Dual Currency Bond – Basket Village USA http://basketvillageusa.com/ Thu, 30 Jun 2022 19:55:00 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://basketvillageusa.com/wp-content/uploads/2021/03/basketvillageusa-icon-70x70.png Dual Currency Bond – Basket Village USA http://basketvillageusa.com/ 32 32 BRAIT PLC – BIHLEB – Availability of annual audited financial statements for the year 22 – SENS https://basketvillageusa.com/brait-plc-bihleb-availability-of-annual-audited-financial-statements-for-the-year-22-sens/ Thu, 30 Jun 2022 14:50:00 +0000 https://basketvillageusa.com/brait-plc-bihleb-availability-of-annual-audited-financial-statements-for-the-year-22-sens/
                            

BIHLEB – Availability of the FY22 Audited Annual Financial Statements

Brait Investment Holdings Limited
Registered in Mauritius as a Public Limited Company
Registration Number: 183308 GBC
LEI: 8755004E9YEXF8GHCY56
ISIN: MU0707E00002
JSE Alpha Code: BIHLEB
Bond CFI: DCFUCR
Bond FISN: BRAIT/5.00 FXD BD 20241203
(“BIH” or the “Issuer”)

AVAILABILITY OF THE FY22 AUDITED ANNUAL FINANCIAL STATEMENTS

Pursuant to paragraph 6.17 of the JSE Debt Listings Requirements and SEM Listing Rule 12.14, bondholders are
advised of the following:

• The Issuer’s audited annual financial statements for the year ended 31 March 2022 (“FY22 AFS”) are
available for inspection at its registered office and at
https://brait.investoreports.com/investor-relations/results-and-reports/.

• The audit report on these financial statements is unqualified with no modifications.

• The FY22 AFS, which are the first set published by BIH following the listing on the Main Board of the JSE
and on the Official Market of the Stock Exchange of Mauritius Ltd (“SEM”) of the ZAR3 billion 5% Senior
Unsecured Exchangeable Bonds due 3 December 2024, reflect a change in presentation currency from
the US Dollar to the SA Rand to align with the presentation currency used by the parent company Brait
PLC. In accordance with International Financial Reporting Standards, this change in presentation currency
has resulted in the restatement of comparative information.

• Further information on the Brait Group, including in relation to the Brait Group’s portfolio of investments,
can be found in the Brait PLC FY22 results presentation booklet recently published on 21 June 2022 and
available at https://brait.investoreports.com/investor-relations/results-and-reports/.

Port Louis, Mauritius
30 June 2022

The Issuer is a wholly owned subsidiary of Brait PLC, an investment holding company. BIH’s Bonds are dual
listed on the Main Board of the exchange operated by the JSE Limited (“JSE”) as well as the Official Market of
the SEM.

JSE Debt Sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)

SEM Authorised Representative and Sponsor:
Perigeum Capital Ltd

Date: 30-06-2022 04:50:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (‘JSE’).
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.

]]>
Hong Kong SAR braves the elements and does well until the end https://basketvillageusa.com/hong-kong-sar-braves-the-elements-and-does-well-until-the-end/ Mon, 20 Jun 2022 01:23:38 +0000 https://basketvillageusa.com/hong-kong-sar-braves-the-elements-and-does-well-until-the-end/

A poster celebrating the 25th anniversary of Hong Kong’s return to the motherland is seen on a bus in Hong Kong, June 15, 2022. [Photo by Zou Hong/China Daily]

The 25th anniversary of Hong Kong’s return to China is being celebrated with great fanfare and cautious jubilation. However, in some foreign quarters there is a stark contrast to a sense of apprehension or outright affirmation of the demise of “one country, two systems” after the National Security Act was introduced to Hong Kong in June 2020 and the overhaul of Hong Kong’s electoral system. in March 2021.

As a guest contributor to The Rise of China: Fresh Insights and Observations, a collection of essays published by the UK’s Paddy Ashdown Forum in October 2021, after exploring the ins and outs of China’s recent fiery break law and order in Hong Kong, my chapter, One Country Two Systems Revisited, concluded that the Hong Kong death report appears to be greatly exaggerated.

The cornerstone of “one country, two systems” is Hong Kong’s common law system, which dates back to the 15th century. This is enshrined in Article 8 of the Basic Law, China’s national “one country, two systems” law. Hong Kong’s judicial independence is constitutionally guaranteed by Articles 2, 19 and 85, which expressly provide for an independent judiciary, including final adjudication, free from interference.

Over the years, Hong Kong’s legal and judicial systems have been strengthened and enriched by many foreign talents and expertise. To date, at Hong Kong’s highest court, the Court of Final Appeal, eight of the remaining 10 foreign judges have agreed to stay on.

In its 2021 Global Competitiveness Rankings, Switzerland’s Institute for Management Development ranked Hong Kong eighth in the world for fair administration of justice, ahead of Britain at 15th and the United States. in 23rd place.

The same institute ranks Hong Kong seventh in global competitiveness, with top rankings in “trade law”, “international trade”, “tax policy”, “finance” and “management practices”.

According to the Hong Kong American Chamber of Commerce’s Business Climate Survey Report of January 19, 2022, despite pandemic and political concerns, businesses remain optimistic about Hong Kong’s business prospects, with plans to expand investments for the next 24 months. Hong Kong is widely regarded as a competitive global hub. Only 5% of global/regional headquarters have specific plans to move their headquarters out of Hong Kong.

As a unique bridge between East and West, “one country, two systems” becomes even more important for China, with an accelerated trajectory to realize the Chinese dream of national rejuvenation. Despite recent waves of emigration, let’s not forget the example of some 300,000 Hong Kong residents holding Canadian passports who eventually returned to live in Hong Kong after the 1997 handover.

Nevertheless, turbulent storm clouds are gathering. President Xi Jinping has repeatedly hinted at an era of unprecedented challenges and opportunities calling on the nation, including Hong Kong, to brave the elements.

At the 18th National Congress of the Communist Party of China, President Xi spoke of the three existential traps facing China – the “Tacitus trap”, the “Thucydides trap” of superpower rivalry and the “income trap”. intermediary” before becoming a wealthy nation. In 2017, Harvard professor Joseph Nye added a fourth – “The Kindleberger Trap” of lack of global governance capacity.

The cooperative relationship with the United States has now completely evaporated. The United States is cajoling allies and ambivalent nations around the world to confront, contain and delay China’s rapid rise, using all measures but war. These include reducing China’s technological bottlenecks such as high-end semiconductor chips, indiscriminate tariffs, delisting of Chinese companies and ideological backlash, including sanctions, on the autonomous regions of Xinjiang Uygur and Tibet, Taiwan and Hong Kong. A persistent US-led campaign to demonize China has damaged China’s global image.

Recently, the Russian-Ukrainian conflict has been used as a proxy to cast China as a “silent accomplice”, rallying Western allies to pressure China to dance to American tunes. Meanwhile, the resulting chaos in energy and food supplies is fueling global inflation, triggering an eventual global recession, rattling many of China’s trading partners, but, to a lesser extent, China itself.

