Macro Snapshot — Bank of England raises rates after US increase; China’s services activity falls sharply 

Macro Snapshot — Bank of England raises rates after US increase; China’s services activity falls sharply 
The Bank of England raised interest rates to their highest since 2009 (Shutterstock)
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Updated 06 May 2022

Macro Snapshot — Bank of England raises rates after US increase; China’s services activity falls sharply 

Macro Snapshot — Bank of England raises rates after US increase; China’s services activity falls sharply 

RIYADH: The central banks of the UK and Brazil have raised their rates by a full percentage point, following the US Fed’s half-point hike on Wednesday.

Saudi Arabia, the UAE, Qatar and Bahrain have also raised their key rates by 0.5 percentage points, while Kuwait's central bank increased its discount rate by 25 basis points. 

Norway has resisted any rise, keeping its rates on hold, and the European Central Bank board member Fabio Panetta has also advised against a hike in rates. 

Bank of England raises rates to 1 percent despite looming recession risk 

The Bank of England raised interest rates to their highest since 2009 at 1 percent on Thursday to counter inflation now heading above 10 percent, as it sent a warning that Britain risks falling into recession.

The BoE’s nine rate-setters voted 6-3 for the quarter-point rise from 0.75 percent. But Catherine Mann, Jonathan Haskel and Michael Saunders called for a bigger increase to 1.25 percent to stamp out the risk of the inflation surge getting embedded in the economy.

Economists polled by Reuters had forecast a more dovish 8-1 vote to raise rates to 1 percent, with one policymaker opposing a hike.

The BoE’s move represented its fourth consecutive rate hike since December — the fastest increase in borrowing costs in 25 years — and it hardened its message about further increases, despite its worries about a sharp economic slowdown.

British consumer price inflation hit a 30-year high of 7 percent in March, more than triple the BoE’s 2 percent target, and the central bank revised up its forecasts for price growth to show it peaking above 10 percent in the last three months of this year.

It had previously said it expected inflation to peak at about 8 percent in April.

The BoE kept its forecast for economic growth this year at 3.75 percent, but slashed its forecast for 2023 to show a contraction of 0.25 percent from a previous estimate of 1.25 percent growth. It cut its growth projection for 2024 to 0.25 percent from a previous 1.0 percent.

Brazil central bank raises rates by 100 bps as expected

Brazil’s central bank on Wednesday raised interest rates by a full percentage point, due to persistent double-digit inflation and evidence of price expectations drifting further from official targets.

The bank’s rate-setting committee, known as Copom, raised its benchmark Selic interest rate to 12.75 percent, a five-year high. All 32 economists polled by Reuters had forecast the decision after policymakers made an increase of 100 basis points in March and signaled the same for this month.

Gulf central banks raise rates as Fed hikes by 50 bps 

The central banks of Saudi Arabia, the United Arab Emirates, Qatar and Bahrain have raised their key rates by 50 bps. 

The Central Bank of Kuwait said it increased its discount rate by 25 basis points to 2 percent, in a move less hawkish than the Fed’s.

All Gulf countries have their currencies pegged to the US dollar, except Kuwait, which pegs the Kuwaiti dinar to a basket of currencies that includes the dollar.

The Saudi Central Bank raised its repo rate and reverse repo rates by 50 bps each to 1.75 percent and 1.25 percent, respectively.

The Central Bank of the UAE said its base rate would increase by 50 basis points, which would take it to 2.25 percent, effective from Thursday.

The bank said it would maintain the rate on borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 bps above the base rate.

The Central Bank of Qatar said it would raise, effective on Thursday, its deposit and repo rates by 50 bps to 1.5 percent and 1.75 percent, respectively. Its lending rate will increase by 25 bps to 2.75 percent.

The Central Bank of Bahrain said it raised its key policy rate, on its one-week deposit facility, by 50 bps to 1.75 percent, in lockstep with the Fed’s hike.

The CBB also increased its overnight deposit rate and lending rates by 50 bps to 1.5 percent and 3 percent, respectively, and its four-week deposit rate was increased by 75 bps to 2.5 percent.

The Central Bank of Oman — the other member of the Gulf Cooperation Council — is widely expected to follow with a similar move.

Norway keeps rates on hold, remains on track for June hike

Norway’s central bank kept interest rates on hold on Thursday, as widely expected, and reiterated its plan to raise the cost of borrowing in June amid rapidly rising inflation.

Norges Bank’s monetary policy committee unanimously agreed to keep the rate on hold at 0.75 percent for now, as expected in a Reuters poll of economists. 

ECB should not raise rates in July before Q2 GDP data: Panetta 

The European Central Bank should not raise interest rates in July, even though the inflation outlook suggests it can gradually reduce support for the economy, ECB board member Fabio Panetta told Italian newspaper La Stampa.

