Economy

At the meeting, the Riksbank broadly stuck to its previous plans to keep its balance sheet at the current level through the year and that the repo rate would not rise from 0% until the second half of 2024.But rate-setters were evenly divided, with three of six wanting to start shrinking the balance sheet this year. Deputy Governor Anna Breman also wanted to bring forward rate hikes. Governor Stefan Ingves cast the deciding vote in favour of no change.The minutes showed that three dissenters were all worried about inflation staying higher for longer than in the Riksbank’s forecast, even in Sweden.”For each inflation outcome published for the countries important to Swedish trade, it becomes increasingly clear that the higher inflation figures are not a transitory phenomenon,” Deputy Governor Henry Ohlsson said.The more dovish members saw inflation easing in the months ahead. The debate, however, may already be academic after January inflation figures, published after the Feb. 9-10 meeting, showed a surge in underlying prices.Core inflation hit 2.5%, undermining the argument of the more dovish board members that inflation has mainly been due to energy prices.The next meeting is in April and agreeing to a shrinking of the balance sheet this year looks like a minimum response, unless January’s inflation number is a one-off.Even before the last meeting, markets were betting on a rate hike coming long before the Riksbank had forecast, bringing Sweden’s central bank more in line with peers.With inflation surging, the U.S. Federal Reserve is expected to start hiking rates in March. The Bank of England has already done so and even the European Central Bank has left the door open for a hike this year. More

Prime Minister Fumio Kishida is counting on the budget to pull the world’s third-largest economy out of the COVID-19-induced doldrums with the economy set to slow to a crawl this quarter.The budget for the new fiscal year beginning in April, worth 107.6 trillion yen ($936.14 billion), is Japan’s biggest initial spending plan.The expansive fiscal package will also add to strains for the industrial world’s heaviest debt burden, which is more than twice the size of Japan’s $5 trillion economy.The budget was approved on Monday by ruling party lawmakers at the lower house budget committee. It would be put to a vote on Tuesday in the plenary, as agree by ruling and opposition blocs.Given the ruling bloc’s majority in the both chambers of parliament, the budget bill would be enacted 30 days after it is sent to the upper house.It marked the quickest enactment of a budget since 1999.Kishida has vowed to bring the primary budget, which excludes new bond sales and debt-servicing costs, to surplus by fiscal 2025, while he is facing pressure within his ruling Liberal Democratic Party (LDP) to spend more before the July upper house elections.The first annual budget compiled under Kishida’s cabinet followed an extra 36 trillion yen in spending for this fiscal year as he has vowed to implement seamless spending over a 16-month period to keep the economy afloat.Bigger spending meant fiscal discipline was weakening among policymakers who are counting on the Bank of Japan’s ultra-loose monetary policy to keep borrowing costs low, analysts said.The budget includes 5 trillion yen for emergency COVID-19 costs, a record defence outlay of 5.37 trillion, with both welfare cost of 36.3 trillion and 24.3 trillion yen for debt servicing accounting for more than half the annual spending.($1 = 114.9400 yen) More