Meanwhile, US President Joe Biden, ahead of midterm elections in the fall, is creating an Indo-Pacific Economic Framework (IPEF), rallying nations across the region in a state-led anti-China coalition. States, reminiscent of an “Asian NATO”. In the absence of substantial economic benefits, the ambivalence of many participants was telling. His recent Summit of the Americas to rally support in America’s backyard proved to be a lackluster embarrassment.

All of this is happening as China attempts to transform itself through technological autonomy, “dual circulation,” innovative productivity to overcome population aging, and “common prosperity” to ease acute inequality tensions. .

On the positive side, unprecedented opportunities are emerging. In more or less a decade, China’s nominal GDP is expected to overtake that of the United States to become the world’s largest economy. China’s military capability is advancing by leaps and bounds, challenging US dominance in the South China Sea. In space technology, China is on track to complete the construction of its own space station, while the US-led “International Space Station” (which has ruled out China from the start) is approaching the end of its useful life. China is also leading in many game-changing dimensions of 5G, big data and the Internet of Things, technologies set to change the way businesses and lives are conducted in a “fourth industrial revolution” of the 21st. century.

Meanwhile, China has firmly established itself at the heart of the global supply and value chain. This centrality does not seem to be changing due to the generalized decoupling of the United States, since 130 nations have China as their main trading partner, compared to 57 for the United States. Despite decoupling, China’s international trade in 2021 increased by 25%, including trade with the United States up 20% (data from the Center for China and Globalization).

When the war in Ukraine does eventually end one way or another, an ostracized Russia and a devastated Ukraine are likely to boost China’s trade and investment, providing plenty of opportunities for a “Belt and Belt” initiative. the “more enlightened Route” linking Europe.

In terms of green energy capacity, China is already the world leader in solar, hydro and wind renewable energy, as well as breakthroughs in nuclear fusion technologies. The nation seems on track to meet its commitment to carbon neutrality by 2060.

One way or another, Hong Kong will be impacted, for better or for worse. However, much remains to be done in Hong Kong itself.

Twenty-five years after reunification has seen the loss of a whole generation of young people in Hong Kong in patriotism and even Chinese nationality. Deep socio-economic contradictions are emerging, including housing, inequality, lack of economic diversity, insufficient upward mobility and aging demographics. Hong Kong’s national security law notwithstanding, remnants of subversive elements, including hostile foreign influence, remain lurking around the corner.

Under “one country, two systems”, Hong Kong has had no shortage of policies. What the city needs now are concrete results.

That is why it is timely for Hong Kong to soon have John Lee Ka-chiu as general manager. He rose to the challenge by forming a results-oriented administration. Political secretaries and their department heads can be held accountable for delivering the respective key performance indicators.

Hong Kong should redouble its efforts as the preeminent international financial center for renminbi internationalization, including RMB bond issuance, bilateral RMB trade settlements, RMB-based wealth management services and the development of China’s digital sovereign currency – the e-RMB – which can help counter the weaponization of the dollar.

Hong Kong should partner with Shenzhen as the innovation and technology hub of the Guangdong-Hong Kong-Macau Greater Bay Area, capitalizing on Hong Kong’s world-class universities and rule of law based on common law within the framework of “one country, two systems”.

Hong Kong is also expected to make the most of its world-class West Kowloon cultural district to become an Asian cultural paradise, joining forces with the world’s best cultural metropolises as well as those on the Chinese mainland.

Making Hong Kong the best place in the world for East and West to meet and do business would rally more people behind the government. Above all, it would bolster Beijing’s confidence in “one country, two systems” renewal well beyond 2047.

The author is an international and independent Chinese strategist; he was previously Chief Welfare Officer and Hong Kong’s Chief Official Representative for the UK, Eastern Europe, Russia, Norway and Switzerland.

Opinions do not necessarily reflect those of China Daily.

]]>
Hong Kong SAR braves the elements and does well until the end – Opinion https://basketvillageusa.com/hong-kong-sar-braves-the-elements-and-does-well-until-the-end-opinion/ Mon, 20 Jun 2022 00:49:00 +0000 https://basketvillageusa.com/hong-kong-sar-braves-the-elements-and-does-well-until-the-end-opinion/

A poster celebrating the 25th anniversary of Hong Kong’s return to the motherland is seen on a bus in Hong Kong, June 15, 2022. [Photo by Zou Hong/China Daily]

The 25th anniversary of Hong Kong’s return to China is being celebrated with great fanfare and cautious jubilation. In contrast, in some foreign circles, however, is a sense of apprehension or outright affirmation of the demise of “one country, two systems” after the introduction of the National Security Act to Hong Kong in June 2020 and the overhaul of Hong Kong’s electoral system. in March 2021.

As a guest contributor to The Rise of China: Fresh Insights and Observations, a collection of essays published by the UK’s Paddy Ashdown Forum in October 2021, after exploring the ins and outs of China’s recent fiery break law and order in Hong Kong, my chapter, One Country Two Systems Revisited, concluded that the Hong Kong death report appears to be greatly exaggerated.

The cornerstone of “one country, two systems” is Hong Kong’s common law system, which dates back to the 15th century. This is enshrined in Article 8 of the Basic Law, China’s national “one country, two systems” law. Hong Kong’s judicial independence is constitutionally guaranteed by Articles 2, 19 and 85, which expressly provide for an independent judiciary, including final adjudication, free from interference.

Over the years, Hong Kong’s legal and judicial systems have been strengthened and enriched by many foreign talents and expertise. To date, at Hong Kong’s highest court, the Court of Final Appeal, eight of the remaining 10 foreign judges have agreed to stay on.

In its 2021 Global Competitiveness Rankings, Switzerland’s Institute for Management Development ranked Hong Kong eighth in the world for fair administration of justice, ahead of Britain at 15th and the United States. in 23rd place.

The same institute ranks Hong Kong seventh in global competitiveness, with top rankings in “trade law”, “international trade”, “tax policy”, “finance” and “management practices”.

According to the Hong Kong American Chamber of Commerce’s Business Climate Survey Report of January 19, 2022, despite pandemic and political concerns, businesses remain optimistic about Hong Kong’s business prospects, with plans to expand investments for the next 24 months. Hong Kong is widely regarded as a competitive global hub. Only 5% of global/regional headquarters have specific plans to move their headquarters out of Hong Kong.

As a unique bridge between East and West, “one country, two systems” becomes even more important for China, with an accelerated trajectory to realize the Chinese dream of national rejuvenation. Despite recent waves of emigration, let’s not forget the example of some 300,000 Hong Kong residents holding Canadian passports who eventually returned to live in Hong Kong after the 1997 handover.

Nevertheless, turbulent storm clouds are gathering. President Xi Jinping has repeatedly hinted at an era of unprecedented challenges and opportunities calling on the nation, including Hong Kong, to brave the elements.

