Economy

The writer is Deputy Prime Minister and Minister of Finance of CanadaMartin Luther King believed that the arc of the moral universe is long but that it bends toward justice.But he also knew that there are evil men in the world, who seek to thwart that benign curve and push us all back into darkness.Because of those men, there are moments in history when the great struggle between freedom and tyranny comes down to one fight, in one place, which is waged for all of humanity.In 1863, that place was Gettysburg. In 1940, it was the skies above Britain. Today, in 2022, it is Kyiv. On the cobbled streets of that golden-domed city, a fierce and united citizenry, led by its cheerfully resolute president Volodymyr Zelensky, is fighting a barbaric invasion. Those courageous Ukrainians are fighting for themselves, and they are also fighting for us all. Right now, indeed, brave Ukraine is the moral leader of the free world.But there is another side to this story. While Ukrainian civilians gamely learn to make Molotov cocktails to defend their homes, one of the world’s most brutal war machines is bombarding them.Not content with terrorising his own people, President Vladimir Putin is seeking to impose his tyranny on his democratic, freedom-loving neighbours. In launching this war against Ukraine, Putin attacked the values and the international rules that are the foundation of all the democracies of the world.And in so doing, he has forfeited the right to partake in the global prosperity that we, the world’s democracies, have built together since we first established that rules-based international order after the second world war.Russia cannot simultaneously open fire on our system, while also enjoying its fruits. You cannot bomb Kyiv in the morning and dock your yacht on the Côte d’Azur in the evening.That is why, in close collaboration and in solidarity with the Ukrainian government, the G7 has put in place the toughest sanctions ever imposed on a major economy.We have personally imposed sanctions on Putin and his hangers on. We have done the same to Russian oligarchs. We have cut Russia’s major financial institutions and its sovereign wealth funds out of the global economy. We have frozen the assets of its central bank.These measures will sever Russia financially from the western world, and will render useless much of the war chest of reserves that Putin has amassed. The Russian president and his enablers may have believed that they had built an economic Fortress Russia, but we have shown that there are no fortresses in the interconnected global economy. No country is sanction-proof.And to the Russian technocrats who are this week vainly struggling to prop up a rouble in freefall, let me say: We warned you.Two weeks ago at the meeting of G20 finance ministers and central bank governors, I urged Elvira Nabiullina, the governor of the Russian central bank, not to allow her government to launch an illegal and unprovoked war. I cautioned her that if her country took this horrible step, it would be, as Talleyrand reportedly said, worse than a crime — it would be a mistake. Our economic sanctions, I warned, would be swift, co-ordinated, sustained and crushing. They are. And they will continue to be.Dictators, very much including the Kremlin’s tyrant, often fail to understand democracies. We can seem, to them, to be weak and divided, compared with the servile conformity they impose on their societies at the barrel of a gun. But our very openness to debate and dispute means that once we are agreed on a course of action, we are strong and we are united.Indeed, with their remarkable resistance, the people of Ukraine have shaken the world’s older democracies out of our malaise. In dying for freedom and democracy, Ukrainians have shown us that these values can come at a high price, but that it is a price worth paying. And Ukraine’s courage has renewed our confidence that democracies can actually win.The people of Ukraine are today showing the incredible strength of a free people fighting for their democracy. That is why the world’s democracies are equally resolute in our support for the people of Ukraine.This is one of those times, and one of those places, where freedom confronts tyranny. We are determined that freedom will triumph, and it will. More