(Reuters) -European companies hoping to fund M&A and capital expenditures on bond markets this year are facing a sudden jump in borrowing costs and wary buyers after the ECB’s shock pivot towards tighter monetary policy.Bond issues are a key source of funding for companies and have grown in importance relative to bank loans in the euro zone, particularly since the financial crisis.Caught out by European Central Bank President Christine Lagarde’s hawkish tone after the bank’s February meeting – which opened the door to rate hikes this year – bonds from investment-grade (IG) European firms have seen yields surge 60 basis points. Euro credit had been less hit by January volatility stirred by the U.S. Federal Reserve’s hawkishness, with IG bonds delivering less than half the losses in the United States. But those falls accelerated post-ECB and yields have more than doubled this year to as high as 1.18%, the highest since May 2020, according to BofA. That’s still extremely low, but a sudden jump in borrowing costs is significant. If continued, it can impact companies’ ability to invest, eventually slowing economic growth, so central banks watch credit spreads carefully. Nearly half of investors in BofA’s February credit investor survey said IG spreads rising to 150-175 bps, from around 110 bps currently, would prompt a dovish turn from the ECB. A mergers and acquisitions boom and the need for capital investment has been seen by many as driving a rise in European corporate bond sales this year — JPMorgan (NYSE:JPM) for instance expects a record 645 billion euros of IG issuance. While moves so far are not enough to derail those expectations, Helene Jolly, head of EMEA IG corporate syndicate at Deutsche Bank (DE:DBKGn), said borrowers and investors were adjusting to “the new normal”.”Corporates have had to look at the new levels of coupons that are being required because of the rates being paid… and investors have had to think about what does this mean for me, what’s my outlook on rates now and where do I want to play,” Jolly said. Sentiment has turned rapidly — just 16% of European credit investors are positioned net long on IG debt, the lowest since 2019 and down from 27% in December, while corporate debt funds are holding more cash than they have in years, BofA’s survey found. One consequence has been declining bond sales — in the two weeks since the ECB meeting companies have raised around 9 billion euros, similar to volumes in the single week up to the meeting, according to Refinitiv IFR data. Several sessions delivered zero issuance.WARY Because many companies borrowed cheaply and abundantly during the pandemic, there is no panic over their ability to refinance debt, even for sub-investment grade, “junk” issuers. Just two junk issuers have sold bonds since the ECB, according to IFR. The vast majority of issuance came from Italian credit management and data group Cerved, which raised most of its funding from a floating-rate bond. Those compensate investors as interest rates rise.”People are wary about new issues, not because they think they are bad credits, but they’re concerned that if you buy a credit with a 3.5% yield today and in a week the same credit is yielding 3.75%, your bond’s down a couple of points,” said Ben Thompson, JPMorgan’s co-head of EMEA leveraged finance capital markets.ISSUANCE BOOM? Issuers may have to start hitting markets soon with the ECB expected to halt bond purchases by September. The ECB last year bought over 70 billion euros of company debt, around 6% of its total purchases during that period. IG spreads have widened over 25 bps this year and the additional premium companies pay for new bond sales are already higher than the average since 2015, according to BNP Paribas (OTC:BNPQY). Viktor Hjort, global head of credit strategy at BNP, estimates an upcoming rush for M&A and capex-linked borrowing could widen spreads another 15 bps. “Corporates have significant need for spending, especially capex, which is unsustainably low… so the credit market is going to have to fund a capex cycle, and it’s also facing a demand shock,” Hjort said. In the junk market, critical for financing leveraged buyouts, the average coupon on BofA’s index exceeds its yield, according to Refinitiv Datastream, so on average, new issuance will cost firms more than the interest on their current debt. Still, higher yields aren’t expected to derail borrowing.Shanawaz Bhimji, strategist at ABN AMRO (AS:ABNd), estimates that firms’ total returns from equity this year will exceed the current cost of equity even when assuming a much higher cost of net debt than current rates, so they should continue investing in M&A and capex. To cheapen funding, borrowers may opt for shorter-dated financing or issue floating-rate notes, patterns already emerging on some deals, the bankers said. “Issuers are going to have to be realistic about the cost of debt,” Thompson at JPMorgan said. More

