US Business

Britain’s new finance chief Jeremy Hunt will Monday bring forward fiscal measures to further calm markets turmoil, in another government U-turn that appears to have left Liz Truss’s position as prime minister hanging by a thread.

Chancellor of the Exchequer Hunt, parachuted into the job on Friday to replace sacked Kwasi Kwarteng, will at 1000 GMT trail measures from a fiscal plan due October 31.

Hunt, who is Britain’s fourth finance minister in as many months, will also address lawmakers over his plans at 1430 GMT.

The news sent the British pound surging more than one percent against the dollar, while bond yields fell sharply on investor relief.

Truss fired her close friend Kwarteng on Friday after their recent tax-slashing budget sparked markets chaos, fuelling intense speculation over her political future one month after taking office.

Hunt’s announcement “will support fiscal sustainability”, the Treasury said in a statement, after last month’s notorious budget had sent bond yields spiking and the pound collapsing to a record dollar low on fears of rocketing debt.

“This follows… further conversations between the prime minister and the chancellor over the weekend, to ensure sustainable public finances underpin economic growth,” the Treasury added.

– ‘Too far, too fast’ –

Tax reductions were the centrepiece of the ill-starred budget, but they were financed via huge borrowing.

Truss has already staged two humiliating budget U-turns, scrapping tax cuts for the richest earners and on company profits.

Following his shock appointment, Hunt hit the ground running Saturday with a warning of tax hikes as he dramatically reversed course on right-wing Truss’ radical programme of economic reform.

The mini budget on September 23 went “too far, too fast”, he declared over the weekend.

And Hunt warned he was “not taking anything off the table” amid speculation of painful spending cutbacks on critical areas like defence, hospitals and schools.

Hunt met with the governor of the Bank of England and the head of the Debt Management Office to discuss his plans late on Sunday.

In the wake of turmoil, the BoE was forced to launch an emergency bond-buying policy but this ended on Friday.

The furore over the budget, which also contained a costly freeze on domestic energy prices to ease Britain’s cost of living crisis, has reportedly sparked a plot to oust the prime minister.

British media reported that senior Conservative members of parliament were plotting to unseat Truss, aghast at the party’s collapse in opinion polls since she replaced Boris Johnson on September 6.

Party grandee and former leader William Hague said Truss’ premiership was “hanging by a thread” after Kwarteng was unceremoniously fired.

– Another U-turn –

Monday’s news sent the UK’s 30-year bond yield sliding to 4.46 percent.

“The bringing forward of the fiscal statement is in itself another U-turn, given that the government had been sticking to the Halloween date for its release, even on Friday,” noted Hargreaves Lansdown analyst Susannah Streeter.

“But worries that the bond markets in particular will take fright again has prompted fresh urgency for damage limitation so a roll-back of planned tax cuts is now expected.”

China  said Monday it will delay the release of economic growth figures, as the country’s leadership gathers for a meeting set to hand President Xi Jinping a historic third term in office.

The announcement comes a day before China had been expected by analysts to announce some of its weakest quarterly growth figures since 2020, as the economy is hobbled by Covid-19 restrictions and a real estate crisis.

Beijing’s National Bureau of Statistics (NBS) announced that the release of growth figures for the third quarter along with a host of other economic data would be “postponed”, without specifying a reason for the delay or giving a new timeline.

The postponement comes as officials from China’s ruling Communist Party gather in Beijing for their 20th Congress, which is set to rubber stamp Xi’s bid to rule for another term.

Zhao Chenxin, senior official at the National Development and Reform Commission, told reporters on Monday morning that “the economy rebounded significantly in the third quarter.”

“From a global perspective, China’s economic performance is still outstanding,” he said.

But many analysts had expected the world’s second-largest economy to struggle to reach its growth target this year of around 5.5 percent, with the International Monetary Fund lowering its GDP growth forecast to 3.2 percent for 2022.

A panel of experts polled by AFP last week predicted average growth of three percent in 2022 — a long way off the 8.1 percent seen in 2021.

That would have marked China’s weakest growth rate in four decades, excluding 2020 when the global economy was hammered by the emergence of the coronavirus.

Separately, customs authorities delayed the release of September’s trade figures last week, without providing an explanation, while the NBS said on Monday it would also postpone the release of monthly data on indicators including real estate and retail sales.

– Covid impact –

China’s economy has been hit particularly hard by the government’s strict zero-Covid policy.

The country is the last of the world’s major economies to continue to follow the strategy, which imposes tight travel restrictions, mass PCR testing and obligatory quarantines.

It also involves sudden and strict lockdowns — including of businesses and factories — that have disrupted production and weighed heavily on household consumption.

China is also battling an unprecedented crisis in its real estate sector — historically a driver of growth in the economy and representative of more than a quarter of the country’s GDP when combined with construction.

