AFP

The European Central Bank on Thursday rolled out another bumper rate hike to combat soaring inflation, despite growing concern that the eurozone is hurtling towards a painful recession.

The ECB’s 25-member governing council repeated last month’s unprecedented move and opted for another increase of 75 basis points, leaving its three main rates sitting in a range of between 1.5 and 2.25 percent.

The hike was widely expected and comes as the Frankfurt institution faces pressure to rein in record-high inflation, mainly driven by skyrocketing energy costs in the wake of Russia’s war in Ukraine.

Eurozone inflation stood at 9.9 percent in September, nearly five times the ECB’s two-percent target.

In its statement, the ECB warned that inflation “remains far too high” in the 19-nation currency club, blaming “soaring energy and food prices, supply bottlenecks and the post-pandemic recovery in demand”.

Like other central banks, the ECB is fighting back with a series of rate hikes intended to dampen demand by making credit more expensive for households and businesses.

But higher borrowing costs also dampen economic activity, and signs are multiplying that the eurozone outlook has deteriorated.

In its determination to bring down price pressures, the ECB “has turned a blind eye on recession risks”, said ING economist Carsten Brzeski.

– Political grumbling –

Moscow’s move to curb gas supplies to Europe has triggered an energy crisis on the continent, fuelling fears of power shortages and sky-high heating bills this winter. 

If Russia completely cuts off gas flows to Europe, the eurozone economy could shrink by nearly one percent in 2023, ECB vice-president Luis de Guindos has warned.

That scenario has become more likely after Russia in late August shut down the crucial Nord Stream 1 pipeline to Europe’s economic powerhouse Germany.

The German economy is already forecast to shrink by 0.4 percent next year.

As European governments race to unveil multi-billion-euro support measures to help citizens through a cost-of-living crisis this winter, the ECB’s monetary policy tightening has come under increased scrutiny.

Italian Prime Minister Giorgia Meloni this week slammed the ECB’s “rash choice” to aggressively hike rates, saying it created “further difficulties for member states that have elevated public debt”.

French President Emmanuel Macron has expressed “concern” that the ECB was “shattering demand” in Europe.

ECB president Christine Lagarde will likely be quizzed about the political grumbling at her 1245 GMT press conference in Frankfurt.

Lagarde can also expect questions on how the ECB plans to bring other monetary policy levers in line with its inflation-busting efforts, including unwinding its massive balance sheet.

– Excess liquidity –

The governing council on Thursday already moved to limit the benefits gained by eurozone banks from super-cheap loans issued at ultra-low rates during the pandemic.

The interest rate for so-called TLTRO III loans would rise, the bank said, and lenders will be offered “additional voluntary early repayment dates”.

As an unintended consequence of the ECB’s rate hikes, lenders are currently able to make an easy profit by parking their excess TLTRO cash at the ECB and pocketing the new, higher deposit rate.

This is not considered a good look at a time when many consumers and companies are struggling, and the ECB had signalled it wanted to make the loan scheme less generous.

“The optics are bad against the backdrop of a historical shock to households’ income, and political pressure cannot be ignored,” said Pictet Wealth Management economist Frederik Ducrozet.

The ECB is also considering how best to shrink its five-trillion-euros bond portfolio, after years of hoovering up government and corporate debt to drive up stubbornly low inflation.

But the statement made no mention of any decisions on the issue.

Given the economic uncertainty and the risk of rattling financial markets, analysts say the start of any “quantitative tightening” — letting the bonds mature or actively selling them — is some way off.

Country climate pledges leave the world on track to heat by as much as 2.6 degrees Celsius this century, the United Nations said on Wednesday, warning that emissions must fall 45 percent this decade to limit disastrous global warming.

The United Nations Environment Programme, in its annual Emissions Gap report, found that updated national promises since last year’s COP26 summit in Glasgow would only shave less than one percent off global greenhouse gas emissions by 2030.

The world has warmed nearly 1.2C since the start of the Industrial Revolution and already faces increasingly ferocious climate-enhanced weather extremes like heatwaves, storms and floods.

The Emissions Gap report examines the difference between the planet-heating pollution that will still be released under countries’ decarbonisation plans and what science says is needed to keep to the Paris Agreement goal of limiting warming to between 1.5-2.0C.

A day after the UN’s climate change agency said governments were still doing “nowhere near” enough to keep global heating to 1.5C, UNEP found progress on emissions cutting had been “woefully inadequate”.