By Eduardo Baptista and Clare JimBEIJING/HONG KONG (Reuters) – China’s so-called “common prosperity” push in the near-term will not only aim to bridge the widening wealth gap but is also set to shape the country’s regulatory approach, with sectors seen crucial for the economy getting more state support.As part of that move, analysts expect the embattled property sector, accounting for a quarter of the economy, to get more regulatory support, while internet firms will remain a crackdown target due to what Beijing says is disorderly capital expansion.Global investors who were burned by numerous crackdowns last year will be looking for signs of clear regulatory divergence at China’s rubber-stamp parliament annual meeting starting on Saturday, when policymakers are expected to unveil more stimulus to ease slowing economic growth.Thousands of delegates from across China will gather in the capital, Beijing, for the meeting that will discuss economic and social policies.Last month, the Chinese technology sector was hit by fears of a fresh wave of regulatory clampdowns after the last couple of years’ unprecedented changes stemming from antitrust violations and data security concerns, among other issues.The mammoth property sector, on the other hand, has seen easing of some rules since the beginning of this year, paving the way for debt-laden developers to find their feet after having come close to the brink of collapse.The move underscores Beijing’s focus on halting the growth slowdown as war in Ukraine adds fresh uncertainty in a year when President Xi Jinping is almost certain to secure a precedent-breaking third term as leader.”If you were only to look at the regulatory developments … you would certainly be of the view that the Chinese government is really reining down on tech and they have relaxed their approach towards the property sector,” said Alfredo Montufar-Helu, director of the Economist Intelligence Corporate Network.”The property sector is seen as a key driver for economic growth, because it leads to investment, it leads to purchase of houses, it leads to property development, but it also carries a lot of demand for other sectors like commodities,” he said.China last year launched a multi-pronged regulatory and unprecedented crackdown on a broad range of industries, leaving startups and decades-old firms alike operating in a new, uncertain environment as part of Xi’s “common prosperity” drive.Both technology and property sectors saw a plunge in their revenues and massive sell-off in their stocks and bonds, as new rules curbing their businesses were framed, hefty penalties for violations imposed, and new capital raising plans thwarted.SYSTEMIC RISKSince the end of last year, however, Beijing has taken a number of initiatives to help revive the cooling property sector, which included making it easier for large and state-owned developers to raise fund, easing the escrow accounts for pre-sale funds and allowing some local governments to lower mortgage rates and down-payment ratios. The regulatory respite being given to the property sector was likely driven by regulators’ concerns about the knock-on effects of the common prosperity measures on the broader economy, according to Montufar-Helu.In comparison, the technology sector was hit with a spate of tighter regulations, affecting everything from overseas listings to outright bans on industries such as after-school private tutoring, along with a constant stream of fines. Companies most often on the receiving end have included tech giants like Tencent Holdings (OTC:TCEHY) and Alibaba (NYSE:BABA) Group.”Technology and education are under the umbrella of ‘common prosperity’, but real estate is a different issue, because it involves systemic risk,” said Gavekal Dragonomics’ China investment analyst Rosealea Yao.The central government’s goal for the property sector is clear, Yao said, which is to ensure it manages to emerge from a deep liquidity crisis, so more easing measures will have to be rolled out.The Hang Seng Mainland Properties Index has eased 0.2% this year versus a 6% drop in the Hang Seng Index, as some investors bought property shares on low valuations and stimulus expectations.In comparison, the main Chinese tech share index, the Hang Seng Tech Index has fallen 12.1% so far this year.Louis Lau, a. U.S.-based fund manager at Brandes Investment Partners LP, said he was surprised that regulators were still tightening the screws on the tech sector, dashing hopes for a period of recovery.”People don’t know when it’s going to end, it’s taken longer than expected,” said Lau, adding that he expected the crackdown to last until the second half of this year.(Corrects juxtaposition of words in name of networking forum in paragraph 8) More

