Tag: Breaking News: Europe

UK inflation dips to 6.7%, below expectations as food prices ease

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A shopper browses fruit and vegetables for sale at an indoor market in Sheffield, UK. The OECD recently predicted that the UK will experience the highest inflation among all advanced economies this year.

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U.K. inflation surprised with a dip to 6.7% in August, below expectations and sparking increased bets on a pause in interest rate hikes from the Bank of England on Thursday.

On a monthly basis, the headline consumer price index (CPI) rose by 0.3%.

Economists polled by Reuters expected the headline figure to come in at 7% annually and up 0.7% month-on-month amid a slight uptick in prices at the pump. July saw a 6.8% annual rise and a 0.4% month-on-month decline.

“The largest downward contributions to the monthly change in both CPIH and CPI annual rates came from food, where prices rose by less in August 2023 than a year ago, and accommodation services, where prices can be volatile and fell in August 2023,” the Office for National Statistics said.

“Rising prices for motor fuel led to the largest upward contribution to the change in the annual rates.”

Core CPI — which excludes volatile food, energy, alcohol and tobacco prices — came in at 6.2% in the 12 months to the end of August, down from 6.9% in July. The goods rate rose slightly from 6.1% to 6.3% but was more than offset by the services rate slowing significantly from 7.4% to 6.8%.

Raoul Ruparel, director of Boston Consulting Groups’ Centre for Growth, said this unexpected fall in core inflation would be particularly welcomed by policymakers, along with signs that retail prices are beginning to ease for consumers.

“This, combined with nominal wage growth, suggests real wages will continue to pick up towards the end of the year. Together, this will be a relief for households, but it is also a further sign that the economy looks to be slowing,” Ruparel said in an email on Wednesday.

“We believe the Bank of England will still raise rates tomorrow, but today’s data will embolden those pushing for this to be the final rate hike. However, it also highlights the challenge for the Bank of England with the economy now showing signs of cooling and the full impact of the rate rises not being felt.”

The Bank of England will announce its next monetary policy decision on Thursday, as policymakers continue efforts to pull inflation back down towards the Bank’s 2% target.

The market has broadly priced in another 25-basis-point hike to interest rates, which would take the main bank rate to 5.5% — its highest level since December 2007.

In light of the downside inflation surprise on Wednesday, market pricing for a pause from the Bank of England jumped from 20% to almost 50% at around 7:40 a.m. London time.

Caroline Simmons, U.K. chief investment officer at UBS, told CNBC that the central bank will still most likely hike on Thursday.

“We do believe that’s going to be their last hike, however, because we do have these downward forces on inflation,” she added.

“I think the recent rise in the oil price made people nervous that the print this morning might not continue to fall, which is why people sort of had more upside risk to their numbers, but I think the general trend is down.”

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September 19, 2023
European Central Bank hikes rates to record level, hints at possible peak

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President of the European Central Bank (ECB) Christine Lagarde gestures as she addresses a press conference following the meeting of the governing council of the ECB in Frankfurt am Main, western Germany, on July 27, 2023.

Daniel Roland | Afp | Getty Images

The European Central Bank on Thursday announced a 10th consecutive hike in its main interest rate, as the fight against inflation took precedence over a weakening economy.

Rate raises have now hauled the central bank’s main deposit facility from -0.5% in June 2022 to a record 4%. A key reason for the hike Thursday appeared to be upward revisions in newly published staff macroeconomic projections for the euro area, which see inflation averaging at 5.6% this year from a prior forecast of 5.4%, and 3.2% next year from a prior forecast of 3%.

However, it nudged its closely-watched medium-term forecast lower, from 2.2% to 2.1%.

In a market-moving statement, it also indicated that further hikes may be off the table for now.

“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” it said.

“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”

The euro fell sharply on the announcement and was down 0.5% against the U.S. dollar at $1.0686 at 3 p.m. Frankfurt time, trading at a three-month low.

European stocks rallied following cautious trading through the morning, meanwhile, with the benchmark Stoxx 600 index up by 1.1%.

The ECB move on Thursday also takes the interest rates on its main refinancing operations and marginal lending facility 25 basis points higher, to 4.5% and 4.75%, respectively.

Staff also lowered economic growth projections for the euro area from 0.9% to 0.7% expansion in 2023, from 1.5% to 1% in 2024, and from 1.6% to 1.5% in 2025.

While the ECB has firmly signaled its next moves in previous meetings, economists and analysts were divided over whether the doves or hawks in Frankfurt would win out at this September meeting. Money markets indicated a roughly 63% chance of a hike through Thursday morning, up from a more even split in recent days.

Oil market reports suggesting tighter supply and higher prices through the rest of the year and beyond have fueled inflation fears, along with signs of wage growth. A Reuters article on Wednesday reporting the ECB now expects euro zone inflation to remain above 3% in 2024 appeared to increase market bets on a rate hike. The report came from a source ahead of the release of its projection Thursday.

“Some [Governing Council] members did not draw the same conclusion, and some governors would have preferred to pause and reserve future decisions once more certainty, more intelligence, would have resulted from the passing of time and the impact of our many previous decisions,” ECB President Christine Lagarde told CNBC’s Annette Weisbach in the press conference following the announcement.

“But I can tell you there was a solid majority of the governors to agree with the decision we have made.”

Lagarde said there was no concrete answer to whether rate hikes were finished since the Governing Council remains data-dependent — but she stressed the ECB’s current thinking was encapsulated in the statement around rates at current levels making a “substantial contribution” to the fight against inflation if held for long enough.

Germany slump

Headline consumer price inflation in the bloc was 5.3% in August, the same level as core inflation, which strips out food and energy costs.

Europe’s biggest economy has shown continued deterioration, with business sentiment plummeting and services now declining along with manufacturing.

Germany is forecast to be the only major European economy to contract this year — though the wider picture is also downbeat, with euro zone business activity declining in August to its lowest level since November 2020.

Peter Schaffrik, chief European macro strategist at RBC Capital Markets, told CNBC that market focus would not so much be on the hike itself, but rather the language used by the central bank in its statement.

Schaffrik said one focus will be on the 2025 inflation forecast, which unlike forecasts for 2023 and 2024 was revised lower since this is typically what the ECB means when it talks about the medium term.

Another will be on its descriptor of rates being maintained for a “sufficiently long duration” — indicating the “path forward is flat for quite some time,” he said.

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September 14, 2023
UBS shares jump to 2008 highs after profit beat, job cuts announcement
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General view of the UBS building in Manhattan on June 5, 2023 in New York City.

Eduardo Munoz Alvarez | View Press | Corbis News | Getty Images

UBS shares reached their highest point since late 2008 during early trade in Zurich on Thursday, after the Swiss banking giant posted a mammoth profit beat and announced thousands of layoffs as it plans to fully absorb Credit Suisse’s Swiss bank.

UBS posted second-quarter profit of $28.88 billion in its first quarterly earnings report since Switzerland’s largest bank completed its takeover of stricken rival Credit Suisse.

Analysts had projected net profit of $12.8 billion for the three months to the end of June, according to a Reuters poll.

UBS said the result primarily reflected $28.93 billion in negative goodwill on the Credit Suisse acquisition. Underlying profit before tax, which excludes negative goodwill, integration-related expenses and acquisition costs, came in at $1.1 billion.

