BBC News - Russia warns of investor flight

Russia expects investors to move up to $70bn (£42bn) of assets out of the country in the first three months of this year.

Figures around President Vladimir Putin have been the subject of EU and US sanctions

The sign that investors are becoming nervous about Russia comes amid sanctions and tensions over Ukraine.

Speaking to reporters on Monday, Andrei Klepach, Russia's deputy economy minister, also warned of stagnant growth and rising inflation.

He expects growth in the first quarter to be "around zero".

The Russian economy grew by just 1.3% last year, but Mr Klepach said it was "too soon" to talk about "a recovery from stagnation".

"There won't be a recession, but there is a problem of stagnation: it's length and depth," Mr Klepach said.

"Unfortunately the investment slump is continuing. I'm not ready to say how long it will continue."

The Russian economy ministry forecasts suggest $65-70bn of assets would be taken out of Russia this quarter, but Mr Klepach said the figure was likely to be closer to $70bn.

That would mark a significant rise on 2013, when capital outflows for the entire year totalled $63bn.

Mr Klepach said sanctions imposed by the US and EU in the wake of the Ukraine crisis had yet to have a significant impact, but said "worsening of relations is a significantly negative factor for economic growth and correspondingly influences the capital outflow."

BBC News - Visa and MasterCard block Russian bank customers

Visa and MasterCard have blocked credit card services to some Russian bank customers as a result of US sanctions.

Four banks are so far affected, all of which have links to Russians blacklisted by the US.

Visa and MasterCard, both US-based companies, are forbidden from having any dealings with those targeted by the sanctions.

The banks, which said card services stopped without warning, have described the move as unlawful.

'Frozen out'

One of the banks affected, Bank Rossiya, is described by the US as Russia's 15th largest, with assets of $12bn (£7.27bn).

The St Petersburg-based bank has been singled out by Washington as the personal bank for senior Russian officials. US officials said it would be "frozen out" from the dollar.

Russian President Vladimir Putin said Bank Rossiya had nothing to do with events in Crimea and promised to transfer his wages there.

Russian President Vladimir Putin has promised to protect Bank Rossiya

"I personally don't have an account there, but I certainly will open one on Monday," he told a meeting of Russia's Security Council.

President Putin also instructed the Russian central bank to step in, if needed, but the latter said the sanctions on Bank Rossiya did "not have a serious bearing on the lender's financial stability".

'Illegitimate'

Visa and Mastercard also confirmed they had stopped providing services to SMP Bank, which is controlled by US-blacklisted brothers Arkady and Boris Rotenberg.

The bank, which is Russia's 39th biggest with $5bn in assets, called the actions "illegitimate" because its owners, rather than the bank itself, were the subject of sanctions.

Bank Rossiya's affiliate banks, Sobinbank and InvestKapitalBank, were also affected.

But Visa said more than 99% of its business in Russia was untouched by sanctions.

Russian shares fell sharply on Friday as investors weighed the impact of western sanctions over Ukraine.

The MICEX index, which is priced in roubles, fell as much as 3% and the RTS, which is priced in dollars fell 3.6%.

Stocks slumped after US President Barack Obama said sanctions might be extended to key parts of the Russian economy if Russia took further action in Ukraine.

Share falls

Russia's mining, defence and natural resources sectors could all be targets.

Stocks recovered some ground during the day after Russian President Vladimir Putin moved to restore calm following the introduction of asset freezes and visa bans by the US against high ranking Russian officials.

The MICEX closed down 1% and the RTS index was down 1.3% at the end of the day.

Allies of the Russian president targeted by US sanctions include railways boss Vladimir Yakunin (left)

Although only banks with connections to high-ranking Russian officials have been targeted, Russian bank shares were broadly lower.

Shares in Sberbank, Russia's largest bank, closed 1.17% lower - having fallen 2.9% earlier on Friday, while shares in VTB Bank were 2.61% lower after falling 4.3% earlier in the day.

