Focus: US dollar strength

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Updated 14 May 2020
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Focus: US dollar strength

What happened:

Chair of the Federal Reserve Jerome Powell painted a grim picture when he spoke at the Peterson Institute for International Economics on Wednesday. Powell expressed fear that economic recovery would take time. The danger of liquidity problems turning into solvency problems was of particular concern. Powell emphasized the need for additional fiscal support, admitting that it could be costly but that it would be worth it if it helped avert long-term damage to the economy and led to a stronger recovery.

Powell said that the Federal Open Market Committee was not considering negative interest rates at this point, and that he was satisfied with the Federal Reserve’s current toolkit for now.

This did not stop bond traders from betting on negative rates in early 2021.

US Secretary of the Treasury Steven Mnuchin tried to assuage investors after Powell’s comments, hoping that a dramatic downturn could be followed by a steep recovery.

This is not the view of veteran investor and Appaloosa founder David Tapper, however, who considered stock markets to be at their most overvalued since 1999.

Goldman Sachs said that the US economy could contract by as much as 39 percent and that unemployment could rise to 25 percent in the second quarter. However, the investment bank is optimistic about a steep recovery, forecasting unemployment at 10 percent at the end of the year.  

A UN study predicted that the global economy could contract by 3.2 percent this year, in contrast to the International Monetary Fund (IMF) forecast of – 3 percent. The crisis could wipe out growth for four years, with the loss amounting to $8.5 trillion. The pandemic could also push 130 million people into poverty.

WHO Chief Scientist Soumya Swaminathan said it could take four to five years before the coronavirus (COVID-19) pandemic is under control.

Italy’s government passed its delayed €55 billion ($59 billion) stimulus package. In the US, the Democrat-controlled House of Representatives passed a $3 trillion package focusing on state and local governments, essential workers and money transfers to individuals. Republicans are not in favor of the current package.

Earnings Season:

Tencent first quarter revenues came in at yuan 108 billion ($15 billion), up by 26 percent, beating expectations. Online gaming surged by 31 percent. Profits were yuan 28.9 billion, up 6 percent.

Cisco Systems third quarter earnings came in at $12 billion, down by 8 percent. Net income was $2.8 billion, down 9 percent. The company experienced supply constraints due to the pandemic, but still beat expectations.

Zurich reported premiums at $9.7 billion, up by 5 percent. The Swiss solvency test stood at 186 percent. The company said there was little visibility for future COVID-19 related claims. They were at $280 million in the first quarter but could amount to $750 million for the full year.

Deutsche Telecoms earnings came in at €19.9 billion, up 2.3 percent. Adjusted net profit came in at €8.5 billion, up 8.5 percent year on year.

Background:

The COVID-19 crisis has underlined the safe haven status of the US dollar. The question is how long the dollar strength will continue. While the dollar may fluctuate some, it will remain strong because it still is the world’s reserve currency. This holds true particularly when viewed against emerging market currencies.

According to a survey by the Bank of International Settlement, dollars amounted to 88 percent of all currency trades, and dollar credits extended to borrowers outside the US, excluding banks, climbed to $12.2 trillion by last December. According to the IMF, the dollar accounts for 61 percent of global foreign currency reserves. The greenback also had a share of 44 percent of all payments over SWIFT.

These are big numbers explaining the status of the dollar. President and CEO of the Federal Reserve Bank of St. Louis James Bullard expects dollar dominance to continue for some time. He thinks that other currencies are in no position to challenge the dollar’s position. As long as this holds true, investors will flock to the dollar particularly in times of crisis.

The Chinese yuan has gained prominence over the last decade, particularly since the country started to price imports of commodities in yuan. Still, as long as China does not liberalize capital movements, the yuan cannot assume a truly global position.

That being said, the yuan’s relative stability had a positive effect on emerging market currencies in neighboring Asia when compared to their peers elsewhere.

Powell’s comments against negative interest rates further support dollar strength. Even if Federal Reserve rates turned negative, the Japanese yen and the Swiss franc have shown that investors will flock back to safe havens irrespective of negative rates.

Where we go from here:

The EU has extended new non-binding guidelines for opening borders, favoring a collective approach rather than countries reacting in clusters.

Germany, Austria, Switzerland and France are taking a phased approach to open their borders to each other. This is important as tourism accounts for an average 11 percent of GDP in Europe. This number goes up to 20 percent in certain southern rim countries and 15 percent in Austria. Tourism employs 27 million workers in Europe.