Negative goodwill represents the fair value of assets acquired in a merger over and above the purchase price. UBS paid a discounted 3 billion Swiss francs ($3.4 billion) to acquire Credit Suisse in March.

UBS CEO Sergio Ermotti told CNBC’s “Squawk Box Europe” on Thursday that the bank is making “very good progress” with its integration plans.

“When people look into those numbers, they will clearly understand that this negative goodwill is the equity necessary to sustain $240 billion of risk-weighted assets and the financial resources to go through a deep restructuring that is necessary at Credit Suisse, because our analysis has proven that the business model was not viable any longer,” he told CNBC’s Joumanna Bercetche.

“Credit Suisse has excellent people, clients and product capabilities, but the business model was not sustainable any longer and needs to be restructured.”

UBS shares were up 4.9% around an hour into trading.

Here are some other highlights:

CET1 capital ratio, a measure of bank liquidity, reached 14.4% versus 14.2% in the second quarter of 2022.

Return on tangible equity (excluding negative goodwill, integration-related expenses and acquisition costs) was 4.3%.

CET1 leverage ratio was 4.8% versus 4.4% a year ago.

Credit Suisse’s Swiss bank to be fully absorbed

Credit Suisse’s stalwart domestic banking unit will be fully integrated into UBS, the group also announced on Thursday, with a merging of legal entities expected to close in 2024.

The fate of Credit Suisse’s flagship Swiss bank, a key profit center for the group and the only division still generating positive earnings in 2022, was a focal point of the acquisition, with some analysts speculating that UBS could spin it off and float it in an IPO.

Ermotti said the bank’s analysis had determined that this is “the best outcome for UBS, our stakeholders and the Swiss economy.”

The integration may prove more controversial in Switzerland because of the possibility of heavy job losses in the process. UBS confirmed Thursday that the integration of the Swiss bank will result in 1,000 redundancies, beginning in late 2024, while a further 2,000 layoffs are expected due to the wider restructure of Credit Suisse.

The Credit Suisse acquisition was part of an emergency rescue deal mediated by Swiss authorities over the course of a weekend in March. Earlier this month, UBS announced that it had ended a 9 billion franc ($10.24 billion) loss protection agreement and a 100 billion franc public liquidity backstop that were put in place by the Swiss government when it agreed to take over Credit Suisse in March.

“Clients will continue to receive the premium level of service they expect, benefiting from enhanced offerings, expert capabilities and global reach,” Ermotti said of the integration of Credit Suisse’s Swiss banking division.

“Our stronger capital base will enable us to keep the combined lending exposures unchanged, while maintaining our risk discipline.”

The bank also announced that it is targeting gross cost savings of at least $10 billion by 2026, when it hopes to have completed the integration all of Credit Suisse Group’s businesses.

UBS delayed reporting its second-quarter results — initially scheduled for July 25 — until after completing the Credit Suisse takeover on June 12.

In the previous quarter, UBS suffered a surprise 52% annual drop in net profit due to a legacy litigation issue relating to U.S. mortgage-backed securities.

UBS shares closed Wednesday’s trade up nearly 30% since the turn of the year, according to Eikon.

In a separate Thursday filing, the Credit Suisse subsidiary posted a second-quarter net loss of 9.3 billion francs, as it saw net asset outflows of 39.2 billion francs, with assets under management falling 3% amid a mass exodus of clients and staff.

The Thursday report was Credit Suisse’s last as an independent entity, and showed that, despite the rescue, the loss of client confidence that precipitated the bank’s near collapse in March has yet to be reversed.

UBS nevertheless noted that this attrition rate was slowing, and the bank will be keen to retain as many Credit Suisse clients and customers as possible, in order to make the colossal merger work in the long run.

UBS’ Ermotti told CNBC on Thursday that both UBS and Credit Suisse had seen an uptick in deposit inflows in the second quarter and in the current one so far, and that this was evidence that clients are “staying loyal.”

For the second quarter, net inflows into deposits for the combined group were $23 billion, of which $18 billion came from Credit Suisse’s wealth management and Swiss bank divisions.

Though Credit Suisse continued to suffer net asset outflows, UBS said that these slowed over the second quarter and turned positive after the acquisition was completed in June.

“Credit Suisse lost around $200 billion during its difficult times in 2022 and 2023, and we are seeing now some of this coming back, and our goal is to try to get back as much as possible. It’s not easy, but it is our ambition,” Ermotti added.

UBS’ flagship global wealth management business received $16 billion in net new money over the three months to the end of June, its highest second-quarter net inflows for over a decade.
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August 30, 2023
Microsoft submits new Activision Blizzard takeover deal to British regulator after initial block

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Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard’s games character.

Dado Ruvic | Reuters

Microsoft on Tuesday submitted a new deal for the takeover of Activision Blizzard, offering a spate of concessions after U.K. regulators rejected its initial proposal.

The U.S. technology giant first put forward the $69 billion acquisition of Activision in January 2022, but has since faced regulatory challenges in the U.S., Europe and U.K.

On Tuesday, the U.K.’s Competition and Markets Authority confirmed it has blocked the original deal. However, it said Microsoft and Activision have agreed to a new, restructured agreement, which the CMA will now investigate with a decision deadline of Oct. 18.

The Redmond tech giant anticipates the review can be completed before this time, Microsoft President Brad Smith said in a Tuesday statement.

Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years, the CMA said. Instead, these rights will be divested to French game publisher Ubisoft Entertainment prior to Microsoft’s acquisition of Activision, the CMA added.

Ubisoft shares were up more than 4% in early Europe trade.

CMA blockade

The CMA has been the toughest critic of the takeover, citing concerns that the deal would hamper competition in the nascent cloud gaming market.

Cloud gaming is seen as the next frontier in the industry, offering subscription services that allow people to stream games just as they would movies or shows on Netflix. It could even remove the need for expensive consoles, with users playing the games on PCs, mobile and TVs instead.

Regulators previously argued that Microsoft could also take key Activision games, like Call of Duty, and make them exclusive to Xbox and other Microsoft platforms.

Authorities in the European Union were the first major regulator to clear the deal back in May. To cross that line, Microsoft offered concessions, such as offering royalty-free licenses to cloud gaming platforms to stream Activision games, if a consumer has purchased them.

The CMA refused similar measures at the time, which it felt would allow Microsoft to “set the terms and conditions for this market for the next ten years.”

In the U.S., the Federal Trade Commission was fighting a legal battle with Microsoft in an effort to get the Activision takeover scrapped. In July, a judge blocked the FTC’s attempt to do so, clearing the way for the deal to go ahead in the U.S.

Just hours later, the CMA said it was “ready to consider any proposals from Microsoft to restructure the transaction” and allay the regulator’s concerns.

Microsoft’s new proposal to the U.K.

The restructured deal and cloud rights divestment to Ubisoft are intended to provide an independent third-party content supplier with the ability to supply Activision’s gaming content to all cloud gaming service providers, including to Microsoft itself.

Ubisoft will be able to license out Activision content under different business models, including subscription services.

The deal would also require Microsoft to provide versions of games on operating systems other than Windows, which it owns.

“Microsoft has notified a new and restructured deal, which is substantially different from what was put on the table previously,” Sarah Cardell, CEO of the CMA, said in a statement.

“As part of this new deal, Activision’s cloud streaming rights outside of the EEA (European Economic Area) will be sold to a rival, Ubisoft, who will be able to license out Activision’s content to any cloud gaming provider. This will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services.”