At the 18th National Congress of the Communist Party of China, President Xi spoke of the three existential traps facing China – the “Tacitus trap”, the “Thucydides trap” of superpower rivalry and the “income trap”. intermediary” before becoming a wealthy nation. In 2017, Harvard professor Joseph Nye added a fourth – “The Kindleberger Trap” of lack of global governance capacity.

The cooperative relationship with the United States has now completely evaporated. The United States is cajoling allies and ambivalent nations around the world to confront, contain and delay China’s rapid rise, using all measures but war. These include reducing China’s technological bottlenecks such as high-end semiconductor chips, indiscriminate tariffs, delisting of Chinese companies and ideological backlash, including sanctions, on the autonomous regions of Xinjiang Uygur and Tibet, Taiwan and Hong Kong. A persistent US-led campaign to demonize China has damaged China’s global image.

Recently, the Russian-Ukrainian conflict has been used as a proxy to cast China as a “silent accomplice”, rallying Western allies to pressure China to dance to American tunes. Meanwhile, the resulting chaos in energy and food supplies is fueling global inflation, triggering a possible global recession, rattling many of China’s trading partners, but, to a lesser extent, China itself.

Meanwhile, US President Joe Biden, ahead of midterm elections in the fall, is creating an Indo-Pacific Economic Framework (IPEF), rallying nations across the region in a state-led anti-China coalition. States, reminiscent of an “Asian NATO”. In the absence of substantial economic benefits, the ambivalence of many participants was telling. His recent Summit of the Americas to rally support in America’s backyard proved to be a lackluster embarrassment.

All of this is happening as China attempts to transform itself through technological autonomy, “dual circulation,” innovative productivity to overcome population aging, and “common prosperity” to ease acute inequality tensions. .

On the positive side, unprecedented opportunities are emerging. In more or less a decade, China’s nominal GDP is expected to overtake that of the United States to become the world’s largest economy. China’s military capability is advancing by leaps and bounds, challenging US dominance in the South China Sea. In space technology, China is on track to complete the construction of its own space station, while the US-led “International Space Station” (which has ruled out China from the start) is approaching the end of its useful life. China is also leading in many game-changing dimensions of 5G, big data and the Internet of Things, technologies set to change the way businesses and lives are conducted in a “fourth industrial revolution” of the 21st. century.

Meanwhile, China has firmly established itself at the heart of the global supply and value chain. This centrality does not seem to be changing due to the generalized decoupling of the United States, since 130 nations have China as their main trading partner, compared to 57 for the United States. Despite decoupling, China’s international trade in 2021 increased by 25%, including trade with the United States up 20% (data from the Center for China and Globalization).

When the war in Ukraine does eventually end one way or another, an ostracized Russia and a devastated Ukraine are likely to boost China’s trade and investment, providing plenty of opportunities for a “Belt and Belt” initiative. the “more enlightened Route” linking Europe.

In terms of green energy capacity, China is already the world leader in solar, hydro and wind renewable energy, as well as breakthroughs in nuclear fusion technologies. The nation seems on track to meet its commitment to carbon neutrality by 2060.

One way or another, Hong Kong will be impacted, for better or for worse. However, much remains to be done in Hong Kong itself.

Twenty-five years after reunification has seen the loss of a whole generation of young people in Hong Kong in patriotism and even Chinese nationality. Deep-rooted socio-economic contradictions are emerging, including housing, inequality, lack of economic diversity, insufficient upward mobility, and aging demographics. Hong Kong’s national security law notwithstanding, remnants of subversive elements, including hostile foreign influence, remain lurking around the corner.

Under “one country, two systems”, Hong Kong has had no shortage of policies. What the city needs now are concrete results.

That is why it is timely for Hong Kong to soon have John Lee Ka-chiu as general manager. He rose to the challenge by forming a results-oriented administration. Political secretaries and their department heads can be held accountable for delivering the respective key performance indicators.

Hong Kong should redouble its efforts as the preeminent international financial center for renminbi internationalization, including RMB bond issuance, bilateral RMB trade settlements, RMB-based wealth management services and the development of China’s digital sovereign currency – the e-RMB – which can help counter the weaponization of the dollar.

Hong Kong should partner with Shenzhen as the innovation and technology hub of the Guangdong-Hong Kong-Macau Greater Bay Area, capitalizing on Hong Kong’s world-class universities and rule of law based on common law within the framework of “one country, two systems”.

Hong Kong is also expected to make the most of its world-class West Kowloon cultural district to become an Asian cultural paradise, joining forces with the world’s best cultural metropolises as well as those on the Chinese mainland.

Making Hong Kong the best place in the world for East and West to meet and do business would rally more people behind the government. Above all, it would bolster Beijing’s confidence in “one country, two systems” renewal well beyond 2047.

The author is an international and independent Chinese strategist; he was previously Director General of Welfare and Hong Kong’s Chief Official Representative for the UK, Eastern Europe, Russia, Norway and Switzerland.

Opinions do not necessarily reflect those of China Daily.

]]>
Biggest U.S. rate hike in nearly 30 years https://basketvillageusa.com/biggest-u-s-rate-hike-in-nearly-30-years/ Thu, 16 Jun 2022 04:00:26 +0000 https://basketvillageusa.com/biggest-u-s-rate-hike-in-nearly-30-years/

This is an audio transcription of the FT press briefing podcast episode: Biggest U.S. rate hike in nearly 30 years

Marc Filipino
Hello from the Financial Times. Today is Thursday, June 16, and it’s your FT News Briefing. The Federal Reserve approves the largest U.S. interest rate hike in nearly 30 years. The European Central Bank promises to protect weaker economies from its rate hikes. Plus, a hedge fund founder exposes the link between America’s economic inequality and the Jan. 6 Capitol riot. I’m Marc Filippino, and here’s the news you need to start your day.

[MUSIC PLAYING]

US interest rates rise three-quarters of a percentage point. They haven’t grown much since 1994. It’s like Netscape a long time ago. Fed Chairman Jay Powell began his press conference yesterday by explaining why this aggressive move is so important.

Jay Powell
The economy and the country have been through a lot over the past two and a half years and have shown resilience. Bringing inflation down is essential if we are to have a sustained period of good labor market conditions that benefit everyone.

Marc Filipino
The FT’s US economics editor Colby Smith was there to cover the press conference and is now here to help us make sense of this interest rate hike. Hi Colby.

Colby Smith
Hello marc.

Marc Filipino
So, Colby, until recently Fed officials had said they were just going to hold interest rate hikes to half a percentage point. And then this week, at yesterday’s meeting, the Fed, of course, as I just said, raised interest rates by three-quarters of a percentage point. Why did they change their minds and become so much more aggressive?

Colby Smith
They changed their minds because of two rather alarming reports on Friday that showed an unexpected rise in consumer prices in May and a very, you know, worrying rise in inflation expectations that suggested that Americans more generally are increasingly concerned about the outlook for inflation in the future. So I think those two reports put together, Powell called the jump in inflation expectations eye-catching, so I think in many ways they realize that a 75 basis point hike was much more appropriate given underlying inflation trends.

