Economy

The People’s Bank of China (PBOC) injected 300 billion yuan ($47.41 billion) worth of seven-day reverse repos into the banking system on Friday, compared with 10 billion yuan of such loans expiring on the same day.For the week, the PBOC injected 760 billion yuan on a net basis – the biggest weekly cash offering since January 2020.($1 = 6.3283 Chinese yuan) More

President Biden said on Thursday that the United States and Europe were united in their efforts to confront Russian aggression toward Ukraine with aggressive sanctions. However, there was one area where he suggested disagreement: SWIFT.The Belgian messaging service, formally known as the Society for Worldwide Interbank Financial Telecommunications, connects more than 11,000 financial institutions around the world. It is viewed as a potential nuclear option in the world of sanctions because, if Russia was kicked off SWIFT, the nation would essentially be severed from much of the global financial system.But doing so would not be simple and could come with its own set of costly complications for countries outside Russia, many of which are dependent on the country for energy, wheat and other commodities. That has made some nations skittish about pulling the trigger.SWIFT is a global cooperative of financial institutions that began in 1973 when 239 banks from 15 countries got together to figure out how to best handle cross-border payments. It does not actually hold or transfer funds, but it allows banks and other financial companies to alert one another of transactions that are about to take place.Blocking Russia from SWIFT would curb its ability to conduct international financial transactions by forcing importers, exporters and banks to find new ways to transmit payment instructions. Because of Europe’s heavy reliance on Russian energy exports, analysts said, there is a reluctance among some euro area leaders to take that step and risk those purchases by making doing business with Russia more costly and complicated.The Financial Times reported on Thursday that Prime Minister Boris Johnson of Britain was pushing hard for Russia to be removed from SWIFT, while Chancellor Olaf Scholz of Germany said such a move should not be included in a European Union sanctions package.Mr. Biden made the case on Thursday that the sanctions the United States imposed on Russian financial institutions would be as consequential as excising Russia from SWIFT. He said kicking Russia off the platform remains “an option” but that most of Europe opposes such a move for now.“It is always an option,” Mr. Biden said. “But right now, that’s not the position that the rest of Europe wishes to take.”The United States and Europe disagreed on whether to oust a country from SWIFT before, most recently in 2018, when the Trump administration wanted to cut Iran’s access. Ultimately, SWIFT cut ties to Iranian banks out of fear of being in violation of sanctions against that country.Still, sanctions experts said that SWIFT was often overhyped as a tool and that cutting access could actually backfire by forcing Russia to find alternate ways to participate in the global economy, including forging stronger ties with China or developing a digital currency.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

TOKYO (Reuters) – Japan said on Friday it will appropriately deal with oil release from national reserves in cooperation with the International Energy Agency and relevant countries, after Russia’s attack on Ukraine fueled fears about disruption to global energy supply.Japan also plans to quickly implement further steps to help curb rising prices of fuels such as gasoline and kerosene amid soaring oil prices, industry minister Koichi Hagiuda told a news conference. More

WASHINGTON (Reuters) -The World Bank said on Thursday it was preparing options to provide immediate support to Ukraine’s government, as the development lender and the International Monetary Fund assess the economic fallout from the conflict in Ukraine.”We stand ready to provide immediate support to Ukraine and are preparing options for such support, including fast-disbursing financing,” World Bank President David Malpass said in a statement, adding that the institution was “horrified by the shocking violence and loss of life” in Ukraine.The statement came after Malpass told Ukrainian President Volodymyr Zelenskiy on Saturday that the bank was preparing a $350 million disbursement to Ukraine for budget support by the end of March.It was unclear, however, what resources may be available to aid Ukraine’s people if Zelenskiy’s democratically elected government is deposed by Russian forces.In recent cases of abrupt shifts of government power by force, including coups in Myanmar and Sudan, the World Bank has suspended dealings with military-installed governments.But in Afghanistan, which the Taliban took by force last August, the bank is seeking to use around $1 billion in a frozen Afghanistan trust fund for education, agriculture, health and family programs to ease a worsening humanitarian crisis.NO REFERENCE TO AN “INVASION”For Ukraine, Malpass said the World Bank was mobilizing a global crisis group to coordinate among its divisions and development partners to work on a rapid response. The bank is also coordinating closely with the IMF to assess the “far-reaching economic and social costs.”IMF Managing Director Kristalina Georgieva said in a tweet https://twitter.com/KGeorgieva/status/1496858061797011456?