Cardell emphasised this is not a signal of an approval for the deal.

“This is not a green light. We will carefully and objectively assess the details of the restructured deal and its impact on competition, including in light of third-party comments.”

For its part, Microsoft will be compensated for its divestment to Ubisoft “through a one-off payment and through a market-based wholesale pricing mechanism, including an option that supports pricing based on usage. It will also give Ubisoft the opportunity to offer Activision Blizzard’s games to cloud gaming services running non-Windows operating systems,” Smith said Tuesday.

“We’re dedicated to delivering amazing experiences to our players wherever they choose to play,” Chris Early, senior vice president of strategic partnerships and business development at Ubisoft, said on Tuesday. “Today’s deal will give players even more opportunities to access and enjoy some of the biggest brands in gaming.”

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August 21, 2023
Italian bank shares slide after government surprises with windfall tax

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ROME – August 7, 2023: (L-R) Carlo Nordio, Minister of Justice, Adolfo Urso, Minister of Enterprise and Made in Italy, Matteo Salvini, Deputy Prime Minister and Minister of Transport, Francesco Lollobrigida, Minister of Agriculture and Orazio Schillaci, Minister of Health hold a press conference at Palazzo Chigi at the end of the Council of Ministers No. 47.

Simona Granati – Corbis/Corbis via Getty Images

Italian banking shares took a beating on Tuesday morning after Italy’s cabinet approved a 40% windfall tax on lenders’ profits in 2023.

As of around 9:45 a.m. in Rome, BPER Banca shares had plunged 8% and Intesa Sanpaolo was down 7%, while Banco BPM, UniCredit and Finecobank all dropped more than 6%.

Italian Deputy Prime Matteo Salvini told a press conference on Monday that the 40% levy on banks’ extra profits derived from higher interest rates, amounting to several billion euros, will be used to cut taxes and offer financial support to mortgage holders.

“One only has to look at the banks’ first-half 2023 profits, also the result of the European Central Bank’s rate hikes, to realise that we are not talking about a few millions, but we are talking one can assume of billions,” Salvini said, according to a Reuters translation.

“If [it is true that] the cost of money burden for households and businesses has increased and doubled, it has not equally doubled what is given to current account holders.”

The one-off tax on extra profits will be equal to around 19% of banks’ net profits for the year, analysts at Citi estimated based on currently available data.

“We see this tax as substantially negative for banks given both the impact on capital and profit as well as for cost of equity of bank shares. The new simulated impact is also higher [than] the simulation we ran in April,” Citi Equity Research Analyst Azzurra Guelfi said in a note Tuesday.

The tax will apply to “excess” net interest income in both 2022 and 2023 resulting from higher interest rates, and will be applied on NII exceeding 3% year-on-year growth in 2022 from 2021 levels, and exceeding 6% year-on-year growth in 2023 versus 2022. Banks are required to pay the tax within six months after the end of the financial year.

“The introduction of this tax (which was discussed, then left pending) could lead to Italian banks increasing their cost of deposits in order to reduce the extra profit, and this comes after a round of results when every bank increases 2023 guidance for NII and assuming a slowdown of growth in 2H (due to raising deposit beta, even if expectation below previous guidance),” Citi said.

“It is not clear whether the tax will apply to domestic NII only (we base our simulation on this), and this could have larger impact for UCI vs. peers (given international franchise).”

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August 8, 2023
Barclays announces share buyback as second-quarter profit meets target

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Barclays bank reported second quarter earnings Thursday.

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Barclays reported a net income of £1.3 billion ($1.68 billion) for the second quarter, in line with expectations.

Analysts were expecting a net income of £1.4 billion for the quarter, according to Refinitiv. The bank previously reported a net profit of £1.78 billion in the first quarter of the year.

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C. S. Venkatakrishnan, group chief executive, said in a statement: “We have positioned Barclays carefully for this mixed macroeconomic environment and delivered a consistent performance in the second quarter.”

“Looking forward we are very confident of meeting our targets for the full year,” he added.

The Barclays team also announced plans for a share buyback of up to £750 million.

Barclays shares are up by about 1.5% year to date.

This is a breaking news story and is being updated.

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July 26, 2023
Deutsche Bank beats expectations despite 27% drop in profit, jump in costs
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A Deutsche Bank AG branch in the financial district of Frankfurt, Germany, on Friday, May 6, 2022.

Alex Kraus | Bloomberg | Getty Images

Deutsche Bank on Wednesday reported a net profit of 763 million euros ($842 million) for the second quarter of 2023, narrowly beating expectations despite a 27% year-on-year decline.

The bank’s net profit attributable to shareholders slightly topped a prediction of 737 million euros in a Reuters poll of analysts, though marked a significant drop from the 1.046 billion euros reported in the same quarter of 2022, while net revenues rose 11% year-on-year to 7.4 billion euros.

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However, second-quarter non-interest expenses rose 15% year-on-year to 5.6 billion euros, with adjusted costs up 4% to 4.9 billion euros. Nonoperating costs includes 395 million euros in litigation charges and 260 million euros in “restructuring and severance related to execution of strategy.”

In its first-quarter report, the bank flagged job cuts for its non-client facing staff and reported a sharper-than-expected year-on-year fall in investment bank revenues.

Deutsche’s corporate and private banking divisions enjoyed a strong quarter with revenues up 25% and 11% year-on-year, respectively, benefiting from the higher interest rate environment. However, its businesses more closely tied to the financial market backdrop — the investment banking and asset management divisions — saw revenues fall 11% and 6%, respectively.

Deutsche Bank CFO James von Moltke told CNBC that this could be attributed to an unusually strong second quarter of 2022, as market volatility boosted trading volumes and revenues.

Cost savings

Speaking to CNBC’s Silvia Amaro on Wednesday, von Moltke said the bank had upped its target for cost savings from 2 billion euros to 2.5 billion euros in a bid to offset the impact of inflation, and was also making substantial business investments to “support future revenue growth,” invest in technology and improve its controls.

“So for us, it’s a balancing act between delivery on the expense objectives and some of those inflationary impacts. In recent quarters, we’ve succeeded very well, we’ve delivered on our guidance of costs essentially flat to the fourth quarter of last year,” von Moltke said.

“That’s something that we’re aiming to continue. We feel like the progress we’re making and those expense initiatives is considerable and accelerating.”

Wednesday’s result marked a 12th straight quarterly profit since the German lender completed a sweeping restructuring plan that began in 2019 with the aim of cutting costs and improving profitability.

“In the first half of 2023 we again demonstrated good growth momentum across a diversified business portfolio, underlying earnings power and balance sheet resilience. This puts us on a good track towards our 2025 financial targets,” said Deutsche Bank CEO Christian Sewing.

“Our planned share repurchases enable us to deliver on our goals to distribute capital to our shareholders.”

Deutsche Bank announced on Tuesday that it plans to initiate up to 450 million euros of share buybacks this year, starting in August, and expects total capital returned to shareholders through dividends and buybacks in 2023 to exceed 1 billion euros, compared with around 700 million in 2022.

Other highlights for the quarter:

Total revenues stood at 7.4 billion euros, up from 6.65 billion in the second quarter of 2022.

Total non-interest expenses were 5.6 billion euros, up 15% from 4.87 billion a year earlier.