Remember the phrase, “It’s the economy, stupid?” It was coined by James Carville, strategist of US President Bill Clinton’s successful 1992 campaign against George H W Bush. The quip was meant to bring voters back to the fact that the campaign was being held in the middle of a recession, which the Clinton team used successfully to unseat Bush the elder, despite the fact that 90 per cent of the country approved of the job that the incumbent was doing just a year before the election. Since then the phrase has been as much of a truism as you can have in politics.Yet it doesn’t appear to be working for Joe Biden, even though many of the top economic indicators, from unemployment to economic recovery from the pandemic, have been in his favour. Of course, rising inflation has scared the US public, though it’s also bolstered their wages. The upshot is that the old line isn’t holding as true as in the past. I suspect if Carville was on Biden’s team today, he might come up with a different phrase for the next election cycle: “It’s geopolitics, stupid.”As has been apparent for a couple of years now, the world is changing — and the change isn’t going to stop when the pandemic is finally over. That’s because Covid-19 is a scrim that has been lifted up over the new realities of the post-neoliberal world, one in which politics, not just “efficient” markets, matter. It turns out that the world isn’t flat, after all and the general public feels the bumps, even when many domestic indicators are telling them that everything is all right.Surveys show that Americans are paying attention to what’s going on with political tensions in Ukraine — more than they would have about past foreign affairs issues. That is in part because the crisis dovetails with the issue of inflation — in this case, particularly energy inflation — but it is also a reminder that we are now in a post-American world, where the US no longer calls all the shots and there are new regional powers including China that are shaping global economics and markets in new ways.It’s important to start to grapple with all this honestly. Take supply-chain disruptions, for example. Many experts are predicting they’ll abate by the end of the year, and that may be true in the short term. But in reality, supply chains are only at the beginning of a long-term, fundamental change. This shift is for all sorts of reasons. One is politics — witness China becoming a more inwardly focused “dual circulation” economy as well as its growing use of supply chains as political leverage in places like Lithuania and Germany. Another is a result of shifts in wage and energy arbitrage — there’s just no point in shipping low-margin products such as furniture or textiles all over the world. A third is due to a push for higher environmental, social and governance standards. All point to the conclusion that regionalisation, not globalisation, is the future.That will mean a profound change in how business operates, though the largest and most powerful multinational companies are desperately trying to buck this trend and pretend they can be apolitical. Electric vehicle group Tesla is continuing its push into China despite concerns about human rights abuses in Xinjiang. Tech giant Apple has compromised on privacy under pressure from Beijing.Many economists are also trying to pretend nothing has shifted in the past 20 years, and that driving down prices should still be the ultimate goal for society. “The objective has to be buying as cheaply as possible,” said former Treasury secretary Lawrence Summers, in reference to procurement for the Biden administration’s $1.2tn infrastructure programme.I beg to differ. We’ve left the age of neoliberalism behind. We know now that markets are not perfect and that consumers and large multinational companies aren’t the only economic stakeholders. In this new world there will be new trade-offs to be made between a larger and more diverse group, from businesses of all sizes, to workers and the environment. Most people seem to understand that ever-cheaper goods have raised wages in some parts of Asia, and created incredible profits for big companies, but they haven’t led to a healthier and more sustainable form of market capitalism. Liberal democracy hasn’t fared well, either.The new world is, admittedly, messier and it will come with some downsides in the short term. Inflation, for example. Let’s face it, products made by robots, big companies and autocratic states that suppress wages are cheaper. We need to be honest about the inflationary implications of moving from a highly globalised economy to one in which production and consumption are more tightly geographically connected, and in which stakeholders, not just shareholders, have a voice.But that doesn’t mean we should go back to the old, unsustainable paradigm, which led to environmental degradation, labour abuses, rising inequality and toxic politics. It means we should start addressing tough questions: what is the right balance between, say, foreign and domestic concerns when thinking about trade policy? How might better education and competition policy mitigate the downsides of our new era? What comes after neoliberalism? This is, after all, a political economy, stupid. [email protected] up for Rana Foroohar’s US politics newsletter, Swamp Notes, ft.com/newsletters More

