Economy

COLOMBO (Reuters) – Thousands of people queued for cooking gas and petrol in Sri Lanka’s commercial capital on Friday and Prime Minister Ranil Wickremesinghe warned of a food shortage as the island nation battles a devastating economic crisis.Lines formed in many parts of Colombo, a city of around 900,000 people, as residents tried to stock up on fuel, which is mostly imported and is in extremely short supply with the government running out of foreign exchange.”Only about 200 cylinders were delivered, even though there were about 500 people,” said Mohammad Shazly, a part-time chauffeur in a queue for the third day in the hope of procuring cooking gas for his family of five. Hundreds of others were in line, with empty cylinders by their side.”Without gas, without kerosene oil, we can’t do anything,” Shazly said. “Last option what? Without food we are going to die. That will happen hundred percent.”Tourism-dependent Sri Lanka, where India and China jostle for influence, is facing a dire shortage of foreign exchange, fuel and medicines, and economic activity has slowed to a crawl.Public transport is depleted and traffic is light as most people are staying at home because of the scarcity of petrol.Wickremesinghe, warning also of a food crunch, vowed to buy enough fertiliser for the next planting season to boost productivity and meet the food demand of its 22 million population.A decision in April last year by President Gotabaya Rajapaksa to ban all chemical fertilisers drastically cut crop yields and although the government has reversed the ban, no substantial imports have yet taken place.”While there may not be time to obtain fertiliser for this Yala (May-August) season, steps are being taken to ensure adequate stocks for the Maha (September-March) season,” the prime minister said in a message on Twitter (NYSE:TWTR) late on Thursday.”I sincerely urge everyone to accept the gravity of the … situation.”Japan, which has long-standing economic ties with the island, said it would provide an emergency grant of $3 million for medicine and food, its foreign ministry said.When a truck arrived at a cooking gas distribution centre with fresh supplies, soldiers with automatic rifles guarded the vehicle while people in the queue applauded.State-run Litro Gas is hoping to start distributing 80,000 cylinders a day by Saturday but has to scramble to fill an estimated 3.5 million cylinder shortage in the market, Chairman Vijitha Herath told Reuters.The government has also called for tenders to procure $120 million worth of cooking gas under a larger $1 billion credit line from India. However prices have surged, for cooking gas as well as food and other essentials.The price of a 12.5-kg cooking gas cylinder has soared to nearly 5,000 rupees ($14) from 2,675 rupees in April.’MIGHT NOT EVEN BE HERE'”There is no point in talking about how hard life is,” said A.P.D. Sumanavathi, a 60-year-old woman selling fruit and vegetables in Colombo’s Pettah market. “I can’t predict how things will be in two months, at this rate we might not even be here.”Inflation could rise to a staggering 40% in the next couple of months but it was being driven largely by supply-side pressures and measures by the central bank and government were already reining in demand-side inflation, the bank has said.Inflation hit 29.8% in April with food prices up 46.6% year-on-year.As anger against the government spreads, police fired tear gas and water canon to push back hundreds of student protesters in Colombo on Thursday. The protesters are demanding the ouster of the president as well as the prime minister.The economic crisis has come from the confluence of the COVID-19 pandemic battering tourism, rising oil prices and populist tax cuts by the government of President Rajapaksa and his brother, Mahinda, who resigned as prime minister last week. Critics accuse Wickremesinghe, appointed prime minister in his place, of being a stooge of the brothers, an accusation he denies.Nine new members were appointed to the cabinet on Friday, including to the critical health, trade and tourism ministries. But no one has been named to head the finance ministry and lead negotiations with International Monetary Fund for a bail-out. The portfolio is likely to be retained by Wickremesinghe.A spokesperson for the IMF said it was monitoring developments very closely and that a virtual mission to Sri Lanka was expected to conclude technical talks on a possible loan programme on May 24.The Group of Seven economic powers supports efforts to provide debt relief for Sri Lanka, group finance chiefs said on Thursday in a draft communique from a meeting in Germany after Sri Lanka defaulted on its sovereign debt.Central bank chief P. Nandalal Weerasinghe has said advisers for undertaking debt restructuring were almost finalised and he would be submitting a proposal to the cabinet soon.”We are in pre-emptive default,” he said. “Our position is very clear, until there is a debt restructure, we cannot repay.”($1 = 355.0000 Sri Lankan rupees) More

