© Reuters. FILE PHOTO: An army member stops vehicles at a check point on a the main road after the curfew was extended for another extra day following a clash between Anti-government demonstrators and Sri Lanka’s ruling party supporters, amid the country’s economic
By Alasdair Pal and Uditha Jayasinghe
COLOMBO (Reuters) -Many Sri Lankans thronged buses in the main city Colombo on Thursday to return to their hometowns with leaders of political parties due to meet after the prime minister quit and went into hiding and President Gotabaya Rajapaksa warned of anarchy.
The island nation off India’s southern tip, which overlooks shipping routes between Europe and Asia, is battling its worst economic crisis since independence. Violence erupted on Monday after supporters of former Prime Minister Mahinda Rajapaksa, the president’s elder brother, attacked an anti-government protest camp in Colombo.
Days of violent reprisals against government figures aligned to the powerful Rajapaksa clan followed. The army was called out to patrol the streets and police said 9 people were killed and more than 300 injured in the clashes.
Hundreds of people thronged the main bus station in the commercial capital after authorities lifted an indefinite curfew at 7 a.m. (0130 GMT) on Thursday. The curfew will be reimposed at 2 p.m.
Streets in Colombo were quiet, with some people venturing out to buy essential supplies. Frustration remained at ongoing fuel shortages that have crippled the country’s economy.
“We have hit the bottom economically,” said Nimal Jayantha, an autorickshaw driver queuing for petrol after the curfew was lifted.
“I don’t have the time do my job. By the time I stay in the fuel queue and get petrol, curfew will be imposed. I will have to go home without any money.”
Protesters have sprayed graffiti over Mahinda Rajapaksa’s home in a southern town and ransacked a museum dedicated to his father. They have vowed to keep up the protests until the president also quits.
Mahinda Rajapaksa stepped down after the fighting erupted and is in hiding in a military base in the northeast of the country. His brother said on Wednesday he will appoint a new prime minister and cabinet this week “to prevent the country from falling into anarchy as well as to maintain the affairs of the government that have been halted”.
The Colombo stock market, closed for the last two days, ended over three percent up on Thursday on optimism over a new cabinet, traders said.
Sri Lanka’s central bank governor said on Wednesday failing to find a solution to the crisis in the next one to two weeks would lead to power cuts of up to 10 to 12 hours per day, as well as his own resignation.
Later on Thursday, leaders of political parties were to meet the speaker of the country’s parliament to discuss the current situation.
President Rajapaksa has repeatedly called for a unity government to find a way out of the crisis, but opposition leaders say they will not serve until he resigns.
Hit hard by the pandemic, rising oil prices and tax cuts by the populist Rajapaksa government, the island nation is experiencing its worst financial crisis since independence in 1948.
Useable foreign reserves stand as low as $50 million, inflation is rampant, and shortages of fuel, medicine and other essential goods have brought thousands onto the streets in more than a month of anti-government protests, that had remained predominantly peaceful until Monday.
Instant View: S&P 500 on pace to confirm bear market as stocks slump
© Reuters. FILE PHOTO: A Wall Street sign outside the New York Stock Exchange in New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri
NEW YORK (Reuters) – Wall Street’s main stock indexes slumped on Friday, with the benchmark S&P 500 on track to confirm a decline of more than 20% or more from its Jan. 3 record closing high, a commonly used metric to determine a bear market.
Stocks have been under pressure since the start of the year as investors have dumped stocks amid worries over whether the Federal Reserve will be able to tame inflation without triggering a recession, with spillover effects from the war in Ukraine and the possibility of a slowdown in China from a rise in COVID-19 cases adding to the angst.
MARKET REACTION: STOCKS: Dow down 1.35%, S&P 500 down 1.62%, Nasdaq down 2.23%
TOM MARTIN, SENIOR PORTFOLIO MANAGER, GLOBALT INVESTMENTS, ATLANTA
“The most important time in the market is typically the last hour of trading. I’d rather say that if we continue to close down in that last hour, that probably doesn’t bode well. But if we get a rally in the last hour with buyers stepping in, that does give some hope.”
“The market is cumulatively absorbing the information over the last week or so, particularly with the retail earnings that we’ve seen which has resulted in many of those stocks getting hammered.”