Container shipping giant AP Moller-Maersk has learnt from past mistakes and will do better in its latest efforts to build a broader logistics business, the company’s controlling shareholder and incoming chair has insisted.Robert Uggla, who is 43 years old and the fifth generation of Maersk’s founding family, told the Financial Times in a rare interview that, in the past, the group had made acquisitions “where maybe we should have said no”.Maersk is using bumper profits from sky-high freight rates to accelerate its plans to expand into land-based logistics, announcing more than $6bn of acquisitions in the past four months. Some investors are sceptical. But Uggla said the founding family’s push in 2016 to split the company into two separate groups and sell its energy businesses to focus on shipping and logistics meant it was easier to focus on doing the right deals.One of the arguments for changing the structure back then was “a lack of capital discipline”, he said. “I’m not saying we will never overpay for an acquisition but the structure creates more capital discipline. All shareholders including the controlling shareholder have a desire for dividends and share buybacks. That was different in the past.”Uggla, who has done only one other interview in the past five years, is due to become chair of Maersk next month, replacing Jim Snabe. He already coordinates the family’s investments as chief executive of AP Moller Holding, which together with two family foundations controls more than 70 per cent of the votes in Maersk.The change in chair had “been planned to safeguard the momentum of the strategy” by allowing the next generation of the family to take a more active role than his mother, Ane, who had not wanted to follow the tradition of heading the board.Robert Uggla, incoming Moller-Maersk chair © A.P. Møller-MaerskMaersk would continue with its current strategy, he said, aiming to become a factory-to-consumer logistics group, as well as investing in green shipping and increasing shareholder payouts. It announced a $1bn investment to expand its air freight operation in November, a $3.6bn deal for an Asian contract logistics business in December and a $1.7bn US logistics group transaction this month.“We live in extraordinary times,” said Uggla. “We are all mindful that there will be a time when freight rates normalise. We need to seize the moment.”Niels Andersen, a portfolio manager at Danish fund manager Bankinvest, said Maersk had tried to expand into logistics before “and [has] failed many times before”. For example, Maersk had long-running difficulties with its Damco logistics brand, acquired as part of a €2.3bn acquisition of P&O Nedlloyd in 2005 that it struggled to integrate. It eventually axed the brand two years ago. “Are the acquisitions sensible? Will they generate good returns or are they mainly bought because capital was plenty and was burning a hole in their pockets. Time will show,” he added.Uggla also elaborated on the running of AP Moller Holding, the newly established investment vehicle that owns most of the family’s Maersk stake and a number of smaller businesses. He called it “a start-up within a 100-year-old group” that was also aiming to take advantage of a “few macro themes”. APMH, which has assets of $88bn that have annual revenues of $65bn, is a long-term investor in four areas: the global supply chain, energy transition, sustainable “circular” business, and demographics. It owns companies investing in geothermal energy, wind turbine suppliers, sustainable packaging, and healthcare diagnostics and has set up a non-profit centre researching emission-free shipping.But Maersk was the core of the family’s business interests, he said, adding that it would never sell. APMH is also the biggest shareholder in Danske Bank, which has been mired in a money-laundering scandal in recent years. It has no intention of selling its stake here either, Uggla said.The family has been more in the background at Maersk since Maersk McKinney Moller, the driving force behind its rise in container shipping, stepped down as chair in 2003, aged 90.Uggla, who had various operational roles at the shipping group before he joined the board in 2014, said that, between 2000 and 2016, Maersk “stagnated as a group [and] it was clear there was a lack of renewal”. He added: “We didn’t really plant many seeds for the future. So the family’s point of view in 2016 was that the structure was one of the impediments to renewal.”Uggla said that with the 2016 split — the oil business was sold to Total for $7.5bn the following year and the drilling rig company demerged — the “risks of not doing it were greater than the risks of doing it”.“From the family’s point of view, it’s hard to change what you have and what has been successful. So it was not an easy decision. But in hindsight it was the right decision.” More

NAIROBI (Reuters) – The Kenyan central bank’s Monetary Policy Committee will hold its next rate-setting meeting on March 29, the bank said on Monday.At its last meeting in January, the committee held the benchmark lending rate at 7.0% and said that there were elevated global risks with the potential to impact the domestic economy. More