It said that additional pledges made since the COP26 summit in Glasgow last year would not even cut emissions by one percent by 2030. 

Failure left the world “hurtling towards” a temperature rise far in excess of the Paris goals, it added. 

“It’s another year squandered in terms of actually doing something about the problem,” the report’s lead author, Anne Olhoff, told AFP.

“That’s not to say that all nations have not taken this seriously. But from a global perspective, it’s definitely very far from adequate.”

The report found that in order for temperature rises to be capped at 2C, emissions would need to fall 30 percent faster by 2030 than envisioned under countries’ most up-to-date plans. 

To limit heating to 1.5C, the gap is 45 percent.

Under the 2015 Paris deal, countries are required to submit ever deeper emission cutting plans, known as Nationally Determined Contributions, or NDCs. 

UNEP found that “unconditional” NDCs — which countries plan regardless of external support — would probably lead to Earth’s average temperature rising by 2.6C by 2100. Scientists warn that level would be catastrophic for humanity and for nature. 

Conditional NDCs — which rely on international funding to achieve — would probably lead to a 2.4C temperature rise this century, it said. 

All told, current plans are likely to see a five- to 10-percent reduction in emissions by 2030 — a far cry from the drop of nearly 50 percent required for 1.5C. 

– ‘Missed opportunity’ –

UNEP said that in 2020, carbon pollution fell more than seven percent, largely thanks to Covid-19 lockdowns and travel restrictions. A fall of that magnitude is needed every year this decade to stay on track for 1.5C. 

But it said greenhouse gas emissions in 2021 could end up being the highest on record — some 52.8 billion tonnes — because countries threw themselves into fossil-fuelled pandemic recoveries.

“We see a full bounce-back in emissions after Covid,” said Olhoff. 

“It’s a missed opportunity in terms of utilising these unprecedented recovery funds to accelerate a green transition.”

Separately, the International Energy Agency said on Thursday it believed global energy emissions would peak in 2025 as surging oil and gas prices spurred a drive to renewables.

But UNEP said that while the switch to greener tech in the power sector was accelerating, several industries were lagging behind in the push towards net-zero emissions.  

For example, in the food sector, which is responsible for around a third of emissions, dietary changes and cutting food loss could help reduce the sector’s footprint by more than 30 percent by 2050.

– ‘Avoid as much damage as possible’ – 

Olhoff said the financial sector was “part of the problem rather than part of the solution” to climate change, with hundreds of billions funnelled annually to fossil fuel projects. 

UNEP suggested the introduction of an effective carbon price under a global cap and trade system that would push investors to consider the environmental impact of their portfolios.

It also called for central banks to make more funds available and help create global low-carbon technology markets.

UN Secretary General Antonio Guterres said Thursday’s report showed the world “cannot afford any more greenwashing”.

“Commitments to net zero are worth zero without the plans, policies and actions to back it up,” he said in a video message. 

Last year the Intergovernmental Panel on Climate Change said that the world was likely to reach and even exceed 1.5C within decades, no matter how quickly emissions fall in the short term. 

Olhoff said that for every year that passed without significant emissions cuts, 1.5C was getting “less realistic and less feasible”.

But she insisted that governments needed to accelerate the green transition to avoid as much damage as possible. 

“The more we learn, it’s absolutely clear that we should aim to get (temperature rises) as low as possible,” Olhoff said. 

“Even if that means 1.6C instead of 1.5C, that’s definitely better than 2C degrees, just as 1.7C is worse than 1.6C.”

Israel and Lebanon Thursday separately signed a US-brokered maritime border deal which paves the way for lucrative offshore gas extraction by the neighbours that remain technically at war.  

The agreement is set to go into effect after two exchanges of letters — one between Lebanon and the United States, the other between Israel and the US, expected from 3:00pm local time (1200 GMT). 

Hailed in advance by US President Joe Biden as a “historic breakthrough”, it comes as Western powers clamour to open up new gas production and reduce vulnerability to supply cuts from Russia. 

The deal, signed separately by Lebanon’s President Michel Aoun in Beirut and Israel’s Prime Minister Yair Lapid in Jerusalem, comes as Lebanon hopes to extract itself from what the World Bank calls one of the worst economic crises in modern world history.

It also comes as Lapid seeks to lock in a major achievement days ahead of a general election on November 1.

The exchange of letters is due to take place in the southern Lebanese town of Naqura, in the presence of US mediator Amos Hochstein and the United Nations’s special coordinator for Lebanon Joanna Wronecka.