While an increasing number of ECB policymakers are making the case for a rate hike at the July 21 policy meeting, Panetta pointed to the availability after it of data on the euro zone’s second-quarter economic growth.

“It would be imprudent to act without having first seen the hard numbers on GDP for the second quarter and to discuss further measures without a full understanding of how the economy could develop,” La Stampa on Thursday quoted Panetta as saying.

“It does not make much of a difference whether it is two or three months earlier or later,” he said in the interview with the newspaper.

Spain’s inflation peaked, to start falling in second half of 2022, minister says

Spain’s Economy Minister Nadia Calvino said on Thursday inflation has peaked in the country and is likely to start falling in the second half of this year.

The 12-month inflation rate in Spain had increased to a three-decade high of 9.8 percent in the period through March though the most recent data in April showed a slight decrease to 8.4 percent.

Calvino added her government had to prepare itself for an upcoming interest rate increase. She said her ministry has already reduced risks by extending the maturity of its outstanding debt to more than eight years.

Turkey’s inflation surges to 70 percent, putting Erdogan in bind 

Turkey’s annual inflation jumped to a two-decade high of 69.97 percent in April, according to data on Thursday, fueled by the Russia-Ukraine conflict and rising energy and commodity prices after last year’s lira crash.

The surge in prices has badly strained households just over a year before presidential and parliamentary elections that could bring the curtain down on President Tayyip Erdogan’s long rule.

Erdogan first came to power as prime minister in 2003 before switching the country to a presidential system, and the unorthodox interest rate cuts made last year under pressure from him have been blamed for lighting a fire under inflation.

Month-on-month, consumer prices rose 7.25 percent, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 6 percent. Annually, consumer price inflation was forecast to be 68 percent.

“It’s about food and energy price increases but also the spectacular failure of monetary policy in Turkey — and it’s about the abject and total failure of Erdogan’s unorthodox monetary policy,” said strategist Timothy Ash at Bluebay Asset Management.

Presidential and parliamentary elections are due by June 2023 and opinion polls show Erdogan’s support declining.

Swiss inflation rises to 2.5 percent in April

The Swiss consumer price index rose 0.4 percent in April versus March and advanced 2.5 percent year on year, the highest since 2008 and taking inflation further above the Swiss National Bank’s definition of price stability. 

The 0.4 percent month-on-month increase reflected several factors including rising prices for heating oil, new cars and air transport, the Federal Statistics Office said.

China’s services activity falls at second sharpest rate on record — Caixin PMI

China’s services sector activity contracted at the second-steepest rate on record in April, as COVID curbs halted the industry, leading to sharper reductions in new business and employment, a private-sector survey showed on Thursday.

The Caixin services purchasing managers’ index stood at 36.2 in April, the second-lowest since the survey begun in November 2005 and down from 42 in March. The index hit a record low of 26.5 in February 2020 during the onset of the pandemic.

The 50-point mark separates growth from contraction on a monthly basis.

The pessimistic findings from the survey, which focuses more on small firms in coastal regions, are in line with the government’s official PMI, pointing to the fast deterioration in a key sector that accounts for about 60 percent of the economy and half of the urban jobs.

The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.


Oil prices up 2 percent on supply outages

Oil prices up 2 percent on supply outages
Updated 01 July 2022

Oil prices up 2 percent on supply outages

Oil prices up 2 percent on supply outages

LONDON: Oil prices rose about 2 percent on Friday, recouping most of the previous session’s declines, as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand, according to Reuters.

Brent crude futures were up $2.20, or 2 percent, at $111.23 a barrel by 1348 GMT, having dropped to $108.03 a barrel earlier in the session.

WTI crude futures gained $2.25, or 2.1 percent, to $108.01 a barrel, after retreating to $104.56 a barrel earlier.

Both contracts fell around 3 percent on Thursday, ending the month lower for the first time since November.

We “still see risks to prices as skewed to the upside on tight inventories, limited spare capacity and muted non-OPEC+ supply response,” Barclays said in a note.

Libya’s National Oil Corporation declared force majeure on Thursday at the Es Sider and Ras Lanuf ports as well as the El Feel oilfield. Force majeure is still in effect at the ports of Brega and Zueitina, NOC said.

Production has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 bpd, a decrease of 865,000 bpd compared to production in “normal circumstances,” NOC said.

Elsewhere, 74 Norwegian offshore oil workers at Equinor’s Gudrun, Oseberg South and Oseberg East platforms will go on strike from July 5, the Lederne trade union said on Thursday, likely halting about 4 percent of Norway’s oil production.