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet that she was “deeply concerned” about the conflict in Ukraine, which “adds significant economic risk for the region & the world.”We are assessing the implications & stand ready to support our members as needed,” Georgieva said, echoing comments she made earlier this month.Neither leader used the term “invasion” in their statements. Russia and Ukraine are members of both institutions, which were created at the end of the last major conflict in Europe, World War Two. The United States holds controlling interests in both organizations.Malpass said the World Bank was also in active dialogue to support neighboring countries affected by the conflict “and will make additional resources available.”The IMF and the World Bank also said they were working to keep remaining employees in Ukraine safe. Most of the World Bank’s Ukraine staff have relocated outside the country, though some remained for personal and family reasons.”We will continue to identify options for those who have decided to not leave the country at this point,” Malpass said in an internal memo to the bank’s nearly 16,000 global employees.A spokesperson for the IMF said the fund had been in contact with remaining local staff in the country. More

Asked why that step was not taken, Biden told reporters the sanctions imposed against Russian banks exceeded the impact of cutting Russia off from SWIFT, and other countries had failed to agree on taking the additional step at this point.”It is always an option,” Biden said. “But right now, that’s not the position that the rest of Europe wishes to take.”Several EU sources had told Reuters before the sanctions were announced that the EU was unlikely to agree to the move, despite calls from various quarters to do so. German Chancellor Olaf Scholz said Germany – a key trading partner of Russia – opposed cutting off Russia’s access to the payment system at this point, but also suggested such a step could still follow at a later stage.”It is very important that we agree those measures that have been prepared – and keep everything else for a situation where it may be necessary to go beyond that,” Scholz told reporters, responding to a question on SWIFT, as he arrived to an emergency summit set to discuss Russia’s invasion of Ukraine.The foreign ministers of the Baltic states, once ruled from Moscow but now members of NATO and the EU, called on Thursday to stop Russia’s access to SWIFT.Other EU member states are reluctant to make such a move because, while it would hit Russian banks hard, it would make it tough for European creditors to get their money back and Russia has in any case been building up an alternative payment system.”Urgency and consensus is utmost priority at the moment,” said an EU diplomat, adding that at this stage it meant no move on SWIFT, because doing so would have such wide-ranging consequences, also in Europe.Another EU diplomat said: “I am not aware of an agreement (on SWIFT sanctions) at this point.”Data from the Bank of International Settlements (BIS) shows that European lenders hold the lion’s share of the nearly $30 billion in foreign banks’ exposure to Russia.Belgium-based SWIFT, a messaging network widely used by banks to send and receive money transfer orders or information, is overseen by central banks in the United States, Japan and Europe. More

UK consumer confidence plunged in February and many measures of spending remained below pre-pandemic levels as surging living costs hit morale even before Russia invaded Ukraine.The consumer confidence index, a closely watched indicator of how people view the state of their personal finances and wider economic prospects compiled by research company GfK, fell seven points to minus 26 in February. It was the lowest score since January 2021 and one of the worst since the start of the pandemic.