Following years of explosive growth fuelled by easy access to loans, Beijing launched a crackdown on excessive debt in 2020.

Property sales are now falling across the country, leaving many developers struggling and some owners refusing to pay their mortgages for unfinished homes.

France on Monday braced for nationwide transport strike actions as the government and unions remained in deadlock over stoppages at oil depots that have sparked fuel shortages.

Leading unions have called for strikes Tuesday in their biggest challenge yet to President Emmanuel Macron since he won a new presidential term in May.

It will come after workers at several refineries and depots operated by energy giant TotalEnergies voted to extend their strike action, defying the government which has begun to force staff back on the job.

Motorists scrambled to fill tanks as the fuel strike, which has lasted for nearly three weeks, crippled supplies at just over 30 percent of France’s service stations.

The government, increasingly impatient with striking workers, said it was forcing key staff back to work.

“The time for negotiation is over,” Finance Minister Bruno Le Maire told the BFMTV broadcaster Monday. 

The government said it would begin to requisition workers at the Feyzin depot in southeastern France from 2.00 pm (1200 GMT) on Monday, having already employed the same strategy at the Mardyck depot in the north of the country.

Fuel workers voted to continue stoppages at several refineries run by TotalEnergies, the coordinator for the hard-left CGT union Eric Sellini said, rejecting a pay package agreed between the group’s management and mainstream unions.

Three out of seven of the country’s oil refineries and five major fuel depots (out of around 200) are affected, the government said.

Strike action at Esso-ExxonMobil ended at the end of last week at the company’s two French refineries, after a pay deal between management and moderate unions which represent a majority of workers.

A return to normal supply conditions at petrol stations will take at least two weeks after strikes end, the government has warned.

– ‘Severe disruptions’ –

Unions in other industries and the public sector have also announced action to protest against the twin impact of soaring energy prices and overall inflation on the cost of living.

Leftist unions CGT and FO have called for a nationwide strike Tuesday for higher salaries, and against government requisitions of oil installations, threatening to cripple public transport in particular.

Rail operator SNCF will see “severe disruptions” with half of train services cancelled, Transport Minister Clement Beaune said.

Suburban services in the Paris region as well as bus services will also be impacted, operator RATP said, but the inner-Paris metro system should be mostly unaffected.

Beyond transport workers, unions hope to bring out staff in sectors such as the food industry and healthcare, CGT boss Philippe Martinez told France Inter radio.

Their action will kick off what is likely to be a tense autumn and winter as Macron also seeks to implement his flagship domestic policy of raising the French retirement age.

But the economic squeeze partly caused by Russia’s invasion of Ukraine, along with the failure of Macron’s party to secure an overall majority in June legislative polls, only adds to the magnitude of the task.

On Sunday tens of thousands of protesters marched in Paris to express their frustration at the rising cost of living.

The demonstration was called by the left-wing political opposition and led by the head of the France Unbowed (LFI) party, Jean-Luc Melenchon.

Security forces fired teargas and launched baton charges after they were pelted with objects, while on the fringes of the march, masked men dressed in black ransacked a bank.

Some protesters wore yellow fluorescent vests, the symbol of the often violent anti-government protests in 2018 that shook the pro-business government of Macron.

“We’re going to have a week the likes of which we don’t see very often,” Melenchon told the crowd.

Organisers claimed 140,000 people attended Sunday’s march, but police said there were 30,000.

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Saudi Arabia has rejected US accusations of aligning itself with Russia amid the Ukraine war by making oil production cuts to drive up crude prices, insisting it was purely a business decision.

“We are astonished by the accusations that the kingdom is standing with Russia in its war with Ukraine,” the Saudi defence minister, Prince Khaled bin Salman, tweeted late Sunday.

The Saudi-led OPEC+ cartel — which includes Russia — has angered Washington by deciding to cut production by two million barrels per day from November, adding further pressure on soaring crude prices.

“It is telling that these false accusations did not come from the Ukrainian government,” Prince Khaled wrote. “Although the OPEC+ decision, which was taken unanimously, was due to purely economic reasons, some accused the kingdom of standing with Russia.

“Iran is also a member of OPEC, does this mean that the kingdom is standing with Iran as well?” he asked, referring to Saudi Arabia’s regional rival.

In a speech broadcast on Sunday night, Saudi King Salman bin Abdulaziz Al Saud insisted his country was “working hard, within its energy strategy, to support the stability and balance of global oil markets”.

The United Arab Emirates and Bahrain, which like Saudi Arabia are US allies as well as OPEC partners, also defended the cartel’s decision as a “technical” move.

White House spokesman John Kirby said last week that Riyadh knew the cut “would increase Russian revenues and blunt the effectiveness of sanctions” on Moscow.

