Business

By Yoruk Bahceli and Dhara Ranasinghe

LONDON (Reuters) – Rather than invent a radical new instrument to ease bond market strains across the euro bloc, investors reckon the European Central Bank might get away with cobbling together the best parts of schemes already contained in its policy toolkit.

The ECB on Wednesday promised fresh support and the design of a potential new scheme to temper a market rout that has fanned fears of a new debt crisis on the euro currency area’s southern rim.

Its statement sent 10-year borrowing costs in Italy and Greece sliding as much as 40 basis points, the biggest daily move since March 2020 for the latter. In a week when yields across the bloc hit multi-year highs, the immediate reaction was one of relief.

Yet, it was not really the whatever-it-takes pledge ex-ECB president Mario Draghi delivered almost exactly a decade ago, signalling his determination to rescue the euro from collapse.

“I hope that they have the intelligence to design (a new tool) in a way that’s not too strict, keeping flexibility by purchases,” said Patrick Krizan, senior economist at Allianz.

“The biggest error would be to be too committed and put themselves in a straitjacket.”

The ECB has already drawn criticism for being too complacent over the risk that its plans to raise interest rates would lift borrowing costs for financially weaker nations such as Italy too far above those of safe-haven Germany.

With the bloc clearly facing that fragmentation problem, it is important for any new bond-buying tool from the ECB to be flexible, investors said.

So just like the pandemic-era PEPP emergency stimulus scheme, it would need to ditch the capital-key principle of buying bonds in relation to the size of economies, instead buying debt from countries which most need help.

Graphic: Italy-Greece-https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwbwyjvo/Pasted%20image%201655302743622.png

One suggestion is creating a new tool similar to the Outright Monetary Transactions (OMT) scheme, an unused crisis-time tool allowing for unlimited purchases of a country’s debt.

The main sticking point for the original OMT programme is the requirement to sign up for a European Union bailout, often with unpopular conditions.

“The political price is quite high for the current OMT, so the ECB cannot do this alone, there must be something on the political side to design an OMT-light, which allows a country to be a bit protected,” said Krizan.

Analysts said they would expect an OMT-like programme to come with conditions attached, but not as strict as those in the original programme.

Aside from fiscal requirements, “the size will be everything, the maturities of the bonds they will be looking at, these are the most important,” said ING Bank senior rates strategist Antoine Bouvet.

The original OMT programme focused on buying shorter-dated bonds.

Yet another option is to design a package with traits of the OMT’s precursor – the Securities Markets Programme (SMP), which did not include the OMT’s strict, formal conditionality.

The SMP’s positive was that it also allowed the ECB to buy bonds, without adding to stimulus already sloshing around the system, in a process economists refer to as sterilisation.

For this reason, France’s central bank governor Francois Villeroy de Galhau has said bond purchases could again feature sterilisation.

The bank could also buy debt during a market stress episode, then sell gradually as conditions improve, thus avoiding increasing its overall balance sheet size, Villeroy has said.

The SMP had limited success however, and was terminated with a value of just 209 billion euros, not long after Draghi’s July 2012 “whatever it takes” promise.

Still, Piet Christiansen, chief analyst at Danske Bank, expects something along the lines of the SMP.

“Sterilised purchases have been our baseline all throughout and I think that is what is to be expected, because the SMP programme was done in a way so it doesn’t interfere with the monetary policy stance and the only way they could do that is by sterilizing the purchases,” he said.

What’s certain is that the ECB has the firepower to calm frenzied markets.

On March 18, 2020, when the COVID-19 outbreak sent Italian/German bond spreads briefly above 300 bps, the Bank of Italy stepped up bond purchases on behalf of the ECB. Later that day, the ECB launched its PEPP scheme.

Investors urged the ECB to unveil detailed plans fast, warning that otherwise bond market relief would fade.

“At the end of the day people want to see action,” said Francois Savary, chief investment office Prime Partners.