“Fear about the impact of price rises from food to fuel and utilities, increased taxation and interest rate hikes has created a perfect storm of worries that has shaken consumer confidence,” said Joe Staton, client strategy director at GfK.Worryingly for the post-pandemic recovery, people’s view on their personal financial situation in the year ahead fell by 12 points to minus 14, the worst reading since April 2020 at the height of the first lockdown.The Ukraine crisis could well exacerbate the squeeze on households. Jonathan Haskel, an external member of the Bank of England’s Monetary Policy Committee, said on Wednesday that the conflict created “a material risk” of further increases in global gas prices, which would add to the already considerable rises in inflation and energy prices.Rising oil and gas prices “will exacerbate the cost of living crisis and depress gross domestic product growth”, echoed Thomas Pugh, economist at RSM UK, a business advisory company.High-frequency data, such as retail footfall and credit card spending, not only remained below pre-pandemic levels, they were lower than their recent peak in November as households appeared to be heeding warnings from the BoE that they face the worst squeeze on their disposable incomes for at least 30 years as a result of surging inflation, slowing growth and higher taxes. The data are less comprehensive and reliable than official statistics. But policymakers and analysts monitor the figures closely for a more timely measure of economic activity since official output data only cover transactions up to December, when the Omicron coronavirus wave caused gross domestic product to contract. Official data released last week showed that retail sales in January were still 2 per cent below November’s level despite their sharp rebound in January.Some data suggest that non-discretionary spending “is being delayed”, said Fabrice Montagne, economist at Barclays. Credit and debit card spending on so-called delayable items, such as clothing and furnishings, rose in January and early February, but was still 17 per cent below its February 2020 level in the week ending February 17, according to BoE data. It was also well below its level from April to the end of last year, despite the removal of nearly all Covid restrictions and even with rising prices pushing up the value of nominal spending. “We are seeing delayable spending stagnant,” said Simon Harvey, head of analysis at foreign exchange company Monex Europe. With higher living costs, “the easiest place to start tightening your belt is on discretionary spending”.Inflation is at its highest level in 30 years and nearly half of the population who reported rising living costs said they had cut spending on non-essentials as a result, according to a regular survey by the Office for National Statistics covering the first two weeks of February. A monthly poll published this week by the consumer company Which? showed similar findings. Rocio Concha, Which?’s director of policy and advocacy, said: “More than half of households have had to take measures to cover the cost of living, such as cutting back on energy and food or dipping into savings.” The proportion has risen sharply during the past few months. Spending on some categories is not back to pre-pandemic levels partially because “households are increasingly concerned about rising costs”, said Yael Selfin, chief economist at advisory firm KPMG. “The risk is that consumers become overwhelmed by the triple hit of rapidly rising interest rates, higher tax burden, and rising energy costs and inflation and abruptly withdraw a large part of their non-essential spending,” she explained.Many other economic activity measures are also far from pre-pandemic levels. Flight numbers in the week to February 22 were 38 per cent below the same period in 2019, according to Eurocontrol, the body that co-ordinates national air traffic management agencies across Europe. Passenger cars registrations in January were 23 per cent lower than the same month in 2019. Visits to retail outlets, bars and restaurants are 15 per cent down from their February 2020 levels and are still below where they were in the second half of last year. Non-essential spending — such as leisure, health and beauty, and home improvement — on debit and credit cards made by Nationwide Building Society customers was 11 per cent lower in January than in November, according to the company. One of the few bright spots is that most statistics show the economic effects of Omicron have been much milder than in previous infection waves and the recovery much quicker and more broad-based. Visits to retail and entertainment venues and restaurants dropped for only a couple of weeks and started to recover from mid-January, according to Google mobility data. The removal of nearly all coronavirus restrictions across most of the country and falling Covid-19 infections boosted retail footfall, credit and debit card spending and other measures of consumer activity in January and February. With the removal of most international travel restrictions, flight numbers into and out of UK airports rose 40 per cent in the week to February 22 compared with the same week in the previous month, according to Eurocontrol.“The impact of Omicron was smaller as it was limited to people actually catching the virus, and not the wider population,” Montagne said.With the worst of the tax and energy price increase yet to come and the heightened geopolitical uncertainty, analysts said the consumer sector would suffer further.“The areas that have driven the UK economy, the consumer willingness to spend and borrow, is where we are going to see the weaknesses,” Harvey said. Andrew Goodwin, economist at Oxford Economics, was equally downbeat. “The biggest gains from social consumption recovering are behind us and the worst of the squeeze on real incomes is still to come,” he said. More

