Russian rouble drops to lowest since March 2022
Russia’s rouble has dropped to its lowest level on record barring the chaos following the full-scale invasion of Ukraine in early 2022.
It takes more than 100 roubles to buy one US dollar, a nearly 2% increase today, according to Refinitiv data.
At the start of 2014 a dollar bought less than 33 roubles, but Russia’s currency dropped sharply after Russia’s “little green men” covertly invaded the eastern parts of Ukraine and annexed Crimea. It surged much higher when Russian troops tried to take Kyiv in February 2022.
The western allies – chiefly the US, EU and UK – responded to the invasion by issuing sanctions, although these were undermined by continued dependence on Russian oil and gas.
That has meant Russia’s economy has not collapsed, but there is little doubt that it has been severely weakened. It has had to turn to other trading partners to import goods, in some cases making it harder to source good quality technology.
Viktor Szabo, portfolio manager at abdrn, an investment firm, said (via Reuters):
We are clearly seeing the weakening of the external balances that has been happening as a result of all the sanctions.
They are still exporting the hydrocarbons but they are not what they used to be and the war in Ukraine is eating up a lot of resources.
The Financial Times reported:
The drop has accelerated in recent weeks, raising economic pressure on Moscow after western sanctions limited capital inflows and European countries weaned themselves off Russia’s energy supplies, reducing the revenues it receives from oil sales.
The domestic economy has been boosted by government spending on defence and social commitments such as the “coffin payments” received by families of soldiers who have died on the battlefield in Ukraine. But this has also raised the budget deficit, pushing the currency lower.
Key events
Concerns over China’s shadow banks as major trust misses payments
Anna Isaac
Fears over China’s shadow banking industry mounted on Monday as a trust linked to one of the country’s biggest wealth managers failed to meet some payments. It comes days after warnings from US president Joe Biden who said that the country was “in trouble” with its economy making it a “ticking time-bomb”.
Zhongzhi, which holds around $140bn in assets, also has a stake in Zhongrong International Trust, which missed key payments last week, according to reports which cited stock market data.
In a move that suggests deeper concerns over contagion in its shadow banking sector, officials at China’s banking regulator have already set up a taskforce to gauge the scale of the potential problems involved, according to reports.
Zhongzhi, like other Chinese wealth managers, combines asset management, banking services and private investment. Trust companies such as Zhongrong International Trust are often major investors in property.
Bloomberg reported that property made up 11% of Zhongrong’s assets-under-management according to its latest annual report.
Its struggles come amid wider troubles in China’s property market and signals of an overall weakening in its economy. It fell into deflation in July.
Last week, Country Garden, the country’s largest property developer, warned that it expected to post a multibillion dollar loss for the first six months of the year. It came days after it missed dollar bond interest payments, stoking fears that it could default on its debts.
It has developments four times the size of China’s second-biggest property builder, Evergrande, which defaulted in 2021.
Bank of England delays open of two key payment systems after ‘technical issue’
The Bank of England has said it suffered a technical issue this morning in the systems that allow commercial banks to hold accounts with the central bank, as well as the system for high-value payments such as house purchases.
The issues have been resolved and settlement of payments will resume shortly, the Bank said in a short statement on Monday afternoon.
The two affected systems were real-time gross settlement (RTGS) and Clearing House Automated Payment System (Chaps). They may not be household names, but they are vital: RTGS underpins the settlement of payments for the majority of payments in sterling made in the UK, while Chaps is the system used by companies to make big payments, and individuals for time-sensitive payments like house deposits.
It is easy to see, then, how errors in the system could cause a lot of headaches.
Here is the Bank of England’s statement in full (which probably masks a lot of scrambling behind the scenes):
This morning, we experienced a technical issue which prevented us from opening our real-time gross settlement (RTGS) service and CHAPS high value payments system. The issue has been resolved and settlement will resume shortly.
Boeing is leading a race against Airbus to sell its widebody passenger jets to Indian airline IndiGo, according to Reuters.
