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China cuts key mortgage reference rate as Covid bites

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Prolonged virus lockdowns have constricted supply chains, quelled demand and stalled manufacturing in China
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China on Friday announced it would cut a key interest rate in a boost to home buyers and debt-mired developers as the country’s economy is slowed by Covid-19 restrictions ripping across major cities.

Prolonged virus lockdowns have constricted supply chains, quelled demand and stalled manufacturing in the last major economy welded to a zero-Covid approach to the pandemic.

The five-year loan prime rate (LPR) — which many lenders base their mortgage rates — was trimmed to 4.45 percent from 4.6 percent, China’s central bank said on Friday.

Since the rate is “the benchmark for pricing most mortgages, we think the move is aimed at supporting housing demand,” Julian Evans-Pritchard, an analyst at Capital Economics, said. 

The cut “should help drive a revival in housing sales.”

The one-year loan prime rate, which guides how much interest commercial banks charge to corporate borrowers, remained unchanged at 3.7 percent.

The reduction in the mortgage reference rate comes as a wave of defaults ripples through the country’s real estate sector, with developers sagging under massive debts and struggling with a slump in demand.

Sunac, one of China’s largest developers to default on payments in recent months, said last week that sales in major cities had fallen dramatically in March and April due to the coronavirus wave.

Economic data this week highlighted the stark impact of Covid-19 restrictions and lockdowns in many major Chinese cities.

Figures on Monday showed retail sales and factory output last month slumped the most since the start of the pandemic, while unemployment edged back toward its February 2020 peak.

The haircut to the LPR was greater than the market expected, analysts said, as China’s planners try to inject life into a slowing economy.

“Monthly economic indicators published recently suggest severe growth pressure,” according to Chaoping Zhu, global market strategist at JP Morgan Asset Management.

“Aside from weakness in consumption, industrial production and investment activities, the sharp decline in bank loans reveals a more fundamental challenge –- a lack of confidence among both corporate and household sectors.”

Beijing’s unrelenting approach to Covid-19 outbreaks has snarled supply chains and locked down tens of millions of people, hitting major financial, industrial and tourist hubs.

Borders remain closed to most foreigners and a slew of international sports events have been scrapped over pandemic concerns.

China’s premier Li Keqiang on Wednesday called for government departments to “step up their sense of urgency” and said “new measures that can be used should be used” to prop up the world’s second-largest economy.

China has targeted full-year growth of around 5.5 percent, but data published in April showed that first-quarter growth slowed to 4.8 percent after its economy lost steam in the latter half of last year.

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US recession not ‘inevitable,’ Treasury secretary says

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US Treasury Secretary Janet Yellen speaks at a policy forum in Washington on June 9, 2022
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A recession in the United States is not “inevitable” but the economy is likely to slow, Treasury Secretary Janet Yellen said Sunday, days after the US Federal Reserve hiked interest rates, raising fears of a contraction.

“I expect the economy to slow” as it transitions to stable growth, she said on ABC’s “This Week,” but “I don’t think a recession is at all inevitable.”

The US economy has recovered strongly from the damage wrought by Covid-19, but soaring inflation and supply-chain snarls made worse by the war in Ukraine have increased pessimism.

Wall Street stocks tumbled after the US central bank, seeking to cool inflation, on Wednesday raised the benchmark borrowing rate by 0.75 percentage points, the sharpest rise in nearly 30 years.

And economists see worrying signs that consumer confidence is weakening, with spending on services affected most sharply.

People are beginning to hold off on vacation plans — domestic flight bookings were down 2.3 percent last month, Adobe Analytics reported — and are cutting back on restaurant visits, haircuts and home repairs.

– Inflation ‘unacceptably high’ –

Yellen conceded that “clearly inflation is unacceptably high,” attributing it partly to the war in Ukraine, which has pushed up energy and food prices.

But she said she did not believe “a dropoff in consumer spending is the likely cause of a recession.” 

The US labor market is “arguably the strongest of the postwar period,” Yellen said, and she predicted a slowing of inflation in coming months.

For Fed chair Jerome Powell — who succeeded Yellen in that position — to control inflation without weakening the labor market will take “skill and luck,” she said, before adding, “but I believe it’s possible.”

The US economy contracted by 1.5 percent in the first quarter of this year, its first drop since 2020, and early indications point to a continued slowing in key sectors including manufacturing, real estate and retail sales.  

A recent survey of 750 company executives by the Conference Board found 76 percent believed a recession is looming, or has already begun.

A recent analysis from the non-profit business group predicted a period of “stagflation” — stagnant growth coupled with inflation — in 2023.

Economist Larry Summers, who served as Treasury secretary from 1999 to 2001, said a wide range of indicators — market volatility, interest rates and inflation among them — suggest a recession on the horizon.

“All of that tells me that… the dominant probability would be that by the end of next year we would be seeing a recession in the American economy,” Summers told NBC’s “Meet the Press.”

– ‘Pain’ at the pump –

For now, Americans are trying to cope with some historically sharp price increases. The cost of gas at the pump, now around $5 a gallon, has roughly doubled in only two years. 