LONDON (Reuters) -Russia’s attack on Ukraine sparked volatility and fresh uncertainty in markets on Thursday, as investors scrambled to assess the conflict’s longer term implications for asset prices. After sinking earlier in the session, U.S. stocks surged later in the day while haven assets such as gold and Treasuries unwound some of their earlier gains. Oil prices, which breached $100 for the first time since 2014, also eased. Markets have already taken investors on a bumpy ride this year, with the S&P 500 down around 10% year-to-date on worries over a more hawkish Federal Reserve and heightened geopolitical strife.The attack on Ukraine will likely add another layer of uncertainty to markets, increasing the potential for more gyrations, investors said.”We are going to churn here for a while,” said Ken Polcari, managing partner at Kace Capital Advisors. “We are going to have very volatile days and weeks ahead.”In the United States, the benchmark S&P 500 reversed earlier losses and closed up nearly 1.5%. The tech-heavy Nasdaq Composite was up 3.3%.President Joe Biden unveiled harsh new sanctions against Russia on Thursday afternoon, but held back from imposing sanctions on Russian President Vladimir Putin himself and from disconnecting Russia from the SWIFT international banking system.”Hard-hitting sanctions would not only punish Russia but also Europe, so the afternoon rebound embraced the not-so-hard second round of sanctions,” said OANDA’s Edward Moya in a note to investors.The market’s initial knee-jerk reaction was typical of that seen during past geopolitical flare ups. Gold prices jumped to their highest in more than a year and the dollar surged more than 1% against a basket of its peers as investors piled into so-called safe haven assets. Yields on U.S. Treasuries, another popular destination for nervous investors, initially tumbled more than 10 basis points. “Heightened volatility on the escalation of the conflict shows markets had not fully priced in the likelihood of deeper conflict,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, in a Thursday report.The geopolitical uncertainty and wild asset price gyrations could mitigate expected monetary tightening from the Federal Reserve and other central banks in coming months, some market watchers believe. OPPORTUNITY?For some investors, the sharp equity market falls offered a buying opportunity.”There are a lot of people talking about buying the dip so I’m sure there are a lot of portfolio managers out there with shopping lists,” said Matthew Tuttle, chief investment officer at Tuttle Capital Management. “We… bought a little more into shippers and dropped more energy but not doing a whole lot beyond that,” said Tuttle, who is bearish on stocks over the longer term.With price pressures across major economies already at their highest in decades, others dashed for inflation trades. In addition to the surge in oil prices, wheat futures jumped to their highest since July 2012, soybean futures gained to a nine-year peak, and corn futures hit an eight-month high. [GRA/] “Whether there will be a full-blown war or not, the simple strategy is to bet on a spike in inflation,” said Yuan Yuwei, a Chinese hedge fund manager at Water Wisdom Asset Management. “That means buying oil and agricultural products, and shorting consumer shares and U.S. growth stocks.” Some investors were also looking at assets linked to Ukraine and Russia, which have been hit hard in recent days.One portfolio manager at a U.S-based asset manager, who asked not to be named, reckoned Ukraine’s beaten-down bonds were a bargain “unless Putin fully occupies Ukraine.”The premium demanded by investors to hold Ukrainian debt relative to U.S. Treasuries soared to 15 percentage points – the widest since the country underwent a debt restructuring in 2015.Russian assets also took a beating – the dollar-denominated RTS stock index crashed 40% to 489 points, its lowest since 2016, while yields on Russian sovereign bonds soared. But bargain hunters were not expected to rush in. “Buying the dip may be the right response to geopolitics but it’s not necessarily true for the part of the world where the fire is actually burning,” said Dirk Willer, head of global macro and asset allocation at Citi. More