The provision for credit losses was 401 million euros, up from 233 million in the same quarter of last year.

Common equity tier one CET1 capital ratio, a measure of bank liquidity, rose to 13.8% from 13.6% in the previous quarter and 13% a year ago.

Return on tangible equity stood at 5.4%, down from 7.9% a year ago.

Benefiting from the Credit Suisse collapse

Deutsche Bank previously suggested it stood to gain from the collapse of Credit Suisse and its takeover by Swiss rival UBS. CFO von Moltke told CNBC on Wednesday that some of these benefits may already be materializing.

“All of these things take time. Certainly, on the hiring front, we’ve been able to attract talent as the fallout from the merger takes place, in two areas of our business in particular: wealth management, where we’ve been able to attract around 30 relationship managers over the past several months, and also in our origination and advisory franchise,” von Moltke said.

“It’s obviously early days to see the revenue impact of those hires, but we’re very confident that we’ve been able to attract strong talent to the platform and fill in gaps, where we can now take advantage more fully of our own platform and market presence.”
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July 25, 2023
A landmark agricultural deal that guarantees food security for tens of millions is set to expire on Monday as Russia debates its renewal

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A worker handles wheat grain in a storage granary at Aranka Malom kft mill in Bicske, Hungary on Tuesday, May 16, 2023. The Black Sea deal has allowed Ukraine to ship more than 30 million tons of produce from three major ports, helping to bring down global food prices down after they spiked following Russia’s invasion.

Akos Stiller | Bloomberg | Getty Images

WASHINGTON — A landmark agricultural deal brokered between Ukraine and Russia is set to expire on Monday, a revelation that is expected to further exacerbate the global fallout of the Kremlin’s ongoing war if Moscow refuses to renew the agreement.

Last week, Secretary-General Antonio Guterres sent a letter to Russian President Vladimir Putin outlining proposals to salvage the deal. On Friday, U.N. spokesman Stephane Dujarric told reporters that conversations with the Kremlin via Signal and WhatsApp would continue over the weekend.

Moscow maintains that the current agreement only supports Ukrainian agricultural products and not Russian fertilizer exports which are also included in the deal but have yet to depart for global destinations.

On Thursday, Putin reiterated Moscow’s position and threatened for the fourth time since the inception of the agreement to not renew it.

A Ukrainian serviceman stands in front of silos of grain from Odesa Black Sea port, before the shipment of grain as the government of Ukraine awaits signal from UN and Turkey to start grain shipments, amid Russia’s invasion of Ukraine, in Odesa, Ukraine July 29, 2022. REUTERS/Nacho Doce

Nacho Doce | Reuters

Before Russian troops poured over Ukraine’s borders in late February 2022, Kyiv and Moscow accounted for almost a quarter of global grain exports. Those agricultural shipments came to a halt for nearly six months until representatives from Ukraine, Russia, the U.N. and Turkey agreed to establish a humanitarian sea corridor under the Black Sea Grain Initiative.

The deal, which was brokered last July, eased Russia’s naval blockade with the reopening of three key Ukrainian ports.

Under the deal, more than 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukraine’s war-weary ports of Odesa, Chornomorsk and Yuzhny-Pivdennyi.

The agreement has also overseen the transport of 725,167 tons of wheat to sail on World Food Program ships to some of the world’s most food-insecure countries, such as Afghanistan, Ethiopia, Somalia, Sudan and Yemen.

The U.N.-backed organization responsible for tracking exports under the deal said in an update on Saturday that for nearly three months, no ships have sailed from Ukraine’s port of Yuzhny-Pivdennyi. What’s more, no new vessels have been approved to depart Ukraine for the past two weeks.

‘Not the deal we agreed to’

Russian President Vladimir Putin and Moscow’s top diplomat Sergei Lavrov both blamed the West for creating global insecurity and instability.

Sean Gallup

In April, Russian Foreign Minister Sergey Lavrov warned that if the Black Sea Grain Initiative did not soon incorporate fertilizer products, Moscow would not renew the agreement.

“It was not called the grain deal it was called the Black Sea Initiative and in the text itself the agreement stated that this applies to the expansion of opportunities to export grain and fertilizer,” Lavrov told reporters during an April 26 press conference at the U.N.

“That’s not the deal we agreed to on July 22,” he said, adding that there are dozens of Russian ships loaded with approximately 200,000 tons of fertilizer waiting for export. In addition to the inclusion of fertilizer exports, the Kremlin has also requested the resumption of a pipeline that weaves through Russia and ends at a Ukrainian port.

One of Moscow’s top demands though is for the Russian Agricultural Bank, or Rosselkhozbank, to return to the SWIFT banking system.

Moscow’s exclusion from SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, severed the country from much of the world’s financial networks in the days following Russia’s full-scale invasion.

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July 15, 2023
Dutch PM Mark Rutte says he won’t run for fifth term after government collapses

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Mark Rutte said he will not run for a fifth term as the Dutch prime minister.

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Dutch Prime Minister Mark Rutte announced on Monday that he won’t run for a fifth term in office after handing in the resignation of his cabinet Friday, bringing an end to the country’s fragile four-party coalition government.

Fifty-six-year-old Rutte, who became the country’s longest-serving prime minister in history in August last year, said he plans to leave Dutch politics following elections later in the year.

The leader of the conservative People’s Party for Freedom and Democracy (VVD) had served as prime minister since 2010.

“In recent days there’s been a lot of speculation about what motivated me. The only answer is the Netherlands,” Rutte said in a speech in parliament, according to Reuters. His comments came ahead of a scheduled no-confidence vote in The Hague on Monday.

“Yesterday morning I made the decision that I will not again be available as leader of the VVD. Once the new cabinet is formed after the elections, I will leave politics.”

Rutte’s announcement comes shortly after he last week said that his four-party coalition government had collapsed over “irreconcilable” differences on immigration policy.

The prime minister and his government will remain in post until a new ruling government is chosen. Opposition lawmakers have called for an immediate election. A fragmented political landscape in the Netherlands means it can take months to form a new government after an election.

The four-party coalition government comprises Rutte’s VVD, the center-right Christian Democratic Appeal party and two centrist parties: the Democrats 66 and the Christian Union.

‘Teflon Mark’

Known as “Teflon Mark” for his ability to endure political storms during his more than 13 years in power, Rutte has faced intense criticism over a range of major policies in recent years — including a crisis over the Groningen gas field, angering farmers with plans to cut nitrogen emissions and a scandal over child benefits.

The latest political crisis resulted from splits over migration policy.

Rutte has faced pressure from the right wing of his own party to take a tougher stance on immigration, and from the rise of right-wing parties more broadly. He has been trying to limit the scope for immigrant families to reunite in the Netherlands.

Some of the junior coalition partners opposed the measures, insisting that children and parents seeking asylum in the country have the right to be reunited.

Coalition partners of Rutte’s VVD sought to pin the blame of the government’s collapse on the prime minister over the weekend, suggesting he had gone too far with limits on family migration.

Rutte on Friday denied that he was responsible for the cabinet’s collapse and suggested he was open to seeking a fifth term in office, before ultimately scrapping this plan on Monday morning.

Analysts at Dutch lender Rabobank said that the proportional representation political system means the country tends to rely on coalition governments to enact policies.