Marc Filipino
So Colby, markets like this, at one point the S&P 500 was up 2% after the Fed announced this news, but real people are going to be affected by this, aren’t they? That the Fed’s dual mandate, monitoring inflation and unemployment, is willing to let unemployment rise a bit to bring inflation rates down. So between higher interest rates and high inflation, it hasn’t stabilized yet. What does that do to the average American?

Colby Smith
So President Powell kind of conceded at that point in the press conference where he said the type of way, that soft landing, that would be the ability to get inflation down without, you know, a pain substantial economy, that it was becoming more and more difficult. To be fair, the unemployment rate is at historic lows right now, at 3.6%. Even the projection of a rising unemployment rate of around 4% in 2024, according to Powell, reflects a soft landing. So they haven’t completely moved away from this idea that they can bring down inflation and that they will necessarily cause a recession. But at the same time, I think that path is getting narrower and narrower. And that’s exactly what we heard from Powell.

Marc Filipino
Colby Smith is the US economics editor. Thanks Colby.

Colby Smith
Thanks.

[MUSIC PLAYING]

Marc Filipino
Now, when the European Central Bank said last week that it would raise interest rates for the first time in more than a decade, it worried a lot of people. People fear that Europe will return to a debt crisis like the ones we experienced in 2012 and 2014. So the ECB held an emergency meeting yesterday and the central bank signaled that it would lend a hand to the weakest economies. This is Martin Arnold from the FT.

Martin Arnold
The ECB has announced that it will accelerate work on a new anti-fragmentation instrument to deal with the recent turmoil in bond markets. But the announcement lacked details because it was long in ambition. This reflects how the ECB has been backed into a corner. On the one hand, he wants to fight the record levels of inflation in the eurozone by stopping bond purchases and starting to raise interest rates. But on the other hand, this tightening of monetary policy is causing turmoil in bond markets, pushing up the cost of borrowing, especially of weaker countries like Italy, to levels they never had before. not reached for eight years or more. And this threatens a new debt crisis in the euro zone, which the ECB realizes it must control.

Marc Filipino
So what does this tell us about the unique challenges facing the ECB?

Martin Arnold
There is an apparent contradiction in what the ECB is trying to do. And this contradiction stems from the incomplete nature of the eurozone union. So, while other central banks like the US Federal Reserve and the Bank of England may raise interest rates with a single objective, the ECB must always keep an eye on the risk of fragmentation in the zone’s bond markets. euro. And that’s because, despite sharing a single currency, eurozone countries have their own fiscal policy in their own bond markets, making them vulnerable to investors betting on the odds that one or the Any other of them defaulted on their debts, and the entire single currency could break up, which the ECB, as guardian of the euro, could not allow. Thus, at the same time as it increases interest rates and stops most of its bond purchases, it must think about relaunching another bond purchase program to limit this risk of fragmentation.

Marc Filipino
It is the head of the FT office in Frankfurt, Martin Arnold.

[MUSIC PLAYING]

Members of Congress are currently investigating the events leading up to an attack on the US Capitol last year. This followed claims by Donald Trump that the election was stolen from him. This week’s hearings have led to a number of revelations about what led to the Jan. 6 riot, but what made people come to DC, take up arms and try to harm politicians? Ray Dalio has spent his career observing the links between money and politics. Dalio is the founder and chairman of Bridgewater Associates, the world’s largest hedge fund. And he said that given the growing wealth gap in America, he was not surprised by the Capitol riot.

Ray Dalio
So you lose the middle, you get more and more extremism. And then because it’s a win-at-all-costs approach, the laws and the Constitution become secondary. So, for example, if we deal with some of the issues here in the United States today or in other countries as well, we see that it’s possible that neither side will accept losing the election.

Marc Filipino
Dalio was speaking to the FT’s chief foreign affairs commentator, Gideon Rachman, for this week’s episode of Rachman review podcast. Dalio has made it clear that he believes wealth should be recycled more efficiently and billionaires like him should pay more taxes.

Ray Dalio
Yes, I am a product of the system. Now it was seen as living the American dream. But as always, when you have, say, a capitalist system in which it distributes wealth unevenly, that may not be a problem in itself, even if it has problematic elements, but it also creates an unfair system because that those who are richer can better educate their children.

Marc Filipino
And Dalio says the United States needs to invest more in education.

Ray Dalio
There is hardly a better investment you can make to have a great education throughout the system. However, the Constitution makes it primarily a matter of state. And when you go to states, in most states, it’s a matter of tax district. So, for example, I live in Greenwich, Connecticut, and in the average public school system here, the average per capita spending is $24,000 per student. So up the road in Bridgeport, Connecticut, 15 minutes away where there’s poverty, it’s $14,000 per student. And these regions need it more.

Marc Filipino
Ray Dalio speaks to the FT’s chief foreign affairs commentator, Gideon Rachman, in this week’s edition of the Rachman review podcast. The new episode is out today.

[MUSIC PLAYING]

Before leaving, a little update on the war in Ukraine. European leaders are due to meet the Ukrainian president this week, potentially as early as today. French President Emmanuel Macron, Italian Prime Minister Mario Draghi and German Chancellor Olaf Scholz will meet Volodymyr Zelenskyy to discuss Ukraine’s membership of the European Union. Sources tell the FT that the European Commission will likely recommend that Ukraine be granted EU candidate status on Friday. This is the first step towards joining the bloc.

[MUSIC PLAYING]

You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: typo@ft.com. We will do our best to make the change as soon as possible.

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Defusing debt risks – Opinion https://basketvillageusa.com/defusing-debt-risks-opinion/ Tue, 14 Jun 2022 23:49:00 +0000 https://basketvillageusa.com/defusing-debt-risks-opinion/

Collective actions are needed to maintain financial stability in Asia

SONG CHEN/CHINA DAILY

Asian developing countries are facing a serious debt situation. The current debt-to-GDP ratio of developing countries in Asia is much higher than the international red line for developing countries of 60%. According to the International Monetary Fund, the public debt-to-GDP ratio of emerging and developing economies in Asia was 71.8% in 2021, a level second only to Latin America and the Caribbean.

And, in 2021, the external debt of emerging and developing Asia grew by 20.7% from 2019 levels, the fastest growth rate among all emerging market and developing economy regions. .

There are mainly three factors at the origin of the risks of indebtedness.

First, the COVID-19 pandemic has pushed up some countries’ debt levels. The pandemic has led to a substantial increase in government public spending, while slowing or even reducing the growth of tax revenues, leading to a sharp increase in public deficits. The pandemic has also led to a decline in some countries’ earnings from overseas remittances. These factors have exacerbated the difficulties of some countries in repaying their external debts.