Yellen was asked about proposals for a temporary suspension in federal gas taxes, and expressed openness.

US President Joe Biden “wants to do anything he possibly can to help consumers,” she said. “And that’s an idea that’s certainly worth considering.”

The White House recently confirmed Biden will travel to major oil producer Saudi Arabia during a Mideast trip next month.

The president is “very concerned about what people are experiencing at the pump,” Energy Secretary Jennifer Granholm told CNN Sunday. 

“Saudi Arabia is head of OPEC and we need to have increased production so that everyday citizens in America will not be feeling this pain that they’re feeling.”

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US recession not ‘inevitable,’ Treasury secretary says

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US Treasury Secretary Janet Yellen speaks at a policy forum in Washington on June 9, 2022
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A recession in the United States is not “inevitable,” Treasury Secretary Janet Yellen said Sunday, just days after the US Federal Reserve hiked interest rates, raising fears of an economic contraction.

“I expect the economy to slow” as it transitions to stable growth, she said on ABC’s “This Week,” but “I don’t think a recession is at all inevitable.”

The US economy has recovered strongly from the damage wrought by Covid-19, but soaring inflation and supply-chain snarls exacerbated by the war in Ukraine have increased pessimism. 

Wall Street stocks tumbled after the US central bank on Wednesday raised the benchmark borrowing rate by 0.75 percentage points, the sharpest rise in nearly 30 years.

And economists see worrying signs that consumer confidence is weakening, with people beginning to hold off on vacation plans, dining out or doing home repairs.

Yellen conceded that “clearly inflation is unacceptably high,” attributing it partly to the war in Ukraine, which has pushed up energy and food prices.

But she said she did not believe that “a dropoff in consumer spending is the likely cause of a recession.” 

Yellen argued that the US labor market is “arguably the strongest of the postwar period” and she predicted that the pace of inflation would slow in coming months.

She acknowledged, however, that as Fed chair Jerome Powell works to control inflation while preserving labor-market strength, “That’s going to take skill and luck.”

Soaring gas prices — at some $5 a gallon, they have roughly doubled in a few years — are a pressing concern for many Americans.

Asked about proposals for a temporary suspension in federal gas taxes, Yellen expressed openness.

US President Joe Biden “wants to do anything he possibly can to help consumers,” she said. “And that’s an idea that’s certainly worth considering.”

As to whether Biden might move further to lower consumer prices by lifting tariffs on Chinese goods, Yellen demurred.

Reworking the Donald Trump-era tariffs “is something that’s under consideration,” she said.

“I don’t want to get ahead of where the policy process is.” 

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Italy’s Eni joins giant Qatar gas project after Russian cuts

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Qatar's Energy Minister and president and CEO of QatarEnergy Saad Sherida al-Kaabi (R) and Claudio Descalzi, CEO of Italian multinational oil and gas company ENI, attend the signing ceremony for their joint venture
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Italian company Eni on Sunday joined Qatar Energy’s project to expand production from the world’s biggest natural gas field, days after Russia slashed supplies to Italy.

Eni will own a stake of just over three percent in the $28 billion North Field East project, Qatar Energy’s CEO said at a signing ceremony in Doha.

Qatar announced France’s TotalEnergies as its first, and largest, foreign partner on the development last week, with a 6.25 percent share. 

More companies are set to be named. 

“Today I’m pleased… to announce the selection of Eni as a partner in this unique strategic project,” said Energy Minister Saad Sherida al-Kaabi, who is also president and CEO of state-owned Qatar Energy.

The project’s LNG — the cooled form of gas that makes it easier to transport — is expected to come on line in 2026. It will help Qatar increase its liquefied natural gas production by more than 60 percent by 2027, TotalEnergies chief executive Patrick Pouyanne told AFP last week.

Russia’s invasion of Ukraine has injected urgency into efforts around the world to develop new energy sources as Western countries try to reduce their reliance on Russia.

On Friday, Eni said it would receive only 50 percent of the gas requested from Russia’s Gazprom, the third day running of reduced supplies. Rome has accused Gazprom of peddling “lies” over the cuts.

“We have a lot of things to learn from your leadership and also from your standards and from your ability to adapt to very difficult circumstances,” Eni CEO Claudio Descalzi told his Qatari counterpart.

Qatar Energy estimates that the North Field, which extends under the Gulf sea into Iranian territory, holds about 10 percent of the world’s known gas reserves.

Kaabi refused to divulge how many more partners will be announced. Industry sources have discussed ExxonMobil, Shell and ConocoPhillips, while Bloomberg reported this week that Chinese companies were in talks.

South Korea, Japan and China have become the main markets for Qatar’s LNG but since an energy crisis hit Europe last year, the Gulf state has helped Britain with extra supplies and also announced a cooperation deal with Germany.

Europe has in the past rejected the long-term deals that Qatar seeks for its energy but the Ukraine conflict has forced a change in attitude.

“Qatar is the lowest cost source of supply at the moment and  therefore it’s attractive to the majors (companies),” Daniel Toleman, an analyst at resources consultancy Wood Mackenzie, told AFP.

“So these companies want to be involved in those projects.”

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