Before signing it, Lapid had claimed on Thursday morning that Lebanon’s intention to ink the deal amounted to a de-facto recognition of the Jewish state.

– Delicate dance –

“It is not every day that an enemy state recognises the State of Israel, in a written agreement, in front of the entire international community,” he said, shortly before signing it in cabinet.

Aoun denied Lapid’s assertion, countering that “demarcating the southern maritime border is technical work that has no political implications”.

The deal comes as political parties in Israel — including Lapid’s centrist Yesh Atid – jockey for position in what will be the fifth general election in less than four years.

Veteran right-winger and longtime premier Benjamin Netanyahu has his sights set on a comeback and he dismissed the maritime deal as an “illegal ploy” early this month.

London-listed Energean on Wednesday said it began producing gas from Karish, an offshore field at the heart of the border agreement, a day after Israel gave the green light. 

Lebanon meanwhile will have full rights to operate and explore the so-called Qana or Sidon reservoir, parts of which falls in Israel’s territorial waters, with the Jewish state receiving some revenues.

– No quick fix –

With demand for gas rising worldwide because of the energy crisis sparked by Russia’s invasion of Ukraine, Lebanon hopes that exploiting the offshore field will help ease its financial and economic crisis.

But analysts caution that it will take time for production to start in Lebanese waters, meaning no quick return for a country that is desperately short of foreign exchange reserves. 

Exploration has so far only been tentative — a 2012 seismic study of a limited offshore area by the British firm Spectrum estimated recoverable gas reserves in Lebanon at 25.4 trillion cubic feet, although authorities in Lebanon have announced higher estimates. 

The maritime border deal could not be signed by Lebanon without the consent of Hezbollah, a powerful Shiite faction backed by Israel’s arch nemesis Iran.

Hezbollah had threatened over the summer to attack Israel if the Jewish state began extracting gas from the Karish field before reaching an agreement.

Israel and Hezbollah fought a 34-day war in 2006 and the Shiite movement is the only faction to have kept its weapons after the end of Lebanon’s 1975-1990 civil war.

Hezbollah’s leader Hasan Nasrallah is due to deliver a speech at 4:00pm on Thursday. 

The International Energy Agency said Thursday it believes global energy emissions will peak in 2025 as surging prices due to the Russian invasion of Ukraine propel investment in renewables.

Only last year the IEA said there was “no clear peak in sight” in energy emissions, but the new higher investment in wind and solar is setting up demand for all fossil fuels to peak or plateau, leading to a drop in emissions.

“The global energy crisis triggered by Russia’s invasion of Ukraine is causing profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system,” the IEA said as it released its latest annual World Energy Outlook report.

Based on the latest measures and policies announced by governments in the face of soaring energy prices, the IEA forecasts global clean energy investment to rise by more than 50 percent from today’s levels to $2 trillion per year by 2030. 

Those measures will propel sustained gains in renewables and nuclear power.

“As a result, a high point for global emissions is reached in 2025,” the IEA said.

Global energy-related CO2 emissions are then set to fall back slowly from a high point of 37 billion tonnes per year to 32 billion tonnes by 2050, it added.

The Paris-based organisation, which advises energy-consuming nations, said that its forecast sees demand for all types of fossil fuels peaking or hitting a plateau.

Coal use, which has seen a temporary bump higher, will drop back in the next few years as more renewables come online.

Natural gas hits a plateau at the end of the decade, instead of the previous forecast of a steady rise.

Oil demand levels off in the mid-2030s and then gradually declines towards mid-century due to uptake of electric vehicles, instead of the earlier estimate of a steady increase.

Overall, the share of fossil fuels in the global energy mix in the IEA’s stated policies scenario falls from around 80 percent to just above 60 percent by 2050.

– Energy markets ‘changed’ –

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come,” said IEA Executive Director Fatih Birol in a statement as the report was released.

But that will still leave the world on track for a rise in global temperatures of around 2.5 degrees Celsius by the end of the century, which would likely trigger severe climate change impacts.

The IEA also has a scenario to arrive at zero net emissions in 2050, which is seen as necessary to hit the 1.5C warming target enshrined in the Paris climate pact.

That would require clean energy investments to rise to $4 trillion per year by 2030, instead of the current forecast of $2 trillion.

“The IEA, with all its expertise and authority is clear: clean energy investments must triple by 2030, and gas is a dead end,” said Laurence Tubiana, head of the European Climate Foundation and France’s former climate ambassador.