Second, the tightening of US monetary policy is increasing the debt burden of Asian countries. Bond yields in Asian economies were pushed higher, adding to debt risks. Meanwhile, with the Fed’s monetary policy tightening, the US dollar entered an appreciation cycle and the currencies of some Asian economies depreciated sharply against the US dollar, increasing their debt burdens denominated in currencies. U.S. dollars.

Third, the Russian-Ukrainian conflict has further aggravated the debt difficulties of Asian countries. The worsening crisis in Ukraine has led to soaring prices for basic commodities such as energy and food, which has led to serious debt payment difficulties for developing countries dependent on imports of commodities. base. In Sri Lanka, for example, rising world food and oil prices hit its balance of payments and led to a severe shortage of its foreign exchange reserves, forcing the country to suspend repayment of its external debt. Financial strains caused by the Russian-Ukrainian conflict have also pushed up financing costs for developing countries.

But despite facing relatively high debt pressures, Asian countries’ debt risks are generally contained. Asia still maintains a relatively high economic growth rate, and the international reserves of Asian economies are relatively sufficient. But active policies are still needed to defuse the risks of indebtedness.

First, it is important to balance short-term economic recovery with medium-term fiscal consolidation. Currently, some Asian countries are facing the twin pressures of slowing economic growth and rising inflation. Against the backdrop of successive interest rate hikes by the Fed, most Asian countries have also started to tighten monetary policy and relied on their fiscal policies to stimulate the economy, which could lead to a further rise in interest rates. public debt. To this end, once economic performance improves in the future, policymakers should undertake timely fiscal consolidation to avoid long-term fiscal deficits and ensure public debt sustainability.

Second, it is important to strengthen regional financial cooperation to ensure financial stability in Asia. The development of local currency bond markets in Asia should be further encouraged. By doing so, Asian countries can reduce their overreliance on external financing, reduce the risk of currency mismatches, and ease the debt burden caused by the appreciation of the US dollar. It is important to accelerate the development of the Asian credit rating system, improve procyclical rating methods for rating agencies and prevent rating agencies from amplifying debt risks and exacerbating cyclical fluctuations in the macroeconomics. The role of Asian regional financial agreements needs to be further strengthened in order to strengthen their capacities for economic surveillance, crisis prevention and resolution, and to maintain financial stability in Asia.

Third, Asian economies must work with the international community to resolve the debt problem. Solving the debt problems has always been an important part of the G20 agenda. Indonesia holds the rotating presidency of the G20 this year. Asian countries should actively participate in multilateral debt coordination with other countries and urge all parties to implement the G20 common framework for debt treatment beyond the debt service suspension initiative. the debt. International and regional financial institutions, such as the IMF and the World Bank, should also increase financial support to the countries concerned and actively reduce the debt burden of developing countries.

China has endeavored to help developing countries solve their debt problems. The country has launched and actively participated in the G20 debt service suspension initiative, offering the largest amount of debt suspension among G20 members. Meanwhile, relevant unofficial financial institutions in China have also taken debt suspension measures by referring to the terms of the debt service suspension initiative. In addition, China has successively waived interest-free loans from several least developed countries.

In the future, China and Asian countries can strengthen their cooperation in the following aspects to jointly solve the debt problem. The first aspect is to establish bilateral currency swap lines with countries that need to increase their foreign exchange reserves and prevent their sovereign credit ratings from being continuously downgraded, and to help them stabilize their economies and financial situations. The second aspect is to provide assistance and support in the form of loans to the countries concerned and to help them solve their balance of payments problems. The third aspect is to continue to strengthen cooperation with Asian countries within the framework of the Belt and Road Initiative to stimulate stable and sustained economic growth in the Asian region, which is the key to solving the problems of long-term debt.

The author is a research associate at the Institute of Global Economics and Politics, Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. Opinions do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn

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The opportunistic window is rapidly shrinking for businesses https://basketvillageusa.com/the-opportunistic-window-is-rapidly-shrinking-for-businesses/ Tue, 14 Jun 2022 15:15:31 +0000 https://basketvillageusa.com/the-opportunistic-window-is-rapidly-shrinking-for-businesses/

Call it deliberate optimism, but some bankers are still mulling the possibility of a deal in the corporate market before the Federal Reserve makes its final rate announcement.

No company has issued since June 8, when Merck, A2A and Duke Energy raised a total of 2.7 billion euros. A bank staged four go/no-go calls on Monday, but no trades emerged as rates markets rose sharply after last Friday’s US inflation.

One company, Rentokil Initial (BBB, S&P), is in the public pipeline. It markets a bid-currency offer, made up of five- and eight-year euro banknotes and a 10-year sterling share. The UK pest control company ends a two-day investor call today via Bank of China, Barclays, Bank of America, HSBC, ING, Santander, SEB and Wells Fargo.

“Maybe there will be a corporate deal tomorrow before the Fed meeting?” said a union banker, who is a leader in the Rentokil business. But he acknowledged that these were “difficult times”.

“The calls [on Rentokil’s deal] are doing well, but people are worried about the market,” he said.

Corporate spreads on the euro market reversed their tightening from late May to early June, widening more than 8bp to 105.7bp on Monday from last Wednesday, according to iBoxx. Average spreads peaked at 111.2 basis points on May 23, the highest level in nearly two years.

Another lead on Rentokil said investor calls focused on the company’s acquisition of US competitor Terminix, while the timing will depend on improving market sentiment.

“We haven’t seen any trades since last Wednesday, so there aren’t many data points, although there has been some supply in the SSA and covered bond markets. Apart from those here, there is always a lack of data points,” he said. .

Sinister picture

The SSA market data points paint a bleak picture for issuers and it won’t be long before the higher premium that public issuers have to pay to secure their deals trickles down to the corporate market. On Tuesday, the EFSF paid around 5bp to 6bp to get €2bn over 10 years, but the pounds were only covered in the last update at over €2.7bn. The new issue premium for companies could thus reach 25bp. Additionally, some trades from the past week are broader, the second banker said.

Italian utility A2A’s €600m four-year green note, for example, was offered at around 124bp on Tuesday, widening more than 30bp from the re-offer, according to Tradeweb. Duke Energy’s two-tranche deal, however, was seen as tighter by 1bp, while Merck’s two-tranche deal was widened by around 5bp.

As bankers hope for a green day to emerge to print some of the pent-up supply, corporate bond sales could remain subdued for an extended period in the face of the summer break, when liquidity is likely to be even thinner. .

“We are not far from the summer period, so the issuance windows could close quickly. years,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management.

“No one is that desperate and companies are pre-funded enough to be picky about price points and afford not to pay the desperation premium.”

Sales of investment-grade euro corporate bonds are already down around 22% from the same period last year to 140.3 billion euros, according to IFR data. This year’s figure is also lower than the average sales volume of the past five years, at 180.5 billion euros.

Source: IFR

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Fixed-income securities, rates and currencies: disappearance of safe havens | Features https://basketvillageusa.com/fixed-income-securities-rates-and-currencies-disappearance-of-safe-havens-features/ Tue, 14 Jun 2022 09:14:08 +0000 https://basketvillageusa.com/fixed-income-securities-rates-and-currencies-disappearance-of-safe-havens-features/

Risky markets have had a torrid time lately. “Risk-free” government bond markets offer no safe haven in these storms, with steepening curves and considerable volatility in longer rates.