ORLANDO, Fla. (Reuters) -The ballooning euro cost of oil and gas to record highs as war rages in Ukraine has prompted markets to murmur about the chances of a rare, even if unlikely, ECB intervention to bolster the euro against the dollar. At first glance, it would be odd for the European Central Bank to opt for euro buying over interest rate rises to cap soaring inflation. While both effectively tighten monetary policy, the ECB has been reluctant to signal any rates move until the second half of the year at the earliest and will be careful about the economic hit as much as the inflation spur. And while the euro has slumped against the dollar this week, exaggerating the cost of dollar-priced commodities, it’s stable against a broad trade-weighted basket of currencies – still less than 5% from record highs. There have been few signs of disorderly movements, and it has been more than 20 years since a direct euro-targeted intervention on the markets. But in times of war and crisis, nothing can be ruled out.The surge in commodity prices since Russian tanks rolled into Ukraine, particularly oil and natural gas, is of such a magnitude that further euro depreciation could spin an already toxic inflationary vortex out of control.At least, that’s the warning from George Saravelos, head of global currency strategy at Deutsche Bank (DE:DBKGn) in a note headlined: “The ECB should intervene in EUR/USD.” To be clear, he says this remains unlikely and that the ECB can support the euro in other ways, like interest rate hikes or verbal intervention.But he argues that surging energy prices are now the single biggest threat to the euro zone economy, which could unleash “a vicious inflationary spiral” that infects broader financial conditions.Oil in euro terms is its most expensive ever. On Thursday it nudged 108 euros a barrel, up almost 25% in a week and 50% this year. Natural gas prices have more than doubled since mid-February and are up over 800% in the past 12 months.”If financial conditions get disorderly, there is precedent for coordinated FX intervention from the G7,” Saravelos says, pointing to the G7’s action in 2011 to weaken the Japanese yen after the Japanese earthquake, tsunami, and Fukushima nuclear disaster in March that year.That was the last time the ECB waded into the FX market. Before that, you have to go back to 2000 when it conducted seven bouts of euro-buying intervention worth 10 billion euros, as the fledgling currency lost almost 30% of its launch value.Clearly, FX intervention is not something the ECB takes lightly. Since Russia invaded Ukraine the euro has weakened 2% against the dollar to $1.1050 but its trade-weighted value remains stable and strong.FORGET ITA weaker euro may yet pose a headache for the ECB – annual inflation is at a record high 5.8% and likely to rise further – but that seems some way off. As former ECB Vice-President Vitor Constancio points out, the exchange rate is generally not an objective of monetary policy because it is very difficult to reliably identify its drivers.Constancio also notes that unilateral intervention is rarely effective. In that context, it is difficult to imagine the U.S. Federal Reserve getting on board a policy to weaken the dollar just when it will almost certainly be raising interest rates.”Right now, the euro is hovering around $1.11, and there is no need or the possibility of organizing a multilateral intervention. It is better, therefore, to forget the issue,” he said.There is a building consensus, however, that the euro is heading lower. Robin Brooks, chief economist at Washington-based Institute of International Finance, reckons parity with the dollar – a 10% depreciation from current levels – could come within three months.ECB policymakers’ consistent position since the euro’s launch in 1999 has been that the central bank will intervene in the currency market if it sees disorderly movements or unwarranted volatility. That it has acted so infrequently suggests market conditions would have to deteriorate significantly for it to do so again. Implied euro/dollar volatility is spiking up toward 10%, but from a low base. It is also well below previous peaks, levels which did not trigger intervention. But even if the euro soon trades at parity with the dollar, as the IIF’s Brooks predicts, market volatility may not matter to ECB policymakers if they are facing down an oncoming recession. “The picture in the euro zone has turned on a dime and the whole notion of second-round inflation effects is just fanciful now. ECB intervention to support the euro is counterintuitive. An effective tightening of policy makes no sense,” Brooks said. (The opinions expressed here are those of the author, a columnist for Reuters)(By Jamie McGeever; Editing by Andrea Ricci) More

Ukraine’s government could receive the funds almost immediately after the board approves the loan, which may be delayed until Monday, one of the sources told Reuters.The disbursement, arranged with unusual speed for the development lender, would provide Ukraine with desperately needed cash to bolster its defense against a Russian invasion that has killed thousands and unleashed bombardments of urban centers and Europe’s largest nuclear power plant. More

