By David Milliken

LONDON (Reuters) – The Bank of England passed a major milestone on Tuesday when it held its first auction to sell some of the 875 billion pounds ($1.01 trillion) of government bonds it bought during successive quantitative easing (QE) programmes from 2009-2021.

Britain’s central bank is the first in the Group of Seven rich nations to actively sell QE bonds to investors.

It has been reducing its holdings of British government bonds, known as gilts, bought under QE since February, when the BoE said it would no longer buy new gilts to replace those which matured. Total holdings have since fallen to 838 billion pounds.

The U.S. Federal Reserve and Bank of Canada have adopted similar policies, sometimes known as passive quantitative tightening (QT), to help shed bonds accumulated during years of stimulus to support crisis-hit economies.

WHAT IS THE BOE DOING NOW?

The BoE sold 750 million pounds of British government bonds with a remaining maturity of three to seven years at its first gilt auction on Tuesday, receiving solid demand from investors.

In August, the BoE said it wanted to reduce its total gilt holdings by 80 billion pounds over a 12-month period starting in late September. To achieve this, it said it would need to sell around 10 billion pounds of gilts every three months, in addition to not reinvesting the proceeds of maturing bonds.

A start to sales was delayed first by the postponement of September’s Monetary Policy Committee meeting after the death of Queen Elizabeth, and later by a chaotic sell-off in gilts triggered by then-Prime Minister Liz Truss’s plan for unfunded tax cuts.

The market turmoil forced the BoE to intervene and buy 19 billion pounds of long-dated and inflation-linked gilts in an emergency programme that ran until Oct. 14.

The BoE will now hold eight gilt auctions this year, totalling 6 billion pounds of sales and including gilts with a maturity of up to 20 years.

It had originally aimed to sell 8.7 billion pounds of gilts this year, including some with a maturity of over 20 years – the type hit hardest by a fire sale of assets by pension funds following the Truss government’s Sept. 23 “mini-budget”.

The BoE says it still intends to reduce total gilt holdings by the 80 billion pounds announced in August. Policymakers will review the pace of sales annually.

WHY IS THE BOE SELLING GILTS?

British government bonds have a longer average maturity than those issued by other countries, so the BoE has to sell gilts to achieve the same pace of balance sheet reduction that other central banks would get by simply allowing their bonds to mature.

More broadly, QE was always intended to be temporary and Governor Andrew Bailey has been keen to reverse some of the purchases, especially after BoE gilt holdings doubled during the wave of QE purchases in the COVID-19 pandemic.

At its peak in December 2021, the BoE owned roughly half of all conventional British government bonds in issue.

The BoE does not intend to fully reverse QE, because regulatory changes since the 2008 financial crisis mean banks need to hold more cash than before. It has not set a long-term target for gilt holdings.

Reversing QE may help fight inflation, to the extent it pushes up borrowing costs and gives the government, business and the public less money to spend on other things.

However, the BoE says raising interest rates is its main tool for controlling inflation, because the impact is better understood than that of QT.

WHAT EFFECT WILL SELLING GILTS HAVE?

The BoE aims for QT to have relatively little impact on gilt prices and borrowing costs.

It sees the impact of QE and QT as depending heavily on financial market conditions – pushing borrowing costs up or down significantly if carried out at scale during times of market turmoil, but having little impact if done gradually while markets are calm.

The BoE’s 6 billion pounds of sales come alongside 37 billion pounds of gilt issuance by the government over the same period.

Bond strategists have questioned how strong demand will be, as gilt prices have slumped this year, and some investors suggested the central bank would be wiser to postpone sales until 2023.

Strategists at Citi noted that long-dated gilts prices rallied relative to those for shorter-dated gilts after the BoE announced on Oct. 18 that it would exclude them from its purchases this year.

The overall past effect of QE on the economy has been difficult to measure, and it is especially hard to separate the effect of actions by the BoE from spillovers from bond purchases by the Fed and the European Central Bank.

In broad terms, QE pushed down borrowing costs for medium or longer-term periods, slightly raised inflation and probably led to somewhat lower unemployment and faster growth than otherwise.

The BoE also emphasised the need for QE to stabilise markets at the start of the COVID-19 pandemic.

Critics say QE played a major role in pushing up house prices and stock markets for more than a decade, worsening inequality. The BoE has said that without QE, consumer price inflation would have undershot its 2% target during the 2010s, and that unemployment would have been much higher at points.

