Russia's piped supply of Urals crude to the European Union (EU) via the southern Druzhba pipeline in June is set to increase by 16% compared to May as EU refiners seek to secure more oil amid fears of disruptions in transit via Ukraine, two sources said.
Russian pipeline oil supplies to Europe are excluded from an EU embargo, but the route crosses Ukraine and has been under constant risk of disruptions since Russia sent thousands of troops into Ukraine last year in what Moscow calls a "special military operation".
The southern branch of the Druzhba pipeline supplies Hungary, Slovakia and the Czech Republic.
Hungary's MOL (MOLB.BU), the main buyer of Urals crude in Hungary and Slovakia, is expected to purchase about 900,000 tonnes of Urals oil via Druzhba in June, up from 750,000 tonnes in May, the sources familiar with the matter told Reuters.
"Recent escalation in Ukraine, damages to big infrastructural objects (are a) worry ... it is a good idea to order more now," one of the sources said, referring in particular to this week's destruction of the Kakhovka hydroelectric dam.
Russia and Ukraine blame each other for the incident.
The Czech Republic's Unipetrol refiner - the country's sole buyer which is owned by Poland's PKN Orlen (PKN.WA) - will purchase up to 430,000 tonnes of Urals in June, versus 400,000 tonnes purchased in May, the sources said.
"Crude oil continues to arrive uninterruptedly to Hungary via the Druzhba pipeline and we do not expect delays during the upcoming months", a MOL media representative said, but declined to comment on monthly purchases.
PKN Orlen also said it never comments on oil purchases and contractual details.
The EU imposed an embargo on Russian oil purchases via maritime routes from December. Hungary, Slovakia and Czech Repubic were, however, allowed to continue Russian oil imports as critical feedstock. It would be difficult for them to secure enough oil for their refineries if Druzhba is suspended.
Oil supplies via a section of the southern Druzhba pipeline were temporarily suspended in November following shelling on a power station which provides electricity for a pump station.
Parts of the pipeline have also been attacked by drones inland in Russia, according to Russian reports, but the attacks did not cause significant supply disruptions.
The Druzhba pipeline crosses Belarus and Ukraine and remains an income source for both countries which receive transit fees. Kiev and Minsk asked for significant hikes in transit tariffs, making the route less convenient for European buyers that pay for transport.
A MOL media representative told Reuters that the company "continues to procure crude oil via both the Druzhba and Adria pipelines despite the transit fees being significantly higher compared to reasonable market prices".
MOL started to make payments to Ukrtransnafta for transit directly amid issues on Russian Transneft payments to Ukrainian pipeline operator.
Reporting by Reuters; Editing by Emelia Sithole-Matarise
2. Bank of Canada hikes rates to 4.75%, highest in 22 years
The Bank of Canada on Wednesday hiked its key overnight benchmark rate to 4.75%, the highest level in 22 years, on increasing concerns that inflation could get stuck significantly above its 2% target amid persistently strong economic growth.
The central bank had been on hold since January to assess the impact of previous hikes after raising borrowing costs eight times since March 2022 to a 15-year high of 4.50% - the fastest tightening cycle in the bank's history.
Surprisingly strong consumer spending, a rebound in demand for services, a pick-up in housing activity and a tight labor market show that excess demand in the economy is more persistent than anticipated, the central bank said in a statement.
Noting an uptick in inflation in April and the fact that three-month measures of core inflation had run as high as 4% for several months, the Bank of Canada (BoC) said, "Concerns have increased that CPI inflation could get stuck materially above the 2% target."
Given this backdrop, the governing council determined that "monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target."
The Canadian dollar rose 0.5% to 1.3330 per U.S. dollar after the announcement. Money markets see a near 60% chance of another rate hike in July and have fully priced in further tightening by September.
The last time the rate hit 4.75% was in April and May 2001.
Both money markets and analysts had seen a chance for a rate increase, but many thought one was more likely at the next meeting in July. About two-thirds of economists polled by Reuters last week expected the central bank to keep rates on hold through the end of 2023.
In April, annual inflation accelerated for the first time in 10 months to 4.4%. First-quarter GDP rose 3.1% - versus the 2.3% forecast by the BoC - and in April the economy is seen expanding 0.2%.
The BoC said it would continue to assess economic indicators going forward to see if they "are consistent with achieving the inflation target."
But it dropped language that was in the previous policy statement from April saying it "remains prepared to raise the policy rate further" to get inflation to target, leaving its next possible move more open ended.
