Economy

(Reuters) -Australia’s biggest power producer AGL Energy (OTC:AGLXY) Ltd on Monday rejected a surprise $3.54 billion takeover approach from billionaire Mike Cannon-Brookes and Canada’s Brookfield Asset Management in favour of a plan to split in two this year.AGL said the A$7.50 apiece proposal from the Canadian group and Cannon-Brookes, Australia’s second-richest man and co-founder of software firm Atlassian (NASDAQ:TEAM), at a 4.7% premium to the stock’s Friday close undervalued it.”The proposal does not offer an adequate premium for a change of control and is not in the best interests of AGL Energy shareholders,” AGL Chairman Peter Botten said.AGL’s shares jumped as much as 13% on Monday to a high of A$8.09, reflecting investors’ view that a higher bid will emerge.The unsolicited cash proposal with an option for AGL shareholders to elect a scrip alternative provided limited other information about how the deal would be structured, Botten said.Investors see companies like AGL as tough to value with electricity prices highly volatile in the accelerating transition away from coal-fired generation.Brookfield and Cannon-Brookes would need a very low cost of capital to make the switch to renewables generate a good return, said Jason Teh, chief investment officer of Vertium Asset Management, which does not own AGL shares.”What are they going to do? The transition from coal to renewables is going to be a huge challenge for AGL,” Teh said.Brookfield said it would comment on its proposal soon. Cannon-Brookes and his investment vehicle Grok Ventures did not immediately respond to requests for comment.AGL, Australia’s biggest polluter, has been hammered over the past few years by sliding power prices, with the influx of solar and wind power making coal-fired plants less economic to run 24 hours a day.To rebuild value, it plans to split into two companies, rebranding its coal-fired power generation business as Accel Energy and spinning off its retail arm and renewable energy business as AGL Australia by June.”The board is confident that the demerger will create a strong future for both parts of the business,” Botten said.It flagged earlier this month it would speed up the closure of its coal-fired generation by three years to 2045. AGL’s Loy Yang A plant is scheduled to be the country’s last coal-fired plant to switch off.($1 = 1.3961 Australian dollars) More

TOKYO (Reuters) -Prospects of tighter U.S. monetary policy continue to drive up yields for Japan’s super-long government bonds, putting to test the central bank’s resolve to defend its key 10-year target.The 10-year Japanese government bond (JGB) yield moved back below an implicit 0.25% cap the Bank of Japan sets around its 0% target, after the central bank stepped in on Monday with a rare offer to buy an unlimited amount of the tenor at the level.But 30-year and 40-year yields have crept up to multi-year highs, drawing investors’ attention to the BOJ’s response and how long it could keep defending the key 10-year target.WHEN WOULD THE BOJ INTERVENE AGAIN?The BOJ’s focus is to avoid the 10-year JGB yield from rising above 0.25% and push up borrowing costs too much. It could step in again even before the yield hits 0.25%, if the rise in yields speeds up and risks breaching the line.WILL THE BOJ INTERVENE TO CAP OTHER MATURITY YIELDS?Under yield curve control, the BOJ seeks to control the shape of the curve by pinning short-term rates and the 10-year JGB yield. It does not set any target level for other zones.As such, the BOJ likely won’t intervene to stem rises in yields with maturities other than the 10-year, unless the moves could threaten to push up the 10-year yield above 0.25%.For now, the BOJ sees the recent steepening of the yield curve as a desirable move as it widens the margin financial institutions earn from loans and investment.WHAT’S NEXT?If upward pressure on the 10-year yield continues to build up, the BOJ can conduct fixed-rate bond buying operations for as many consecutive days as necessary – the most powerful tool available to contain an unwelcome rise in borrowing costs.The central bank also has the option of conducting an unscheduled bond-buying operation, or ramp up the amount of scheduled bond purchases released once every quarter.HOW MUCH FIREPOWER DOES THE BOJ HAVE LEFT?After years of heavy buying to pump money into the economy, the BOJ owns nearly half of outstanding JGBs. Its strong grip on the market allows it to control yields without ramping up buying much. Theoretically, the central bank can print as much money as it wants to keep buying JGBs to achieve its yield target.WHAT ARE THE CONSTRAINTS?The BOJ is chasing two conflicting