It seems clear that the U.S. Federal Reserve, charged with a dual mandate, is prioritizing fighting inflation over achieving maximum employment, which may imply risks to the outlook for economic growth. . Inflation expectations, while perhaps below their recent highs, are still not declining significantly.

The US economy remains strong, with a very healthy private sector and high corporate profit margins. But the tightness of the labor market is problematic, tightening wages on the rise. Markets rightly worry that the Fed may fail to negotiate a path to an economic soft landing in its fight for price stability, a failure that would be more in line with historical precedent.

Known unknowns and unknowns: Knight’s uncertainty

Donald Rumsfeld, US Secretary of Defense during and after the events of 9/11, was a controversial figure. At a press conference during the war in Iraq, he gave an answer that ended like this: “but there are also unknown unknowns – those that we don’t know that we don’t know”. This caused much mirth and considerable contempt to be poured upon him.

His apparent salad of words, however, brought to light a concept that economists and others have wrestled with for years – differentiating between risk and uncertainty, between something known to exist and something that can be valued and priced, and something whose existence/occurrence cannot be predicted.

In his 1921 book, Risk, Uncertainty and Profit, economist Frank Knight wrote about what he considered to be different types of probability, ranging from the roll of a dice, to events where it is possible to calculate some sort frequency, and finally what he called “estimates”, when there is no valid basis for any sort of statistical analysis, known as Knightian uncertainty.

Knight’s definitions may not be universally accepted, but they can be useful in analyzing human behavior in times of volatility.

In recent years, capital markets have been subject to a particularly wide variety of “unknowable” seismic events: entry into a pandemic; interlocks; vaccines; getting out of the pandemic; Russia’s invasion of Ukraine. All of this adds a particularly thick layer of (perhaps Knightian) uncertainty to decision-making.

Although good investors cannot predict the unpredictable, they remain aware of the possible existence of Knight’s uncertainties and never assume that an extreme risk that is nearly impossible at a distance can never occur.

With stock markets falling and credit spreads wider, it is clear that financial conditions are tightening. The technical picture may well be favourable. With many assets now entering oversold territory, extreme bearish sentiment could signal contrarian buy signals, with plenty of policy tightening already priced in. But it’s hard to paint a bullish picture for financial assets just yet, in these times of unrelenting uncertainty.

Although the damaging influence of COVID-19 on much of the western world’s economies has diminished significantly, China’s zero-tolerance COVID-19 policy is having a severe impact on economic activity, with a director’s index very weak purchase in April for the manufacturing sector indicating a possible contraction of the GDP. in Q2.

It was becoming apparent that global supply chains, severed as countries around the world went into lockdown, were until very recently on the mend. China’s importance to global growth in general, and in particular its role in the smooth functioning of these supply chains, means that real economic data such as imports and exports will be watched very closely to assess the real effects of falling sentiment.

Fears of slowing demand in China may lower the price of oil, which is potentially good news for inflation, but the conflict in Ukraine is putting strong pressure on food and oil prices. agriculture, which could continue if next year’s crops are also threatened.

Obligations

Although the Federal Reserve hasn’t raised rates by 50 basis points in almost exactly two decades, the May move did not allay market fears that U.S. policymakers were still behind the curve, in particular by essentially ruling out any 75 basis point hikes in this cycle, thus effectively capping the speed, but not the amount, of policy tightening.

Fed Chairman Jerome Powell made it clear in his later comments that 50bps was the size of the hike of choice and that the Fed was focused on reducing inflation, and “will not hesitate” to bring rates to the levels needed to put the US economy back on the path to restoring price stability.

With the onset of quantitative tightening now confirmed by the Fed, another layer of uncertainty is added to the variety of supply and demand forces driving rates. According to Fed figures, the 10-year term premium is back in positive territory for the first time since late 2018. ownership of debt by investors, as opposed to the Fed.

Europe’s proximity to the conflict in Ukraine, as well as its heavy dependence on Russian oil and gas, creates a different set of risks to economic growth. Consumer confidence was hit hard in March with the outbreak of war, and uncertainties surrounding the prospects for a peaceful resolution could weigh on consumer and business spending plans.

With sluggish growth, and possibly serious disruptions in gas supply, as well as alarming inflation rates, the European Central Bank has its fair share of challenges. He certainly stepped up his hawkish rhetoric, on the dangers of second-round inflation effects pushing up wages, and pointing out that European real rates are still negative. Along with rising rates, peripheral spreads also increased, with debt-ridden Italian government bonds leading the way.

Currencies

Its speed was alarming, but the depreciation of the Japanese yen in the first quarter did not shock investors, given the dramatic widening of interest rate differentials between the United States and Japan, as well as the weakness of almost all currencies of commodity importers.

A few weeks after the yen, the Chinese yuan also fell sharply, losing 4% against the dollar in April. It does not yet show signs of recovering that lost value, and Chinese policymakers will be eager to regain a sense of stability in the market.

The Chinese Communist Party’s zero-tolerance policy on COVID has weighed on the economy – as of early May, around 25% of China’s GDP was still affected in some way by the shutdowns. The policy is not expected to change until the fourth quarter, when a sufficient proportion of the elderly population should be vaccinated and in time for the important party congress, convened every five years, in November.

Chinese capital markets have seen huge inflows of portfolio investment, creating a new vulnerability in times of crisis: that of large outflows, whether from the outright sale of Chinese assets or the sale of currencies due to hedging activities.

Chinese officials don’t seem too upset with the currency’s weakness, not least because the trade-weighted currency, as measured by the RMB CFETS index, has been climbing for a few years and is now hitting multi-year highs.

However, while orderly currency depreciation can be tolerated, a much faster pace or signs of market disruption and dysfunction will likely mean authorities will intervene.

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Why Zimbabwe’s De-Dollarization Road Failed https://basketvillageusa.com/why-zimbabwes-de-dollarization-road-failed/ Wed, 08 Jun 2022 06:07:31 +0000 https://basketvillageusa.com/why-zimbabwes-de-dollarization-road-failed/

The Zimbabwean government has announced measures to promote wider use of the national currency (Zimbabwean dollar) in a last-ditch effort to save it from the onslaught of re-dollarization. Part of the measures now oblige businesses and individuals to pay customs and import duties in local currency using the interbank rate which is based on the Willing Buyer Willing Seller (WBWS) model. This exchange rate changes daily, which means that fees will be adjusted frequently. Currently, there are at least 5 exchange rates prevalent in the Zimbabwean economy with the (official) auction rate set by the central bank at US$1: ZW$173.27, the bank-approved interbank rate exchange rate (ZW$277.03), Zimbabwe dollar exchange rate (ZW$360), parallel market rate (ZW$430) and e-money rate used for card payments (ZW$450) . Other exchange rates also apply on mobile money and foreign currency exchange in local hard currency Foreign Currency Accounts (FCAs). The disparities between these different exchange rates mean that the market has huge opportunities for arbitrage on the prices of various commodities and the stability of rice remains a dream.

