By Supantha Mukherjee

STOCKHOLM – Swedish telecom provider Ericsson said on Thursday it would likely be fined by U.S. regulators for its handling of a bribery investigation in Iraq and reported a slide in quarterly earnings due to its suspension of business in Russia.

The company disclosed in February that an internal investigation had found it may have made payments to the Islamic State militant group in Iraq – misconduct it said “started at least back in 2011”.

Shares in Ericsson tumbled 7% in early Thursday trade, bringing the stock’s losses since news of the scandal broke to around 30%.

The U.S. Department of Justice could take a range of actions, it said. These “may likely include additional monetary payments,” Chief Executive Borje Ekholm said in a statement, adding that the company could not reliably estimate the size of the fine.

Ericsson reported an 11% drop in adjusted operating earnings for the first quarter to 4.7 billion Swedish crowns ($500 million). It was hurt by a $95 million provision for its indefinite suspension of business in Russia over the invasion of Ukraine.

Ongoing patent litigation with Apple Inc and a delay in the renewal of a 1 billion crown annual software contract to the current quarter also weighed on the results.

But revenue rose 11% to 55.1 billion crowns on higher demand for 5G telecom equipment, beating estimates of 53.36 billion crowns.

A fine would come on top of a $1 billion fine paid to the DOJ in 2019 to settle bribery cases in several countries. At the time, Ericsson also agreed to supervision by the regulators for three years.

“A fine is, in our view, the best Ericsson can hope for, as much worse scenarios have been discussed in the market recently,” said Mads Rosendal, analyst at Danske Bank Credit Research.

Market speculation about possible penalties has ranged from sanctions on the company to a ban on selling in the United States to legal action being taken against top Ericsson executives.

In a public rebuke for the scandal, last week shareholders representing more than 10% of Ericsson shares voted against discharging board members of liability for the previous year. That means Ekholm and other board members could be held personally liable for their actions.

Ericsson has also been spending heavily to boost inventory for critical parts in the face of a global chip shortage.

“We do see that certain vital components need extra attention… we have decided to invest in buffer inventory for some of those vital components,” Chief Financial Officer Carl Mellander said.

($1=9.4483 Swedish crowns)

(Reporting by Supantha Mukherjee in Stockholm, Editing by Helena Soderpalm and Edwina Gibbs)

By Cynthia Kim and Aradhana Aravindan

SEOUL/SINGAPORE – Singapore and South Korea both tightened monetary policy on Thursday, hot on the heels of rate hikes in Canada and New Zealand, as global policymakers moved quickly to prevent soaring inflation from derailing a fragile world economic recovery.

While the four central banks began tightening policy last year to stem price rises caused by coronavirus-driven logistics bottlenecks, the war in Ukraine, which started Feb. 24, has since intensified supply pressures, heightening the urgency for policymakers to bring forward planned rate hikes.

“We’re likely to see more Asian central banks push forward the timing of interest rate hikes,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo. “That could hurt growth but with inflation becoming a more imminent concern, there’s little choice for them but to move toward tighter monetary policy.”

Asia-Pacific economies largely lagged U.S. and European reopenings from the pandemic, which meant central banks in Australia, India and Southeast Asia had up until now mostly seen inflation pressures as transitory, with a focus more on shoring up their recoveries.

Singapore, South Korea and New Zealand were the exceptions and were particularly concerned about surging import price costs and financial stability more generally.

The Bank of Korea delivered a surprise quarter of a percentage point rate hike on Thursday.

Most economists had expected it to hold fire while it awaited the appointment of a new governor but with inflation in Asia’s fourth-largest economy running at a decade-high, the bank said waiting was not an option.

Singapore, meanwhile, tightened its policy, which influences its currency rather than interest rates, for the third time in six months, citing fresh risks from the Ukraine war.

Both meetings came less than a day after commodity-rich economies New Zealand and Canada lifted their respective rates by a hefty half a percentage point, their largest such hikes in two decades.

New Zealand’s hike was larger than what economists had expected and Canada warned more would be needed.

GET THERE FAST, TAKE IT SLOW

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said Singapore, South Korea, New Zealand and Canada were part of a group that saw an urgent need to get ahead of the inflationary threat.