The International Energy Agency’s monthly oil report states that oil markets are improving amid production cuts and slowly rising consumption.

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.
Twitter: @MeyerResources


Floods strike thousands of houses in northern Philippines

Updated 1 min 23 sec ago
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Floods strike thousands of houses in northern Philippines

  • Typhoon Man-yi drenched swaths of the Philippines over the weekend
  • Man-yi was the sixth major storm in a month to strike the Philippines
Manila: Floodwaters reaching more than four meters high swamped thousands of houses in the storm-battered northern Philippines on Tuesday after rivers overflowed following heavy rain and a dam release.
Typhoon Man-yi drenched swaths of the Philippines over the weekend, swelling the Cagayan river and tributaries, and forcing the release of water from Magat Dam.
The Cagayan broke its banks, spilling water over already sodden farmland and communities, affecting tens of thousands of people.
Buildings, lamp posts and trees poked through a lake of brown water in Tuguegarao city in Cagayan province where provincial disaster official Ian Valdepenas said floodwaters reached more than four meters (14 feet) in some places.
“We experienced very heavy rains two days ago, but the flood just started to rise when Magat Dam started releasing huge volumes of water,” Valdepenas told AFP.
“Plus, our land is already saturated because of the consecutive typhoons hitting the area.”
Man-yi was the sixth major storm in a month to strike the Philippines, which have left at least 171 people dead and thousands homeless, as well as wiped out crops and livestock.
About 20 big storms and typhoons hit the Southeast Asian nation or its surrounding waters each year, killing scores of people, but it is rare for multiple such weather events to take place in a small window.
Roofs of houses
In the neighboring province of Isabela, Jun Montereal of the Ilagan city disaster preparedness committee said 30,000 people were still affected by flooding.
But the situation was slowly improving.
“The flood is subsiding now little by little, it’s slower because the land is already saturated but we are way past the worst,” Montereal told AFP.
“We are really hoping that the weather will continue to be fair so the water can go down. I think the water will completely subside in three days,” he said.
“I can now see the roofs of houses that I wasn’t able to see before because of the floods.”
Carlo Ablan, who helps oversee operations at Magat Dam, said three gates were open as of Tuesday morning to release water from the dam.
“If the weather continues to be good, we are expecting that we will only have one gate open this afternoon,” Ablan said.
Ablan said flooding in Tuguegarao city was not only caused by water from Magat Dam — other tributaries of the Cagayan river were also likely to blame.
Valdepenas said authorities in Tuguegarao were waiting for floodwaters to subside more before sending people back to their homes.
“This might start subsiding within today,” he said.
More than a million people fled their homes ahead of Man-yi, which struck the Philippines as a super typhoon before significantly weakening as it swept over the mountains of the main island of Luzon.
Man-yi dumped heavy rain, smashed flimsy buildings, knocked out power and claimed at least eight lives.
Climate change is increasing the intensity of storms, leading to heavier rains, flash floods and stronger gusts.

KSrelief provides shelter, winter clothing in Lebanon, Somalia

Updated 18 min 40 sec ago
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KSrelief provides shelter, winter clothing in Lebanon, Somalia

RIYADH: Saudi aid agency KSrelief has distributed shelter and winter clothing to displaced people in Lebanon and Somalia, reported the Saudi Press Agency.

Orphans and those with special needs in Lebanon’s Akkar Governorate received vouchers to purchase winter clothes from approved stores.

The beneficiaries also included Syrian refugees and vulnerable members of the host community.

In Somalia, 920 shelter kits, 80 tents and 1,000 clothing kits benefited 6,000 displaced people in several camps in the Banaadir region as part of a project aiming to provide 7,600 shelter and clothing kits and 215 tents in the area.

Both initiatives are part of the ongoing humanitarian assistance provided by KSrelief to countries and people in need around the world.