Dedollarization attempt
In February 2019, the government re-launched the Zimbabwean dollar (monocurrency) and banned the use of multiple currencies through Statutory Instrument (SI) 142 of 2019. It took only a year for the government to rescind the ban with the promulgation of SI 85 of 2020. which allowed consumers to legally pay for goods and services in foreign currency. Further regulations (SI 185 of 2020) then followed to require local businesses and individuals to price their goods and services using exchange rates determined by the central bank. What followed thereafter was a rapid decline in productivity due to a combination of factors conspiring around high inflation, exchange rate volatility and foreign exchange shortages.

Economic output fell from 4% growth achieved in 2018 to -6.5% recorded in 2019 and -6.2% according to official Treasury figures. Annual inflation rose from 57% in January to 521% recorded in December 2019. Tax revenue fell from US$5,237 billion collected in 2018 to US$2,691 billion collected in 2019. Inflation consumed household income, pension funds and corporate income, with the latter partially resorting to retrenchments to stay afloat. The World Bank estimates that cases of extreme poverty in Zimbabwe have increased from 4.7 million in 2018 to 6.6 million people in 2019 and 7.9 million in 2020. COVID-19 and droughts have exacerbated levels of poverty.

With inflation skyrocketing and the national currency devaluing, the writing was still on the wall. The dedollarization path was derailed soon after its launch due to the absence of various economic fundamentals that support the stability of a fiat currency, such as foreign exchange reserves, low levels of inflation, market confidence, the sustainable fiscal budget and the independence of monetary policy from the central bank. political interference. Various elements have destroyed confidence in the national currency and made de-dollarization a daunting task. These include:

Political will on the dedollarization plan
Apart from a leaked de-dollarization roadmap document, Zimbabwe has not implemented a long-term plan (5-10 year policy) on how to de-dollarize the local economy. The plan should have included institutional reforms at the central bank to ensure its autonomy from political interference and notable milestones on the building up of foreign exchange reserves, the establishment of a managed floating foreign exchange market, a framework of disinflation and monetary targeting, taxation in local currency, genuine budgetary consolidation (expenditure below tax revenue) and measures to promote the use of local currency. Besides the dedollarization plan, the underlying denominator of each policy is the political will to reform and implement the plan.

Lack of foreign exchange reserves
According to World Bank data, Zimbabwe had total reserves (gold and foreign exchange) of US$33.5 million in 2020. In 2018 (before the launch of the monocurrency), the figure was estimated at US$86.951 million. Americans. This figure equates to barely 1 month of import cover since 2019. Around the world, central banks are using foreign currency reserves to support fiat currency values, maintain export competitiveness, stay liquid in times of foreign currencies and give confidence to investors and the market. . They also need reserves to pay their external debts, raise capital to finance sectors of the economy and take advantage of diversified portfolios. To introduce the bonds in November 2015, Zimbabwe’s central bank pointed out that the country had secured a $200 million reserve facility to support the so-called export incentive. However, the International Monetary Fund (IMF) has said it is unaware of the existence of the African Export-Import Bank (Afreximbank) facility claimed by the Zimbabwean government. To date, the central bank does not disclose the value of the reserves it has, although this is a key mandate of the apex bank.

fear of the markets
To date, the government does not trust the market in several economic sectors. A dual currency economy should allow for smooth currency convertibility of one national currency into foreign currencies in the formal market. However, the central bank has not moved from a position where it wants to control the exchange rate to manage prices in the economy. To do this, the apex bank repeatedly fixed the currency rates or manipulated the official rate. This is what led to the collapse of the auction system and fuels the alternative market.

National currency printing
Reducing the money supply, targeting monetary policy, and ending quasi-fiscal activities that impact growing pressure on currencies are key to dedollarization. Over the past 3 years, broad money growth has averaged 350% relative to the decline in economic output. This growth in the money supply leads to sustained pressure on foreign currencies and a devaluation of the national currency. It remains the elephant in the room and will continue to be.

Taxation in foreign currency
The first holes on the road to de-dollarization were drilled by the government itself by levying licenses, taxes and permits in foreign currency. The government used the 2009 finance law to collect taxes (import duties, VAT, royalties and payroll taxes) in foreign currencies, in particular from importers of certain luxury goods, miners, tourism, hotels and the oil industry. The government justifies the taxation of foreign currency on its own foreign exchange requirements, but the government must allow free market price discovery for foreign currency so that government suppliers can also switch from payments made in local currency to foreign currency if necessary. Government suppliers would not require foreign currency if there was exchange rate stability for the national currency. Moreover, it is the role of the central bank as an agent of the government to procure foreign currency from the open market. Without levying taxes in the national currency, the government cannot convince market participants that it has confidence in its own monetary policy.

Exemption of certain sectors
The dedollarization plan was based on the creation of a market-oriented foreign exchange market so that all transactions in the economy could be carried out in a national currency. This is standard in most countries and a necessity to ensure that a national currency is required for local transactions. The Zimbabwean government has granted several exemptions to various sectors to openly use foreign currency. These sectors included the oil sector where, to date, fuel is sold exclusively in foreign currencies. The government would not need to exempt any sector of the economy provided the foreign exchange market is market determined and the central bank controls the growth of the money supply.


Experiences from elsewhere

Forced dedollarization has had limited success. Countries that have attempted to force dedollarization have experienced financial disintermediation and capital flight. Some chose to reverse their policy a few years later to counter the adverse economic consequences. Zimbabwe was neither the first country to completely dollarize, nor the first to attempt to de-dollarize. Countries like Cambodia, Bolivia, Vietnam, Peru, El Salvador, and Chile (among several others) have already dollarized and attempted to de-dollarize. Dedollarization has never been successful as a policy, but as a benefit of pragmatic economic reforms. Only a handful (notably Israel, Poland, Vietnam and Georgia) have managed to fully de-dollarize due to a combination of factors such as free market policies, domestic money supply and macroeconomic stability, and strong institutions. Success was guaranteed by the political will to reform and to grant the central bank independence from monetary policy.

It is essential to stress that if the government avoids critical economic reforms, if there is no discipline in the money supply and confidence in monetary policy as there is in Zimbabwe, dedollarization will always be a impossible mission. The market will choose a foreign currency each day rather than a local currency. Dedollarization will never be successful if the government constantly interferes with monetary policy, dictates market prices for currencies, and maintains a local currency as a tool to print whenever the need arises.

Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.

All articles and letters published on Bulawayo24 have been independently written by members of the Bulawayo24 community. The opinions of users published on Bulawayo24 are therefore their own and do not necessarily represent the opinions of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any comments received.