According to Refinitiv Lipper data, investors offloaded U.S. bond funds worth $8.39 billion in the 19th straight week of net selling.(Graphic- Fund flows: US equities bonds and money market funds: https://fingfx.thomsonreuters.com/gfx/mkt/akvezrmgmpr/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg)U.S. Federal Reserve Chairman Jerome Powell said this week that the central bank will “keep pushing” to tighten U.S. monetary policy until it is clear that inflation is declining.Investors sold U.S. municipal bond funds worth $3.05 billion in their biggest disposal in three weeks and exited taxable funds worth $5.52 billion.U.S. high yield bond funds saw $2.93 billion worth of liquidation, which was the biggest weekly net selling in five weeks, and short/intermediate investment-grade funds posted outflows of $3.74 billion.Meanwhile, U.S. short/intermediate government & treasury funds obtained inflows for a second straight week, worth $3.4 billion.U.S. equity funds suffered a sixth consecutive week of outflow, amounting to $3.85 billion, although selling reduced 54% compared with a week ago.U.S. large-cap equity funds received inflows of $2.59 billion after five straight weeks of net selling, but small- and mid-cap funds faced outflows of $1.83 billion and $0.69 billion respectively.U.S. growth and value funds, both witnessed net selling of $1.7 billion and $200 million, respectively.Among sector funds, financials, and consumer discretionary posted outflows of $1.34 billion and $0.61 billion, but utilities and healthcare lured inflows worth $0.78 billion and $0.69 billion.Meanwhile, investors drew $20.31 billion out of U.S. money market funds as selling continued for a second week in a row. More

(Reuters) -Slovak state gas importer SPP has paid a bill for Russian natural gas in euros and has also opened a rouble account with Gazprombank, the company said on Friday, in effect accepting a payment scheme demanded by Moscow.The European Union’s executive told member states this week they can keep buying Russian gas without breaching sanctions imposed on Russia over its invasion of Ukraine.Payments for Russian gas have become an issue since Moscow demanded that foreign buyers start paying in roubles, and Russia cut supplies to Poland and Bulgaria for refusing to do so. Russia is set to cut off supply to Finland on Saturday, Finnish gas wholesaler Gasum said.”We have paid in euros our commitment toward Gazprom (MCX:GAZP),” Prokypcak said in an interview on Slovak public television RTVS, which said that the payment was made on May 17, meeting a May 20 deadline.”It is in euros also because the bill itself was issued in euros by Gazprom. Following that, the money was sent to a Gazprom account and I have confirmation that the payment has been received,” Prokypcak said.”Monetary conversion is underway that will be concluded by handing roubles to Gazprom, and following that, natural gas supplies continue,” he added.While the European Commission advised companies against opening rouble bank accounts at Gazprombank, as requested by the Kremlin, it has not explicitly said doing so would breach sanctions in its formal written guidance.”The foreign exchange conversion is outside any control of SPP, for us really the important moment of fulfilling our commitment is the euro payment,” Prokypcak said.A spokesman for SPP later clarified to Reuters that the company paid in euros but the payment was converted to its rouble account before continuing to Gazprom.”(A rouble account) is needed because Gazprom will not accept payment in euros, so from one (account) to another of ours, euros must be converted to roubles, that is the eating cake and having it; we say we paid in euros and the Russians will say we paid in roubles,” Ondrej Sebesta said.Asked if SPP was using the payment scheme demanded by Russia, he said: “Yes, same as everyone else.”Gazprom did not immediately reply to a request for a comment. Russian Deputy Prime Minister Alexander Novak said on Thursday that half of Russian gas producer Gazprom’s 54 clients have opened accounts at Gazprombank.SPP is the main Slovak gas importer, supplying customers with 36 TWh last year, accounting for around 60% of the domestic market. It takes the vast majority of its gas supply from Russia. More

LONDON (Reuters) – British retail sales jumped unexpectedly in April as shoppers loaded up on alcohol and tobacco, likely a blip in an otherwise bleak trend that has driven consumer confidence to all-time lows amid a worsening cost-of-living crunch.Retail sales volumes rose 1.4% month on month after a 1.2% drop in March, the Office for National Statistics said. Economists polled by Reuters had expected a 0.2% monthly fall.The wider picture remains disconcerting. Retail sales in the three months to April fell 0.3%, after a 0.7% drop in March. Compared with a year ago, sales volumes were 4.9% lower, marking the biggest annual drop since January 2021. Earlier on Friday, Britain’s longest-running gauge of consumer confidence, the GfK survey, fell to its lowest since records began in 1974.(Graphic: UK consumer confidence falls to lowest since records began in 1974, https://fingfx.thomsonreuters.com/gfx/polling/zdvxowrllpx/Pasted%20image%201653038809537.png) British consumers were hit last month by a double whammy of surging household energy costs and higher taxes, and data published this week showed inflation hit a 40-year high of 9.0%.The Bank of England thinks inflation will climb above 10% later this year.”So far, the conflicting signals coming from the data are consistent with our call that the UK will stagnate in Q2,” said economists from Berenberg Bank.Sterling was little changed against the dollar after the data.The ONS said food store sales rose by 2.9% in April, largely driven by strong sales of alcohol, tobacco and ‘sweet treats’.This was “possibly due to people staying in more to save money,” ONS statistician Heather Bovill said. Online clothes sales also did well as people got ready for summer holidays and weddings, she added.Leading supermarket groups including Tesco (OTC:TSCDY) and Sainsbury’s have warned of lower profits this year and Premier Foods, the maker of Mr Kipling cakes and OXO stock cubes, said it would raise prices of its products.”Overall (the data) will still leave the BoE in the same bind, behind the curve on inflation, but fretting over a potentially sharp slowdown, above all in consumer spending,” said Marc Ostwald, chief economist at brokerage ADM Investor Services. More