“Certainly, the sentiment among consumers is pretty negative. And when you relate that to investor positioning in the market, there’s been a fair amount of money with exposure to the markets that we’d like to have less and hedge funds are reducing their overall exposure. They are selling what they can, they’re having to cover their shorts, but clearly, the selling of longs is overwhelming any short covering.”
“So as people adjust to this, they are looking for where that bottom is, and, you know, the consensus seems to have been prior to today that we weren’t there yet. Now, whether this takes us there, down to that market level of support that might be at least a temporary bottom before we could get some sort of balance is an open question. And, you know, people looking to things like the VIX which although up today is still below levels that have in the past been associated with market bottoms.”
“As bad as the markets are reacting, they haven’t reacted to the extent on average that they’ve reacted to recessionary environments before. So there’s more to go if we are indeed going to go into a recession and have an average market decline associated with that. A lot of that is going to depend on the actual path of inflation, and on what the Federal Reserve does, among other things like the war in Ukraine and the COVID policy in China etc. So there remains a high level of uncertainty. And you just don’t know whether we’ve reached enough of a bottom that there’ll be a counter trend rally.”
BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN
“We have to see if we close at these levels or not, but investors are clearly afraid of a recession. Corrections are driven by fears of inflation, recession, and geopolitics. We have the trifecta going on right now. Whether we stay at these levels or go lower depends on whether the fears become reality. The reports from major retailers increase the perceived odds of a recession being realized soon, but I’m not convinced that they’re bellwethers. A little more stimulus from China or maybe a more stable inflation print on Friday from the PCE price index could help provide a floor.”
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH
“It’s a watermark but it’s relatively meaningless. Can it go lower? Yes of course.”
“Hitting this mark, maintaining it and not going lower might give investors the confidence to buy.”
“Investors are all about the worst case scenario … so all these geopolitical things could push us lower. That being said today China rate cut gave us a positive open. It is something that, if you’re a longer term investor, you need to pay attention to. This is because China’s rate cut might make the Fed less aggressive out to concern for a too strong dollar.”
“A higher interest rate environment calls for lower multiples. That’s what we’ve been doing is decreasing the multiple on stocks … if that pressure alleviates we could get back in the business of looking at businesses.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO
“If we don’t today it’ll be Monday. In all of the trading that’s gone on in the last couple of weeks, there really hasn’t been much of a bounce. Any bounce we’ve had has gone away quickly. So we’re going to be in a bear market today if not next week. It’s more inevitable than it is anything else. It’s a given, certainly with what’s happened to Nasdaq and small caps. It’s not a surprise that the S&P finally gets there.
“I don’t think investors sell because we’re now in a bear market. They’ve been selling all along. The question is still what does the Fed do. They have historically come to the market’s rescue. We’re not sure where the Powell put is this time around – or if there is one… Although they’ve raised rates twice, we really haven’t seen any impact in the economy outside of housing.”
RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES, CHARLES SCHWAB, AUSTIN, TEXAS
“It does look like we are finally going to actually hit a bear market on the S&P 500 which to me is the final straw that says you are truly in a bear market, you have to close below 3,836, which we are below that level now. Now we could get one of those late-day rallies like we sometimes get so it may not happen.”
“But the one thing that doesn’t really seem to line up as far as the washout goes, or the capitulation, is just with the VIX. Thirty-two is not a low VIX, historically it is high, but it is not at all in line with what you oftentimes see when everybody throws in the towel, I am selling indiscriminately, I’m fed up, I am just trying to save what I got left kind of thinking. We just haven’t seen that.”
“Generally, you are going to need to see something above forty and sometimes it is even way above that. If you go back to the COVID bear market in early 2020 it hit like eighty so it is nothing even close to that. I believe we are going to go into a bear market, whether that happens today or early next week I am not sure, but I am not convinced we are at the bottom yet simply because of that.”
“Now it is not required you have one of those days but you oftentimes do, we could just simply go into a continued, slow, downtrend which frankly we have been in since the second day of this year. While that doesn’t hurt as much all at once, it is like pulling the band-aid off slowly, it is going to be long and slow and painful and frankly could go on for several more months so I just don’t know. But without that big, giant volatility spike and that capitulation-type feeling I am hesitant to make any predictions that we are at the bottom.”