(Reporting by Yoruk Bahceli and Dhara Ranasinghe; editing by Sujata Rao and xxx)

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(Corrects number of employees in Russia in 1st and 6th paragraph)

By Anna Ringstrom

STOCKHOLM (Reuters) -IKEA said on Wednesday it would sell factories, close offices and reduce its 15,000-strong workforce in Russia, the latest move by the world’s biggest furniture brand to cut its operations there following Moscow’s invasion of Ukraine.

The move comes after IKEA temporarily closed stores and paused sourcing in Russia, joining a mass corporate exodus as Western companies rushed to comply with Western sanctions and amid threats the Kremlin would seize foreign assets.

The Swedish company has continued paying employees and will do so until the end of August.

On Wednesday, it said it did not see any possibility to resume sales in the country, where it opened its first store in 2000, in the foreseeable future.

As a result, brand owner Inter IKEA, which is also in charge of supply, said it would now start looking for buyers for its four factories, permanently close two purchase and logistics offices in Moscow and Minsk and cut staff.

IKEA has 15,000 employees in the country, of which 12,500 work at Ingka Group which owns all IKEA stores in Russia.

“Unfortunately, the circumstances have not improved, and the devastating war continues. Businesses and supply chains across the world have been heavily impacted and we do not see that it is possible to resume operations any time soon,” Ingka Group said in a statement.

Still Ingka, also one of the world’s biggest shopping centre owners, is keeping its 14 malls in Russia, branded “MEGA”, open.

The company said it wants to ensure people have access to basics they need, including clothes, groceries, and pharmacies, but it is continuously evaluating the situation.

It also declined to comment on its plans for the 17 shuttered stores, saying in an email it was “exploring various options”.

The steps so far differ from some other major Western companies, such as McDonald’s and French carmaker Renault, which have sold their assets to local buyers and quit the country entirely.

The retail business remains paused, IKEA said, but hinted it may open the doors for Russians for a final time. “To ensure necessary business processes, we are organising the sale of homeware goods that are in our warehouses to employees and customers. Dates will be announced soon,” IKEA said.

It said it may donate some stock to people in need.

But selling surplus inventory and generating revenue there may raise eyebrows given the public and political pressure on companies not to make money from doing business in Russia.

“We considered a wide range of options before taking the decision to sell off the stock, and there was no other viable solution,” the company said in the email.

(Reporting by Anna RingstromWriting by Josephine Mason;Editing by Angus MacSwan and Mark Potter)

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By Sam Nussey

TOKYO (Reuters) – Proxy adviser Glass Lewis has urged SoftBank Group Corp shareholders to oppose the election of corporate lawyer Ken Siegel to the board of directors for a second consecutive year due to his professional ties to the tech conglomerate.

Siegel, who heads the mergers and acquisitions team at the Tokyo office of law firm Morrison & Foerster, has represented SoftBank in deals including the purchase of chip designer Arm and the collapsed sale of the Cambridge-based firm to Nvidia.

“We question the need for the company to engage in legal services with its directors. We view such relationships as creating conflicts for directors,” Glass Lewis said in a proxy paper ahead of the June 24 annual shareholder meeting.

Almost a third of shareholders opposed Siegel’s election last year, in an unusual display of disapproval at an event known for vocal expressions of admiration for Chief Executive Masayoshi Son from attendees.

Son will take the stage at this year’s event on the back foot amid concern over exposure by the conglomerate, whose Vision Fund unit booked a record loss in May, to high growth stocks as interest rates rise and tech valuations fall.

Proxy adviser Institutional Shareholder Services Inc (ISS) recommends election of Siegel, saying while he cannot be seen as independent, “voting against this nominee may run the risk of actually increasing management dominance of the board.”

Son’s dominant role in the company he founded has been brought into relief by the departure of top executives including Chief Operating Officer Marcelo Claure.

Both proxy advisers recommend the election of David Chao, general partner at venture capital firm DCM Ventures, who will become the fifth outside director on the nine person board.

SoftBank has not disclosed the amount of business it does with Chao’s firm, “preventing shareholders from assessing the materiality of the relationship,” ISS said in its proxy paper.

(Reporting by Sam Nussey; Editing by Christopher Cushing)

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RED LODGE, Mont. (AP) — The forces of fire and ice shaped Yellowstone National Park over thousands of years. It took decades longer for humans to tame it enough for tourists to visit, often from the comfort of their cars.