Low-cost carrier IndiGo was the talk of the Paris air show in June when it made the largest single order ever for aircraft, when it said it would buy 500 planes from Europe’s Airbus. That eclipsed Air India’s order for 470 planes earlier this year, as airlines bet heavily on the rise of Asia’s middle classes.
Airlines regularly split their orders between the world’s two largest planemakers – a tactic that gives them bargaining power when ordering their next batch of planes.
Reuters reports:
Boeing has emerged as the front-runner to secure an order for around 25 wide-body planes from IndiGo, industry sources told Reuters on Monday, as India’s biggest airline deepens its international expansion with new destinations.
IndiGo is in talks to buy Boeing’s 787 family of twin-aisle aircraft, which has been pitted against Airbus A330neo jets, said the sources who are familiar with the matter.
Italian prime minister takes ‘full responsibility’ for bank tax debacle
Italian prime minister Giorgia Meloni has said she takes “full responsibility” for the botched implementation of a tax on the country’s banks.
The government on Tuesday said it would introduce a tax on banks’ net interest income – the difference in the cost of borrowing short-term and the price charged for lending out longer term – but backtracked within 24 hours after bank share prices plunged. It put a cap on the proceeds from the tax.
Meloni, who leads a far-right government, spoke to Italian newspapers Corriere della Sera, la Repubblica and La Stampa to try to repair some of the damage to the government’s credibility. La Repubblica quoted her saying (via Reuters translation):
I would do it again. Because I believe that the right things must be done… This is a decision that I took.
It’s a sensitive issue and I take full responsibility for it.
UK politics watchers will be familiar with the name YouGov. What you might not know is that the pollster is also a pretty big company: its market value is more than £1bn.
The company is listed on London’s Alternative Investment Market (Aim), but the Financial Times suggests that may be about to change. It reports that the company is weighing a US stock market listing.
Aim stocks are generally smaller than those on the main stock market – there are fewer disclosure requirements, but also fewer international investors. But a £1bn valuation would put YouGov firmly in the FTSE 250 index of mid-sized companies.
Political polling may be what it’s best known for, but pollsters like YouGov tend to use those as marketing tools for their main businesses: canvassing opinions on behalf of companies.
Stephan Shakespeare, who co-founded the company alongside Nadhim Zahawi (the MP who later became the UK’s third-shortest chancellor), said the company could move its primary listing to the US or pursue a secondary listing. He serves as non-executive chair.
“I think the markets are better at supporting companies like ours there,” he told the Financial Times.
However, the company told Reuters in an emailed statement that it has not made a decision and it was not considering a US listing in the near term.
An economic adviser to Russian leader Vladimir Putin has criticised the country’s central bank, suggesting that it is to blame for the weakness of the rouble and setting the stage for monetary policy tightening.
The Russian central bank is scheduled to make its next interest rate decision on 15 September. There will be serious pressure on central bank governor Elvira Nabiullina to take action to strengthen the currency.
In an article for the TASS news agency, Putin’s economic adviser, Maxim Oreshkin, said Russia needed a strong rouble. He wrote:
The main source of rouble weakening and accelerating inflation is soft monetary policy. The central bank has all the tools to normalise the situation in the near future and ensure that lending rates are reduced to sustainable levels.
A weak rouble complicates the economy’s structural transformation and negatively affects the population’s real incomes. It is in the interests of the Russian economy to have a strong rouble.
Russian rouble drops to lowest since March 2022
Russia’s rouble has dropped to its lowest level on record barring the chaos following the full-scale invasion of Ukraine in early 2022.
It takes more than 100 roubles to buy one US dollar, a nearly 2% increase today, according to Refinitiv data.
At the start of 2014 a dollar bought less than 33 roubles, but Russia’s currency dropped sharply after Russia’s “little green men” covertly invaded the eastern parts of Ukraine and annexed Crimea. It surged much higher when Russian troops tried to take Kyiv in February 2022.
The western allies – chiefly the US, EU and UK – responded to the invasion by issuing sanctions, although these were undermined by continued dependence on Russian oil and gas.
That has meant Russia’s economy has not collapsed, but there is little doubt that it has been severely weakened. It has had to turn to other trading partners to import goods, in some cases making it harder to source good quality technology.
