blog,” the Dutch central banker said at panel discussion in Davos Wednesday. “I think it nicely charts the policy course.”The comments by Knot, a hawkish voice on the Governing Council, contrast with his Austrian counterpart Robert Holzmann, who on Tuesday called for a half-point hike in July. That’s double the magnitude implied by Lagarde. The ECB’s deposit rate has been negative since 2014 and currently stands at -0.5%. Knot also said:©2022 Bloomberg L.P. More

Emerging markets have been unduly impacted by the Russia-Ukraine crisis through increases in the price of oil, gas, wheat and other grains, forcing central banks to tighten monetary policy even at the risk of undermining economic growth. South Africa’s central bank last week increased its prime lending rate by 50 basis points to 4.75%, its highest increase in six years, to rein in inflation.In its biannual health check of the financial system, the South African Reserve Bank (SARB) said that while the financial system of Africa’s most advanced economy was “resilient”, stagflation fears could exacerbate inequality and slow growth. “South Africa remains vulnerable to spillover effects of global events, particularly the Russia-Ukraine war and global stagflation concerns,” it said, adding that it could also disrupt social stability.Stagflation is characterised by a prolonged period of high inflation, lower economic growth and high unemployment.The SARB said in 2022 it will set up a deposit insurance company which would insure deposits of almost 90% of depositors with a proposed coverage level of 100,000 rand.It flagged concerns that rising inflation and inequitable growth could lead to more incidents of social unrest like the one seen in July last year.The SARB also pointed out climate risks to the country’s insurance industry, which is still reeling from the April floods which killed 448 people, adding that it could increase the cost of insurance as such calamities become more frequent.Rising government debt, any emergence of a new and more deadly wave of COVID-19 and rising cyber attacks also pose risks to South Africa’s financial stability, it said.($1 = 15.6057 rand) More

Current owner Roman Abramovich is subject to sanctions by the British government. He put the London club up for sale in early March following Russia’s invasion of Ukraine, which Moscow calls a “special military operation”.”We are satisfied the proceeds of the sale will not benefit Roman Abramovich or other sanctioned individuals,” Dorries said on Twitter (NYSE:TWTR).”Given the sanctions we placed on those linked to Putin and the bloody invasion of Ukraine, the long-term future of the club can only be secured under a new owner.”On Tuesday the consortium, which agreed terms to acquire Chelsea for 4.25 billion pounds ($5.33 billion) earlier this month, passed the Premier League Owners’ and Directors’ Test.Chelsea had been operating under a government license since Abramovich’s assets were frozen in March and it was set to expire on May 31. The club had earlier confirmed that all proceeds from the sale will be donated to charitable causes by Abramovich.”We are now satisfied that the full proceeds of the sale will not benefit Roman Abramovich or any other sanctioned individual,” said a government spokesperson. “We will now begin the process of ensuring the proceeds of the sale are used for humanitarian causes in Ukraine, supporting victims of the war.”The completion of the sale will allow Chelsea to renew transfer activity as well as permit players to sign new contracts, which was prohibited as part of the sanctions imposed.Only season ticket holders could earlier attend home matches, while the government also announced a ban on merchandise sales. Groups led by Boston Celtics co-owner Stephen Pagliuca and former British Airways chairman Martin Broughton were eliminated from the bidding process, and a consortium led by Chicago Cubs owners the Ricketts family pulled out of the running. More

