Economy

Viktor Orbán has ruled out discussing the EU’s proposed oil embargo of Russia at next week’s summit of leaders, in a fresh blow to the union’s efforts to win backing for its landmark sanctions package.Hungary’s prime minister has written to the European Council’s president, Charles Michel, saying his country could not support the sanctions without more detail on the EU financing available to help Budapest wean itself off Russian oil.Orbán’s refusal to discuss the package leaves Brussels’ plans to end the bloc’s dependence on Russian oil hanging by a thread.“Discussing the sanctions package at the level of leaders in the absence of a consensus would be counterproductive,” Orbán wrote in the letter, seen by the Financial Times. “It would only highlight our internal divisions without offering a realistic chance to resolve differences. Therefore, I propose not to address this issue at the next European Council.”The European Commission has spent most of May seeking to win member states over to its sixth package of sanctions, which would include a phased-in embargo on Russian oil. But it has struggled to convince Hungary to support the package, as well as other landlocked states that are heavily dependent on Russian oil such as Slovakia and the Czech Republic.Last week the commission presented a €210bn plan dubbed REPowerEU, which sets out proposals for ditching Russian fossil fuels by 2027. While there were encouraging signals in the plan, Orbán wrote in his letter, he said it failed to address Hungary’s concerns because there “are no [funding] envelopes for the most concerned landlocked member states”. He added: “There is no indication on the modalities and the timing of the financing for the urgent investment needs related to replacing Russian oil.” In his letter Orbán warned that the proposed sanctions would cause “serious supply problems” in Hungary and undermine its vital energy security interests, delivering a “price shock” to the country’s households and economy. Orbán said Hungary needed money to adapt its refineries to non-Russian oil and build new pipelines to bring alternative supplies to the country.Brussels has earmarked €2bn for central European nations to invest in new infrastructure but it decided to channel it through the Recovery and Resilience Facility (RRF). Hungary has not yet clinched a deal with the commission over its bid for its share of the RRF because of EU concerns about breaches of the rule of law. Orbán’s letter raises “serious problems” because “countries without adopted recovery and resilience plans cannot benefit” from the bulk of the REPowerEU project in the short term. However, he also emphasises that he will continue discussions “with a pragmatic and result-oriented approach”.Orban’s spokesman did not immediately respond to a request seeking comment. More

Hello from Davos, where the first day of discussions at the World Economic Forum has featured some eye-catching remarks on everything from the war in Ukraine to the worsening threat of global hunger and the push for higher standards in the carbon offset market.Another hot topic among delegates we have been speaking to is the continuing storm around comments made by Stuart Kirk, HSBC Asset Management’s head of responsible investment, at last week’s Moral Money Summit Europe. Kirk has now been suspended pending an investigation into his speech, in which he poured cold water on concerns about climate risks, and claimed that central banks had deliberately designed climate stress tests to make banks “look sick”. HSBC executives have been keen to distances themselves from the remarks, but they have also added to doubts about just how committed their bank — and the financial sector as a whole — is to sustainability. For the corporate bigwigs gathered in the Swiss mountains, the pressure is on to show that their talk of responsible business and stakeholder capitalism is more than just mealy words. Read on for more on the key takeaways from Monday — and on some important developments at the US Securities and Exchange Commission. (Simon Mundy)

Davos day one in briefUkrainian president Volodymyr Zelensky called for a unique reconstruction model, in which individual countries, cities and companies would take leading roles in rebuilding specific cities and industries in Ukraine. The nation has suffered more than $500bn in losses from the war, Zelensky said.Saudi Aramco chief executive Amin Nasser said the energy shock from the war in Ukraine has shown the need for continued oil and gas investment. “The crisis is just indicating to us [that] you are running the whole world with not enough spare capacity,” Nasser told the FT.The global economy is facing perhaps its “biggest test since the second world war,” IMF head Kristalina Georgieva said, warning that the outlook had darkened since the IMF last month cut its 2022 growth forecast from 4.4 per cent to 3.6 per cent. Debate over corporate and financial sector’s role in setting carbon offset standards Together with former Bank of England governor Mark Carney, Standard Chartered chief executive Bill Winters has been a key driver of the Integrity Council for the Voluntary Carbon Market, an initiative aimed at creating standards for carbon offsets.That market is under heavy scrutiny from critics who warn that the carbon impact of many offset projects is badly overstated, and that companies could use low-quality carbon credits to claim “net zero” status while continuing to heat the planet. Concerns have been raised, too, about how strong a role the corporate and financial sector plays in the standard-setting initiative.But Winters told a Davos audience yesterday that without action on this front from the private and non-governmental sectors, there might be no progress at all. “The voluntary carbon markets only exist because governments have failed,” he said.And despite some critics’ claims that corporate players might seek to tilt the development of the ICVCM’s standards in their own interests, Winters argued the group would do a better job than elected representatives. “Governments may or may not set the standards objectively. They’ve got political considerations,” he said. “We’ll set the standards, and they’ll be very high.”There is growing interest in a rapid scale-up of carbon removal technology, such as the system developed by Switzerland-based Climeworks, which we profiled in a recent edition. But Winters argued it would take time to roll out that technology at scale, meaning there was a need for rapid investment in nature-based offset projects. “If we don’t solve the nature problem first, it doesn’t matter what technology we build — it will be too late,” he said. (Simon Mundy)Millions knocking on famine’s door, as food crisis grows

