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Business

U.S. marshals other nations, challenges OPEC+ with release of oil reserves

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  • OPEC+ has rebuffed repeated U.S. calls for more crude
  • Biden under political pressure as inflation picks up
  • OPEC+ meets on Dec. 2 but no sign of a change of tack
  • India, Britain detail contributions to oil release

WASHINGTON, Nov 23 (Reuters) – The administration of U.S. President Joe Biden announced on Tuesday it will release millions of barrels of oil from strategic reserves in coordination with China, India, South Korea, Japan and Britain, to try to cool prices after OPEC+ producers repeatedly ignored calls for more crude.

Biden, facing low approval ratings amid rising inflation ahead of next year’s congressional elections, has grown frustrated at repeatedly asking the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to pump more oil without any response.

“I told you before that we’re going to take action on these problems. That’s exactly what we’re doing,” Biden said in remarks broadcast from the White House.

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“It will take time, but before long you should see the price of gas drop where you fill up your tank, and in the longer-term we will reduce our reliance on oil as we shift to clean energy,” he said.

Crude oil prices recently touched seven-year highs, and consumers are feeling the pain of the increase in fuel costs. Retail gasoline prices are up more than 60% in the last year, the fastest rate of increase since 2000, largely because people have returned to the roads as pandemic-induced restrictions have eased and demand has rebounded.

Under the plan, the United States will release 50 million barrels, the equivalent of about two and a half days of U.S. demand. India, meanwhile, said it would release 5 million barrels, while Britain said it would allow the voluntary release of 1.5 million barrels of oil from privately held reserves.

Japan will hold auctions for about 4.2 million barrels of oil, about 1 or 2 days worth of its demand, out of its national stockpile by the end of the year, the Nikkei newspaper reported on Wednesday.

Details on the amount and timing of the release of oil from South Korea and China were not announced. Seoul said it would decide after discussions with the United States and other allies.

The price of oil rebounded on Tuesday, after falling for several days as rumors of the plans made their way into the market. Some analysts also attributed the market’s rebound to the lack of firm details out of China, though Reuters reported last week that the country has been working on such a release. Brent crude futures rose 3.3% on Tuesday to $82.31 a barrel.

It was the first time that the United States had coordinated such a move with some of the world’s largest Asian oil consumers, officials said.

OPEC+, which includes Saudi Arabia and other U.S. allies in the Gulf, as well as Russia, has rebuffed requests to pump more at its monthly meetings. It meets again on Dec. 2 to discuss policy but has so far shown no indication it will change tack.

The group has been struggling to meet existing targets under its agreement to gradually increase production by 400,000 barrels per day (bpd) each month – a pace Washington sees as too slow – and it remains worried that a resurgence of coronavirus cases could again drive down demand.

A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson/File Photo

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Recent high oil prices have been caused by a sharp rebound in global demand, which cratered early in the pandemic in 2021, and analysts have said that releasing reserves may not be enough to curb further rises.

“It’s not large enough to bring down prices in a meaningful way and may even backfire if it prompts OPEC+ to slow the pace at which it is raising output,” said Caroline Bain, chief commodities economist at Capital Economics Ltd.

The administration has also pointed to a notable gap between the price of unfinished gasoline futures and the retail cost of gasoline, which has widened to about $1.14 a gallon from roughly 78 cents in mid-October. The White House urged the Federal Trade Commission to investigate the issue last week.

Biden’s political opponents, meanwhile, seized on the announcement to criticize his administration’s efforts to decarbonize the U.S. economy and discourage new fossil fuel development on federal lands.

“Tapping the Strategic Petroleum Reserve will not fix the problem. We are experiencing higher prices because the administration and Democrats in Congress are waging a war on American energy,” said Senator John Barrasso, the ranking Republican on the Senate energy committee.

The release from the U.S. Strategic Petroleum Reserve would be a combination of a loan and a sale to companies, U.S. officials said. The 32 million-barrel loan will take place over the next several months, while the administration would accelerate a sale of 18 million barrels already approved by Congress to raise funds for the budget.