G7 offers $9.5 billion new aid for Ukraine, ready with more
© Reuters. FILE PHOTO: Ukrainian Prime Minister Denys Shmyhal is visible on a screen during the finance ministers and central bank chiefs meeting of the Group of 7 (G7) most industrialised nations in Koenigswinter, near Bonn, Germany May 19, 2022. Federico Gambarini
By Christian Kraemer and Francesco Canepa
KOENIGSWINTER, Germany (Reuters) -The Group of Seven’s financial leaders agreed on $9.5 billion in new aid to Ukraine on Friday and promised enough money to keep the country’s devastated economy afloat as long as it fights against Russia’s invasion.
Finance ministers and central bank governors of the United States, Japan, Canada, Britain, Germany, France and Italy – the G7 – said their support for Ukraine in 2022 so far would be $19.8 billion. The German finance ministry clarified the total included $10.3 billion already promised or disbursed earlier.
Of the new money, the United States will provide $7.5 billion in grants, Germany another $1 billion in grants and the remaining $1 billion will be covered by the other G7 countries in the form of guarantees and loans, the German ministry said.
“We will continue to stand by Ukraine throughout this war and beyond and are prepared to do more as needed,” the G7 said in a communique at the end of the two-day meeting outside the German city of Bonn.
Ukraine estimates it needs some $5 billion a month to keep public employees’ salaries paid and the administration working despite the daily destruction wrought by Russia.
On top of the G7 aid, the European Union is to offer 9 billion euros ($9.50 billion) in loans to Ukraine and the European Bank for Reconstruction and Development and the International Financial Corporation are to offer another $3.4 billion in loans.
The G7 also called for supporting long-term reconstruction and recovery of Ukraine, calling it a “massive joint effort” that will need to be closely coordinated.
Economists’ estimates of the cost of rebuilding Ukraine vary widely between 500 billion euros and 2 trillion euros, depending on the assumptions on the length of the conflict and the scope of destruction.
German Finance Minister Christian Lindner told a news conference after the meeting the G7 discussed the possibility of confiscating Russian assets to finance the reconstruction of Ukraine, but there was conclusion yet. “It is an option that still needs to be thought through,” he said.
RUSSIAN ENERGY CURBS
The war has been a game-changer for Western powers, forcing them to rethink decades-old relations with Russia not only in terms of security, but also in energy, food and global supply alliances from microchips to rare earths.
The G7 discussed proposals to reduce Russia’s revenues from energy exports, such as a phased embargo proposed by the European Union, forming a buyers’ cartel to cap prices for Russian crude, and imposing import tariffs on Russian oil.
The latter was floated by U.S. officials as a way of limiting Moscow’s oil profits while keeping Russian crude supplies on the market to avoid price spikes.
“Nothing is really crystallized as an obvious strategy,” U.S. Treasury Secretary Janet Yellen said about those talks.
Another G7 official said the pricing caps and tariffs were problematic because producers had little incentive to comply and consumers could end up bearing the brunt of the added costs.
TAMING INFLATION BEAST
G7 policymakers also discussed the global surge in inflation exacerbated by the war in Ukraine, which also brought about a sharp slowdown in economic growth, raising the spectre of stagflation – the dreaded 1970s combination of persistent price increases coupled with economic stagnation.
Lindner said inflation was an enormous risk and had to be brought down towards 2% quickly, while German central bank governor Joachim Nagel said negative interest rates were a thing of the past. The G7 comunique also said rates would go up, though in a way that would not destroy growth.
“G7 central banks… will…calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner, ensuring that inflation expectations remain well anchored, while being mindful to safeguard the recovery” the G7 said.
($1 = 0.9472 euros)
Tunisia’s current account deficit to widen to 10% of gdp in 2022
TUNIS (Reuters) – Tunisia’s current account deficit is expected to widen to around 10% of GDP in 2022, against 6.8% initially forecast, the central bank governor said on Friday, as the North Africa country is suffering its worst financail crisis.
In the first four months of this year, the dinar has marked a depreciation of 7% against the dollar, Marouan Abassi said.
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