goals. It wants to protect its yield cap to keep borrowing costs low. But it also hopes to avoid controlling yields too much and roll back recent efforts to breathe life back to a market made dormant by its huge presence.That means the BOJ probably wants to limit the number of times it intervenes in the market. It will also avoid ramping up bond buying unless doing so becomes absolutely necessary to keep the 10-year yield from breaching 0.25%.The yen’s recent weakening won’t deter the BOJ from stepping in to prevent yields from rising. But it may come under pressure to allow yields to rise more, if further yen declines boost import costs and draw public complaints about the rising cost of living. More

Britain and the EU will on Monday agree at a key “stocktaking meeting” to keep talking on reforms to post-Brexit trade rules with Northern Ireland, as both sides try to avoid splits during the Ukraine crisis.Months of negotiations on the so-called Northern Ireland protocol have yielded little progress, prompting speculation that Boris Johnson, UK prime minister, could soon suspend parts of the accord to curry favour with Eurosceptic Tory MPs.But Liz Truss, UK foreign secretary, will tell a meeting in Brussels that she wants to settle the row to allow both sides “to focus on building a stronger relationship and focus on external issues, not least the situation in eastern Europe and standing up to Russian aggression”.The “joint committee” — a forum including the UK, the European Commission and EU member states set up to monitor the Brexit agreement — is meeting for the first time since June 2021.The meeting will note some limited progress in talks to simplify post-Brexit trade between Great Britain and Northern Ireland, but will acknowledge that big gaps remain. “It won’t be a breakthrough or breakdown,” said one EU diplomat.The stand-off over the protocol has triggered speculation in Brussels and Whitehall that Johnson will soon deploy Article 16, the safeguard clause of the agreement, allowing him to suspend some parts of the deal.Contingency planning has been stepped up in London for such an outcome, including likely trade retaliation by the EU. The US has also warned of trade repercussions if Article 16 is activated, although the UK insists Washington is not linking discussions on steel tariffs to Northern Ireland trading rules.But Johnson is under pressure from the pro-Brexit European Research Group of Tory MPs to suspend the protocol, which was agreed in order to avoid the return of a north-south trade border on the island of Ireland and left Northern Ireland in the EU single market for goods.Iain Duncan Smith, former Tory leader, tweeted on Sunday: “Time to call time on the Northern Ireland Protocol. Two years after we formally left the EU, the Protocol still gives Brussels a hold over wider UK policymaking. It’s divisive, restrictive and is causing real harm to the local economy.”EU diplomats fear that Johnson may cede to that pressure, particularly if the Metropolitan Police fine him for breaching Covid rules in the so-called “partygate” affair, putting his leadership under renewed scrutiny.“It wouldn’t surprise us. Johnson will do anything to stay in power,” said one diplomat.An alternative UK strategy could be to request further delays to instigating full checks on goods from July while continuing talks. The EU would have to decide to refuse or restart legal proceedings for the UK’s failure to implement the protocol.British government officials admit that there has been “increasing chatter” about Article 16 and that Northern Ireland’s pro-UK Democratic Unionist Party, which opposes the protocol, has been urging the ERG to push Johnson to put it into abeyance.One Tory official said there was “no imminent move” towards using Article 16. The official added: “Nobody is expecting all that much from Monday’s meeting but that obviously doesn’t necessarily mean Article 16 is inevitable.” The only concrete achievement after months of UK-EU talks has been to ensure free circulation of medicines from Great Britain to Northern Ireland after Brussels agreed to change its rules to allow UK regulators to approve them.The two moved some way to converging their positions on customs formalities, but large gaps remain on the sensitive issue of checks on food, and animals and plants. More