WARNING TO OPEC

The effort by Washington to team up with major Asian economies to lower energy prices acts as a warning to OPEC and other big producers that they need to address concerns about high crude prices, up more than 50% so far this year.

“It sends a signal to OPEC+ that the consuming nations are not going to get pushed around any more by them,” said John Kilduff, partner at Again Capital LLC in New York. “OPEC+ has been stingy with their output for months now.”

Suhail Al-Mazrouei, energy minister of the United Arab Emirates, one of OPEC’s biggest producers, said before details of the release of U.S. reserves were announced that he saw “no logic” in lifting UAE supply for global markets.

An OPEC+ source said releasing reserves would complicate calculations for OPEC+, as it monitors the market on a monthly basis. However, they and several market analysts said the release was not as big as the headline figure suggested. They said Britain and India were releasing modest amounts and the United States had already announced some releases, and so the additional quantity was less than expected.

The United States historically has worked on coordinated stocks releases with the Paris-based International Energy Agency (IEA), a bloc of 30 industrialised energy consuming nations.

Japan and South Korea are IEA members. China and India are only associate members.

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Reporting by Timothy Gardner in Washington
Additional reporting by Sonali Paul in Melbourne, Ghaida Ghantous in Dubai, Ahmad Ghaddar in London, OPEC team, Jarrett Renshaw in Philadelphia, Alexandra Alper and Jeff Mason in Washington, Jessica Resnick-Ault in New York and Aaron Sheldrick in Tokyo
Writing by Edmund Blair, Alexander Smith and Richard Valdmanis
Editing by David Gaffen, Carmel Crimmins, Cynthia Osterman and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

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Business

Turkish lira in historic 15% crash after Erdogan stokes fire sale

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  • Lira has shed 45% vs dollar this year, worst in world
  • Central bank has slashed policy rate 400 points since Sept
  • Turks say household budgets, future plans in turmoil
  • Ex-central banker calls for end to ‘irrational experiment’
  • Erdogan insists tighter policy will not lower inflation

ISTANBUL, Nov 23 (Reuters) – Turkey’s lira nose-dived 15% on Tuesday in its second-worst day ever after President Tayyip Erdogan defended recent sharp rate cuts, and vowed to win his “economic war of independence” despite widespread criticism and pleas to reverse course.

The lira tumbled to as low as 13.45 to the dollar, plumbing record troughs for an 11th straight session, before paring some losses. It has shed 45% of its value this year, including a near 26% decline since the beginning of last week.

Erdogan has applied pressure on the central bank to pivot to an aggressive easing cycle that aims, he says, to boost exports, investment and jobs – even as inflation soars to near 20% and the currency depreciation accelerates, eating deeply into Turks’ earnings. read more

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Many economists called the rate cuts reckless while opposition politicians appealed for early elections. Turks told Reuters the dizzying currency collapse was upending their household budgets and plans for the future.

While authorities have not intervened to stem the selloff, two sources said Erdogan met with central bank Governor Sahap Kavcioglu on Tuesday but gave no further details. The bank did not comment on the lira’s plunge.

Former central bank deputy governor Semih Tumen, who was dismissed last month in the latest of Erdogan’s rapid leadership overhaul, called for an immediate return to policies which protect the lira’s value.

“This irrational experiment which has no chance of success must be abandoned immediately and we must return to quality policies which protect the Turkish lira’s value and the prosperity of the Turkish people,” he said on Twitter.

Tuesday’s slide was the lira’s worst since the height of a currency crisis in 2018 that led to a sharp recession, and brought on three years of sub-par economic growth and double-digit inflation.

Though the lira recovered half its losses by 1413 GMT, at 12.485 to the dollar, the last 11 days has been its worst run since 1999. Over just three hours of volatile trading on Tuesday, its value bounced to 13 from 12 to the dollar.