($1 = 0.8671 pounds)

(Reporting by David Milliken; Editing by Catherine Evans)

MOSCOW (Reuters) – Russian energy giant Rosneft said on Tuesday that international major BP should rethink its decision to leave Russia and return to its operations in the country, promising more dividend pay-outs.

Rosneft’s Chief Executive Officer Igor Sechin said last week that BP is entitled to $700 million in second-half 2021 dividends, which Rosneft transferred into special “C” accounts in Russia, while BP remained Rosneft’s “shadow” shareholder.

Many Western companies, including oil majors, have left Russia since Moscow sent its armed forces into Ukraine on Feb. 24.

Rosneft accounted for around half of BP’s oil and gas reserves and a third of its production.

“We can only heartily advise our colleagues from BP to remove the issue of exiting assets in Russia from the agenda and return to their native bosom,” Rosneft said.

Rosneft also said its board will discuss payment of nine-month 2022 dividends later this month and BP may “increase its earnings from the Russian business by another around $700 million”.

BP was not immediately available for comment. It said last week that its position on Russia remained unchanged.

Rosneft also said that nothing stops BP from using dividends on investments in developments of joint projects in Russia.

BP said on Feb. 27 that it was divesting its 19.75% stake in Rosneft, ending three decades of partnership between the two companies and would take a charge of up to $25 billion.

(This story has been officially corrected after Rosneft corrected expected amount of interim dividend for BP for nine-month 2022 to $700 million from $600 million in paragraph 6.)

(Reporting by Olesya Astakhova; writing by Vladimir Soldatkin; editing by David Evans)

KHERSON, Russian-controlled Ukraine (Reuters) – The streets and boulevards of the Russian-held port of Kherson in southern Ukraine are virtually empty. Many shops and businesses have been shuttered and, at a jetty on the banks of the Dnipro River, a handful of people board a ferry to leave.

As Ukrainian forces advance to the north and east of the strategic city, Russian-installed officials there have evacuated tens of thousands of civilians in recent weeks.

Only a few remain, and some expressed frustration at not knowing what lay ahead.

Compounding the uncertainty are claims and counter-claims by both sides in the eight-month-old conflict, which Russia calls a “special operation”, that a nearby dam could be destroyed, potentially triggering floods downstream.

Vladimir, a pensioner who declined to give his surname, said that during the evacuation from Kherson, Russian-installed officials cited the risk of a Ukrainian counter-offensive or of flooding.

“That’s the worst thing for us,” he said, speaking on Monday. “Not knowing what the future holds.”

Nearby, men were fishing peacefully on the waterfront. The rumble of what sounded like artillery fire could be heard in the distance, according to a witness.

Ekaterina, a shopkeeper, said business had slowed abruptly after so many people left. She added that she was determined to stay.

“Why should I leave my ancestral house? My ancestors lived here. My great-grandfather, my grandfather. They built this house with their own hands. Why should I leave? … What for? I will stay here to the very end.”

Russian President Vladimir Putin acted to annex the Kherson region after staging referendums in four Ukrainian regions at the end of September that were dismissed as a sham and illegal by Kyiv and the West.

Ukrainian armed forces have moved closer to the city after regaining some of the territory lost earlier in the conflict, and say that Russia has been reinforcing in the region to defend against a possible assault on Kherson.

Vladimir Saldo, the Russian-backed head of the Kherson region that is partially occupied by Russian forces, has asked citizens on the eastern bank of the Dnipro to begin leaving their homes in an extension of the evacuation zone.

The new area will cover an additional 15-kilometre (nine-mile) zone around the Dnipro, which splits the Kherson region, to include another seven settlements, Saldo said.

He repeated claims, rejected by Kyiv, that Ukraine could be preparing to attack the Kakhovka dam and flood the region.

Kyiv denies it plans to attack the dam, a 30-metre (100-foot)-high, 3.2 kilometre-long barrier, and unleash a reservoir the size of the Great Salt Lake across southern Ukraine, inundating towns and villages.

Ukraine says Russia’s repeated claims that Kyiv is preparing to strike the dam, which regulates water supplies to the Russian-annexed Crimean peninsula and the Russian-controlled Zaporizhzhia nuclear power plant, were a sign Russia itself was considering staging an attack and blaming it on Kyiv and its Western supporters.

(Editing by Mark Heinrich)

LONDON (Reuters) -British supermarket group Morrisons is to close 132 McColl’s convenience stores that have no realistic prospect of making a profit in the medium term, it said on Tuesday, putting 1,300 workers at risk of redundancy.

