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Asian Stocks Up, Investors Worry Inflation Persists



© Reuters.

By Gina Lee – Asia Pacific stocks were up on Friday morning although investors worried that high inflation would continue, which drove central banks to further tighten monetary policies.

Japan’s Nikkei 225 rose 2.54% by 10:45 PM ET (2:45 AM GMT), while South Korea’s KOSPI was up 1.69%.

In Australia, the S&P/ASX 200 rose 1.31%.

Hong Kong’s Hang Seng Index rose 1.69%. The city is due to release the Gross Domestic Product (GDP) later today.

China’s Shanghai Composite was up 0.27% while the Shenzhen Component was up 0.36%. Beijing recorded a few more COVID-19 cases after the officials denied the rumors that the capital city will be locked down.

The dollar climbed to a 20-year high, as global economic worries boosted its safe-haven appeal.

The U.S. Producer Price Index (PPI) rose 0.5% month-on-month in April, slower than the 1.6% increase in March, thanks to the moderation of rising costs of energy products.

“It has been a punishing time for financial assets since the Fed raised rates … and the subsequent strong US jobs market, and CPI data have reinforced concerns over the extent of the task facing the Fed,” analysts at ANZ bank wrote.

The U.S. released the Initial Jobless Claims on Thursday, which rose to 203,000 last week. It was above 195,000 forecasted by and 202,000 the previous week.

Across the Atlantic, German Vice Chancellor Robert Habeck is warning that Russia could use energy supplies as a weapon to threaten NATO countries.

Stock Markets

Analysis-Crypto crash leaves El Salvador with no easy exit from worsening crisis



© Reuters. FILE PHOTO – A sign reading “Pay with Bitcoin here” is set in a furniture store in San Salvador, El Salvador March 10, 2022. REUTERS/Jose Cabezas

By Nelson Renteria, Sarah Kinosian and Rodrigo Campos

SAN SALVADOR/NEW YORK (Reuters) – El Salvador’s big bet on bitcoin, which the Central American nation has been buying since September, has soured in recent weeks as a cryptocurrency rout shaved over a third of the value of the government’s holdings, Reuters calculations show.

Under populist President Nayib Bukele, a vocal cheerleader for the currency, El Salvador went all-in on bitcoin, not just becoming the world’s first country to adopt it as a legal tender but also sketching out plans for a volcano-powered crypto mining hub and plans to issue the first sovereign bond linked to the coin.

With global borrowing costs on the rise and a big debt repayment on the horizon, El Salvador has other fiscal headaches than the impact of the currency’s swoon. But the crypto slump has also closed some potential off-ramps from the crisis, including the now-postponed bitcoin bond.

“The government’s financial problems are not because of bitcoin, but they have gotten worse because of bitcoin,” said Ricardo Castaneda, senior economist and country coordinator for El Salvador and Honduras at think tank Central American Institute for Fiscal Studies (ICEFI). For the government, he said, “bitcoin ceased to be a solution and has become part of the problem.”

Bitcoin has fallen 45% since El Salvador officially adopted it in early September, and 26% from its May high as crypto assets have been swept up in a risk-off investing environment.

The combined market value of all cryptocurrencies recently fell to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap.

El Salvador’s debt stood at $24.4 billion as of December, from $19.8 billion at end-2019, after the Bukele administration allocated millions of dollars to deal with the COVID-19 pandemic and its economic effects over the past couple of years.

The International Monetary Fund estimates that the current account deficit for its remittance and external financing-reliant economy will hover near $2 billion through 2025.

But adopting bitcoin set the country at loggerheads with multilateral lenders like the IMF, from which Finance Minister Alejandro Zelaya said last year the government was seeking $1.3 billion.

The fund has recommended that El Salvador ditch bitcoin altogether. Any deal for a credit line would have to address risks including “those related to the adoption of bitcoin as legal tender as well as risks related to economic governance,” an IMF official said on Wednesday.

Ratings agencies have warned bitcoin adoption could facilitate money laundering, and importantly, the bitcoin risk has given bond investors another reason to demand higher returns

As of Wednesday, they were seeking a record-high premium of 2,445 basis points over U.S. Treasuries.

Bukele’s moves to centralize power, from removing all the top judges on the country’s supreme court to muscling through authorization to seek immediate re-election despite constitutional term limits, have helped drive the risk premium higher.

“If there isn’t potential for bitcoin-growth dividends or innovative bitcoin-financing, then the Bukele administration will have to prioritize spending priorities and identify financing options,” according to Siobhan Morden, head of Latin America Fixed Income Strategy at Amherst Pierpont.

Reuters calculations of a $36 million paper loss in bitcoin, enough to make at least some of those coupon payments, is based on Bukele’s tweets and an estimate of prices on the purchase dates. The government has spent some $104.2 million on 2,301 coins now worth just $67.9 million using Wednesday’s volume weighted average price.

The country has to service $329 million in interest due on its international bonds this year as well as $800 million in a bond set to mature in January.

ICEFI’s Castaneda listed financing options including the Central American and Latin American development banks – CABEI and CAF, respectively – as possible patches for financing the $800 million payment due in January. Another option, he said, is to nationalize the country’s pension fund to cover the fiscal deficit – which could be done by transferring the public’s savings to a government account.

A debt restructuring for El Salvador is “inevitable” if the country continues with the “current policy mix,” said Polina Kurdyavko, head of emerging markets at BlueBay Asset Management. “Debt in El Salvador could be sustainable with the right (IMF) program. But they have to act now.”