The central bank has slashed rates by a total of 400 points since September, leaving real yields deeply negative as virtually all other central banks have begun tightening, or are preparing to do so.

Turkey rates and inflation

SLIDING POLLS

The lira has been by far the worst performer globally this year due mostly to what some analysts have called a premature economic “experiment” by the president who has ruled Turkey for nearly two decades.

Erdogan’s AK Party is sliding in opinion polls ahead of elections scheduled for no later than mid-2023, reflecting sharply higher costs of living.

“Prices are rising too fast. I don’t want to buy certain products because they’ve got too expensive,” said Kaan Acar, 28, a hotel executive in southern Turkey’s Kalkan resort, adding he was thinking of cancelling a trip abroad due to the rising cost.

“The fault lies with President Erdogan, the AKP government, and those who for years turned a blind eye and supported them.”

Investors appeared to flee as volatility gauges spiked to the highest levels since March, when Erdogan abruptly sacked the hawkish former central bank chief and installed Kavcioglu, who like the president is a critic of high rates.

Against the euro, the currency weakened to a fresh record low beyond 15 on Tuesday.

The 10-year benchmark bond yield rose above 21% for the first time since the start of 2019. Sovereign dollar bonds suffered sharp falls with many longer-dated issues down 2 cents, Tradeweb data showed.

As the lira plunged, Turkey’s main share index (.XU100) rose more than 1% due to suddenly cheap valuations. However bank stocks dropped, with the banking index down 2.5%.

Lira’s plunge over the years

EMERGENCY HIKES

The central bank cut its policy rate last Thursday by 100 basis points to 15%, well below inflation of nearly 20%, and signalled further easing.

Erdogan received support on Tuesday from his parliamentary ally, nationalist MHP leader Devlet Bahceli, who said high interest rates limit production and that there was no alternative to a policy focused on investments.

“Turkey needs to rid itself of the hunchback of interest rates,” Bahceli said in a speech to his party in parliament.

Erdogan defended the policy late on Monday and said high rates would not lower inflation, an unorthodox view he has repeated for years. read more

“I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty,” he said after a cabinet meeting, prompting a late-day slide in the lira.

Analysts said emergency rate hikes would be needed soon, while speculation about a cabinet overhaul involving the more orthodox finance minister, Lutfi Elvan, has also weighed.

Societe Generale predicted an “emergency” hike as soon as next month, with the policy rate rising to about 19% by the end of the first quarter of 2022.

Ilan Solot, global market strategist at Brown Brothers Harriman, said Erdogan would likely wait until a “breaking point” before reversing course.

“Right now locals seem content to keep their dollars in the local system. If they start to move money elsewhere, to Germany, to Austria, it’s another story,” Solot said.

“At that point we are talking capital controls. There are not enough dollar reserves, not enough dollars in the system to handle that. Then we will have a conversation about a real currency crisis,” he added.

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Additional reporting by Ali Kucukgocmen in Istanbul, Ece Toksabay in Ankara and Karin Strohecker, Marc Jones and Tommy Wilkes in London; Writing by Jonathan Spicer; Editing by Gareth Jones and Susan Fenton

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World

EXCLUSIVE U.S. asks Japan, China, others to consider tapping oil reserves -sources

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An oil storage tank and crude oil pipeline equipment is seen during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

WASHINGTON, Nov 17 (Reuters) – The Biden administration has asked some of the world’s largest oil consuming nations to consider releasing some crude reserves in a coordinated effort to lower prices, according to several people familiar with the matter.

Global oil benchmarks fell in post-close trading on the news. In late October, prices touched seven-year highs as oil demand has rebounded nearly to pre-pandemic levels, faster than the pace of supply.

President Joe Biden has faced political pressure over gasoline prices which have risen since his election in November 2020, a time when commuting and travel were drastically reduced during the pandemic. Government leaders in Japan and other consuming countries face similar pressures.