“The need to build consensus can result in stalemate in key policy areas. This has traditionally been viewed as pretty market friendly as it limits dramatic changes in direction of policy,” analysts at the bank said Monday.

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July 10, 2023
Euro zone inflation slides more than expected in June, but core rate ticks higher

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Gariguette strawberries on sale at Annecy Saturday market, France.

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Euro zone inflation hit 5.5% in June, according to preliminary data, coming in lower than analyst expectations — but core inflation, which excludes energy and food, remains stubbornly high and rose to 5.4%.

Core inflation had eased to 5.3% in May, from 5.6% in April.

Headline inflation is now at its lowest point since January 2022, Eikon data show, but remains well above the European Central Bank’s 2% target.

Addressing the divergence of the two headline and core inflation moves, Bert Colijn, senior Eurozone economist for ING, said in a Friday note that “this is mainly related to base effects from government support and the underlying trend remains disinflationary. Concerns about persistent wage growth remain though as unemployment remained at historic lows in May.”

Falling energy prices were a significant contributor to the decline in inflation. Some media reports attributed the sticky core rate to an increase in German rail ticket costs, after the country this time last year offered a discounted pass.

The inflation figures will be closely watched by the European central bank, which hiked interest rates to their highest level in 22 years on June 15. The benchmark rate moved 25 basis points higher to 3.5%, moving out of step with the U.S. Federal Reserve, which paused hikes at its last meeting.

The European Central Bank also revised its headline and core inflation expectations for the next couple of years during its interest rate meeting. It now anticipates inflation will reach an average 5.4% this year, 3% in 2024 and 2.2% in 2025.

European Central Bank President Christine Lagarde said Tuesday, before the latest figures, that inflation was still too high and that it’s too early to declare victory over consumer price rises.

Speaking at the Sintra central banking event in Portugal, she said: “Inflation in the euro area is too high and is set to remain so for too long. But the nature of the inflation challenge in the euro area is changing.”

“Inflation is heading in the right direction,” said Clémence Dachicourt, senior portfolio manager at Morningstar Investment Management Europe, noting a “quite uncertain” path as Lagarde pursues the ECB’s long-term target. “Wage-price spiral, which are price increases caused by higher inflation, remains a clear burden for core-inflation. Therefore, it is likely too early to lower our guard against negative inflationary surprises just yet.”

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June 30, 2023
Putin vows to punish those involved in mutiny, accuses them of treason

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A screen grab captured from a video shows Russian President Vladimir Putin making a statement amid escalating tensions between the Kremlin and the head of paramilitary group Wagner in Moscow on June 24, 2023.

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Russian President Vladimir Putin pledged to punish everyone involved in the “armed rebellion” and accused them of treason.

In a televised address Saturday morning, Putin appealed to those who “by deceit or threats, were dragged into a criminal adventure, pushed onto the path of a serious crime — an armed rebellion.”

His comments come after Yevgeny Prigozhin, chief of the mercenary Wagner Group, accused the Kremlin of deliberately bombing Wagner troops. Russia’s Ministry of Defense has denied the accusations, calling Prigozhin’s remarks “informational provocation.” The mercenary chief had also claimed that Russia’s justification for invading Ukraine was based on lies.

Putin characterized the unprovoked war in Ukraine as a struggle for Russia’s future, an effort that he said requires unity among its forces. The Russian leader said, “I repeat, any internal turmoil is a deadly threat to our statehood, to us as a nation.”

“We will protect both our people and our statehood from any threats. Including — from internal betrayal,” Putin said. “And what we are faced with is precisely a betrayal. Exorbitant ambitions and personal interests led to treason.”

Putin also described the situation in Rostov-on-Don, a city in southwestern Russia near Ukraine, as difficult but said he would seek to stabilize the situation there.

Prigozhin has claimed that he and his mercenary forces have taken control of the city, a key logistical hub for Russia’s war efforts in Ukraine. CNBC has not verified the claims. The Wagner chief has demanded that top Russian general Valery Gerasimov and Defense Minister meet him in Rostov.

The U.K. defense ministry characterized this feud between Wagner and Moscow as “the most significant challenge to the Russian state in recent times,” adding that it has “escalated into outright military confrontation.” The ministry said the loyalty of Russia’s forces is crucial to the outcome of this situation. It had noted there was little evidence of Russian forces fighting with the mercenary troops, even remaining “passive” or “acquiescing” in some cases.

Putin’s pledge to make those who organized the rebellion answer for their actions marks a stark split for Prigozhin, who had once been one of the president’s long-standing supporters. Even as tensions mounted between the paramilitary leader and senior defense officials, Prigozhin had been careful to not direct his criticism toward the Kremlin and Putin.

Russia has relied heavily on the mercenary group in its war, but a rift has grown between Moscow and Wagner fighters. Prigozhin previously complained that his forces had only received a fraction of ammunition deliveries that had been requested. He has also criticized defense officials’ strategy in Ukraine.

The mercenary rebellion comes as Ukraine chips away at Russian-occupied territory in its counteroffensive efforts. Fighting has intensified, but Kyiv’s efforts have only produced limited gains so far.

— CNBC’s Holly Ellyatt contributed.

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June 24, 2023
European business activity slows in June as higher interest rates begin to bite

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Fresh PMI data came in below expectations and pointed to an economic slowdown.

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Business activity growth in Europe slowed in June, pointing to a difficult end to the second quarter, according to preliminary data Friday.

The euro zone’s flash composite Purchasing Managers’ Index dropped to 50.3 in June from 52.8 in the previous month. This was below the 52.5 expected by analysts. A reading above 50 marks an expansion in activity, while one below 50 marks a contraction.

“Eurozone business output growth came close to stalling in June, according to the latest HCOB flash PMI survey data produced by S&P Global, pointing to renewed weakness in the economy after the brief growth revival recorded in the spring,” S&P Global said in a release.

“Although energy and supply chain worries have eased since late last year, June has seen a further escalation of concerns over demand growth, and in particular the impact of higher interest rates, and the resulting possibilities of recessions both in domestic markets and further afield.”

Speaking to CNBC’s Street Signs Europe, Chris Williamson, chief business economist at S&P Global Market Intelligence, described the numbers as “worrying.”

“Higher interest rates, the rise in the cost of living, all beginning to take their toll,” he said.

The European Central Bank has been increasing interest rates consistently for the past 12 months in an effort to bring down inflation. Higher rates can lead to higher costs for companies across the bloc, however, and so often become a drag on output.

On a country-by-country basis, data earlier in the day from Germany also showed a slowdown in Europe’s largest economy. The German flash composite PMIs fell to 50.8 in June from 53.9 in May. This was below market expectations.

“These data are consistent with our view that GDP (gross domestic product) growth in Germany will remain subdued in second and third quarters after the economy registered a technical recession,” Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, said in a note to clients.

Germany entered a technical recession in the first quarter of the year, after contracting 0.3% over the three-month period. In the final quarter of 2022, Germany’s economy shrunk by 0.5%.

It was a similar story in France, where the composite PMI sunk to 47.3 from 51.2 in May, well below the 51 expected. This was primarily due to weakness in the services sector.

Euro zone bond yields dropped following the German and French data releases. An economic slowdown tends to be negative for bond yields. The yield on the 2-year German bund dropped 6.5 basis points to 3.21%.