The majority of the closures will take place this year, while 55 stores that include a Post Office counter will close next year.

Morrisons bought the McColl’s chain out of administration in May but the deal was not cleared by the competition regulator until last month.

It said that every affected worker would be offered alternative employment at a nearby McColl’s store, Morrisons store, logistics operation or foodmaking centre.

McColl’s currently trades from 1,164 stores, 286 of which trade under the Morrisons Daily fascia.

The chain has annual turnover of about 1.2 billion pounds ($1.4 billion), representing about 0.8% of the UK grocery market.

Morrisons’ plan is to have more than 1,000 stores trading as Morrisons Daily within two years.

It said it will invest significantly in the McColl’s business over the next year, improving the chain’s product range and pricing position.

($1 = 0.8720 pounds)

(Reporting by James DaveyEditing by David Goodman)

TORONTO (Reuters) – Canadian manufacturing activity contracted for a third straight month in October as production and new orders fell, while recent pressure on the Canadian dollar contributed to a jump in output prices, data showed on Tuesday.

The S&P Global Canada Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 48.8 in October from 49.8 in September.

In August, it touched its lowest level in more than two years at 48.7. A reading below 50 shows contraction in the sector.

“October PMI data for Canada alluded to a weaker manufacturing performance as output and new orders fell concurrently,” Shreeya Patel, an economist at S&P Global, said in a statement.

The output index fell to 47.4 from 48.3 in September as high prices, labour shortages and weak demand weighed, while the new orders measure was down to 46.0 from 46.9.

“Manufacturing businesses in Canada are continuing to consider their plans for the future, especially as the economic environment becomes increasingly difficult to navigate,” Patel said.

“Panel comments indicated higher interest rates and growing concerns of a recession weighed on output projections for the year ahead.”

The future output index fell to its lowest level since May 2020 at 58.1.

The Bank of Canada last week forecast that the Canadian economy would stall over the next three quarters as it raised its benchmark interest rate to a 14-year high of 3.75% in an effort to subdue inflation.

The input price index eased to its lowest level in nearly two years in October, but the measure of output prices climbed to 60.8 from 55.4 in September, as firms passed on higher costs associated with a weaker Canadian dollar.

The loonie has fallen 6.7% against a broadly stronger U.S. dollar since August.

(Reporting by Fergal Smith; Editing by Paul Simao)

By Lindsay Dunsmuir and Jonathan Cable

WASHINGTON/LONDON (Reuters) -Global factory output weakened in October as widespread recession fears, high inflation and China’s zero-COVID policy hurt demand, business surveys showed on Tuesday, adding to persistent supply disruptions and darkening recovery prospects.

Inflation has soared globally as supply chains still healing from the coronavirus pandemic were hit again by Russia’s invasion of Ukraine, forcing consumers to rein in purchases.

U.S. manufacturing activity grew at its slowest pace since the depths of the first COVID-19 lockdown in May 2020 last month as the Federal Reserve’s aggressive push to raise interest rates in order to quash stubbornly high inflation cools demand for goods.

The Institute for Supply Management (ISM) said on Tuesday that its manufacturing PMI fell to 50.2 in October from 50.9 in September. A reading above 50 signals expansion in manufacturing, which accounts for 11.9% of the U.S. economy.

“Factory activity continues to face hurdles from a strong dollar, slowing demand as well as unexpected supply shocks,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

But while overall manufacturing activity fell, the ISM survey’s forward-looking new orders sub-index rose to 49.2 last month from 47.1 in September, indicating some resiliency among U.S. consumers even as the Fed’s actions curb spending.

Elsewhere, Canadian manufacturing activity contracted for a third straight month in October while British manufacturingsuffered its biggest contraction since May 2020 last month, suggesting a deepening slowdown was underway.

The final S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) for October fell to 46.2 from 48.4 in September, further below the 50-point mark that separates growth from contraction.

“October’s PMI data suggest the manufacturing sector is teetering on the edge of a recession,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.

Manufacturing PMIs due on Wednesday for the euro zone are likely to show an ongoing downturn deepened last month as the cost of living crisis kept consumers wary.

Meanwhile in Switzerland, the PMI reading dipped by 2.2 points but remained in positive territory at 54.9 points, illustrating the ongoing resilience of the local economy.

Still, the challenging international environment, uncertainties over the supply situation and high energy prices are increasingly slowing Swiss factory activity, Credit Suisse analysts said.