The Organization of the Petroleum Exporting Countries and allied producers, led by Saudi Arabia and Russia, have been adding 400,000 barrels per day to the market on a monthly basis but resisted Biden’s calls this month for steeper boosts. read more

In recent weeks, Biden and top aides have raised the issue with close allies including Japan, South Korea and India, as well as with China, the sources said. Tokyo responded positively to initial outreach, according to one of the sources.

One of the sources, asked why India was included in the batch of countries since it has only a small reserve, said: “We’re talking about the symbolism of the largest consumers of the world sending a message to OPEC that ‘you’ve got to change your behavior.'”

Several people familiar with the matter cautioned that such negotiations have not been finalized nor has any final decision been made about whether to pursue any specific course of action on oil prices.

The White House declined to comment on the detailed content of conversations with other countries. “No decisions have been made,” said a spokesperson for the White House’s National Security Council.

The White House has said for weeks that it is “talking with other energy consumers to ensure global energy supply and prices do not imperil the global economic recovery, the spokesperson added. “There is nothing to report beyond ongoing conversations and we consider a range of tools for if and when action is needed.”

The U.S. share of any potential release of reserves could be more than 20 to 30 million barrels, saying that much was needed to have an effect on markets, according to a U.S. source who participated in the discussions. The release could be in the form of a sale or a loan from the SPR – or both.

After Reuters reported on the White House discussions, U.S. crude was trading at $78.18 after closing at $78.36 a barrel, while Brent fell to $80.21 after ending at $80.28 a barrel. Prior to the news, both U.S. crude and global benchmark Brent notched their lowest settlement prices since early October, with Brent down 1.7% and U.S. crude down 3% for the day.

OPEC and allies have been wary of boosting output dramatically, concerned the rebound in demand could be fragile and additional supply could overwhelm markets.

“The surplus is already beginning in December,” OPEC Secretary General Mohammad Barkindo said on Tuesday, when asked if he was sure there would be an excess in oil supply next year.

“These are signals that we have to be very, very careful,” he told reporters. read more

Rising oil prices have vexed Biden ahead of the 2022 midterm electionswhich will determine whether his Democratic party maintains its slim majorities in the U.S. Congress.

Several Biden aides attribute his falling public approval ratings in recent months to worsening inflation from energy to food and other areas. The consumer price index is up 6.2% over the last 12 months, with its energy components up 30%.

U.S. gasoline prices are $3.41 per gallon now, according to AAA, more than 60% higher than a year ago as the economy has rebounded from the COVID-19 pandemic.

The Paris-based International Energy Agency, an energy watchdog which includes some of the largest consumers of oil, including the United States, Japan, and numerous European nations, did not comment. The IEA in the past has coordinated releases involving several countries.

“The IEA monitors the oil market closely and stands ready to act as necessary,” it said in a statement.

Reporting by Trevor Hunnicutt, Jarrett Renshaw and Tim Gardner; Additional reporting by Valerie Volcovici and Noah Browning; Editing by David Gaffen, Heather Timmons and David Gregorio

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World

Myanmar currency drops 60% in weeks as economy tanks since February coup

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People line up outside a bank to withdraw cash, in Yangon, Myanmar May 13, 2021. REUTERS/Stringer

Sept 29 (Reuters) – Myanmar’s currency has lost more than 60% of its value since the beginning of September, driving up food and fuel prices in an economy that has tanked since a military coup eight months ago.

Many gold shops and money exchanges closed on Wednesday due to the turmoil, while the kyat’s dive trended on social media with comments ranging from stark warnings to efforts to find some humour as yet another crisis hits the strife-torn nation.

“This will rattle the generals as they are quite obsessed with the kyat rate as a broader barometer of the economy, and therefore a reflection on them,” Richard Horsey, a Myanmar expert at the International Crisis Group, said.

In August, the Central Bank of Myanmar tried tethering the kyat 0.8% either side of its reference rate against the dollar, but gave up on Sept. 10 as pressure on the exchange rate mounted.