With inflation broadening, Lagarde said this week that the ECB’s minus 0.5% deposit rate should start rising in July and could be at zero or “slightly above” by the end of September before rising further “towards the neutral rate”.Dutch central bank chief Klaas Knot, among the most conservative members of the ECB’s Governing Council said he fully backed this plan and Olli Rehn, Finland’s central bank chief, also voiced support for rate hikes in the summer, as did the ECB’s own chief economist Philip Lane. “I’m fully on board, I fully support everything that is in the (Lagarde) blog, I think it nicely charts the policy course,” Knot told a World Economic Forum panel in Davos.Knot earlier said that a 50 basis point rate hike in July should remain a possibility but his comments on Wednesday suggest support for smaller, 25 basis point moves, in line with Lagarde’s call for gradualism. Speaking in Helsinki, Rehn, considered by some to be a policy “dove” who favours lower rates, said he also supported 25 point rate hikes in both July and September.Lane said the rate hike path sketched by Lagarde for the summer was “clear and robust” but he cautioned that any move beyond September will depend on how inflation pans out and the impacts of the war in Ukraine.Earlier this week, the central bank governors of Austria and Latvia both said that a 50 basis point rate hike should be an option in July, indicating that a 25 basis point increase is not yet a done deal.Fabio Panetta, an outspoken dove, took a somewhat different view, arguing that policy normalisation should not be equated with getting interest rates back to a neutral setting. Instead, he said the aim should be to cement the inflation at the ECB’s 2% target. “Normal does not mean neutral… the normalisation process should not be assessed against unobservable reference points, such as the natural or neutral rate of interest,” Panetta said in a speech in Frankfurt.Others, including French central bank chief Francois Villeroy de Galhau, an influential centrist voice, have also argued that the neutral rate is a key reference point in policy normalisation.The nominal neutral rate is estimated to be between 1% and 2%, or 150 to 250 basis points above the current minus 0.5% deposit rate, suggesting that the ECB could raise rates well into next year before approaching this level.Backing up his argument for caution, Panetta also said that the growth outlook is clearly weakening, a view Rehn appeared so share when he said the ECB was likely to cut its growth projection next month. More

British currency maker De La Rue has warned that profits would be hit by the rising cost of supplies, sending its shares sharply lower on Wednesday.The company, which makes British banknotes, said “further headwinds” would curtail adjusted operating profit for 2023. It added that there was now a “substantial degree of uncertainty in the outlook”, with supply chain inflation set to increase operating costs by £5mn this year.“There is a possibility that disruption may affect revenue,” the company said. “The board now expects that adjusted operating profit for full year 2023 will be broadly flat versus full year 2022, and weighted towards the second half.”De La Rue shares fell more than 8 per cent on Wednesday afternoon to around 102p. The company’s supply chain includes chips used in passports, while it also faces rising costs for raw materials such as the chemicals and polymer sheets, which are oil based, used to make banknotes. Freight costs are rising too and its suppliers are also increasing prices owing to their own energy costs.British businesses have been warning of lower profits this year because of rising costs in their supply chains and the impact of inflation on consumers.Marks and Spencer warned of cost pressures and economic uncertainty on Wednesday, while its Ocado Retail joint venture cut its growth outlook as costs continue to rise. Analysts questioned how much of this could be passed to the consumer, or to what degree it would hit margins.Online estate agent Purplebricks also warned on Wednesday that it would swing to a loss this year, following housing sales slowing as interest rates rise and concerns about the broader economy intensify.De La Rue said it was making progress with its turnround strategy, which includes cost-cutting and streamlining its operations. The company improved its market position across business divisions, it added.Clive Vacher, chief executive of De La Rue, said it was “working hard to bat away” cost pressures but that the wider macroeconomic environment remained uncertain.“We have prudently revised our outlook for the financial year 2022-23 adjusted operating profit, due to further headwinds experienced since the end of our financial year, and a realistic expectation of how far we can mitigate them.”The company had already been forced to admit that a turnround plan started by its new management would take longer than expected after missing analysts’ forecasts for operating profit for this year.Vacher added that while progress had slowed, De La Rue remained “strongly on the right path strategically and operationally to create a strong, cash-generative company in the medium term”.De La Rue reported an adjusted operating profit of £36.4mn in the 12 months to the end of March, down from £38.1mn the previous year. Revenue was also down to £375.1mn, from £397.4mn last year. However, the figures from last year include sales from operations that have now been sold or closed. The company made operating cash flow of £18.3mn, compared with a £5.6mn net outflow last year, while net debt increased to £71.4mn, from £52.3mn. More

