Wagner forces pull back from Moscow march to 'avoid bloodshed'

John Adams

Political

Russia-Ukraine Conflict

Summary:

Putin warns Russia's very existence under threat, vows punishment

Wagner forces pull back from Moscow march to 'avoid bloodshed'_1

A military column of the Wagner private mercenary group drives along the M-4 highway, which links the capital Moscow with Russia's southern cities, near Voronezh, Russia, on June 24.

Mutinous Russian mercenaries who surged most of the way to Moscow have agreed to turn back to avoid bloodshed, their leader said on Saturday, in a de-escalation of what had become a major challenge to President Vladimir Putin's grip on power.

The fighters of the Wagner private army were just 200 kilometers from the capital, said the leader, former Putin ally Yevgeny Prigozhin. The rebels had captured the city of Rostov hundreds of miles to the south before racing across the country.

"They wanted to disband the Wagner military company. We embarked on a march of justice on June 23. In 24 hours we got to within 200 km of Moscow. In this time we did not spill a single drop of our fighters' blood," Prigozhin said in an audio message.

"Now the moment has come when blood could be spilled. Understanding ... that Russian blood will be spilled on one side, we are turning our columns around and going back to field camps as planned."

The decision to halt further movement across Russia by the Wagner group was brokered by Belarusian President Alexander Lukashenko in return for guarantees for their safety, his office said. There was no immediate word on the deal from Putin.

Earlier, Prigozhin said that his "march for justice" was intended to remove corrupt and incompetent Russian commanders he blames for botching the war in Ukraine.

In a televised address from the Kremlin, Putin said Russia's very existence was under threat.

"We are fighting for the lives and security of our people, for our sovereignty and independence, for the right to remain Russia, a state with a thousand-year history," he said, vowing punishment for those who "who prepared an armed insurrection."

Ukrainian President Volodymyr Zelenskyy said the Wagner revolt exposed complete chaos in Russia.

"Today the world can see that the masters of Russia control nothing. And that means nothing. Simply complete chaos. An absence of any predictability," Zelenskyy said in his nightly video address.

Video obtained by Reuters showed troop carriers and two flatbed trucks each carrying a tank driving 50 km beyond Voronezh, more than half way to Moscow. A helicopter fired on them near Voronezh.

More than 100 firefighters were in action at a fuel depot ablaze in Voronezh. Video footage obtained by Reuters showed it exploding in a fireball shortly after a helicopter flew by.

Further along the road, video showed, vehicles apparently placed as barricades to slow Wagner's advance had been tossed to one side.

Prigozhin, whose private army fought the bloodiest battles in Ukraine even as he feuded for months with the military top brass, said he had captured the headquarters of Russia's Southern Military District in the city of Rostov without firing a shot.

In Rostov, which serves as the main rear logistical hub for Russia's entire invasion force in Ukraine, residents milled about calmly, filming on mobile phones as Wagner fighters in armored vehicles and battle tanks took up positions.

One tank was wedged between stucco buildings with posters advertising the circus. Another had "Siberia" daubed in red paint across the front, an apparent statement of intent to sweep across the breadth of Russia.

"Will there be civil war?" a woman in Rostov asked the mercenaries who took over the city.

"No, everything will be fine," a fighter answered.

The region surrounding Rostov is an important oil, gas and grains hub.

In a series of hectic messages overnight, Prigozhin had demanded that Defence Minister Sergei Shoigu and the chief of the general staff Valery Gerasimov should come to see him in Rostov.

Western capitals said they were closely following the situation in nuclear-armed Russia. U.S. President Joe Biden spoke with the leaders of France, Germany and Britain, while Secretary of State Antony Blinken spoke to counterparts from G7 nations.

The top U.S. military officer, Army General Mark Milley, canceled a scheduled trip to the Middle East because of the situation in Russia.

The insurrection risked leaving Russia's invasion force in Ukraine in disarray, just as Kyiv is launching its strongest counteroffensive since the war began in February last year.

"This represents the most significant challenge to the Russian state in recent times," Britain's Defence Ministry said.

