WORLDWIDE: HEADLINES
U.S. sets red lines for China helping Russia dodge sanctions
The Biden administration, seeking to deter China from aiding sanctions-hit Russia, on Wednesday warned Beijing not to take advantage of business opportunities created by sanctions, help Moscow evade export controls or process its banned financial transactions.
White House national security adviser Jake Sullivan told reporters that G7 countries would soon announce a unified response to make sure Russia cannot evade Western sanctions imposed over its invasion of Ukraine with the help of China or any other country.
Speaking aboard Air Force One en route to Brussels where President Joe Biden will attend an emergency NATO summit, Sullivan said, “That’s not specifically about China, but it will apply to every significant economy and the decisions that any of those economies take to try, in an intentional and active way, to undermine or weaken the sanctions that we put in place.”
He said the U.S. government has conveyed this message to China and that, “We expect similar communication by European Union and individual European countries.”
After Biden had a video call with Chinese President Xi Jinping last week, Beijing condemned the sanctions on Russia. It said “sweeping and indiscriminate sanctions would only make the people suffer” and should not be “further escalated.”
U.S. export restrictions are intended to block Russian access to critical goods such as commercial electronics, computers and aircraft parts.
Washington is concerned that China could help Russia “backfill” and access these products by violating trade restrictions. The U.S. government has tools to ensure that can’t happen, Sullivan added.
Commerce Secretary Gina Raimondo told Reuters on Wednesday that the United States would punish any companies that violate the export controls on goods like semiconductors. read more
In terms of payments, Sullivan said, the United States and its G7 allies will respond to “systematic efforts, industrial-scale efforts to try to reorient the settlement of financial payments.”
China has not condemned Russia’s action in Ukraine, though it has expressed deep concern about the war.
Full coverage: REUTERS
Wall Street blowout helps New York bounce back
Bonuses in New York City’s securities industry soared 20% to a record $257,500 per employee for 2021, according to New York State Comptroller Thomas DiNapoli on Wednesday. It’s no secret that Wall Street was in a sweet spot. While 2020 was already a record, last year’s per-head figure and total bonus pool of $45 billion leaves the 2006 high point of the previous boom far behind.
The momentum may not endure into 2022, but that’s hardly a reason for hand-wringing. After all, the Institute for Policy Studies think tank notes that if the U.S. federal minimum wage had increased in line with Wall Street bonuses since 1985, it would be worth $61.75 per hour now, against the actual ludicrously low $7.25.
Even so, the post-Covid-19 rebound in pay for financiers reflects a welcome bounce in the Big Apple’s fortunes. It will even reinforce the recovery, with the securities industry accounting for an estimated 7% of the city’s tax collections in the current fiscal year, according to DiNapoli, and a bigger slice of the Empire State’s.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asian shares fall as Ukraine war stokes inflation fears, oil ticks higher
Asian shares fell on Thursday, while the sell-off in U.S. Treasuries paused and oil prices rose, as investors and traders weighed the latest developments in the Ukraine war and more hawkish comments from U.S. Federal Reserve officials.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 0.6%. Japan’s Nikkei (.N225) fell by more than 1% on Thursday morning, after touching a two-month high in the previous session.
China’s markets opened lower, with Hong Kong’s Hang Seng Index (.HSI) down 0.9% and the mainland’s bluechip index (.CSI300) off 0.7%. Shares of Tencent Holdings (0700.HK) dropped 4.6% after it posted its slowest-ever sales rise.
U.S. President Joe Biden arrived in Brussels for a series of summit meetings on the Ukraine War, with Biden set to announce a U.S. package of Russia-related sanctions on political figures and oligarchs on Thursday, 24th March 2022.
Oil prices held firm. Russia President Vladimir Putin said on Wednesday that Moscow, which calls its actions in Ukraine a “special operation”, will seek payment in roubles for gas sold to “unfriendly” countries.
Brent futures were up about 45 cents, or 0.4%, at $122.05 a barrel and U.S. West Texas Intermediate futures were up about 15 cents, or 0.2%, at $115.07 a barrel. OR/
The bond market, meanwhile, paused for breath with the yield on benchmark 10-year Treasury notes last at 2.3098% in Tokyo trading, after retreating from a nearly three-year peak of 2.4170% overnight.
The two-year yield , which is more sensitive to traders’ expectations for the Fed funds rate, stood at 2.1233%, down from an almost three-year high of 2.2020% reached Tuesday, 22nd March 2022.
Federal Reserve policymakers on Wednesday signalled they stand ready to take more aggressive action to bring down unacceptably high inflation, including a possible half-percentage-point interest rate hike at the next policy meeting in May.