BEIRUT (Reuters) – For more than a decade, Lebanon’s central bank charged commercial banks in the country commissions when they bought government securities without making clear that the bulk of those commissions went to a company controlled by the brother of the central bank’s governor, according to documents seen by Reuters.Four contracts between Banque du Liban (BDL) and a Lebanese commercial bank seen by Reuters, dated from 2004 to 2014, state that the bank entering into the contract agreed to pay 3/8 of 1% commission on purchases of government certificates of deposit worth millions of dollars. Such contracts were standard for commercial banks making such purchases at the time, two senior executives in the finance industry told Reuters. The contracts seen by Reuters make no reference to Forry Associates, a company controlled by Raja Salameh, brother of central bank governor Riad Salameh. That company ultimately received such commissions, Riad Salameh told Reuters in an interview in November. His brother, Raja Salameh, could not be reached for comment. Forry’s “only job was to gather all these commissions and fees and redistribute according to the instructions,” Riad Salameh told Reuters, without specifying what these instructions were. Salameh said the commissions were transparent and approved by the board of the central bank, and that no one raised any complaints at the time.Halim Berti, a spokesman for BDL, told Reuters the central bank’s board could not respond to questions about its decisions, as only the governor was authorized to speak on behalf of the bank. The commissions, and where they went, are the subject of investigations in Europe and Lebanon.Swiss authorities suspect the Salameh brothers may have illegally taken more than $300 million in this way from BDL between 2002 and 2015, laundering some of the money in Switzerland, according to a letter the Swiss attorney general sent to Lebanese officials last year, which was seen by Reuters. The Swiss attorney general’s office told Reuters it is conducting a criminal investigation into suspicions of “aggravated money laundering related to alleged embezzlement offences to the detriment of BDL,” but declined to comment further for this story. Salameh said such commissions as those in the contracts seen by Reuters were paid to Forry. He denies embezzlement, saying none of the commission money belonged to the central bank, a publicly owned institution.He told Reuters that the commissions were paid into what he called a “clearing account” at the central bank, and then subsequently paid to Forry. He said he hired the audit firm BDO Semaan, Gholam & Co to look into the matter. The auditor’s report found that “no funds belonging to BDL went into this account,” Salameh told Reuters in November. He declined to show the report to Reuters. BDO Semaan declined comment.However, details of the contracts seen by Reuters, which have not previously been reported, show that the commissions were to be paid to BDL. Three contracts, written in Arabic and printed on paper bearing the central bank’s letterhead, state: “We authorize you to deduct a commission of 3/8 of 1%,” where “you” refers to the central bank. In none of the contracts is Forry mentioned. Five people who hold, or recently held, senior positions in the Lebanese financial system and had direct knowledge of such contracts told Reuters they had never heard of Forry until the Swiss investigation was reported last year. Salameh said BDL’s relationship with Forry, which started in 2002, was not exclusive. Six other firms performed similar services for the central bank, he said. Asked by Reuters, he declined to name those firms. INVESTIGATION HITS RESISTANCE Experts say it is not unusual for central banks to charge commissions on some transactions. But the fee money usually goes direct to the central banks to help them fund operations and reduce their reliance on public funding. Sending commissions to third parties would be unusual and defeat the purpose of imposing such fees, they say. “These are clearly public funds, because if the commission wasn’t paid” to Forry, “the central bank would’ve gotten a better deal” by receiving the fee itself, said Mike Azar, an expert on Lebanon’s financial system and former economics professor at Johns Hopkins University in the United States. Salameh, 71, has been governor of Lebanon’s central bank for 29 years. Public scrutiny of him has increased since the country’s financial collapse in 2019. Once highly regarded for his stewardship of the banking system, he is now blamed by many for the collapse and the subsequent plunge in the value of the Lebanese pound, which has effectively impoverished most Lebanese people. Salameh has denied responsibility, blaming politicians who he says oversaw decades of profligate spending. Salameh still has the support of some of Lebanon’s most powerful politicians, including Parliament Speaker Nabih Berri and Prime Minister Najib Mikati. Lebanese prosecutor Jean Tannous told Reuters in November he was investigating Salameh on suspicion of embezzlement of public funds, illicit enrichment and money laundering. But his investigation has run into resistance. Commercial banks have refused to give Tannous access to account information he has been seeking to use as evidence, citing the country’s 1950s banking secrecy laws, according to four people familiar with the investigation. The people said the banks told Tannous to ask for such information from the central bank’s Special Investigation Commission (SIC), which is headed by Salameh himself.Tannous declined to comment for this story. The SIC did not respond to a request for comment.Lebanon’s top prosecutor, Ghassan Oueidat, stopped Tannous from attending a Paris meeting of European prosecutors in January designed to coordinate and share information on Salameh, according to correspondence seen by Reuters between Oueidat and a member of Eurojust, the European Union criminal justice agency organizing the meeting. Oueidat and Eurojust declined to comment. More

Russia’s threats to invade Ukraine are forcing China to strike a balance between President Xi Jinping’s growing support for Vladimir Putin and Beijing’s self-interest in the region’s stability, according to analysts.The crisis, sparked by Putin’s decision to concentrate 190,000 Russian troops near the Ukraine border, remains volatile. Putin and Joe Biden have accepted “the principle” of a summit to ease tensions over Ukraine following warnings from the US president that Russia could invade within “several days”.China joined Russia this month in opposing Nato expansion, highlighting a new level of co-operation between Xi and Putin.But Wang Yi, China’s foreign minister, told a European security conference on Saturday that “the sovereignty, independence and territorial integrity of any country should be respected”.“We hope that a solution can be found through dialogue and consultation that will really guarantee security and stability in Europe,” he added.His remarks reflected a change from late January, when he offered support for Russia in its stand-off with the US and Nato over Ukraine, saying Moscow had “reasonable security concerns”.Wang’s tone departed, too, from his own ministry, which has lambasted Biden for stoking tensions.