Ecuador’s government and indigenous groups’ leaders on Thursday reached an agreement to end more than two weeks of protests which had led to the shut-in of more than half of the country’s pre-crisis 500,000 bpd oil output.

On Thursday, the OPEC+ group of producers, including Russia, agreed to stick to its output strategy after two days of meetings. However, the producer club avoided discussing policy from September onwards.

Previously, OPEC+ decided to increase output each month by 648,000 barrels per day in July and August, up from a previous plan to add 432,000 bpd per month.

US President Joe Biden will make a three-stop trip to the Middle East in mid-July that includes a visit to Saudi Arabia, pushing energy policy into the spotlight as the United States and other countries face soaring fuel prices that are driving up inflation.

Biden said on Thursday he would not directly press Saudi Arabia to increase oil output to curb soaring prices when he sees the Saudi king and crown prince during a visit this month.

A Reuters survey found that OPEC pumped 28.52 million bpd in June, down 100,000 bpd from May’s revised total.

Oil prices are expected to stay above $100 a barrel this year as Europe and other regions struggle to wean themselves off Russian supply, a Reuters poll showed on Thursday, though economic risks could slow the climb.

India introduced export duties on gasoil, gasoline and jet fuel on Friday to help maintain domestic supplies, while also imposing a windfall tax on oil producers who have benefited from higher global crude oil prices. 


Russia seizes control of partly foreign-owned energy project

Russia seizes control of partly foreign-owned energy project
Updated 01 July 2022

Russia seizes control of partly foreign-owned energy project

Russia seizes control of partly foreign-owned energy project

MOSCOW: Russian President Vladimir Putin has handed full control over a major oil and natural gas project partly owned by Shell and two Japanese companies to a newly created Russian firm, a bold move amid spiraling tensions with the West over Moscow’s military action in Ukraine, according to Associated Press.

Putin’s decree late Thursday orders the creation of a new company that would take over ownership of Sakhalin Energy Investment Co., which is nearly 50 percent controlled by British energy giant Shell and Japan-based Mitsui and Mitsubishi.

Putin’s order named “threats to Russia’s national interests and its economic security” as the reason for the move at Sakhalin-2, one of the world’s largest export-oriented oil and natural gas projects.

The presidential order gives the foreign firms a month to decide if they want to retain the same shares in the new company.

Russian state-controlled natural gas giant Gazprom had a controlling stake in Sakhalin-2, the country’s first offshore gas project that accounts for about 4 percent of the world’s market for liquefied natural gas, or LNG. Japan, South Korea and China are the main customers for the project’s oil and LNG exports.

Kremlin spokesman Dmitry Peskov said Friday that there is no reason to expect a shutdown of supplies following Putin’s order.

Shell held a 27.5 percent stake in the project. After the start of the Russian military action in Ukraine, Shell announced its decision to pull out of all of its Russian investments, a move that it said has cost at least $5 billion. The company also holds 50 percent stakes in two other joint ventures with Gazprom to develop oil fields.

Shell said Friday that it’s studying Putin’s order, which has thrown its investment in the joint venture into doubt.

“As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” the company said in a statement. “We are aware of the decree and are assessing its implications.”

Seiji Kihara, deputy chief secretary of the Japanese cabinet, said the government was aware of Putin’s decree and was reviewing its impact. Japan-based Mitsui owns 12.5 percent of the project, and Mitsubishi holds 10 percent.

Kihara emphasized that the project should not be undermined because it “is pertinent to Japan’s energy security,” adding that “anything that harms our resource rights is unacceptable.”

“We are scrutinizing Russia’s intentions and the background behind this,” he told reporters Friday at a twice-daily news briefing. “We are looking into the details, and for future steps, I don’t have any prediction for you at this point.”

Asked during a conference call with reporters if Putin’s move with Sakhalin-2 could herald a similar action against other joint ventures involving foreign shareholders, Peskov said, “There can’t be any general rule here.”

He added that “each case will be considered separately.”

Sakhalin-2 includes three offshore platforms, an onshore processing facility, 300 kilometers of offshore pipelines, 1,600 kilometers of onshore pipelines, an oil export terminal and an LNG plant.
 

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Riyadh no longer one of the 100 most expensive cities for expats: Mercer

Riyadh no longer one of the 100 most expensive cities for expats: Mercer
Updated 01 July 2022

Riyadh no longer one of the 100 most expensive cities for expats: Mercer

Riyadh no longer one of the 100 most expensive cities for expats: Mercer

RIYADH: Saudi Arabia’s capital, Riyadh, has dropped 72 places in a ranking of the world’s most expensive cities for expats as it tumbled out of the top 100, according to a report issued by Mercer.

Riyadh was positioned at 103 in Mercer's Cost of Living Index 2022, falling from 29 in the previous year’s list. 