“The so-called ‘Kokomo Club’ of central banks that aim to ‘get there fast, and then take it slow’ necessarily are inclined to front-load tightening, with 50 basis point hikes as a hallmark,” Varathan said, referring to lyrics from the Beach Boys’ 1988 hit “Kokomo”.

While larger peers like the Federal Reserve and European Central Bank were not quite as aggressive in their posturing, he said they were moving in that direction.

The challenge for many economies is they have only just started to embed a sure-footed recovery from large pandemic-led downturns, though inflation has since forced their hands on concerns prices could trigger broader financial and price instability.

Indeed, even some of Asia’s less hawkish central banks are feeling the pressure to wind down their crisis-era policy.

The Reserve Bank of Australia last week held rates but dropped a reference in its communication about being “patient” in watching economic conditions.

Australia’s labour market remains extremely tight with unemployment at a 13-year low and markets now expect the first hike since the start of the pandemic in June.

India’s central bank also kept rates at a record low last week but flagged a move away from ultra-loose policy.

While the Ukraine war’s economic impact has mostly be seen in inflationary terms for now, with energy and food prices soaring, analysts warn policymakers need to pay close attention to the hit to growth.

Shane Oliver, head of investment strategy and chief economist at AMP Capital in Sydney, compared current conditions with the Saudi oil embargo in 1973 that caused a global price shock.

“(Central banks are) having this dilemma that the longer this goes on, and it’s being going on for a year now, inflationary expectations move higher and inflation will become self-perpetuating much as it did in the 1970s,” he said.

(Additional reporting by Leika Kihara in Tokyo and Tom Westbrook in Singapore; Writing by Sam Holmes; Editing by Shri Navaratnam)

By Ryan Woo

BEIJING -China’s explicit call to cut the amount of cash banks set aside as reserves and boost lending has reinforced expectations for imminent policy easing, but economists say any credit loosening may not be enough to beat back the prospect of a deep economic downtrend.

Growth in the world’s second-largest economy has slowed since early 2021 as traditional engines of the economy such as real estate and consumption faltered. Exports, the last major growth driver, are also showing signs of fatigue.

More recently, widespread disruptions to activity from China’s biggest COVID-19 outbreak since 2020 and tough lockdowns have tilted the odds towards a recession, a few economists say.

On Wednesday, the State Council, or cabinet, said after a meeting that monetary policy tools – including cuts in banks’ reserve requirement ratios (RRRs) – should be used in a timely way.

In the last two rounds of RRR cuts in 2021, the respective announcements of the easing were made two to three days after they were flagged by the State Council.

“We expect the PBOC to deliver a 50-basis point RRR cut and potentially also an interest rate cut in the next few days,” Goldman Sachs wrote in a note on Thursday.

Most private forecasters now expect an RRR cut of 50 basis points (bps), which would free up more than 1 trillion yuan ($157 billion) in long-term funds that banks can use to boost lending.

A commentary by state-run Securities Times said April 15 would be the window to watch.

China on Monday will report March data for industrial production and retail sales, which are expected to reflect the impact from COVID curbs, as well as first-quarter gross domestic product (GDP).

But some analysts cast doubt on the effectiveness of an RRR cut now, due to a lack of demand for credit, as factories and businesses struggle while consumers remain cautious in a very uncertain economy. [nL2N2VZ04K

Transmission channels for conventional RRR and rate cuts are severely clogged due to the COVID-related lockdowns and logistics disruptions, according to Nomura.

“When households scramble to stockpile food and private corporates prioritise survivorship over expansion, credit demand is weak,” Nomura analysts said in a note.

“With so many lockdowns, road barricades and property curbs, the most concerning issues lie mainly on the supply side, and merely adding loanable funds and slightly cutting lending rates are unlikely to effectively boost final demand.”

Nomura says China is facing a “rising risk of recession”, with as many as 45 cities now implementing either full or partial lockdowns, making up 26.4% of the country’s population and 40.3% of its GDP.

It expects one 10-bps rate cut each to the rates of the one-year medium-term lending facility (MLF), one-year and five-year loan prime rates (LPRs), and seven-day reverse repo in the near term.

But no change in the one-year MLF rate is expected when the central bank is set to renew 150 billion yuan of such medium-term loans on Friday, said 31 out of 45 traders and analysts in a Reuters poll.