The shortage of dollars has become so bad that some money changers have pulled down their shutters.

“Due to the currency price instability at the moment…all Northern Breeze Exchange Service branches are temporarily closed,” the money changer said on Facebook.

Those still operating were quoting a rate of 2,700 kyat per dollar on Tuesday, compared to 1,695 on Sept. 1 and 1,395 back on Feb. 1 when the military overthrew a democratically elected government led by Nobel Laureate Aung San Suu Kyi.

WORLD BANK WARNS ECONOMY TO SLUMP 18%

The World Bank predicted on Monday the economy would slump 18% this year and said Myanmar would see the biggest contraction in employment in the region and the number of poor would rise. read more

The increasing economic pressures come amid signs of an upsurge in bloodshed, as armed militias have become bolder in clashes with the army after months of protests and strikes by opponents of the junta.

“The worse the political situation is, the worse the currency rate will be,” said a senior executive at a Myanmar bank, who declined to be identified.

Myanmar is also struggling to deal with a second wave of coronavirus infections that started in June with the response by authorities crippled after many health workers joined protests. Reported cases have comes off their highs though the true extent of the outbreak remains unclear.

In the immediate months after the Feb. 1 coup, many people queued up to withdraw savings from banks and some bought gold, but a jewellery merchant in Yangon said many desperate people were now trying to sell their gold.

The central bank gave no reason to why it abandoned its managed float strategy earlier this month, but analysts believe its foreign currency reserves must be seriously depleted.

Central bank officials did not answer calls seeking comment, but World Bank data shows it had just $7.67 billion in reserves at the end of 2020.

After coming off its managed float, the central bank still spent $65 million, buying kyat at a rate of 1,750 to 1,755 per dollar between Sept. 13-27.

The bank executive said the central bank’s efforts had limited impact in a currency market shorn of confidence.

The economic crisis has driven up the price of staples, and the UN Office for the Coordination of Humanitarian Affairs said this week that around three million people now require humanitarian assistance in Myanmar, up from one million before the coup.

In a country where gross domestic product per capita was just $1,400 last year, a 48-kg bag of rice now costs 48,000 kyat, or around $18, up nearly 40% since the coup, while gasoline prices have nearly doubled to 1,445 kyat per litre.

“If you have money, you buy gold, you buy dollars, you buy (Thai) baht. If you do not have money, you will starve,” said Facebook user Win Myint in a post.

Reporting by Reuters Staff; Writing by Ed Davies; Editing by Simon Cameron-Moore and Nick Macfie

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Business

China to auction off state oil reserves to help refiners

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Refinery plants of Chambroad Petrochemicals are seen in Boxing, Shandong Province, China, May 10, 2016. REUTERS/Meng Meng/File Photo

  • China to sell state crude reserves in phases via public auction
  • Top oil importer’s producer price inflation at 13-yr high in Aug
  • Auctions could sell off 10-15 mln bbl of oil at a time – analyst
  • Brent falls as much as 1.9% after announcement before rebounding
  • China has released other commodity stocks in 2021 to cool prices

BEIJING, Sept 9 (Reuters) – China’s state reserves administration said on Thursday it would release crude oil reserves to the market via public auction to ease the pressure of high feedstock costs on domestic refiners.

The release, described as a first, will be made in phases and is mainly for integrated refining and chemical plants, the National Food and Strategic Reserves Administration said in a statement. That potentially rules out the participation of some smaller, independent refiners known as “teapots”.

The move will “better stabilise domestic market supply and demand and effectively guarantee the country’s energy security,” the administration added, without specifying the volume of crude it would sell or when.

China, the world’s biggest crude oil importer, is famously secretive about its strategic petroleum reserve (SPR).

It has repeatedly taken steps to cool a rally in the price of key commodities this year, even auctioning off state metal reserves for the first time in more than a decade to try and keep manufacturers’ costs down.