Article Source： Asia_Nikkei

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Thomas

Forex

As far as I am aware, there is no such thing as the "gravity model of FX", though I find it is a useful analogy for thinking about currencies in the Asia-Pacific region. Maybe I can try to popularise it...

If you use the analogy of the solar system to think about currencies, then the US dollar is clearly the sun, around which all other currencies revolve. But there are patches of space where other large celestial bodies, further away from the sun can have a significant influence, and here in the APAC region, the CNY is clearly that currency. Think of it as the gas-giant Jupiter if you want.

Much of the time, it is the ebb and flow of the USD that drives exchange rates in the region, and cross rates remain fairly steady. That isn't happening now, and the reason for this lies in the CNY.

One of these currencies is doing its own thing

Right now, China is bucking the global trend and cutting, not raising rates, reflecting what is a very mediocre and rather disappointing reopening following zero-Covid. And one of the upshots of this is that the CNY has been weakening, with the People's Bank of China (PBoC) seemingly quite tolerant of such weakness with all policy levers being considered to help offset the economy's weakness.

Furthermore, what we see is that the gravitational pull - as described by the correlation coefficient - of the CNY is dragging down some local currencies with it, though the strength of this pull is weaker than in the past. This tends to confirm that what is happening to the CNY right now is more than just a generalised bout of USD strength taking all currencies along for the ride, but something more unique to China.

Two currencies do remain tightly bound to the Chinese yuan, namely the Japanese yen and the Malaysian Ringgit. Both are historically at the higher end of correlations, reflecting strong trade links and perhaps as a result, these two currencies remain in a tight orbit to the CNY.

Elsewhere, the links are very much weaker, or in the case of the Indonesian rupiah, actually negative. The IDR has benefited from a solid inflation-fighting period by Bank Indonesia (BI), a sustained current account surplus and an improved growth outlook, helped in part by its strong commodity endowments that mean it should benefit from the global energy transition and demand for electric vehicle batteries, which is becoming a new source of growth.

The correlation of the Vietnamese dong is also close to zero so far this year. The VND, however, is a heavily managed currency unit and has shown no signs of following the CNY during its recent slide. That is simply a local policy decision. And at some point, it may re-set.

Perhaps more surprisingly, the Taiwan dollar also seems to be shaking off any CNY influence and has been notably less responsive to movements in the CNY than past history would suggest. This may be due to portfolio inflows into Taiwan's stock market, as investors seem keen to buy almost any stock with even a vague hint of AI or semiconductors in their business description right now. Taiwan's stock market is up almost 22% year-to-date as a result, while China's CSI 300 is virtually flat in local currency terms, and down 4.1% in USD terms.

Looking ahead

At some stage, there is a chance that the Chinese government will come out with a broader package of support measures than it has done so far, and that will likely see the CNY rally. That said, we aren't looking for a bazooka from the authorities, more of a shot-gun approach of smaller measures, and believe that any uplift may be short-lived.

One-way traffic in the currency is not something the PBoC will want to see either, but we don't believe they will be totally averse to seeing the CNY weaken further if it does so in a controlled fashion, especially as we doubt that they are done with cutting rates just yet. Market forecasters are toying with near-term targets of USD/CNY 7.30 which looks plausible and in line with the 2022 highs. 7.40 would take the CNY into territory that it has not visited since 2007 and seems a step too far at this juncture, though not something we would rule out.

But even 7.30 could drag other Asian FX with it, with the JPY and MYR likely tracking the CNY most closely (subject to any JPY support that may follow a tweak to their yield curve control policy, which we think could happen in July) while the IDR (and even India's rupee) may partly shrug off any such move.

Source: ING

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Glendon

Political

Russia-Ukraine Conflict

Wagner fighters will not face any action: Kremlin_1

A fighter of Wagner private mercenary group flashes a victory sign in a street near the headquarters of the Southern Military District in the city of Rostov-on-Don, Russia on June 24.

MOSCOW (Reuters) -- Wagner mercenary chief Yevgeny Prigozhin will move to Belarus under a deal brokered by Belarusian President Alexander Lukashenko to end an armed mutiny that Prigozhin had led against Russia's military leadership, the Kremlin said on Saturday.

