Russia is looking to minimize the impact of volatile oil and gas prices on its budget revenues and sees the share of oil and gas sales of its state income declining, Russian Finance Minister Anton Siluanov has said.

“We are moving towards reducing the share of volatile income and reducing Russia's dependence on oil and gas in favor of boosting our domestic economy,” Siluanov told RT Television’s Arabic news service in an interview, as quoted by Russian media.

A few years ago, oil and gas revenues made up 35-40% of Russia’s budget revenues, the minister said, adding that this share is set to drop to 27% next year, and to 23% in 2027.

Siluanov has recently told Parliament that Russia is moving to reduce its dependence on oil and gas revenues and will boost internal borrowings to finance the budget.

Russia’s budget proceeds from oil and gas sales declined by 0.9% in September from the previous month, according to official Russian government data published earlier this month.

The Russian budget received $8.13 billion (771.9 billion Russian rubles) from oil and gas sales last month, per the data, which confirmed earlier Reuters estimates that proceeds would be roughly stable month-on-month.

For the first nine months of the year, Russia’s oil and gas revenues surged by 49.4% annually to $87.5 billion (8.33 trillion rubles), according to the finance ministry data.

Proceeds from oil and gas sales are the most important cash stream for Russia’s federal budget. These revenues have typically accounted for around a third of all federal budget revenues.

Russia is now preparing for lower oil revenues resulting from depressed prices along with a more relaxed tax regime, Bloomberg reported last month, citing a draft three-year budget.

Per that document, oil revenues in Russia would decline by 14% over the next three years—provided international oil prices remain weak. For 2025, the document sees oil revenues of some $120 billion, or 10.94 trillion rubles, which would be a decline of 3.3% from this year. That modest decline would then extend into 2026 and 2027, by which year oil revenues would fall to $110 billion, according to the government’s current projections.

Source: OILPRICE

Above: GBP/EUR at daily intervals.

Bailey Activated

ECB to Cut Interest Rates Again

Source: Poundsterlinglive

In Australia, there was finally a sigh of relief for consumers as October’s Westpac-MI Consumer Sentiment Survey reported a 6.2% increase in the headline index to 89.8, a two-and-a-half year high. The chief culprit behind this improvement was a significant pull-back in interest rate hike fears, as consumers take the cue from lower measured inflation and the broader global economic backdrop, which has seen many other peer economies begin to lower interest rates. This led consumers to have a much more positive view on the economy, with the sub-indexes tracking the 12mth and 5yr ahead view up 14.3% and 8.0% respectively in the month. Meanwhile, the progress on family finances remained relatively more subdued, highlighting the extent to which cost-of-living pressures have loomed over households. While pessimism still dominates overall, this marked one of the most constructive single-month reads since the RBA began raising interest rates.

This backdrop bodes relatively well for businesses too, given that both business and consumer confidence tend to move together over an economic cycle. On the conditions front, the latest NAB business survey also suggested that business conditions have found somewhat of a ‘floor’ over the course of this year. This is consistent with our view that economic activity is current around its nadir, having slowed to 1.0%yr in Q2 2024. In a context of recent tax cuts and monetary policy easing on the horizon, there is certainly scope for further improvement in sentiment and, hence, consumer spending. We are forecasting a recovery in growth hereafter to a pace of 1.5%yr by year-end and 2.4%yr in 2025. For more detail behind our view and forecasts, please see our latest Market Outlook published on WestpacIQ.

The RBA’s September Minutes provided another opportunity to digest the Board’s views on the balance of risks. There were two important developments on this front. Firstly, on the topic of the supply-demand balance, the RBA acknowledged that momentum in demand was weaker than initially expected. This, in effect, toned down some of their hawkishness on inflation from August, when the Board was telegraphing a more pessimistic view on supply potential. Secondly, there was a larger emphasis on assessments of financial conditions and the risk that they could turn out to be insufficiently restrictive to return inflation to target. We will continue to watch how the discussion of these points evolves over the coming months, but for now, the RBA’s focus is clearly squared on the dynamics around underlying inflation. We continue to expect the RBA to deliver its first rate cut in February 2025, before reaching a terminal rate of 3.35%. In this week’s essay, Chief Economist Luci Ellis details the longer-run trends guiding our thinking behind the global interest rate structure.

Offshore, the focus remained on US monetary policy.

Before jumping into this week’s events, a quick note on the September non-farm payrolls print released late last week. Non-farm payrolls surprised to the upside rising 254k and exceeding the median market expectations of 150k. There was also an upward revision of 72k for the previous two months, attributed to a recalculation of seasonal factors. The unemployment rate inched down to 4.1%, 0.3ppt below the FOMC’s forecast for Q4 2024. And the average hourly earnings rose by 0.4%mth with annual growth at 4.0%yr, up from 3.6% in July.

This week, minutes for the FOMC’s September meeting were released. They showed that both 25 and 50bp cuts were on the table and the committee chose to go with the latter. Interestingly, several members argued that a 25bp cut was more consistent with a gradual path to easing as well as providing a degree of predictability. And the committee expressed concern about how the 50bp cut will be perceived with the minutes noting that “it was important to communicate that the recalibration of the stance of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants’ assessments of the appropriate path”. With regards to the FOMC’s assessment of the US economy, the labour market was perceived to be close to the long-run maximum employment, and less tight than prior to the pandemic. Risks of its further unwanted deterioration were assessed to have increased (this is before the release of the September jobs data). And the FOMC had greater confidence in inflation’s return to 2.0% noting upside risk had ‘diminished’.

