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Russia denies defaulting on debts

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Russia last defaulted on its foreign debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognise the massive debts of the deposed tsar's regime
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Russia said Monday that two of its debt payments were prevented from reaching creditors, pushing the country closer to its first foreign default in a century due to sanctions over the Ukraine offensive.

The announcement came on the 124th day of Russia’s military intervention in Ukraine, with Western sanctions so far failing to force the Kremlin to change its course.

The Western economic penalties have largely severed the country from the international financial system, making it difficult for Moscow to service its debt.

The Russian authorities insist they have the funds to honour the country’s debt and accuse the West of seeking to drive Moscow into a default artificially.

“There are no grounds to call this situation a default,” Kremlin spokesman Dmitry Peskov told reporters after a key payment deadline expired Sunday.

“These claims about default, they are absolutely wrong,” he said, adding that Russia settled the debt in May.

A 30-day grace period for the payment of $100 million in interest payments expired on Sunday night, most of which had to be paid in foreign currency.

In a statement, the Russian finance ministry said that two of its debt payments had not been transferred to creditors, but denied that the event amounted to a default.

International settlement and clearing systems “received funds in full in advance” but the payments were not transferred to the final recipients due to “the actions of third parties”, the ministry said.

“The non-receipt of money by investors did not occur as a result of the absence of payment, but due to the actions of third parties,” the ministry added, saying such an event did not amount to a default.

“The actions of foreign financial intermediaries are beyond the Russian finance ministry’s control,” the statement said.

Finance Minister Anton Siluanov has earlier dismissed the situation as a “farce”.

– ‘Vicious circle of decline’ – 

While some experts dismiss the event as a technical default, others say it will have far-reaching consequences.

“This default is important as it will impact on Russia’s ratings, market access and financing costs for years to come,” said Timothy Ash, an emerging markets strategist at BlueBay Asset Management.

“And that means lower investment, lower growth, lower living standards, capital and human flight (brain drain), and a vicious circle of decline for the Russian economy.” 

Russia lost the last avenue to service its foreign-currency loans after the United States removed an exemption last month that allowed US investors to receive Moscow’s payments.

In response, Russia said it would pay in rubles that could be converted into foreign currency, using a Russian financial institution as a paying agent, even though the bonds do not allow payments in the local currency.

Russia has accused the West of seeking to push it into an “artificial default” through unprecedented sanctions imposed after President Vladimir Putin sent troops to Ukraine on February 24.

The measures included freezing the Russian government’s stockpile of $300 billion in foreign currency reserves held abroad, making it more complicated for Moscow to settle its foreign debts.

The country last defaulted on its foreign debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognise the massive debts of the deposed tsar’s regime.

Russia defaulted on domestic debt in 1998 when, due to a drop in commodity prices, it faced a financial squeeze that prevented it from propping up the ruble and paying off debts that accumulated during the first war in Chechnya.

The International Monetary Fund’s number two official, Gita Gopinath, said in March that a Russian default would have “limited” impact on the global financial system.

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US regulators move to block Meta virtual reality app deal

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The Federal Trade Commission is accusing Meta of trying to buy its way to the top of the virtual reality fitness app market with the buy of Supernatural.
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US market regulators on Wednesday went to court to stop Meta from buying virtual reality fitness app maker Within, a potential blow to the tech giant’s metaverse ambitions.

In a complaint filed in federal court, the Federal Trade Commission argued that Facebook-parent Meta is trying to illegally expand its virtual reality empire with the buy of Within Unlimited, maker of fitness app “Supernatural.”

Meta has made it a focus to build its metaverse vision for the internet’s future, betting heavily on the interactive virtual world that the company believes will keep it relevant.

“Instead of competing on the merits, Meta is trying to buy its way to the top,” FTC competition bureau deputy director John Newman said in a release.

“This is an illegal acquisition, and we will pursue all appropriate relief.”

Meta did not immediately respond to a request for comment.

Meta is already a leading player in the virtual reality market, and its chief Mark Zuckerberg has stressed that the metaverse is key to the company’s future.

The Silicon Valley titan years back bought virtual reality gear maker Oculus and studios devoted to apps for use in digital realms.

Meta purchases have included a popular “Beat Saber” game in which players slash at oncoming virtual blocks in time to music.

The FTC said that the suit seeks specifically to block Meta and Zuckerberg from getting their hands on Within Unlimited.

The Supernatural app made buy independent studio Within lets users work out in routines set to music by popular artists such as Lady Gaga, Katy Perry, and Coldplay in realistic, virtual locales such as the Galapagos Islands, the FTC said.

The complaint quoted Within’s as calling fitness apps “the killer use case for VR.”

“Meta is a potential entrant in the virtual reality dedicated fitness app market with the required resources and a reasonable probability of building its own virtual reality app to compete in the space,” the FTC said in the complaint.

“But instead of entering, it chose to try buying Supernatural.”

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Microsoft earnings fall short as computer sales sag

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Analysts see strength in Microsoft's cloud computing and business software offerings despite the US tech stalwart slightly missing earnings expectations in the recently ended quarter.
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Microsoft on Tuesday said that its earnings in the recently ended quarter fell shy of expectations as personal computer sales suffered from production holdups in China and sagging demand.

The US technology giant reported profit of $16.7 billion on revenue of $51.9 billion, topping the same quarter a year earlier but missing market forecasts.