Kremlin spokesman Dmitry Peskov told reporters Lukashenko had offered to mediate, with Russian President Vladimir Putin's agreement, because he had known Prigozhin personally for around 20 years.

Peskov said the criminal case that had been opened against Prigozhin for armed mutiny would be dropped, and that the Wagner fighters who had taken part in his "march for justice" would not face any action, in recognition of their previous service to Russia.

Fighters who had not taken part would sign contracts with the Defence Ministry, which has been seeking to bring all autonomous volunteer forces under its control by July 1.

Although Putin had earlier vowed to punish those who participated in the mutiny, Peskov said the agreement had had the "higher goal" of avoiding confrontation and bloodshed.

Peskov declined to say whether any concessions had been made to Prigozhin, other than guarantees of safety for him -- something he said Putin had given his word to vouch for -- and for Prigozhin's men, to persuade him to withdraw all his forces.

He called the events of the day "tragic".

"There are no more conditions that I can tell you about," said Peskov.

Prigozhin had earlier demanded that Defence Minister Sergei Shoigu and Chief of the General Staff Valery Gerasimov be handed over to him.

Asked if there would be personnel changes in the Russian Defence Ministry as a result of the deal, Peskov said:

"These matters are the sole prerogative and within the competence of the Supreme Commander-in-Chief (Putin) in accordance with the constitution of the Russian Federation. Therefore, it is unlikely that these topics could have been discussed in the course of the above-mentioned contacts".

Article Source： Asia_Nikkei

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Justin

Economic

In Berlin, OMFIF participated in a series of bilateral discussions with representatives from the government, banking sector and industry. Despite persistent inflation, continued monetary tightening and a wobbly global banking sector, the outlook on Germany’s financial conditions and stability seemed relatively sanguine. The future of the country’s industrial base is the present focus in political and economic spheres, as the economy grapples with increased energy prices, a fragmented global economy and a shrinking labour market.

Transitioning to a sustainable and sovereign energy supply is prime concern

After getting burned due to the European energy crisis last year spurred by the Russia-Ukraine conflict, the energy transition is the top priority for Germany. For decades, cheap gas imports fuelled the country’s industrial base. But since the war, the true cost of Russian gas is coming to light: ‘Germany never priced in the negative externalities into the cost of Russian energy imports,’ one official explained. This includes Russia’s lack of regulation and an oftentimes negligent system regarding environmental degradation.

As the country speeds up its exit from coal and nuclear energy, this is estimated to cost approximately €600bn. While much of this must come from the private sector, there was agreement that this cannot be done solely via banking financing. Most finance in Germany is provided by banks, but German (and European) capital markets need to develop in order to allocate the level of capital needed to facilitate the energy transition.

At present, the investment environment in Germany is difficult for foreign investors, who are competing with ‘local, cheap and public money’, according to one institutional investor. Since the introduction of the Inflation Reduction Act and its subsidy scheme for green infrastructure, there is competition with the US for capital for sustainable project financing.

Though the energy transition is a key imperative for Chancellor Olaf Scholz’ Social Democratic Party and the Greens, the Free Democrats have indicated that they will be taking a harder stance on fiscal expansion. Internal strife within the coalition may hinder progression of the net-zero agenda.

Increasing wariness over China

On the geopolitical front, one industry representative explained that ‘we are preparing for a divided world’. They stated that they are working as quickly as possible to become less dependent and diversify away from China. While Germany does not have the same level of dependency on China as the country had on Russian gas, Germany imports around 90% of its critical raw materials from China. Many of these commodities are essential to produce electric cars and wind turbines.

Unlike the importance of gas exports to the Russian economy, Germany’s share of China’s raw material exports is negligible. The power imbalance here has led to uneasiness for both German policy-makers and industry. One industry representative explained their strategy to diversify away from Chinese raw materials by investing in Canada, Chile and Australia and other countries, ‘but it will take years to derisk’.

The consensus seemed to be that while German industrial production will not be fully repatriating from China. They are anticipating a strategic bifurcation of production streams, described by one representative as ‘East versus West’. Much of the supply chain may remain in China. But strategic and critically important technologies – including high-tech, software and semiconductors – will be ‘nearshored’ to western countries and political allies.