Even so, factory gate inflation hit a 13-year high in August, data published earlier on Thursday showed. read more

The out-of-the-blue announcement from the reserves administration comes with benchmark Brent crude oil prices up around 40% this year amid a rebound in energy demand after a coronavirus-led collapse in 2020.

Brent fell as much as 1.9% following the announcement before recovering to trade up 0.4% at $72.89 a barrel as of 1502 GMT.

Consultancy Energy Aspects in early July estimated China’s SPR sites hold 220 million barrels of crude oil, equivalent to 15 days of demand. read more

“The SPR news comes at a time when the outage at Shell’s Mars platform is forcing Chinese majors to scramble for alternatives as many of the 10-12 million barrels of Mars cargoes bought for September and October loadings have been cancelled,” Energy Aspects analyst Liu Yuntao said.

Royal Dutch Shell Plc (RDSa.L) shut the Mars platform in the Gulf of Mexico late last month as Hurricane Ida approached.

Liu predicts releases via auction would sell 10-15 million barrels at a time, at most.

The last public figures for China’s SPR were given in 2017, when the National Bureau of Statistics said the country had built nine storage bases with total reserve capacity of 37.73 million cubic metres, or 237.66 million barrels, of crude oil.

Reporting by Muyu Xu and Tom Daly
Additional reporting by Beijing Newsroom
Editing by David Goodman, Mark Potter and Pravin Char

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World

West African regional bloc suspends Guinea after coup

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CONAKRY, Sept 8 (Reuters) – West Africa’s main political and economic bloc suspended Guinea’s membership on Wednesday following a weekend military coup that ousted President Alpha Conde and dealt the latest in a flurry of setbacks to democracy in the region.

During a virtual summit, leaders from the 15-member Economic Community of West African States (ECOWAS) demanded a return to the constitutional order and Conde’s immediate release, and also agreed to send a high-level mission to Guinea as soon as Thursday, said Burkina Faso’s Foreign Minister Alpha Barry.

“At the end of that mission, ECOWAS should be able to re-examine its position,” Barry told reporters.

He did not announce any immediate economic sanctions against Guinea, as ECOWAS imposed against Mali following a coup there in August 2020.

Some experts say ECOWAS’s leverage with Guinea could be limited, in part because the country is not a member of the West African currency union and not landlocked like Mali.

The economic bloc’s response is being closely watched amid criticism from pro-democracy advocates that it has not stood up robustly enough in recent months against democratic backsliding in West Africa.

ECOWAS remained silent last year as Conde and Ivory Coast President Alassane Ouattara sought third terms after changing constitutions that would have forced them to step down, moves denounced as illegal by their opponents.

Activists say this has contributed to West Africans’ loss of faith in democracy and made military coups more likely.

Mali’s military staged a second coup in May this year. ECOWAS said on Tuesday it was concerned transitional authorities there had not made sufficient progress toward organising elections next February as promised. read more

Special forces members take position during an uprising that led to the toppling of president Alpha Conde in Kaloum neighbourhood of Conakry, Guinea September 5, 2021. REUTERS/Saliou Samb

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PRISONER RELEASES

Guinea’s coup leader, Mamady Doumbouya, a former French legionnaire, has pledged to install a unified, transitional government but has not said when or how that will happen.

In an apparent gesture to Conde’s civilian opponents, at least 80 political prisoners detained by the president were released on Tuesday evening, many of whom had campaigned against his constitutional change.

Doumbouya also met the heads of Guinea’s various military branches for the first time on Tuesday, hoping to unify the country’s armed forces under the junta’s command.

Guinea’s main opposition leader, Cellou Dalein Diallo, who finished runner-up to Conde in three successive elections, told Reuters on Tuesday he would be open to participating in a transition back to constitutional governance.

In a statement on Tuesday evening, Conde’s party said it “noted the advent of new authorities at the head of the country” and called for the president’s swift and unconditional release.