The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”Also in the dollar’s favor is the aggressive action of the Federal Reserve. With inflation in the United States hovering around its highest rate in four decades, the central bank has ramped up its tightening of monetary policy with successive interest rate increases, and many more are predicted. Traders are betting that U.S. interest rates will climb another 2 percentage points by early next year to 3 percent, the highest level since 2007.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

The list of ailments troubling the eurozone economy was already stark: the highest inflation rate on record, energy insecurity and increasing whispers about a recession. This month, another threat emerged. The weakening euro has raised expectations that it could reach parity with the U.S. dollar.Europe is facing “a steady stream of bad news,” Valentin Marinov, a currency strategist at Crédit Agricole, said. “The euro is a pressure valve for all these concerns, all these fears.”The currency, which is shared by 19 countries, hasn’t fallen to or below a one-to-one exchange rate with the dollar in two decades. Back then, in the early 2000s, the low exchange rate undercut confidence in the new currency, which was introduced in 1999 to help bring unity, prosperity and stability to the region. In late 2000, the European Central Bank intervened in currency markets to prop up the fledgling euro.Today, there are fewer questions about the resilience of the euro, even as it sits near its lowest level in more than five years against the dollar. Instead, the currency’s weakness reflects the darkening outlook of the bloc’s economy.Since Russia invaded Ukraine in late February, the euro has fallen more than 6 percent against the dollar as governments seek to cut Russia from their energy supplies, trade channels are disrupted and inflation is imported into the continent via high energy, commodity and food prices.While a weak euro is a blessing for American holidaymakers heading to the continent this summer, it is only adding to the region’s inflationary woes by increasing the cost of imports and undercutting the value of European earnings for American companies.Many analysts have determined that parity is only a matter of time.One euro will be worth one dollar by the end of the year and fall even lower early next year, according to analysts at HSBC, one of Europe’s largest banks. “We find it hard to see a silver lining for the single currency at this stage,” they wrote in a note to clients in early May.Traders are watching to see if the euro will drop below $1.034 against the dollar, the low it reached in January 2017. On May 13 it came close, falling to $1.035.Diners in a restaurant in Milan, Italy. American vacationers in Europe can enjoy the benefits of a weak euro, but imported goods will cost more.Luca Bruno/Associated PressBelow that level, the prospects of the euro reaching parity become “quite material,” according to analysts at the Dutch bank ING. Analysts at the Japanese bank Nomura predict that parity will be reached in the next two months. For the euro, “the path of least resistance is lower,” analysts at JPMorgan wrote in a note to clients. They expect the currency to reach parity in the third quarter.Economists at Pantheon Macroeconomics said last month that an embargo on Russian gas would push the euro to parity with the dollar, joining other analysts linking the sinking euro to the efforts to cut oil and gas ties with Russia.“The outlook for the euro now is very, very tied to the energy security risk,” said Jane Foley, a currency strategist at Rabobank. For traders, the risks intensified after Russia cut off gas sales to Poland and Bulgaria late last month, she added. If Europe’s supplies of gas are shut off either by a self-imposed embargo or by Russia, the region is likely to tip into recession as replacing Russian energy supplies is challenging.

The strength of the U.S. dollar has also dragged the euro close to parity. The dollar has become the haven of choice for investors, outperforming other currencies that have also been considered safe places for money as the risk of stagflation — an unhealthy mix of stagnant economic growth and rapid inflation — stalks the globe. Last week, the Swiss franc fell below parity with the dollar for the first time in two years, and the Japanese yen is at its lowest level since 2002, bringing an unwanted source of inflation to a country that is used to low or falling prices.There are plenty of reasons investors are looking for safe places to park their money. Economic growth is slow in China because of shutdowns prompted by the country’s zero-Covid policy. There are recession risks in Europe and growing predictions of a recession in the United States next year. And many so-called emerging markets are being battered by rising food prices, worsening crises in areas including East Africa and the Middle East.“It’s a pretty grim outlook for the global economy,” Ms. Foley said. It “screams safe haven and it screams the dollar.”The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