Labour shortages increasingly disruptive to German economy

A rapidly ageing population has led to record-high vacancy rates in Germany, which will drag on long-term growth. Those we spoke with remarked that shortages are not due to the price sensitivity of labour, but rather that ‘there is a structural lack of labour in the Germany economy’.

This chimes with the findings of an industry survey conducted by the Federation of German Industries in June. Labour costs and shortages of skilled workers was the number one challenge to business operations among 200 German small- and medium-sized enterprises, as listed by 76% of respondents. Bureaucracy was listed by 37%, making it the third most common challenge after energy and raw materials costs (62%).

To address the labour market challenges, the government plans to overhaul Germany’s immigration policy. A new legislative proposal (the Skilled Immigration Act) has been put forth by the ministries of labour and the interior. The new policy would seek to attract more non-EU workers to fill the generational gap among a fast ageing population. The proposal has received approval from the cabinet and must now be approved by both houses of parliament before coming into force.

Source:Taylor Pearce

To stay updated on all economic events of today, please check out our Economic calendar

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Thomas

Bond

China's Premier Li Qiang and dozens of world leaders will meet in Paris on Thursday and Friday to discuss ways to help low-income countries manage their debt burdens and free up funding for climate financing.

As the world's largest bilateral creditor, China is central to talks on making tangible progress in providing debt relief to Zambia, Chad, Ethiopia and Ghana through the Group of 20-led "Common Framework."

What is the common framework?

The Common Framework was set up by the G-20 in late 2020 during the COVID-19 pandemic as an initiative to expedite and simplify the process of getting indebted countries back onto their feet.

The aim was to bring together big creditors like China and the traditional group of developed creditor nations, known as the Paris Club, to negotiate restructuring plans with defaulters.

But nearly three years later, it is yet to provide any relief, partly due to disagreements between the rich countries and China, which over the past decade has emerged as a major international creditor.

What is China's position on debt restructuring?

China wants multilateral lenders like the International Monetary Fund (IMF) and World Bank to absorb some of the losses, which those institutions and many developed nations, notably the United States, are resisting.

The U.S. and European governments have argued that acceding to Beijing's demand would be tantamount to a bailout for China.

A case in point is Zambia, which owes $6 billion to China and has been locked in default for almost three years. The southern African country has been unable to secure further loans from the IMF because Beijing insists multilateral development lenders, which don't usually take haircuts, should participate in debt relief.

The Common Framework requires debtor countries to secure restructuring assurances from any bilateral lenders first and commercial and multilateral lenders second - to Beijing's dismay.

China continues to negotiate with debtor nations on a bilateral basis, urging that debt disposal be dealt with on a "case-by-case" basis despite the Common Framework's aim to standardise access to debt relief.

China's central bank chief Yi Gang reiterated "China is willing to work with all parties to implement the Common Framework for debt disposal," at a gathering of G20 finance ministers and central bank governors at the World Bank and IMF Spring Meetings in Washington in April.

"Official bilateral loans related to China only account for less than 5% of Ghana's external debt," Mao Ning, a Chinese Foreign Ministry spokesperson, told a press conference in Beijing in March, when asked whether China would agree to restructure the $1.9 billion Ghana owes it.

"We call on multilateral financial institutions and commercial lenders, who are the main creditors for developing countries, to participate in developing countries' debt relief efforts," Mao said.

why is China willing to write off some debts but not others?

In January, China's Foreign Minister Qin Gang announced a partial and undisclosed cancellation of the $13.7 billion that Ethiopia has borrowed from China since 2000 while visiting Addis Ababa.

And last August, China waived 23 interest-free loans to 17 African states that had expired at the end of 2021.

China's interest-free loans are funded from its foreign aid budget and are easier to waive.

Interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165 governments globally between 2000 and 2017, according to AidData.

What support is China offering?

In early May, China attended the first meeting of Sri Lanka's creditor nations only as an observer. Japan, India and France initiated the discussions despite China being Sri Lanka's largest bilateral lender, with the island nation owing Chinese lenders $7.4 billion at the end of 2021.