In just days, heavy rain and rapid snowmelt caused a dramatic flood that may forever alter the human footprint on the park’s terrain and the communities that have grown around it.

The historic floodwaters that raged through Yellowstone this week, tearing out bridges and pouring into nearby homes, pushed a popular fishing river off course — possibly permanently — and may force roadways nearly torn away by torrents of water to be rebuilt in new places.

“The landscape literally and figuratively has changed dramatically in the last 36 hours,” said Bill Berg, a commissioner in nearby Park County. “A little bit ironic that this spectacular landscape was create by violent geologic and hydrologic events, and it’s just not very handy when it happens while we’re all here settled on it.”

The unprecedented flooding drove more than 10,000 visitors out of the nation’s oldest national park and damaged hundreds of homes in nearby communities, though remarkably no was reported hurt or killed. The only visitors left in the massive park straddling three states were a dozen campers still making their way out of the backcountry.

The park could remain closed as long as a week, and northern entrances may not reopen this summer, Superintendent Cam Sholly said.

“I’ve heard this is a 1,000-year event, whatever that means these days. They seem to be happening more and more frequently,” he said.

Sholly noted some weather forecasts include the possibility of additional flooding this weekend.

Days of rain and rapid snowmelt wrought havoc across parts of southern Montana and northern Wyoming, where it washed away cabins, swamped small towns and knocked out power. It hit the park as a summer tourist season that draws millions of visitors was ramping up during its 150th anniversary year.

Businesses in hard-hit Gardiner had just started really recovering from the tourism contraction brought by the coronavirus pandemic, and were hoping for a good year, Berg said.

“It’s a Yellowstone town, and it lives and dies by tourism, and this is going to be a pretty big hit,” he said. “They’re looking to try to figure out how to hold things together.”

Some of the worst damage happened in the northern part of the park and Yellowstone’s gateway communities in southern Montana. National Park Service photos of northern Yellowstone showed a mudslide, washed out bridges and roads undercut by churning floodwaters of the Gardner and Lamar rivers.

In Red Lodge, a town of 2,100 that’s a popular jumping-off point for a scenic route into the Yellowstone high country, a creek running through town jumped its banks and swamped the main thoroughfare, leaving trout swimming in the street a day later under sunny skies.

Residents described a harrowing scene where the water went from a trickle to a torrent over just a few hours.

The water toppled telephone poles, knocked over fences and carved deep fissures in the ground through a neighborhood of hundreds of houses. Electricity was restored by Tuesday, but there was still no running water in the affected neighborhood.

Heidi Hoffman left early Monday to buy a sump pump in Billings, but by the time she returned her basement was full of water.

“We lost all our belongings in the basement,” Hoffman said as the pump removed a steady stream of water into her muddy backyard. “Yearbooks, pictures, clothes, furniture. Were going to be cleaning up for a long time.”

At least 200 homes were flooded in Red Lodge and the town of Fromberg.

The flooding came as the Midwest and East Coast sizzle from a heat wave and other parts of the West burn from an early wildfire season amid a persistent drought that has increased the frequency and intensity of fires. Smoke from a fire in the mountains of Flagstaff, Arizona, could be seen in Colorado.

While the flooding hasn’t been directly attributed to climate change, Rick Thoman, a climate specialist at the University of Alaska Fairbanks, said a warming environment makes extreme weather events more likely than they would have been “without the warming that human activity has caused.”

“Will Yellowstone have a repeat of this in five or even 50 years? Maybe not, but somewhere will have something equivalent or even more extreme,” he said.

Heavy rain on top of melting mountain snow pushed the Yellowstone, Stillwater and Clarks Fork rivers to record levels Monday and triggered rock and mudslides, according to the National Weather Service. The Yellowstone River at Corwin Springs topped a record set in 1918.

Yellowstone’s northern roads may remain impassable for a substantial length of time. The flooding affected the rest of the park, too, with park officials warning of yet higher flooding and potential problems with water supplies and wastewater systems at developed areas.