Adding to worries in early Asian trade was news Ukraine’s Zaporizhzhia nuclear power plant, the largest of its kind in Europe, was on fire early on Friday after an attack by Russian troops. Reuters could not immediately verify the information, including the potential seriousness of any fire.That sent the euro down a further 0.48% to $1.1009 its lowest since May 2020. It has lost 1.84% this week, which would be the euro’s worst week since June 2021. The dollar in turn slipped 0.15% on the safe haven yen on Friday morning, following reports of the fire, though with gains elsewhere, the dollar index, which measures the currency against six peers rose 0.3% Russian forces were continuing to surround and attack Ukrainian cities, on the eighth day of their invasion, including Mariupol, the main port in the east which has been under heavy bombardment. “This war will be devastating for Ukraine. As for Russia, the short and longer-term implications will definitely hurt the economy. But EU countries will also be among those which will be hit the most by these sanctions,” said analysts at ING. They said the effects of surging energy and gas prices could undermine the industrial and private consumption rebound that had been expected following the easing of COVID-19 restrictions, and was also likely to slow European Central Bank policy normalisation. “At next week’s ECB meeting, any hints of rate hikes are out of the question,” they said. In contrast, the U.S. Federal Reserve is all but certain hike interest rates at its March 15-16 meeting for the first time since the pandemic. Fed chair Jerome Powell, overnight repeated his comments from Wednesday that he would back an initial quarter percentage point increase in the Fed’s benchmark rate. Elsewhere, sterling was on the back foot at $1.3326, while the Australian dollar edged off its four month top on news of the fire. Higher commodity prices resulting from the war have caused the Aussie to climb steadily in recent weeks. More

(Reuters) – Russia’s invasion of Ukraine adds uncertainty to the U.S. economic outlook and may boost near-term inflation, but household savings and strong economic growth should help limit the damage, New York Federal Reserve Bank President John Williams said on Thursday.Higher oil prices stemming from the crisis may act like a “tax” on American consumers that limits spending, but savings accumulated during the pandemic may help offset higher costs, Williams said. “The economy is coming into this with a lot of forward momentum,” Williams said during a virtual event organized by the Council for Economic Education. “It’s definitely not a stagflation issue.” Fed officials say they plan to start raising interest rates when they meet on March 15-16, a key step in their efforts to battle inflation at 40-year highs. Williams said he expects inflation to come down later this year, but remain “well above” the central bank’s 2% target. Inflation should moderate as the Fed raises interest rates, fiscal policy fades, and supply shortages are resolved. But he stressed the Fed’s ability to respond if inflation remains higher than expected at the end of this year and beyond.”We have the ability to adjust interest rates higher if inflation ends up being much more persistent or staying much higher than we expect or want,” Williams said. More

SEOUL (Reuters) – South Korea’s consumer inflation hovered near a decade high in February and stood above the central bank’s 2% target for an 11th month, adding pressure on policymakers to raise interest rates amid surging oil prices due to the Russia-Ukraine crisis.The consumer price index (CPI) for February rose 3.7% from a year earlier, government data showed on Friday, exceeding a 3.5% gain tipped in a Reuters survey and a notch below the decade high of 3.8% marked in November. It rose 3.6% in January.The breakdown of data showed the cost of petroleum surged 19.4%, while that of housing rentals and outdoor dining increased 2.1% and 6.2%, respectively, year on year.”Price instability will likely continue on persistent rise in energy prices and industrial goods,” said Park Sang-hyun, an economist at Hi Investment & Securities.”Future development of the Ukraine crisis and its impact on oil prices will play a major role in inflation,” he said.Core inflation, which excludes volatile food and energy costs, jumped 2.9% from a year earlier, the fastest since June 2009, in a sign that surging prices of fuel and other raw materials have fed through to higher costs for goods and services.That puts the Bank of Korea’s (BOK) monetary policy board under pressure to raise the base rate further in coming months, following the back-to-back rate hikes in November and January. The BOK held the base rate at 1.25% at its February meeting.In late February, the BOK also sharply increased its inflation forecast for this year to 3.1% from 2.0%. It sees next year inflation at 2.0%.Separately on Friday, Finance Minister Hong Nam-ki said the country will extend the 20% tax cut in oil products by three months to minimise the impact of surging energy prices, pushed up by the Russia-Ukraine crisis.”Korea’s government reduced the fuel tax last year to ease price pressure, however, its impact was offset by a faster increase in oil prices. CPI would have been much higher in the absence of price controls, in our view,” Park Chong-hoon, economist at Standard Chartered (OTC:SCBFF) Bank Korea, said. More