In discussions over Ghana later in May, China took its involvement further and agreed to co-chair a committee of Ghana's official creditors alongside France.

And in Zambia's case, "China has always taken Zambia's debt issues seriously and will jointly work for a better solution," according to Wang Wenbin, another Chinese foreign ministry spokesperson.

What next?

In Paris, analysts expect China to continue to voice support for the Common Framework but for debt relief to be dispensed "case-by-case".

The last time global policymakers met to discuss the Common Framework in Washington, China proposed the IMF should speed up and improve information sharing on debt sustainability analyses.

China will need more coaxing before it agrees to haircuts.

Source: Reuters

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Justin

Central Bank

Strong Start to 2023

Although many economists were firmly in the recession camp at the close of 2022, Commonwealth’s Investment Management team foresaw a Goldilocks economy (i.e., an ideal state with full employment, economic stability, and stable growth) and believed there were tailwinds for growth.

Indeed, we did see a very strong first half. And there’s reason to believe that the tailwinds will continue to blow through year-end, specifically those related to inflation, employment, and the consumer.

Inflation: Prices Stabilizing

Inflation was a contributing factor to consumer and investor skepticism in 2022. But over the past 12 months, it has continued to moderate toward the Fed’s mandate of 2 percent (see chart below). Prices on common expenditure areas like butter, milk, and gasoline have declined 20 percent, 34 percent, and 36 percent, respectively, over the past year.

2023 Midyear Outlook: Is the Economy Half Empty or Half Full?_1

Source: Bureau of Labor Statistics, Haver Analytics

Overall, inflationary pressures should continue to moderate in the coming quarters as supply-demand dynamics balance. The result should be a reprieve for Americans at the pump, grocery stores, and elsewhere, ultimately putting more money back in the consumer’s pocket.

Employment: Labor Demand and Wages Growing

Over the past 12 months, the economy has added 4 million jobs, with approximately 40 percent of those gains occurring in the first five months of 2023 (see chart below). The mismatch between labor demand and supply is the largest on record, with 10 million job openings compared to only 5.7 million unemployed.

2023 Midyear Outlook: Is the Economy Half Empty or Half Full?_2

Source: Bureau of Labor Statistics, Haver Analytics

This strong demand for labor has resulted in above-average wage growth, especially for those in lower-skilled occupations (see chart below). After years of lackluster wage gains, many individuals are now seeing more dollars in every paycheck, which is contributing to the spending patterns experienced as of late.

2023 Midyear Outlook: Is the Economy Half Empty or Half Full?_3

Source: Federal Reserve Bank of Atlanta, Haver Analytics

Consumers: Spending Rising, Savings Falling

With more dollars in every paycheck, consumers are spending. Plus, they’re doing so at a pace that’s above historical norms, as evidenced by the decline in the personal saving rate in recent periods. Since the pandemic, Americans have been on a spending spree, which began with purchases on goods and has since moved toward services like leisure, travel, and hospitality.

2023 Midyear Outlook: Is the Economy Half Empty or Half Full?_4

Source: BEA, Federal Reserve Bank of Atlanta, Haver Analytics

The surge in spending bodes well for an economy that is approximately two-thirds consumption. Unless there’s a significant uptick in the savings rate in the coming months coupled with a decline in consumer confidence, it’s reasonable to assume that the economy will stay on track as it did in the first half of 2023.

Trending Toward Half Full

Heading into the year, many believed the economy was half empty, with the likelihood of recession right around the corner. With the benefit of hindsight, however, we know that it was half full, following a 3.9 percent increase in GDP in the first quarter and strong equity gains year-to-date. There’s reason to believe that the trend will continue.

The job creation rate in the past six months is greater than any six-month period in the decade before the pandemic. Wages are following suit. Americans are working more, earning more, and spending their hard-earned dollars, which is a win-win from an economic perspective. With a significant breakdown in confidence between now and the end of the year being an unlikely scenario, the positive momentum should continue.

Source: Peter Essele

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Devin

Foreign investors hoping for a game-changing rate hike from Turkey's newly appointed central bank chief said Thursday's disappointing move to a key rate of just 15% could keep some money on the sidelines.