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June 23, 2023
EU charges Google with anti-competitive practices in ad tech business

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EU Commissioner for A Europe Fit for the Digital Age – Executive Vice President Margrethe Vestager is talking to media during a virtual press briefing in the Berlaymont, the EU Commission headquarter on November 26, 2020, in Brussels, Belgium.

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The European Union on Wednesday charged Google with breaching antitrust rules in advertising technology, known as adtech, and may seek the break-up of parts of the tech giant’s business to allay the bloc’s concerns.

The European Commission, the executive arm of the EU, reached a preliminary conclusion that Google is dominant in the European market for publisher ad servers and for programmatic ad buying tool for the open up. The commission also said that Google has abused this dominant position since at least 2014.

Alphabet, Google’s parent company, will now have the chance to read the concerns raised by the commission and defend its position in writing, as well as request an oral hearing to present their comments.

The commission suggested that Google might have to break up the business in order to address the concerns raised and thus comply with competition rules in the bloc.

“The Commission’s preliminary view is therefore that only the mandatory divestment by Google of part of its services would address its competition concerns,” EU Competition Chief Margrethe Vestager said in a statement.

“[Google] collects users’ data, it sells advertising space, and it acts as an online advertising intermediary. So Google is present at almost all levels of the so-called adtech supply chain,” she added. “Our preliminary concern is that Google may have used its market position to favour its own intermediation services. Not only did this possibly harm Google’s competitors but also publishers’ interests, while also increasing advertisers’ costs. If confirmed, Google’s practices would be illegal under our competition rules,”

Google was not immediately available for comment when contacted by CNBC Wednesday.

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June 14, 2023
UBS says it has completed the takeover of stricken rival Credit Suisse

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UBS expects to complete its takeover of Credit Suisse “as early as June 12”, which will create a giant Swiss bank with a balance sheet of $1.6 trillion.

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Swiss bank UBS on Monday said that it formally completed the takeover of its rival Credit Suisse.

In an open letter, UBS board chair Colm Kelleher and newly-returned CEO Sergio Ermotti said, “We will bring together the collective expertise, scale and wealth management leadership of both UBS and Credit Suisse to create an even stronger combined firm.”

The letter continues that there will be “challenges” as well as “great opportunity,” as the bank commits to “never compromise on UBS’s strong culture, conservative risk approach or quality service.”

UBS agreed to the $3.2 billion deal in March, with Swiss regulators playing a key role in the acquisition amid worries that severe losses at Credit Suisse would destabilize the banking system.

The enlarged UBS will have a balance sheet of $1.6 trillion and a workforce of 120,000.

Regulators said Friday that they would cover losses of up to 9 billion Swiss francs ($10 billion) after UBS incurs the first 5 billion Swiss francs as part of the transaction, as it absorbs a portfolio that does not entirely “fit its business and risk profile.”

Following the merger, Credit Suisse and its American Depositary Shares will be delisted from the SIX Swiss Exchange and New York Stock Exchange, with shareholders receiving one UBS share for every 22.48 Credit Suisse shares held.

The takeover, which follows multiple scandals and years of share price decline at Credit Suisse, controversially wiped out the 16 billion Swiss francs ($17 billion) worth of assets of the bank’s AT1 bond holders.

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June 11, 2023
Euro zone inflation falls more than expected to 6.1% as core pressures ease

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People at the market for their daily shopping on April 07, 2023 in Bari, Italy. Inflation has eased in Italy but price pressures remain strong.

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Inflation in the euro zone eased more than expected in May, with flash figures showing the bloc’s annual headline inflation rate fell to 6.1% in May from 7% in April.

This is the lowest level since February 2022. Economists polled by Reuters had expected a May reading of 6.3%.

Core inflation, excluding energy and food, also fell more than expected, to 5.3% from 5.6%.

Annual inflation in Germany and France dropped more than forecast in May, according to data released on Wednesday, as prices dipped on the previous month. Price rises in the euro area’s largest economies are now at 12-month lows.

National prints also showed inflation easing in Spain and Italy. Markets were little moved immediately after the euro zone announcement, with European stocks trading higher and the euro higher against the U.S. dollar and British pound.

‘Too high’

In a speech in Hanover, European Central Bank President Christine Lagarde said inflation was still “too high” and “set to remain so for too long.”

The ECB meets on June 15 to make its latest monetary policy decision after gradually hauling its benchmark rate from -0.5% a year ago to 3.25% in May — its highest level since November 2008.

The ECB did not give forward guidance following its May meeting, but stressed that underlying price pressures remained strong.

“We need to continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner,” Lagarde said Thursday.

“At the same time, we need to carefully assess the strength of monetary policy transmission to financing conditions, the economy and inflation.”

Money markets have priced in two more 25 basis point hikes by the ECB, one in June and another in July or September, according to Reuters.

Bundesbank President Joachim Nagel said last week that he expects “several” more hikes in order to control inflation.

“A lot of key drivers of inflation have turned for the better in recent months, which is starting to be reflected in the data,” said Bert Colijn, senior euro zone economist at Dutch bank ING, in a note.

Colijn added that there should be a “more significant spell of disinflation” over the summer, as energy inflation drops sharply due to base effects, but qualified the upward trend in wages as a concern.

“More so than in normal times, incoming data will be key for the July and September [ECB] decisions,” he said.

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June 1, 2023
UK inflation sinks below 10% for the first time since August

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LONDON — U.K. inflation dropped sharply in April, as energy prices retreated and the impact of Russia’s invasion of Ukraine began to drop out of the annual consumer price comparison.

Headline CPI inflation came in at 8.7% year-on-year, the Office for National Statistics said Wednesday, down from 10.1% in March but above a consensus estimate of 8.2% from a Reuters poll of economists.

“Electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April as last April’s rise dropped out of the annual comparison, but this component still contributed 1.01 percentage points to annual inflation,” the ONS said in its report.

“Food and non-alcoholic beverage prices continued to rise in April and contributed to high annual inflation, however, the annual inflation rate of food and non-alcoholic beverages eased, from 19.2% in the year to March 2023, to 19.1% in the year to April 2023.”

However, the ONS said its indicative modelled estimates suggested that the annual inflation rate for food and non-alcoholic beverages was still the second-highest seen for more than 45 years.

On a monthly basis, consumer prices rose by 1.2%, above a consensus estimate of 0.8%.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2023, down from 8.9% in March, while core CPI (excluding volatile energy, food, alcohol and tobacco prices) rose by 6.8%, up from 6.2% in March, which will concern the Bank of England.

British inflation has remained stubbornly high even as the economy has defied expectations for a recession, prompting the Bank of England to hike interest rates for the 12th consecutive time to 4.5% at its last meeting earlier this month.

Economists broadly expect a further hike at its next meeting as inflation remains stickier in the U.K. than in comparable major economies, while the labor market has stayed tight and Governor Andrew Bailey has warned of a wage price spiral.

On Tuesday, Bailey acknowledged to lawmakers that there are “very big lessons to learn” from the Bank’s failure to forecast the strength and persistence of inflation.

As British households continue to contend with high food and energy bills, workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.

Right direction, but a long way to go

Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said the return to a single-digit headline rate suggests the U.K. has “turned a corner” in the fight against inflation.

He expects more big falls over the summer, as U.K. energy regulator Ofgem is expected to reduce its energy price cap, driving down bills from July.