Since a flurry of cuts to key rates in January, China has kept its benchmark one-year LPR unchanged at 3.70% and its five-year LPR steady at 4.60%.

“Monetary policy is not the panacea for all problems,” the Securities Times commentary said.

“Unblocking supply chains and industrial chains, allowing enterprises to get orders, and allowing people to have income would be the only way the cash-flow of the real economy be improved and a turnaround be achieved naturally.”

($1 = 6.3663 Chinese yuan renminbi)

(Reporting by Ryan Woo; Editing by Kim Coghill)

(Reuters) -Dunelm said on Thursday its total sales jumped in the third quarter, as the British homeware retailer benefited from the reopening of stores after coronavirus curbs were eased.

The company, which sells furnishings ranging from cushions and bedding to kitchen equipment, also reported a better-than-expected rise of 30 basis points in gross profit margins, thanks to a smaller proportion of sales from discounted lines.

“Whilst the macro environment remains uncertain, with significant headwinds and increasing pressures on the consumer, our wide product range offers choice for every budget,” Chief Executive Officer Nick Wilkinson said in a statement.

The group, one of Britain’s largest homeware retailers with 176 stores and an online presence, said it continued to temper inflationary cost pressures in the quarter. In February, Dunelm said it was hiking retail prices to battle rising costs.

Margins for the full year are expected to be in line with the previous year, it said.

The company reported a 69% increase in sales to 399 million pounds ($524.17 million) for the 13 weeks ended March 26.

Analysts at Peel Hunt said Dunelm’s success in the quarter suggests consumers are not retreating yet, but there are clearly tougher times ahead.

Shares rose 3% in early trade.

($1 = 0.7612 pounds)

(Reporting by Radhika Anilkumar in Bengaluru; Editing by Sherry Jacob-Phillips and Devika Syamnath)

By Kaori Kaneko and Takaya Yamaguchi

TOKYO -Japan’s ruling Liberal Democratic Party (LDP) on Thursday urged the government to introduce jet fuel subsidies and launch a tourism campaign as part of a relief package to cushion the blow from global commodity inflation driven up by the Ukraine war.

While the proposal did not mention the size of spending, it called on the government to act swiftly by drawing on existing budget reserves of 5.5 trillion yen ($43.9 billion).

“Developments regarding Ukraine are hard to predict and prices for various necessities are rising,” the proposal said, adding the LDP will consider additional steps if commodity prices continue to rise.

Prime Minister Fumio Kishida has instructed his cabinet to compile measures to cushion the blow from rising fuel and food costs by the end of the month.

The administration wants to keep spending relatively small, government officials with knowledge of the matter have told Reuters, with Kishida instead hoping to unveil a bigger spending plan closer to an upper house election scheduled in July.

The officials were not authorised to speak to media and declined to be identified.

The LDP’s coalition partner Komeito, however, wants an extra budget to be crafted as soon as possible for bigger, immediate spending.

Takuya Hoshino, senior economist at Dai-ichi Life Research Institute, projects this month’s package to be sized around 2-3 trillion yen, and followed by bigger spending later this year.

“It wouldn’t surprise me if the second package is sized around 10 trillion yen, given political pressure to spend big at the time of upper house elections,” he said.

Spiking costs for energy and food in particular have hit Japan’s economy already struggling to emerge from the COVID-19 pandemic.

The economy is expected to expand an annualised 4.9% this quarter, below an earlier prediction of 5.6%, according to a Reuters poll.

($1 = 125.3000 yen)

(Reporting by Kaori Kaneko and Takaya Yamaguchi; Additional reporting by Tetsushi Kajimoto and Kantaro Komiya; Writing by Leika Kihara; Editing by Edwina Gibbs and Lincoln Feast.)

(Reuters) – The Chinese Communist Party’s anti-corruption watchdog was among the agencies involved in a recent inquiry into links between billionaire Jack Ma’s Ant Group and state-owned Chinese companies, Bloomberg News reported on Wednesday.

The Central Commission for Discipline Inspection (CCDI) was seeking to understand the influence of Ma’s fintech empire and the extent of its transactions with state banks and enterprises, the report said, citing people familiar with the matter.

Ant did not immediately respond to a request for comment from Reuters, while CCDI could not be immediately reached.