The United States has vowed to re-evaluate ties with the oil-rich kingdom since the cut, which was seen as a diplomatic slap in the face for President Joe Biden by hiking prices on US consumers weeks before congressional elections.

Despite vowing to make the kingdom an international “pariah” following the October 2018 murder of journalist Jamal Khashoggi, Biden travelled to Saudi Arabia in July and met with Crown Prince Mohammed bin Salman — with the two greeting each other with a high-profile fist bump.

But with relations now strained, US National Security Advisor Jake Sullivan said Sunday that Biden has “no plans” to meet with Prince Mohammed at an upcoming G20 summit in Indonesia.

Sterling rose Monday as Britain’s new finance minister prepared to announce new tax and spending measures aimed at calming markets after a botched debt-fuelled budget by his predecessor sent shivers through trading floors.

Jeremy Hunt was put in place on Friday after Prime Minister Liz Truss sacked Kwasi Kwarteng as she battles to save her political career just weeks after taking the keys to Downing Street.

Hunt is tipped to tear up the previous plans and warned at the weekend of tax hikes as he dramatically reversed course on right-wing Truss’ radical programme.

“It does indicate that they are moving back to some degree of fiscal probity and employing a slightly more prudent fiscal outlook,” said Peter Kinsella, of Union Bancaire Privee UBP SA.

The pound held above $1.12, having sunk Friday owing to the uncertainty in Westminster, while a news conference by Truss did very little to reassure nervous investors.

Bonds also rallied on the first day without the Bank of England support put in place in response to turmoil caused by Kwarteng’s mini-budget.

“There is no question that recent events have shattered confidence in the… current government, and trust once foregone is usually very difficult to get back,” said CMC Markets’ Michael Hewson.

“The wider question now is what happens next with respect to any new budget, and whether new Chancellor Jeremy Hunt can stabilise the ship at a time when global interest rates are rising anyway.”

The calm also lifted equities, with London in positive territory in the morning. There were also gains in Paris and Frankfurt.

Asia started the week in mixed fashion as Friday’s rally petered out.

The latest strong US inflation reading ramped up bets that the Federal Reserve will hike borrowing costs by 75 basis points twice more before the end of the year, stoking concerns the world’s top economy will flip into a recession.

All three main indexes on Wall Street finished sharply lower Friday.

There was a little disappointment among investors after Chinese President Xi Jinping at the weekend reasserted his commitment to the zero-Covid strategy of lockdowns that has hammered the economy this year.

“We expect that the existing Covid measures, that is the number of Covid tests, quarantine days, etc, will remain the same after the Party Congress,” said Iris Pang at ING.

“This will continue to put fiscal pressure on local governments, and when the number of Covid cases increase, we should keep seeing localised lockdowns.”

Traders are also keeping tabs on looming earnings reports, with expectations that higher rates and prices will have eaten into companies’ bottom lines.

Eyes are also on Tokyo as the yen sits around a three-decade low against the dollar owing to US rate hike expectations and the Bank of Japan’s refusal to tighten monetary policy, citing a need to support the economy.

The yen is approaching 150 to the dollar for the first time since 1990, but while officials have said they are keeping tabs on developments, they have yet to intervene in markets for a second time, having done so last month.

– Key figures around 0720 GMT –

Tokyo – Nikkei 225: DOWN 1.2 percent at 26,775.79 (close)

Hong Kong – Hang Seng Index: UP 0.2 percent at 16,612.90 (close)

Shanghai – Composite: UP 0.4 percent at 3,084.94 (close)

London – FTSE 100: UP 0.6 percent at 6,896.53

Pound/dollar: UP at $1.1262 from $1.1180 Friday

Dollar/yen: DOWN at 148.61 yen from 148.72 yen

Euro/dollar: UP at $0.9748 from $0.9724

Euro/pound: DOWN at 86.55 pence from 86.93 pence

West Texas Intermediate: UP 1.0 percent at $86.47 per barrel

Brent North Sea crude: UP 1.0 percent at $92.54 per barrel

New York – Dow: DOWN 1.3 percent at 29,634.83 (close)

Credit Suisse said Monday it would pay $495 million to settle a row over mortgage-backed securities dating back to the 2008 financial crisis.

Switzerland’s second-biggest bank said it had agreed with New Jersey authorities to make the “one-time payment… to fully resolve claims” for compensation, and said it had already provisioned the amount.

In the claim filed in 2013, Credit Suisse was criticised for not having provided sufficient information on the risks relating to $10 billion of mortgage-backed securities.

Subprime mortgages, credit granted to borrowers often with poor credit histories or insufficient income, were packaged into financial products and sold to investors. 

But as borrowers defaulted on many of those mortgages, investors had no way of telling what portion of the loans in the derivatives were bad. 

Those products were at the heart of the 2008 financial crisis, which sparked a global recession and brought the international financial system to the brink of collapse.