Hello and welcome to the working week. The uncertainty surrounding the Russia-Ukraine crisis and diplomatic efforts to avert a conflict are likely to continue to be at the top of the agenda this week. After the conclusion of the Munich Security Conference, the situation is expected to be discussed at meetings of EU ministers during the week. British representatives are starting the working week with a return to the House of Commons and House of Lords after recess. UK prime minister Boris Johnson will announce the government’s “living with Covid” strategy, which could include the end of self-isolation. NHS leaders have warned against premature relaxation. First minister Nicola Sturgeon is to publish Scotland’s longer-term Covid-19 strategy on Tuesday. She previously indicated she was reluctant to match plans that would in effect scrap remaining restrictions this month.Two nations that have followed strict border policies over the past two years are also partially reopening this week. Australia is preparing for a tourism wave when it welcomes double-vaccinated overseas visitors on Monday and its neighbour New Zealand will from Sunday allow fully vaccinated citizens in Australia to return without having to quarantine at state-managed hotels.On to financial matters. US markets will be closed on Monday while the country celebrates Presidents Day. On Wednesday, the recently under-fire Bank of England governor Andrew Bailey will appear before the Treasury Committee to discuss the UK central bank’s quarterly Monetary Policy Report. Inflation is set to be a key topic.Before moving on to economic data and corporate news, please check out Climate Capital Live, a platform for politicians, business leaders and financiers to evaluate the risks and opportunities they face in light of the climate crisis. Join in person and online on March 8-10 by registering here. Economic dataInflation has hit recent record highs in economies around the world, with central banks expected to begin tightening monetary policy. Debate continues on whether it is transitory but the increase in the cost of living is already having a significant impact for many.This week, look out for rate releases in France, Italy and the EU. During the pandemic, house prices have soared in many regions and in the coming days house price index data will be released in the UK, US and China. The Financial Times is tracking price rises and you can search by country here. CompaniesEarnings season continues. A big theme this week is results from the travel and leisure industry. Businesses across the sector have been hit by restrictions since the start of the pandemic, with the Omicron variant also denting bookings. Heathrow, the biggest UK airport, is due to report. So is the owner of British Airways, International Airlines Group, as well as Qantas Airways, Norwegian Cruise Line and InterContinental Hotels.Bank earnings will be released by HSBC Holdings, Barclays, Lloyds Banking and Metro Bank. Other notable results to watch for this week include Centrica, owner of British Gas, which will provide an insight into the impact of the energy crisis. Also look out for Beyond Meat, which became one of the most shorted companies on the US stock market earlier this year as scepticism grows over the plant-based meat boom. On the flip side, observers will be following UK-listed Hays to see if the recruiter continues to benefit from the talent war. Cryptocurrency exchange platform Coinbase and Jack Ma’s ecommerce platform Alibaba will also publish earnings.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayEurozone, France, Germany, UK: IHS Markit flash composite purchasing managers’ index (PMI) data releasesJapan, flash composite PMIGermany, producer price index (PPI) figuresUK, China: house price indicesChina, People’s Bank of China interest rate decisionTuesdayUS, IHS Markit flash composite PMI data, house price index and consumer confidence dataUK, public finances and CBI industrial trends surveyItaly, inflation rateGermany, Ifo Institute monthly business confidence indexResults: HSBC Holdings FY, InterContinental Hotels Group preliminary FYWednesdayGermany, GfK consumer confidence surveyEU, inflation rateResults: Barclays FY, Petrobras SA FY, Danone SA FY, Heathrow Airport Holdings FY, Metro Bank FY, Rio Tinto FY, Aston Martin Lagonda FY, eBay Q4 ThursdayUS, revised Q4 gross domestic product (GDP) and initial jobless claimsUK, ONS early estimates of Q4 regional gross value addedResults: Lloyds Banking Group FY, Dell Technologies Q4, Rolls-Royce FY, Beyond Meat FY, Hays H1, BAE Systems FY, Serco Group FY, AB InBev Q4, Deutsche Telekom FY, Coinbase FY, WPP preliminary FY, Centrica preliminary FY, Alibaba Group Q4, Moderna Q4, Bain Capital Q4, Norwegian Cruise Line Holdings FY, Qantas Airways HYFridayUK, GfK consumer confidence surveyGermany, Q4 GDP data and import prices France, Q4 GDP data, PPI figures and inflation rate Spain, PPI dataItaly, business and consumer confidence data EU, economic sentiment indicator and business