Since the putsch, life in the streets of Conakry appears to have returned to normal, with some military checkpoints removed.

Fears that the power struggle could hinder Guinea’s production of bauxite, a mineral used to make aluminium, have begun to ease. The country’s largest foreign operators say they have continued to operate without interruption.

Aluminium hit a fresh 10-year high on Monday after news broke of unrest in Guinea, which holds the world’s largest bauxite reserves. Doumbouya has pledged that mining will continue unhindered.

Additional reporting by Christian Akorlie in Accra; Writing by Cooper Inveen and Aaron Ross, Editing by Hereward Holland, Timothy Heritage and Gareth Jones

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Business

China’s economy under pressure as factory activity slows in Aug, services contract

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  • Twin PMI surveys point to growing pressure on businesses
  • Surveys suggest economy contracted in Aug – economist
  • High raw material prices, COVID-19 curbs hurt economy
  • Analysts expect more policy support later in year

BEIJING, Aug 31 (Reuters) – China’s businesses and the broader economy came under increasing pressure in August as factory activity expanded at a slower pace while the services sector slumped into contraction, raising the likelihood of more near-term policy support to boost growth.

The world’s second-biggest economy staged an impressive recovery from a coronavirus-battered slump, but momentum has weakened recently due to domestic COVID-19 outbreaks, high raw material prices, slowing exports, tighter measures to tame hot property prices and a campaign to reduce carbon emissions.

The official manufacturing Purchasing Manager’s Index (PMI) fell to 50.1 in August from 50.4 in July, data from the National Bureau of Statistics (NBS) showed on Tuesday, holding just above the 50-point mark that separates growth from contraction.

Analysts polled by Reuters had expected it to slip to 50.2.

“The worse-than-expected August PMIs add conviction to our view that the growth slowdown in H2 could be quite notable,” Nomura economists wrote in a note.

“We expect Beijing to maintain its policy combination of ‘targeted tightening’ for a few sectors, especially the property sector and high-polluting industries, complemented by ‘universal easing’ for the rest of the economy.”

Nomura is not alone in its views as many other analysts also expect the central bank to deliver a further cut to the amount of cash banks must hold as reserves later this year to lift growth, on top of last month’s cut which released around 1 trillion yuan ($6.47 trillion) in long-term liquidity into the economy.

The manufacturing PMI showed demand slipped sharply, with new orders contracting and a gauge for new export orders falling to 46.7, the lowest in over a year. Factories also laid off workers, at the same pace as July.

SERVICES SECTOR DOWNTURN

Adding to signs of a broadening economic slowdown, COVID-19-related restrictions drove services sector activity into sharp contraction for the first time since the height of the pandemic in February last year.

A worker wearing a face mask works on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province, China March 2, 2020. China Daily via REUTERS

The official non-manufacturing PMI in August was 47.5, well down from July’s 53.3, data from the NBS showed.

“The latest surveys suggest that China’s economy contracted (in August) as virus disruptions weighed heavily on services activity. Industry also continued to come off the boil as supply chain bottlenecks worsened and demand softened,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note.

While most of the weakness should reverse with relaxing COVID-19 restrictions, tight credit conditions and weakening foreign demand will continue to weigh on China’s economy, he said.

“This epidemic in multiple provinces and locations was a fairly big shock to the services industry, which is still in recovery,” said Zhao Qinghe, of the NBS.

Catering, transportation, accommodation and entertainment industries were most affected, said Zhao. Construction activity accelerated to the fastest pace since March.

There are signs China may have largely contained the latest coronavirus outbreaks, with zero locally transmitted cases reported on Aug 30., for the third day in a row.

But it spurred authorities across the country to impose measures including mass testing for millions of people as well as travel restrictions of varying degrees and port shutdowns.

Meishan terminal at China’s Ningbo port resumed operations in late August after shutting down for two weeks due to a COVID-19 case. The closure caused logjams at ports across the country’s coastal regions and further strained global supply chains amid a resurgence of consumer spending and a shortage of container vessels.