Mariam Mohammed Saeed Al Mheiri has called for world leaders to give greater priority to the ‘food crisis’ © Bloomberg

Food systems to tackle the global crisis in agriculture will be given as much weight as energy conservation at the COP28 conference scheduled next year in the United Arab Emirates, a top official told the World Economic Forum yesterday.Mariam Mohammed Saeed Al Mheiri, minister of climate change and the environment, called for leaders to give greater priority to the “food crisis”, stressing that the world would need 50 per cent more food by 2050.She called for a sharp increase in innovation, the importance of keeping markets open to prevent famine and redoubled efforts to reduce meat consumption and food waste.Her comments came at a time of growing concern over the widespread international repercussions from Russia’s war against Ukraine, which has restricted agricultural exports and fertilisers, and damaged infrastructure.The failure to end Russia’s blockade of ships leaving the Ukrainian port of Odesa threatens widespread global starvation and migration, according to David Beasley, executive director of the World Food Programme. Up to 323mn people were “marching towards starvation” and 49mn people were “knocking on famine’s door” in 43 countries, he added.“Every 1 per cent increase in hunger [leads to] a 2 per cent increase in migration,” Beasley said. “It’s a perfect storm within a perfect storm.”Philip Isdor Mpango, vice-president of the United Republic of Tanzania, called for more investment — including from international financial institutions — in irrigation, rural roads, smart agriculture and efforts to tackle land ownership as a way to turn Africa into a net food exporter.However, Beasley cautioned that money invested in Africa had not led to sufficient progress to date, and called on lenders “to be more strategic and effective” in how funds were used.Erik Fyrwald, chief executive of Syngenta Crop Protection, said: “Agriculture has to be part of the solution to climate change.” He called for greater efforts to work with farmers on crop rotation, reduced tilling, adding carbon to the soil and other regenerative practices to increase yields while reducing greenhouse gas emissions.He also highlighted how the Chinese government was working with farmers, food companies and consumers to support sustainable production across “the whole value chain” and provide information to purchasers seeking healthy food. (Andrew Jack)Quote of the dayWhile some (including Saudi Aramco’s boss, as we noted above) are calling for new fossil fuel investments amid the energy crisis, International Energy Agency head Fatih Birol issued words of caution yesterday. “My worry is that some people may well use Russia’s invasion of Ukraine as an excuse for a large-scale new wave of fossil fuel investments,” he said. “I worry about that for two reasons. It will forever close the door to reach our climate targets. [And] it may not be, as it seems now, a lucrative business.” Elsewhere in ESG: US cracks down on greenwashing

The SEC on Monday fined BNY Mellon for allegedly misstating and misleading investors on ESG claims © Bloomberg

The US is often chided for moving too slowly on rules for sustainable investing. Europe, for example, has already required that asset managers publish their sustainable investing methods and categorise funds based on sustainability. The European parliament is expected to vote in July on a sustainable investing taxonomy.But the US this week is taking a big step toward policing environmental, social and governance investing. The Securities and Exchange Commission on Monday fined BNY Mellon for allegedly misstating and misleading investors on ESG claims. Though the SEC’s penalty was just $15mn for a bank that earned $699mn in the first quarter, the case speaks volumes. Every investment house in the US will be scrambling to get on the phone with lawyers to see if they are vulnerable to similar SEC enforcement concerning ESG claims.But the agency is not done yet. On Wednesday, the SEC will unveil proposed rules aimed at cleansing potential greenwashing from funds and investment advisers. These proposed rules include mandating funds require more information when they use “green,” “low carbon” or some other eco-friendly term. The agency is also looking at standardised ESG disclosures for investment advisers.When viewed in tandem with the big SEC’s climate disclosure rules for companies, these proposed rules for the investment management universe show the US is suddenly serious about regulating greenwashing. (Patrick Temple-West)Smart readAustralia is set to become less of an outlier on climate change among rich-world countries. After years of Scott Morrison’s pro-coal policies, Labor’s strong election showing over the weekend could halt new gas and coal projects in the country. More