The country’s finance minister, Zelaya, declined to comment for this story.

Salvadoran bonds trade between 43.5 cents and 34 cents on the dollar except for the January maturity at 75 cents, reflecting cautious optimism that the country could make that payment.

The cost to insure investors against a Salvadoran sovereign default over the next five years on Wednesday hit its highest level since 2020, according to S&P Global (NYSE:SPGI) data.

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Generali posts smaller-than-expected net profit drop after Russia impairments



© Reuters. FILE PHOTO: The emblem of Italy’s insurer Assicurazioni Generali is pictured in Rome, May 13, 2013. REUTERS/Stefano Rellandini

MILAN (Reuters) – Italy’s top insurer Assicurazioni Generali (BIT:GASI) said on Thursday it posted a smaller-than-expected drop in Q1 net profit after impairments on its Russian investments for 136 million euros ($142.75 million).

Net profit came in at 727 million euros, down 9.3% year-on-year, above an analyst consensus provided by the insurer of 651 million euros.

Generali said its operating profit, closely watched by the market, grew 1.1% to 1.63 billion euros, topping an average analyst consensus of 1.55 billion euros.

($1 = 0.9527 euros)

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Rogue trader, euro zone crisis and war, Socgen’s CEO ends ‘bumpy’ ride at top




© Reuters. FILE PHOTO: French bank Societe Generale Chief Executive Officer Frederic Oudea attends a news conference to present the company’s 2015 annual results La Defense near Paris, France, February 11, 2016. REUTERS/Benoit Tessier//File Photo


By John O’Donnell and Julien Ponthus

FRANKFURT/LONDON (Reuters) -Societe Generale CEO Frederic Oudea, who navigated the French bank through a rogue trading scandal and the euro zone crisis, will leave next year, ending a tumultuous 15 years at the top.

The longest-serving chief executive of a major European bank, Oudea took charge at the height of the 2008 financial crisis as the bank grappled with the multi-billion-euro fallout of a rogue trading scandal.

A student of France’s elite Polytechnique engineering school and of the National Administration School, whose graduates include French presidents Jacques Chirac and Emmanuel Macron, Oudea started his career in the civil service before becoming one of the country’s best-known bankers.

He prepares to leave as the bank struggles with the aftermath of a pandemic and the economic uncertainty created by war in Ukraine.

“It’s been a very bumpy ride,” said Jerome Legras of Axiom Alternative Investments, who said some investors were frustrated by what they deem the bank’s modest progress.

In common with many European peers, the share price of Societe Generale (OTC:SCGLY) never recovered from the 2008 debt crisis and at about 24 euros ($25.24), is less than half of its level when Oudea became CEO.


Oudea became Societe Generale’s finance chief in 2003 but long played a secondary role to Jean-Pierre Mustier, then head of Socgen’s investment bank and considered the likely future CEO.

The scandal in 2008 over a 4.9 billion euro loss triggered by trader Jerome Kerviel turned the tables in favour of Oudea, who became chief executive at the age of 44.


The euro zone debt crisis hit French banks in particular because they were heavily exposed to debt in Greece and other countries at the periphery of the euro zone. This triggered speculation, including that the French government could be forced to nationalise lenders.

In 2011, as Greece struggled to cope with debt repayments, jitters swept through Europe over the future of its banks.

France and its lenders were considered vulnerable. A flurry of media reports and speculation, including that Societe Generale even faced collapse, rocked its shares, putting Oudea to his toughest test.

Pressure abated on the industry when Mario Draghi, who was European Central Bank president at the time, pledged to do “whatever it takes” to back the euro.

2015 SALES

Oudea is credited with shoring up the bank’s capital base, its weakness after the 2008 crisis, selling some businesses and paring back its Eastern Europe arm.

The sale of the bank’s stake in Amundi in a 2015 multi-billion-euro stock-market listing granted Oudea a windfall. He later sold the exchange-traded funds specialist Lyxor to Amundi.

He made Boursorama the top French online bank while cutting branches through a merger with the Credit du Nord network.

Oudea’s arguably boldest move was at the start of this year when Societe Generale’s car leasing division ALD, which he floated in 2017, signed a 4.9 billion euros deal to buy Dutch rival LeasePlan.

Nonetheless, some remained underwhelmed by Oudea. “Investors felt there was a lack of a clear strategic goal,” said Legras.

The risks from trading continued to overshadow the bank. In early 2020, it posted a surprise first-quarter loss after a revenue wipeout at its equity trading division after market volatility caused by the pandemic.

The bank has since overhauled that division.


The bank paid $1.3 billion in penalties for wrongdoing, including bribing Libyan officials, an episode for which Oudea apologised.

Between 2004 and 2009, Socgen paid more than $90 million in bribes through a Libyan broker to secure 14 investments by Libyan state-owned financial institutions, the U.S. Justice Department had said.


Last month, Socgen became the first major Western bank to announce its departure from Russia, navigating a highly charged standoff between Russia and the European Union, which has been ratcheting up sanctions in response to Moscow’s invasion of Ukraine on Feb. 24.

Socgen announced it would sell its Rosbank business to Interros Capital, a company linked to Russian oligarch Vladimir Potanin, writing off roughly 3.1 billion euros.

Socgen was one of a handful of European banks with a significant presence in Russia and the sale was seen as a coup by investors despite the heavy cost because it drew a line under its involvement with Russia.

($1 = 0.9508 euros)

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