Factory activity shrank in South Korea, Taiwan and Malaysia in October, and expanded at the slowest pace in 21 months in Japan, highlighting the pain from slowing Chinese demand and stubbornly high import costs.

China’s Caixin/S&P Global manufacturing PMI stood at 49.2 in October, up from 48.1 in September. The private sector survey was in line with an official PMI released on Monday that showed China’s factory activity unexpectedly fell in October.

“Asia is extremely reliant on China. Its zero-COVID policy continues to disrupt supply chains and keep Chinese travelers from returning to Asian tourist destinations. It’s also hurting the region’s exports,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

“Another big risk is the pace of U.S. rate increases. If the Federal Reserve continues to hike rates steadily, that could ignite capital outflows from Asia and hurt exports.”

Further U.S. interest rate hikes are expected to force other central banks to act to prevent sharp capital outflows by tightening their own monetary policies, even if it means cooling already soft economies, analysts say.

Japan’s au Jibun Bank Japan Manufacturing PMI fell to 50.7 in October from September’s 50.8 final, marking the weakest growth since January last year.

Highlighting how the pain from soaring material costs and supply constraints outweighed the boost from a weak yen, auto giant Toyota Motor Corp on Tuesday posted a 25% drop in quarterly profit and cut its annual output target.

South Korea’s factory activity shrank for a fourth straight month in October as orders for exports fell for an eighth month, the PMI showed.

That followed data showing South Korea’s exports fell the most in 26 months with shipments to China, its largest market, extending declines.

Taiwan and Malaysia both saw deeper contractions in manufacturing, while in Indonesia activity expanded again in October but at a slower pace than the previous month.

India was an outlier with factory activity expanding at a stronger pace in October as demand remained solid.

The International Monetary Fund last week cut Asia’s economic forecasts as global monetary tightening, rising inflation blamed on the war in Ukraine, and China’s sharp slowdown dampened the region’s recovery prospects.

The fallout from China’s strict COVID-19 curbs continues to broaden. This week, restrictions forced the temporary closure of Disney’s Shanghai resort and hit production of Apple Inc iPhones at a major contract manufacturing facility.

(Reporting by Jonathan Cable, Leika Kihara and Lindsay Dunsmuir; Editing by Sam Holmes, Hugh Lawson and Andrea Ricci)

By Svea Herbst-Bayliss and Anirban Sen

NEW YORK (Reuters) -Goldman Sachs on Monday named two veteran bankers to head its mergers and acquisitions (M&A) unit in the Americas, weeks after Chief Executive David Solomon unveiled a major shake-up of the Wall Street bank’s top ranks.

Goldman on Monday elevated Avinash Mehrotra and Brian Haufrect as the new co-heads of Americas M&A, according to an internal memo seen by Reuters.

Both Mehrotra, who currently is the head of global activism and takeover defense, and Haufrect, who is global head of natural resources M&A, will continue to hold their existing roles on top of their new responsibilities.

Russ Hutchinson will rejoin Goldman’s investment banking unit as chief operating officer of its global M&A business, according to the memo sent to employees by Goldman’s global co-heads of Global Banking & Markets, Dan Dees and Jim Esposito.

The contents of the memo were confirmed by a Goldman spokesperson.

The latest moves, first reported by Reuters, come weeks after Solomon unveiled a massive shake-up of the bank’s top ranks that combined investment banking and trading into one unit, while merging asset management and wealth management.

Mehrotra, a Goldman veteran of nearly three decades, has had two stints leading activism defense – a practice all major banks now use to help defend their clients against demands for changes from investors like hedge funds.

Goldman ranked as the top financial adviser to companies targeted by activists in the first six months of 2022, according to Refinitiv data. The bank recently defended on high-profile proxy contests at companies including social media company Twitter Inc and Kohls Corp, which won a proxy contest against Macellum Advisors.

Haufrect, who heads Goldman’s natural resources deals franchise, was made partner at Goldman in 2016, according to his LinkedIn profile.

Goldman has worked on a number of high-profile oil and gas transactions in recent years, including Occidental Petroleum Corp’s $38 billion buyout of Anadarko; ConocoPhillips’ acquisitions of Concho Resources and Shell Plc’s Permian assets; and the merger of Rowan Companies and Ensco plc.

Goldman’s top six dealmakers – global co-heads of M&A, Stephan Feldgoise and Mark Sorrell, and M&A chairmen, Tim Ingrassia, Dusty Philip, Gilberto Pozzi and Gene Sykes – will continue running the franchise, according to the memo.