The BoC said it still saw inflation slowing to 3% this summer, but it did not reiterate that it would slowly come down to its 2% target by the end of next year as it did when it made its last forecasts in April.
Reporting by Steve Scherer and David Ljunggren; Additional reporting by Fergal Smith; Editing by Mark Porter
3. Rising imports, falling exports push US trade deficit to six-month high
The U.S. trade deficit widened by the most in eight years in April as imports of goods rebounded while exports of energy products declined, a trend that if sustained, could result in trade being a drag on economic growth in the second quarter.
The trade deficit jumped 23.0% to $74.6 billion, the Commerce Department said on Wednesday. The sharpest percentage increase since March 2015 raised the deficit to the highest level in six months.
Data for March was revised to show the trade gap narrowing to $60.6 billion instead of $64.2 billion as previously reported. The government revised the goods trade data from 2018 while the trade services figures were revised from 2017.
"The terms of trade are worsening and this will bring down second-quarter estimates of real GDP growth closer to the 1% stall speed where bad things can happen and the economy can stumble and go over the cliff," said Christopher Rupkey, chief economist at FWDBONDS in New York.
Trade made no contribution to the economy's 1.3% annualized growth rate in the first quarter after adding to gross domestic product for three straight quarters. Growth estimates for the second quarter are currently converging around a 2% pace.
Goods imports rose 2.0% to $263.2 billion in April, boosted by motor vehicles, parts and engines. There were also increases in imports of industrial supplies and materials, though petroleum imports fell to the lowest level since August 2021.
Consumer goods surged $1.8 billion, driven by cellphones and other household goods. Food imports were the lowest since December 2021. Imports of services decreased $0.4 billion to $60.4 billion, weighed down by declines in transport and travel. Overall imports increased 1.5% to $323.6 billion.
Exports of goods plunged 5.3%, the most in three years, to $167.1 billion. That was the lowest level since February 2022.
Exports are being crimped by slowing global demand. Though the dollar has given up some gains this year in the wake of 500 basis points worth of interest rate increases from the Federal Reserve since March 2022, the greenback remains strong, making U.S.-made goods less competitive on the global market.
April's drop in goods exports was led by a sharp decline in exports of industrial supplies and materials, mostly crude oil and fuel oil. Exports of industrial supplies and materials, which include petroleum, were the lowest since November 2021.
There was also a big decline in exports of consumer goods. Exports of services, however, increased $0.2 billion to a record $81.9 billion, lifted by travel and other business services.
But exports of financial services and government goods and services fell. Overall exports fell 3.6%, the largest decline in three years, to $249.0 billion.
That was the lowest level since March 2022. The services surplus was the highest since March 2021. Adjusted for inflation, the goods trade deficit shot up 16.5% to $95.8 billion in April.
Reporting By Lucia Mutikani; Editing by Toby Chopra and Andrea Ricci
4. Fed on hold in June, but one-third of economists expect another hike soon
The U.S. Federal Reserve will not raise rates for the first time in well over a year at its June meeting, according to economists polled by Reuters, but a significant minority expects at least one more hike this year as the economy remains resilient.
Fed Chair Jerome Powell signaled in May the central bank might soon pause to assess the impact of an historically-aggressive 500 basis points worth of tightening, having delivered a rate rise at every meeting since March last year.
Over 90% of economists, 78 of 86, polled June 2-7 said the Federal Open Market Committee would hold its federal funds rate at 5.00%-5.25% at the end of its two-day meeting on June 14. The remaining eight expect a 25 basis point rise to 5.25-5.50%.
Since policymakers last met, strong economic data and comments from a few Fed officials have encouraged markets to price in a hike at or before the following meeting in July, with earlier expectations for rate cuts later this year receding quickly.
That hawkish change in market expectations has partly boosted the U.S. dollar towards its highest level since March.
The trouble is inflation has not fallen quickly enough, running at 4.4% on the Fed's preferred measure and 4.7% when stripped of volatile food and energy prices. It targets inflation at 2%.
"Powell expressed his bias in favor of remaining on hold in June ... he's going to stick with that as it gives them an additional month of data to look at, although I seriously doubt whether that will give them any new insights," said Philip Marey, senior U.S. strategist at Rabobank.
In the meantime, the job market has remained remarkably strong, with unemployment rising but still well below 4% this late in the tightening cycle and wage inflation falling slowly.
The normally interest-rate sensitive housing market has also withstood higher rates for much longer than many expected, with only minor price falls from a boom during the pandemic.