“The drag on customer demand from a cooling jobs market, higher taxes and the lagged impact of rising interest rates may mean that inflation falls more quickly than the Bank of England has forecast,” he said.

“April’s decline in inflation is large enough for the Monetary Policy Committee to keep interest rates on hold next month, but if they continue to risk overtightening, it could worsen the cost-of-living crisis and the squeeze on businesses.”

Richard Carter, head of fixed interest research at Quilter Cheviot, said the Wednesday fall shows that things are going in the “right direction,” but noted that there is still an “incredibly long way to go” as inflation remains “eye-wateringly high.”

However, Carter suggested such sharp declines are unlikely in the coming months, particularly if the IMF’s recent prediction of a more resilient U.K. economy is accurate.

“While the Bank of England has made no promises that it is nearing the end of its hiking cycle as far as interest rates are concerned, it will be relieved to see inflation has finally budged,” Carter said.

“For as long as wage growth continues to increase, the Bank will keep the option of further interest rate rises firmly on the table – and particularly if core inflation remains persistently high.”

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May 23, 2023
Bank of England hikes rates by 25 basis points, no longer sees recession

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LONDON — The Bank of England on Thursday hiked interest rates by 25 basis points and revised its economic projections to now exclude the possibility of a U.K. recession this year.

The Monetary Policy Committee voted 7-2 in favor of the quarter-point increase to take the main bank rate from 4.25% to 4.5%, as the bank reiterated its commitment to taming stubbornly high inflation.

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The headline consumer price index rose by an annual 10.1% in March, driven by persistently high food and energy bills. Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, increased by 5.7% over the 12 months to March, unchanged from February’s annual climb and reiterating the risk of entrenchment that the bank is concerned about.

The MPC no longer expects the U.K. economy to enter recession this year, according to the updated growth forecasts in its accompanying Monetary Policy Report. U.K. GDP is now expected to be flat over the first half of this year, growing 0.9% by the middle of 2024 and 0.7% by mid-2025. The country’s newest GDP print will be published Friday.

The economy has thus far shown surprising resilience in fending off a widely anticipated recession, with falling energy costs and a fiscal boost announced in the government’s Spring Budget improving the outlook.

The MPC now assesses that “the path of demand is likely to be materially stronger than expected in the February Report, albeit still subdued by historical standards.”

“There has been upside news to the near-term outlook for global activity, with U.K.-weighted world GDP now expected to grow at a moderate pace throughout the forecast period,” the MPC said in its May Monetary Policy Report.

“Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments.”

Inflation slower to fall

Inflation is expected to decline sharply from April, as the large price hikes following Russia’s full-scale invasion of Ukraine drop out of the annual comparison. The extension of the government’s Energy Price Guarantee and further falls in wholesale energy prices also remove some inflationary pressure.

However, the MPC projects that inflation will decline at a slower rate than previously projected in the February report, falling to 5.1% by the end of this year, compared with a previous estimate of 3.9%. It is still expected to drop “materially below the 2% target” to just above 1% at the two- and three-year time horizons.

“The Committee continues to judge that the risks around the inflation forecast are skewed significantly to the upside, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices may take longer to unwind than they did to emerge,” the MPC said.

“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

Focus on what comes next

Compared with the U.S. Federal Reserve’s hint at a pause in rate hikes last week, the Bank of England struck a notably more hawkish tone Thursday, with stickier inflation meaning policymakers face a tricky call on when enough is enough on raising rates.

Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute, said that investor focus in light of Thursday’s decision would not be on the 25 basis point hike, but on what happens next.

“We are in a new regime where central banks are faced with sharper trade-offs between maintaining growth and controlling inflation; in the Bank of England’s case, this is especially acute,” Paul said in an email Thursday.

Inflation since February’s forecasts has proven stickier than expected, and the Bank still forecasts a bleak growth picture for years to come, which will likely be exacerbated by higher-for-longer interest rates. There is also growing concern over labor market tightness and the risk of a wage-price spiral.

“Recent comparative resilience in the growth picture could have two interpretations; the benign one, which suggests the economy is proving resilient to the effects of higher interest rates, or the pessimistic one suggesting that the full extent of the lagged damage is yet to occur,” Paul said.

“This has implications for how the Bank manages the trade-off from here: continued resilience may ultimately mean for more work for the BoE in terms of rate hikes; yet-to-be-seen lagged damage may mean it’s closer to stopping.”

Paul suggested that the Bank may be forced to keep rates higher for longer, a view echoed by Hussain Mehdi, macro and investment strategist at HSBC Asset Management.

“In the context of resilient economic activity, we think there is a good chance of the Bank Rate peaking at 5% by the August meeting. Rate cuts are unlikely until well into 2024, whereas the Fed could be in cutting mode later this year,” Mehdi said.

“As rates moves deeper into restrictive territory and credit conditions tighten, a policy-induced recession becomes almost inevitable.”

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May 11, 2023
Euro zone economy ekes out 0.1% growth in first quarter, misses expectations as Germany stagnates

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Skyscrapers of the city center can be seen from the Lohrberg in the north of Frankfurt. Photo: Arne Dedert/dpa (Photo by Arne Dedert/picture alliance via Getty Images)

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The euro zone economy grew by a marginal 0.1% in the first quarter of the year, preliminary figures showed on Friday, even as Germany’s GDP flatlined over the period.

The print came in below analyst expectations, with a Reuters poll of economists previously forecasting quarterly growth of 0.2%. The economy expanded by 1.3% on an annual basis, just missing an outlook of 1.4%.

Earlier this month, statistics agency Eurostat had revised down its fourth-quarter 2022 GDP estimate for the euro zone from 0.1% quarterly growth to no growth, following 0.4% growth in the third quarter.

The slight first-quarter growth signal comes as economic performance contends with persistently high inflation. Energy prices have been a key driver over the past year, as European consumers progressively lost access to Russian supplies in the wake of Moscow’s full-scale invasion of Ukraine. Carsten Brzeski, global head of macro at Dutch bank ING, said that the fall in wholesale energy prices, warmer-than-expected weather and fiscal stimulus had helped the bloc dodge a widely-feared recession over the winter.

But he noted significant disparities between individual countries, and said that future growth would be impacted by an ongoing race between positive momentum in industry and wage growth on the one hand, and European Central Bank monetary tightening and U.S. recession risks on the other.

Divergence

Europe’s leading economies diverged in their first-quarter performance, national figures showed on Friday. The German economy stagnated over January-March, compared with the previous three-month period. It was up 0.2% on an annual adjusted basis and 0.1% lower on a non-adjusted basis due to one extra working day in the prior year, German statistics agency Destatis said.

Deutsche Bank economists said Germany had avoided a technical recession by a “hair’s breadth” and reiterated their call of 0% GDP growth this year, with the economy held back by high inflation, rate hikes and an expected second-half U.S. recession.

France’s GDP meanwhile picked up by 0.2% in the first quarter, Insee statistics revealed, despite a spate of widespread strikes that slowed activity sparked in protest of President Emmanuel Macron’s planned pension reforms.

The Irish GDP was a notable weak spot, declining by 2.7% on the previous quarter, while Portugal’s economy grew by 1.6%.

Policy stake

The GDP figures will be keenly watched ahead of the May 4 meeting of the ECB, which seeks to tackle headline inflation of 6.9% and core inflation at a record high of 5.7%.