Credit Suisse said the final settlement with the New Jersey Attorney General allowed it “to resolve the only remaining RMBS (residential mortgage-backed securities) matter involving claims by a regulator and the largest of its remaining exposures on its legacy RMBS docket”.

Shares rose after the statement on the SMI, the flagship index of the Swiss Stock Exchange.

Speculation has been growing ahead of an update scheduled by the new chief executive for later this month.

According to the Financial Times, the bank is considering not only disposals in its investment bank but also the sale of some of its domestic activities in Switzerland.

– Financial crisis fines –

In January 2017, US authorities forced Credit Suisse to pay out $5.28 billion over its role in the subprime crisis — three years after it was fined $2.6 billion for helping Americans avoid taxes.

Last year, Credit Suisse also paid $600 million to financial guarantee insurer MIBA to settle other long-running litigation connected to the US subprime mortgage crisis.

The bank said last January it was increasing the provisions set aside for the MBIA case and others involving mortgage backed securities by $850 million.

Some of the world’s biggest banks have also faced legal claims after the 2008 financial crash.

German banking giant Deutsche Bank agreed in December 2016 to pay $7.2 billion to settle a case with the US Department of Justice.

And British banking giant Barclays reached a deal in 2018 to pay a US fine of $2 billion over a fraud case involving subprime mortgage derivatives.

The Bank of America meanwhile agreed to a $17 billion deal with US authorities in 2014 to settle claims it sold risky mortgage securities as safe investments ahead of the 2008 financial crisis.

As the UN steps up calls to make the switch to renewable energy to fight the global climate emergency, Portugal is among the first European Union countries to abandon coal.

It will share the lessons it has learned so far at November’s COP27 UN climate summit in Egypt.

It has been nearly a year now since smoke has trailed up from the cooling towers of the coal plant in Pego, 120 kilometres (70 miles) northeast of the capital Lisbon.

The lights are off at the station, and the dust gathering on the steel structure attests to the fact that the last coal plant in Portugal shut down in November last year after 30 years in service.

The authorities in Lisbon shut down this fossil-fuel eight years sooner than planned — and just months after the Sines coal plant, some 90 kilometres south of Lisbon, closed at the start of 2021.

Portugal is one a handful of EU member states — along with Belgium and Sweden — to have renounced coal as an energy source.

The energy crisis triggered by the war in Ukraine prompted Austria to reverse a previous decision to close coal-fired plants.

Portugal however “remains convinced that it will not be necessary to renege on this decision,” Environment Minister Duarte Cordeiro said in mid-September.

– ‘An example in Europe’ –

“Portugal is an example in Europe,” says Pedro Nunes, an expert in renewable energy at the University of Lisbon, and policy officer with the environmental group Zero.

The two coal plants recently closed accounted for nearly 20 percent of Portugal’s greenhouse gases, he points out.

To replace coal’s contribution to electricity production, the government hopes to continue developing its green energy to provide 80 percent of its energy by 2026, up from 40 percent in 2017.

If the share of renewables in electrical output hit nearly 60 percent in 2021, the figure dropped back to 40 percent this year owing to a historic drought which slashed hydro-electric power.

The UN’s World Meteorological Organization called Tuesday for the world to double the supply of electricity from renewables by 2030 to prevent climate change from undermining global energy security.

Electricity has not only been a major source of carbon emissions driving climate change, but it is also vulnerable to the effects of a warming planet, the WMO said.

Portugal is aiming to increase its wind power and solar capacity — it currently ranks 8th and 13th respectively in Europe. But it remains heavily dependent on fossil fuels, which accounted for 71 percent of its energy mix in 2020, according to Eurostat.

In this transition phase, the strategy “initially passes via electricity produced by gas plants, which are one-third less polluting than coal”, said Nunes.

– Imports rising –

Portugal has used natural gas-fired combined cycle power plants like the one running since 2011 on the Pego site, next to the decommissioned coal plant. It is scheduled to run until 2035.

“It’s not by chance” that Portugal has been among the first in Europe to abandon coal, says Pedro Almeida Fernandes, tasked with renewable energies for the Portuguese subsidiary of Spain’s Endesa.

The country has been preparing for its energy transition “for a long time”, he says.

Endesa won the contract to reconvert by 2025 the Pego coal plant into a complex combining solar power, wind energy and green hydrogen. This is, after all, a place that enjoys 300 days of sunshine per year.

With that kind of resource, Portugal aims to increase solar power production by 50 percent to three gigawatts, in 2022 alone, according to a government estimate.

Nevertheless, Pedro Clemente Nunes, an energy specialist at Lisbon’s Technical University, said the country’s move away from coal had been “badly planned” in Portugal.

For a year, Portugal “considerably increased its electrical imports” from neighbouring Spain which “continues to produce energy from coal,” he said.