An affiliate of e-commerce giant Alibaba Group, Ant has been subjected to a sweeping restructuring by China, which derailed its $37 billion initial public offering in late 2020.

Bloomberg reported the anti-corruption watchdog was involved in queries sent to state firms in February about their exposure to Ant, as part of its investigation of former Communist Party Secretary of the technology hub of Hangzhou, Zhou Jiangyong, who was later expelled from the party.

The Financial Times reported in January that Hangzhou-based Ant was connected to the corruption case involving Zhou Jiangyong.

(Reporting by Shivam Patel in Bengaluru; Editing by Subhranshu Sahu)

TOKYO – Japan has yet to emerge completely from deflation but is no longer suffering from a sustained period of price falls, Bank of Japan Deputy Governor Masazumi Wakatabe said on Thursday.

When asked about recent yen declines, Wakatabe told parliament that it was desirable for currency rates to move stably reflecting economic fundamentals.

(Reporting by Leika Kihara; Editing by Clarence Fernandez)

By Jamie McGeever

ORLANDO, Fla. -The euro’s share of world currency reserves has been depressed for years as negative euro zone interest rates and bond yields have spurred huge bond outflows. But these dynamics are reversing, and the euro is catching the eye of reserve managers again.

The International Monetary Fund’s latest composition of official foreign exchange reserves (COFER) data indicates that central banks increased their euro holdings by as much as $70 billion in the fourth quarter of last year.

That was the most in over three years, according to HSBC.

The COFER report does not capture the financial market tremors sparked by Russia’s invasion of Ukraine in February and heavy economic sanctions imposed by Western nations on Moscow.

They included the freezing of almost half of Russia’s $640 billion stash of foreign reserves, prompting intense debate over the future of reserves, the U.S. dollar’s status as global currency king, and the outlook for other currencies’ share of reserves.

Morgan Stanley strategist David Adams notes that reserve managers use three broad investment criteria to determine their allocations: liquidity, returns, and safety. All three boxes could soon be ticked for the euro.

The share of negative-yielding euro zone bonds is rapidly shrinking and European Central Bank interest rates could be positive by the end of the year; liquidity will increase when the ECB begins reducing its balance sheet; and the Russia-Ukraine war could spur more issuance of top-rated joint bonds in the euro zone.

“If the ECB is beginning to normalize policy … that will improve liquidity and raise returns for investors, including reserve managers,” said Adams.

The current share of euro holdings in the $12.05 trillion of ‘allocated’ or currency-known central bank FX reserves is 20.64%. The peak was 28% in late 2009, and the low was just under 17% in late 2000.

The euro’s share of FX reserves has been remarkably steady in recent years. From the third quarter of 2017 through the end of 2021, it was locked in a narrow range between 20.07% and 21.29%. Indeed, it only rose above 21% in one of these 18 quarters.

EURO RESILIENCE?

In that five-year period the dollar’s share of global FX reserves has fallen almost five percentage points to a 25-year low of 58.81%.

For the euro, this can be looked at in two ways: central banks cooled on the dollar but shunned the euro in favor of other currencies; or, the euro has proved more resilient than the dollar to central bank FX reserves diversification.

But there is a lot of ground to make up following the slump in euro holdings after the ECB went from ‘ZIRP’ to ‘NIRP’ – from zero interest rate policy to negative interest rate policy – in June 2014. The euro’s share of world FX reserves fell by some 5 percentage points over a two-year period at the time.

According to Tradeweb, the value of euro-denominated negative-yielding government debt on its bond trading platform peaked at almost 7 trillion euros – some 75% of the near-9 trillion sovereign euro bond market – in late 2020.

But at the end of last month, the amount of negative-yielding debt had fallen to 2.07 trillion euros, the lowest since at least 2016 when Tradeweb first started compiling the data.

Analysts at Goldman Sachs put the cumulative net outflow from euro zone fixed income markets since 2014 at almost 3 trillion euros.

“A reversal of these persistent outflows could have important implications for the euro,” wrote Goldman strategist Zach Pandl last month when he and his team raised their euro forecast to a bullish and out-of-consensus $1.20 over 12 months and $1.30 by the end of 2024. The euro was at $1.09 on Wednesday.

The reversal appears to be underway.