Viktor Szabo, portfolio manager at abdrn, an investment firm, said (via Reuters):
We are clearly seeing the weakening of the external balances that has been happening as a result of all the sanctions.
They are still exporting the hydrocarbons but they are not what they used to be and the war in Ukraine is eating up a lot of resources.
The Financial Times reported:
The drop has accelerated in recent weeks, raising economic pressure on Moscow after western sanctions limited capital inflows and European countries weaned themselves off Russia’s energy supplies, reducing the revenues it receives from oil sales.
The domestic economy has been boosted by government spending on defence and social commitments such as the “coffin payments” received by families of soldiers who have died on the battlefield in Ukraine. But this has also raised the budget deficit, pushing the currency lower.
China shares fall as big property developer struggles
Chinese stock markets are struggling on Monday as a big property company raised concerns over the health of the economy.
Hong Kong’s Hang Seng index is down by 2.1% after China’s biggest private property developer, Country Garden, said it would suspend trading in some bonds. Here is a sign of the turmoil in the company’s debt:
(Yields rise as prices fall, so this chart shows that investors are dumping the debt
Reuters reported:
Chinese property giant Country Garden’s debt problems deepened after its onshore bonds were suspended, sending its shares plunging 16% to a record low on Monday in a fresh blow to policymakers trying to shore up confidence in a stuttering economy.
Markets remain jittery as the trouble in China’s largest private property developer could have a chilling effect on homebuyers and financial institutions, further dampening the prospect of a near-term recovery in the sector and the broader economy.
Shares in Shanghai, China’s other big financial centre, have not responded as dramatically: they dropped 0.3% on Monday. But the property sector is struggling.
European stock markets have dipped amid rumbling concerns over China’s economy (more on those soon).
The FTSE 100 is down 0.1%, as are Germany’s Dax and the broad Europe Stoxx 600 index.
France’s Cac 40 is down 0.2% at the open.
Employers expect 5% pay rises amid rise in ‘counteroffers’ to keep staff
Good morning, and welcome to our live coverage of business, economics and financial markets.
UK employers are expecting to continue raising pay for staff as they battle to retain people, even as the economy is expected to stutter, according to a new survey.
Businesses expect to offer pay rises of up to 5% over the coming year, the highest level since 2012 and sustained from the last two quarters, according to the poll of 2,000 human resources executives by the Chartered Institute of Personnel and Development (CIPD), a professional body.
More employers also expect to try to retain staff who have said they want to leave with counteroffers – trying to beat offers from elsewhere with pay increases or other perks. 40% of UK employers have made a counteroffer in the past 12 months, the CIPD said. 38% of employers who made offers matched the salary of the new job offer and 40% offered even higher sums.
The findings suggest the UK labour market remains tight, with unemployment still near record lows at 4% in May, although it did increase more than expected from 3.8% in April.
The Bank of England has been raising interest rates steadily to try to reduce inflation, which has remained stubbornly high. That is expected to cause a slowdown in the UK economy which would likely lead to higher employment. However, there has been little sign of major changes yet.
Wage data on Tuesday is expected to show further increases, according to Reuters:
The BoE said on 3 August that pay growth had failed to slow, creating a risk of persistent high inflation and higher interest rates.
Growth in earnings excluding bonuses – which typically runs slightly higher than pay settlements – was an annual 7.3% in the three months to May. Data on Tuesday is forecast to show a further increase.
Employers make the most counteroffers in London (58% of London-based employers made one in the last 12 months). That makes it the “counteroffer capital” of the UK, the CIPD said.
Jon Boys, senior labour market economist for the CIPD, said:
The fact that counteroffers are so widespread suggests they do have a role in matching people and jobs. Employers need to approach them with caution though and have clear internal processes for when these situations arise. Counteroffers may help to retain key staff and avoid knowledge drains and the cost to hire new people, but this must be weighed up against other considerations. For instance, counteroffers could exacerbate pay gaps, cause equal pay challenges, or result in a drop in employee engagement. They may also only work for the short term.
While pay is often the most typical focus of a counteroffer, there are other things employers should consider in making roles more attractive, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions.