Over one-third of respondents, 32 of 86, say the Fed will hike at least once more this year, including the eight who say June and 24 who expect a rate rise in July after a pause. Only one predicted a hike in both June and July.
Just over 25% of economists, 23 of 86, forecast at least one rate cut by the end of 2023, but they are dwindling in number, down from 28% in the last poll. Markets are pricing around 60% chance of a rate cut this year.
The latest consumer price inflation data are due one day before the two-day June policy meeting starts, complicating efforts to anticipate the timing of any further rate moves.
"There is not a substantial economic difference between raising policy rates in June or doing so in July. But communicating why rates should not rise in June, despite data to the contrary will be challenging," said Andrew Hollenhorst, chief U.S. economist at Citi, who expects 25 basis points in June and then another similar move in July.
"If most Fed officials feel at least another 25 basis point hike will be necessary, it seems simplest to deliver that hike in June rather than 'skip'."
Fewer than 60% of respondents to an extra question, 28 of 48, said the world's largest economy would fall into a recession this year, compared to over 70% in a poll just a few weeks ago.
Although the median forecast from the poll has the economy contracting 0.4% and 0.5% in the last two quarters of this year, respectively, that alone would not necessarily mean recession.
The National Bureau of Economic Research - the official arbiter of U.S. recession - also looks at other factors to officially declare a recession, including employment and real income.
Inflation as measured by core PCE was forecast to remain above 2% at least until 2025.
"The longer they don't hike, the longer the economy is going to continue expanding above trend ... the longer you postpone that decision, the harder it is going to be to bring inflation lower," said Oscar Munoz, U.S. chief macro strategist at TD Securities, who forecasts one more rate hike next week.
(For other stories from the Reuters global economic poll:)
Reporting by Prerana Bhat and Indradip Ghosh; Polling by Vijayalakshmi Srinivasan and Maneesh Kumar; Editing by Ross Finley and Mark Potter
5. UBS delays publishing its Q2 results to August 31
Nigeria's central bank allowed the naira to drop about 2% on the official market to a record low on Wednesday, but the currency's rate remained above where it trades at central bank auctions and on the black market.
Nigeria is trying to find a way to unify its multiple exchange rate system, used to keep the naira artificially strong.
New President Bola Tinubu told members of his governing party last week that the country would not have multiple exchange rates anymore.
The naira fell as low as 475 naira to the U.S. dollar from Tuesday's trades of around 465 naira, before recovering to 466 naira.
Traders said the central bank had allowed them to trade the currency as weak as 475 naira to the dollar on the official market, outside a previous band of 460 to 467 naira to the dollar.
In the past, the bank has allowed the naira to weaken in 5 naira increments.
The central bank has been adjusting the naira gradually on the official market to avoid a large-scale devaluation.
The bank sold the dollar at 645 naira at its Friday auction, fuelling speculation that a devaluation which could weaken the official exchange rate closer to the auction level was imminent.
Last Thursday, the central bank denied devaluing the naira, following media reports of a big fall in the currency after Tinubu met the central bank governor.
Reporting by Chijioke Ohuocha
Editing by Alexander Winning and Christina Fincher
7. Bangladesh's worst electricity crisis in a decade
Bangladesh is facing its worst electricity crisis since 2013, a Reuters analysis of government data shows, due to erratic weather and difficulty paying for fuel imports amid declining forex reserves and value of its currency.
With forecasts for more heatwaves and the peak power-use months of July-October approaching, the country's power minister recently warned that outages in the south Asian country, home to 170 million people, could continue in the coming days.
Bangladesh, the world's second-largest garments exporter behind China supplying global retailers including Walmart, H&M and Zara, has been forced to cut power for 114 days in the first five months of 2023, a Reuters analysis of power grid data showed.
That compares with 113 days in all of 2022.
Power cuts have been most widespread in the late evenings and early mornings, data from the Power Grid Co of Bangladesh showed, with residents and small businesses complaining of unannounced power outages lasting 10-12 hours.
Supply was short of demand by as much as 25% early on Monday, the data showed.
The overall supply deficit widened to an average of 15% in the first week of June, an analysis of the data showed, nearly three times the average 5.2% shortfall in May.
Fuel shortages are the main reason for the supply shortfalls, government data shows.
On Monday, nearly a fourth of the 11.5 gigawatts (GW) of the country's gas-fired power plants and about two-thirds of the 3.4 GW of coal-fired capacity were shut for the day because of a lack of fuel, according to the national grid operator's daily report on its website.