“The current European energy crisis clearly proves the dangers of gas: high price, volatility, geopolitical dependence,” she added.

“We are approaching to the end of the golden age of gas,” the IEA’s Birol said at a later news conference.

The IEA’s analyses show “that we are seeing a turning point in the history of energy and this crisis indeed accelerates clean energy transitions,” he added.

However Birol noted that energy security, not climate change, is “the biggest driver for renewable” energy development currently.

Another motivation is that governments want to ensure they have got in on the manufacturing of new renewable energy technologies.

“The three drivers, when they come together, is the reason I am optimistic we are going to see an acceleration of clean energy technologies,” Birol said.

– Russia takes $1tn hit –

The IEA’s analyses also concluded that this energy crisis has also harmed Russia’s long-term economic outlook. 

By reducing natural gas supplies to European nations it has not only pushed them to accelerate their transition to renewables, but reduced the attractivity of gas in security terms while making it expensive for developing markets.

“Russia’s role in the international energy affairs will be diminished, much diminished in terms of oil and gas trade,” said Birol.

“As a result of the decline in oil and gas sales between now and 2030, Russia will lose about $1 trillion in export revenues” according to IEA calculations, he added.

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The euro held above parity with the dollar Thursday but eurozone stocks dropped as the European Central Bank prepares to announce another big hike to interest rates in the face of sky-high inflation.

The euro on Wednesday traded above one dollar for the first time since last month as the US currency slid also against the pound and yen on data showing cracks in the world’s biggest economy.

The dollar recovered some of the lost ground, however, ahead of Thursday’s key ECB decision.

“The European Central Bank will once again have to turn a blind eye on yet more recessionary signals in the eurozone, China and elsewhere as it battles to bring inflation back under control,” noted City Index market analyst Fawad Razaqzada.

“A 75-basis point rate hike appears to be a foregone conclusion, which means the reaction of the euro and European stocks will depend on more than just the rate decision itself.”

Markets will be looking for clues on the size of future ECB rate hikes in the press conference from the bank’s head Christine Lagarde, analysts said.

After a painful year for markets hit by central bank rate hikes to fight decades-high inflation, investors have taken heart from several weak US indicators — the latest on the services and real estate sectors — suggesting the economy is slowing.

That has led to speculation officials could be ready to tap the brakes on the increases, while some Fed policymakers have also raised the possibility of a slowdown.

The optimism was boosted Wednesday by news that the Bank of Canada had raised rates less than expected and signalled it is ready to wind down.

“The downshift at the Bank of Canada has further fanned the winds of a similar move by the Fed come December and comes after the (Australian central bank) slowed the pace of hikes to 25 basis points at its October meeting,” said National Australia Bank’s Taylor Nugent.

– Credit Suisse shares slide –

Traders continued to digest earnings updates from the world’s biggest companies.

Shares in Credit Suisse slumped nearly 11 percent after Switzerland’s second-biggest bank announced a string of radical measures Thursday aimed at turning around the beleaguered lender.

Credit Suisse revealed huge third quarter losses and said it would revamp its investment banking unit, slashing 9,000 jobs and raising fresh capital.

London’s benchmark FTSE 100 stocks index climbed, boosted by strong share-price gains for energy heavyweights BP and Shell following the latter’s bumper third-quarter profits on high oil and gas prices.

– Key figures around 1100 GMT –

Euro/dollar: DOWN at $1.0032 from $1.0087 on Wednesday

Pound/dollar: DOWN at $1.1562 from $1.1621 

Dollar/yen: DOWN at 146.32 yen from 146.39 yen

Euro/pound: DOWN at 86.74 pence from 86.77 pence

London – FTSE 100: UP 0.3 percent at 7,076.41 points

Frankfurt – DAX: DOWN 0.8 percent at 13,093.42

Paris – CAC 40: DOWN 0.8 percent at 6,229.06

EURO STOXX 50: DOWN 0.7 percent at 3,579.38

Tokyo – Nikkei 225: DOWN 0.3 percent at 27,345.24 (close)

Hong Kong – Hang Seng Index: UP 0.7 percent at 15,427.94 (close)

Shanghai – Composite: DOWN 0.6 percent at 2,982.90 (close)

New York – Dow: FLAT at 31,839.11 (close)

Brent North Sea crude: UP 0.6 percent at $96.24 per barrel

West Texas Intermediate: UP 0.6 percent at $88.41 per barrel