Major U.S. equities indexes declined more than 1% on Wednesday. The Dow Jones Industrial Average (.DJI) fell 448.96 points, or 1.3%, to 34,358.5; the S&P 500 (.SPX) slid 55.41 points, or 1.2%, to 4,456.2; and the Nasdaq Composite (.IXIC) dropped 186.21 points, or 1.3%, to 13,922.60.
“Equities reversed part of their recent rally as bond yields declined, in a move that might be just a simple pull-back after a ripping rally over the past 10 days,” said Kyle Rodda, market analyst at IG.
“It is still though a relatively volatile market, (which) suggests that these ripping moves in stocks ought to be treated with caution.”
Currency markets steadied on Thursday with the Japanese yen nursing heavy losses. It had hit a six-year low of 121.41 on Wednesday as rising U.S. yields and a deteriorating trade balance sucked cash out of Japan.
The euro hovered at $1.0988 and the Australian dollar took a breather after several days of large gains. The Aussie changed a little at $0.74955, sticking close to an almost five-month high of $0.75070 touched on Wednesday, 23rd March 2022.
Gold was slightly lower, trading at $1942.9 per ounce.
Full coverage: REUTERS
Putin wants ‘unfriendly’ countries to pay for Russian gas in roubles
Russia will seek payment in roubles for gas sold to “unfriendly” countries, President Vladimir Putin said on Wednesday, 23rd March 2022, and European gas prices soared on concerns the move would exacerbate the region’s energy crunch.
European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on Feb. 24. But Europe depends heavily on Russian gas for heating and power generation, and the European Union is split on whether to sanction Russia’s energy sector.
Putin’s message was clear: If you want our gas, buy our currency. It remained unclear whether Russia has the power to unilaterally change existing contracts agreed upon in euros.
The rouble briefly leapt after the shock announcement to a three-week high past 95 against the dollar. It pared gains but stayed well below 100, closing at 97.7 against the dollar, down more than 22% since Feb. 24.
Some European wholesale gas prices up to 30% higher on Wednesday, 23rd March 2022. British and Dutch wholesale gas prices jumped.
Russian gas accounts for some 40% of Europe’s total consumption. EU gas imports from Russia this year have fluctuated between 200 million to 800 million euros ($880 million) a day.
“Russia will continue, of course, to supply natural gas in accordance with volumes and prices … fixed in previously concluded contracts,” Putin said at a televised meeting with government ministers.
“The changes will only affect the currency of payment, which will be changed to Russian roubles,” he said.
German Economy Minister Robert Habeck called Putin’s demand a breach of contract and other buyers of Russian gas echoed the point.
“This would constitute a breach to payment rules included in the current contracts,” said a senior Polish government source, adding Poland has no intention of signing new contracts with Gazprom after their existing deal expires at the end of this year.
Major banks are reluctant to trade in Russian assets, further complicating Putin’s demand.
A spokesperson for Dutch gas supplier Eneco, which buys 15% of its gas from Russian gas giant Gazprom’s German subsidiary Wingas GmbH, said it had a long-term contract denominated in euros.
“I can’t imagine we will agree to change the terms of that.”
According to Gazprom (GAZP.MM), 58% of its sales of natural gas to Europe and other countries as of Jan. 27 were settled in euros. U.S. dollars accounted for about 39% of gross sales and sterling around 3%. Commodities traded worldwide are largely transacted in the U.S. dollar or the euro, which make up roughly 80% of worldwide currency reserves.
“There is no danger for the (gas) supply, we have checked, there is a financial counterparty in Bulgaria that can realize the transaction also in roubles,” Energy Minister Alexander Nikolov told reporters in Sofia. “We expect all kinds of actions on the verge of the unusual but this scenario has been discussed, so there is no risk for the payments under the existing contract.”
Several firms, including oil and gas majors Eni, Shell and BP, RWE and Uniper – Germany’s biggest importer of Russian gas – declined to comment.
“It is unclear how easy it would be for European clients to switch their payments to roubles given the scale of these purchases,” said Leon Izbicki, associate at consultancy Energy Aspects. He said, however, that Russia’s central bank could provide additional liquidity to foreign exchange markets that would enable European clients and banks to source needed roubles.
Moscow calls its actions in Ukraine a “special military operation.” Ukraine and Western allies call this a baseless pretext.
ONE WEEK DEADLINE
Putin said the government and central bank had one week to come up with a solution on moving operations into the Russian currency and that Gazprom would be ordered to make the corresponding changes to contracts.