Vladimir Putin, left, and Xi Jinping in Beijing this month. China has joined Russia in opposing Nato expansion © Aleksey Druzhinin/Sputnik/Kremlin/Reuters

Beijing, according to one senior international relations academic at a top Chinese university, must “strike a balance” in supporting Moscow while also not damaging its own military and economic ties with Ukraine.“There is a common misunderstanding among western media — and even some western officials — that China supports a Russian invasion of Ukraine. That is fictitious,” said the academic, who asked not to be named. “Any military conflict, especially large-scale war, will undoubtedly hurt China’s interests there.”Wang’s attempt to appear neutral, however, will be tested if the west imposes financial sanctions on Russia.“China’s decision either to adhere to new western sanctions or to help Russia avoid them will shape escalation pathways and determine the magnitude of economic and political isolation that sanctions impose,” Chris Miller, director of the Eurasia programme at the Foreign Policy Research Institute, a US think-tank, wrote in a report.Analysts said China would seek to separate pushback against the US and Nato, on which it openly supports Russia, from its reservations about a potential violation of Ukraine’s sovereignty.“China’s and Russia’s support for each other is strongest when they are challenging US supremacy because that’s where their interests are most aligned. When it comes to territorial claims, both have been displaying a rather ambivalent stance towards each other’s behaviour,” said Alexander Korolev, an expert on the Russia-China security relationship at the University of New South Wales in Sydney.

China’s interests in Ukraine include billions of dollars in construction contracts as well as telecommunication investments via Huawei and its purchase of Ukrainian military equipment.Beijing has urged Kyiv and Moscow to revive the stalled Minsk agreement as a path to peace while insisting on adhering to its own policy of non-interference.Experts diverged over whether Beijing, which has been increasingly inward-focused since the onset of the coronavirus pandemic, would seek a higher profile diplomatic role in defusing the tensions, or would stand by as Putin edged closer towards an armed conflict.The possibility that Russia would launch a full invasion of Ukraine has also presented China with a “gift” to increase its leverage over Moscow, strengthen its energy security, test the west’s sanctions regime and take advantage of a splintering Europe, said resource and geopolitical analysts.“Russia does not give access to its resources very easily, [but] here China has leverage to say ‘we want to own this’, rather than to simply finance or pay for it,” said Gavin Thompson, an Asia energy expert at consultancy Wood Mackenzie.Western sanctions over the Ukraine crisis could also deepen Moscow’s dependence on Beijing, while their success or failure would be instructive to Xi for future conflicts with the US, experts said.“If they succeed in imposing severe costs on Russia, western sanctions threats against China — which could be used in case of a crisis in Asia — would be more credible,” said Miller. “[But] if China helped Russia mitigate the impact of these sanctions, the US would lose an important tool and its ability to constrain China using economic means would be reduced.”When Xi and Putin met in Beijing earlier this month, the leaders also agreed to increase Russian gas supplies to China.Thompson believed that the US might find it “very difficult” to target resources shipped directly from Russia to China. “I think they feel quite bulletproof when it comes to those deals,” Thompson said of Russia’s energy arrangements with its neighbour. “If you can’t touch it and the pricing and the payment structures are mostly outside the standard global banking system, outside of the US dollar system, you can’t really do very much about it.”There is little transparency over the arrangement’s terms, but experts believe Sino-Russian energy deals have previously entailed Chinese loans and credit facilities. Typically, China lends in renminbi, which Russia then uses to purchase Chinese goods and services.“[China has] the opportunity to do great deals . . . I think that is the opportunity to push hard on equity ownership of resources,” Thompson said.Cao Xin, secretary-general of the International Public Opinion Research Center of the Charhar Institute, a Beijing think-tank, said he believed a Russian invasion remained “highly unlikely” but that Moscow appeared to be exploiting fissures between the US and Europe’s big powers to sow divisions in Nato.Korolev said conflicting interests in their immediate neighbourhoods had not undermined the partnership between Beijing and Moscow, as the countries had pragmatically navigated related crises such as Russia’s armed intervention in Georgia in 2008 and its aggression in Ukraine in 2014.“China avoided openly voicing support of Russian actions, but they did not directly oppose or criticise Russia either,” he said.Additional reporting by Maiqi Ding in Beijing More