Other sectors were also hit. Gas giant Gazprom was down 0.9%, oil firm Lukoil ended the day 1.36% higher. Russian steel company NLMK closed 1.94% lower.

Shares in gas producer Novatek closed down 9.63%. The company is part owned by Gennady Timchenko, a shareholder in Bank Rossiya and one of the wealthy Russian businessmen targeted by Western sanctions.

Negative outlook

Ratings agencies S&P and Fitch warned they were changing their outlook for the Russian economy to "negative" from "stable" - the first stage before a possible downgrade in the country's credit rating - because of the potential impact of sanctions.

Fitch said: "Since US and EU banks and investors may well be reluctant to lend to Russia under the current circumstances, the economy may slow further and the private sector may require official support."

Gennady Timchenko, owner of gas firm Novatek and shareholder in Bank Rossiya, has been targeted by sanctions

President Putin's spokesman Dmitry Peskov criticised the move, suggesting it was not an objective decision and that somebody "ordered" it.

Russia's credit rating is currently BBB.

Meanwhile the rouble was stable on Friday having previously fallen sharply on Thursday evening in response to the announcement of further US sanctions.

Later on Friday morning Germany said it had decided to suspend approval of all defence-related exports to Russia.

Berlin ordered defence contractor Rheinmetall to halt delivery of combat simulation gear to Russia earlier this week.

The ministry spokesman said this was a "one-off" case, but future deals would also be blocked.

"The (Rheinmetall) case that you are talking about is a one-off case. Nevertheless it is true that given the current situation in Russia, we are not approving any exports of defence goods to this country at the moment," the spokesman said.

BBC News - US Federal Reserve hints at interest rate rise in 2015

The US Federal Reserve Chair Janet Yellen has hinted that interest rates in the US could start to rise in early 2015.

The Fed has been buying bonds to keep interest rates low and boost growth

Ms Yellen said the Fed could begin raising rates six months after it halts its monthly bond-buying programme.

She made the remarks after the Fed said it will scale back bond purchases by a further $10bn (£6bn) per month.

This is the third time in a row that the central bank has tightened its stimulus efforts.

The latest reduction brings the Fed's monthly bond-buying down to $55bn from $85bn last year.

"This is the kind of term it's hard to define," Ms Yellen said at a press conference. "Probably means something on the order of six months, or that type of thing."

If bond purchases end - as expected - later this year, this would imply rate increases around April 2015.

Broader indicators

The Fed lowered its overnight interest rate to 0% in December 2008 as part of the steps it took to trigger growth in the economy amid the global financial crisis.

Hints that the Federal Reserve might raise rates spooked markets, reports Michelle Fleury

That crisis hurt the US economic growth and resulted in high levels of unemployment.

Along with lowering the interest rates, the central bank also started buying bonds in an attempt to keep long-term borrowing costs low.

The idea was to encourage businesses to borrow and spend more, to try and spur growth in the economy and create more jobs.

The stimulus efforts appear to have had an impact, with the US economy showing signs of recovery of late.

That has seen the central bank scale back its key stimulus measure - the bond-buying programme also known as quantitative easing - for three months in a row.

However in its latest policy decision, the Fed said it would look at multiple factors before approving any rise in interest rates.

It had previously hinted at doing so once the jobless rate fell to 6.5%.

"This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments," it said.

Nervous markets?

US stock markets fell on the news.

Some analysts are saying the change in the Fed's guidance led to worries that interest rates may rise sooner than expected.

"The Fed moved the goal post again," said David Molar, managing director at Hightower.

"It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market.

"No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy."

Mark Grant, managing director at Southwest Securities added: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming."

"We'll likely see some rise in short rates as a result of this, if not out across the whole curve."

Bloomberg News - Yuan Starts Direct Trading With Kiwi Dollar in Shanghai

Photographer: Brent Lewin/Bloomberg

Crumpled New Zealand one-hundred dollar banknotes are arranged for a photograph in Hong Kong, China.