The rains hit just as area hotels filled up in recent weeks with summer tourists. More than 4 million visitors were tallied by the park last year. The wave of tourists doesn’t abate until fall, and June is typically one of Yellowstone’s busiest months.

Mark Taylor, owner and chief pilot of Rocky Mountain Rotors, said his company had airlifted about 40 paying customers over the past two days from Gardiner, including two women who were “very pregnant.”

Taylor spoke as he ferried a family of four adults from Texas, who wanted to do some more sightseeing before heading home.

“I imagine they’re going to rent a car and they’re going to go check out some other parts of Montana — somewhere drier,” he said.

At a cabin in Gardiner, Parker Manning of Terre Haute, Indiana, got an up-close view of the roiling Yellowstone River floodwaters just outside his door. Entire trees and even a lone kayaker streamed by.

In early evening, he shot video as the waters ate away at the opposite bank where a large brown house that had been home to park employees before they were evacuated was precariously perched.

In a large cracking sound heard over the river’s roar, the house tipped into the waters and was pulled into the current. Sholly said it floated 5 miles (8 kilometers) before sinking.

The towns of Cooke City and Silvergate, just east of the park, were also isolated by floodwaters, which also made drinking water unsafe. People left a hospital and low-lying areas in Livingston.

In south-central Montana, 68 people at a campground were rescued by raft after flooding on the Stillwater River. Some roads in the area were closed and residents were evacuated.

In the hamlet of Nye, at least four cabins washed into the Stillwater River, said Shelley Blazina, including one she owned.

“It was my sanctuary,” she said Tuesday. “Yesterday I was in shock. Today I’m just in intense sadness.”

___

Whitehurst reported from Salt Lake City. Associated Press writers Amy Beth Hanson in Helena, Becky Bohrer in Juneau, Alaska, R.J. Rico in Atlanta, and Brian Melley in Los Angeles contributed to this report.

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BEIJING (AP) — China’s factory output rebounded in May, adding to a recovery from the latest COVID-induced economic slump after controls that shut down Shanghai and other industrial centers eased.

Industrial production rose 0.7% over a year earlier, recovering from April’s 2.9% contraction, government data showed. Consumer spending edged up compared with April but was lower than a year ago.

The data suggest a “lockdown recovery got underway across most parts of the economy,” said Sheana Yue of Capital Economics in a report.

China’s case numbers in its latest wave of infections are low, but the ruling Communist Party’s “zero-COVID” strategy that aims to isolate every person with the virus shut down most businesses in Shanghai starting in late March and suspended access or imposed other restrictions on other industrial cities. That fueled fears global manufacturing and trade might be disrupted.

Most factories, shops and other businesses in Shanghai, Beijing and other cities have been allowed to reopen but are expected to need weeks or months to return to normal activity.

Economists have cut forecasts of China’s growth this year to as low as 2%, well below the ruling Communist Party’s target of 5.5%. Some expect activity to shrink in the quarter ending in June before a gradual recovery begins.

Consumer spending, depressed by jitters over the economic outlook and possible job losses, rose 0.05% in May compared with the previous month but was off 6.7% from a year ago. Investment in factories, real estate and other fixed assets rose 0.7% compared with April.

Chinese leaders have promised tax rebates, free rent and other aid to help businesses recover.

“Following all this weak data, we should expect the government to respond with more fiscal stimulus,” said Iris Pang of ING in a report.

Export growth, reported last week, accelerated to 16.9% in May from the previous month’s 3.7%. Import growth rose to 4.1% from April’s 0.7%.

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By Sinead Cruise and Estelle Shirbon

LONDON (Reuters) -JPMorgan Chase has won a London High Court battle against Nigeria, which was seeking $1.7 billion in damages over the U.S. bank’s role in a disputed 2011 oilfield deal.

JPMorgan said the judgment reflected its commitment to acting with high professional standards everywhere it operates, while Nigeria said it was disappointed and would review the judgment carefully before considering its next steps.

The civil case, which was heard earlier this year, relates to the purchase by Shell and Eni of Nigeria’s OPL 245 offshore oilfield.