Some ECB policymakers have stressed they believe they have further to go on interest rate rises as they weigh up a 25 basis point or even 50 basis point hike next week. The March collapse of several lenders across the U.S. and Europe and ensuing turmoil in the banking sector had ignited questions whether central banks would be forced to slow or walk back their interest rate increases.

The ECB most recently raised its three key interest rates by 50 basis points in March, taking the main rate to 3%.

Nerves on the European front have largely settled and officials have underlined the strength of the sector, though the shadow of deposit flights and further volatility remains.

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April 28, 2023
Barclays posts 27% rise in net profit for the first quarter, beats expectations

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The headquarters of Barclays Plc beyond the West India Quay Docklands Light Railway station in the Canary Wharf financial district in London, UK, on Monday, March 20, 2023.

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LONDON — Barclays on Thursday reported net profit of £1.78 billion ($2.2 billion) for the first quarter, beating expectations and coming in 27% higher year-on-year.

A consensus Reuters poll of analysts forecast net profit at £1.432 billion.

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On a branch basis, income from the bank’s consumer, cards and payments division rose 47%, compensating for just 1% growth in its corporate and investment bank division. It partly attributed this to its acquisition of retailer Gap’s credit card portfolio.

The income of Barclays UK was up 19% due to improved net interest income.

The bank also flagged £500 million in credit impairment charges, which it said resulted from higher U.S. card balances and the “continuing normalisation anticipated in US cards delinquencies.”

Impairment charges are used by businesses to write off assets. In its previous results, Barclays said it set aside £1.2 billion for such charges last year, as its customers struggled with cost pressures.

Barclays shares were up 4.3% at 8:55 a.m. in London.

Analysts at Jefferies said the “robust” results suggested scope for consensus upgrades, with “not a lot to nitpick.”

On track

Barclays said it “remains on track to deliver its 2023 targets, with all performance metrics in line with or ahead of guidance” at the first quarter.

Chief Executive Officer C. S. Venkatakrishnan described it as a “strong” quarter, with income up 11% to £7.2 billion.

“The momentum across the group allows us to maintain a robust capital position, deliver attractive returns to shareholders, and support our customers and clients through an uncertain economic environment,” he said in a statement.

The results come after a turbulent period for the global banking sector, which saw the collapse of U.S.-based Silicon Valley Bank and several other regional lenders in early March and the rapid takeover of Credit Suisse by Swiss rival UBS.

Earlier on Thursday, Deutsche Bank reported first-quarter net profit of 1.158 billion euros ($1.28 billion), coming above a consensus forecast of 864.54 million euros.

The bank was briefly swept up in the banking volatility of last month, when its stock plunged and credit default swaps — a form of insurance for a company’s bondholders against its default — rose sharply.

Market watchers are once more focusing on U.S. banks this week, after First Republic revealed heavier-than-expected deposit outflows in the first quarter, with its stock dropping to a record low.

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April 26, 2023
Deutsche Bank logs 11th straight quarterly profit, reveals job cuts
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A Deutsche Bank AG branch in the financial district of Frankfurt, Germany, on Friday, May 6, 2022.

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Deutsche Bank on Thursday reported a net profit of 1.158 billion euros ($1.28 billion) for the first quarter, emerging from a turbulent month that saw it swept up in market fears of a global banking crisis.

Net profit attributable to shareholders was comfortably above a consensus forecast of 864.54 million euros produced by a Reuters poll of analysts, and up from 1.06 billion euros for the first quarter of 2022.

This marked an 11th straight quarter of profit for the German lender after the completion of a sweeping restructuring plan that began in 2019 with the aim of cutting costs and improving profitability.

“Our first quarter results demonstrate the relevance of our Global Hausbank strategy to our clients and underscore that we are well on track to meeting or exceeding our 2025 targets,” said CEO Christian Sewing.

“We aim to accelerate execution of our strategy through a number of measures announced today: raising our ambitions for operational efficiency, boosting capital efficiency to drive returns and support shareholder distributions, and seizing opportunities to outperform on our revenue growth targets.”

The Thursday report nevertheless showed deposits fell over the course of the quarter to 592 billion euros from 621.5 billion euros at the end of 2022. The bank said the decline was “driven by increased price competition, normalization from elevated levels in the prior two quarters and market volatility at the end of the quarter.

Deutsche’s corporate bank net revenues came in at 2 billion for the quarter, up 35% year-on-year and the highest quarterly figure since the launch of its transformation program. Net interest income was the main driver, growing 71%.

However, the bank also flagged job cuts for non-client facing staff and reported a sharper-than-expected 19% year-on-year fall in investment bank revenues year-on-year.

“The bank is currently implementing additional efficiency measures across the front office and infrastructure,” it said in the report.

“These include strict limitations on hiring in non-client facing areas, focused reductions in management layers, streamlining the mortgage platform and further downsizing of the technology centre in Russia.”

Other data highlights for the quarter:

Revenues came in at 7.7 billion euros, up from 7.33 billion euros in the first quarter of 2022, despite what the bank called “challenging conditions in financial markets” during the quarter.

Provision for credit losses stood at 372 million euros, compared to 292 million euros a year ago.

CET 1 capital ratio, a measure of bank solvency, stood at 13.6%, up from 12.8% a year ago an 13.4% the previous quarter.

The beat on earnings expectations follows a 1.8 billion euro net profit for the final quarter of 2022, which vastly outstripped expectations and brought the bank’s annual net income to 5 billion euros. However, uncertainty around the macroeconomic outlook, along with weaker-than-expected investment bank performance, kept traders cautious on the company’s stock.

The market turmoil triggered by the collapse of U.S.-based Silicon Valley Bank in early March, which eventually resulted in the emergency rescue of Credit Suisse by UBS, briefly engulfed Deutsche Bank late last month despite its strong financial position.

Its Frankfurt-listed stock plummeted, while credit default swaps — a form of insurance for a company’s bondholders against its default — soared, prompting German Chancellor Olaf Scholz to publicly dispel market concerns.

‘Natural beneficiary’ of Credit Suisse demise

CFO James von Moltke told CNBC on Thursday that the March banking turmoil had enabled the bank to prove its mettle to a skeptical market.

“It was an interesting market environment in March, for sure. We were tested, and I think the silver lining of the test is we passed, and I think we passed with flying colors,” he said.

“The market was looking for vulnerabilities in banks with this surprise out of the U.S. regional banking sector. It was looking for securities losses, interest rate mismanagement issues, commercial real estate exposures, and many other sort of features.”

He suggested that, in scrutinizing Deutsche Bank, market participants saw a strong and profitable business model, stable balance sheet and deposit base, a “very moderate” and “well underwritten” commercial real estate book and “no near-term financing needs.”

“So across the various dimensions, when the market took a good look at us, what they saw was a stable, well-run well-risk managed bank,” von Moltke told CNBC’s Annette Weisbach.

In light of the emergency rescue of Credit Suisse by UBS, von Moltke also suggested that Deutsche Bank would be a “natural beneficiary of fallout” from the stricken Swiss lender’s demise.

“We admire the management team at UBS and we think that that competitor will be formidable with the passage of time but equally, a concentration of the banking relationships with now one provider for many of their clients is something that you’ expect to see them diversify,” he said.

“And we think we’re a natural destination for some of their clients, some of their people, some of the business, and I think we’re well-positioned to profit from that opportunity.”
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April 26, 2023