On the face of it, this week’s CPI data release for September was somewhat inconsistent with FOMC’s assessment, with both the headline and core CPIs rising slightly more than expected, by 0.2%mth and 0.3%mth respectively. Both rates were unchanged from August and fully in line with the averages over the last twelve months suggesting that inflationary pressures in the US remained stable last month. But details suggested that the upside surprise was accounted mainly by higher inflation in the core goods category and quite volatile items in it. The shelter component, one of the key drivers of headline inflation, showed that prices increased by 0.2%mth, half the average pace seen in 2024 so far. Ex-shelter, the annal CPI growth rate was just 1.1%yr. Subsequent comments from the FOMC members downplayed the importance of the September CPI print suggesting they are continuing to focus on the longer-term decline in inflation.

Closer to home, the Reserve Bank of New Zealand cut the overnight cash rate by 50bp to 4.75% in line with expectations. The move was driven by an assessment that the economy has excess capacity which should facilitate lower price and wage-setting behaviours. “Subdued” economic activity and employment conditions which continue to “soften” were credited to the still-restrictive monetary policy stance. Westpac expects another 50bp cut to come in November and for the policy rate to fall to a low of 3.75% in 2025.

7-Eleven owner Seven & i Holdings is embarking on its biggest-ever overhaul, betting that a bold breakup will help fend off an unsolicited takeover proposal from a smaller rival.

“We are going to speed up our transformation,” chief executive officer Ryuichi Isaka said in his first remarks since a buyout approach from Canada’s Alimentation Couche-Tard became public in August.

Seeking to restore profitability and focus more on convenience stores, Mr Isaka laid out a major revamp: “This plan is designed to bring out our strengths and achieve greater growth.”

Seven & i essentially unveiled a plan to split in two: One business would be focused on 7-Eleven, convenience stores and petrol stations, and the other would be a collection of 31 less profitable retail operations that might bring in strategic partners and eventually be listed separately.

The big question is if the move will be enough to win over any investors warming to Couche-Tard’s approach.

The potentially problematic backdrop to potential deal negotiations is that Seven & i’s core convenience store business is weakening, and it’s unclear if the retailer, which will also rename itself 7-Eleven – has a plan to address that.

The operating profit outlook for the 12 months to the end of February was cut to 403 billion yen (S$3.5 billion) on weaker convenience-store sales, falling short of a prior forecast for 545 billion yen and analysts’ average projection of 524 billion yen. Inflation is hitting spending among mid- and low-income shoppers, especially in the United States, the company said.

Mr Isaka said Seven & i will keep a minority stake in the retail business that will be split off and called York Holdings. An investor relations day is being planned for Oct 24 to provide more details on the initiative.

Operating profit for the latest quarter that ended in August fell 20 per cent to 128 billion yen, on net sales of 3.3 trillion yen. One bright spot was that the retailer, which operates more than 85,000 stores across the globe, raised its sales forecast for the full year, to 11.9 trillion yen from 11.3 trillion yen on stronger economic conditions and new retail initiatives.

Whether the disappointing numbers and outlook will make it harder for Seven & i to push back against Couche-Tard’s takeover proposal, even with the radical changes designed to bring more focus to the core convenience-store business, remains to be seen.

“There was not a story strong enough to convince investors that the company can improve deteriorating performance,” said fund manager at Aizawa Securities Ikuo Mitsui, adding that it would have been better if Seven & i had presented a plan to boost sales, rather than focus mainly on profitability.

The fresh initiatives come after the Canadian operator of Circle-K stores sent Seven & i a new potential acquisition price of 7 trillion yen (S$61.5 billion) last month, people with knowledge of the matter said last week. That’s 20 per cent more than the prior indicated offer, and a 50 per cent premium from where the shares were trading at in mid-August.

The saga is being seen as a key test of whether corporate Japan, long considered impenetrable for inbound mergers and acquisitions, is ready for change. An acquisition of Seven & i would mark the biggest-ever takeover of a Japanese company.

Since Couche-Tard’s approach became public, Seven & i sought, and received, a designation of being a core business essential to national security, a step that was seen as an attempt to make it harder for a foreign entity to take over the company. Even so, Japan’s finance ministry has played down the idea that the designation would make any buyout difficult.

For years, Seven & i has faced calls from investors to focus more on its convenience store business. ValueAct Capital Management has argued that the Japanese retailer should be worth more than it is now – 6 trillion yen – without a conglomerate discount. Couche-Tard has a market value of US$51 billion (S$66.6 billion), about US$10 billion more than Seven & i.

Regardless of how talks between Couche-Tard and Seven & i play out, Japan will probably see even more merger activity, thanks to improved governance, market regulators pushing to boost value and clearer guidelines on corporate mergers.

Seven & i originated as a clothing store a century ago and evolved into a general merchandiser, selling everything from groceries and sundries. After bringing 7-Eleven shops and Denny’s restaurants to the country in 1974, the convenience store concept turned out to be transformational for the company, which later took over the entire chain and embraced it as part of its name. 

Source: Straitstimes