Nigeria had alleged JPMorgan was “grossly negligent” in its transfer of funds paid by the energy majors to a company linked to the country’s disgraced former oil minister Dan Etete, as per instructions received from Nigerian government officials.

Nigeria now says those officials were party to a fraudulent scheme.

According to Nigeria’s legal argument, the transactions put JPMorgan in breach of its Quincecare duty, which obliges banks to disregard a customer’s instructions if following those instructions might facilitate a fraud against that customer.

JP Morgan rejected the legal argument, putting the emphasis on its primary duty to comply promptly with payment instructions from its customer, and also contested some of the factual elements put forward by Nigeria.

London High Court Judge Sara Cockerill said in a 137-page ruling issued on Tuesday that no Quincecare breach had occurred.

JPMorgan said the outcome reflected “how we are prepared to robustly defend our actions and reputation when they are called into question”.

The Nigerian government said it would continue its fight against fraud and corruption and work to recover funds for the people of Nigeria.

Campaign group Spotlight on Corruption described the ruling as “a huge setback in the fight against corruption”, saying it gave a “free pass” to banks who ignored red flags.

The damages sought included cash sent to Etete’s company Malabu Oil and Gas, around $875 million paid in three instalments in 2011 and 2013, plus interest, taking the total to over $1.7 billion.

Nigerian military ruler Sani Abacha had awarded licence OPL 245 to a company Etete owned in 1998.

Subsequent Nigerian administrations had challenged Etete’s rights to the field over many years until a deal to resolve the impasse via a sale to Shell and Eni was struck in 2011.

The transaction is also at the centre of ongoing legal action in Italy.

(Additional reporting by Kirstin Ridley; editing by Louise Heavens and Jason Neely)

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(Reuters) -U.S. delivery firm FedEx Corp on Tuesday raised its quarterly dividend by more than 50% to $1.15 per share, sending its shares 10% higher in premarket trading.

The company also said it would add two directors – Amy Lane and Jim Vena – to its board as part of an agreement with hedge fund D.E. Shaw.

Vena most recently held the role of chief operating officer at Union Pacific, while Lane serves as a director of NextEra Energy Inc and TJX Companies Inc.

(Reporting by Nathan Gomes in Bengaluru; Editing by Aditya Soni)

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By Scott Murdoch

HONG KONG (Reuters) – Asian shares tumbled on Tuesday after Wall Street hit a confirmed bear market milestone and bond yields struck a two-decade high on fears aggressive U.S. interest rate hikes would push the world’s largest economy into recession.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.9%.

Australian shares S&P/ASX200 sank 5% in early trade, while Japan’s Nikkei stock index was down 1.74%.

In Hong Kong, the Hang Seng Index slipped 1.44% and China’s CSI300 Index was down nearly 1% at the open.

The negative tone in Asia follows a bleak session in the U.S on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve’s next policy meeting on Wednesday.

“The U.S. will see rate rises faster and higher than Wall Street has been expecting,” James Rosenberg, Ord Minnett advisor in Sydney told Reuters. “There will likely be the double impact of earnings forecasts being trimmed and further price to earnings derating.”

Expectations for aggressive U.S rate hikes rose after inflation in the year to May shot up by a sharper than predicted 8.6%.

Fears of higher rates leading to a U.S. recession kicked the S&P 500 down 3.88%, while the Nasdaq Composite lost 4.68%. The Dow Jones Industrial Average fell 2.8%.

The benchmark S&P 500 is now down more than 20% from its most recent record closing high, confirming a bear market, according to a commonly used definition.

In U.S. trading, benchmark 10-year Treasury yields hit their highest since 2011 on Monday and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that attempts to stem soaring inflation would dent the economy.

Early in Asia, the yield on benchmark 10-year Treasury notes rose to 3.3828% compared with its U.S. close of 3.371% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.4002% compared with a U.S. close of 3.281%.

“Higher inflation, slower growth and higher interest rates are a damaging combination for financial assets,” ANZ strategists wrote on Tuesday.

The dollar dropped 0.06% against the yen to 134.32 but remains close to its more-than-two-decade high of 135.17 reached on Monday.

The European single currency was flat at $1.0407, having lost 3.04% in a month, while the dollar index, which tracks the greenback against a basket of major currencies, was up at 105.19.