“While the headline slight miss will cause agita on (Wall) Street with a knee jerk reaction, this is largely foreign exchange and China shutdown driven (PC driven),” Wedbush analyst Dan Ives said in a note to investors.

“The core DNA of the Microsoft growth story is cloud and core Azure growth which was healthy this quarter and appears to have momentum into 2023 despite economic headwinds.”

Microsoft shares were up some 4 percent in after-market trades that followed release of the earnings figures.

“In a dynamic environment we saw strong demand, took share, and increased customer commitment to our cloud platform,” said Microsoft chief financial officer Amy Hood.

Microsoft said that the strong US dollar made its offerings more costly in foreign markets, hurting sales.

Shutdowns at computer production facilities in China in May, and a deteriorating market for personal computers, cost Microsoft some $300 million in revenue it would have made from Windows operating systems bought to power the machines, the earnings report indicated.

The personal computer market had been in steady decline prior to the pandemic, as people turned to smartphones or tablets.

A massive shift to shopping, working, socializing and playing from home reignited demand for desktop computing power, but it remains to be seen whether that appetite will remain post-pandemic.

Ad revenue at Microsoft’s online news, search, and career social network LinkedIn suffered due to companies cutting marketing budgets due to broad economic woes, the company said.

The tech veteran based in the US state of Washington also logged $126 million in operating expenses related to scaling back its operations in Russia because of that country’s invasion of Ukraine.

Microsoft saw consumers spend less on Xbox videogame content in the quarter compared to the same period a year earlier, in a possible sign that many are out playing in the real world more as pandemic restrictions ease.

However, Microsoft’s cloud, business and productivity offerings continued to thrive.

“We see real opportunity to help every customer in every industry use digital technology to overcome today’s challenges and emerge stronger,” said Microsoft chief executive Satya Nadella.

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Boeing sees progress on 787 but warns on supply chain

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A Boeing 737 at the Farnborough Airshow where the company announced significant new plane orders
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Boeing said Wednesday it is close to receiving regulatory approval to resume 787 jet deliveries, a move that could help reverse lackluster profits, but warned that its production ramp-up for the 737 MAX would be slowed by supply chain problems.

The US aviation giant’s two most popular commercial planes figured prominently in its mixed quarterly earnings report, with the lack of revenue from the 787 Dreamliner again a big drag.

Shares gyrated following the announcement. 

A resumption of 787 deliveries will restore a key source of revenue, but a more protracted 737 MAX ramp-up suggests Boeing won’t deliver as many of those planes as quickly as had been expected.

“A lot of things good happened over the quarter,” said Chief Executive Dave Calhoun, who described the company as “on the verge” of garnering approval from US air safety officials on the 787, though he declined to give a precise target date.

Calhoun reported no sign of overall slowdown in the sector, telling analysts that “this general recession thing so far hasn’t impacted our aviation industry.” 

“Will it at some moment? Maybe,” he said, while noting that air travel appears to have been “prioritized fundamentally to a higher slot” by consumers tired of pandemic restrictions.

– Engine trouble –

Calhoun however warned that the company had no timetable for lifting production of the MAX to 38 per month from the current level of 31, calling “limited” engine capacity a “constraint” on the company’s outlook.

“Some investment has to get made and capacity has to expand for the engine suppliers to keep up with what I believe will be continued robust demand,” Calhoun said.

Boeing Chief Financial Officer Brian West told analysts to expect MAX deliveries in the “low 400s” in 2022 after previously estimating around 500.

For the quarter ending June 30, Boeing reported a 67 percent plunge in quarterly profits to $193 million, as revenues declined 1.9 percent to $16.7 billion.

The company missed analyst estimates for revenues and earnings-per-share, but stock prices initially rose after the report, as Boeing confirmed it still expects to have positive cash flow in 2022.

On the 787, the company has been working with the Federal Aviation Administration to address a series of manufacturing issues uncovered in 2020 and since.

Boeing took a $3.5 billion charge for additional rework costs on the 787 in the fourth quarter of 2021. It said in April it also expects another $2 billion in “abnormal costs” for the 787.

At the end of June, Boeing had 120 Dreamliner planes in inventory and was producing the jet “at very low rates,” the company said in a filing.

On Wednesday, the company said it was working with US air safety officials on “final actions” to resume 787 deliveries. 

– China haze –

The enhanced regulatory scrutiny of the 787 and other Boeing planes comes on the heels of a pair of crashes in 2018 and 2019 on the 737 MAX, which led to a lengthy global grounding of the plane.

But the MAX has since returned to service, enabling Boeing to resume deliveries and announce significant new orders, including at the Farnborough Airshow earlier this month.

But Boeing still has 290 MAX planes in inventory. A key wild card remains when deliveries will resume in China, where the MAX has still not returned to service. 

“While we expect 737 MAX deliveries to our customers in China to resume in 2022, subject to final regulatory approvals, risk remains around the timing and rate of those deliveries,” Boeing said in a securities filing Wednesday.

Despite the latest Farnborough orders, Boeing’s backlog of orders in the pipeline lags that of archrival Airbus, but Calhoun told CNBC Wednesday he is not worried about the difference.

“We don’t need to close that gap,” Calhoun said, adding that the aviation industry is “supply constrained for as far as I can see.”

Boeing’s job is “to deliver against our backlog,” he said. “My job is to make sure I’ve got a big enough backlog to continue to increase my rate, stay stable in production and satisfy our customers every step of the way.”

By early afternoon, shares were flat at $155.87.

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