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ECB to firm up plans to deal with tensions in bond markets https://basketvillageusa.com/ecb-to-firm-up-plans-to-deal-with-tensions-in-bond-markets/ Mon, 06 Jun 2022 08:15:00 +0000 https://basketvillageusa.com/ecb-to-firm-up-plans-to-deal-with-tensions-in-bond-markets/

The European Central Bank is set this week to step up its commitment to support debt markets in vulnerable eurozone countries if they are hit by a selloff, as policymakers prepare to raise rates for the first time in over a decade.

A majority of the board’s 25 members are expected to back a proposal to create a new bond-buying program if needed to counter borrowing costs for member states, like Italy, spiraling out of control, according to several people involved in the discussions.

Even without a new program, the ECB already has an additional 200 billion euros to spend buying distressed government debt under its existing bond-buying program. These 200 billion euros would come from the anticipation of the reinvestments of assets maturing up to one year.

Italian government debt rallied on Monday morning, pushing the yield on the country’s benchmark 10-year bond up 0.1 percentage point to 3.3%.

The spread between Italy’s and Germany’s 10-year borrowing costs, a key measure of perceived financial risk in the eurozone, narrowed by 2.14 percentage points at the end of the week last at 2.07 percentage points. The spread last week reached its highest level since a sell-off in southern European bond markets at the start of the pandemic in 2020.

Rates officials, who meet in Amsterdam on Wednesday and Thursday, are likely to clash over when to stop buying more bonds. Some plan to call for a halt in purchases as early as Thursday, several weeks ahead of schedule, although they admit only a minority might back the idea.

The bank is under pressure to respond to record inflation, but has lagged its counterparts in the US and UK in tightening monetary policy. Many board hawks have accepted that they will need to provide more support to bond markets to pave the way for a more aggressive rate hike.

Almost all board members agree that the ultra-loose monetary policy it has pursued for more than a decade must end. A hike of at least 25 basis points is almost certain to occur at the ECB’s next monetary policy meeting on July 21. The deposit rate is now minus 0.5%.

Citizens in the region are facing a rising cost of living, made worse by the Russian invasion of Ukraine. Eurozone consumer prices rose 8.1% in the year to May – quadrupling the ECB’s 2% target and doubling the previous record high since the launch of the single currency in 1999 – forcing governments to pay subsidies to cushion the impact of rising energy and food prices. household prices.

Line chart showing eurozone inflation has exceeded ECB target

However, some are concerned about the market fallout from higher rates and want a firmer commitment to launch a new bond-buying program to counter any unwarranted increases in borrowing costs for heavily indebted countries.

ECB President Christine Lagarde said in a blog last month: “If necessary, we can design and deploy new instruments to secure the transmission of monetary policy as we move forward on the road to policy normalization, as we have shown many times in the past.”

Several board members said they would support adding similar language to his statement on Thursday, building on a promise made after his April meeting to maintain flexibility when his goal of price stability is threatened.” under stressful conditions.

The central bank has previously said its ongoing €20bn-a-month asset purchase program will not end until early July and that “sometime” after that it will consider raising interest rates.

Policymakers planning to call this week for an immediate halt to additional bond purchases say there is no longer any justification for pursuing a policy aimed at boosting inflation. Others insisted it was more credible to stick with the bond-buying plan until early July. The ECB declined to comment.

Carsten Brzeski, head of macro research at ING, said bringing forward the end of bond buying by a few weeks would be “a distinct hawkish surprise” and could even open the door to the possibility of raising interest rates before its July 21 meeting.

The ECB has bought more than 4.9 billion euros of bonds in total, more than a third of the gross domestic product of the euro zone, since the launch of its quantitative easing program to deal with the double threat of deflation and sovereign debt crisis in 2014.

Over the past two years, it has bought more than all the additional bonds issued by the 19 eurozone governments, giving it a big grip on borrowing costs in the region.

The ECB has also been slower to stop buying more bonds than most Western central banks. Some, like the US Federal Reserve, have even begun to shrink their balance sheets by not reinvesting proceeds from maturing bonds.

Additional reporting by Adam Samson

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The risks of a stronger dollar https://basketvillageusa.com/the-risks-of-a-stronger-dollar/ Mon, 06 Jun 2022 07:51:00 +0000 https://basketvillageusa.com/the-risks-of-a-stronger-dollar/

Volatility in US stock and bond markets stemming from the Federal Reserve’s monetary policy tightening spilled over into global currency markets, with the US dollar surging against its global rivals. So far this year, the dollar is up around 6.5% against a basket of other major currencies, having recently given up even bigger gains. In what has been a particularly broad movement encompassing the currencies of the vast majority of economies, the dollar has risen 13.3% in the past 12 months, taking it to levels not seen in the past 20 years.

On paper, the appreciation of the currency of the best performing economy in the world should support adjustments in the global economy. It helps boost exports from weaker countries while easing inflationary pressures in the United States by lowering the cost of imports. However, under current conditions, the strengthening dollar has far more complex implications for the well-being of an already shaky global economy and unstable financial markets, making the way forward riskier for investors, businesses and policy makers.

The typical investment playbook for a strong US dollar may not work well in today’s markets. For example, commodities generally move inversely to the dollar, so theoretically we should see prices fall. But this is not the case so far. Instead, commodity inflation remains significant, due to the twin supply shocks caused by Covid-19 and Russia’s invasion of Ukraine.

A strong dollar also tends to bode badly for emerging markets that rely on dollar-denominated debt by making it harder for those regions to service that debt. Today, however, many emerging regions are in excellent fiscal shape, with ample foreign exchange reserves. In fact, those who supply fuel, fertilizers, food and metals, as is the case for much of Latin America, should actually benefit from the contraction in global supply.

The soaring dollar adds risks for the Fed as it seeks to rein in inflation without dragging the economy into a recession. In the short term, the appreciation of the dollar could strengthen the purchasing power of businesses and consumers with regard to imports, thus helping to reduce inflationary pressures. But the strong dollar can also hurt US exports and the translation of US corporate earnings abroad, which dampens growth. Just last Thursday, Microsoft joined a growing list of U.S. companies revising their 2022 growth estimates downward in light of a strong U.S. dollar. Longer term, currency strength could help further tighten financial conditions, just as the Fed shrinks its balance sheet and international flows into the US market could slow in line with recoveries elsewhere.

In short, the continued strength of the US dollar could complicate the outlook for the economy and markets, implications that may be underestimated by investors at this time. Investors should keep an eye on real-yield differentials for signs that the US dollar is nearing a top and consider rebalancing their international exposure, especially in low-yield statements, where movements in the currency could have a negative impact. significant impact on their overall performance.

Disclaimer: This article was written by Stephen Borg, Head of Private Clients at Calamatta Cuschieri. The article is published by Calamatta Cuschieri Investment Services Ltd and is authorized to engage in investment services business under the Investment Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

For more information, visit https://cc.com.mt/. The information, views, and opinions provided in this article are provided for educational and informational purposes only and should not be construed as investment advice, advice regarding particular investments or investment decisions, or tax advice. or legal.

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