Commenting on Riyadh’s fall, Khaled Al-Mobayed, CEO of Menassat Reality Co., a Riyadh-based real estate developer, said: “The results came in contrary to the expectations, due to the pandemic’s ongoing consequences and the rising cost of logistics and supply chain.”

“Being out of the 100 top expensive cities is a good sign despite the challenges that the economy has gone through,” he added.

UAE's Dubai took over Lebanon's capital, Beirut, as the most expensive city among Arab countries in the region, ranking 31.

Despite being placed third in 2021, Beirut was not even on this year’s list of 227 cities due to the country’s economic turmoil.

The city’s fall reflects the severe drop in value of the Lebanese pound, according to Lebanese economic analyst Bassel Al-Khatib, who pointed out the minimum wage is now worth $20, while it was $450 before the economic crisis gripping the country. 

“Lebanon is extremely expensive to those who get paid in Lebanese pounds yet very cheap for those who get pain in US dollars,” he told Arab News, adding: “Lebanon was expensive for both citizens and foreigners, and with the currency dropping 95 percent and the dollar reaching record levels, the situation changed.”

“Everything has become expensive but not for foreigners who have dollars. All services by the government such as water, electricity fees, or internet are still the same but food prices skyrocketed,” he added.

Abu Dhabi was the second highest Arab city from the region, ranked at 61, while Jeddah came in at 111 this year compared to 94 in 2021.

Jordan's capital Amman ranked 115, followed by Bahrain's Manama at 117, Oman's Muscat at 119 and Kuwait city at 131.

Egypt's capital, Cairo, was placed at 154 while Rabat, Algiers and Tunis came as the least expensive in the region, ranking 162, 218 and 220 respectively.

Hong Kong topped the list as the most expensive city in the world in 2022, moving from second rank last year and taking the top spot from Turkmenistan’s capital, Ashgabat.

Switzerland’s Zurikh and Geneva followed as second and third most expensive cities, replacing Hong Kong and Beirut respectively.

Turkey’s capital, Ankara, came in as the least expensive city, ranking 227, taking the spot from Kyrgyzstan’s capital Bishkek.


France eyes ‘good investment opportunities’ in Saudi Arabia: Official

France eyes ‘good investment opportunities’ in Saudi Arabia: Official
Updated 01 July 2022

France eyes ‘good investment opportunities’ in Saudi Arabia: Official

France eyes ‘good investment opportunities’ in Saudi Arabia: Official

RIYADH: France is intensifying efforts to take advantage of Saudi investment opportunities in all sectors, mostly energy, technology, water and other industrial services, the country's Ambassador in Saudi Arabia said.

Saudi Arabia is an attractive region and a suitable environment for investments in all its vital sectors, Ludovic Pouille told a press conference.

The French government and the private sector are working to expand the number of companies operating in the Kingdom, which currently stands at about 135, Aleqtisadiah reported citing Pouille.

The aim is to gain large investment spaces, and to benefit from the reforms and economic developments undertaken by Saudi Arabia, which constitute a good opportunity for French companies, he said. 

The French ambassador said France will take the model of agreements between the Al-Ula Authority and his country’s institutions in the fields of infrastructure and culture, as a starting point for expanding the map of investments in the future.


New Saudi smart city AlNama to be zero-carbon

New Saudi smart city AlNama to be zero-carbon
Updated 01 July 2022

New Saudi smart city AlNama to be zero-carbon

New Saudi smart city AlNama to be zero-carbon

RIYADH: Saudi Arabia’s new AlNama smart city will be a zero-carbon community, according to the company charged with designing the development.

The hospitality hub, located on a 10 sq. km area in Riyadh, will create 10,000 jobs in various sectors, including green-tech industries to create a ‘green circular economy’, Construction Week reported. 

The project is planned to provide 11,000 residential units and an eventual population of 44,000 people.

ALNAMA will be designed by Dubai's URB, and the firm’s CEO Baharash Bagherian said: “AlNama aims to be the next generation of self-sufficient city, producing all the city’s renewable energy needs, as well as the resident’s caloric food intake on site.

“Biosaline agriculture, productive gardens, wadis, and carbon-rich habitats are key features of the development’s innovative and resilient landscape design.

“The city was planned through the design of its landscape, rather than its buildings. This creates an urbanism that is more socially inclusive, more economically valuable, and more sensitive to the environment.”

AlNama will consist of eco-friendly glamping lodges, eco resorts and a nature conservation center to promote ecotourism, while an autism village, wellness center and clinics within the medical hub will help promote medical tourism.

The green-tech hub will provide an innovative ecosystem for urban-tech companies related to food, energy, water, waste, mobility, and building materials