In gas markets on Wednesday, 23rd March 2022, eastbound gas flows via the Yamal-Europe pipeline from Germany to Poland declined sharply, data from the Gascade pipeline operator showed.
“The measures taken by Russia may also be interpreted as provocative and may increase the possibility that Western nations tighten sanctions on Russian energy,” said Liam Peach, emerging Europe economist at Capital Economics.
The European Commission has said it plans to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies “well before 2030.”
But unlike the United States and Britain, EU states have not sanctioned Russia’s energy sector. The Commission, the 27-country EU’s executive, did not respond to a request for comment.
Habeck said he would discuss with European partners a possible answer to Moscow’s announcement. Dutch Prime Minister Mark Rutte said more time was needed to clarify Russia’s demand.
“In their contracts it’s usually specified in what currency it has to be paid, so it’s not something you can change just like that,” Rutte said during a debate with parliament.
Russia has drawn up a list of “unfriendly” countries corresponding to those that have imposed sanctions. Deals with companies and individuals from those countries must be approved by a government commission.
The countries include the United States, European Union member states, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland and Ukraine. Some, including the United States and Norway, do not purchase Russian gas.
The United States is consulting with allies on the issue and each country will make its own decision, a White House official told Reuters. The United States has already banned imports of Russian energy.
($1 = 0.9097 euro)
Full coverage: REUTERS
Toshiba shareholders vote down both spin-off plan and call to seek buyout offers
Toshiba Corp (6502.T) shareholders on Thursday, 24th March 2022, voted against its plan to spin off its device’s unit, but a separate motion backed by activist shareholders that called for the conglomerate to solicit buyout offers also failed to gain sufficient support.
The result of the extraordinary general meeting will likely force Toshiba to revise its controversial restructuring plan and ensure that there will be no immediate end to a four-year scandal-filled battle between management and foreign activist hedge funds.
Toshiba’s shares slid 3% after the results.
The proposal to seek private equity buyout offers or a minority investment was made by Singapore-based 3D Investment Partners, Toshiba’s No.2 shareholder and was also supported by top shareholder Effissimo Capital Management and No. 3 shareholder Farallon Capital Management.
“Taking account into the opinions presented by shareholders, we will consider various strategic options to increase corporate value,” Taro Shimada, a former Siemens AG executive, who took helm of Toshiba this month, said at the end of the meeting.
Each proposal needed 50% of the vote to pass. A breakdown of the voting was not immediately available.
Activist shareholders plan to fight onto force the company to restart talks with private equity firms regardless of the vote outcome, sources familiar with the matter have previously told Reuters on condition of anonymity.
Some shareholders have said they expect one or two top investors to nominate their own representatives for the board at Toshiba’s annual shareholders meeting in June to make the company solicit private equity buyout offers.
The failure of 3D’s motion “doesn’t mean it is over, and it doesn’t mean Toshiba can’t act on some portion of the contents of 3D’s proposal,” said Travis Lundy, an analyst at Quiddity Advisors in Hong Kong who publishes on Smartkarma.
“What it really means is that Toshiba has to come up with some other means by which they can measure success,” he said.
A private equity buyout could allow activist investors that bought into the crisis-ridden conglomerate over the last six years to make an exit with solid returns.
Toshiba previously rejected calls to seek buyout bids arguing that potential offers suggested so far were insufficiently compelling and would raise concerns about the impact on its business and staff retention.
The make-up of the board could also shift amid criticism that it conducted a flawed strategic review that led to the plans to break up the company.
Paul Brough, the chair of the five-member strategic review committee, has indicated he would reconsider his position if the breakup plan was voted down, proxy advisory firm Institutional Shareholder Services (ISS) said in a report.
During the five-month strategic review conducted last year, Toshiba held discussions with private equity firms but decided not to entertain potential offers.
It also walked away from advanced talks for a minority stake from Canada’s Brookfield Asset Management (BAMa.TO), sources have said, adding that the private equity firms Toshiba held talks with included KKR & Co Inc (KKR.N) and Bain Capital.
Toshiba’s management has been under pressure from activist funds since it sold 600 billion yen ($5 billion) of stock to dozens of foreign hedge funds during a crisis stemming from the bankruptcy of its U.S. nuclear power unit in 2017.
Acrimony between the two sides hit several boiling points in the past two years. Last June a shareholder-commissioned probe found Toshiba colluded with Japan’s trade ministry – which sees the conglomerate as a strategic asset due to its nuclear reactor and defence technology – to block overseas investors from gaining influence at its 2020 shareholder meeting.
Full coverage: REUTERS