China started direct trading between theyuan and New Zealand’s dollar today as the world’s second-largest economy promotes usage of its currency in global trade and finance.

The move will help reduce foreign-exchange transaction costs between the two nations, the People’s Bank of China said on its website yesterday. The central bank set a reference rate for the currency pair of 5.2899 per New Zealand dollartoday and yuan moves in Shanghai are limited to 3 percent on either side of the fixing. The onset of direct trading coincides with a visit to Beijing by New Zealand Prime Minister John Key.

The kiwi became the fourth currency to trade directly against the yuan in Shanghai, joining the Australian dollar, the Japanese yen and theU.S. dollar. The U.K. and Singapore announced deals with China in October to make their currencies convertible for yuan, which has overtaken the euro to rank second in terms of use for global trade finance.

“Direct trading with New Zealand will help boost the global usage of yuan through trade settlement and invoicing,” said Tommy Ong, executive director of treasury and markets at DBS Bank Hong Kong Ltd. “It will also contribute to lower transaction costs for companies since there’s no need to go through two currency pairs but one.”

Surging Trade

Two-way trade between New Zealand and China surged 29 percent to NZ$18.86 billion ($16 billion) in the 12 months through January, government data show, with the Asian nation overtakingAustralia to become New Zealand’s largest trading partner. Australia & New Zealand Banking Group Ltd., HSBC Holdings Plc (HSBA) and Westpac Banking Corp. (WBC) received approval from the PBOC to act as market makers for the currency pair, the banks said in statements.

“Direct trading will increase the integration between the New Zealand and Chinese financial systems, and deepen the economic relationship between the two countries,” Key, a former head of foreign exchange at Merrill Lynch & Co. said in an e-mailed statement.

New Zealand’s growing trade with China means direct currency trading is important for businesses, similar to the situation with Australia, which started direct Aussie-yuan trade last year, said Hugh Killen, Sydney-based global head of foreign exchange at Westpac.

“Aussie-yuan trade continues to grow rapidly onshore in China, we’re talking billions of dollars a day now,” Killen said today by phone. “China and Australia and China-New Zealand are both long-term growth stories. China is a strategic market for Westpac in foreign exchange, so it’s central to us in terms of long-term opportunities.”

Soaring Kiwi

New Zealand signed a free-trade agreement with China in 2008, clearing the way for increased exports. New Zealand’s merchandise shipments to China jumped to NZ$9.97 billion in 2013, more than doubling since 2010, and accounting for about 20 percent of the smaller nation’s overseas sales, according to Statistics New Zealand.

Chinese demand for New Zealand’s exports helped drive the kiwi up almost 20 percent against the dollar in the past three years, the biggest advance among 16 major currencies. It reached 86.40 U.S. cents earlier today, the strongest since April 2013.

South Korea, which also counts China as its biggest export market, is considering seeking direct trading links between its currency and the yuan. Vice Finance Minister Choo Kyung Ho said on Feb. 18 that the government will support the implementation of direct trading if needed as demand for yuan expands in the financial markets and for trade.

Yuan Band

China doubled the yuan’s trading band against the U.S. dollar this week to 2 percent on either side of a daily reference rate set by the central bank, a step toward giving market forces a greater role in determining its exchange rate.

The PBOC also keeps its currency within 3 percent of fixings against the euro, the British pound, the yen and the Hong Kong dollar, while a 5 percent limit applies to the Malaysian ringgit and the Russian ruble.

“Direct convertibility marks another milestone in the internationalization of the renminbi,” HSBC said in a statement on yesterday’s New Zealand dollar announcement. “Coupled with China’s recent move to widen the daily trading band of the renminbi, it further demonstrates the country’s determination to speed up its financial market reform.”