Higher raw material prices, especially of metals and semiconductors, have also pressured profits. Earnings at China’s industrial firms in July slowed for the fifth straight month.

The official August composite PMI, which includes both manufacturing and services activity, fell to 48.9 from July’s 52.4.

Reporting by Gabriel Crossley
Editing by Shri Navaratnam

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World

Nobody’s running Lebanon, central bank boss says

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  • Central bank decided to end fuel subsidy on Wednesday
  • Central bank chief hits back at criticism of decision
  • The decision angered the government

BEIRUT, Aug 14 (Reuters) – Lebanon’s central bank governor said nobody was running the country, hitting back after government criticism of his decision to halt fuel subsidies that have drained currency reserves.

In an interview broadcast on Saturday, Riad Salameh said the government could resolve the problem quickly by passing necessary legislation.

He denied he had acted alone in declaring an end to the subsidies on Wednesday, and said it was widely known that the decision was coming. read more

“So far you have nobody running the country,” Salameh told Radio Free Lebanon.

The worsening fuel crisis is part of Lebanon’s wider financial meltdown. Hospitals, bakeries and many businesses are scaling back operations or shutting down as fuel runs dry. read more

Deadly violence has flared in fuel lines, protesters have blocked roads, and fuel tankers have been hijacked this week.

The American University of Beirut Medical Center said it was threatened with a forced shutdown as early as Monday because of shortages of fuel used to generate electricity.

“This means that ventilators and other lifesaving medical devices will cease to operate. Forty adult patients and fifteen children living on respirators will die immediately,” the hospital said.

The central bank’s move to end subsidies will mean sharp price increases. It is the latest turn in a crisis that has sunk the Lebanese pound by 90% in less than two years and pushed more than half the population into poverty.

The central bank has effectively been subsidising fuel and other vital imports by providing dollars at exchange rates below the real price of the pound – most recently at 3,900 pounds to the dollar compared to parallel market rates above 20,000. – This has eaten into a reserve which Salameh said now stood at $14 billion.

To continue providing such support, the central bank has said it needs legislation to allow use of the mandatory reserve, a portion of deposits that must be preserved by law.

“We are saying to everyone: You want to spend the mandatory reserve, we are ready, give us the law. It will take five minutes,” Salameh said.

“HUMILIATION OF THE LEBANESE”

The government has said fuel prices must not change. Fuel importers say they cannot import at market rates and sell at subsidised rates, and want clarity.

The central bank and oil authority told importers to sell their stocks at the subsidised rate of 3,900 pounds to the dollar, prioritising hospitals and other essential functions.

Lebanon’s army said on Saturday it had begun raiding closed petrol stations and distributing stored gasoline to citizens.

Critics of the subsidy scheme say it has encouraged smuggling and hoarding by selling commodities at a fraction of their real price.

Salameh said the bank had been obliged to finance traders who were not bringing their product to the market, and that over $800 million spent on fuel imports in the last month should have lasted three months.

Salameh said there was no diesel, gasoline or electricity, adding: “This is humiliation of the Lebanese.”

Lebanese politicians have failed to agree on a new government since Prime Minister Hassan Diab quit last August after a deadly explosion at Beirut port. He has stayed on as caretaker prime minister.

President Michel Aoun expressed optimism a new government would be formed soon.

Salameh said Lebanon could exit its crisis if a reform-minded government took office, adding the pound was “hostage to the formation of a new government and reforms”.

The government has said ending subsidies must wait until prepaid cash cards for the poor are rolled out. Parliament approved these in June, with financing from the mandatory reserve, Salameh said, but they have yet to materialise.

Reporting by Nafisa Eltahir/Laila Bassam; Writing by Tom Perry; Editing by Kirsten Donovan and Timothy Heritage

Our Standards: The Thomson Reuters Trust Principles.

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