climate indicatorResults: Pearson FY, International Airlines Group FYSaturdayUS, Warren Buffett is set to publish his annual letter to Berkshire Hathaway shareholders and report resultsWorld eventsFinally, here is a rundown of other events and milestones this week. MondayUK, MPs and peers return to Westminster from recess, and Boris Johnson announces the government’s “living with Covid” strategyUS, Presidents Day, financial markets closedEU, UK, Joint committee meeting in BrusselsEU, foreign ministers meetingAustralia, reopens its international borders to fully vaccinated visa-holdersTuesdayNicola Sturgeon announces Scotland’s long-term pandemic strategyILO Global Forum for a Human-centred recovery begins, with speakers including IMF managing director Kristalina GeorgievaLast day of London Fashion Week and the start of Milan Fashion WeekWednesdayUK, Andrew Bailey to appear at a Treasury Committee session on the BoE’s quarterly Monetary Policy ReportPortugal, prime minister António Costa takes office after winning snap general electionRussia, Defender of the Fatherland Day markedThursdayHong Kong, national security case of media tycoon Jimmy Lai and other former Apple Daily associates expected to resume in courtUS, the Conservative Political Action Conference begins and runs to Sunday. Former president Donald Trump is expected to be among the speakersFridayEurozone, eurogroup meeting of finance ministers ahead of the Economic and Financial Affairs Council meetingBrazil, opening ceremony of the 2022 Rio Carnival SundayBelarus, referendum on a new constitutionNew Zealand, begins its border reopening plan with fully vaccinated citizens, residents and other eligible travellers in Australia able to return without mandatory state-managed hotel quarantineUS, Screen Actors Guild awards for film and television performancesUK, Carabao Cup final, Chelsea vs Liverpool More

Johnson has threatened to impose harsh sanctions on Russia if it invades Ukraine, with Russian companies blocked from raising capital on financial markets, and the ownership of companies and properties revealed. “We have an issue with Russian money in the city,” Johnson told the BBC. “We’ve got to deal with that.” More

DUBAI (Reuters) – The United States and the United Arab Emirates are seeking an additional $4 billion of global investment in an initiative launched last year to make agriculture resilient to climate change and reduce its emissions, a U.S. official said on Sunday.The two countries launched the Agriculture Innovation Mission for Climate (AIM for Climate) at COP26 climate talks in November, aiming for $4 billion investment from governments and non-government innovation partners between 2021-2025. AIM now wants $8 billion in climate-smart investment commitments by the November COP27 climate talks in Egypt, U.S. Secretary of Agriculture Thomas Vilsack told Reuters ahead of AIM’s first ministerial meeting in Dubai on Monday. “We believe we actually need to set a higher goal. President Biden believes we should get $8 billion by COP27,” Vilsack said. The initiative is supported by 140 partners who have agreed to increase public and private investment in climate-smart agriculture research and practices. The initial $4 billion target comprised $1 billion each from the U.S. and UAE governments, $1.8 billion from other governments and $200 million from non-government partners. The U.S. Department of Agriculture recently said it would invest $1 billion in pilot projects for climate-smart commodities, promoting farming, ranching and forestry practices that cut emissions. Vilsack said that initiative could qualify as part of U.S. AIM for Climate targets. “There are a number of different ways those resources could be identified.” The U.S. farming industry is already battling the effects of climate change, including increased drought and flooding.The UAE, a Gulf oil producer that imports the majority of its food and desalinates seawater for potable water is investing heavily in agricultural and water technologies, and clean energy.The UAE hosts COP28 climate talks in 2023. “Agriculture and food systems offer immense opportunities for global climate action,” UAE Climate Change Minister Mariam al-Mheiri said in a statement. IBM (NYSE:IBM)’s pro-bono Sustainability Accelerator will become one of AIM’s partners and will start in India assisting smallholding farms to adopt climate-smart practices, Vilsack said. Washington will host an AIM for Climate summit in spring 2023. “We don’t have time to waste,” Vilsack said. More