24 hours in Ukraine: A single day shows the reality of life as war hits 1,000 days

Updated 19 November 2024
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24 hours in Ukraine: A single day shows the reality of life as war hits 1,000 days

  • The Associated Press fanned out across Ukraine to chronicle 24 hours of life just as the country prepared to mark a grim milestone Tuesday: 1,000 days since Russia’s full-scale invasion on Feb. 24, 20

KYIV: The clock on her wall stopped almost as soon as the day began, its hands frozen by the Russian bomb that hit the dormitory serving as home for Ukrainians displaced by war.
It was 1:45 a.m. in an upstairs room in the eastern city of Zaporizhzhia, Natalia Panasenko’s home for just shy of a year after the town she thinks of as her real home came under Russian occupation. The explosion blasted a door on top of her, smashed her refrigerator and television and shredded the flowers she’d just received for her 63rd birthday.
“The house was full of people and flowers. People were congratulating me ... and then there was nothing. Everything was mixed in the rubble,” she said. “I come from a place where the war is going on every day. We only just left there, and it seemed to be quieter here. And the war caught up with us again.”
Nov. 11 was a typical day of violence and resilience in Ukraine. The Associated Press fanned out across Ukraine to chronicle 24 hours of life just as the country prepared to mark a grim milestone Tuesday: 1,000 days since Russia’s full-scale invasion on Feb. 24, 2022.
The day opened with two Russian bombings — one that hit Panasenko’s apartment and another that killed six in Mykolaiv, including a woman and her three children. Before the day was even halfway done, a Russian ballistic missile shattered yet another apartment building, this time in the city of Kryvyi Rih.
Swimmers braved the Black Sea waters off Odesa, steelworkers kept the economy limping along, a baby was born. Soldiers died and were buried. The lucky ones found a measure of healing for their missing limbs and broken faces.
About a fifth of Ukraine’s internationally recognized territory is now controlled by Russia. Those invisible geographical lines shift constantly, and the closer a person is to them the more dangerous life is.
In the no-man’s-land between Russian and Ukrainian forces, there’s hardly any life at all. It’s called the Gray Zone for good reason. Ashen homes, charred trees and blackened pits left by shells exploding over 1,000 days of war stretch as far as the eye can see.
Odesa, 6:50 a.m.
The waters of the Black Sea hover around 13 degrees Celsius (55 Fahrenheit) in late fall. The coastline is mined. Dmytro’s city is regularly targeted by drones and missiles.
But Dmytro — who insisted on being identified only by his first name because he was worried for the safety of his family — was undaunted as he plunged into the waves with a handful of friends for their regular swim.
Before the war, the group numbered a couple of dozen. Many fled the country. Men were mobilized to fight. Some returned with disabilities that keep them out of the water. His 33-year-old stepson is missing in action after a battle in the Donetsk region.
For Dmytro and fellow swimmers, the ritual grounds them and makes the grimness of war more bearable. He said the risks of his hobby are well worth the reward: “If you’re afraid of wolves, don’t go into the forest.”
Zaporizhzhia, noon
Managing the Zaporizhstal steel mill during wartime means days filled with calculations for Serhii Saphonov.
The staff of 420 is less than half its pre-war levels. Power cuts from Russian attacks on electricity infrastructure require an “algorithm of actions” to maintain operations. Russian forces are closing in on the coke mine in Pokrovsk that supplies the plant with coal. And the city is under increasing attack by Russia’s unstoppable glide bombs.
Right outside his office, a bulletin board displays the names of 92 former steelworkers who have joined the army. Below are photos of the dead. Staff hold fundraisers for supplies for colleagues on the front, including two bulletproof vests sitting in the corner near his desk.
“The old workers, they carry everything on their shoulders. They are hardened. They know their job,” Saphonov said. “Everyone knows that we have to endure, hold out, hoping that things will get better ahead.”
Chernihiv, 1 p.m.
Dr. Vladyslava Friz has performed more reconstructive surgeries in the past 1,000 days than she did in the previous decade of her career. And the injuries are like nothing she had ever seen before.
Her days start early and end late. In the first months of the war, she said, the hospital was admitting 60 people per hour, and eight surgeons worked nonstop. They’re still catching up, because so many of the injured need multiple surgeries.
On Nov. 11, she was rebuilding the cheek and jaw of a patient injured in a mine explosion.
“Appearance is a person’s visual identity,” she said. “There is work to be done; we are doing it. We have no other options. There are medicines, equipment and personnel, but there are no metal structures for reconstruction. There is no state funding for implants.”
She said she will not abandon her patients but worries that the world will abandon Ukraine as the war approaches its fourth year.
“The global community continues to lose interest in the events in Ukraine while we lose people every day,” she said. “The world seems to have forgotten about us.”
Odesa, 6 p.m.
Yulia Ponomarenko has brought two babies into the world in the past 1,000 days, including Mariana on Nov. 11. Her husband, Denys, is fighting at the front.
Their hometown, Oleshky, was submerged by flooding after the explosion of the Kakhovka Dam. But by then, she’d long since fled the occupying Russian forces, who target the families of Ukrainian soldiers.
Mariana, born healthy at 3.8 kilograms and 55 centimeters (8 pounds, 6 ounces and 21 inches), will grow up with an older brother and sister and a menagerie of two cats and two dogs.
“This child is very expected, very wanted. We now have another princess,” Ponomarenko said.
Kyiv, 9 p.m.
The actors can’t perform in their home theater in Kharkiv — too many bombs, too few people willing to gather in one place. So they’ve moved to the Ukrainian capital, where they played to a nearly full house on Nov. 11 as guests of the Franko Theater.
“Because of the war, the Kharkiv theater cannot play on its stage. We play underground. It is literally underground art. There are only two to three places in Kharkiv where we can play, and that’s it,” said Mykhailo Tereshchenko, one of the principal actors of the Taras Shevchenko Academic Ukrainian Drama Theatre, named for Ukraine’s most famous writer.
Yevhen Nyshchuk, director of the Franko, said the theater paused production for a few months after the war started. Now, it’s packed nearly every night there is a play, and the lengthy applause when curtains close is deafening.
The reason goes beyond the quality of a performance at this point, he believes, and expresses “this inner realization that in spite of everything, we will create, we will live, we will come, we will meet, we will applaud each other.”