Over 40% of the 7.5 GW of power plants running on diesel and fuel oil could not operate because they lacked fuel, according to the operator.
Bangladesh's state petroleum firm wrote to the power ministry in late April and early May, warning of inability to pay Sinopec (600028.SS), Indian Oil (IOC.NS) and Vitol for fuel supplies due to a shortage of U.S. dollars, as well as an "alarming decrease in fuel oil reserves."
The value of Bangladesh's taka currency fell by over a sixth during the 12 months through May, and dollar reserves declined by a third to a seven-year low in April.
Power output from coal and liquid fuels has risen at the expense of gas-fired power generation, resulting in higher average power costs, the data showed.
The share of natural gas in power output fell in 2022 because of dwindling local reserves and a lack of long-term deals with global suppliers, although it has risen in the recent months as LNG prices fell. The country recently struck a 15-year LNG deal with QatarEnergy.
Power imports by the energy hungry nation, which has very little renewable capacity, held steady at less than 10% of total supply, the data showed.
Coal dependence for power rose to over 14% in the first five months of 2023, compared to about 8% in all of 2022, while the share of fuel oil and diesel in Bangladesh's generation mix rose in 2022 to the highest level in over a decade.
Additional reporting by Ruma Paul and Matthew Chye
8. India's Adani to slow down on dealmaking to focus on existing projects
India's ports-to-power giant Adani Group will go slower on acquisitions this year as cost of capital has risen globally, the company said, signaling reduced dealmaking at the conglomerate which has rapidly grown by acquiring assets.
Adani's listed shares in India have clawed back some $50 billion in its market capital after a rout triggered by U.S. short-seller Hindenburg's report alleging improper use of tax havens and flagging concerns over its debt levels. Adani called the report baseless, and has since garnered investor support and repaid debt.
Merger and acquisition activity has slowed globally amid a collapse in debt financing markets and stock market volatility. Global central banks have raised rates and forced many companies to abandon proposed acquisitions.
Led by billionaire Gautam Adani, the group rapidly expanded in recent years, with growth also fueled by as many as 30 acquisitions it did across key sectors. This included a $10.5 billion deal to buy cement assets from Swiss giant Holcim and the takeover of Indian TV network NDTV.
While the group will continue to review acquisition opportunities, the Adani spokesperson said high debt costs will weigh.
"The cost of debt and capital has gone up ... This is the first time this is happening in the last five to six years. So this year you will generally see less activity on the M&A side," he said.
Last week, the group’s flagship company Adani Enterprises (ADEL.NS) canceled a proposed acquisition of Macquarie Group's (MQG.AX) two road assets worth $375 million. Earlier this week, Adani said that it has completed a $2.65 billion debt cutting programme.
Adani Group plans to focus on existing projects for the next nine months, and ensure funds raised are used for that purpose, the spokesperson said, without giving details.
After the Hindenburg report forced Adani to shelve its mega share sale in February, Adani recently announced plans to raise $2.57 billion, but the spokesperson declined to comment on any timing or potential talks with investors.
The company has been meeting investors to share its plans for the business and to raise funds, telling them that banks lent $2.3 billion to the group in recent months despite a turbulent market for its shares, the spokesperson said.
The cement sector will be in focus, which the company said, adding that there are plans to explore multiple greenfield opportunities.
After the Hindenburg report, the group's shares have recovered but still down more than $100 billion in market value from the end of January. In a relief for Adani, the market regulator who is investigating the Hindenburg allegations has so far "drawn a blank", a Supreme Court appointed panel said in May.
Reporting by Jayshree P Upadhyay and Aditya Kalra, Editing by Louise Heavens
Global stock markets were steady on Wednesday and the U.S. dollar drifted lower as attention turned towards next week's pivotal inflation data and Federal Reserve meeting, where chances of a rate hike continued to ebb.
Meanwhile, Turkey's lira plunged to a record low against the greenback as authorities appeared to loosen stabilising measures after the government signalled a pivot to more orthodox policies.
The pan-European benchmark STOXX 600 (.STOXX) index was flat, with small gains in British shares (.FTSE) offset by minor losses in German (.GDAXI) and French (.FCHI) stocks.
Spanish stocks (.IBEX) outperformed after shares in the world's biggest fast fashion company Inditex (ITX.MC) jumped almost 7% following first quarter results.
MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) gained 0.7%, led by gains in Hong Kong (.HSI) and Taiwan (.TWII), while Japan's Nikkei 225 (.N225) fell 1.8%, its sharpest fall in 12 weeks to snap a four-day winning streak.