How will geopolitical tensions affect markets? Investors started 2022 keenly focused on the trajectory of global monetary policy as inflation has surged across the world. While central banks are still a dominant theme in markets, traders must now also contend with deep uncertainty over how the situation on the Russia-Ukraine border will unfold.Economists can at least attempt to predict the outcome of central bank decisions by building models based on data, commentary from officials and historical precedent. But the outcome of the stand-off between Russia and the west is a type of so-called tail risk that could have major implications for the global economy, yet cannot be easily or accurately modelled.The sense of uncertainty has begun creeping into financial markets.Volatility in the US government bond market, the bedrock of the global financial system, is running at its highest level since the market ructions early in the coronavirus crisis two years ago, as traders parse through headlines on the Russia-Ukraine situation and try to interpret the US Federal Reserve’s next moves to rein in inflation.At the same time, equities markets have become more jittery, with the cost of buying protection against near-term swings on Wall Street rising higher.However, Jim Reid, strategist at Deutsche Bank, noted that US stock sell-offs triggered by geopolitical events tended to be “shortlived . . . with a duration of around three weeks to reach a bottom and another three weeks to recovery from their prior levels”. The median during these periods of geopolitical angst are 5.7 per cent, Reid said. Adam SamsonDid the easing of Covid restrictions boost European business activity in February?Falling Covid-19 infections and the easing of restrictions are expected to have boosted European activity in February, lifting the flash IHS purchasing managers’ indices for manufacturing and services.Economists polled by Reuters forecast that the UK PMI composite index, a measure of the health of the private sector, will rise to 55 in February, from 54.2 in the previous month, when it is published on Monday. Any reading above 50 indicates a majority of businesses reporting expansion.“We expect that there was a further recovery in the services PMI in February, as economic activity was boosted by the lifting in plan B restrictions and Covid-19 infection numbers eased,” said Ellie Henderson, economist at Investec.The UK manufacturing PMI index is expected to edge up in February following the easing of supply chain disruptions, while the services PMI is forecast to jump more than one point to 55.2 as workers returned to the office and to socialising. However, for both the manufacturing and services sectors, “concerns do remain with labour shortages limiting output and inflationary pressures threatening to squeeze household incomes”, said Henderson.Any stronger than expected PMI reading could support the view that the Bank of England will raise borrowing costs again at its March meeting, as it battles with the highest rate of inflation in 30 years.The pace of expansion is expected to be marginally weaker in the eurozone, reflecting a delayed hit from the Omicron coronavirus wave compared with the UK. However, economists forecast the eurozone composite PMI to rise to 52.7 in January, from 52.3 in the previous month, following an acceleration in activity in both France and Germany, driven by stronger growth in their services sectors. Valentina RomeiDid the Fed’s preferred inflation measure hold near its 38-year high last month?The rate of price increases in the US likely held near a 38-year high in January, based on the Federal Reserve’s preferred inflation measure, as central bank officials move closer to raising rates for the first time during the pandemic.The core personal consumption expenditures (PCE) price index, which strips out volatile food and energy prices, is forecast to match the previous month’s gain at 0.5 per cent, according to economists polled by Bloomberg. That would bring the index to a 5.2 per cent rise over the past 12 months, up slightly from the 4.9 per cent increase seen in December that marked the largest such gain since September 1983.The report from the Bureau of Economic Analysis on Friday is also expected to show a 0.6 per cent rebound in personal spending since December.Kathy Bostjancic, chief US financial economist for Oxford Economics, predicted the annual increase in PCE prices is on track to remain above 3 per cent in the fourth quarter, which policymakers would consider “unacceptably high” at year-end.The sharp rise in prices over the past year has heaped pressure on the Biden administration and the Fed to tame rampant inflation.James Bullard, the St Louis Fed president and a voting member of the central bank’s policy committee, recently said he would support raising the benchmark rate by a full percentage point by the start of July — suggesting at least one half-point rise, something the Fed has not done since 2000.Investors now place 52 per cent odds on the Fed pushing rates at least one point higher before the end of its June policy meeting, according to the CME’s FedWatch Tool. Matthew Rocco More