DAVOS, Switzerland (Reuters) – The head of the Organisation for Economic Cooperation and Development (OECD) on Tuesday said he was “quietly optimistic” a landmark deal to establish a global minimum tax will be approved by European Union members but implementation may not occur until 2024.OECD Secretary General Mathias Cormann also told a panel at the World Economic Forum in Davos, Switzerland, that it was “manifestly” in the interest of the United States to join the deal struck last year among nearly 140 countries to establish a global minimum tax rate of 15% on multinational corporations. “I’m quietly optimistic the European Commission will be presenting the directive to implement” the deal, Cormann said.Cormann’s remarks came as French Finance Minister Bruno Le Maire said on Tuesday he was confident EU finance ministers would unanimously back the global minimum tax next month.Approval by the EU has been held up by objections from Poland, which vetoed a compromise in April to launch the 137-country deal. U.S. approval, meanwhile, has been stalled in Congress, and Cormann was asked if prospects for U.S. ratification would be scuppered should Republicans who broadly oppose the deal win majorities in the House of Representatives and Senate in November’s mid-term elections. The deal could be implemented by other countries even if U.S. legislators decline to sign on, and Cormann argued that would put U.S. multinational businesses at a disadvantage.”I can’t imagine that any country … would make a judgment that would put themselves at that sort of disadvantage,” Cormann said. “I believe that irrespective of who’s in the majority in Congress … this is manifestly in the U.S. interest.”Congress needs to approve changes to the current 10.5% U.S. global overseas minimum tax known as “GILTI”, raising the rate to 15% and converting it to a country-by-country system.The changes were initially included in U.S. President Joe Biden’s sweeping social and climate bill, which stalled last year after objections from centrist Senate Democrats.But prospects for a slimmed-down spending package with the tax changes look increasingly difficult as midterm congressional elections approach and as lawmakers voice concerns about more spending amid high inflation. More