That left the MSCI's broadest index of world shares (.MIWD00000PUS) up just under 0.1% but close to its highest level in 13 months reached on Monday.
"The drivers behind the moves higher in equities have been there," said Ben Laidler, global markets strategist at eToro, noting the debt ceiling deal and evidence deposits have been returning to the U.S. banking system.
"That's given markets a little bit of room to run ahead of a U.S. inflation and the Fed meeting next week," he added.
Wall Street futures were mixed after the S&P 500 (.SPX) gained 0.2% on Tuesday, finding support from strengthening bets that the Federal Reserve will hold interest rates steady at its policy meeting next week.
Investor angst also continues to subside with the CBOE's VIX (.VIX), a measure of expected stock market volatility, closing below 14 on Tuesday, its lowest such close since February 2020, and the ICE BofA MOVE (.MOVE) index of bond volatility falling to its lowest level since Feb. 21.
The two-year Treasury yield , which typically moves in step with interest rate expectations, fell slightly to about 4.516% in London. The yield on 10-year notes slipped to around 3.687%.
The dollar fell 0.1% against a basket of currencies, while the Turkish lira weakened over 7% to a record low of 23.17 per dollar, its biggest one-day sell-off since the 2021 crash.
"It looks like the central bank's efforts to fight a stronger dollar is either fading – after Erdogan's victory in the latest elections – or keeping the lira steady is becoming more difficult and increasingly expensive," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Data from China showed exports shrank much faster than expected in May and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.
"The Chinese trade data is the latest indicator that tells you there's nothing good going on in global demand," eToro's Laidler said.
"There's a huge gulf in the global economy between services and manufacturing. This is a warning sign that global growth will slow from here. The question is how much," Laidler added.
Oil prices edged higher as Saudi Arabia's weekend pledge to cut output outweighed weak Chinese data.
Brent crude futures were up 73 cents, or 0.9%, at $77.01 a barrel. West Texas Intermediate crude futures rose 74 cents, or 1%, to $72.47 a barrel.
Gold was flat at $1,962 per ounce.
Bitcoin was trading at about $26,900, consolidating after a sharp rebound on Tuesday from as low as $25,350.
The token has been a paradoxical beneficiary of a U.S. Securities and Exchange Commission (SEC) crackdown on cryptocurrency exchanges, and the classification of tokens including Solana, Cardano and Polygon as securities.
Reporting by Samuel Indyk; Additional reporting by Kevin Buckland and Xie Yu; Editing by Robert Birsel, Louise Heavens and Chizu Nomiyama
10. Citi CEO commits to China expansion, Beijing says
Citigroup's (C.N) Jane Fraser said the U.S. bank will continue to expand its Chinese business, China's new financial regulator said, during her first visit to the country since becoming CEO.
As Beijing pushes to attract more foreign capital, the National Financial Regulatory Administration (NFRA) said that Fraser held a meeting on Monday with its head Li Yunze.
Fraser is the first foreign executive to meet Li since he assumed the role in May of overseeing China's multi-trillion dollar financial industry, excluding the securities sector.
The NFRA said in a statement on Wednesday that Fraser and accompanying executives said they are "fully confident in China's economic and financial growth" and Citi "will play to its strength and continue to expand its business in China".
The CEO also held meetings with Citi staff and clients, which include some of the largest U.S. multinational companies with presence in China, a Citi spokesperson said.
Fraser's first trip to China since taking up the CEO role in March 2021 follows a visits by JPMorgan's chief Jamie Dimon last week and by other global financial executives in March.
Most of the CEOs who have visited China this year have been reluctant to publicly express enthusiasm for growing their Chinese business, as they tread a fine line between showing commitment to China and not antagonizing the United States.
International companies are finding it harder to operate as tensions between the U.S. and China have risen. Sequoia said on Tuesday it plans to spin off its Chinese business as part of wider changes at the U.S. venture capital giant.
Citi, which offers corporate and institutional banking, global markets, wealth businesses and other banking services in China, started winding down its retail banking business in the country in December due to a global strategy shift, a move set to impact about 1,200 local staff.
Li told Fraser that China will open up its financial sector further. Citi is in the process of getting approval to set up a securities brokerage in China, having submitted its application in late 2021.
China's municipal governments and business officials have been trying to attract foreign direct investments through their trips overseas since late last year as they scramble to hit growth and employment targets.
Reporting by Beijing newsroom and Selena Li in Hong Kong; Editing by Nivedita Bhattacharjee, Shri Navaratnam and Alexander Smith