The response of rich countries and multilateral institutions to the pandemic’s financial impact on poor countries was inadequate and ignored the concerns of governments and the private sector, said Ghana’s finance minister.Ken Ofori-Atta argued that measures to provide debt relief during the pandemic, such as the debt service suspension initiative, did not take into account the views of developing countries or private sector lenders. He said the DSSI did not reduce the amount of debt owed, while participating countries did not ask for relief from the private sector for fear of losing access to commercial debt markets.“The west should hang its head in shame,” Ofori-Atta told the Financial Times in an interview. “There was a complete distance between the resources available and what was applied [beyond advanced economies] to a problem that was global.”To address the problem, he called for a rethink of the global financial architecture led by the World Bank, the IMF and other institutions set up during and after the second world war. “We need to seriously evaluate whether the rules laid down [then] are the most appropriate going forward,” he said.A downturn in economic output and tax revenue caused by the pandemic took a heavy toll on the public finances of many developing countries.Ghana is one of several countries causing concern over their ability to service their debts as the Federal Reserve prepares to begin raising US interest rates as soon as next month, increasing the cost of borrowing and adding to the strain on budgets of indebted countries. Bonds issued by Sri Lanka are trading at levels that suggest the country will default this year. Several other countries, including Ghana and El Salvador, could face debt repayment problems by 2024.This month, Moody’s downgraded Ghana’s credit rating to a level indicating a substantial risk of default, becoming the second of the three big rating agencies to do so and prompting forced selling of Ghana’s bonds by global asset managers. Ghana claimed the downgrade revealed an institutional bias against African economies.Ofori-Atta questioned the logic of the downgrade, given Accra’s efforts to cut spending and introduce new taxes, including a levy on digital financial transactions he hoped would be approved by parliament by early March.“Moody’s was in a hurry to downgrade us, which is very, very costly [for borrowing]. Why could they not wait six months to evaluate [the budgetary measures]?” he asked. Ghana issued a $3bn dollar-denominated eurobond last year but borrowing costs have since increased. Ofori-Atta said it was “good to take a breather [from issuing foreign debt] this year and let everybody settle down to understand that the changes we are making are structural”. Investors warn that Ghana will have to regain market access by next year in order to refinance outstanding bonds coming due from 2024.Kevin Daly, investment director at Aberdeen Standard Investments, said the country’s projected fiscal adjustment this year was “very optimistic” and that current high costs for Ghana to borrow reflected uncertainty on markets that its targets would be met.

“If they are shut out of markets for two years, the choices they will have to make will be very stark,” he said. “At that point they would have to go to the IMF as their external buffers will be eroded to such an extent that lack of market access becomes a concern about solvency.”Ofori-Atta said the digital transaction tax, known as the e-levy, was one of several measures designed to ensure that more Ghanaians paid taxes. He said just 2.4mn Ghanaians pay any tax at all, out of a potential 11mn-12mn. Ofori-Atta singled out the DSSI, set up by the G20 group of large economies at the start of the pandemic, as an example where poorer countries and private sector lenders were not sufficiently consulted. The initiative offered 73 poor countries the chance to postpone repayments on debts owned to official bilateral lenders — governments and other state entities. But the DSSI did not reduce the amount of debt owed, known as its net present value (NPV), so many countries, including Ghana, did not participate.“The thinking was correct, that in a liquidity crisis you need a moratorium, but it ended up being NPV neutral, which just kicks the can down the street,” said Ofori-Atta. More