Some breaking news to start: the First Movers Coalition, launched last year to help build markets for clean technologies, has unveiled a significant expansion at the World Economic Forum’s annual meeting in Davos. Seven countries are joining, including India and Japan, while the number of companies in emissions-intensive sectors committing to buying zero-carbon technologies has almost doubled.That is “an incredibly important demand signal” to help unleash the trillions of dollars of investment needed for the climate transition, says Rich Lesser, global chair of Boston Consulting Group. It is also a reminder that, for all the rightful attention on the war in Ukraine, Davos has not lost its focus on the climate.Indeed, it is difficult to overstate just how mainstream the environmental, social and governance agenda has become this year in Davos. A decade ago, these topics were a fairly niche area. Now about half of all sessions have some loose ESG theme. Or as one WEF official said: “The people working on ESG used to have to say, ‘Listen to us!’ and there was often a sense we were being patted on the head. Now we are in the centre.”This is not necessarily welcome for all ESG enthusiasts: the prominence of these themes is swelling a backlash in some quarters, and the sheer multitude of sessions means many are overlapping. But, if nothing else, it helps explain why so many ESG teams have turned up in Davos — and are likely to be pitching to return next year. Read on for more highlights of a second day of intense discussions here in the Swiss Alps. (Gillian Tett and Andrew Edgecliffe-Johnson)Davos day two in brief

Mathias Cormann, secretary-general of the OECD, during a panel session on day two of the World Economic Forum © Bloomberg

The OECD’s landmark deal to raise more taxes from multinationals has fallen behind schedule, said Mathias Cormann, the organisation’s secretary-general. Citing “difficult discussions”, Cormann said there was now no chance the deal would be implemented next year, as originally planned.Frozen Russian assets could be used to fund reconstruction in Ukraine after the war, said European Commission president Ursula von der Leyen. “We must leave no stone unturned, including if possible, the Russian assets we have frozen,” she said.European Central Bank president Christine Lagarde played down the risk of recession in the continent, but said the ECB would move cautiously in scaling back monetary stimulus amid surging inflation. “We don’t have to rush and we don’t have to panic,” she said.HKEX: a new green gateway to China?

Laura Cha: ‘We are using this sustainability and green focus as a key connection into China’ © Bloomberg

There is only one delegation from Hong Kong attending Davos this year because of the territory’s Covid-19 restrictions (among other things). That is the mighty Hong Kong stock exchange, which has long been a prominent delegate at the event. Unsurprisingly, the exchange has been telling participants that it remains open for business, notwithstanding the pandemic and political turmoil. However, it has also been seeking to promote another, somewhat striking message: HKEX hopes to be a green gateway for international investors wanting to tap into the ESG-friendly parts of China.More specifically, HKEX is seeking to make itself a bridge to what is known as the “GBA” — Greater Bay Area — of China, which has about 80mn residents and a rich ecosystem of dynamic start-ups, many of which are focused on green tech and other cutting-edge areas of climate transition. “We are using this sustainability and green focus as a key connection into China,” Laura Cha, chair of HKEX, told Moral Money. It may turn out to be a fruitful marketing strategy. But there is competition: John Tuttle, vice-chair of the New York Stock Exchange, told a Davos session that he is constantly telling Chinese companies seeking listings on the NYSE that they need “to have a good grasp of ESG and be reporting on sustainability and carbon footprints, since that will attract institutional investors”. Indeed he estimates that 40 per cent of investors now focus on this when they look at listing. The green battle between HKEX and NYSE is on. (Gillian Tett)Nature accounting heads down the track

David Craig is spearheading the Task Force on Nature-Related Financial Disclosures © Charlie Bibby/Financial Times