(Reuters) – Federal Reserve policymakers on Thursday signaled the conflict in Ukraine will not budge them from their expected course of rate hikes ahead.But the impact on the U.S. economy could be felt in sundry ways, from the price people pay for gasoline at the pump to a hit to household wealth. Here is a look at a few of them. HIGHER ENERGY COSTSOil prices rose on Thursday following the attack, with Brent topping $105 a barrel for the first time since 2014. Those higher energy prices could eat in to consumers’ budgets and add more pressure to inflation that is already at the highest levels in 40 years. GRAPHIC: U.S. oil prices surge after Russia invades Ukraine – https://graphics.reuters.com/UKRAINE-CRISIS/USA-FED/jnvwebywyvw/chart.png If oil prices stay at about $100 a barrel, energy costs for U.S. households could rise by $750 on average this year from last year, leaving them with less money to spend on other goods and services, said Gregory Daco, chief economist for EY-Parthenon. Those added expenses could also be a drag on economic growth, said Daco, who projects that higher oil prices could lift inflation by 0.6 percentage point this year and slow economic growth by 0.4 percentage point. Consumer prices last month rose 7.5% from a year earlier, the fastest pace in nearly 40 years.”A lot of people, especially lower-income folks, a huge amount of their income goes towards gasoline,” Richmond Federal Reserve President Thomas Barkin told reporters after an economic symposium in Colonial Heights, Virginia. “So if those prices go up it dampens consumer spending and dampens the economy.”TRADE AND SUPPLY CHAINSRussia and Ukraine combined account for much less than 1% of U.S. imports and exports, so there will be no large trade hits on the economy from the conflict. The United States, unlike its European allies, is also a natural gas exporter, which should limit outsized effects on those prices.But with American consumers already straining against steep rises in the cost of living for everything from autos to food as supply chains continue to be snarled by the COVID-19 pandemic, the invasion and any further escalation in the conflict could help keep inflation pressures elevated. For example, Russia’s Nornickel is the world’s largest supplier of palladium, used by automakers for catalytic converters and to clean car exhaust fumes. The price of palladium rose to its highest level since July on Thursday, and any disruption of Russian supplies would impact auto production, still suffering from pandemic-related supply shortages of semiconductor chips.Russia and Ukraine also export more than a quarter of the world’s wheat, and Ukraine is a major corn exporter. Although the knock-on effect of higher agricultural commodities costs to consumer prices tends to be quite weak, it could still add between 0.2 to 0.4 percentage point to headline inflation in developed economies in the next few months, according to a client note by analysts at Capital Economics.And U.S. trade and foreign investments may be negatively impacted indirectly by any upheaval in Europe, according to AEI economist Michael Strain.STOCK DROP DRAGMajor U.S. stock indexes dropped in the hours after Russia’s Ukraine invasion, and though they recovered after U.S. President Joe Biden announced sanctions on Russia, “absent any improvement in the situation (in Ukraine), they may have further to run,” wrote Capital Economics’ Jonas Goltermann. Any drop erodes – at least on paper – a mainstay of U.S. household wealth, potentially dealing a blow to consumer confidence and squelching demand. After an initial plunge at the start of the pandemic, stocks have doubled in value, and direct holdings of stocks and mutual funds swelled to account for a record share of household wealth.That could drive consumer sentiment gauges – some of which are already at a decade low due to stiff inflation – even lower still and threaten the outlook for consumer spending. GRAPHIC: Household exposure to stocks – https://graphics.reuters.com/UKRAINE-CRISIS/USA-ECONOMY/movandkwapa/chart.png That being said, as Monetary Policy Analytics’ Larry Meyer wrote, “weak demand in the U.S. is far from being a concern,” and with inflation already high, policymakers may be less sanguine about the jump in energy prices than would otherwise be the case. “Should demand weaken substantially, the Fed would certainly have tough decisions to make, and we think the Fed would react,” he wrote. “But today’s risk environment does not afford them the luxury of focusing only on downside risks when it comes to risk management.”OTHER IMPACTSSome analysts clanged alarm bells. High Frequency Economics’ Carl Weinberg said he expected Vladimir Putin’s move into Ukraine to shift the economies of Europe, and possibly the United States, onto a “wartime footing,” resulting in goods shortages and further upward price pressure. He also warned that Russia could try to counter sanctions with cyber attacks on U.S. or European financial infrastructures, among other possibilities. Another economist, Carl Tannenbaum of Northern Trust (NASDAQ:NTRS), wrote, “a broader conflict in Eastern Europe could provoke a wholesale reevaluation of the outlook” for monetary policy, fueling uncertainty and pushing down sentiment. But he added: “For now, risks are tilted to the upside, and central banks will be tightening policy in response.” More