Investing.com — Snap snaps the relief rally with a profit warning that sends chills through social media stocks. Chinese markets don’t like the government’s stimulus plans after taking a second look at them. Pandemic winner Zoom Video reports a big improvement in profitability. Federal Reserve Chair Jerome Powell is due to speak amid signs that some are thinking already of when the Fed can afford to ‘pause’ rate hikes. The dollar drops as Christine Lagarde keeps a 50 basis point hike in July on the table for the ECB. And the American Petroleum Institute’s stockpiles data will show how far, if at all, Americans are cutting down on driving due to high gas prices. Here’s what you need to know in financial markets on Tuesday, 24th May.1. Snap snaps the rallyA profit warning from Snap quickly put an end to Monday’s relief rally after the closing bell, putting global markets back into risk-off modeThe Snapchat parent said conditions had worsened “further and faster” than it expected when it put out a disappointing earnings statement last month. Various reports also cited an internal memo from CEO Evan Spiegel saying that the company will slow hiring and defer some expansion plans to next year, as well as looking for increased cost savings this year. Snap (NYSE:SNAP) stock fell over 30% in response.The news came only hours after an upbeat outlook from JPMorgan (NYSE:JPM) CEO Jamie Dimon had reassured investors of the ongoing underlying strength of demand in the U.S. economy, something that will bolster its core lending business. JPMorgan stock rose over 6% in response, but gave back just under 1% in premarket trading Tuesday.2. China sentiment hit as stimulus plan is reappraised; Uighur news also weighsRisk sentiment was also hurt overnight by a gloomier reassessment of the fiscal stimulus package adopted by the Chinese cabinet late on Monday.The measures, which include over $20 billion of tax cuts and rebates, may stimulate economic activity at the margins, but are unlikely to outweigh the effect of lengthy wholesale shutdowns of activity for cities such as Shanghai and Beijing, if the country sticks – as indicated – to its Zero-COVID policy.Foreign investor sentiment toward China also faces a new headwind in the disclosure by German magazine Der Spiegel of conditions in the region of Xinjiang, documenting what it calls major human rights abuses toward the mainly Muslim Uighur population.3. Stocks set to open lower; social media under pressure but Zoom set to bounce U.S. stocks are set to open lower later, giving back around half of what they gained in Monday’s bounce. The respective news from JPMorgan and Snap put value stocks back firmly in outperformance mode, while growth stocks are struggling again.By 6:20 AM ET, Dow futures were down a relatively modest 210 points, or 0.7%, while S&P 500 futures were down 1.1% and Nasdaq 100 futures were down 1.7%.Snap, which is still quoted down 29%, is putting pressure on other social media and advertising-themed stocks such as Meta (NASDAQ:FB) and Twitter (NYSE:TWTR) in premarket. Other stocks likely to be in focus later include Zoom Video (NASDAQ:ZM), which reported better profits but its slowest growth ever in the latest three months. Zoom stock was up 6.4% in premarket.4. Powell to speak; New home sales dueFederal Reserve chair Jerome Powell will speak at 12:20 PM ET, a day after two senior colleagues dropped the first hints of a moderation in the planned pace of monetary policy tightening.Atlanta Fed President Raphael Bostic had said on Monday that the Fed may be able to afford a pause in rate hikes after two more increases of half a point each, while Kansas City’s Esther George suggested a pause could be possible when the Fed funds target range reaches 2% (up from 0.75%-1% now).New home sales for April and business surveys from the Chicago and Richmond Feds are due later.The US Dollar Index fell in overnight trading however as ECB President Christine Lagarde declined a chance to rule out a half-point rate hike in July, having all but confirmed on Monday that the era of negative rates will end by September. The Eurozone composite PMI fell more than expected in May, however.5. Oil drifts as gasoline prices hit new highs; API eyedCrude oil prices drifted, with tight supply, the reopening of Shanghai, and continued strong demand in the U.S. still dominating. Average U.S. gasoline prices now stand at a new record high of $4.5980 a gallon, according to the American Automobile Association.The dollar’s sudden weakness is also encouraging global buyers, but prices remain at a level that will destroy demand in the medium term. Newswires quoted India’s Energy Minister as saying that prices of $110 a barrel “are unsustainable” for his country, one of the world’s biggest importers.By 6:35 AM ET (1035 GMT), U.S. crude futures were up 0.1% at $110.36 a barrel, while Brent crude was down 3c at $110.75 a barrel. The American Petroleum Institute’s data on crude and product stockpiles are due at 4:30 PM ET. More

Stock markets dropped on Tuesday as downbeat surveys on business confidence and weak overnight earnings from social media group Snap intensified nerves about the global growth outlook.Europe’s regional Stoxx 600 share index, which has lost more than a tenth so far this year as the economic impact of Russia’s invasion of Ukraine combined with the eurozone and UK central banks tightening monetary policy, fell 0.7 per cent in morning trading. London’s FTSE 100 fell 0.2 per cent and Germany’s Xetra Dax lost 0.9 per cent, after all major Asian stock indices swung into the red earlier in the session. German businesses were “hiking their charges for goods and services to offset the higher cost of energy, fuel, raw materials and personnel,” according to a report accompanying S&P Global’s May flash purchasing managers’ index for the dominant eurozone economy. Japanese manufacturing activity was also expanding at its slowest pace in three months according to an equivalent PMI survey for the Asian nation, which its compilers blamed on “supply chain disruptions” from “economic sanctions placed on Russia” and “lockdown measures across China. Investors’ nerves were further rattled by weak earnings from social media company Snap, which was down almost 30 per cent in US pre-market trading on Tuesday. The Snapchat parent, one of a group of social media businesses whose shares boomed during coronavirus lockdowns, said after the closing bell on Monday that “the macroeconomic environment has deteriorated further and faster than anticipated” since it issued guidance in April.“The economic cycle is likely to be slowing down to a rapid extent,” said Zehrid Osmani, manager of Martin Currie’s global portfolio trust. Investors were poised for analysts to widely downgrade their earnings forecasts for large companies this year, he added, meaning “it unnerves the market when companies disappoint”. Facebook owner Meta was down almost 7 per cent in pre-market trading. Twitter dropped 4 per cent and Pinterest fell 14 per cent. Futures contracts tracking the technology-heavy Nasdaq 100 share index dropped 1.7 per cent, while those tracking Wall Street’s S&P 500 — which bounced almost 2 per cent higher on Monday following seven consecutive weeks of losses — lost 1.1 per cent. In another sign of the growth jitters, the yield on the 10-year US Treasury note, which moves inversely to the price of the benchmark debt security, fell 0.04 percentage points to 2.82 per cent as traders bought up the low-risk asset. Germany’s equivalent Bund yield dipped 0.01 percentage points to 1.01 per cent. The euro, which had rallied on Monday, rose 0.2 per cent against the dollar to $1.07. Sterling slipped 0.6 per cent lower to $1.25. Brent crude, the worldwide oil benchmark, added 0.1 per cent to $113.47 a barrel.In Asia, Hong Kong’s Hang Seng index closed 1.7 per cent lower and Tokyo’s Nikkei 225 dropped 0.9 per cent. More