Right now, many companies are frantically bracing themselves for new accounting reforms emanating from the International Sustainability Standards Board and the Task Force on Climate-Related Financial Disclosures (TCFD). Opinions about the merits of these groups are mixed: while some big companies and banks welcome them, there has been plenty of gossip in Davos about the coming backlash against these new reporting burdens from parts of the corporate world. However, there is another set of standards coming down the track that companies need to be aware of: the Taskforce on Nature-Related Financial Disclosures (TNFD). Officials from this body told Davos delegates this week they will be issuing a preliminary blueprint next month that lays out how corporate boards could, or should, incorporate biodiversity issues into their corporate accounts, to recognise the cost of consuming natural resources and put a price on nature.David Craig, who is spearheading this initiative, freely admits this is not going to be as simple a task as using TCFD since the latter focuses primarily on one metric — carbon emissions — while the former is chasing multiple goals. But the TNFD group is deliberately trying to model itself on the TCFD strategy, albeit with some twists. Instead of using Scope 1, 2 and 3, for example, the TNFD is likely to focus on distinguishing between “upstream” and “downstream” supply chain issues, Craig said.Meanwhile, the pressure on companies to look at these issues is rising, given that 50 per cent of global GDP is closely tied to natural resources, according to the WEF. And some companies, such as the Swiss cement group Holcim, are already embracing the concept — not least because Swiss ministers told the Davos meetings they are likely to look at making TNFD compulsory in some form in the years ahead. Watch this space — and the TNFD report next month. (Gillian Tett)Quote of the day Environmental disclosure standards will do little to improve corporate practice until they are clearly linked to valuations and the effects on cash flow, according to Peter Bakker, president of the World Business Council for Sustainable Development (WBCSD), which represents 230 “forward-thinking” companies ranging from Accenture to Yokohama Rubber.“We are building a massive system of ESG disclosure but it’s all non-cash. Cash is king. Discounted cash flows are core for shareholders and the capital markets. Sustainability has made amazing progress, but it will not scale up until the capital markets are the driver,” Bakker told Moral Money on the sidelines of the World Economic Forum.While praising efforts to measure and harmonise environmental disclosures, he also called for broader social disclosures by companies, warning that “inequality is the next big crisis”. He added that a commission set up by the WBCSD would produce recommendations by the end of this year on how executives could tackle issues including tax, inequality, the living wage, human rights, reskilling and diversity. (Andrew Jack)Elsewhere in ESG: tempers flare at annual meetings

A climate activist wearing a face mask depicting Shell’s chief Ben van Beurden attends a protest outside Shell headquarters © REUTERS

The Central Hall Westminster in London, one of the City’s swankiest event spaces, is well known for hosting the BBC’s annual New Year’s eve concerts. But on Tuesday, the hall was the site of a raucous scene during Shell’s annual meeting, where climate activists allegedly glued themselves to seats.The AGM was delayed by almost three hours as protesters disrupted proceedings. (Read Tom Wilson’s full report for all the details, and Reuters video footage here).Today, the demonstrations are heading for New York. About 100 religious leaders and youngsters are planning to protest outside BlackRock’s annual meeting in midtown Manhattan. The protesters are demanding that BlackRock divest from companies expanding fossil fuel production.Wednesday marks one of the busiest days of the year for annual shareholder meetings in the US. Amazon, Twitter and Facebook will hold their meetings. All three are facing mounting pressure from companies ranging from executive pay to non-disclosure agreements. Amazon, for example, faces a whopping 15 shareholder proposals — the most it has faced since at least 2010. Investor support is already building for the shareholder petitions at these meetings. Asset manager Neuberger Berman said this week it was voting for a content standards shareholder proposal at Meta, Facebook’s parent. Additional disclosures about content enforcement would help shareholders see if risks at the platforms were being addressed, Neuberger Berman said. Facebook recommended shareholders vote against the proposal. Not all meetings will see fireworks. Exxon and Chevron, the climate activists’ top two targets in the US, will hold virtual meetings and conveniently dodge the disruption Shell faced.The votes on Wednesday will indicate the impact of environmentalists’ and social activists’ campaigns at annual meetings, and whether their provocations are changing corporate behaviour. (Patrick Temple-West)Smart ReadAs the controversy continues to rage around remarks by HSBC Asset Management’s head of responsible investment at last week’s Moral Money Summit Europe, the FT’s Pilita Clark argues that Stuart Kirk’s speech has exposed “widespread, muddled thinking around a central aspect of climate change: financial risk”. More