The yuan has retreated 2.4 percent from its 20-year high of 6.0406 per U.S. dollar reached on Jan. 14, after strengthening 2.9 percent in 2013. At least five banks including Barclays Plc and Bank of America Corp. have trimmed their yuan projections this week, citing concern economic growth is slowing and higher currency swings under a broader band. The yuan gained 0.02 percent today to 6.1910 in Shanghai.

To contact the reporters on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net

Bloomberg News - Russia Sounds Alarm on Economic Crisis as West Imposes Sanctions

Photographer: Bulent Doruk/Anadolu Agency via Getty Images

Voting for the future of Crimea finishes in Simferepol, Ukraine, on March 16, 2014

Russia’s economy is showing signs of a crisis, the government in Moscow said as the U.S. and the European Union announced sanctions over the country’s support for the Crimea region breaking away from Ukraine.

“The situation in the economy bears clear signs of a crisis,” Deputy Economy Minister Sergei Belyakov said in Moscow yesterday. The cabinet needs to refrain from raising the fiscal burden on companies, which would be the “wrong approach,” he said. “Taking money from companies and asking them afterward to modernize production is illogical and strange.”

Even before the worst standoff against the West since the Cold War, Russia’s economy was facing the weakest growth since a 2009 recession as consumer demand failed to make up for sagging investment. EU foreign ministers yesterday agreed to freeze assets and impose visa travel bans on 21 Russian, Crimean and former Ukrainian officials, while U.S. President Barack Obama imposed sanctions on seven Russians.

The Ukrainian crisis is putting a strain on Russia’s $2 trillion economy, which grew 1.3 percent in 2013 after expanding 3.4 percent previous year. Last year’s growth was “insufficient” and the current outlook and government forecasts “can’t satisfy us,” President Vladimir Putin said March 12. The Economy Ministry projects growth will average 2.5 percent a year through 2030.

Russia will probably dip into a recession in the second and third quarters of this year as “domestic demand is set to halt on the uncertainty shock and tighter financial conditions,” Vladimir Kolychev and Daria Isakova, economists at Moscow-based VTB Capital, said in a research note yesterday. They cut their 2014 growth estimate to zero growth from 1.3 percent.

Ruble Drops

The ruble has weakened 9.4 percent against the dollar this year, more than any other of the 175 currencies tracked by Bloomberg except the Argentine peso, the Ukrainian hryvnia, the Kazakh tenge, Zambian kwacha and the Kyrgyz som.

The currency’s slide, exacerbated by the intensifying tensions over Ukraine and the threat of sanctions, forced the central bank to look past sluggish growth and tighten monetary policy. Bank Rossii lifted its benchmark interest rate to 7 percent from 5.5 percent at an emergency meeting March 3.

Policy makers held borrowing costs at their regular meeting on March 14 and said thebenchmark rate would remain unchanged in the coming months.

Inflation, GDP

Consumer-price growth accelerated to 6.2 percent in February from a year earlier from 6.1 percent in January. Bank Rossii wants to keep inflation within 5 percent this year after missing its target range of 5 percent to 6 percent in 2013.

While Putin at a March 12 meeting with senior officials in Sochi called the economy “stable”, a range of economists cut their growth forecasts for this year.

Morgan Stanley (MS) economists Jacob Nell and Alina Slyusarchuk cut their forecast for 2014 growth to 0.8 percent from 2.5 percent according to a note to clients yesterday.

“We see Russia close to recession in the first half of 2014 as a result of the Ukrainian security crisis driving higher rates and risk premia, leading to weaker consumptions and contracting investment,” they wrote.

Capital outflow from Russia may reach $70 billion in the first quarter and there is “a real risk that this could push Russia into recession,” London-based Capital Economics said in a report published yesterday.

‘More Difficulties’

Even before the protests in Kiev turned deadly last month, Russian Deputy Economy Minister Andrey Klepach said capital outflows were increasing and may reach $35 billion in the first quarter, more than half of the $63 billion for all of 2013.