(Reporting by Svea-Herbst Bayliss and Anirban Sen in New York, additional reporting by David French; Editing by Josie Kao)

By Andrew Hay

ALBUQUERQUE, N.M. (Reuters) – The candidates vying for a New Mexico U.S. House seat are clashing over fossil fuel industry jobs and climate change, setting up voters to decide whether to focus on the environment or the economy.

New Mexico’s U.S. second congressional district is among a handful of swing seats which will decide whether Republicans retake the U.S. House in Nov. 8 midterm elections.

Polls show issues like climate change and abortion are important but the economy may be the driving factor in a state that is one of the poorest in the country and also a top global oil producer.

First-term Republican incumbent Yvette Herrell is known as a defender of the Permian Basin oil and gas sector, a region she represents. In an interview with Reuters, she said she saw no link between the U.S. fossil fuel industry and climate change, a statement at odds with the scientific consensus linking emissions of methane and volatile organic compounds to a warming planet.

Herrell must attract conservative Democrats and independents to retain her seat, according to University of New Mexico politics professor Michael Rocca. One recent poll found the race a toss up while another gave Herrell a double-digit lead.

Her Democratic opponent Gabe Vasquez is critical of the oil and gas industry’s environmental impact and advocates a gradual switch to renewable energy to counter climate change, an issue judged important by half of U.S. voters, based on polls.

He is among progressive politicians in oil-dependent U.S. states whose policies put them at odds with a fossil fuel industry that is a huge source of revenues for government programs.

The New Mexico district has seesawed the last three elections but leans more Democratic, according to polling site FiveThirtyEight, after the political map was redrawn this year to include suburban areas of Albuquerque, New Mexico’s largest city hundreds of miles from the southeast oil patch.

RIO GRANDE RUNS DRY

Some voters in West Side and South Valley Albuquerque areas believe fossil-fuel-driven climate change is harming their quality of life and the livelihoods of farmers.

The Rio Grande river ran dry in the South Valley for the first time in 40 years in August just months after smoke from the state’s biggest ever wildfire shrouded the working-class neighborhood.

“I’ve lived here all my life. I’ve never seen it run dry,” said Theresa Dunworth, an accountant who works with a farm group in the South Valley where centuries-old “acequias” or channels irrigate fields. She voted for Vasquez.

South Valley restaurant owner and Herrell voter Kathy Alvarez was worried about Rio Grande water shortages but focused on the economy.

“Yvette wants to keep the oil and gas field going, Gabe doesn’t want to keep those jobs for all those people,” said Alvarez as a Christian radio station played at Kathy’s Carry Out.

Vasquez has been hit with attack ads saying his policies will cost the state tens of thousands of oil and gas jobs.

The former Las Cruces city councilor and conservationist said he supported a two-track energy approach to safeguard workers and the environment.

“For now, we must protect jobs in the fossil fuel industry while also holding polluting companies accountable for cleanup, environmental damage and gouging us at the gas pump,” he said in a statement to Reuters.

Herrell, a target of the League of Conservation Voters and other green groups, said New Mexico’s emission controls meant the state’s oil and gas industry was far cleaner than foreign competitors and did not contribute to climate change.

She supported talks to possibly raise royalties for drilling on public land and did not rule out a transition to renewable energy sources once their technology and infrastructure was sufficiently developed. In the meantime, she said the country needed traditional energy sources to meet rising demand.

“To be reliant on foreign adversaries for energy is absolutely ludicrous,” Herrell said.

(Reporting By Andrew Hay in Albuquerque, New Mexico; Editing by Donna Bryson and Aurora Ellis)

(Reuters) – E-commerce giant Amazon.com Inc said on Tuesday it will make more ad-free music and podcasts available to its Prime members.

Prime members, who have so far been able to listen to about 2 million songs without any advertisements, will now have access to over 100 million ad-free songs, along with top podcasts, Amazon wrote in a blog post.

“Prime members can discover more new music and podcasts based on their likes; shuffle play any artist, album, or playlist in the catalog; stream a collection of All-Access playlists tailored to personalized listening preferences on demand and download them for offline listening,” the company said.

The move comes as retailers work to bundle entertainment services such as streaming with their flagship apps in a bid to boost their membership offerings.

Amazon’s fast-shipping and media service Prime has over 200 million members globally.

(Reporting by Eva Mathews in Bengaluru; Editing by Krishna Chandra Eluri)