Here is a breakdown of what we know so far as Western sanctions grip Russia’s economy in response to its invasion of Ukraine.: STOCKS AND BONDS – ESTIMATED $60 BLN FROM MUTUAL FUNDS AND ETF Overseas investors in Russia have tens of billions invested in the country’s stocks and bonds, according to Morningstar data. U.S. asset managers like Capital Group, Black rock and Vanguard disclosed large exposures, according to the most recent portfolio information available to the research firm.Disclosures cover a period starting September 2021 through to Feb. 25 this year. They total over $60 billion when considering the top 100 open-end funds and exchange-traded funds worldwide in terms of estimated U.S. dollar exposure to Russian securities, according to Morningstar data.Of these, some of the biggest were Capital Group Companies Inc, one of the world’s largest investment management companies, Vanguard and PIMCO and BlackRock (NYSE:BLK).DEBT SECURITIES – $79 BLN JPM analysts said in a research note that foreigners own around $79 billion of Russia’s debt securities, including local currency Offs, sovereign hard currency euro bonds and corporate hard currency eurobonds. BANKS – AROUND $78 BLN EXPOSURE DISCLOSED Bank of International Settlements data https://stats.bis.org/statx/srs/table/B4?c=RU&p= show that foreign banks have exposure to the tune of $120 billion to Russia. In Europe, Italian and French banks have the largest Russian exposure, representing just over $25 billion each at the end of September, the data says. The exposure of U.S. banks totals $14.7 billion, according to BIS data.Of those that have announced exposure: Raiffeisen Bank International RBIV.VI overall Russian exposure totalled 22.85 billion euros ($25 billion), more than half relating to the corporate private sector, it said in its 2021 results presentation.Societe Generale (OTC:SCGLY), which controls Russian bank Rosbank, had 18.6 billion euros ($20.5 billion) of overall exposure to Russia at the end of last year – or 1.7% of the group total.Unicredit (MI:CRDI) UniCredit’s overall exposure to Russia totalled 14.2 billion euros ($15.7 billion) as of mid-2021. That includes 8 billion euros in loans extended by its Russian arm.Intesa Sanpaolo (OTC:ISNPY) ISP.MI Italy’s biggest bank, loan exposure to Russia was 5.57 billion euros ($6 billion) at the end of 2021, or 1.1% of the total.Of the U.S. banks, Citi announced total exposure of nearly $10 billion.As a comparison, Goldman Sachs Group Inc (NYSE:GS) GS.N reported in a filing last month $293 million in net exposure to Russia, as well as a total of $414 million of market exposure as of December 2021.EXXON MOBIL – $4 BLN EXPOSURE Exxon Mobil (NYSE:XOM) on Tuesday said it would exit Russia oil and gas operations that it has valued at more than $4 billion and halt new investment as a result of Moscow’s invasion of Ukraine.BP (NYSE:BP) – $25 BLN EXPOSUREBP announced it was abandoning its stake in Russian oil giant Rosneft. Rosneft accounts for around half of BP’s oil and gas reserves and a third of its production and divesting the 19.75% stake will result in charges of up to $25 billion, the British company said.SHELL – $3 BLN EXPOSUREShell (LON:RDSa) will exit all its Russian operations. Shell said the decision to exit Russian joint ventures will lead to impairments. Shell had around $3 billion in non-current assets in these ventures in Russia at the end of 2021, it said.NORWAY’S SWF – $3 BLN EXPOSURE Norway’s sovereign wealth fund, the world’s largest, has written off the value off the roughly $3 billion in assets it held in Russia. The fund held investments in Russia worth some 27 billion crowns ($3.0 billion) at the end of 2021, equivalent to 0.2% of its total value, but now likely worth 2.5 billion crowns. The fund’s Russian assets consisted of shares in 51 companies at the end of 2021. The most valuable stakes were in gas producer Gazprom (MCX:GAZP), bank Sberbank and oil firm Lukoil, which together accounted for two-thirds of the total. “They are pretty much written off,” CEO Nicolai Tangen later told Reuters on Thursday, after Norway’s government told the fund to sell the assets.CALSTRS – $171.5 MLNThe California State Teachers’ Retirement System (CalSTRS), the second-largest U.S. pension fund, said on Wednesday the value of its holding in Russia as of the end of February was $171.5 million.CALPERS – $900 MLN CalPERS, which manages the largest U.S. public pension fund, said late on Thursday that the fund had around $900 million of exposure to Russia, but no Russian debt. More