Vladimir Miklashevsky, a Danske Bank A/S (DANSKE) economist in Helsinki, on March 14 lowered his estimate for 2014 growth to 1 percent from 2.6 percent, saying even that forecast was optimistic given the geopolitical environment.

“This monetary tightening could send Russia into recession even in 2014 as businesses and consumers will experience more difficulties with credit,” Miklashevsky wrote in a note to clients.

One way of helping accelerate growth would be to ease the costs of companies, Belyakov said yesterday. The total tax burden in the economy slightly fell to 33.3 percent of gross domestic product last year, Deputy Finance Minister Sergei Shatalov said at the same conference.

“From the business point of view, the fiscal burden, I think, is extremely high today for both the economy and companies,” Belyakov said.

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net; Anna Andrianova in Moscow at aandrianova@bloomberg.net

Reuters News - U.S. Treasury's Lew welcomes Chinese currency move

U.S. Treasury Secretary Jack Lew testifies before the Senate Budget Committee about the President's 2015 Budget on Capitol Hill in Washington, March 12, 2014.

CREDIT: REUTERS/KEVIN LAMARQUE

(Reuters) - The United States welcomed China's recent decision to allow its currency's value to vary more against the U.S. dollar, a Treasury spokesperson said on Sunday.

U.S. Treasury Secretary Jack Lew spoke on Saturday evening by phone with Chinese vice-premier Wang Yang in a previously scheduled call, the spokesperson said.

"Lew welcomed China's recent announcement to widen the daily trading band for the renminbi against the U.S. dollar and emphasized the need for China to move towards a market-determined exchange rate," the spokesperson said.

China's central bank eased its grip on the yuan on Saturday by doubling the daily trading range for the currency. The move added teeth to a promise it would allow market forces to play a greater role in the economy and its markets.

The People's Bank of China (PBOC) said the exchange rate will be allowed to rise or fall 2 percent from a daily midpoint rate CNY=SAEC it sets each morning. The change is effective from Monday.

Analysts said the move was a sign of confidence that the central bank had successfully fought off a plague of currency speculators and signaled that regulators believe theeconomy was stable enough to handle more promised reforms going forward.

(Reporting by Jason Lange; Editing by Jim Loney/Rosalind Russell)

BBC News - Non-euro states help EU's slow industrial recovery

The slow recovery of Europe's industrial sector has been boosted by a better performance in countries outside the euro bloc.

Few sparks in Europe's industrial production figuresN

Industrial output in the 18-nation eurozone fell 0.2% in January compared with December.

But in the full 28-country European Union (EU28), output was up 0.1%, reversing December's falls.

Compared with a year ago, industrial production grew 2.1% in the euro area and 2.4% in the EU28.

Jonathan Loynes, an economist with Capital Economics, said: "The 0.2% contraction in production was weaker than we had expected,"

Continue reading the main story

“Start Quote

The overall impression is that the eurozone manufacturing sector is currently on a modest recovery path”

Howard ArcherIHS Global Insight

He said the figures amounted to a "disappointing soft start" to the year and were "another reminder that the eurozone's economic recovery remains fragile".

French industry shrinks

Countries in the EU but outside the eurozone that recorded rises in production included the UK, Bulgaria, Croatia, Hungary, Poland, Romania and Sweden.

Germany, Europe's biggest economy, saw a month-on-month rise of 0.4% in January. The UK's industrial sector was up 0.1% after a gain of 0.5% in December.

However, France's industries contracted 1.4% on the year, accelerating from a decline of 0.2% in the year to December.

The fastest growing industrial sector is capital goods, with companies investing in new equipment. The energy sector is the only sector that is shrinking on a monthly and annual basis.

However, Howard Archer, from IHS Global Insight, said that while the figures marked a disappointing start to 2014 for manufacturing, "the underlying data was more reassuring" and pointed to an expansion in the sector.

"With latest survey evidence from the purchasing managers reasonable, the overall impression is that the eurozone manufacturing sector is currently on a modest recovery path," he said.