Related columns:

– Ebbing dollar reserves only scratch on dominance (Reuters, April 8)

– China may balk at unnerved reserves seeking yuan (Reuters, March 18)

– Russia central bank freeze may hasten ‘peak’ world FX reserves (Reuters, March 2)

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Additional reporting by Dhara Ranasinghe in London; Editing by Andrea Ricci)

By Aradhana Aravindan and Anshuman Daga

SINGAPORE – Singapore’s central bank tightened its monetary policy on Thursday, saying the widely forecast move will slow inflation momentum as the city state ramps up its battle against soaring prices made worse by the Ukraine war and global supply snags.

The policy tightening, the third in the past six months, came as separate data showed Singapore’s economic momentum waning over the first quarter.

The local dollar jumped briefly after the Monetary Authority of Singapore (MAS) re-centred the mid-point of the exchange rate policy band known as the Nominal Effective Exchange Rate, or S$NEER, at its prevailing level. It also increased slightly the rate of appreciation of the policy band.

It was the first time in 12 years that the MAS used these two tools simultaneously to tighten policy, underlining policymakers’ worries about potential price instability which has seen the U.S. Federal Reserve set an aggressive path to tightening monetary conditions.

There was no change to the width of the MAS policy band.

“The war in Ukraine has driven global inflation forecasts higher and dented the outlook for growth,” MAS said in a statement.

“The fresh shocks to global commodity prices and supply chains are adding to domestic cost pressures,” it said, warning that inflation risks remain “elevated over the medium term.”

Singapore, a major travel and business hub, made its biggest reopening moves https://www.reuters.com/world/asia-pacific/singapore-relax-more-covid-curbs-including-overseas-arrivals-2022-03-24 from the COVID-19 pandemic through late March and early April, easing local restrictions and allowing vaccinated travellers from anywhere in the world to enter without having to quarantine.

MORE TIGHTENING?

“The door is definitely not closed yet,” said Selena Ling, head of treasury research and strategy at OCBC, referring to another potential tightening in October.

The MAS manages monetary policy through exchange rate settings, rather than interest rates, because trade flows dwarf its economy, letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed band.

It adjusts its policy via three levers: the slope, mid-point and width of the policy band.

All 16 economists polled by Reuters expected the MAS to tighten but they were divided on which parameters it would change.

The Singapore dollar strengthened about 0.5% after the statement and hit a one-week high of S$1.3552 per dollar.

The central bank maintained its forecast for gross domestic product to expand 3% to 5% this year. The economy grew 7.6% in 2021, the fastest in a decade, recovering from a pandemic-induced 4.1% contraction the previous year.

Separate advance data on Thursday showed GDP grew 3.4% in January-March on a year-on-year basis, versus economists’ expectations of 3.8% growth, and slower than the 6.1% pace in the fourth quarter of 2021.

The MAS tightened monetary policy in January in an out-of-cycle move, which followed a tightening in October https://www.reuters.com/markets/currencies/singapores-central-bank-tightens-monetary-policy-inflation-risks-2022-01-25, joining many other global central banks, led by the Fed, to get on top of surging inflation.

Earlier on Thursday, South Korea’s central bank hiked rates to their highest since August 2019 in an unexpected move.

The Russia-Ukraine conflict has intensified pressure on consumer prices which were already rising rapidly due to coronavirus-driven supply snags. The Singapore government has said it stands ready https://www.reuters.com/world/asia-pacific/singapore-can-deploy-more-fiscal-monetary-policy-measures-if-needed-finmin-2022-03-22 to respond with fiscal and monetary measures if a deepening Ukraine crisis impacts growth and inflation.

MAS said it will remain vigilant to developments in the external environment and their impact on the Singapore economy.

It expects core inflation to come in at 2.5–3.5% this year, versus a prior forecast for 2.0–3.0%. Overall inflation is forecast at 4.5–5.5%, up from the earlier range of 2.5–3.5%.

“The MAS fully recognise that if inflation continues to surprise to the upside, there’s a possibility they have to do more at future policy meetings,” said Khoon Goh, head of Asia research, ANZ.

(Reporting by Aradhana Aravindan, Anshuman Daga, Chen Lin and Joe Brock in Singapore; Additional reporting by Tom Westbrook; Editing by Shri Navaratnam)