In April, banks had to transfer an additional 11.2 billion hryvnias of their earnings to reserves to cover possible future losses linked to the war. In March, banks transferred to reserves almost 15.8 billion hryvnias.Russia’s invasion on Feb. 24 has harmed business activities, prevented many companies and individuals from servicing their loans and led to the banking system’s first losses since 2017.The central bank said the return on assets ratio of the banking system – an indicator of profitability – had worsened to minus 1.11% as of end-April from minus 0.03% as of end-March. The central bank has said the war could cause Ukraine’s economy to contract by at least one-third in 2022 and drive up inflation to over 20%.($1 = 29.2500 hryvnias) More

COLOMBO (Reuters) -Sri Lanka increased fuel prices on Tuesday, a long-flagged move to mend public finances and combat its debilitating economic crisis, but the hikes are bound to add to galloping inflation at least in the short term.Power and Energy Minister Kanchana Wijesekera said in a message on Twitter (NYSE:TWTR) that petrol prices would increase by 20-24% while diesel prices would rise by 35-38% with immediate effect. Daily limits on how much each consumer can purchase will continue.”The government will hold talks with transport sector stakeholders to increase costs parallel to the latest increases,” he later said in an online cabinet briefing.Fuel and transport price increases will inevitably flow through to food and other goods, economists said.Annual inflation in the island nation rose to a record 33.8% in April compared with 21.5% in March, according to government data released on Monday.”Not only the petrol problem – consumer prices, everything is very high, food is also very high,” said businessman Mohammad Irfan, waiting in a queue at a gas pump in the capital, Colombo. He said he had been there for four hours.”It is very difficult for the poor people, middle class people. They are facing problems day by day.” Sri Lanka is in the throes of its worst economic crisis since independence in 1948, as a dire shortage of foreign exchange has stalled imports and left the country short of fuel and medicines, and struggling with rolling power cuts.The financial trouble has come from the confluence of the COVID-19 pandemic battering the tourism-reliant economy, rising oil prices, and populist tax cuts by the government of President Gotabaya Rajapaksa and his brother, Mahinda, who resigned as prime minister this month.Wijesekera said people would be encouraged to work from home “to minimise the use of fuel and to manage the energy crisis”, and that public sector officials would work from their offices only when instructed by the head of their institutions.However, hybrid working models have led to increases in power consumption in other countries, including in neighbouring India.Economists have said fuel and power price hikes would be necessary to plug a massive gap in Sri Lanka’s government revenues, but agreed that it would lead to short-term pain.Dhananath Fernando, an analyst for Colombo-based think tank Advocata Institute, said prices of petrol have soared 259% since October last year and diesel by 231%. Prices of food and other essential goods have surged, he said.”Poor people will be the most effected by this. The solution is to establish a cash transfer system to support the poor and increase efficiency as much as possible.”Prime Minister Ranil Wickremesinghe, appointed in place of Mahinda Rajapaksa earlier this month after violence broke out when government supporters attacked protesters, said last week: “In the short term we will have to face an even more difficult time period. There is a possibility that inflation will increase further.”There were no immediate reports of protests or unrest after the price increases on Tuesday.The Sri Lankan Navy said on Tuesday it had apprehended 67 people attempting to illegally flee the country from the northeastern coast.GRAPHIC: Inflation in Sri Lankahttps://tmsnrt.rs/3qeFT4B More

DIHK said it now expects the inflation rate to hit 7%, after initially forecasting a rise of 3.5% in its February forecast.Germany’s economy ministry said in April it saw an inflation rate of 6.1% in 2022 and 2.8% next year, citing the effects of energy prices in Europe’s biggest economy. Nearly 40% of the roughly 25,000 companies surveyed plan to pass on the higher costs on to customers, said DIHK. In particular, more than every second company in industry and trade said it was intending to pass on the cost increases. Overall, the DIHK expects economic growth of 1.5% in 2022. One of the key drivers is set to be private consumption, which is expected to grow 3% this year from 0.1% in 2021, while government expenditures are likely to stagnate this year.   More