UK farmers plan to protest at Parliament over a tax hike they say will ruin family farms

Updated 59 min 46 sec ago
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UK farmers plan to protest at Parliament over a tax hike they say will ruin family farms

  • The Labour Party government says only a small number of farms each year will be affected
  • Some farmers have welcomed those moves, but many feel goodwill was squandered through missteps by successive governments

LONDON: With banners, bullhorns, toy tractors and an angry message, British farmers are descending on Parliament on Tuesday to protest a hike in inheritance tax that they say will deal a “hammer blow” to struggling family farms.
UK farmers are rarely as militant as their European neighbors, and Britain has not seen large-scale protests like those that have snarled cities in France and other European countries. Now, though, farmers say they will step up their action if the government doesn’t listen.
“Everyone’s mad,” said Olly Harrison, co-organizer of a protest that aims to flood the street outside Prime Minister Keir Starmer’s office with farmers. He said many famers “want to take to the streets and block roads and go full French.”
Organizers have urged protesters not to bring farm machinery into central London on Tuesday. Instead, children on toy tractors will lead a march around Parliament Square after a rally addressed by speakers including former “Top Gear” TV host and celebrity farmer Jeremy Clarkson. Another 1,800 farmers plan to hold a “mass lobby” of lawmakers nearby, organized by the National Farmers’ Union.
Volatile weather exacerbated by climate change, global instability and the upheaval caused by Britain’s 2020 departure from the European Union have all added to the burden on UK farmers. Many feel the Labour Party government’s tax change, part of an effort to raise billions of pounds to fund public services, is the last straw.
“Four out of the last five years, we’ve lost money,” said Harrison, who grows cereal crops on his family farm near Liverpool in northwest England. “The only thing that’s kept me going is doing it for my kids. And maybe a little bit of appreciation on the land allows you to keep borrowing, to keep going. But now that’s just disappeared overnight.”
The flashpoint is the government’s decision in its budget last month to scrap a tax break dating from the 1990s that exempts agricultural property from inheritance tax. From April 2026, farms worth more than 1 million pounds ($1.3 million) face a 20 percent tax when the owner dies and they are passed on to the next generation. That is half the 40 percent inheritance tax rate levied on other land and property in the UK
Starmer’s center-left government says the “vast majority” of farms – about 75 percent — will not be affected, and various loopholes mean that a farming couple can pass on an estate worth up to 3 million pounds ($3.9 million) to their children free of tax.
Supporters of the tax say it will recoup money from wealthy people who have bought up agricultural land as an investment, driving up the cost of farmland in the process.
“It’s become the most effective way for the super-rich to avoid paying their inheritance tax,” Environment Secretary Steve Reed wrote in the Daily Telegraph, adding that high land prices were “robbing young farmers of the dream of owning their own farm.”
But the famers’ union says more than 60 percent of working farms could face a tax hit. And while farms may be worth a lot on paper, profits are often small. Government figures show that income for most types of farms fell in the year to the end of February 2024, in some cases by more than 70 percent. Average farm income ranged from about 17,000 pounds ($21,000) for grazing livestock farms to 143,000 pounds ($180,000) for specialist poultry farms.
The last decade has been turbulent for British farmers. Many farmers backed Brexit as a chance to get out of the EU’s complex and much-criticized Common Agricultural Policy. Since then, the UK has brought in changes such as paying farmers to restore nature and promote biodiversity, as well as for producing food.
Some farmers have welcomed those moves, but many feel goodwill was squandered through missteps by successive governments, a failure of subsidies to keep up with inflation and new trade deals with countries including Australia and New Zealand that have opened the door to cheap imports.
National Farmers’ Union Deputy President David Exwood said the tax hike was “the final straw in a succession of tough choices and difficult situations that farmers have had to deal with.”
The government has “completely blown their trust with the industry,” he said.
The government insists it will not reconsider the inheritance tax, and its political opponents see an opportunity. The main opposition Conservative Party – which was in government for 14 years until July — and the hard-right populist party Reform UK are both championing the farmers. Some far-right groups also have backed Tuesday’s protest, though the organizers are not affiliated with them.
Harrison says the demonstration is intended as “a show of unity to the government” and an attempt to inform the public “that farmers are food producers, not tax-dodging millionaires.”
“It’s every single sector, whether you’re a landowner or a tenant, whether you’re beef, dairy, milk, cereals, veg, lettuce — you name it, everyone has had a hammer blow from this,” he said.
“Every farmer is losing.”