The appointment of U.S.-trained banker Hafize Gaye Erkan to lead the bank boosted expectations that it would rapidly raise rates to unravel years of unorthodox policies as quickly as possible.

But the 650 basis point hike - to 15% - was well below the median rate expectation in a Reuters poll of a rise to 21%, leaving some fretting that Erkan might have limited room to aggressively tackle inflation.

"They lost one perfect chance to demonstrate that they mean business," said Viktor Szabo, emerging markets investment director with Abrdn. "Whether it's because they have political constraints, or they're afraid for the banking system, it's not great. It's not a great message."

Newly re-elected President Tayyip Erdogan, a self-described enemy of high interest rates, for years directed a heavily managed economic system, with a tightly controlled lira, rate cuts in the face of galloping inflation and plentiful credit for local borrowers.

Amidst tumbling reserves and fleeing investors, his choice of Erkan at the central bank, and investor darling Mehmet Simsek as finance minister, prompted bets for a quick turnaround to unravel some of these policies.

But analysts said that after Thursday's decision, Erkan and Simsek would need to work even harder to prove the country had indeed shifted course.

"They look less credible now," Eric Fine, portfolio manager of emerging market debt at VanEck, said of the central bank, adding: "They need to hike rates to whatever level prevents the need for currency interventions using reserves. They haven't."

Since the decision, Turkey's lira hit a fresh record low against the U.S. dollar, bringing its losses this year to nearly 23%. The country's international bonds came under pressure.

Already in the week to June 16, foreign investor holdings of Turkish government bonds had fallen by $16.2 million.

"For now, it's not enough, probably, for long-term investors. Because of the magnitude of some of the problems in the economy," said Marek Drimal, a lead strategist at Societe Generale.

Caution And Tempered Disappointment

Still, many, including Drimal, saw positive signs, and noted that even Simsek had repeatedly said that gradual rate moves were move likely.

Simsek also promised predictable, market-based economic policies and an inflation-targeting model would enable capital inflows.

"I think investor disappointment should be tempered," said Dan Wood, head of emerging market debt at William Blair, adding that the bank also signalled that it will keep hiking rates until inflation improved.

"It is clearly positive that a return to a more orthodox economic policy has been signalled."

The associate director of ratings agency Scope Ratings and a sovereign analyst at ratings agency Fitch also said the hike itself was positive - but the core question would be whether Erdogan allows Erkan to stay the course with continued rises.

"I don't think investors will throw in the towel just yet because I think there is still expectation there is more to come in the coming months," said Kaan Nazli, portfolio manager at Neuberger Berman.

"The market is very cautious - so to regain confidence, that will take a long time. I would think that you would need to maintain tight policy for a considerable amount of time for significant, more long-term inflows to come in."

Source: Devidiscourse

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Wagner forces pull back from Moscow march to 'avoid bloodshed'

Article Source： Asia_Nikkei

Correlations with China's Yuan are Weakening in Asia

Source: ING

Wagner fighters will not face any action: Kremlin

Article Source： Asia_Nikkei

‘Decarbonisation, Derisking And Demographics’ Top List Of Germany’s Policy Priorities

Transitioning to a sustainable and sovereign energy supply is prime concern

Increasing wariness over China

Labour shortages increasingly disruptive to German economy

Source:Taylor Pearce

What is China's Position on Restructuring Debt Owed by Poor Nations?

Source: Reuters

2023 Midyear Outlook: Is the Economy Half Empty or Half Full?

Strong Start to 2023

Inflation: Prices Stabilizing

Source: Bureau of Labor Statistics, Haver Analytics

Employment: Labor Demand and Wages Growing

Source: Bureau of Labor Statistics, Haver Analytics

Source: Federal Reserve Bank of Atlanta, Haver Analytics

Consumers: Spending Rising, Savings Falling

Source: BEA, Federal Reserve Bank of Atlanta, Haver Analytics

Trending Toward Half Full

Source: Peter Essele

Investors Lament Lost Opportunity After Unconvincing Turkish Rate Hike

Source: Devidiscourse

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