Bitcoin fell around 4.5% on Tuesday to $21,416, a fresh 18 month low, extending Monday’s 15% fall as markets were jolted by crypto lender Celsius suspending withdrawals.

U.S. crude dipped 0.06% to $122.14 a barrel. Brent crude was down 0.13% 122.14 per barrel.

Gold was slightly lower with the spot price at $1,818.7395 per ounce. [GOL/]

(Reporting by Scott Murdoch in Hong Kong; Additional reporting by Alun John; Editing by Sam Holmes)

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DUBAI, United Arab Emirates (AP) — Venezuelan President Nicolas Maduro visited Kuwait on Monday and spoke to the small, oil-rich nation’s crown prince, state media reported.

The state-run KUNA news agency offered little detail on Maduro’s talks with Sheikh Meshal Al Ahmed Al Jaber.

It reported the two men spoke at Kuwait International Airport alongside Maduro’s delegation, including his wife, Cilia Flores.

Venezuela’s state-run broadcaster VTV noted Kuwait and Venezuela both were part of the original members of the oil cartel OPEC. Maduro’s Twitter account said the president wanted to expand on those ties.

Maduro’s visit comes after he traveled to Tehran, Iran, for meetings over the weekend, including with Supreme Leader Ayatollah Ali Khamenei.

Maduro is on a Eurasia tour after President Joe Biden decided not to invite him to the Summit of the Americas, which began Thursday. His stops earlier this week included Algeria and Turkey.

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By Scott Murdoch

HONG KONG (Reuters) -Asian shares tumbled on Tuesday after Wall Street hit a confirmed bear market milestone and bond yields struck a two-decade high on fears aggressive U.S. interest rate hikes would push the world’s largest economy into recession.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.9%.

Australian shares S&P/ASX200 sank 5% in early trade, while Japan’s Nikkei stock index was down 1.74%.

The negative tone in Asia follows a bleak session in the U.S on Monday, which saw Goldman Sachs forecast a 75 basis point interest rate hike at the Federal Reserve’s next policy meeting on Wednesday.

“The U.S. will see rate rises faster and higher than Wall Street has been expecting,” James Rosenberg, Ord Minnett advisor in Sydney told Reuters. “There will likely be the double impact of earnings forecasts being trimmed and further price to earnings derating.”

Expectations for aggressive U.S rate hikes rose after inflation in the year to May shot up by a sharper than predicted 8.6%.

Fears of higher rates leading to a U.S. recession kicked the S&P 500 down 3.88%, while the Nasdaq Composite lost 4.68%. The Dow Jones Industrial Average fell 2.8%.

The benchmark S&P 500 is now down more than 20% from its most recent record closing high, confirming a bear market, according to a commonly used definition.

In U.S. trading, benchmark 10-year Treasury yields hit their highest since 2011 on Monday, and a key part of the yield curve inverted for the first time since April as investors braced for the prospect that attempts to stem soaring inflation would dent the economy.

Early in Asia, the yield on benchmark 10-year Treasury notes rose to 3.3828% compared with its U.S. close of 3.371% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.4002% compared with a U.S. close of 3.281%.

“Higher inflation, slower growth and higher interest rates are a damaging combination for financial assets,” ANZ strategists wrote on Tuesday.

The dollar dropped 0.06% against the yen to 134.32 but remains close to its more-than-two-decade high of 135.17 reached on Monday.

The European single currency was flat at $1.0407, having lost 3.04% in a month, while the dollar index, which tracks the greenback against a basket of major currencies, was up at 105.19.

Bitcoin fell around 4.5% on Tuesday to $21,416, a fresh 18 month low, extending Monday’s 15% fall as markets were jolted by crypto lender Celsius suspending withdrawals

U.S. crude dipped 0.06% to $122.14 a barrel. Brent crude was down 0.13% 122.14 per barrel.

Gold was slightly lower. Spot gold was traded at $1818.7395 per ounce. [GOL/]

(Reporting by Scott Murdoch in Hong Kong; Additional reporting by Alun John; Editing by Sam Holmes)

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