LONDON (Reuters) – Former Bank of England Governor Mervyn King said on Friday that central banks including the BoE are to blame for the current surge in inflation to its highest in 40 years, after doing too much quantitative easing during the pandemic.King headed Britain’s central bank from 2003 to 2013, and oversaw the start of its QE programme in March 2009 during the global financial crisis.But in more recent years he has criticised the scale of central bank asset purchases, which were funded by newly-created money.”When you get an intellectual mistake in policy, and you allow inflation to rise, if you’re then hit by bad luck – which is what happened in the 1970s and is happening now – it becomes a very unpleasant outcome,” he said in remarks to Sky News.British consumer price inflation was at its 2% target as recently as July, but hit a 40-year high of 9.0% in April, and inflation in the United States rose to its highest since 1981 at 8.5% in March.While central banks point to supply-chain difficulties and a surge in energy prices, worsened by Russia’s invasion of Ukraine in February, critics say inflation is also evidence of too much monetary and fiscal stimulus during the COVID-19 pandemic.A leading contender to head Canada’s Conservatives, Pierre Poilievre, has threatened to sack the Bank of Canada’s governor if he wins a national election in 2025.Some lawmakers from British Prime Minister Boris Johnson’s government – under growing pressure over the cost of living – have also raised doubts about the BoE’s leadership.King, who is now an independent member of Britain’s upper house of parliament, and sits on its economic affairs committee, said there had been “a failure of the economics profession”.Few economists have pointed to central bank money-printing as being a major cause of the current inflation surge.King also warned BoE interest rates might need to rise well above the 2% level which some economists see as a peak.”It takes tough action. And it’s not a pleasant period through which we’re going to have to go,” he said. More

Huw Pill, the Bank of England’s chief economist, said on Friday it was “crucial” to prevent the UK from drifting deeper into “inflationary psychology”, in an indication he supports further interest rate rises. With inflation reaching a 40-year high in April, Pill said that prices rising at more than four times the central bank’s 2 per cent target made for “obviously a very uncomfortable situation” and pledged to bring inflation down. But he added that the BoE was still grappling with the difficult question of how much inflation would fall on its own, since household finances are being hit hard by the cost of living crisis. Among the key factors determining how much interest rates would have to rise, Pill said, were whether companies felt they could raise prices without much consequence and whether people thought they could demand higher wages without a fear of losing their jobs. “The UK labour market is tight, wages are growing at stronger rates than would normally be deemed consistent with the inflation target, and business confidence is resilient, in part in anticipation of being able to re-establish profit margins. In short, inflationary momentum in the UK is currently strong,” Pill said.He added that this momentum behind rapid price rises was increased by Brexit reducing the supply of workers, a retreat of globalisation and lasting effects of Covid-19, which caused almost 500,000 people to leave the UK labour market. “Avoiding any drift towards the embedding of such ‘inflationary psychology’ into the price setting process is crucial,” Pill said.Stronger than expected retail sales figures for April may also increase pressure on the bank to raise interest rates, although details of the data indicate this may have been a one-off.Pill predicted that further interest rate rises would be needed on top of the four already delivered. This would increase rates from the current 1 per cent level and, by discouraging spending, would help bring inflation down. “It is the need for a continuation of this transition in monetary policy that led me to support the 25bp hike in Bank Rate at the May MPC meeting,” Pill said. “And, even after this hike, I still view that necessary transition as incomplete. Further work needs to be done.” Allan Monks, economist at JPMorgan, said Pill’s clear concerns about inflation suggested a majority on the MPC was now “leaning towards a more hawkish interpretation” of the bank’s recent guidance. Monks added: “The risk the MPC will need to hike every meeting this year appears greater than it having to go on hold after August”.Pill is not seen as one of the most aggressive members of the Monetary Policy Committee and voted for a quarter point interest rate increase this month, unlike three of the nine members who favoured a half point increase.

He attributed his caution to the coming “substantial squeeze in UK residents’ real incomes, which will weigh on future demand and employment”.But while Pill said he did not want rapid interest rate rises, he was clear that there would need to be more increases to ensure that high inflation did not come to be seen as normal in the UK. “It is that commitment that has led me to support a tightening of monetary policy since I joined the Committee last September, and to signal today that this tightening still has further to run,” he said.In one of the latest indications of current economic conditions, Friday’s retail figures showed sales in Great Britain rising 1.4 per cent between March and April. This compared with declines the previous two months and economists’ expectations of a 0.2 per cent drop. However, the retail data included an increase in supermarket sales of alcohol — a possible indication that the overall increase was partly due to consumers responding to rising prices by staying in rather than going out to eat and drink. More