Pakistan’s premier defense expo kicks off in Karachi today

Updated 19 November 2024
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Pakistan’s premier defense expo kicks off in Karachi today

  • Event to host over 550 exhibitors, including 340 global defense companies from 55 countries
  • IDEAS has become key biennial event for Pakistan’s defense industry since its launch in 2000

KARACHI: Pakistan’s premier defense expo, the International Defense Exhibition and Seminar (IDEAS) is scheduled to commence at the Karachi Expo Center today, Tuesday, with heightened security measures in place. 
The IDEAS exhibition has been held biennially since its inception under General (retired) Pervez Musharraf’s administration in 2000 and has grown into a key event for the defense sector. This year’s exhibition, running from Nov. 19-22, will host over 550 exhibitors, including 340 international defense companies, alongside more than 350 senior civil and military officials from 55 countries.
“The 12th edition of the defense exhibition and seminar, IDEAS 2024, will begin in the Karachi Expo Center on Tuesday,” state broadcaster Radio Pakistan said. “Defense production and exports are among the priorities of the Special Investment Facilitation Council.”
The SIFC is a hybrid civil-military forum formed in 2023 to attract international investment in Pakistan’s key economic sectors such as minerals, agriculture, tourism and agriculture. 
The exhibition will showcase a wide range of modern and traditional defense equipment, weapons systems and vehicles, the state media said, highlighting that global defense experts have shown “deep interest” in attending it.
Prime Minister Shehbaz Sharif will inaugurate the event which will be broadcast live on state television. The media is not allowed to cover the event today but they will be given access to cover the event on Wednesday. 
Brig. Ali Adil, Director of Coordination for IDEAS 2024, had outlined the event’s diverse activities during a news conference over the weekend, saying it includes live demonstrations of cutting-edge defense technology, an international seminar and the IDEAS Tri-Services Karachi Show.
The event will also offer opportunities for networking through business-to-business and business-to-government engagements.
“IDEAS 2024 will bring together representatives of defense industries from around the world to showcase their latest technological innovations, while Pakistan’s defense sector, including both public and private companies, will present products of international standards,” Brig. Adil had said.
He had said this year’s event will feature a new “Startups Pavilion” designed to offer international exposure to young Pakistani entrepreneurs, adding the pavilion will showcase innovative projects and technologies.
An international seminar on “Pakistan Defense Production Potential – Challenges, Opportunities, and Way Forward” will be held on the third day of the event, with presentations from leading national and international experts.
Karachi has faced significant security challenges, including a suicide bombing near Jinnah International Airport last month that killed two Chinese engineers and injured several others. The city also grapples with high street crime rates, with over 90,000 incidents reported in 2023, causing considerable hardship for residents.
To bolster security, local authorities have already fortified the Expo Center, the venue for the exhibition, with multiple layers of containers. As per local media reports, a ban on public gatherings in the city has been imposed for seven days.